Primary opens new year quietly, though calendar expected to build; energy names busy as oil prices gyrate

By Paul Deckelman and Paul A. Harris

New York, Jan. 3 – Things were quiet on Tuesday as 2017 officially kicked off in Junkbondland, following Monday’s New Year’s Day market close and before that the extended late-December wind-down of both new-deal and secondary-arena trading.

With market participants straggling back to their desks after the holiday break, there were no firm developments in the primary market, with syndicate sources reporting that no new deals had even been announced during the session, let alone having priced.

However, they said that could soon change.

They noted the presence on the forward calendar of several deals that had emerged late last year as likely early-January pricings, including an expected $1.015 billion bridged offering backing the leveraged buy-out of physician services provider TeamHealth Holdings Inc. and $625 million of eight-year notes as part of the financing for another LBO deal, for packaging company Novolex Holdings, Inc.

Market participants expressed optimism that the calendar would grow further in the coming days.

In the secondary sphere, there was action in some of the energy issues, including the recently priced Noble Holding International Ltd. deal, as well as sector bellwether California Resources Corp.

They were seen higher on the day, even though crude oil prices remained under pressure; while oil initially firmed from its recent lows, it later gave all of that back and then some to end lower for a third straight session.

Statistical market performance measures were meantime firmer for a third consecutive session on Tuesday, after having turned mixed on Wednesday. It was their fourth stronger session in the last six trading days.

The primary market remained quiet on Tuesday as players took their places following the holidays.

However it won't remain that way for long, according to one syndicate official who said that there are a lot of deals to be done.

Among expected early-year deals in the U.S. market, TeamHealth Holdings Inc. is on the apron with $1.015 billion of high-yield bonds in a bridged deal via Barclays. Proceeds will be used to help fund the LBO by Blackstone.

TeamHealth is scheduled to hold a bank meeting on Thursday to launch its proposed $2.6 billion seven-year term loan B. JP Morgan is the left lead on the bank deal.

And Novolex Holdings, Inc. (Flex Acquisition Co. Inc.) is expected to bring $625 million of eight-year senior notes via Credit Suisse to help fund the LBO by Carlyle Group.

Mixed Friday flows

The cash flows of the dedicated high yield bond funds were mixed last Friday, the portfolio manager said.

High yield ETFs were essentially flat, posting $9 million of inflows on the day.

Actively managed funds were negative, sustaining $70 million of outflows on Friday.

The daily fund flow information follows a report late last week from Lipper US Fund Flows that the dedicated high yield bond funds saw $592 million of weekly inflows for the week, which ended at the Dec. 28 close.

Meanwhile investors continued to demonstrate vigorous, trending appetites for floating-rate paper. Against a backdrop of flat to negative cash flows seen by the junk bond funds, dedicated bank loan funds saw $270 million of daily inflows on Friday.

In the secondary market, a trader said that at his desk, “we haven’t heard any talk” about any new issues, and said that “maybe [Wednesday] we’ll get a little more guidance if there’s anything coming this week, or how the calendar is shaping up so far.”

Energy names active

The trader said that “some of the oil names were active – oil was up earlier, though now it’s off,” although that retreat in crude prices later in the session apparently did not dampen investor enthusiasm for the energy bonds.

For instance, he said that Noble Holding’s 7¾ notes due 2024 were up “maybe a point or so on some pretty good volume,” finishing around 96¼ to 96½ bid.

“It’s definitely one of the more active names today,” he opined.

At another shop, a market source said that more than $20 million of those notes traded, putting the credit high up on the day’s high yield Most Actives list. He pegged the bonds at 96 5/8 bid going home.

Noble Holding – the wholly owned Cayman Islands-based unit of global offshore energy drilling company Noble Corp. – had priced $1 billion of those notes in a regularly scheduled forward calendar deal back on Dec. 14. The issue priced at 98.01, yielding 8 1/8%, after being doubled in size from an originally announced $500 million.

Despite that investor interest that warranted an upsizing, traders all agree that the Noble deal has not done at all well in the secondary market, never trading above its already sharply discounted pricing level, and most days since then trading well below it.

The issue recently bottomed out at just above 94 bid this past Friday, though rebounding off that low point in Tuesday’s dealings.

Also in the energy sphere California Resources Corp.’s 8% notes due 2022 were seen up around 1 point on the day, finishing at 90¼ bid.

More than $17 million of the Los Angeles-based oil and natural gas exploration and production company’s notes changed hands.

Concho Resources Inc.’s 4 3/8% notes due 2025 were seen earlier in the session around 99 bid, 99½ offered – up from recent lows around 98 5/8 bid, though still down from the par level at which the Midland, Texas-based E&P operator’s $600 million drive-by offering had priced back on Dec. 13.

Crude prices under pressure

The energy bonds were seen firmer even though crude oil prices fell for a third straight session on Tuesday, their fourth loss in the last eight sessions.

The main U.S. crude grade, West Texas Intermediate for February delivery, lost $1.39 per barrel on the New York Mercantile Exchange Tuesday, settling at $52.33. Earlier in the session, it had been up by more than $1 per barrel from Friday’s closing levels.

The key international oil grade, North Sea Brent crude for March delivery – the new front month – fell by $1.35 per barrel on the London ICE Futures Exchange, closing at $55.47.

Indicators stay firm

Statistical market performance measures were firmer for a third consecutive session on Tuesday, after having turned mixed on Wednesday. It was their fourth stronger session in the last six trading days.

The KDP High Yield index rose by 10 basis points on Tuesday to end at 71.65, its fourth consecutive advance after one loss and seventh gain in the last eight sessions. On Friday, it had firmed by 1 bp. The index was not published on Monday due to the market being officially closed for New Year’s Day.

Its yield came in by 3 bps to, to 5.38%, after having been unchanged on Friday and having narrowed by 1 bp on Thursday.

The Markit Series 27 CDX index rose by 13/32 point on Tuesday to end at 106 9/16 bid, 106 5/8 offered. The index was published on Monday, despite the market holiday, and was seen marginally lower. On Friday, it had firmed by 1/16 point, its second consecutive upturn.

The Merrill Lynch High Yield index meantime posted its 10th straight advance on Tuesday, improving by 0.268% on the first trading day of the new year; on Friday, it had risen by 0.048%. The index did not publish on Monday due to the market holiday.

It closed out 2016 with a total return of 17.489% – its best showing since 2009’s record-setting 57.512% jump. In 2015, the index had lost 4.643% on the year.

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