Primary market quiet pre-holiday; forward calendar light; California Resources in focus

By Paul A. Harris and Abigail W. Adams

Portland, Me., May 25 – There was quiet in junkbondland in both the primary and secondary market on Friday ahead of the recommended early close for the Memorial Day weekend.

The domestic primary market brought no new deals forward and trading activity “was very light” in the secondary space, a market source said.

The forward calendar for the week ahead is also light with currently only three potential issuers, all in the European market.

There was limited trading activity in the deals that priced on Thursday.

TMX Finance LLC, formerly known as TitleMax, saw only $2 million of its newly priced 11 1/8% senior notes due 2023 (Caa2/B-) trade on their second day in the market.

Trading of new notes from Graham Holdings Co. and Atotech BV, and Tervita Corp.’s recently priced add-on also slowed on Friday, although all remained strong in the secondary market.

California Resources Corp.’s 8% senior notes due 2022 were a major volume mover during Friday’s session with the notes dropping 2¼ points as the price of crude oil did an about face and dropped more than $3.

Valeant Pharmaceuticals International, Inc.’s recently priced 8½% senior notes due 2027 continued to see active trading on Friday although with little movement in price.

The week ahead

Phone calls went unanswered and emails bounced back with “out-of-office” responses during the abbreviated pre-Memorial Day session ahead of an extended holiday weekend in the United States.

The new issue market remained quiet, as expected, sources said.

When the post-Memorial Day junk market gets underway on Tuesday, it will do so to a light calendar.

Heading into the holiday, three issuers were mulling euro-denominated issuance.

Sweden-based Dometic Group AB was scheduled to start a roadshow on Friday in Stockholm for a benchmark offering of euro-denominated five-year senior notes (Ba3/BB).

Fincantieri SpA announced earlier in the month that it mandated Banca IMI, BNP Paribas, Deutsche Bank, Goldman Sachs, HSBC and UniCredit to arrange meetings with fixed-income investors ahead of a contemplated €300 million minimum offer of fixed-rate senior notes with a five-year to seven-year maturity.

Those meetings were slated to begin last Monday but there here has been no word since, sources say.

And Marine Harvest mandated DNB Markets and Nordea as coordinators ahead of a possible euro-denominated five-year unsecured deal, with investor meetings to commence Monday.

Heading into the holiday weekend the active forward calendar was bereft of dollar-denominated offerings.

There is expected to be business in the post-Memorial Day week but new deal volume is likely to remain on the light side, sources say.

Volatility in benchmark interest rates and geopolitical headline noise could create headwinds for the new issue market as it moves into summer, they add.

One conspicuous possible impediment with respect to high-yield bond issuance is volatility in crude oil prices, impacting the junk energy sector that comprises 15% of the index, buyside and sellside sources said on Friday.

TMX day 2

Several of Thursday’s deals were slow to trade in the secondary market during Friday’s session, which saw light trading volume across the board, a market source said.

After an active day on Thursday, TMX’s newly priced 11 1/8% senior secured notes due 2023 saw little to no trading activity with only $2 million of prints on the tape.

The notes were seen trading at 101¼ and 101 3/8 with both purchases made by underwriters, a market source said.

TMX priced a $450 million issue of the 11 1/8% notes at par on Thursday.

The yield printed at the wide end of yield talk that was set in the 11% area.

The notes were active after breaking for trade with more than $20 million of the bonds traded on Thursday. Most prints were between 101 3/8 and 101½, a market source said.

Tervita day 2

While trading activity was light, Tervita’s add-on to its 7 5/8% senior notes due 2021 remained well above its issue price on Friday.

The add-on was seen at 101¼ bid, 101¾ offered on Friday.

Tervita priced the $250 million add-on to its 7 5/8% notes at 100.5 to yield 7.46% on Thursday.

The reoffer price came at the rich end of the 100 to 100.5 price talk and rich to early guidance in the par area.

Atotech day 2

Atotech’s new PIK toggle notes were also performing well in secondary market activity on Friday.

The toggle notes were seen up about ¾ point to trade between par 3/8 and par ¾ on Friday. About $9 million of the bonds traded during Friday’s session, a market source said.

The notes were seen trading at 99¾ to par after breaking for trade on Thursday with about $8 million of the bonds traded.

Atotech priced a $300 million issue of the five-year senior PIK toggle notes (Caa1/CCC+) at 99.01 to yield 9%.

The notes pay a cash coupon of 8¾% which rises by 75 basis points to 9½% for PIK interest payments.

The coupon came at the wide end of the 8½% to 8¾% coupon talk.

The reoffer price came in line with price talk of 99.

The yield printed at the wide end of the 8¾% to 9% yield talk.

Proceeds from the deal will be used to pay a shareholder dividend. Atotech’s deal was the first PIK toggle deal to price since January, a market source said.

Graham day 2

Graham Holdings’ newly priced 5¾% senior notes due 2026 (Ba1/BB+) were the most active of Thursday’s deals in the secondary space on Friday, although trading activity paled in comparison to the day before.

The notes were down slightly in active trading.

They were seen trading between par ¼ and par ¾ with more than $10 million of the bonds traded, a market source said.

The notes were trading between par ½ and par 5/8 after breaking on Thursday with more than $68 million traded.

Graham Holdings priced a $400 million issue of the 5¾% notes at par on Thursday.

The yield came in the middle of talk for a yield in the 5¾% area and slightly tight to initial price talk in the high 5% to 6% area.

California Resources in focus

California Resources’ 8% senior notes due 2022 were again the focus of the secondary market on Friday as the barrel price of West Texas crude oil for July delivery dropped off more than $3.

The notes were down 2¼ points to trade at 87¼, according to a market source. With more than $14 million of the bonds traded, they were the most active in the secondary space on Friday.

The notes were seen at 89 bid, 89¾ offered on Thursday.

The 8% notes move in concert with the price of crude oil, which tumbled throughout the day.

The barrel price of West Texas Intermediate crude for July delivery was down to $67.50, a decrease of $3.21, or 4.54% on Friday.

Unexpectedly high inventories and an anticipated ramp-up in production by OPEC countries and Russia are driving the selloff, sources say.

Valeant active

Valeant’s 8½% senior notes due 2027 (Caa1/B-/B-) remained active in the secondary space on Friday although with little change in price, market sources said.

The notes were seen trading at 101 1/8 on Friday with more than $12 million traded.

The notes have held steady at 101 bid, a market source said.

Valeant priced $750 million of the 8½% notes at par on May 17.

The yield printed at the tight end of yield talk that was set in the 8 5/8% area and inside initial price talk in the 8¾% area.

The deal was said to have played to $6 billion of demand during bookbuilding, a market source said.

ETFs see big Thursday inflows

High-yield ETFs saw $492 million of inflows on Thursday, the most recent session for which data was available at press time, according to an investor.

Actively managed funds, however, were negative on the day, sustaining $82 million of outflows on Thursday.

The Thursday numbers trail a weekly report from Lipper US Fund Flows.

Dedicated high yield bond funds saw $261 million of inflows in the week through the Wednesday, May 23 close, according to the Lipper Fund Flow report.

The latest weekly inflow notwithstanding, the junk funds remain deeply in the red for 2018.

Net outflows came to $15.12 billion for the year to the May 23 close.

In total, this year has seen seven inflows and 14 outflows, according to the Prospect News analysis.

Indexes see losses

Three benchmarks for the high-yield secondary market ended the week with losses.

The KDP High Yield index saw its third consecutive day of losses on Friday.

The index was down 4 basis points to 70.39 with the yield now 5.91%. The index was down 7 bps on Thursday and 4 bps on Wednesday.

The Merrill Lynch High Yield index was also down on Friday after seeing gains on Thursday.

The index was down 4 bps with the year-to-date return now negative 0.27%. Friday’s losses wiped out Thursday’s gains when the index was up 4.8 bps.

The index has been in negative territory since May 15.

The CDX High Yield 30 index saw the most significant decline. The CDX index was down 26 basis points to close Friday at 106.63. The index was also down 6 bps on Thursday.

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