Quiet primary ends $1.06 billion week; J.C. Penney bonds continue firming on favorable numbers

By Paul Deckelman and Paul A. Harris

New York, Aug. 15 – After having priced several well-received new deals around the middle of the week, the high-yield primary sphere went back to its mid-summer siesta on Friday, ending the week pretty much the same way it had begun it –with no deals having priced and little in the way of news generated.

Friday’s shutout left new issuance on the week right where it had been at the close Thursday, with $1.06 billion seen having come to market in just four tranches, according to data compiled by Prospect News. That’s down from the $2.16 billion of new dollar-denominated and fully junk-rated paper that had priced in 10 tranches the week before, which ended Aug. 8, and well down from the $6.04 billion that got done in 17 tranches the week before that, which ended Aug. 1.

The week’s relatively small total of new issuance lifted the year-to-date new-paper total modestly to $206.61 billion in 410 tranches, running about 2.4% ahead of the pace set last year, which ended up with near-record new issuance. According to the data, $201.82 billion had priced in 471 tranches by this point on the calendar last year.

Last week, new issuance had been running about 6.3% ahead of the year-earlier pace, but the gap closed this week due to a pickup in issuance seen around this time last year.

Among the credits that came to market this week, traders saw Thursday’s offering of five-year notes from XPO Logistics, Inc. holding on to the robust aftermarket gains rolled up by the Greenwich, Conn.-based transportation logistics services provider’s new deal, although there was little real trading action seen during Friday’s session.

They also saw levels little changed on the two deals that emerged out of the oil and natural gas sector on Wednesday from Gulfport Energy Corp. and American Eagle Energy Corp.

Away from the new deals, the traders said that the standout performer on an otherwise relatively sedate day was J.C. Penney Co., Inc., whose bonds were seen mostly firmer, extending the gains notched on Thursday after the department store operator posted better-than-expected second-quarter results, including a smaller loss versus a year ago.

Statistical market performance indicators were mixed on the day after having been higher across the board on Wednesday and again on Thursday. But those indicators were improved from where they had been the previous Friday for a second consecutive week.

Primary falls silent

The Dog Days of August have taken hold of the primary market.

No deals priced on Friday, and no deals were announced.

One deal remains on the active calendar.

Rooster Energy Ltd. continues to market its $100 million offering of five-year senior secured notes (Caa1/CCC+), according to an informed source.

The deal, in the market via bookrunner Imperial Capital, is expected to price near the end of August, an informed source said on Friday.

Meanwhile, there is a pipeline of post-Labor Day deals, sources say. They include Dollar Tree, Inc. with $2.8 billion of senior notes backing the acquisition of Family Dollar Stores, Inc. and Scientific Games Corp. with $3.45 billion of notes to fund the acquisition of Bally Technologies Inc.

Names heard more recently include Charter Communications Inc., which is in the process of acquiring customers and systems from Comcast Corp., and Pike Corp. with bonds backing the acquisition of the company by Court Square Capital Partners.

They are expected to be post-Labor Day business.

However, “Post-Labor Day business” does not necessarily mean “September business,” sellside sources said as the week came to a close.

A robust September calendar could take shape, pending market conditions, a debt capital markets banker said on Friday afternoon.

XPO hangs on to gains

In the secondary market, a trader quoted XPO Logistics’ new 7 7/8% notes due 2019 at 103 bid, 103½ offered, calling them up 1/8 point, although he did not see much doing in the way of actual trading.

A second trader also said that he didn’t see any activity during the session, chalking up the lack of activity to the usual summer Friday doldrums.

The transportation logistics company had priced $500 million of the notes at par on Thursday.

In initial aftermarket dealings, they firmed smartly to around 102 7/8 bid, 103 3/8 offered, with other market participants seeing the bonds edging above the 103 level.

Among the other recently priced deals, Gulfport Energy’s 7¾% notes due 2020 were unchanged on the session at 107¼ bid, 107¾ offered.

That was up from the 106 level at which the Oklahoma City-based oil and natural gas exploration and production company had priced its $300 million add-on to its existing 2020 notes on Wednesday. The quick-to-market deal was upsized from the original $250 million.

American Eagle Energy’s new $175 million of 11% senior secured notes due 2019 were steady at 99 1/8 bid, 99 5/8 offered.

That was slightly above the 99.059 level at which the Denver-based exploration and production company’s new $175 million issue had priced on Wednesday to yield 11¼%.

Intrepid Aviation Group Holdings, LLC’s 6 7/8% notes due 2019 were up ¼ point at 102¼ bid, 102¾ offered.

The Stamford, Conn.-based commercial airline leasing company priced $215 million of the notes last Friday as an add-on to its existing bonds, pricing them at 102 to yield 6.356%. The issue was upsized from $150 million.

Penney bonds pop

A trader said that with not much doing in the primary “J.C. Penney was active” in the wake of relatively favorable second-quarter numbers reported Thursday afternoon by the Plano, Texas-based department store retailer.

There had been some upside movement in the name late in the session on Thursday, and that momentum carried over into Friday’s dealings.

“The bonds popped from yesterday [Thursday] to today, but I think at some point that some guys were trying to take some profits from the earlier gains,” he said.

He said that the company’s 6 3/8% bonds due 2036 “moved up a lot” after finishing Thursday’s session at 82 bid.

“They were all over the place,” he said.

On Friday, he saw them get as good as 88 1/8 bid, but later in the day, they had come in a little from those highs to around the 87 bid level.

A market source at another desk saw more than $7 million of the notes trading on the day and going home at 86¾ bid – down from the 88 3/8 level at which they had started the day but up from 82 bid before the numbers.

Probably the most active bond in the Penny capital structure was its 7.95% notes due 2017. More than $10 million of the bonds changed hands.

Those bonds were trading earlier in the week around the 100½ bid level and then moved up to 101 3/8 bid late Thursday after the results were reported, with a couple of million traded.

On Friday, they advanced even further, rising to a closing price of 103¼ bid.

Its 5.65% notes due 2020 moved up to 92 bid, 92½ offered, a trader said, versus Thursday’s 87½ bid.

Only “a couple of million” of Penney’s 7.65% notes due 2016 changed hands on Friday, a trader said, seeing those bonds having firmed to 103 bid. That was a little off their day’s high of 103½ but up from 101 3/8 bid at the close Thursday after the numbers were released and well up from levels around 101 before the numbers.

Penney reported that it lost $172 million, or 56 cents per share, during the second quarter. Excluding one-time items, it lost 75 cents per share – less than the 98 cents to $1.00 of red ink Wall Street had been expecting and considerably improved from a year ago, when earnings had plunged by $586 million, or $2.66 per share.

Total revenue in the latest quarter rose 5% to $2.8 billion, beating Wall Street forecasts of $2.79 billion.

And Penney said that same-store sales increased 6% for the quarter from their year-ago levels, its third consecutive quarterly gain. Those sales at stores that have been open for at least one year – thus excluding the impact of new stores and also those that have since been closed – are seen as a key retailing industry performance metric.

Market indicators turn mixed

Statistical indicators of junk market performance turned mixed on Friday after having been higher across the board over the two previous sessions.

However, for a second consecutive week, they were higher all around versus where they had closed out the previous Friday.

The KDP High Yield Daily index put up its ninth straight gain on Friday, improving by 9 basis points to end at 73.83. The index had soared by 16 bps on Thursday, 20 bps on Wednesday, 23 bps on Tuesday and 16 bps on Monday.

Its yield meanwhile tightened by 7 bps for a third straight session on Friday, falling to 5.17% – its ninth straight narrowing.

Those levels compared favorably with the 72.99 index reading and the 5.48% yield seen last Friday, Aug. 8.

However, the Markit CDX Series 22 index fell to 107 9/16 bid, 107 11/16 offered, a drop of 5/32 point – wiping out the same-sized gain that it had recorded on Thursday, its second straight advance.

The widely followed Merrill Lynch High Yield Master II index was up for a fifth session in a row, moving up by 0.115% on top of Thursday’s 0.215%.

Friday’s upturn lifted the index’s year-to-date return to 5.232%, up from 5.111% on Thursday, which had been its first time over the psychologically potent 5% mark since July 29, when it had finished at 5.064%. However, it still remained down from the 5.751% return recorded on July 7, the peak level so far for 2014.

For the week, the index was up by 1.057% – easily its biggest weekly gain so far this year.

Last week, it gained 0.432%, bringing the year-to-date return up to 4.131%.

© 2015 Prospect News.
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