January new deal volume eyed; Calpine Resources, Tribune Media active; Envision Healthcare gains

By Abigail W. Adams and Paul A. Harris

Portland, Me., Dec. 11 – With no primary market activity expected for the remainder of the year, market players on Tuesday were eyeing the modest new deal volume anticipated in January.

Sources are estimating $10 to $15 billion in new deal volume in the first month of the new year, although opportunistic issuers are expected to remain on the sidelines until markets stabilize.

Meanwhile, the secondary space remained volatile on Tuesday with the market seesawing between gains and losses but closing largely flat, a market source said.

Calpine Corp.’s 5¾% senior notes due 2025 were in focus with the company preparing to tap debt capital markets in a deal that could include $1.4 billion new senior notes.

The notes were down slightly on the selling pressure.

Tribune Media Co.’s 5 7/8% senior notes due 2022 were also active although largely unchanged on the day.

While there was little price movement in active trading on Tuesday, the notes were down slightly from a 1 point bounce on Dec. 3 on news it would be acquired by Nexstar Media Group Inc., which will also include a new bond deal.

Envision Healthcare Corp.’s 8¾% senior notes due 2026 bounced in high-volume activity on Tuesday after a previously questioned contract with UnitedHealthcare was extended.

The gains on Tuesday pared most of the losses from Friday’s session when the notes dropped in high-volume activity.

Narrowing window

Heading into the Thanksgiving holiday weekend syndicate sources were in general concurrence that the 2018 high yield issuance window would remain open until about Friday, Dec. 14.

Although the new issue market has plowed later into the month of December in years past, 2018 was unlikely to see action in the Dec. 17 week.

The rate increase expected at the Federal Open Market Committee meeting scheduled for the Dec. 17 week is an inhospitable turn of events for primary market activity.

Apprehensions about rate hikes, which heading into the middle of the Dec. 10 week seem less certain to some market sources, are only part of the reason the primary has been closed so far in December and is almost certain to remain closed in the run up to the new year, according to sources.

Investors, who have realized meager year-to-date returns (one senior syndicate official reckons 0% to 2%), if any, are unlikely to want to get involved in a deal calendar that might afford modest improvement to those returns, but could just as easily erode them, given ongoing market volatility.

Warning: January sticker shock

With the December new deal calendar expected to remain vacant, people are focusing on January, which is expected to be a relatively modest month in terms of issuance.

The anticipated light deal volume is in part because opportunistic issuers are unlikely to come before volatility subsides and because the pipeline of committed deals is not vast, sources say.

Estimates for January have run in the $10 billion to $15 billion range, according to syndicate sources.

Hearing such estimates, an investor said that unless market conditions improve, issuers and underwriters bringing committed deals in January had better gird themselves for rates substantially higher than those envisioned when the respective deals were initially struck.

The high yield index has dropped 3% in value since Oct. 3, and junk spreads finished Monday 134 basis points wide of October's low, according to a market source citing the JP Morgan High Yield index.

However, that carnage tells only part of the story, an investor said.

Junk fund flows, as tracked by Lipper US Fund Flows, while said to represent a modest fraction of the total amount of cash that is invested in high-yield bonds, have simply become too large to slough off as merely “anecdotal.”

Market technicals are not good, the investor said.

Calpine in focus

Calpine’s 5¾% senior notes due 2025 were in focus on Tuesday on news the electricity producer was readying a new debt financing deal.

The notes were down slightly in high volume activity due to selling pressure, according to a market source.

The notes were largely wrapped around 91¾, a slight decrease due to selling pressure, a market source said.

The 5¾% notes were previously trading on a 92 handle, a market source said.

With more than $34.5 million of the bonds on the tape by the late afternoon, the 5¾% notes were the most actively traded issue in the secondary space.

Calpine was heard to be preparing to raise $2 billion in debt for financing for its geothermal power plant in northern California, which will include $1.4 billion in bonds, sources said.

Tribune Media active

Tribune Media’s 5 7/8% senior notes due 2022 also saw active trading in the secondary space with a new bond deal in the works to fund its buyout by Nexstar Media Group.

While active, the notes were largely unchanged on the day, a market source said. They were trading around 101.8 with $15 million on the tape by the late afternoon.

However, the notes were coming in from their high after news broke Nexstar Media Group would acquire Tribune Media in a $6.4 billion deal that is expected to include new bonds and loans.

The 5 7/8% notes rose 1 point on the news to trade up to 102.25 on Dec. 3.

The 5 7/8% notes have been callable since July 15 at a price of 102.938, a market source said.

Nexstar’s debt commitment included a $1.12 billion senior unsecured bridge loan to backstop potential refinancing of the 5 7/8% notes or change of control offers triggered by the transaction, Prospect News reported.

Envision gains

After a precipitous drop on Friday, Envision Healthcare’s 8¾% senior notes due 2026 recouped their losses on Tuesday after the company extended its contract with UnitedHealthcare.

The 8¾% notes were up about 2 points in high-volume activity. While the notes closed the day at 90.8, they were largely wrapped around 91¼ after opening the day at 88¾, a market source said.

More than $32 million of the bonds were on the tape by the late afternoon.

The notes have traded on an 88 to 89 handle since Friday, when they dropped about 2 points, market sources said.

After an extended dispute, United Healthcare extended its contract with Envision Healthcare enabling its health care plan participants to have in-network access to Envision health care providers.

The contract extension settled fears of an impasse between the insurer and the physician staffing service, which could have resulted in UnitedHealthcare dropping Envision from its network.

Outflows

Heading into the middle of December, the cash flows of the dedicated high-yield bond funds have been persuasively negative, sources say.

Daily fund flows remained substantially negative on Monday, according to a trader.

High-yield ETFs sustained $606 million of outflows on the day, trailing $314 million of outflows reported on Friday.

Actively managed high-yield funds saw $215 million of outflows on Monday, following $475 million of outflows on Friday, the source said.

Combined funds are tracking $1.7 billion of outflows in the week since the Thursday, Dec. 6 open, with actively managed funds undergoing broad based outflows, the trader said.

Indexes mixed

Indexes were mixed on Tuesday after all started the week with losses after also closing out last week with losses.

The KDP High Yield Daily index was down 1 basis point to close Tuesday at 68.13 with the yield now 6.66%. The index was down 8 bps on Monday after a 15 bps drop on the week last week.

The ICE BofAML US High Yield index posted gains on Tuesday while still remaining in the red. The index rose 18.3 bps with the year-to-date return now negative 0.25%.

The index dropped 23.9 bps on Monday after an 11.9 bps drop on the week last week.

The index returned to negative territory on Dec. 6 after briefly popping back to the black on Dec. 3.

The index dropped to negative returns on Nov. 15 for the first time since June.

The CDX High Yield 30 index gained 17 bps to close Tuesday at 103.23. The index was down 14 bps on Monday after a 127 bps drop on the week last week.

© 2015 Prospect News.
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