Primary quiet, though SPX slates; Tuesday deals trade higher; Community Health Systems volatile

By Paul Deckelman and Paul A. Harris

New York, Aug. 3 – Things quieted down in the high-yield primary sphere on Wednesday. Syndicate sources reported that no new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers had priced during the session.

But they did see brisk activity, at solidly higher levels, in the three deals that had come to market on Tuesday as regularly scheduled forward calendar offerings: construction supply company Foundation Building Materials, LLC’s $575 million of five-year secured notes, mortgage insurer MGIC Investment Corp.’s upsized $425 million of seven-year notes and paint, varnish and sealants manufacturer Axalta Coating Systems Ltd.’s $500 million of eight-year notes, part of a two-tranche, dual-currency offering that also included eight-year euro-denominated notes.

There was somewhat less upside movement in the new paper that had gotten done in a pair of quick-to-market transactions during Monday’s session: wireless antenna tower operator SBA Communications Corp.’s upsized $1.1 billion of eight-year notes and financial research and analytics provider MSCI Inc.’s upsized $500 million of 10-year paper.

Away from the issues that have actually priced, the syndicate sources said that industrial components manufacturer SPX Flow, Inc. was getting ready to price $600 million of eight- and 10-year notes during Thursday’s session.

Outside of the new-deal realm, traders saw intense activity in Community Health Systems, Inc. paper, which was pushing higher on Wednesday, partially rebounding after having plunged on Tuesday following the hospital operator’s disappointing quarterly results.

Statistical market performance measures were mixed for a fourth consecutive session on Wednesday.

Typical August Wednesday

It was a good old-fashioned August Wednesday in the high-yield primary market.

No deals were priced.

There was one announcement.

SPX Flow plans to price $600 million of senior notes (B1/BB) in two tranches on Thursday.

BofA Merrill Lynch is left lead bookrunner for both tranches of the debt refinancing deal.

It includes eight-year notes with early guidance in the 5¾% area and 10-year notes with early guidance in the 6% area.

Tranche sizes remain to be determined.

Thursday deals

Thursday promises to be considerably busier than Wednesday, with as many as three deals expected to price, sources say.

In addition to SPX FLOW, Avon Products, Inc.'s $400 million offering of six-year senior secured notes could grow pending demand, a trader said.

Early guidance has the deal coming in the 8% area, and it could price on Thursday.

A lot of high-yield portfolios are believed to presently be underweight in the consumer products sector, and the recent Revlon Inc. $450 million issue of 6¼% senior notes due 2024 (B3/B+) went well, the source said. To recap, that deal priced at par on July 21 in an issue that was upsized from $400 million.

There's a buzz in the market about the Avon deal, a sellside source said, adding that the company's stock is up 20% over the past three days. The company posted better-than-anticipated earnings.

Also Engility Corp. might price its $380 million offering of eight-year senior notes (Caa1/B-) on Thursday, sources say.

Formal talk has yet to surface, but early guidance is in the 9¼% area, a trader said on Wednesday.

Meanwhile the Diamond Resorts International, Inc. $600 million offering of eight-year notes is delayed, possibly until the post-Labor Day period, market sources say.

The company is in the process of restating earnings numbers related to inventory, a sellside source said.

The deal is part of the financing for the buyout by Apollo.

Big outflows continue for ETFs

For the second consecutive session the high-yield exchange-traded funds sustained a big daily cash outflow, $476 million on Tuesday, according to a trader. That negative flow follows Monday's $397 million outflow.

Actively managed high-yield funds, meanwhile, were flat to slightly negative on Tuesday, sustaining $5 million of outflows on the day.

However, dedicated bank loan funds were positive on the day, seeing $50 million of inflows on Tuesday.

Tuesday deals trade higher

In the secondary market, a source said that “everything traded up, I think,” particularly when it came to recently priced new issues.

For instance, he saw Foundation Building Materials’ new 8¼% senior secured notes due 2021 in a 102½-to-102 7/8 bid range, with over $33 million having changed hands.

A second trader pegged those bonds at 102½ bid, and a third saw them get as good as 102¾ bid.

The Tustin, Calif.-based building materials company priced $575 million of those notes at par on Tuesday in a regularly scheduled forward calendar offering via special-purpose vehicle FBM Finance Inc., and the new notes had been seen in initial aftermarket dealings between 100½ and 101¼ bid.

MGIC Investment’s $425 million of 5¾% notes due 2023 were seen by one of the traders having jumped around on Wednesday between 101½ and 103½ bid, although he allowed that the 103-handle trades “were odd lots, so they were not that real.”

Instead, he said that there had been considerable round-lot activity – perhaps as much as $40 million – in a 102½-to-102¾ bid context near the day’s end.

At another shop the bonds were quoted up 1¼ points on the day at 102 5/8 bid.

MGIC, a Milwaukee-based mortgage insurer, priced $425 million of the notes at par on Tuesday, after having upsized that regularly scheduled issue from the originally announced $350 million.

The notes had been initially quoted between 101 and 101½ bid in initial aftermarket dealings.

And Axalta Coating Systems’ 4 7/8% notes due 2024 moved up to around a 101-to-101 3/8 bid context, with about $13 million traded.

Another trader put the bonds in a 101¼ bid position, up 1/8 point on the day.

The Philadelphia-based manufacturer of paints, varnishes and sealants for various industrial applications had priced $500 million of those notes at par on Tuesday as part of a regularly scheduled $875 million equivalent dual-currency deal that also included €335 million of 4¼% notes due 2024, which also priced at par.

The bonds had been quoted around the 101 area in initial aftermarket dealings, a market source said.

Monday deals stay firm

The traders saw somewhat smaller gains Wednesday in the two new deals that came to market and got done on Monday.

SBA Communications’ 4 7/8% notes due 2024 were seen by one trader around 99 5/8 bid, par offered, which he called up 3/8 point on the session.

Another saw them 3/8 point higher, at 99 5/8 bid, while a third pegged the notes between 99 3/8 and 99¾, with about $10 million having traded – well down from the more than $80 of turnover seen on Tuesday.

The Boca Raton, Fla.-based communications antenna tower owner had priced a quick-to-market $1.1 billion of the notes at 99.178 to yield 5% on Monday, after the offering had been upside from an originally announced $800 million.

Monday’s other issue – from New York based MSCI, a provider of analytical and research services to investment companies – was up by 1/8 point, a trader said, seeing them finish at 100 3/8 bid, 100¾ offered.

Wednesday’s volume of about $8 million in the credit was well down from Tuesday, when the issue had been near the top of the Most Actives list, with volume of over $75 million.

MSCI had priced a quickly shopped $500 million of the notes at par on Monday, after the transaction was upsized from an originally announced $400 million.

Community Health bounces back

Away from the new deals, a trader said that Community Health Systems’ bonds “traded off a couple of points” on Tuesday, after the Franklin, Tenn.-based hospital operator had reported a $1.43 billion second-quarter loss, compared to net income of $111 million for the same period last year.

Its 6 7/8% notes due 2022, which had fallen “about 2 or 3 points” on Tuesday, had bounced back Wednesday to finish up 1 point at 84, a trader said, with over $51 million traded.

He said its 8% notes due 2019 were up 1¾ points Wednesday at 94¾, with about $40 million having traded. “Pretty decent volume.”

Indicators stay mixed

Statistical market performance measures were mixed for a fourth consecutive session on Wednesday. They had turned mixed on Friday and stayed that way on Monday and again on Tuesday after having been lower across the board on Thursday. It was the fifth mixed session in the last six trading days.

The KDP High Yield index finished down 3 basis points at 69.12, its first loss after two straight gains, including Tuesday, when it had edged upward by 1 bp. Its yield was unchanged at 5.72%, after having risen by 1 bp on Tuesday.

The Markit Series 26 CDX index, though, rose by 13/32 point on Wednesday to end at 103 13/16 bid, 103 15/16 offered, its first gain after two losses in a row, including Tuesday’s nearly 5/16 point downturn.

And the Merrill Lynch High Yield index broke out of a six-session slide, finishing Wednesday up by 0.056%. On Tuesday, it had retreated by 0.198%.

Wednesday’s rise brought the index’s year-to-date return up to 11.868% from Tuesday’s 11.805%, which had been the cumulative measure’s first time under 12% since July 11, when it had closed at 11.60%.

Wednesday’s improved year-to-date reading was still down from last Monday’s close at 12.546%, the index’s peak year-to-date return.

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