September deals eyed; energy sector gains; Rackspace drops; Avantor active

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 24 – While the high-yield primary market remained quiet on Friday with no new deals pricing and none expected prior to the Labor Day weekend, attention is shifting to the pipeline of new issue activity that is expected in September.

Refinitiv’s anticipated $5.5 billion equivalent deal, Envision Healthcare Corp.’s anticipated $2.15 billion offering and AkzoNobel NV’s anticipated €1.5 billion offering are a few of the deals waiting in the wings, sources said.

Meanwhile, the secondary space rounded out a week of low trading volume with further low trading volume, sources said.

Still, California Resources Corp.’s 8% senior secured second-lien notes due December 2022 saw another round of active trading with the notes again making gains alongside oil futures.

EP Energy’s junk bonds and Denbury Resources Inc.’s recently priced 7½% senior secured second-lien notes due Feb. 15, 2024 (B3/B+) were also on the rise alongside the broader energy sector on Friday.

RackSpace Hosting Inc.’s 8 5/8% senior notes due 2024 continued their decline on Friday with the notes down another ½ point after a 2 point drop on Thursday.

Avantor Inc.’s 9% senior notes due 2025 were active in the secondary space on Friday. While the notes were largely trading flat, they were seen up 1.5 points on the week.

Preferably sooner than later

The primary market remained quiet on Friday and is expected to stay quiet until Sept. 4 when the extended Labor Day holiday weekend concludes.

At that point, the new issue market is expected to begin working through a sizable mergers and acquisitions deal pipeline, as well as some opportunistic debt refinancing deals.

Heading into Labor Day there is a “sooner is better than later” mentality among the dealers who would prefer to roll out that pipeline in the early part of the month ahead, hopefully before macroeconomic and political news headlines have a chance to push markets wider.

The biggest deal on the fall radar is Refinitiv with $5.5 billion equivalent of secured and unsecured notes in dollars and euros. The deal is backing the acquisition of a 55% stake in Thomson Reuters Financial & Risk by Blackstone and Canada Pension Plan Investment Board, an investor said.

Anticipated September deals in the $1 billion-plus category also include Envision Healthcare’s anticipated $2.15 billion offering and AkzoNobel’s anticipated €1.5 billion offering.

Energy gains continue

The energy sector’s gains continued on Friday with California Resources’ 8% senior notes due 2022 once more among the most active issues in the secondary space.

The 8% notes were quoted at 89 bid, 89¾ offered on Friday, up ½ point from Thursday when they were seen at 88½ bid, 89 offered, according to one market source.

Another source saw the notes trading on Friday at 89 3/8 up about 7/8 point from Thursday’s close. More than $20 million bonds were on the tape Friday afternoon.

The 8% notes have been active and on the rise throughout the week in lock step with oil futures. The 8% notes were seen at 87 bid, 87½ offered on Monday.

The barrel price of West Texas intermediate crude oil for October delivery rounded out the week on a strong footing, settling at $68.72, an increase of 89 cents or 1.3%.

Crude oil has made steady gains since it dropped more than $2 on Aug. 15, settling at $65.01.

While oil futures saw a steep decline on Aug. 15 as oil inventories were reported to be larger than expected, they subsequently rebounded with inventories declining faster than anticipated.

EP Energy’s 8% senior notes due 2024 were also making gains in active trading on Friday.

The notes, which do not typically see high-volume trading, had about $15 million bonds on the tape in the afternoon.

The notes were wrapped around 100.5 in the trading activity, a market source said. The notes traded the previous week at 99, the source said.

While EP Energy’s junk bonds were on the rise, the oil and natural gas production company’s stock was down 5% in higher than average trading volume.

There did not appear to be any news event connected to the activity, a market source said.

Denbury Resources’ recently priced 7½% senior notes due 2024 also gained steamed on Friday, while trading of the notes remained light.

They were quoted at 101 1/8 bid, 101 5/8 offered on Friday, according to a market source.

The 7½% notes were quoted at par 7/8 bid, 101 3/8 offered on Thursday.

Rackspace drops

Rackspace’s 8 5/8% senior notes due 2024 continued to trade down on Friday after dropping 1½ points on Thursday. The notes shaved off another ½ point and were seen trading at 98 5/8.

The notes were wrapped around 101 in the run up to Thursday’s session when the notes dropped to 99 in active trading, according to Trace data.

The managed cloud computing company began experiencing issues with its webmail authentication platform on Thursday.

The issues persisted into Friday with the company still working to resolve the issue, the company said in an update.

Avantor active

Avantor’s 9% senior notes due 2025 were active during Friday’s session. While the notes were trading flat from Thursday’s levels, they were up about 1½ points on the week.

The 9% notes were seen trading between 103 1/8 and 103¼ on Friday with about $10 million of the bonds on the tape.

While flat from Thursday’s session, the notes opened the week at 101 5/8. The notes were gaining steam after positive earnings, a market source said.

ETFs see outflows

High yield ETFs sustained $153 million of outflows on Thursday, an investor said.

Asset managers were flat on the day, the source added.

News of the Thursday daily flows trails a report late on Thursday afternoon that the dedicated junk funds saw $344 million of net inflows in the week to the Wednesday, Aug. 22 close, according to AMG Data Services Inc.

Although it was the fourth consecutive positive flow, year to date the flows are heavily skewed toward the negative, with 13 weeks of inflows thus far in 2018, versus 21 weeks of outflows.

Indexes gain

Three benchmarks for the high-yield secondary market rounded out the week with gains after a strong performance throughout the week.

The KDP High Yield Daily index was up 4 basis points to close Friday at 70.48 while the yield remained flat at 5.81%.

The gains pared the index’s 5 bps drop to 70.44 on Thursday when the yield was also 5.81%.

The index has gained 9 bps on the week. Thursday marked its first loss of the week. The index was up 5 bps on Wednesday, 5 bps on Tuesday and 2 bps on Monday.

The Merrill Lynch High Yield index posted another solid week of gains.

The index was up 4.3 bps on Friday with the year-to-date return now 1.858%. The index was up 2.7 bps on Thursday, 10 bps on Wednesday, 9 bps on Tuesday and 10 bps on Monday.

The CDX High Yield 30 index rose 11 bps to close Friday at 106.99. The index dropped 7 bps on Thursday, its first loss of the week. The index was up 5 bps on Wednesday, 18 bps on Tuesday and was flat on Monday for a 27 bps gain on the week.

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