Primary quiet; Denbury dominates, trades down; CIT Group lags; California Resources down

By Paul A. Harris and Abigail W. Adams

Portland, Me., Aug. 15 – The domestic primary market was quiet on Wednesday after active sessions on Monday and Tuesday.

While some drive-by deals were expected, none came forward as volatility rocked global capital markets.

Starwood Property Trust, Inc. remains in the market with its $300 million offering of five-year senior bullet notes (Ba3/BB), which was expected to price on Wednesday.

Meanwhile, the deals to price on Tuesday were struggling in the secondary space.

Denbury Resources Inc.’s 7½% senior notes due Feb. 15, 2024 (B3/B+) dominated trading activity in the secondary space with the notes trading below their issue price.

CIT Group Inc.’s newly priced 4¾% senior notes due Feb. 15, 2024 were also lagging their issue price in secondary activity, although the notes were slower to trade.

The flurry of trading activity surrounding Frontdoor, Inc.’s newly priced 6¾% senior notes due 2026 (B2/B-) tempered on Wednesday.

While few bonds traded, they were seen backing off Tuesday’s gains.

With the barrel price of West Texas intermediate crude oil for September delivery dropping more than $2, California Resources Corp.’s 8% senior secured second-lien notes due December 2022 were active and also trading down in the secondary space.

Volatile markets

Although one and possibly two drive-by deals were expected on Wednesday, the new issue market went quiet as volatility related to the strong U.S. dollar's corrosive impact on commodity prices, and the carryover effects – especially on European share prices – rocked the global capital markets, sources said.

Stocks slid Wednesday and junk was going along for the ride, in what one trader referred to as a “macro Turkey trade.”

It was a reference to emerging markets, where headlines during the summer have been dominated by ongoing political and financial strife in Turkey, a buyside source explained.

However, it’s really a story about the strong U.S. dollar putting pressure on commodities, and on the currencies of commodities-sensitive emerging markets countries, resulting in falling commodities prices that are lately dragging down European shares, the source added.

Starwood on deck

Heading into Wednesday's session there was a single deal on the active forward calendar.

Starwood Property Trust is in the market with a $300 million offering of five-year senior bullet notes (Ba3/BB).

It was scheduled to be marketed by means of a Tuesday conference call with investors and was expected to price Wednesday. However, there was no news on the deal at press time.

No new roadshow announcements are expected before the extended Labor Day holiday weekend – the traditional summer-fall dateline in the debt capital markets – set to get underway following the Friday, Aug. 31 close, a syndicate banker said.

The post-Labor Day new issue market is expected to pick up, with the driving force being a substantial pipeline of merger and acquisition financing, the banker added.

Denbury dominates

Denbury Resources newly priced 7½% senior notes due 2024 dominated trading activity in the secondary space although the notes were struggling.

The 7½% notes were trading in a range of 99½ to par 1/8 on Wednesday with about $62 million of the bonds on the tape by the late afternoon, a market source said.

The notes closed Tuesday at par ¼.

The drop in crude oil was having an impact on the performance of the notes from the petroleum and natural gas exploration and production company, a market source said.

While the deal was said to be oversubscribed, much of that was driven by flippers with the real demand from long-term holder much lower, the source said.

Denbury priced an upsized $450 million issue of the senior secured second-lien notes at par in a drive-by on Tuesday. The issue size was increased from $400 million.

The yield printed in the middle of yield talk in the 7½% area.

CIT lags

CIT Group’s newly priced 4¾% senior notes due Feb. 2024 were also lagging their issue price on Wednesday.

The notes were seen trading in a range of 99¾ to par, according to a market source.

While active, trading of the new notes paled in comparison to Denbury’s new paper, with about $16 million of the bonds on the tape by late afternoon.

CIT Group priced a $500 million issue of the notes at par to yield 4¾%.

The yield printed on top of yield talk.

Frontdoor slows

After dominating activity in the secondary space on Tuesday, trading of Frontdoor’s newly priced 6¾% senior notes tempered on Wednesday.

Only about $5 million of the bonds were seen trading with the notes backing off their early gains.

The 6¾% notes were quoted at 101½ bid, 102 offered on Tuesday and were seen trading between 101 3/8 and 101¾, sources said.

The notes were wrapped around 102 in high-volume activity after breaking for trade on Tuesday with more than $62 million of the bonds on the tape.

Frontdoor priced a $350 million issue of the notes at par.

The yield printed 12.5 basis points below the tight end of yield talk in the 7% area. Earlier guidance was in the low 7% area.

California Resources drops

California Resources’ 8% senior notes due 2022 were dropping alongside the price of crude oil on Wednesday.

The notes were quoted at 86¾ bid, 87½ offered early Wednesday and continued to trade down as the session progressed.

They were seen changing hands at 86¼ in the late afternoon with about $18 million of the bonds on the tape.

Crude oil was down more than $2 during Wednesday’s session, dropping into the $64 range before closing at $65.01.

The drop in crude oil prices was attributed to an unexpected rise in U.S. crude oil inventories.

Mixed Tuesday flows

The daily cash flows of the dedicated high-yield bond funds were mixed on Tuesday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $119 million of inflows on the day.

However actively managed funds sustained $20 million of outflows on Tuesday, the trader said.

Indexes down

Three benchmarks for the high-yield secondary market posted losses on Wednesday.

The KDP High Yield Daily index was again down 5 basis points to close Wednesday at 70.34 with the yield now 5.87%. The index was also down 5 bps on Tuesday after opening the week flat.

The Merrill Lynch High Yield index was down 12.9 bps on Wednesday with the year-to-date return now 1.332%. The drop comes after a modest 2.5 point gain on Tuesday.

The index opened the week with losses dropping 4.3 bps on Monday.

The CDX High Yield 30 index was down 25 bps to close Wednesday at 106.59. The drop came after an 11 bps gain on Tuesday. The index was down 10 bps on Monday.

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