Quiet, shortened pre-holiday session closes junk primary’s August, secondary stilled as well

By Paul Deckelman and Paul A. Harris

New York, Aug. 29 – August came to an end in Junkbondland on Friday not with a bang, nor even with a whimper – but more like a snore.

Many market participants were not even in for what promised to be a short and very uneventful session ahead of the long Labor Day holiday weekend, and which did not disappoint. Others were in for just a few hours at the most, with most desks deserted, phones unanswered and Bloomberg terminal red lights displayed long before the market’s usual afternoon closing time.

Against that backdrop, to nobody’s surprise, the junk bond primary market finished the last day of the month in pretty much the same rut it had been in for the rest of the last two weeks, with no pricings during the late-summer pre-holiday lull; none had been expected.

The market finished out the month with $6.24 billion of new U.S.-dollar-denominated and fully junk-rated or unrated paper having come to market in 16 tranches, according to data compiled by Prospect News.

August’s feeble new-issuance total – less than half of last August’s $13.65 billion in 40 tranches – did help bump year-to-date issuance totals up to $209.7 billion in 412 tranches, according to the data.

While August fizzled, primaryside players were saying that they expect September to sizzle, with issuance projected to be in a robust $30 to $40 billion range.

With the primary asleep, secondary traders said Friday that their own market was not much better, with overall light volumes and no names really standing out. Even the week’s busiest credit – bankrupt silicon and specialty chemical manufacturer Momentive Performance Materials, Inc. – saw only a small fraction of the heavy volumes it racked up earlier in the week.

Statistical indicators of junk market performance remained mixed on Friday for a fourth consecutive session. They were also mixed versus where they had finished the previous Friday for the first time after three straight weeks of having been higher across the board.

Managed funds gain inflows

Friday’s high yield primary market remained dormant heading into the three-day Labor Day weekend.

Telephone calls were shunted to voicemail and email messages garnered “out-of-office” responses.

Parsing Thursday’s news that dedicated high-yield funds saw $672 million of inflows for the week to Wednesday’s close, a trader said that nearly all of that cash went to actively managed funds, with exchange-traded high-yield funds taking in approximately $27 million of the total.

Looking for a big September

The month ahead could see $30 billion to $40 billion of new issue volume, market sources say.

A $40 billion-plus month is possible, according to at least two syndicate officials.

The $40 billion-plus amount of volume would only occur if nearly all of the big deals in the pipeline clear before the end of September, a debt capital markets banker said.

It’s not impossible, but neither is it very likely, the banker added.

During the run-up to Labor Day only one market source tendered a forecast for a record-breaking month.

Issuance could go as high as $50 billion, this source said.

That would clear the standing record which was set last September when $46.9 billion priced in 67 junk-rated, dollar-denominated tranches.

Should September clear the $40 billion mark it would be the first month of this year to do so, although April came within a whisker, with $39.7 billion in 63 tranches.

And it would be the only the fourth month in market history to clear the $40 billion mark. Two of the three $40 billion months already in the book are also Septembers.

To be announced

Forecasts notwithstanding, September will get underway with a calendar that contains a paltry amount of announced business.

The biggest announced deal is a Canadian dollar-denominated offering.

Glentel Inc. plans to begin a roadshow on Wednesday in Toronto for a C$200 million offering of five-year senior notes (/BB-//DBRS: BB (low)).

That roadshow is expected to carry into the Sept. 8 week.

BMO and CIBC are joint bookrunners for the debt refinancing and general corporate purposes deal.

Turning to dollar-denominated offerings, Rooster Energy Ltd. remains on the active calendar with a $100 million offering of senior secured notes due 2019 (Caa1/CCC+). The deal, which launched in July, is anticipated to be September business, according to an informed source.

SFX Entertainment, Inc. is expected to launch a to-be-determined amount of add-on notes to its outstanding issue of 9 5/8% second-lien senior secured due Feb. 1, 2019 (existing ratings Caa1/B-) following the expiration of a consent solicitation to amend the issuer’s outstanding 9 5/8% notes. The consent deadline was Friday.

Barclays, which led the solicitation, is expected to be lead left for the add-on.

Although no deal-size has been announced, it is not expected to be big, a trader said.

And, for a teaser, one big deal was described as “near-term business” by an informed source, who was referring to Dynegy Inc.’s $4.9 billion to $5.1 billion of unsecured bonds.

Details on the structure have not yet been announced.

Morgan Stanley the left lead bookrunner for the massive acquisition financing.

A deadly dull day

In the secondary market, a trader – one of the few who was even in the office on Friday – said that “nothing really at all” was happening.

“There’s hardly anybody here.”

He said the market “was a little heavier at the open,” although by midday [ET], when anyone who was still around was preparing to head for the exits, he said that “everybody was kind of flattening out [their positions] for the weekend, so we were basically unchanged, kind of limping into Labor Day.”

Non-junk ‘junk’ busiest

A trader said that the Trace most-actives list was being dominated by issues which technically may have a junk rating from one or two agencies, but which really are of little interest to most accounts.

For instance, maybe the busiest credit was Bellevue Wash.-based on-line travel services provider Expedia, Inc.’s new 4½% notes due 2024, with more than $24 million having changed hands and the bonds firming marginally to just below the 101 bid level – although he said that most of the interest in the split-rated (Ba1/BBB-/BBB-) issue, which had priced Aug. 13, was coming from high-grade investors, with little interest from traditional junk precincts.

That was also the case with QVC Inc.’s recent two-part deal, both of whose tranches – its 4.45% notes due 2025 and 5.45% bonds due 2034 – landed on the list by virtue of the West Chester, Pa.-based home shopping network operator’s Aug. 7 deal carrying a split rating (Ba2/BBB-/BBB-). About $5 million of the former bond and $4 million of the latter traded, both little changed around the par and 101 bid levels, respectively.

No momentum for Momentive

Back among the purely junk issues, a trader said that he saw “nothing really today” in Momentive Performance Materials’ bonds, which had been the most heavily traded junk credits all week.

He opined that “a couple of guys have been driving that trading,” but added that the bonds did not do much Friday.

The most actively traded issue all week in the bankrupt Waterford, N.Y.-based silicon and specialty chemical manufacturer’s capital structure has been its MPM Escrow LLC 8 7/8% first-lien notes due 2020; on Friday, more than $8 million traded – probably the most active issue among the pure junk credits, but still only a fraction of the more than $40 million that turned over on Thursday, and the more than $160 million that changed hands on Wednesday. The notes firmed by about 1/16 point on Friday to 94 3/16 bid.

Its other well-traded issue, the 10% 1.5-lien notes due 2020, saw only a handful of smallish trades – no round lots among them – and it stayed just above the 93 bid mark.

About $6 million of the notes had traded on Thursday – but $100 million had moved on Wednesday.

Both issues had ended the previous week trading around the 101 mark – but started moving down last Friday and again on Monday on investor fears that the judge presiding over the company’s Chapter 11 reorganization case would turn down a bondholder demand that in addition to receiving the par value for their paper, they should also receive a make-whole interest payment, since the bonds are to be taken out ahead of schedule under the reorganization plan.

Sure enough, U.S. Bankruptcy Court judge Robert Drain ruled against the bondholders on Tuesday, which caused both issues, already on the downside, to plummet even further – about 6 or 7 points, again in heavy trading, with both bonds falling to a 90-91 context.

However, on Wednesday, the bonds firmed smartly, in very heavy trading, regaining some of their lost ground, and they continued to firm on Thursday, although on considerably lessened volume.

Apart from even the small trading in Momentive, one of the traders said that “nothing else jumped out” during the session.

Indicators mixed on day, week

Statistical indicators of junk market performance remained mixed on Friday for a fourth consecutive session and a seventh mixed session in the last eight trading days, a streak broken only Monday’s higher-across-the-board session.

They were also mixed versus where they had finished the previous Friday for the first time after three straight weeks of having been higher all around week over week.

The KDP High Yield Daily Index was down by 2 basis points on Friday to end at an even 74.00, its second consecutive retreat. It had eased by 1 bp on Thursday, after having risen by 3 bps on Wednesday.

Its yield rose by 1 bp for a third straight session, going out at 5.03%.

The index reading was down slightly from the 74.03 level seen at the close the previous Friday, April 22 – although, atypically, the yield – which normally moves inversely to the index reading, rising as the index falls and vice versa – was actually below the previous Friday’s 5.04%

The Markit CDX Series 22 index was off for a fourth straight session on Friday, retreating by 2/32 point to end at 108 bid, 108 1/16 offered. On Thursday, it had fallen by 1/8 point, and it had also been marginally lower on Tuesday and Wednesday.

However, the market measure was up slightly from the previous Friday’s 107 29/32 bid, 107 31/32 offered.

The widely followed Merrill Lynch High Yield Master II Index put up its 15th consecutive gain on Friday, improving by 0.016%, on top of Thursday’s 0.12% advance.

The latest upturn boosted the index’s year-to-date return to its fourth consecutive new peak level for 2014, at 5.808%, up from Thursday’s 5.791%, the previous high point – and well up from its recent low point of 3.683%, reached on Aug. 1, during the junk market’s big late-July, early-August correction.

For the week, the index rose by 0.167% – its fourth consecutive weekly gain, and 27th weekly improvement in the 35 weeks since the start of the year, against eight weekly declines.

In the previous week, the index had gained 0.380% to go home with a 5.632% year-to-date return.

© 2015 Prospect News.
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