KLX prices; Western Digital drops; Transocean struggles again; United Rentals weak

By Paul A. Harris and Abigail W. Adams

Portland, Me., Oct. 26 – While the domestic high-yield primary market had been slated to price several deals during Friday’s session, only one cleared the market.

KLX Energy Services Holdings, Inc. priced a $250 million issue of seven-year senior secured notes (B3/B) at par to yield 11½%.

INTL FCStone Inc. was expected to price its $350 million offering and GEP Haynesville LLC its $600 million offering on Friday.

However, INTL FCStone carried its offering over to the Oct. 29 week and there was no news on GEP Haynesville’s deal after the market close.

While the forward calendar is light, it is not empty.

HC2 Holdings, Inc. and Vector Group Ltd. have offerings on tap that are expected to price during the Oct. 29 week.

Meanwhile, some of the deals that priced during the past week were struggling on Friday, which was another soft day for the secondary space, sources said.

Transocean Inc.’s newly priced 7¼% senior notes due 2025 (B3/B) were down 1¼ points with the notes now moving on a 98 handle.

United Rentals (North America) Inc.’s newly priced 6½% senior notes due 2026 (Ba3/BB) weakened on Friday, giving up some of Thursday’s gains.

Among established issues, Western Digital Corp.’s 4¾% senior notes due 2026 were down almost 2 points in high-volume activity after the company reported first-quarter earnings.

Mattel, Inc.’s 6¾% senior notes due 2025 (B1/BB-/BB) were also losing ground after seeing large gains on Thursday post-earnings.

California Resources Corp.’s 8% senior notes due 2022 also saw an almost 2-point loss on Friday as crude oil futures slid in intraday trading and with earnings around the corner.

KLX prices wide of talk

Amid continuing capital markets turmoil, dealers managed to price just one of three deals that had been scheduled to clear ahead of the weekend.

And the price for that sole issuer was by no means cheap.

KLX Energy Services priced a $250 million issue of seven-year senior secured notes (B3/B) at par to yield 11½%.

The yield printed 75 basis points beyond the wide end of the 10½% to 10¾% official price talk.

Initial guidance had been in the mid to high 9% area, a trader said. The deal was heard to have generated just $40 million of orders within that range by early Thursday, the source said.

J.P. Morgan and Goldman Sachs were the joint bookrunners.

The Wellington, Fla.-based oilfield services provider plans to use the proceeds to help fund its acquisition of Motley Services, LLC, with the balance of the proceeds to be used for general corporate purposes, including acquisitions.

Carry over

Elsewhere, INTL FCStone was expected to price its $350 million offering of five-year senior secured notes (Ba3/BB-) that was talked earlier in the week to yield 8½% to 8¾%, including an original issue discount.

However, that deal was moved into the week ahead, an informed source said.

Also, GEP Haynesville had been expected to price its $600 million offering of five-year senior notes (B3/B) on Friday.

No news surfaced on by the market close on Friday, a trader said.

Initial talk had it coming to yield 8½% to 8¾%. However, pricing is likely to have moved into the 9% context, a trader said, adding that the order book was heard to be in decent shape.

Two on the road

The Oct. 29 week is set to get underway with a light active calendar.

In addition to INTL FCStone, HC2 Holdings is on the road with a $535 million offering of five-year senior secured notes (Caa1/B-).

Initial guidance has it coming with a yield in the low to mid 9% area, a trader said.

The roadshow travels to Los Angeles on Monday and the deal is scheduled to price early in the week.

And Vector Group is also scheduled to conclude its roadshow on Monday in Los Angeles for a $325 million offering of eight-year senior notes (B2/B-).

Jefferies is the sole bookrunner for both HC2 and Vector Group.

Transocean struggles continue

Transocean’s 7¼% senior notes due 2025 dropped 1¼ points to a 98 handle on Friday. The notes were seen at 98 bid, 98¾ offered. They were at 99¼ bid, par ¼ offered on Thursday.

While Friday was another rough day for the oil and gas sector with crude oil futures sliding more than $1.13 in intra-day trading, Transocean’s 7¼ notes have struggled since pricing on Monday.

The notes have traded below their issue price since breaking for trade. Sources attributed the lackluster performance of the notes to the deal struggling to get done as opposed to market conditions.

Transocean priced a $750 million issue of the 7¼% notes at par in a Monday drive-by.

The yield printed in the middle of official yield talk in the 7¼% area, which was also preliminary talk.

United Rentals weakens

United Rentals’ new 6½% notes due 2026 weakened in active trading on Friday, giving back some of the gains seen during Thursday’s session.

The notes were down about ¼ point to par ¼, a market source said.

After barely holding par after breaking for trade on Wednesday, United Rentals gained about ½ point to close Thursday at par ½, a market source said.

United Rentals priced a $1.1 billion issue of the 6½% notes at par in a Wednesday drive-by.

The yield printed in the middle of yield talk that was set in the 6½% area. Initial guidance was also announced in the 6½% area.

Western Digital in focus

Western Digital’s 4¾% senior notes due 2026 were down almost 2 points in high-volume activity after the data storage company reported first-quarter earnings.

The notes dropped to 93 3/8, a market source said.

More than $42 million of the bonds were in play by mid-afternoon.

Western Digital’s convertible bonds and equity also dropped in response to the earnings report.

While the reported earnings per share of $3.04 were in line with analyst expectations, the data storage company missed on revenue.

Western Digital reported $5.03 billion in revenue in the first quarter versus analyst expectations of revenue of $5.14 billion.

Like many other companies in the tech sector, Western Digital is anticipating slower growth.

Mattel gives back

Mattel’s 6¾% senior notes were in focus and losing ground after the toy manufacturer reported earnings after the market close Thursday.

The notes dropped about 1½ points to a 95 handle on Friday, a market source said.

They were seen changing hands at 95 3/8 with about $39 million of the bonds on the tape in the mid-afternoon.

The 6¾% notes have seen higher than average trading volume throughout the week, sources said.

Inter-dealer trades accounted for a large portion of the trading activity on Friday, a source said.

The notes were under pressure in the early part of the week and dropped to a 94 handle after competitor Hasbro reported earnings with declining revenue due to Toys “R” Us store closures.

However, Mattel’s notes jumped 2 points to trade between 96 3/8 and 96½ Thursday afternoon after the company announced its third-quarter earnings.

Mattel reported earnings per share of 18 cents on revenue of $1.44 billion for the third quarter versus analyst expectations for earnings per share of 20 cents on revenue of $1.49 billion.

While an earnings miss, Mattel reported a large growth in year-over-year operating income, CNBC reported.

California Resources down

California Resources 8% senior notes due 2022 were down as much as 2 points on Friday as crude oil futures slid in intra-day trading.

The 8% notes were seen at 90¾ bid, 91½ offered on Friday, according to market sources.

They were seen changing hands at 91¼ with more than $26 million of the bonds on the tape by the late afternoon.

The 8% notes were at 92½ bid, 93¼ offered on Thursday.

The price of West Texas intermediate crude oil for December delivery dropped by more than $1.13 during Friday’s session.

However, crude oil futures staged a late-day recovery to settle at $67.59, an increase of 26 cents or 0.39%.

While there was previous speculation crude oil futures might cross $100, the optimism is now fading on fears of oversupply driven by increased production from Russia and the OPEC countries.

California Resources is scheduled to report earnings on Nov. 1.

Thursday outflows

Dedicated high-yield bond funds sustained moderate outflows on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs were negative $73 million on the day.

Actively managed high yield funds saw $50 million of outflows on Thursday, the source said.

News of the daily flows trailed a Thursday afternoon report that the combined funds sustained $2,364,000,000 of outflows on the week to Wednesday’s close, according to Lipper US Fund Flows.

Although the weekly outflow reported Thursday was the third to top the $1 billion mark in the past five weeks, it represents the sum of daily outflows that moderated as the week progressed, with the biggest negative flows coming in the early part of the reporting period, which began on Thursday, Oct. 18, the trader said.

Outflows from dedicated high-yield bond funds totaled $31 billion for 2018 at Wednesday’s close, the source said, adding that $22.9 billion of that amount came out of actively managed funds while $8.1 billion came out of the high-yield ETFs.

Indexes close week with steep losses

Indexes closed out Friday with steep losses after a brutal week that saw markets in the red.

The KDP High Yield Daily index dropped 17 basis points to close Friday at 69.24 with the yield now 6.28%.

The index posted consecutive losses throughout the week. The index was down 6 bps on Thursday, 15 bps on Wednesday, 12 bps on Tuesday and 10 bps on Monday for a 60 bps drop on the week.

The ICE BofAML US High Yield index dropped below the 1% threshold on Friday. The index was down 25.6 bps with the year-to-date return now 0.762%.

The index dropped 20.3 bps on Thursday after a 6.2 bps climb on Wednesday. The index was down 33.8 bps on Tuesday and 1 bp on Monday for a 74.5 bps drop on the week.

The CDX High Yield 30 index dropped 31 bps to close Friday at 104.79. The index was down 92 bps on the week.

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