Eldorado prices, firms, while Foresight and Quantum deals on tap; market firms after Fed rate move

By Paul Deckelman and Paul A. Harris

New York, March 15 – After a one-session pause, the dollar-denominated high-yield market was back in operation on Wednesday, pricing one new fully junk-rated deal – gaming operator Eldorado Resorts Inc.’s $375 million of eight-year notes.

No U.S.-dollar-denominated junk paper had priced during Tuesday’s completely Eurocentric session, while Monday had seen some $1.945 billion of such paper get done in four tranches from two domestic issuers.

Traders said that the new Eldorado bonds firmed smartly in active dealings when they hit the aftermarket – in contrast to the sparse price moves that most of the recent new issues have shown.

Besides the deal which actually priced, syndicate sources said two other junk offerings were waiting in the wings, with pricing seen possible, if not likely, on Thursday – coal operator Foresight Energy LLC’s $500 million seven-year secured deal, and Canadian precious and industrial metals miner First Quantum Minerals Ltd.’s $1.6 billion two-part transaction.

In the secondary market, traders saw a broad upturn following the Federal Reserve’s announcement of a quarter-point rise in its key benchmark interest rate, an upside move which had been widely expected and which was accompanied by commentary considered by many to be less hawkish than anticipated.

Even names recently seen under pressure, such as embattled Canadian drugmaker Valeant Pharmaceuticals International Inc. and oil and natural gas credits such as California Resources Corp. and EP Energy Corp. were solidly higher on busy volume.

Statistical market performance measures turned mixed on Wednesday, after having been lower across the board on Monday and again on Tuesday, resuming a recent negative trend which included four straight downside sessions last week. It was the indicators’ second mixed session in the last four trading days, having also been mixed this past Friday.

Eldorado prices 6% notes

Primary market activity remained muted on Wednesday as the Federal Open Market Committee took center stage in the universe of debt securities, making an anticipated boost in its Fed Funds rate.

One deal priced while at least two others were held over for a day, sources said.

Eldorado Resorts priced a $375 million issue of eight-year senior notes (B3/B-) at par to yield 6%.

J.P. Morgan, Macquarie, Capital, KeyBanc, SunTrust and US Bancorp were the joint bookrunners for the debt refinancing deal.

Foresight talk 11¼% area

Foresight Energy talked its $500 million offering of seven-year second-lien senior secured notes (Caa2/CCC/CCC) to yield in the 11¼% area.

The deal, via left bookrunner Goldman Sachs, is set to price on Thursday.

Earlier in the week Foresight had been expected Wednesday business, a trader said, adding that the First Quantum Minerals $1.6 billion two-part offering of senior notes (B3/B-/B) had also been expected to price Wednesday, but was instead held over into Thursday.

In addition to Wednesday's Fed move – traditionally something of a junk bond new issue market inhibitor – the massive, record-setting early March burst of new issuance and the recent, substantially negative cash flows of the dedicated high-yield bond funds have also helped dampen primary market enthusiasm among investors, at least for the moment, a trader said.

The daily cash flows of the high-yield funds were substantially negative on both Monday and Tuesday, according to the most recent data available at press time, the trader said.

Actively managed high-yield funds sustained a massive $1.05 billion of outflows on Tuesday. That outflow came on the heels of Monday's big $550 million daily outflow.

High-yield ETFs were also substantially negative on Tuesday, sustaining $240 million of outflows, trailing Monday's $293 million outflow.

However ETF investors may have been selling on the rumor and buying on the news, according to a trader who noted that following Wednesday's Fed move the high yield ETFs were piling back into the market.

SPIE prices tight

There was also activity on Wednesday in the European high yield new issue market.

France-based engineering group SPIE SA launched and priced a €600 million issue of seven-year senior notes (Ba3/BB) at par to yield 3 1/8%.

The yield printed at the tight end of guidance in the 3¼% area.

Global coordinator and joint bookrunner SG CIB will bill and deliver. HSBC and Natixis were also global coordinators and joint bookrunners. SG, HSBC, Natixis, BNP Paribas, Credit Agricole CIB and ING were joint bookrunners.

The Cergy-Pontoise, France-based group plans to use the proceeds to finance the acquisition of Germany-based energy services provider SAG Group, as well as to refinance SAG debt and for general corporate purposes.

Elsewhere France-based recycling firm Paprec Holding talked a €225 million add-on to its 5¼% senior secured notes due April 1, 2022 (B1/expected B+) at 104 to 104.5.

The deal is set to price on Thursday.

Fed move motivates market

Though Wednesday was the Ides of March – a day traditionally associated in some quarters with dread and ominous foreboding – the announcement of the Federal Reserve Open Market Committee’s decision to raise its key interest rate, the federal funds rate for overnight borrowing of reserve balances among depository institutions, was anything but a Caesar-style stab in the back to the financial markets.

The policy committee’s widely expected decision hiking short-term rates by 0.25%, or 25 basis points, to a new target level of 0.75% to 1% caused both stocks and fixed-income markets to rise.

Fed Chair Janet Yellen’s expression of optimism in the health of the economy was seen having cheered the market, along with what was seen as relatively “dovish” language regarding possible further rate hikes, including a promise to only “gradually raise the federal funds rate to neutral,” describing that as a state in which the U.S. central bank is neither putting on brakes nor accelerating monetary policy to spur the economy.

A market source at mid-afternoon said that exchange-traded junk bond funds “are lifting everything” in the wake of the Fed announcement, with the high-yield market “up around 1 point or so since Yellen.”

A trader at another shop was more measured in his response, seeing “some movements up ¼ to ½ point, generically, including the high quality BB names” that had recently been in retreat as Treasury yields were rising.

Another trader said “a lot of people held off until the Fed – and then moved up, and again and again.”

Valeant notes better

The market’s upward move even lifted names that had recently been under pressure, including Valeant International’s new 7% notes due 2024 – a loser on Tuesday – which gained 5/8 point Wednesday to 102 1/8 bid, on volume of over $18 million.

Its existing 6 3/8% notes due 2020 gained ½ point to 89½ bid, with over $22 million traded.

Energy issues improve

Even recently challenged energy credits were on the upside Wednesday, with California Resources’ benchmark 8% notes due 2022 up more than 3 points, at 81½ bid, with over $26 million traded.

Sector peer EP Energy’s 8% notes due 2025 were also 3-point gainers, to 92½ bid, with over $33 million traded.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday, after having been lower across the board on Monday and again on Tuesday, resuming a recent negative trend that included four straight downside sessions last week. It was the indicators’ second mixed session in the last four trading days, having also been mixed this past Friday.

The KDP High Yield Daily index fell by 5 basis points on Wednesday to end at 71.38, its ninth straight loss and 10th such downturn in the last 12 sessions. On Tuesday, it had plunged by 19 bps, after having eased by 3 bps on Monday.

Its yield rose by 2 bps on Wednesday to 5.37%, its ninth consecutive widening out; it had moved up by 6 bps on Tuesday, on top of a 1 bps rise which had been seen on both Friday and again on Monday.

However, the Markit CDX Series 27 High Yield index snapped its recent seven-session losing streak, jumping by 25/32 point on Wednesday to end at 107 3/16 bid, 107¼ offered, after having lost around ¼ point on Tuesday.

And the Merrill Lynch High Yield index also turned positive, firming by 0.402% on Wednesday after having posted two straight losses and seven such downturns in the last eight sessions, including Tuesday’s nearly identically sized 0.41% retreat.

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