Oil names off again as crude slides goes on, but drop slows; Cliffs climbs; NCI deal slates

By Paul Deckelman and Paul A. Harris

New York, Jan. 6 – It was a case of more of the same on Tuesday for the high-yield market in general and the energy space in particular, as they again declined in the face of a continued drop in the world price of crude oil.

But traders said that unlike Monday, when Junkbondland saw energy credits like California Resources Corp. and Linn Energy LLC fall by multiple points in active trading as crude prices swooned, on Tuesday, those bonds were only off by a modest amount, even though crude continued to cascade downward.

Also in the energy realm, the recently battered bonds of coal and iron ore producer Cliffs Natural Resources Inc. actually turned upward, although there was no fresh news seen out on the company one way or another.

Away from the energy space, the overall junk market remained lower. Notable names included iHeartMedia Inc., Level 3 Communications, Inc. and European cable operator Numericable SFR – the latter credit down big in heavy trading even as corporate parent Altice SA was shopping around an anticipated €5 billion equivalent multi-tranche offering for likely pricing next week.

The primary also saw a prospective offering from NCI Building Systems, Inc. joining the forward calendar.

Statistical measures of junk market performance were lower across the board for a second straight session on Tuesday; they had also fallen on Monday, after having been mixed on Friday and higher earlier last week.

NCI Building starts roadshow

Three sessions into the new year, the first high-yield deal of 2015 has yet to price.

However one deal, announced Tuesday, is expected to price by the end of the week.

NCI Building Systems began a roadshow for a $250 million offering of eight-year senior notes (B3//) via Credit Suisse, Citigroup, RBC and UBS.

Proceeds will be used to help fund the acquisition of Pittsburgh-based insulated metal panel producer Centria, Inc.

A January pipeline

Volatility in the global capital markets is slowing down the new year deal pipeline, sources said Tuesday.

Nevertheless there is a pipeline.

On Tuesday sources continued to profess the expectation that Altice will show up next week with a big multi-tranche offering.

Just ahead of the Christmas hiatus the acquisition deal was heard to be coming sized at €5 billion equivalent of secured and unsecured notes via Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan, Morgan Stanley, BNP Paribas, Citigroup, Credit Agricole, HSBC, Nomura and SG CIB.

And there is a pipeline of expected January deals beyond Altice, according to a debt capital markets banker who added that some issuers are focused on getting deals done prior to being sidelined in the month ahead by earnings blackouts.

Given some stability, there should be drive-by activity next week, the source added.

Market volatility late in 2014 caused price talk to back up for issuers attempting to price new deals amid the chop, the official recounted.

Although that volatility – related to the dramatic fall in crude oil prices – remains in play in the new year, the frothiness could be chipped away quickly should the volatility subside, and rates could swiftly move in favor of issuers.

“There’s room to rally for certain companies,” the official asserted.

Cash flows mixed

Meanwhile cash flows for dedicated high-yield funds were mixed on Monday, the most recent session for which data was available at press time, sources said.

Monday’s flows picture saw ETFs sustaining $45 million of net outflows while actively managed funds saw $5 million of inflows, an investor said.

Bank loan funds, meanwhile, saw $120 million of outflows on Monday, the source added.

New deals coming

A high-yield trader said that he was “hearing that the month could be fairly active” in terms of upcoming issuance, though he had heard no real estimates as to how much paper might be coming to market.

“It’s just chatter – I don’t know if it means anything yet.”

He said that the high-grade market, meanwhile, “is expecting a robust month. I don’t know if that’s going to translate into high yield as well.”

Oil off but bonds’ slide slows

Strictly looking at the secondary sphere, meanwhile, Tuesday’s session was again characterized by falling crude oil prices, with West Texas Intermediate grade crude for February delivery sliding by another $2.23 on the day, or 4.46%, to settle at $47.81 per barrel.

That came on top of a 5% downturn in the bellwether U.S. crude oil grade on Monday – when it briefly touched levels below $50 per barrel for the first time since 2009.

But unlike what happened on Monday, when many energy names were down by multiple points in response to petroleum’s plunge, the trader said that “it was definitely slowing, as far as the pressure” on the bonds.

He said that “energy has been in the forefront of what’s trading these days and that was the case again today,” adding that “we did see things come out of the gate and start the day probably a point lower, but then they pretty much stabilized from there.”

For instance, California Resources’ 6% notes due 2024 – which had dropped more than 3 points on Monday, on volume of more than $40 million – again was the busiest junk name, with over $30 million changing hands.

The trader saw them off around 1 point from Monday’s levels at the outset, finishing the day down around ¾ point, between 80 and 81 bid.

He said that the Los Angeles-based oil and natural gas exploration and production company’s 6% bonds “are a benchmark – how goes oil, that how CalRes goes.”

He noted that “they don’t have any hedges” against potential oil price declines “so they’ve very directly correlated with how oil trades.”

At another desk, a trader pegged the bonds at 80½ bid, calling that down 1 point on the day in very busy trading.

He also saw the company’s 5½% notes due 2021 ½ point lower on 82 bid, with over $13 million having changed hands.

A second trader said that the story of the day was “the continued march south for oil and gas names.”

A trader saw Whiting Petroleum Corp.’s 6½% notes due 2018 down about 4¼ points to around the 95½ level, with “a couple of million trading.”

However, at another desk, the Denver-based E&P company’s bonds were only seen off by 1 to 1¼ points.

Its 5¾% notes due 2021 were seen ½ point lower at 90¾ bid, with about $15 million trading, making it one of the day’s busier junk credits.

A trader saw Houston-based Halcon Resources Corp.’s 9¼% notes due 2022 down 4¼ points at 70½ bid, with a few million bonds having traded.

Its 9¾% notes due 2020 lost 1½ points to end at 71½ bid, with over $10 million of turnover.

A market source quoted Linn Energy’s 8 5/8% notes due 2020 down by ¾ point at 86½ bid.

A second called the bonds down ¼ point at 87 bid

However, another trader said that the Houston-based E&P operator’s bonds had gotten as good as 89½ during the session, which he called a 2 point gain, on over $20 million of volume.

The Linn bonds remained well down from their levels of last week, when they had opened the new year trading as high as 94 bid.

Cliffs bonds climb

A trader said that “what was interesting was that even with the market weakness out of the gate this morning, Cliffs Natural Resources bonds were up a point or two,” a rise that he said took place not just on one of the Cleveland-based coal and iron ore producer’s bonds but across its whole capital structure of more than four or five credits.

“It’s been one of the outliers – but it showed actual strength.”

He theorized that the gain might have been linked to last week’s strengthening of iron ore prices “and talk of a stimulus in China,” a huge export market for American coal and minerals companies, both of which “are kind of helping it a little bit.”

He quickly added that “clearly, they are not out of the woods – but they did get a little pop.”

A second trader saw the Cliffs’ 3.95% notes due 2018 up 1¼ points to around 69 7/8 bid, on volume of about $8 million.

Non-energy names quietly lower

Away from the oil-related names, a trader said the overall junk bond market looked to be down about 3/8 point, but said there was “nothing to report besides oil and equities,” the latter of which ended down.

“Nothing that jumped out at me,” a second trader agreed when asked about market highlights.

Here and there, however, non-energy names did see some movement, mostly to the downside.

Broomfield, Colo.-based telecommunications company Level 3’s 5 3/8% notes due 2022 lost 1¼ points to end at 92¼ bid, on volume of more than $13 million.

Another loser was the French cable company Numericable, whose 6% notes due 2022 dropped by nearly a deuce to close at 98 5/8 bid, with over $21 million of the bonds having traded. Numericable’s 60% owner, Altice, is in the process of shopping a big new bond deal around, as noted above.

But a market source saw iHeart’s 10% notes due 2018 firm by ¼ point to end at 85 5/8 bid. Over $19 million of the San Antonio, Texas-based broadcasting and outdoor advertising company’s notes changed hands.

Indicators weaken again

Statistical indicators of junk market performance were lower across the board for a second consecutive session on Tuesday; they had also turned lower on Monday, after having been mixed on Friday and higher before that.

The KDP High Yield Daily Index plunged by 29 basis points to end at 70.31, its third straight loss; on Monday the index slid by 22 bps.

Its yield rose by 10 bps in Tuesday’s session to 5.75%, its second successive widening. That followed Monday’s 9 bps rise, which came after the yield had been unchanged for the previous four sessions.

The Markit Series 23 CDX North American High Yield Index also saw its third retreat in a row on Tuesday, dropping 7/16 point to close at 104 15/16 bid, 105 offered. It had also declined by 21/32 on Monday, on top of its 5/32 point loss on Friday.

The Merrill Lynch U.S. High Yield Master II Index remained on the downside for a second straight session on Tuesday, losing 0.345%. On Monday, it had been off by 0.268% – its first loss after having firmed over the previous 11 sessions.

Tuesday’s setback deepened the index’s year-to-date loss to 0.590% from 0.246%, which had been the first time the index’s cumulative return figure had shown a loss since Dec. 16, when it was 0.258% in the red – which in turn had been its first time in negative territory since October of 2011.

The Finra/Bloomberg U.S. High Yield Index volume was $4.306 billion – up from $3.588 billion at the close on Monday.

© 2015 Prospect News.
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