Primary stays quiet ahead of Brexit vote; new AmeriGas bonds busy; Alta Mesa, Freeport gain

By Paul Deckelman and Paul A. Harris

New York, June 21 – The high yield primary market quieted down on Tuesday, syndicate sources said, with no new-deal announcements or pricings seen, in contrast to Monday’s session.

The sources said that this week’s looming vote in Britain on whether to leave the European Union was acting as a damper on activity.

In the secondary arena, though, some participants questioned whether the so-called “Brexit” vote would prove to be all that significant for the junk world.

Among specific issues, the two tranches of Monday’s big deal from retail propane distributor AmeriGas Partners, LP were seen topping the Junkbondland Most Actives list, although their prices were not much moved on the day.

Traders said that generally, while the market seemed firm, it did not have the kind of explosive upside seen during Monday’s session.

But among the names doing better were energy exploration and production company Alta Mesa Holdings, LP and energy and metals mining operator Freeport-McMoRan Inc.

Statistical market performance measures turned mixed on Tuesday, their fourth-such mixed session in the last five trading days. On Monday, they had seemingly broken out of their recent rut, turning higher across the board after having been mixed for three straight sessions and having fallen for three consecutive trading days before that.

Quiet in primary

The new issue market remained becalmed on Tuesday, awaiting a decision on the pending Brexit vote set for Thursday, when voters in the United Kingdom will decide whether to remain in the European Union or exit it.

The dollar-denominated forward calendar contained no active issues at Tuesday's close.

And none are expected to surface prior to Brexit, a New York-based investment banker said on Tuesday afternoon.

News from Europe that Barcelona-based Cellnex Telecom SA completed a non-deal roadshow last week, via SG CIB and Santander, was the primary market's sole flicker of life.

In the wake of Cellnex's meetings with investors there was no visibility on any potential transaction, a London-based sellside source said, adding that it's no surprise given that the whole market is in a wait-and-see mode, ahead of Brexit.

Mixed Monday flows

The daily cash flows of the high yield mutual funds were mixed on Monday, the most recent session for which data was available at press time, a debt capital markets banker said.

High yield ETFs were persuasively positive, seeing $193 million of inflows on the day.

However actively managed funds sustained an eye-popping $540 million of outflows on Monday.

“Actively managed accounts probably lagged what was going on in ETFs,” a portfolio manager said, referring to the big daily outflows sustained by the high yield ETFs last week.

Dedicated bank loan funds also saw negative flows on Monday, sustaining $35 million of outflows on the day, the banker said.

AmeriGas trades actively

In the secondary realm, traders said that Monday’s megadeal from AmeriGas Partners definitely dominated the volume charts on Tuesday.

“APU was the one that traded the most,” one of the traders said, referring to the Valley Forge, Pa.-based retail propane distributor by its equity ticker symbol.

However, he added, “it didn’t trade very well – it didn’t go anywhere.”

He saw the company’s 5 7/8% notes due 2026 trading all day between 99¾ and 100½ bid, finally finishing in a 100 1/8 to 100 3/8 bid context, with over $75 million seen having traded.

He likewise saw its 5 5/8% notes due 2024 trading between 99 7/8 and 100¾ bid, with around $63 million having changed hands.

A second trader saw both issues late in the day at 100¼ bid, acknowledging them as the busiest junk credits.

Earlier in the session, a market source had seen both tranches trading between par and 100¼ bid in morning action.

AmeriGas priced its $1.35 billion of new paper at par in a quick-to-market offering on Monday, split into a pair of equally sized $675 million tranches.

Dell stays busy

Elsewhere among the recently priced names, “Dell was pretty busy,” a trader said, referring to the big Dell, Inc. two-part issue that came to market earlier this month.

He quoted its 7 1/8% notes due 2024 down ¼ point, at 103 bid, and its 5 7/8% notes due 2021 unchanged at 101½ bid – a far cry from Monday, when he had seen both tranches gain 1¼ points amid the background of a robust market upturn.

At another desk, a trader saw the eight-year notes unchanged on the day at 103¼ bid, on volume of over $15 million, while the five-year paper was similarly unchanged at 101 7/8 bid, with over $12 million having traded.

The Round Rock, Texas-based computer giant had priced $3.25 billion of new paper – $1.625 billion of each series of notes – at par on June 8 as a regularly scheduled forward calendar transaction.

Alta Mesa heads upward

Away from the recently priced deals, a trader said that Alta Mesa Holdings’ 9 5/8% notes due 2018 were the big gainers on the day, rising more than 6 points on the session to close at 83 bid, though on relatively modest volume of around $7 million.

A second trader saw a slightly more conservative gain of 4 3/8 points, pegging the bonds at 81 3/8.

Neither trader had seen any fresh news in the market about the Houston-based oil and natural gas E&P operator that might explain the rise.

Freeport stays firm

Another gainer was Freeport-McMoRan. The Phoenix-based gold and copper mining and energy company’s 3.55% notes due 2022 were seen by a market source having gained 1 point on the day to end at 87½ bid, with more than $21 million of turnover.

Its 5.45% long bonds due 2043 did even better, jumping by 1¾ points, to end at 79 bid, with over $12 million traded and again, no fresh positive news seen out.

Brexit not a worry

Market participants noted that the financial world continued to watch and wait and see what would be coming out of Britain later in the week, when the voting public there votes on whether to sever the United Kingdom from the EU.

That referendum takes place on Thursday.

Fear of such a “Brexit” had earlier been depressing financial markets and causing a cautious wariness, although they had seemed to dissipate somewhat on Monday and Tuesday.

A trader allowed that “as an overall theme, yeah, it probably has some impact.”

But he noted that even if the voters approved such a pullout, “it’s going to take two years for them to fully extricate themselves. You might get short-term volatility – but I was talking to a portfolio manager, and he said that if the FTSE [British stock index] really craps out, he’s going to be a huge buyer. Even if the Dow sells off into it, I think it’s going to be a head fake – you’re going to have some dislocation, and it’s going to be a buying opportunity.”

Longer term, he continued, “I don’t see how that necessarily affects overall things in the high yield market.”

He said that of far greater immediate impact, “you still have kind of a weak economy here. I think [recently released U.S.] housing numbers were a little bit of a surprise on the downside and a lot of that was a function of the fact that the banks have got all the money tied up and they’re not lending.

“So until you get some fiscal policy established in this country – the Fed cannot manage the economy, that’s not their mandate – the problem isn’t the Brexit, it’s the overall tax and fiscal policy in the country that’s hamstringing everything.”

But he said that European developments could still be a factor in Junkbondland because “with negative interest rates in Europe, that money is going to be coming somewhere – it’s going to be coming over here. There’s a huge arbitrage.”

Indicators turn mixed

A trader said that overall, “things were still firm, but not moving upward like yesterday.”

A second trader said that things were “up slightly, or down slightly, just slogging around.”

Statistical market performance measures turned mixed on Tuesday, their fourth-such mixed session in the last five trading days. On Monday, they had seemingly broken out of their recent rut, turning higher across the board after having been mixed for three straight sessions and having fallen for three consecutive trading days before that.

The KDP High Yield Daily index retreated by 2 basis points on Tuesday to close at 67.86 – after having jumped some 50 bps on Monday, its first gain after six straight sessions on the downside, which in turn had followed four straight gains before that.

Its yield widened by 2 bps to 6.08%, versus Monday’s 17 bps tightening – which had followed widenings five times over the previous six sessions.

But the Markit Series 26 CDX North American High Yield index posted its fourth straight gain on Tuesday, improving by ¼ point to 102 7/8 bid, 102 15/16 offered. That followed Monday’s gain of almost 5/8 point. The recent gains followed five straight losses.

The Merrill Lynch North American High Yield Master II index lost 0.036% on Tuesday, after having strengthened by a hefty 0.697% on Monday, its second straight advance.

Tuesday’s loss lowered its year-to-date return to 9.06% from 9.1% on Monday. It remained off from its peak level for the year so far of 9.433%, set on June 8.

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