Callon sells upsized deal, dominates trading; Deutsche drops; Apex gains; fund flows flat

By Abigail W. Adams

Portland, Me., May 31 – While primary action has been light throughout the week, opportunistic issuers waiting for improved market conditions came forward on Thursday with both the domestic and the European primary market seeing some action.

Callon Petroleum Co. priced an upsized $400 million offering of eight-year senior notes (B3/B+) at par to yield 6 3/8% in a Thursday drive-by.

The new notes dominated trading activity after breaking although they remained wrapped around par, sources said.

In the European market, Marine Harvest ASA priced €200 million of five-year senior bonds on Thursday with a coupon of Euribor plus 215 basis points.

Not much primary activity is expected on Friday, sources said. The low volume week for new deals is no surprise given the truncated post-Memorial Day week and the noise in the markets, a source said.

While the new paper was the focus of trading activity, California Resources Corp.’s 8% senior notes due 2022 remained a major volume mover in the secondary space for the third consecutive trading day with the notes see-sawing alongside crude oil prices.

Deutsche Bank AG’s junk-rated subordinated bonds were losing ground on Thursday with the notes seen down 2 points after news broke that the bank was given a troubled designation by the Federal Reserve one year ago.

Apex Group Inc.’s 8¾% senior notes due 2020 were making gains on Thursday, reversing the downward trends the notes have been on since the company released its first-quarter earnings report.

Meanwhile, high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – were essentially flat in the latest week, seeing $18 million of outflows in the seven days ending May 30, according to fund-flow statistics generated by AMG Data Services Inc.

In total, this year has seen seven inflows and 15 outflows in the 20 weeks so far, according to a Prospect News analysis of the data.

Marine Harvest

With markets firming despite continued political instability in Italy, the European primary market saw one euro-denominated deal price.

Marine Harvest priced €200 million of five-year senior bonds on Thursday with a coupon of Euribor plus 215 basis points, according to a company news release.

DNB Markets, Nordea, ABN Amro, Danske Bank, Rabobank and SEB are joint bookrunners for the offering.

Marine Harvest said the deal was “substantially oversubscribed.”

The Bergen, Norway-based seafood company mandated the underwriters to arrange a series of fixed-income investor meetings on May 23.

Callon’s drive-by

In the first new bond issuance of the week for the U.S. market, Callon Petroleum priced an upsized $400 million offering of eight-year senior notes (B3/B+) at par to yield 6 3/8% in a Thursday drive-by.

Pricing came at the tight end of talk for a yield of 6 3/8% to 6½%, according to a market source. Initial guidance was whispered in the 6½% area.

The initial deal size was $300 million.

JPMorgan Securities LLC is left lead on the Rule 144A and Regulation S deal. BofA Merrill Lynch, Barclays Capital Inc., Citigroup Global Markets Inc. and Credit Suisse Securities LLC are also bookrunners.

The new notes dominated activity in the secondary space after breaking for trade with more than $50 million of the bonds seen on the tape by late afternoon.

The 6 3/8% notes were seen trading in a range of 99 7/8 to par ¾ with the notes largely wrapped around par, a market source said.

“They haven’t traded so well,” the source said.

California Resources in focus

California Resources’ 8% senior notes due 2022 remained in focus in the secondary space with the bonds second only to Callon’s new 6 3/8% notes in trading volume by dollar amount, a market source said.

The 8% notes were seen at 88¾ bid, 89¾ offered in the early afternoon but traded down about 3/8 point to close the day at 88½.

More than $44 million of the bonds traded by late afternoon, which exceeded the notes’ trading activity over the past two days when they were the volume leader in the secondary space.

The 8% notes closed Wednesday at 88½ bid, 89 offered with about $25 million of the bonds traded during Wednesday’s session.

The 8% notes were seen at 85¾ bid, 86¾ offered Tuesday with about $25 million of the bonds traded during the session.

The notes have see-sawed alongside the barrel price of West Texas intermediate crude oil for July delivery which slipped again on Thursday after Wednesday’s rally.

The price of crude oil settled at $67.15 on Thursday after rising to $68.21 on Wednesday.

The price of crude oil has risen and fallen on speculation surrounding the decision OPEC countries and Russia will make about their production levels.

While U.S. crude inventory supplies last week were down more than six times the expected amount, the news on Thursday failed to lift the price of crude oil as it has in the past.

The spread between Brent crude oil and West Texas intermediate crude oil is at its widest point in three years, Reuters reported.

Deutsche Bank drops

Deutsche Bank’s junk-rated bonds were active in the secondary space and down about 2 points after news broke about the Frankfurt, Germany-based financial institution’s regulatory problems.

Deutsche’s 4 7/8% subordinated tier 2 notes due 2032 were down about 2¼ points to trade at 85 1/8, a market source said.

Deutsche’s perpetual 7½% contingent convertible noncumulative perpetual notes (B1/B+) were down about 2 points to trade just shy of 91.

“They’ve had some bad news,” a market source said.

The Federal Reserve labeled Deutsche Bank’s division in the United States in a troubled condition one year ago, the Wall Street Journal reported on Thursday.

Deutsche Bank’s FDIC-insured subsidiary has also been added to the FDIC’s list of banks at risk of failure.

Deutsche Bank’s common stock plummeted on the news, hitting a new 52-week low.

Apex gains

While Deutsche Bank junk bonds dropped, Apex Group junk bonds were rebounding after a downward slide that began earlier in the month.

Apex Group’s 8¾% senior notes were up 4 points to close Thursday at 96.

While the notes saw a significant gain during the session, they were previously trading in the 97 range in the run up to the company’s first quarter earnings report in mid-May.

The notes have been on the decline since Apex, the parent company of Vivint Inc., a smart home and security services provider, reported a net loss of $84.7 million in the first quarter.

While Apex reported disappointing first quarter earnings reports, the smart home market is on the rise, according to a research report by Transparency Market Research, which predicted the industry’s valuation would reach $10.9 billion by 2025.

Indexes mixed

Benchmarks for the high-yield secondary market were mixed on Thursday after they all posted slight gains on Wednesday.

The KDP High Yield index saw its second consecutive day of gains on Thursday after it reversed a four-day streak of losses on Wednesday.

The index was up 5 basis points to 70.38 on Thursday. However, the yield remained flat at 5.93%. The index was up 4 bps on Wednesday after a 10 bps decline on Tuesday.

The CDX High Yield 30 index saw a slight decline on Thursday after two days of major movements. The index was down 10 bps to close Thursday at 106.22.

The index saw a significant decline on Tuesday when it closed the day down 77 bps. The CDX index regained its footing and closed Wednesday up 44 bps at 106.32.

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