Primary stays quiet, awaiting calmer conditions; new Jones notes gyrate busily; Tallgrass up in firmer market

Paul Deckelman and Paul A. Harris

New York, Feb. 14 – It wasn’t exactly a heartfelt valentine – but high yield investors, along with their equity counterparts, for the most part shrugged off early unsettling news about inflation and remained confident, with both markets seeing a somewhat firmer tone on Wednesday.

However, prospective new-deal issuers remained wallflowers for the session, with no new offerings heard to have even emerged for a second straight session, let alone having priced – although syndicate sources say there could be several prospective offerings in the pipeline, awaiting somewhat more settled financial market conditions.

Among recently priced names, Monday’s new deal from oil and natural gas exploration and production operator Jones Energy Holdings LLC remained active, initially slipping backwards, along with the market generally, but then recovering and then actually pushing higher on the day.

There was also brisk trading at higher levels in the recent offering from pipeline operator Tallgrass Energy Partners, LP, which released quarterly results on Tuesday.

Other energy sector credits such as driller Noble Holding International Ltd.’s recent deal and established bonds from the likes of E&P companies California Resources Corp. and Denbury Resources Inc. also improved, in line with a rebound in crude prices.

Statistical market performance measures turned mixed on Wednesday, their second such mixed performance in the last four trading days. They had been lower across the board on Tuesday after having firmed all around on Monday, their first overall stronger session since Jan. 25. The indicators had also been mixed last Friday.

As was the case on Tuesday, the new issue market remained quiet on Wednesday.

There are thought to be three to five small deals in the pipeline, all dependent upon reasonably favorable market conditions, the trader said.

Tuesday outflows

The most recent news on the daily cash flows of the dedicated high-yield bond funds was negative, according to a trader.

The high-yield ETFs sustained $609 million of outflows on Tuesday.

Actively managed high-yield funds were also negative on Tuesday, sustaining $135 million of outflows on the day.

Market moves on data

In the secondary market, traders said that things initially headed south during the morning, after the release of Consumer Price Index data that indicated inflationary pressures in the economy were building, which could signal a more active Federal Reserve push to tamp things down by raising interest rates, always a negative for fixed-income markets.

However, after both shares and bonds initially lost ground, things seemed to stabilize around mid-morning, with junk about unchanged by then, and more names seen up rather than down by the time things wrapped up later in the day.

Junk seemed to follow the lead of equity, which also recovered from early dismay to end higher, with the bellwether Dow Jones Industrials closing up some 253.04 points, or 1.03% on the day.

New Jones notes gyrate around

For a second straight day, Junkbondland saw considerable activity in the new Jones Energy 9¼% senior secured notes due 2023, again topping the Most Active list with over $22 million traded, on top of Tuesday’s more than $40 million having changed hands.

A trader said that the notes – which had lost ground on Tuesday from the initial aftermarket highs above 99 bid that those bonds had notched on Monday – continued to slip and slide early Wednesday, in line with the generally softer early market.

He saw the notes retreat to 97½ bid – but by the end of the day, the Jones paper had firmed back up, with final prints seen in a 98¼-to-98½ bid range, which he called about unchanged on the day.

At another desk, the notes were seen going home at 98½ bid, up ¼ point on the day.

The Austin, Texas-based oil and gas exploration and production operator, along with co-issuer Jones Energy Finance Corp., had priced its $450 million regularly scheduled forward calendar issue on Monday at a considerably discounted 97.526, yielding 9 7/8%.

The new bonds had firmed to a 99½-to-99 5/8 bid context on Monday, before dropping back by as much as ¾ point after that to trade with a 98ish handle for most of Tuesday, setting the stage for Wednesday’s gyrations.

Tallgrass deal moves up

Sharing top volume honors Wednesday with Jones was the 5½% notes due 2028 from Leawood, Kan.-based energy pipeline operator Tallgrass Energy Partners, LP.

A market source saw those bonds shoot up to around the 99½ bid level, up some 1 ½ points on the day, with turnover of some $22 million.

That followed the company’s release of positive fourth-quarter and full-year numbers on Tuesday.

“Tallgrass Energy delivered another outstanding year in 2017, meeting the high-end of the Adjusted EBITDA, DCF and distribution coverage guidance we provided in February of 2017 while growing distributions in excess of 18 and 32 percent at TEP and TEGP respectively,” the company said in publishing its results.

“In addition, we maintained a conservative and flexible balance sheet at TEP,” said Tallgrass Energy President and CEO David G. Dehaemers Jr. "We steadily grew TEP through continued drop-down transactions, organic projects and third-party acquisitions. We believe Tallgrass is well positioned for another strong year in 2018 due to our stable cash flows and the attractive growth project opportunities we see ahead.”

Tallgrass sold its $250 million add-on to its existing $500 million of those 5 ½% notes in December, pricing the quickly shopped tap on Dec. 7 at 101.5 to yield 5.3%.

Energy issues gain

Elsewhere in the energy patch, a firming in crude prices – March-delivery West Texas Intermediate jumped by $1.41 per barrel in Wednesday New York futures trading, settling back above the psychologically important $60 mark after a loss on Tuesday – was seen aiding the sector.

Recent issuer Noble Holding’s 7 7/8% notes due 2026 jumped more than 2 points to 100¾ bid, on volume of over $19 million.

Among established energy credits, California Resources’ 8% second-lien notes due 2022 were also up more than a deuce on the day at 81 bid, with about $15 million traded.

Denbury Resources’ 9% notes due 2021 were ½-point gainers, to 100 ½ bid, a trader said, with over $20 million having moved around.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday, their second such mixed performance in the last four trading days. They had been lower across the board on Tuesday after having firmed all around on Monday, their first overall stronger session since Jan. 25. The indicators had also been mixed last Friday.

The KDP High Yield Daily Index edged up by 1 basis point Wednesday to end at 70.22, after having plunged by 15 bps on Tuesday. It had also risen by 6bps on Monday, gain, which had been its first advance after 11 consecutive losses, including Friday’s 54 bps freefall, the biggest of several recent double-digit declines.

Its yield, on the other hand, rose by 1 bps to 5.83%, its second straight widening out, after having also moved up by 5 bps Wednesday rose by 5 bps to 5.82%, after having come in on Monday by 1 bp; before that, it had widened out for the previous 10 straight sessions, including Friday, when it had ballooned out by 17 bps.

The Markit CDX Series 29 index firmed by 3/16 point on Wednesday to end at 106 9/16 bid, 106 19/32 offered, after having declined by 5/32 point on Tuesday following two straight gins before that.

But the Merrill Lynch High Yield Index stayed lower, down for a second straight session, losing 0.16%; it had also declined by 0.27% on Tuesday, after having improved by 0.328% on Monday, its first gain after two straight losses.

That latest loss widened the index’s year-to-date deficit to 1.206% from 1.191% on Tuesday. It remained shy of the 1.248% cumulative loss posted on Friday, its second straight new widest deficit level for the year.

Its peak cumulative gain for the year so far was 0.936%, established on Jan. 26.

© 2015 Prospect News.
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