Primary quiet but for Corral, BlueScope talk; PQ busy again; debt-cutting plan boosts Fortescue

By Paul Deckelman and Paul A. Harris

New York, April 27 – For the second time in the last three sessions, the usually active high-yield primary sphere posted a shutout on Wednesday in terms of new junk bonds actually pricing.

However, syndicate sources said that price talk emerged on pending deals that could come to market on either Thursday or Friday from European energy refining company Corral Petroleum Holdings AB and from Australian steel products manufacturer BlueScope Steel Co. The latter offering was also heard to have been upsized to $500 million.

With no new dollar-denominated and fully junk-rated deals seen having priced during the session, traders noted the intense interest in some of the recently priced high-yield offerings, particularly chemical manufacturer PQ Corp., which came to market on Tuesday and immediately jumped several points in busy aftermarket dealings.

Wednesday saw that issue again dominate the ranks of the Most Actives, and it was marginally better, price-wise, after Tuesday’s big initial gains.

Also counted among the ranks of Junkbondland’s busiest credits on Wednesday were the recent deals from computer hard-disk drive manufacturer Western Digital Corp. and vitamin and nutritional supplement company NBTY, Inc.

Away from the new deals, bonds of Fortescue Metals Group formed smartly on the news that the Australian iron ore producer plans a sharp reduction in its debt levels using cash generated from sales at recently higher iron ore prices.

Higher oil prices were meantime seen as the catalyst behind a big jump in energy names, including California Resources Corp., Chesapeake Energy Corp. and Oasis Petroleum Inc.

Statistical market performance measures turned higher on Wednesday after having been mixed on Tuesday and lower across the board on Monday for the first time since April 7. Wednesday’s gain was the third such stronger session in the last seven trading days.

Corral Petroleum sets talk

In the Wednesday primary market Corral Petroleum set price talk for its $700 million equivalent offering of five-year PIK toggle notes (/B/B).

The deal features dollar-denominated notes talked to yield 11¾% to 12%. Official talk saw the bottom end of the 11% to 12% initial guidance pushed higher.

There is also a tranche of euro-denominated notes talked to yield 11½% to 11¾%.

Tranche sizes remain to be determined.

The deal is expected to price before the end of the present week.

Deutsche Bank has the books.

Corral Petroleum, a London-based holding company for Preem, an oil refiner based in Stockholm, plans to use the proceeds to refinance its 15% senior PIK notes due 2017.

BlueScope upsizes, sets talk

BlueScope Steel upsized its offering of five-year senior notes to $500 million from $300 million.

The notes are talked to yield 6½% to 6¾%.

Books close at 10 a.m. ET on Thursday, and the offering is set to price thereafter.

Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc. are the bookrunners.

The Melbourne, Australia-based manufacturer of flat steel products and building product solutions plans to use the proceeds to refinance short-term acquisition facilities previously drawn when BlueScope acquired Cargill Inc.’s stake in their U.S. joint venture, North Star.

The additional proceeds resulting from the $200 million upsizing of the deal will be used to make a partial call on the 7 1/8% senior notes due 2018.

Mixed flows on Tuesday

The cash flows of the dedicated high-yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield exchange-traded funds sustained $29 million of outflows on Tuesday.

Actively managed funds, however, saw $20 million of inflows on the day.

PQ again tops actives

For a second straight session, PQ Corp.’s 6¾% springing maturity senior secured notes due November 2022 were the most actively traded junk bond issue on Wednesday, with over $55 million seen having changed hands.

That was on top of the more than $76 million that had traded in initial aftermarket dealings on Tuesday after the Malvern, Pa.-based specialty chemicals manufacturer had priced its $625 million offering at par. That regularly scheduled forward calendar issue was upsized from an originally announced $500 million.

The bonds had notched big gains after they were freed to trade, shooting up to around the 103 bid mark late Tuesday.

On Wednesday, market participants saw marginally higher prices in the issue.

A trader saw the PQ notes moving around in a 103-to-103½ context.

A second trader saw the bonds ending at their day’s high around 103 3/8 bid, up ¼ point, on “a lot of trades.”

Yet another trader said the notes “were probably the most active name,” going home in the low-103s.

He said that in general, “some of the more recent new-issue deals, big tranches, were pretty actively traded,” but he added that PQ was clearly the most active name of the day.

New Trilogy paper not seen

Several traders meantime said that they did not see any activity in Tuesday’s other new deal, the Trilogy International Partners LLC 13 3/8% notes due 2021.

The company priced $450 million of that paper at 99.

One trader suggested that with its hefty 13 3/8% coupon, “it probably got put away.”

Noting that the Bellevue, Wash.-based wireless telecommunications company plans to use the proceeds from the offering to refinance its existing 10¼% senior secured notes due Aug. 15, 2016, the trader said that “the old issue looks like it was pretty concentrated, so my guess is that it went to probably a limited number of people.”

Other deals active

Looking at some of the other new deals seen trading around on Wednesday, a market source said that the Regional Care Hospital Partners Holdings, Inc. 8¼% senior secured notes due 2023 “continue to do better,” seeing them trading around the 103½-to-103¾ bid level, up around ¼ to ½ point.

The Brentwood, Tenn.-based health-care company priced $800 million of those notes at par on Friday in a regularly scheduled forward calendar transaction.

A trader said that Fresh Market Inc.’s 9¾% senior secured first-priority notes due 2023 had pushed up to 98½ bid, calling that a ½-point gain for the St. Louis-based food retailer. It priced $800 million of those notes off the calendar on Friday at 99, yielding 9.951%

A trader said that NBTY’s 7 5/8% notes due 2021 were “active,” moving up by ¾ point on the day to 101 5/8%. Over $35 million of those bonds were seen having traded.

NBTY, a Ronkonkoma, N.Y.-based maker of vitamins and nutrition supplements, priced $1.08 billion of those notes at par last Thursday in a scheduled transaction.

Western Digital stays busy

Going back a little further, one of the traders said that Western Digital’s 10½% notes due 2024 were “really active” and climbed up to 98 5/8. However, he cautioned that “one late trade up there might not be indicative” since most of the day’s trading had taken place in a 97-to-97½ bid context, which he called “pretty much unchanged” on the session, on “heavy volume.”

Over $35 million of the bonds had traded.

He said that the other half of that deal, the 7 3/8% senior secured notes due 2023, were “basically unchanged” at 101½ bid, “but on pretty good volume.”

A second trader, though, located them at 102½, calling them up 1 1/8 points, with over $49 million having traded.

The Irvine, Calif.-based computer disk-drive manufacturer priced the two tranches of bonds totaling $5.23 billion, down from an original $5.6 billion, back on March 30.

The quick-to-market deal consisted of $1.88 billion of the split-rated (Ba1/BBB-/BBB-) secured 7 3/8% notes, upsized from an original $1.5 billion, and $3.35 billion of the fully junk-rated (Ba2/BB+/BB+) unsecured 10½% notes, downsized from $4.1 billion originally.

Both tranches had priced at par.

Fortescue up on debt cutting

Away from the new deals, a trader said that Fortescue Metals Group’s FMG Resources bonds “were one of the names that moved.

“It looks like they’re going to be reducing some debt.”

The Australian iron ore mining company said that it will repay $577 million of its 8¼% senior notes due 2019, anticipating annual interest savings of $48 million.

The repayment of those notes will bring the total amount of debt that Fortescue has repurchased to $1.7 billion in the past 12 months and more than $4.8 billion in the past two-and-a-half years, although the company’s outstanding debt remains a hefty $5.9 billion.

Fortescue will use cash on hand generated from sales of iron ore at recently higher prices; the metal was trading at $70 a ton late last week before drifting a little lower but was still up more than 40% since touching a low of $38 per ton back in December.

The trader said that the company’s notes were “up anywhere from 4 to 5½ [points] or so” on the day on the debt repayment news.

He said its most active issue was probably the 9¾% notes due 2022. He saw them up 2 points at 106½ bid.

At another desk, a trader opined that “I wouldn’t consider Fortescue to be a distressed name, really, anymore,” given the recent run that paper has had with improved iron ore prices, but he added “obviously that’s had a nice little move with the buyback of the 8¼s.”

He saw the 9 ¾% notes due 2022 up 3 points around the 107 bid area, on volume of more than $28 million, while the company’s 6 7/8% notes due 2022 “were up a few points as well.”

The latter paper went home Wednesday at 89 17/32 bid, up more than three points, on turnover of more than $12 million.

Freeport on the rebound

Also in the metals mining area, a trader saw better levels Wednesday on Freeport-McMoRan’s paper. The notes rebounded from losses seen on Tuesday after the Phoenix-based gold and copper mining company and oil and natural gas producer reported a sharply wider quarterly net loss versus a year ago and lower revenues.

He said the bonds “looked better generically by 1 point or so.”

A second trader saw the company’s 5.45% bonds due 2043 up ½ point at 73½ bid, with volume of over $13 million.

He said its 5.40% bonds due 2034 were also up ½ point at 73½ and on $13 million of turnover.

Late Monday, Freeport-McMoRan reported a loss of $4.18 billion, or $3.35 per share, far wider than last year’s red ink of $2.47 billion, or $2.38 per share.

Revenue came to $3.53 billion, down from $4.15 billion in the year-ago period and down as well from analyst expectations of around $3.67 billion.

Freeport-McMoRan also said that it was planning to slash its oil and gas workforce by 25%. And the company is continuing to explore sale options for certain assets.

Energy names get a boost

In the pure-play energy sphere, higher energy prices gave oil and natural gas companies’ bonds a big lift on Wednesday, traders said.

West Texas Intermediate for June delivery, the U.S. benchmark crude grade, saw its second consecutive gain, pushing up by $1.29 per barrel on the New York Mercantile Exchange to settle at $45.33.

The benchmark international grade, Brent crude for June delivery, likewise made it two straight gains, improving by $1.44 per barrel on the London ICE Futures Exchange.

A trader said that California Resources’ paper was up again on Wednesday, seeing its 8% notes due 2022 going home in a 67-to-68 bid context, which he called up 4 points from Tuesday’s levels around 63½ bid.

The company’s 6% notes due 2024 were trading “with a 38-handle,” a gain of 5 or 6 points. He said that as a whole, California Resources’ unsecured notes were up by 5 or 6 points, while its second-lien notes, like the 2022s, were up by 4 points.

He said the gains were not due to any kind of company-specific news but rather were a function of stronger oil prices.

“There were a few other [energy] names that seemed to be trading better as well,” he said.

He said that Chesapeake Energy’s 8% notes due 2022 were up around 69½ bid, 70 offered, calling that a gain of 6 or 7 points on the day.

At another desk, a trader said that Chesapeake’s paper was up multiple points, “on pretty heavy volume.”

He attributed the gains in Chesapeake and other oil and natural gas names to rising oil prices.

EP Energy’s 9 3/8% notes due 2020 were active, a trader said, trading up to 63¾ bid, which he called up 1¼ points.

A trader said that Oasis Petroleum’s 7¼% notes due 2019 pushed by 2¾ points to 94¼ bid.

The first trader said that “we’ve seen a pretty good rally in some of these energy names.”

Valeant up as leaders testify

Elsewhere, a trader said that Valeant’s 6 1/8% notes due 2025 “traded a ton,” moving up 1 1/8 points at 85 1/8 bid. More than $31 million of those notes changed hands.

He saw the company’s 5 7/8% notes due 2023 “were also active,” calling them up ½ point at 85 5/8 bid.

Over $19 million of the latter bonds traded.

The Laval, Quebec-based drug maker was in the news on Wednesday as lame-duck chief executive officer J. Michael Pearson, former chief financial officer Howard Schiller and billionaire investor William Ackman, a major Valeant shareholder, appeared before a Senate committee investigating the company’s controversial drug pricing methods.

Pearson expressed regrets over the drug price hikes, and Ackman said he would recommend to the board of directors that it cut prices on the drugs that have been the focus of the lawmakers’ skepticism and criticisms.

Indicators get better

Overall, one of the traders said that “the Fortescues came out of the gate pretty hot this morning. Everything else was kind of grinding tighter overall.”

But he said that Wednesday’s market generally “was a little quieter on everything going up to the Fed, and it didn’t get that much more active” after that.

Meanwhile, statistical market performance measures turned higher on Wednesday after having been mixed on Tuesday and lower across the board on Monday for the first time since April 7. Wednesday’s gain was its third such stronger session in the last seven trading days.

The KDP High Yield Daily index broke out of a three-session rut on Wednesday, gaining 16 basis points to close at 67.40, versus Tuesday’s 6 bps decline. It was the index’s fourth gain in the last seven sessions, including three straight gains before the most recent losses.

Its yield came in by 5 bps, tightening to 6.20%, after having risen by 4 bps on Tuesday. It was the yield’s eighth narrowing in the last 11 sessions, including at one point a string of seven straight tightenings in a row.

The Markit Series 26 CDX North American High Yield index rose by ¼ point on the day Wednesday to close at 103 7/16 bid, 103½ offered.

It was the index’s second straight gain, including Tuesday’s 1/16 improvement, and its third in the last four sessions.

The Merrill Lynch North American High Yield Master II index put up a second consecutive advance on Wednesday after two losses in a row, rising by 0.291%, on top of Tuesday’s 0.154% upturn.

Wednesday’s upside move lifted the index’s year-to-date return to 6.92%, a second consecutive new peak level for the year so far.

That topped the previous high point of 6.61%, which had been set on Tuesday.

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