Primary quiet to end $873 million week; new Microsemi bonds jump; Toys ‘R’ Us up on holiday sales

By Paul Deckelman and Paul A. Harris

New York, Jan. 8 – The first full trading week of 2016 closed on a quiet note on Friday, with no new junk bond deals either announced or priced.

The lack of any deals on the day left the week’s tally of new issuance right where it had been at the close on Thursday, with $873 million of new U.S. dollar-denominated and fully junk-rated paper having come to market in two tranches, according to data compiled by Prospect News.

That topped the activity level seen at this time last year, when no such new deals from domestic or industrialized-country issuers had priced during the initial trading days of the year.

The $873 million also stood as the year-to-date figure for new issuance, again versus zero at this time last year.

Thursday’s new issue from high-tech components manufacturer Microsemi Corp. – the year’s first new syndicated junk bond deal – was seen by market participants to have firmed smartly from its par issue price in active trading.

Away from the new issue realm, Toys “R” Us Inc. was one of the most notable names among existing credits; the specialty retailer’s bonds were up sharply after it posted positive year-over-year comparable-store sales figures for the all-important year-end holiday selling season.

Other notable names Friday included hospital operators Community Health Systems, Inc. and HCA Inc. and steelmakers ArcelorMittal SA and United States Steel Corp.

Statistical measures of junk market performance turned mixed on Friday versus where they had ended on Thursday, after having been down across the board for two straight sessions and alternating between higher and lower for several sessions before that.

The indicators meantime were lower all around versus where they had ended last week, after two straight higher weeks. It was the second week out of the last five that the sectors had ended lower week over week.

Volatility sidelines primary

Friday’s session failed to generate any news on the new issue front.

In total, the first week of the new year saw just $450 million of syndicated issuance in one tranche of 9 1/8% notes due 2023 from Microsemi Corp.

Those notes came at par giving a yield at the tight end of talk. And they were trading at a smart premium of 102¼ bid on Friday morning.

However the deal was not an altogether gallant foray into the primary market, according to sources who said that Microsemi came in front of a very significant amount of reverse inquiry.

It did play to a big book, sources said.

The week ahead could see one or two deals, perhaps, a syndicate official said on Friday.

One of those could be from Pinnacle Foods Inc., which plans to sell $350 million of notes as part of the financing for its acquisition of Boulder Brands Inc., the banker said.

The financing, which also includes a $550 million incremental term loan (BB+), which was rejiggered in a move that saw the loan portion decreased from $900 million with the inclusion of the bond deal.

The bank loan, in the market via BofA Merrill Lynch, Barclays and Credit Suisse, launched on Wednesday.

There is a sizable pipeline of deals, much of it related to mergers and acquisitions, which should start rolling out soon, sources say.

However intense volatility in the global capital markets is impeding the high-yield primary market, they add.

Outflows continue

Daily cash flows for dedicated high-yield bond funds were negative on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw a substantial $238 million of outflows on the day.

Actively managed funds were essentially flat, sustaining $5 million of outflows on Thursday.

Those numbers trail a late-Thursday report from Lipper-AMG that high-yield funds saw $809 million of outflows during the week to Wednesday’s close.

Dedicated bank loan funds also saw daily outflows of $55 million on Thursday, the trader said.

Microsemi bonds move up

Thursday’s new deal from Microsemi was the first syndicated deal to appear in Junkbondland so far this year and the first since early December, when San Antonio, Texas-based outdoor advertising company Clear Channel International BV’s $225 million of 8¾% notes due 2020 came to market at 99.012 on Dec. 11, yielding 9%.

So, according to traders, there was pent-up demand for new paper, and the Microsemi deal filled the bill nicely.

The Aliso Viejo, Calif.-based producer of semiconductors and other high-tech electronic and computer components priced its quick-to-market offering of 9 1/8% notes due in April 2023 at par and it moved up to 101½ bid in initial aftermarket dealings on Thursday, with some $9 million changing hands by the close.

On Friday, a trader said, “there was a fair amount of activity, volumewise” for a modest-sized $450 million offering.

“It wasn’t over the top – but they did put on some prints.”

A source at another desk estimated volume at over $15 million, putting it high up on the Most Actives list.

He saw the bonds having gained another 2 points from Thursday’s close, going home Friday at 103½ bid.

The first trader, meantime, said that he had heard that the deal had been “pretty much put away.”

No Kraton activity

Two traders on Friday said that they had seen no activity in what was actually the first new junkbond deal of the year – Wednesday’s issue from Houston-based specialty chemicals manufacturer Kraton Polymers LLC, whose lenders had converted the bridge loan portion of its financing for the pending purchase of Arizona Chemical Holdings Corp. into $440 million of 10½% notes due in April 2023.

That was the same thing that traders had also said on Wednesday and again on Thursday.

The company had marketed an eight-year note offering to prospective buyers via a roadshow last month but the deal had subsequently languished on the forward calendar for weeks during the year-end junk drought before finally pricing at 96.225, generating proceeds of $423.39 million.

Toys trades up

Away from the new issues perhaps the most notable name was Toys “R” Us, whose bonds jumped, though on modest volume, after the Wayne, N.J.-based retailer of toys, games and children’s products reported solidly improved year-over-year sales during the year-end holiday selling period, which is the make-or-break time for many retailers.

A trader said that the company’s 10 3/8% notes due 2017 traded as high as 82 bid, up 8 points on the day, before settling in at 79¼ bid, which he called a 4 point gain on the day. Over $5 million traded.

He said that 7 3/8% notes due 2018 shot as high as 60 bid – a 10 point jump on the day – before settling in at 57½ bid, which he said was still a 7 point gain, on volume of over $6 million.

Toys’ 8½% notes due 2017 ended at 93 bid, up 3 points on the day.

The company said that for the five-week and nine-week periods ended Jan. 2, consolidated same-store sales increased 3.7% and 2.0%, respectively, excluding the impact of foreign currency translation.

For the five-week and nine-week periods ended Jan. 2, domestic same store sales increased 2.9% and 1.4%, respectively, with particular strength in online sales. The core toy, learning and seasonal categories generated the strongest same store sales growth, partially offset by a decline in the entertainment category, which includes electronics, video game hardware and software.

The company’s international operations did even better, percentage-wise; same store sales increased 5.1% and 3.1%, during the respective five- and nine-week periods. The positive same store sales results were led by Canada and Japan, partially offset by some softness in Europe.

Hospital levels healthy

Hospital operators Community Health Systems and HCA were among the most active issues of the session, continuing a pattern of brisk activity seen all week.

HCA’s 5 3/8% notes due 2025 gained ¼ point to 99¼ bid, with over $17 million traded, while Community Health Systems’ 6 7/8% notes due 2022 were 1 point better at 91¼ bid, with over $13 million having changed hands.

Steel shows strength

A trader noted a firming trend in some of the steel issues.

Luxembourg-based industry leader ArcelorMittal’s 6½% notes due 2021 closed at 76½ bid, up 1¼ points on the day.

Pittsburgh-based domestic rival U.S. Steel’s 7% notes due 2018 did even better, up 2¼ points at 70¼ bid.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Friday versus where they had ended on Thursday, after having been down across the board for two straight sessions and alternating between higher and lower for several sessions before that. It was the second mixed session out of the last seven.

The indicators meantime were lower all around versus where they had ended last week, after two straight higher weeks. It was the second week out of the last five that the sectors had ended mixed week over week.

The KDP High Yield Daily Index rose by 10 basis points on Friday to close at 63.74, after having slid by 21 bps on Thursday.

Friday’s gain was its second in the last three sessions.

Its yield tightened by 4 bp on Friday to 7.10%, after having widened by 7 bps on Thursday. Friday marked the third narrowing in the last four sessions.

The index ended down from the 63.91 level at which it had finished the previous Thursday (the index did not publish last Friday due to the observance of the New Year’s holiday). Its yield, which normally moves inversely to the index’s movements, atypically also declined from 7.28% a week ago.

The Markit Series 25 CDX North American High Yield Index fell by 13/32 point on Friday to end at 99 1/16 bid, 99 1/8 offered, its third straight loss and fourth downturn in the last five sessions. On Thursday, it had given up 11/16 point on the day.

The index was well down from the 101 5/32 bid, 101 7 &frac32; offered level at which it had ended last Friday, when the index published despite the market having been closed for the holiday.

The Merrill Lynch North American Master II High Yield index, on the other hand, notched its first gain after two consecutive losses on Friday, improving by 0.110%, in contrast to Thursday’s 0.378% retreat.

That cut its year-to-date loss to 0.273% from 0.378% on Thursday.

That 0.378% was also the size of its loss for the week.

Last week, the index had actually gained 0.398% – its first higher week after nine straight weeks before that on the downside, dating back to Oct. 30.

© 2015 Prospect News.
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