Primary awaits TerraForma, Alliant pricings; Builders FirstSource bonds boom; oils up

By Paul Deckelman and Paul A. Harris

New York, July 29 – The high-yield primary market saw its third consecutive scoreless session on Wednesday, at least in terms of dollar-denominated, fully junk-rated issues from domestic or industrialized-country borrowers being priced.

However, syndicate sources said that primaryside participants could probably look forward to two deals getting done on Thursday: an $800 million seven-year offering from clean-energy provider TerraForm Global, Inc. and specialty insurance brokerage firm Alliant Holdings’ $535 million of eight-year paper.

Among recently priced issues, traders saw Friday’s eight-year deal from construction-supplies provider Builders FirstSource, Inc. firming smartly in brisk trading on Wednesday, with the new notes quoted up more than 1 point on the day.

They said that was symptomatic of the overall junk market, with most issues seen moving higher, apparently taking their cues from stocks, which rallied strongly after the Federal Reserve’s policy panel voted to keep interest rates where they are, for now, and gave no indication when a long-expected rate rise might take place.

Also helping things along was a continued rally in crude oil prices, which gave oil and natural gas credits like California Resources Corp. and SandRidge Energy Inc. a boost.

Steel names like AK Steel Corp. continued to firm in the wake of domestic steelmakers seeking governmental relief in the form of tariffs from what they contend is unfair “dumping” of cold-rolled steel and other products into the American market by overseas steelmakers, many of whom are subsidized by their home governments and can thus afford to sell steel at below-market prices.

Statistical measures of junk market performance were higher across the board on Wednesday for a second straight session; on Tuesday, they had decisively snapped a seven-session losing streak.

TerraForm Global talks 9% area

No dollar-denominated issues priced during the Wednesday session in the high-yield primary market.

TerraForm Global talked its $800 million offering of green-eligible seven-year senior notes (B2/B+) to yield in the 9% area.

The deal is expected to price Thursday.

J.P. Morgan and Barclays are the joint physical bookrunners. Citigroup, Morgan Stanley, Goldman Sachs, BofA Merrill Lynch and Deutsche Bank are the joint bookrunners.

Also expected to price Thursday is the Alliant Holdings $535 million offering of eight-year senior notes (Caa2/CCC+).

The deal, being helmed by lead left physical bookrunner UBS, was talked to yield in the 8¼% area on Tuesday.

The rest of the week

At least two other deals are expected to clear before Friday's close, although no official price talk has surfaced on either one.

Cable & Wireless Communications plc is expected to price its $750 million seven-year senior notes (Ba3/B) on Friday.

Early guidance has it coming in the high 6% area.

JPMorgan, BNP Paribas, RBC and Scotia are the joint bookrunners.

And Euramax Holdings, Inc. is expected to price its $385 million offering of five-year senior secured notes (Caa2/B-) on Friday.

That deal, via Deutsche Bank, has been whispered in the mid 11% to 12% yield context, with a possible PIK component, a trader said on Wednesday.

In the market

Elsewhere there is a backlog of deals that have completed roadshows but are not yet priced.

Some of them have been on the sidelines for periods ranging from a week to over a month.

However, sources have confirmed that most of these are still “in the market.”

Among these is Prime Healthcare Services, Inc., with $700 million of eight-year senior notes (B3/B+) via Wells Fargo.

That deal was talked a week ago to yield in the 7½% area.

Georgia Renewable Power, Inc. remains in the market with a $225 million offering of seven-year first-lien senior secured notes (Ba3) via Seaport Global.

And Globo plc announced in a Tuesday press release that, in spite of recent declines in its share price, it continues to market its $180 million offering of five-year senior secured notes (B2/BB-/BBB+).

Primary remains open

In spite of warnings earlier in the week that the high-yield primary market could be shuttered until the post-Labor-Day period, owing to volatility in the global financial markets, it appears likely there will be new-issue business during the dog days of summer, sources said on Wednesday, citing an improvement in the tone of the market and a benign statement from the Fed.

“Right now people are nervous,” a buyside source said, adding that continued weakness in the price of crude oil and volatility in the Chinese stock market have investors on edge.

Nevertheless, junk firmed on Wednesday, a trader said, adding that it firmed before the Federal Reserve Bank's Federal Open Market Committee meeting on Wednesday.

That the Fed declined to make any indication of a possible move in the Fed Funds rate did not appear to register an impact on junk, even though it did appear to give a boost to stocks, the trader added.

Outflows on Tuesday

Meanwhile the cash flows of the dedicated high-yield funds remained negative on Tuesday, the most recent session for which data was available at press time.

High yield exchange-traded funds saw $219 million of outflows on Tuesday.

Asset managers saw $120 million of outflows on the day.

And dedicated bank loan funds saw $35 million of outflows on Tuesday.

Firmer tone in the market

A trader said Wednesday that “everything was kind of better bid for today.”

He said that “market sentiment keeps shifting,” but on Wednesday “it was tracking equities’ lead.”

Stocks firmed handsomely on Wednesday, helped by the news that the Federal Open Market Committee had concluded its two-day July meeting without having scheduled a rise in interest rates, which have been held at historic lows over the last six years. The bellwether Dow Jones industrial average improved by 121.12 points, or 0.69%, to finish at 17,751.39, with other indexes showing similar stock gains.

Back in Junkbondland, the trader said that the Fed’s announcement keeping the status quo on interest rates, while a benign development, “did not really impact” the high-yield market, nor had it been expected to.

Another trader noted that “there were a lot of earnings today” and said that some names were moving up on that.

He noted that before Tuesday, at least, “the market had really been bearish for a few days. Bonds had gotten beaten down – now they’re moving up.”

He also said that “there were a lot of ‘offer-wanteds’ today from the ETFs that helped to push the market up.”

Builders FirstSource soars

One of the most notable upside names was Builders FirstSource’s 10¾% notes due 2023, the most recently priced junk bond transaction.

A trader said “they really traded up today,” and went out wrapped around the 101 bid mark, up from 99¾ on Tuesday.

At another shop, a trader pegged the bonds around 101 1/8 bid, 101 5/8 offered, up from 99¾ bid, 100¼ offered on Tuesday.

Yet another market source called the bonds up by 1 3/8 points on the day, at 101½ bid, with over $10 million of the notes having changed hands.

The Dallas-based building supplies distributor had priced its $700 million issue at par on Friday in a regularly scheduled forward calendar offering that had been downsized from an originally shopped $750 million.

After initially trading around their issue price, they had fallen back to around the 99 bid level by Monday, but started moving back up on Tuesday and continued to gain on Wednesday.

Kenan climbs

One of the traders said that another new deal from last week – Kenan Advantage Group Inc.’s new 7 7/8% notes due 2023 – seemed to be following the example of the Builders FirstSource bonds in pushing solidly higher on Wednesday.

He saw the bonds wrapped around 101, up from a 100-to-100½ bid context previously, “so that was up about ½ point or so.”

The North Canton, Ohio-based provider of liquid bulk transportation services priced a regularly scheduled $405 million offering of those notes at par on Thursday, when no initial aftermarket dealings were seen.

The bonds had firmed to a 100½-to-101 bid range on Friday before falling back to around par bid on Monday.

The bonds were brought to market via OPE KAG Finance Sub Inc., a special-purpose vehicle formed in connection with the pending buyout of Kenan by Omers Private Equity from Goldman Sachs Capital Partners and Centerbridge Partners.

Oils among the gainers

Away from the new-deal-linked names, a trader said that a rise in oil prices helped to push energy names up, with the 6% notes due 2024 from Los Angeles-based exploration and production operator California Resources as a prime example, since “that’s usually a bond that tracks oil [prices], and it did so today,” when the benchmark U.S. crude oil grade West Texas Intermediate for September delivery firmed by 1.2% to $47.98 per barrel on the New York Mercantile Exchange – its first gain recorded in five sessions.

He saw the CalRes paper “trading pretty heavily today at 82¼ bid, up from 81 bid on Tuesday.

A second trader said that over $30 million traded, finishing at 82 1/8 bid, which he called a better-than 2-point gain.

Among other energy credits, Oklahoma City-based SandRidge Energy’s 8¾% notes due 2020 were up 2 3/8 points to 79¾ bid, with over $18 million having traded.

AK up again

Away from energy, traders saw continued solid gains in AK Steel’s various issues, their second straight day on the rise.

A trader saw the West Chester, Ohio-based steelmaker’s 7 5/8% notes due 2020 “all over the place,” finishing at 71 3/8 bid on a round-lot basis, while “some trades printed as high as 75 – but they were all smaller.”

He called the 71-handle closing price a gain of around 6 points from Tuesday’s close at 65.

AK’s 7 5/8% notes due 2021 rose 3 3/8 points to 68 5/8 bid.

As was also the case on Tuesday, AK’s bonds got a boost as it joined U.S. Steel Corp. and several other domestic industry peers in filing an unfair trade practices claim against rivals in China and seven other countries, alleging the foreign steelmakers – many of them subsidized by their own governments – dumped cheap cold-rolled steel on the market. The domestic producer sought American tariffs to stem the flow of cheaper steel into the U.S. market.

Indicators extend gains

Statistical measures of junk market performance were higher across the board for a second straight session on Wednesday after having decisively snapped a seven-session losing streak on Tuesday.

The KDP High Yield Daily index jumped by 29 basis points to close Wednesday at 69.13, its second consecutive gain. On Tuesday, it had risen by 6 bps after having fallen for seven straight sessions before that, and in eight out of the previous 10 sessions, in the process setting a new 52-week low at 68.76 – its lowest level since the fall of 2011.

Its yield, meanwhile, came in by 11 bps to end at 5.97% after having been unchanged on Tuesday and having widened out for the previous seven sessions.

The Markit Series 24 CDX North American High Yield index gained 11/32 bps on Wednesday, its second straight advance, going home at 106 7/32 bid, 106¼ offered. On Tuesday it had moved up by 13/32 point – its first upturn after seven straight losses, and eight losses in the previous nine sessions.

The Merrill Lynch North American Master II High Yield index also notched its second straight winning session, zooming by 0.405%, the second-biggest single-session gain seen so far this year, surpassed only by its 0.407% rise back on Jan. 8.

On Tuesday, the index had risen by 0.137%, abruptly ending a seven-session skid.

Wednesday’s upturn lifted the index’s year-to-date return up to 1.581% from 1.172% on Tuesday, although it remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

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