Primary stays quiet on lower market as stock plunge continues; calendar builds; new Rockpoint stays busy

Paul Deckelman and Paul A. Harris

New York, Feb. 5 – The first full trading week of February opened on Monday with junk investors warily watching the bloodbath taking place in the equities market for a second straight session and doing some selling of their own – although traders said that Junkbondland’s downside movement was generally restrained rather than panicky.

And they said that some savvy investors were even swooping in to take advantage of generally lower prices by doing some selective buying.

Against that backdrop, caution was the watchword on the primaryside, with no new issues heard by syndicate sources to have priced during the session.

Market participants were watching for portable storage container and modular structure provider Algeco Scotsman’s big four-part dollar- and euro-denominated deal; price talk on the tranches emerged, and order books were scheduled to close after the conclusion of the European part of a global roadshow on Monday, but no pricing terms were heard on the transaction.

The forward calendar meantime grew with the addition of prospective new issues from oil and natural gas exploration and production company Jones Energy Holdings, LLC and from Flexi-Van Leasing, Inc., which rents semi-trailer chassis units and cargo containers.

Among recently priced issues, Friday’s new deal from Rockpoint Gas Storage Canada Ltd. was again among the busiest junk credits of the day, with prices about unchanged from the gains racked up Friday in initial aftermarket dealings.

Oil and gas company Berry Petroleum Co., LLC’s new issue from Friday was less busy and down from where it had ended on Friday.

Away from the new issues, existing bonds were mostly lower. Energy credits such as California Resources Corp., Chesapeake Energy Corp. and EP Energy Corp. were especially hard-hit on active volume as crude oil prices tumbled on Monday, their second straight loss.

Statistical market performance measures remained down across the board for a third straight session on Monday; they had turned lower on Thursday and stayed that way on Friday, after having been mixed on Wednesday. It was the fifth weak performance in the last six trading days, as the indicators had also been down all around last Monday and Tuesday.

Jones Energy starts Tuesday

Roadshow announcements on a pair of secured deals circulated the new issue market on Monday.

Jones Energy Holdings, LLC and Jones Energy Finance Corp. plan to start a roadshow on Tuesday for a $450 million offering of senior secured first lien notes due March 15, 2023.

The roadshow wraps up Friday, and the debt refinancing deal is set to price thereafter.

Credit Suisse is the sole bookrunner.

Flexi-Van five-year deal

Flexi-Van Leasing, Inc. began a roadshow on Monday for a $300 million offering of five-year second lien senior secured notes.

Initial price talk is in the high 9% to low 10% area.

The deal, which is being led by BofA Merrill Lynch, is expected to price on Friday.

The Kenilworth, N.J.-based provider of equipment to the intermodal transportation industry plans to use the proceeds to repay debt under its revolving credit facility and to redeem its 7 7/8% senior notes due Aug. 15, 2018.

Algeco Scotsman covenant changes

There was one deal on deck to price Monday.

Algeco Scotsman was set to wrap up the roadshow for its restructured €1,415,000,000 equivalent four-part offering of high-yield notes in Amsterdam and Milan and to price the deal before the Monday close.

However no terms were available at press time, market sources said.

The deal, which features two tranches of euro-denominated secured notes, one tranche of dollar-denominated secured notes and one tranche of dollar-denominated unsecured notes, underwent covenant changes on Monday, sources said.

Investor friendly changes in the documents increased restrictions upon how much additional debt the company may incur and upon how its cash may be disbursed, a source said.

To recap, Algeco Scotsman Global Finance plc is selling €1.12 billion equivalent of five-year senior secured notes (B2/B-/B+) in three tranches which are talked as follows:

• Euro-denominated fixed-rate notes are talked at 6½% to 6¾%, wide to early guidance in the 6% area;

• Dollar-denominated fixed-rate notes are talked in the 8% area; initial guidance on the dollar-denominated secured notes had them coming 150 basis points to 200 bps behind the euro-denominated secured notes; and

• Euro-denominated floating-rate notes are talked at Euribor plus 600 bps to 625 bps, wider than initial guidance in the Euribor plus 600 bps area.

The fixed-rate notes become callable after two years at par plus 50% of the coupons. The floating-rate notes become callable after one year at 101.

Algeco Scotsman Global Finance 2 plc is selling €295 million equivalent of dollar-denominated 5.5-year senior unsecured fixed-rate notes (Caa1/CCC/CCC+) talked to yield in the 10% area, in line with early guidance.

In a restructuring of the deal a proposed euro-denominated tranche of unsecured notes was withdrawn from the market.

Tranche sizes remain to be announced.

Bond markets remain relatively stable

The relative quiet in the primary market came as no surprise as the Dow Jones industrial average fell 4.6% on Monday, sources said.

However the bond markets – particularly the investment grade bond market – ended Monday's volatile session relatively unscathed, sources said.

Junk, too, held in reasonably well, given the pasting that equities took on Monday, a trader said.

A down market – but no panic

At another desk, a trader said that “there was definitely some broad-based softness going on.”

But he added that it was “not like panic selling by any means – and I think managed money was picking spots and buying for sure.”

“Not everybody’s fleeing.”

He noted that the widely followed CDX index “was really underperforming today, trading lower than just general cash bonds.”

But he reiterated that “there was a lot of ETF selling in the baskets, but not a lot of managed money in broad-based like panic selling or anything – they were stepping in as buyers at those levels.”

Another trader noted that one issue – New York-based media giant Viacom Inc.’s 6¼% bonds due 2057 – plummeted by more than 9 points on the day, ending at 95 1/8 bid. But he said “the volume was not that high,” with only a handful of large-sized trades in that credit.

Otherwise, he said, “a few bonds dropped more than 2 points on the day, and lots of bonds dropped between 1 and 2 points.”

He estimated that “10 bonds dropped between 2 and 3 points, so it wasn’t that many,” while “maybe 30 or 40 dropped by 1-point plus” but less than 2 points.

All told, he said, “the market was down – people didn’t want to buy. There was a bunch of bid-wanted lists – and that was about it.”

He opined that “everybody was just looking at the stock market” – which had a terrible day, even worse than Friday’s big market drop generated by fears that the Federal Reserve Board will likely hike interest rates this year more than previously expected in view of inflation fears brought about by the unexpectedly robust economy.

The bellwether DJIA, which had plunged by more than 665 points on Friday, completely rolled over on Monday, surrendering some 1,175.21 points, or 4.6%, to close at 24,345.75 – actually below its final close for 2017, putting the widely followed indicator into the red on a year-to-date basis for the first time in 2018 year.

With the carnage on Wall Street unfolding on their screens, “some people didn’t want to do anything,” he said – though he added that “some guys were [credit] picking and buying some stuff,” taking advantage of the suddenly lowered prices.

Rockpoint busy but unchanged

Among recently priced issues, Friday’s deal from Calgary, Alta.-based natural gas and natural gas liquids storage company Rockpoint Gas Storage Canada’s 7% senior secured first-lien notes due March 23, 2023 were seen trading around on Monday in a 99 bid context, with over $21 million of those new bonds having changed hands.

That was well down from the more than $75 million of turnover in the new deal seen on Friday, which had topped that day’s Most Actives list, but it still put Rockpoint among Monday’s busiest issues.

A trader pegged the bonds at 99 3/8 bid, calling them unchanged from Friday’s close, while a second located them in a 99 1/8-to-99 5/8 bid context, calling them up by 1/8 point on the day.

Those levels were well above the heavily discounted 97.368 level at which that $400 million regularly scheduled forward calendar offering had priced on Friday to yield 7 5/8%. The new bonds had climbed in brisk trading Friday when they hit the aftermarket.

Berry bonds a little lower

Friday’s other new deal – from Bakersfield, Calif.-based oil and natural gas E&P company Berry Petroleum – was seen lower on Monday.

A market source said that the notes were trading at par, which he called down ¾ point on the session, with around $11 million having traded.

Another trader also saw the notes at par, while a third put them in a 100 1/8-to-100 5/8 bid range.

The company had priced $400 million of those 7% notes due 2026 at par in a regularly scheduled transaction, after the issue size was increased from an originally announced $350 million.

The new notes had moved up after that to somewhere between 100 3/8 and 100 7/8 bid on about $15 million of initial secondary dealings.

Energy issues trade off

Berry was not the only energy credit seen lower on Monday – many established bonds in that sector were down notably from their Friday levels, hurt by the overall market weakness as well as by a fall in crude oil prices.

Los Angeles-based E&P operator California Resources’ 8% second-lien senior secured notes due 2022, considered a sector benchmark issue and a reliable proxy for oil and gas issues generally, were seen by a trader to have lost some 1 7/8 points on the day, ending at just under 82 bid, with more than $21 million traded.

Houston-based sector peer EP Energy’s 9 3/8% notes due 2024 were down 1½ points, at 81¾ bid, with over $14 million of volume.

Chesapeake Energy’s 8% notes due 2025 dropped more than 3 points from their levels last week to end at 97½ bid, with over $17 million of the Oklahoma City-based natural gas and oil producer’s paper moving around.

The sector names felt the fallout from a second straight downturn in world crude oil prices, with the key domestic grade, March-contract West Texas Intermediates, swooning by $1.30 per barrel to settle at $64.15 in New York Mercantile Exchange dealings.

Indicators stay lower

Statistical market performance measures remained down across the board for a third straight session on Monday; they had turned lower on Thursday and stayed that way on Friday, after having been mixed on Wednesday. It was the fifth weak performance in the last six trading days, as the indicators had also been down all around last Monday and Tuesday.

The KDP High Yield Daily Index nosedived by 26 basis points on Monday, down to 71.09, its seventh straight loss. It had also swooned by 17 bps on Friday, after having ended down by 5 bps on both Wednesday and again on Thursday.

For a second session in a row, its yield ballooned out by 8 bps on Monday to 5.54%, matching the magnitude of Friday’s rise. It was the yield’s sixth consecutive widening out; before that, it had increased by 1 bp on both Wednesday and Thursday.

The Markit CDX Series 29 index tumbled by more than ½ point on Monday, closing at 106 29/32 bid, 106 15/16 offered, its third loss in a row. On Friday, it had nosedived by more than 5/8 point, while on Thursday, it had closed down ¼ point, versus Wednesday’s having edged marginally higher. Monday was the index’s fifth lower close in the last six trading days.

And the Merrill Lynch High Yield Index also finished on the downside for a third straight session, sliding by 0.222% on Monday, on top of Friday’s 0.344% loss and Thursday’s 0.114% setback. On Wednesday, it had risen by 0.123%. Before that, it had also fallen back last Monday and Tuesday, the index’s first losses after five straight gains before that.

Monday’s loss pushed the index’s year-to-date return into the red, showing a 0.042% loss, versus Friday’s barely positive return of 0.181%. Those levels were well down from its 0.936% finish on Jan. 26, which had been the third consecutive new peak YTD level for the year so far.

Monday’s close marked the first time the index had closed in negative territory for the first time this year – in fact, it was the first the index was showing a negative cumulative return since March 1, 2016, when it had closed with a 0.296% year-to-date loss; the index was never in the red for all of 2017.

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