Quiet primary closes $5 billion week; new issues hold most gains; energy again under pressure

By Paul Deckelman

New York, Nov. 20 – The high-yield market closed out the week on Friday with little new activity seen in the primary sphere, which was fresh off Thursday’s hectic session during which nearly $3 billion of new U.S. dollar-denominated and fully junk-rated paper priced in a half-dozen tranches.

That left the needle on the new-deal meter right where it had been at the end of Thursday’s session, with issuance for the week at some $4.97 billion in nine tranches, up from $4.07 billion which got done, also in nine tranches, last week, ended Nov. 13, according to data compiled by Prospect News.

The week’s new issuance, in turn, lifted the year-to-date issuance figure to $258.24 billion in 402 tranches, according to the data – running 14.7% behind the pace seen at this time last year, when $303.06 billion had priced in 563 tranches by this point on the calendar.

Traders in the secondary market meantime saw the new deals which had priced on Thursday holding on to the gains that they had noted in initial aftermarket trading after their respective pricings. Those credits – including Equinix Inc., LifePoint Health, Inc., Constellation Brands, Inc. and American Energy-Permian Basin LLC – were among the most actively traded bonds in Junkbondland.

Away from the new deals, market participants reported continued weakness in oil and natural gas-oriented names such as Chesapeake Energy Corp. and Halcon Resources Corp.

Statistical measures of junk market performance turned mixed on Friday, after having been lower across the board on Thursday. With the indicators also having been mixed on Monday and again on Wednesday, it was the second mixed session in the last three and the third mixed session in the last five trading days.

The indicators were also mixed on the week versus where they had finished out the previous Friday, after having been lower all around on a Friday-to-Friday basis for the two weeks before that. It was the second mixed week in the last four trading weeks.

No deals marketed

With the last remaining deal on the forward calendar that was actively being marketed – American Energy – Permian Basin’s $530 million of five-year secured notes – now having finally gotten done, the primary market got quiet on Friday.

One investor told Prospect News that “I have not seen any new deals announced today and do not expect any.”

And, in fact, there were none – not even the kind of opportunistically timed and quickly shopped offerings which had played so large a role in Thursday’s activity.

While such deals could crop up during the upcoming week, one of the market sources pointed out that with the Thanksgiving Day holiday in the United States occurring on Thursday, that would of necessity limit the window of opportunity for doing any deals during the week.

New deals trade well

With no new issuance coming down the chute on Friday, the attention of junk market participants centered on the new deals which have come to market over the past several sessions, particularly those which priced on Thursday.

“Most of the new deals that came yesterday [Thursday] did pretty well,” one trader said.

“They all traded higher than their issue price – no more than 1 to 1½ points, but they performed pretty well.”

For instance, he said, Equinix’s new 5 7/8% notes due January 2026 were trading in a 100¾ to 101 bid context.

That was up from the par level at which the Redwood City, Calif.-based interconnection and data-center company priced its quickly shopped $1.1 billion of notes on Thursday, a transaction upsized from $1 billion originally.

It was, however, down a little from the initial levels above 101 bid at which those bonds had traded once they were freed for the secondary market after pricing.

But after a little early weakness on Friday morning which saw the notes retreat back to around 100 5/8 bid, they recovered some of their earlier verve and moved back up. A second trader called the bonds unchanged on the day around the 101 to 101¼ bid level, while another shop had them going home at 101 bid even, with over $42 million having traded, topping the junk market’s Most Actives list.

Thursday’s most actively traded new issue – LifePoint Health’s 5 7/8% notes due 2023 – was again busy on Friday although its volume moderated to around $34 million from Thursday’s more than $80 million turnover. But its trading levels remained about where they had been on Thursday after the Brentwood, Tenn.-based healthcare services provider had priced its $500 million drive-by deal – upsized from $300 million originally – at par.

One of the traders saw the bonds going home at 100 3/8 bid, actually up ¼ point on the session.

A second located the notes around a 100 3/8 to 100 5/8 bid context.

Constellation Brands’ 4¾% notes due 2025 “held their own” one of the traders said, seeing the bonds going home trading in the 101 to 101½ bid area.

That was up around ¼ point from where the bonds had finished on Thursday, after the Victor, N.Y.-based manufacturer, importer and distributor of wine, beer and spirits priced its quick-to-market $400 million offering at par.

A second trader said the notes had gotten as good as around 102 bid during the day.

More than $34 million changed hands.

Nashville-based construction materials company American Builders and Contractors Supply Co., Inc.’s 5¾% notes due 2023 were seen by a trader on Friday at 101 bid, 102 offered, which he called about unchanged on the day.

The company – which does business under the name ABC Supply Co. Inc. – did an unscheduled $350 million offering of those notes, pricing them at par.

American Energy moves up

Among the regularly scheduled deals that had priced off the forward calendar, traders saw some initial strength Friday morning in American Energy – Permian Basin’s 13% first-lien senior secured notes due 2020, $530 million of which had priced late in the day on Thursday.

One trader heard the bonds quoted at 103 on the bid side, while a second saw them straddling that point, pegging them in a 102¾ to 103¼ context.

Another market source said there had been a couple of large-sized trades late Thursday around 102¼ bid; when the bonds opened Friday, they got as good as 103 1/16 before coming off those initial highs.

Later in the session, a trader said the bonds were going out around 101¾ bid. He said that over $21 million of the notes had changed hands during the session.

The Oklahoma City-based oil and natural gas exploration and production company’s offering priced at par after being downsized to $530 million from an originally planned $560 million.

The deal had first surfaced in the high-yield market fully a month ago in mid-October, when it was initially talked at an expected yield of 9%. But it did not price after the conclusion of its roadshow, instead just hanging around in forward-calendar limbo for literally weeks.

During the intervening time – which saw continued weakness in oil and gas prices, knocking existing energy credits ever-lower – investors pushed for, and ultimately got, considerably higher yield to compensate them for their risk.

At the same time, call protection on the notes was increased to three years from two years originally, with the notes callable three years in at par plus the full coupon. Covenant changes were also made to meet investor concerns.

Also among the issues that had priced on Thursday, a trader called Virgin Australia Holdings Ltd.’s 8½% notes due 2019 down ½ point on the day at 101 bid, 101½ offered.

On Thursday, the Brisbane, Australia-based airline operator’s notes had closed at 101½ bid, 102½ offered after it priced a $100 million add-on to its existing 2019 notes at 100.5, yielding 8.348%. The offering was doubled in size to $100 million from an originally shopped $50 million.

Sally Beauty looking good

Going back a little further in the week, a trader said that Sally Beauty Holdings, Inc.’s 5 5/8% notes due 2025 “held in well.”

He quoted the notes moving around between 101¼ and 101¾ bid.

Another market source said the bonds were unchanged on the session at 101 5/8 bid, with over $19 million having traded.

The Denton, Texas-based wholesale and retail distributor of beauty-care supplies priced a quickly marketed $750 million of those notes at par on Wednesday. The bonds quickly moved up to around the 101½ bid area when they were freed for aftermarket dealings later that same day.

Energy names still afflicted

Away from the new issues, one of the traders noted that “the energy, mining and minerals names remained under pressure,” with crude oil prices continuing to hover around the $40 per barrel mark and other commodity prices also weak, negatively impacted by the ongoing economic troubles of major commodities importer China and economic weakness in other world markets.

Leading the way, as it did on Thursday, was Oklahoma City-based exploration and production operator Chesapeake Energy. Its 6 5/8% notes due 2020 – nearly 4 point losers on Thursday – retreated by another 1¼ points on Friday, ending at 47½ bid, on busy volume of over $15 million.

Its 7¼% notes due 2018 eased ½ point to 58½ bid, with over $13 million traded.

Houston-based oiler Halcon Resources’ 8 5/8% notes due 2020 slid by 3¼ points to end at 77¾ bid on volume of over $12 million.

That retreat followed on the heels of Thursday’s 3½-point plunge on volume of over $36 million.

Looking at the sector overall, an investor opined that “there are many managers who are happy to have been underweight energy this month, as the sector continues to be under pressure between the twin threats of oil prices bumping along at prices approaching lows for the year and the risk of more stressed energy companies priming existing bondholders with first- and second-lien financings.”

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Friday after having been lower across the board on Thursday. With the indicators also having been mixed on Monday and again on Wednesday, it was the second mixed session in the last three, and the third such mixed session in the last five trading days.

The indicators were also mixed on the week versus where they had finished out the previous Friday, after having been lower all around on a Friday-to-Friday basis for the two weeks before that. It was the second mixed week in the last four trading weeks.

The KDP High Yield Daily Index lost 9 basis points to close at 65.74, its third straight loss after 1 gain and its ninth downside finish in the last 10 sessions, including Thursday, when it had plunged by 23 bps.

Its yield moved up by 3 bps to close at 6.92%, its second straight widening out after one narrowing and its ninth move upward in the last 10 sessions, including Thursday’s 5 bps rise, after having been unchanged on Wednesday.

Those levels compared unfavorably to last Friday’s 66.05 index reading and 6.87% yield.

The Markit Series 25 CDX North American High Yield Index moved up by 1/32 point on Friday to close at 101 23/32 bid, 101 25/32 offered, after having fallen by 13/32 point on Thursday.

Friday was its first gain after one loss and, counting the two straight gains before that, its second gain in the last four sessions.

The index was also up from the 101¼ bid, 101 5/16 offered level at which it had finished out last Friday.

But the Merrill Lynch North American Master II High Yield index posted its third consecutive loss on Friday, finishing lower by 0.234%; it had fallen by 0.355% on Thursday after having retreated by 0.103% on Wednesday. With only a 0.354% gain recorded on Tuesday, following three straight lower sessions before that, Friday was the sixth loss in the last seven trading days.

The index’s year-to-date loss widened to 2.148% on Friday from 1.919% on Thursday.

Friday marked the first time that the year-to-date loss was greater than 2% since Oct. 5, when the index closed with a 2.379% cumulative loss.

But big as they are, those year-to-date losses still remain well above the index’s worst 2015 cumulative setback of 3.069%, recorded on Oct. 2.

For the week, the index lost 0.536%, its fourth straight weekly loss and its seventh weekly downturn in the last 10 weeks. Last week, it had plunged by 1.4% – one of the biggest weekly losses seen so far this year – to close with a year-to-date loss of 1.621%. Losses have now been seen in 21 weeks out of the 46 weeks since the start of the year, against 25 weekly gains.

© 2015 Prospect News.
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