SFX deal timing emerges in otherwise sleepy primary; Hertz skids as guidance withdrawn

By Paul Deckelman and Paul A. Harris

New York, Aug. 20 – The high-yield primary sphere remained becalmed on Wednesday, with no new issues having priced for a third consecutive session – and not even any new-deal announcements seen having come down the pike.

However, some visibility emerged on the likely timing for the prospective SFX Entertainment, Inc. add-on to its 2019 second-lien notes, which was announced on Tuesday. But other details about the New York-based global live events producer’s upcoming transaction, including how large it will be, remain a mystery for now.

Meanwhile, a consensus seemed to be forming among the new-deal denizens that the junk market will waste no time in ramping up the pricing parade once the Labor Day holiday in the United States on Monday, Sept. 1 is out of the way; those market sources expect strong multi-billion-dollar issuance over the remaining four days of that week, in line with the robust pace recorded for that holiday-shortened week over the past few years.

Among recently priced issues, traders said that XPO Logistics Inc.’s new 2019 notes and Gulfport Energy Corp.’s add-on to its 2020 paper continued to hold their recent gains.

Away from the new deals, Hertz Corp.’s bonds were easier across the board, some issues in very active trading, in line with a stock retreat after the car-rental giant junked its earlier full-year guidance, now saying that it expects full-year earnings to come in “well below the low end of its 2014 guidance.”

Statistical indicators of junk market performance turned mixed on Wednesday after having been mostly higher over the two previous sessions and over four of the prior five sessions.

A deal for September

No issues were priced on Wednesday, nor were any deals announced as the high-yield primary market continued its trudge through the Dog Days of August.

One September deal came into view, however.

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 Aug. 29 expiration of a current consent solicitation for an amendment to the outstanding 9 5/8% notes, making the add-on September business.

Barclays, which is leading the consent, is expected to be lead left for the add-on.

The original $220 million issue priced at par on Jan. 31, 2014.

Big post-Labor Day week coming

Market watchers are looking for a big post-Labor Day week, set to get underway when market activity resumes on Tuesday, Sept. 2, following the conclusion of the three-day holiday weekend in the United States.

The four sessions following the Labor Day weekend, the traditional summer-autumn demarcation line in the high-yield market, are apt to put up impressive numbers, sources say.

Forecasts for new issuance in that period have ranged from $8 billion to $12 billion, in conversations with market sources.

“We should see the same pace we saw last year,” a debt capital markets banker said on Wednesday, and added that some of the early September business could be the issuance which, one way or another, was halted by the late-July, early-August high-yield correction.

In that context the banker mentioned the Jupiter Resources Ltd. $1,125,000,000 offering of eight-year senior notes to fund the acquisition of the Bighorn assets from Encana Corp.

That deal ran a roadshow that started on July 28, and was sidelined by ensuing market volatility, sources say.

There was $7.9 billion of issuance in five tranches for the four-day post-Labor Day week of 2013, according to Prospect News data.

There was $5.7 billion in 13 tranches for the post-Labor Day week of 2012.

XPO, Gulfport hold gains

In the secondary market, traders said that recent new deals were pretty much unchanged, holding onto the gains they had notched last week after pricing.

One trader said that XPO Logistics’s 7 7/8% notes due 2019 were still in a 103¼ to 103¾ context.

A second called them unchanged at 103 5/8 bid, 104 1/8 offered.

The Greenwich, Conn.-based transportation logistics company had priced $500 million of those notes at par in a regularly scheduled forward calendar deal last Thursday; after that, the new bonds were heard to have firmed smartly, quickly moving up to the 103 bid and above level and have stayed there ever since.

A trader meantime saw Gulfport Energy’s 7¾% notes due 2020 “doing better as well.”

The Oklahoma City-based oil and natural gas exploration and production company’s quick-to-market $300 million add-on to its existing issue had priced last Wednesday at 106 to yield 6.106% after having been upsized from an originally announced $250 million. The bonds had firmed to the 107 area when they began trading around on Thursday, and continued to firm since then.

On Wednesday, the trader said that the notes were “wrapped around 108,” seeing them trading between 107¾ and 108.

He noted that “that was almost back to where they were,” around 108½ bid, 109 offered, “before the announcement” last Wednesday that a new deal was coming.

Another trader saw the bonds on Wednesday at 107½ bid, 108 offered, calling then unchanged on the day.

Hertz is hurtin’

But the main focus of action in Junkbondland, far eclipsing the dull dealings in recent new paper, was in the bonds of Hertz, which moved lower, in tandem with a fall in the shares of parent Hertz Global Holdings Inc., after the company announced that due to a variety of negative factors, it was withdrawing its previously announced full-year guidance.

“The bonds traded off a couple of points,” a trader said, seeing the busiest issue in the capital structure, the 6¼% notes due 2022 having fallen 2 points on the session to 105½ bid on volume of over $30 million, putting it at or near the top of the high-yield Most Actives list.

Hertz’s 5 7/8% notes due 2020, in contrast, were only off by about 1/8 point at the end of the day, finishing at 103 5/8 bid, with over $11 million of the notes having changed hands.

The company’s 6¾% notes due 2019 racked up about $9 million of turnover, with the bonds having fallen about ¾ point on the session to 105¼ bid.

And its 7½% notes due 2018 eased by around 1/8 point to 104 5/8 bid, with over $6 million traded.

Hertz’ 7 3/8% notes due 2021 lost a full point to finish at 107¾ bid, but volume was only about $2 million.

The Naples, Fla.-based parent’s New York Stock Exchange-traded shares initially plunged as much as 4 points, or 12.7%, in morning dealings, bottoming out at $27.55, as market participants digested the late-Tuesday announcement by Hertz that it was withdrawing its previously announced financial guidance.

It warned that it “now expects to be well below the low end of its 2014 guidance due to operational challenges in the rental car and equipment segments as well as the associated costs related to the accounting review” that the company had previously announced for its 2011, 2012 and 2013 results.

Hertz blamed, among other factors, “record-level, industry-wide OEM vehicle recall activity, which has constrained the Company’s U.S. fleet available for rent,” as well as a “significantly higher-than-expected adjusted direct operating expense in U.S. rental car business.”

It also cited “continued soft demand in the equipment rental business segment.”

Traders noted that late in the day, news came across the wires that activist investor Carl C. Icahn had taken an 8.48% stake in Hertz – including some buying done Wednesday on the initial stock slide. Icahn said in his regulatory filing that he feels the shares are undervalued, and that he expects to be in talks with management on remedying that situation, although he also said one of the company’s problems is that he has “a lack of confidence in management.”

That caused the stock to trim its big early losses. It ended the day down $1.23, or 3.90%, at $30.33, on volume of more than 86 million shares, nearly 12 times the norm.

Quiet outside of ‘story’ bonds

Overall, a trader said that aside from such active “story” issues as Hertz, things were “very quiet.”

He added that, in fact, “the past three days have been extremely quiet.”

Other traders agreed with the assessment, ascribing the quietness to the typical “dog days” of late summer, usually a time of little activity in the junk bond world.

Market indicators turn mixed

Statistical indicators of junk market performance turned mixed on Wednesday after having been mostly higher over the two previous sessions and over four of the prior five sessions.

The KDP High Yield Daily index made it an even dozen gains on Wednesday, rising by 8 basis points to go home at 74.13, on top of Tuesday’s 13 bps jump which had lifted that market measure to 74.05 – its first time back above the 74.00 mark since July 25, when the index also read 74.05.

Its yield meanwhile tightened for a 12th straight session, coming in by 4 bps to finish at 5.05%, after having declined by 5 bps on Tuesday.

But the Markit CDX Series 22 index eased by 1/32 point on Wednesday to end at 107 15/16 bid, 108 offered, after having been virtually unchanged on Tuesday and having gained 3/8 on Monday.

However, the widely followed Merrill Lynch High Yield Master II index improved for an eighth session in a row on Wednesday, gaining 0.056%, on top of Tuesday’s 0.111% advance.

The latest upturn lifted the index’s year-to-date return to 5.583% from Tuesday’s 5.525%, although it still remained down from the 5.751% return recorded on July 7, the peak level so far for 2014.

Another index component – its spread to worst over comparable Treasury issues – meanwhile dropped to 397 bps from 402 bps on Tuesday, marking the first time that gauge has been back under the 400 bps mark since July 30, when the spread stood at 399 bps.

© 2015 Prospect News.
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