Primary dry spell broken as Alliant deal prices; market extends rally; funds lose $1.7 billion

By Paul Deckelman and Paul A. Harris

New York, July 30 – The high-yield primary market finally saw its first pricing of the week on Thursday after three consecutive sessions before that during which no dollar-denominated, fully junk-rated offerings from domestic or industrialized-country issuers had priced.

Syndicate sources said that specialty insurance brokerage firm Alliant Holdings I, LP’s $535 million of eight-year paper got done. The notes were quoted slightly firmer in the aftermarket, but with no real volume seen.

Other deals potentially seen as Thursday pricings, including an $800 million seven-year offering from clean-energy provider TerraForm Global, Inc. and metal and vinyl products producer Euramax Holdings, Inc.’s $385 million five-year note issue, had not priced by the time trading wrapped up for the day.

Primaryside players were also looking forward to British-based telecom operator Cable & Wireless Communications plc’s $750 million of seven-year notes, which is expected to price Friday.

Among recently priced issues, traders said Friday’s eight-year deal from construction-supplies provider Builders FirstSource, Inc. continued to tack on gains, building on Wednesday’s positive momentum.

The overall junk market was seen mostly better, particularly oil and natural gas names like Linn Energy, LLC and California Resources Corp. But Key Energy Services Inc.’s bonds fell sharply on an earnings miss.

Steel names like AK Steel Corp. were up for a third straight session.

Statistical measures of junk market performance turned mixed on Thursday after having been higher across the board on Tuesday and again on Wednesday; on Tuesday, they had decisively snapped a seven-session losing streak.

Flows of funds into and out of high-yield mutual funds and exchange-traded funds, considered a good barometer of overall junk market liquidity trends, showed their first outflow – $1.72 billion – after three straight weeks before that of inflows.

Alliant comes atop talk

Alliant Holdings I, LP priced a $535 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 8¼% on Thursday.

The yield printed on top of yield talk, although wide of earlier guidance in the 7¾% area, market sources say.

Earlier in the week investors had been clamoring for even more yield – one market source maintained that whispers had gone as high as 8¾% – but Alliant was able to hold the line at 8¼%.

UBS Investment Bank was the lead left physical bookrunner. Morgan Stanley & Co. LLC was the joint physical bookrunner.

Jefferies LLC, KKR Capital Markets, Macquarie, MCS Capital Markets and Nomura are joint bookrunners.

Elsewhere on Thursday, Euramax talked its $385 million offering of five-year senior secured notes (Caa2/B-) to yield 12%.

There were also covenant changes, according to a market source who added that earlier in the week the deal was being shopped with a yield in the mid-11s.

Euramax was expected to price its deal late Thursday; however, no terms were available at press time.

Talking the deals

Cable & Wireless Communications talked its $750 million offering of seven-year senior notes (Ba3/B) to yield in the 7¼% area.

Official talk came in wide of initial guidance in the high 6% area, the source added.

The deal is set to price Friday.

J.P. Morgan Securities LLC, BNP Paribas, RBC Capital Markets and Scotia Capital are the joint bookrunners.

Cognita Financing plc talked its £280 million offering of six-year senior secured notes (B2) to yield 7¾% to 8%.

A planned Friday roadshow stop in Paris was canceled, and the deal is set to price on Friday.

Joint global coordinator Morgan Stanley will bill and deliver. KKR and Barclays are also joint global coordinators.

Commerzbank and HSBC Bank are joint bookrunners.

Alliant emerges

In the secondary market, a trader said that the new Alliant Holdings 8¼% notes due 2023 were quoted late in the day between par and 100½ bid after having priced at par.

But he added that there was “hardly any activity” in the Newport Beach, Calif.-based specialty insurance brokerage firm’s issue after it had priced at par.

Builders builds momentum

Among recently priced issues, it was another solid day of upside for Builders FirstSource’s 10¾% notes due 2023.

“Builders was trading up again today,” one market source said, pegging the bonds at 102 bid, 102¼ offered – well up from Wednesday, when he had seen those notes wrapped around 101.

At another shop, a trader saw the bonds going home at 102¼ bid, 102¾ offered, up some 1 1/8 points on the day.

Yet another trader located the notes at 102½, which he called a 1-point gain, on volume of more than $11 million, putting it among the Most Actives for the day.

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 pricing Friday and 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 stays strong

Kenan Advantage Group Inc.’s new 7 7/8% notes due 2023 were trading in a 101-to-101½ bid context on Thursday.

That was up a little from their levels Wednesday, when the notes were seen hovering around the 101 level.

The North Canton, Ohio-based provider of liquid bulk transportation services priced a regularly scheduled $405 million offering of those notes at par last 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, but then they moved up solidly in Wednesday’s dealings.

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.

Junk holds its own

Apart from the new or recently priced issues, a trader said that “there was kind of a bid to the market” on Thursday, although he said that it wasn’t quite with “the same urgency there was yesterday [Wednesday] to try and buy some paper.”

All told, he said, “it was sort of a mixed bag.”

Once again, he said, “the resource names, and the [energy] E&P names have kind of bounced a couple of points off their lows this week,” helped by rebounds from their low prices of commodities like oil and iron ore.

Linn leads the way

Among specific energy names, a trader said Linn Energy bonds were “soaring right out of the gate” as the Houston-based exploration and production company reported somewhat disappointing quarterly results – but also showed progress in cutting its debt and announced suspension of its dividend in order to conserve cash.

The trader saw the company’s 8 5/8% notes due 2020 rising over 4 points to 65, while the 7¾% notes due 2021 gained nearly 6 points to 63¼. The 6¼% notes due 2019 popped “almost 7 [points]” to 65.

A second market source pegged the 7¾% notes at 64 bid, up over 6 points.

Linn was one of the most actively traded names in Junkbondland on Thursday.

A market source said that more than $32 million of the 8 5/8% notes had changed hands by the close and around an equal amount of the 7¾% notes.

He saw the former credit up more than 4 points on the day at 64¾ and the latter up 3½ points in strictly round-lot dealings at 61 bid

For the second quarter, Linn posted a net loss of $379 million, or $1.12 per unit, compared with a net loss of $208 million, or 64 cents per unit, the year before.

The wider loss was attributed to non-cash losses related to changes in fair value of unsettled commodity derivatives of about $455 million, or $1.33 per unit.

Revenue was $322 million.

The results also showed that average daily production increased 1.5%. On the heels of that, the company increased its full-year production guidance by 4%.

The earnings release also included the announcement that the company would suspend its dividend, resulting in annual savings of about $450 million.

Linn also said it had reduced its debt load by buying back about $599 million of senior notes during the quarter. For the year thus far, the company has repurchased about $783 million of senior debt, resulting in annualized interest cost savings of about $54 million.

California Resources climbs

Bellwether energy credit California Resources’ 6% notes due 2024 gained over ½ point on the day, a trader said, ending at 82½ bid, with over $17 million traded.

Another trader saw a more conservative ¼-point rise to an 81 5/8-to-82 5/8 bid context for the Los Angeles-based E&P company’s benchmark issue.

Key gets clobbered

But Key Energy Services’ 6¾% notes due 2021 “were bouncing around at lower levels after they missed on earnings,” a trader said, seeing the Houston-based oilfield services company’s paper off between 5 and 6 points on the session.

A second trader saw the notes finish at 50 7/8 bid, down nearly 5 points, with over $47 million traded.

For the three months ended June 30, Key’s net loss widened to $65.4 million from $52.2 million the year before. Loss per share was 42 cents, versus 34 cents for the same quarter of 2014.

Adjusted EBITDA turned negative at $8.6 million. That compared with positive EBITDA of $33.6 million for the prior-year period.

Revenue nearly halved, falling to $197.5 million from $350.6 million.

AK up again

Away from the energy credits, AK Steel’s 7 5/8% notes due May 2020 firmed by another 1¾ points, a trader said, ending at 71¾ bid, with over $15 million of the bonds moving around.

A second trader quoted the bonds at 73 bid, calling that a gain of nearly 5 points.

Another market source saw the company’s 7 5/8% notes due October 2021 having risen to 72¼ bid, a jump of more than 3 5/8 points on the session.

As was also on Tuesday and again on Wednesday, West Chester, Ohio-based steelmaker AK’s bonds got a boost from the news that it had joined several 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 turn mixed

Statistical measures of junk market performance turned mixed on Thursday after they decisively snapped a seven-session losing streak on Tuesday and then firmed again on Wednesday.

The KDP High Yield Daily index jumped by 21 basis points on Thursday to close at 69.34, its third straight gain. That big improvement came on the heels of an even larger rise – 29 bps – on Wednesday.

Its yield, meanwhile, came in by 5 bps to 5.92%, its second straight decline; it had tightened by 11 bps on Wednesday, which had followed an unchanged reading on Tuesday and seven straight sessions of widening out before that.

The Markit Series 24 CDX North American High Yield index, on the other hand, could not notch a third consecutive day of gains; it lost 3/32 point on the day to close at 106 1/8 bid, 106 5/32 offered after having risen by 11/32 bps on Wednesday, its second consecutive gain.

The Merrill Lynch North American Master II High Yield index, in contrast, did rise for a third straight session, adding on 0.27% on Thursday after having zoomed 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.

The index had also risen by 0.137% on Tuesday, abruptly snapping a seven-session losing streak.

Thursday’s upturn lifted the index’s year-to-date return up to 1.855% from 1.581% on Wednesday – although it remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Funds lose $1.72 billion

Another numerical gauge – flows of cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – turned profoundly negative this week, snapping a three-week winning streak.

Sources familiar with the fund-flow statistics said that $1.72 billion more had left those weekly-reporting-only funds than had come into them during the week ended Wednesday.

That was a sharp reversal from the $81.8 million net inflow that was reported last week for the seven-day period ended July 22. (See related story elsewhere in this issue.)

Stephanie N. Rotondo contributed to this review

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