Primary stays quiet amid more fund outflows, awaits Transworld; Radiation Therapy still active

By Paul Deckelman and Paul A. Harris

New York, July 21 – For a second consecutive session, the high-yield primary market failed to price any dollar-denominated, fully junk-rated paper on Monday; in fact, no junk pricing in any currency was seen, unlike Friday’s session, when French equipment rental concern Loxam SAS brought a two-part euro-denominated deal and Canada-based Perpetual Energy Inc. did a single-tranche offering denominated in that nation’s currency.

Instead, market participants said Junkbondland was experiencing the usual “summer Monday doldrums” – but compounded by continuing investor unease that has led to renewed outflows from high-yield mutual funds and exchange-traded funds. The flow of fresh cash into or out of those funds is considered a good measure of overall liquidity trends. Those new outflows came on the heels of the massive $1.68 billion cash bleed reported last week by AMG/Lipper, the biggest such hemorrhage of money from the funds seen since last August.

Junk players awaited the pricing of a $440 million offering of secured bonds from Aston Escrow Corp. to finance the acquisition of Santa Rosa, Calif.-based business services provider Transworld Systems Inc. by Platinum Equity. There had been some expectations the deal would price Monday but no terms were immediately heard.

Among the deals that have recently priced, traders saw little activity Monday in the likes of American Energy-Permian Basin, LLC, which priced a giant-sized three-part offering last Wednesday.

Away from the new deals, there was continued activity in the bonds of 21st Century Oncology Holdings, Inc. – the healthcare company formerly known as Radiation Therapy Services, Inc. – amid investor worry that the company’s already-stressed finances may be further hit by expected large cuts in the federal government’s reimbursements to Medicare and Medicaid providers.

Statistical measures of market performance turned lower across the board on Monday after having been mixed on Friday.

More outflows

Primary market news volume slowed to a trickle as word of redemptions and selling continued to circulate the market on Monday.

Trailing last week’s news that dedicated high yield funds saw $1.68 billion of outflows during the week that ended on July 16 came news of more negative cash flows.

Thursday July 17, and Friday July 18 saw another $1.14 billion of outflows, according to a market source who cited a report from JP Morgan that circulated mid-morning Monday.

On Friday, exchange-traded funds saw $175 million of outflows, while actively managed accounts saw $350 million of outflows, the source added.

Meanwhile the secondary market continued to see better sellers on Monday, the source said, but added that volumes were considerably thinner than those seen last Thursday and Friday.

Aston/Transworld price talk

There is repricing afoot in the high yield market, a trader said.

On Monday Aston Escrow Corp. talked its $440 million offering of seven-year senior secured notes (B3/B) to yield 8½% to 8¾%.

The books were scheduled to close at 4 p.m. ET on Monday and some market-watchers were expecting terms to circulate late in the day. However none were available at press time.

The deal, backing the buyout of Transworld Systems by Platinum Equity, was launched early last week with early guidance in the 8% area, according to a trader. Subsequently the chatter moved into the context of 8¼% to 8½%.

Hence the wide end of the deal’s 8½% to 8¾% official talk could represent a concession of as much as 75 basis points to current market conditions, the trader said.

BofA Merrill Lynch, Credit Suisse, BMO, Macquarie and Nomura are the joint bookrunners.

Compressco roadshows notes

In an acquisition financing, Compressco Partners, LP is roadshowing $350 million of eight-year senior notes.

The roadshow runs this week and the deal is set to price next week.

Mid-single B ratings are expected.

BofA Merrill Lynch, Barclays, Credit Suisse, J.P. Morgan, RBC and Wells Fargo are the joint bookrunners for the deal which help help fund the acquisition of Compressor Systems, Inc.

Adler/Pelzer sets price talk

In Monday’s European session HP Pelzer Holding GmbH talked its €230 million offering of seven-year senior secured notes (//BB) to yield 7¼% to 7½%.

The deal, in the market to refinance debt, for general corporate purposes and to fund the purchase of Adler SpA’s foreign subsidiaries, is being led by JPMorgan and UniCredit.

PizzaExpress starts Tuesday

London-based PizzaExpress plans to start a European roadshow on Tuesday for a £610 million three-part offering of notes.

Special purpose vehicle Twinkle Pizza plc is offering £410 million of seven-year senior secured notes which are coming in tranches of fixed-rate notes and floating-rate notes, expected to garner mid-single B ratings, with tranche sizes to be determined.

In addition, Twinkle Pizza Holdings plc is offering £200 million of eight-year senior unsecured fixed-rate notes which are expected to be rated in the high-triple C context.

The European roadshow wraps up on Friday.

The deal will roadshow in Hong Kong on July 28, and is expected to price after that.

Joint bookrunner JPMorgan will bill and deliver. Deutsche Bank and Goldman Sachs International are also joint bookrunners.

Proceeds will be used to help finance the acquisition of PizzaExpress Holdings Ltd., a London-based restaurant group, by Hony Capital.

Quiet start to the week

In the secondary arena, a trader – when asked whether Monday had been a yawner of a session – replied simply, “yes.”

A second trader agreed that “it was a sleeper,” attributing the quietude that hung over the market to the traditional “summer Monday” effect.

“You know how it is – Mondays and Fridays, nothing happens. Tuesday, Wednesday and Thursday, get it done – or you’re in trouble.”

He said that “it felt like there wasn’t any” volume on Trace.

“It was that bad. It felt like it stunk.”

The first trader, meanwhile, chimed in “look at the volume [about $1.4 billion by about 4:30 p.m. ET] – it was way down from the average.”

As to why things were happening – or, more properly, not happening – he opined that “people are saying ‘I don’t want to be leaning the wrong way if something happens” in terms of the continued tensions between the Ukraine and Russia – heightened by last week’s apparently deliberate shoot-down of a Malaysian Airlines jetliner in the region – or the escalating open fighting between Israel and the Palestinians in Gaza.

He went on to predict that the heavy round of earnings reports scheduled for this week would likely be “a complete and utter disaster.”

The upshot of these negative factors, he theorized, would be that “some deals will be pushed back a couple of weeks.

“It looks like it will be a quiet week for issuance.”

For instance, he questioned how much junk market interest there would really be in the upcoming Citgo Petroleum offering, noting that the Houston-based gasoline refiner and marketer is owned by Venezuela’s state oil monopoly, Petroleos de Venezuela SA, “so that’s really more of an EM [emerging markets] issue.”

Little action in recent deals

A trader said that he was “not seeing much” in the way of activity in recently priced new deals, such as American Energy-Permian Basin.

Another said such issues were just “lightly quoted – but I haven’t seen any trading.

“The people that own it didn’t even really care too much about where it was quoted.”

At another desk, a market source pegged the Oklahoma City-based oil and natural gas operator’s floating-rate notes due 2019 at 98 5/8 bid, 99 offered, while its 7 1/8% notes due in November 2020 were at 99¼ bid, 99½ offered, with both issues down ¼ point on the day.

Its new 7 3/8% notes due in November 2021were quoted down 3/8 point at 99¾ bid, 100¼ offered.

The company had priced $350 million of the floating-rate notes on Wednesday at 99 to yield 650 basis points over the Euribor borrowing rate. It had priced $650 million of the 7 1/8% notes at par to yield 7.113% and $600 million of the 7 3/8% notes at par to yield 7.363%.

All three tranches had firmed smartly in initial aftermarket dealings right after pricing – the floater advancing to a 99 3/8 to 99 7/8 context, while the two fixed-rate tranches had moved above 101 bid. All three gave back those gains during Thursday’s big market downturn, but had partially regained them in Friday’s dealings – only to be at least quoted lower on Monday.

Radiation therapy bonds mixed

A trader said “the only real standout” on Monday aside from the new-deal sphere was Radiation Therapy’s two series of bonds, which were mixed in fairly active trading.

He said that its 8 7/8% notes due 2017 had moved up to around 93-94, while its 9 7/8% notes were in a 58 to 59 bid range.

A second trader noted that the 8 7/8s were the most actively traded junk issue, with over $27 million having changed hands. He quoted the bonds going out trading at 93¾ bid, up 1½ points on the day.

But the 9 7/8s lost 2 points late in the day to end at 55 bid, on round-lot volume of only about $2 million.

Rent-A-Center results

A trader noted that Rent-A-Center, Inc., the Plano, Texas-based rent-to-own furniture, electronics and appliance retailer, had released its second-quarter results, which included a slide in the company’s net earnings to $17.5 million, or 33 cents per diluted share, down from $41.9 million, or 76 cents per share, from a year earlier.

Nonetheless, he said that the earnings were “no big deal. There were no surprises.”

He said the company’s 6 5/8% notes due 2020 “traded below par today a couple of times. I don’t know how much appetite there is to add to a position above par.”

Market indicators turn lower

Statistical indicators of junk market performance turned lower on Monday, after having been mixed on Friday. That, in turn, had followed a decisive downside move on Thursday.

The KDP High Yield Daily index dropped by 8 basis points on Monday to end at 74.07, its fifth consecutive loss. On Friday, it slid by 12 bps, on top of Thursday’s 17-bps plunge.

The index has now been down in 12 sessions out of the last 13 – and was just unchanged on the one session when it was not actually lower.

Its yield, meantime, rose by 4 bps on Monday for a second straight session, to 5.26% – its fourth straight widening. On Thursday, it had ballooned upward by 10 bps.

The Markit CDX Series 22 index lost 9/32 point on Monday to finish at 107 27/32 bid, 107 29/32 offered. It had gained that same 9/32 point on Friday, after swooning by 23/32 on Thursday.

The widely followed Merrill Lynch High Yield Master II Index was suffered its fifth straight loss, ending off by 0.04. It had been down by 0.166% on Friday, on top of Thursday’s 0.183% retreat.

Monday’s setback dropped its year-to-date return to 4.937% from 4.979% on Friday, which had been the first time the YTD return had fallen below the psychologically significant 5% marker since June 5, when it had closed at 4.88%, moving above 5% the next day. Monday’s close also remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

© 2015 Prospect News.
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