GCP prices to cap $1.3 billion week; new GCP, Treehouse trade higher; energy continues rebound

By Paul Deckelman and Paul A. Harris

New York, Jan. 22 – The high-yield market put together its second consecutive strong showing on Friday, riding the momentum generated by Thursday’s big upturn, aided by favorable tailwinds in the form of continued gains in equity and crude oil prices.

One new issue priced during Friday’s session – $525 million of seven-year notes from GCP Applied Technologies Inc., a Columbia, Md.-based provider of specialty construction chemicals building materials and packaging technologies being spun off from chemical manufacturer W.R. Grace. It was the first regularly scheduled deal to price off the forward calendar following a roadshow this year, following several opportunistically timed and quickly shopped drive-by offerings.

As was the case with Thursday’s new deal – Oak Brook, Ill.-based packaged food and beverage producer Treehouse Foods, Inc.’s $775 million of eight-year notes – the GCP deal was well over-subscribed by potential investors, priced at the tight end of pre-deal guidance and firmed smartly when it hit the aftermarket.

The GCP deal brought the week’s total of new issuance of junk-rated, U.S. dollar-denominated paper from domestic or industrialized-country borrowers to $1.3 billion in two tranches, up from the $350 million that had priced in one tranche the week before, ended Jan. 15.

It was the heaviest new-issuance total of any of the three weeks since the start of 2016, and the week was the first to see as many as two syndicated high-yield deals come to market.

The week’s new issuance raised the total of junk paper that has priced so far this year to $2.52 billion in five tranches, according to data compiled by Prospect News. But that was still some 73% lower than the new-deal pace seen at this time last year, when $9.36 billion had priced in 17 tranches by this point on the 2015 calendar.

In the secondary market – besides the aforementioned strong trading levels of the week’s two new issues – traders saw a continuation of the strong comeback that energy credits such as Whiting Petroleum Corp., WPX Energy Inc., Oasis Petroleum Inc., California Resources Corp. and Chesapeake Energy Corp., among others, had begun on Thursday after having been down multiple points in heavy trading earlier in the week.

There likewise was continued strength in Sprint Corp. paper, which also moved up sharply on Thursday and again on Friday in a recovery from big losses earlier in the week.

Statistical measures of junk market performance during the holiday-shortened week moved higher for a second consecutive session Friday; the indicators had turned higher on Thursday after having been mixed on Wednesday – their first such unified upturn since Jan. 5.

Propelled by the strong gains of the past two sessions, those indicators were also going home higher than they had been at the end of last week, their first higher week after two straight weeks in which the market measures had been lower on the week, and the third higher week in the last five.

GCP oversubscribed

GCP Applied Technologies priced a $525 million issue of seven-year senior notes (B1/B+) at par to yield 9½% on Friday.

The yield printed at the tight end of the 9½% to 9¾% yield talk.

Market buzz held that the deal was four-times oversubscribed.

The notes were ripping in the secondary market, with one source spotting them trading either side of 103: at 102¾ bid, 103¼ offered.

Another market source saw them trading at 103 bid, 103½ offered.

The deal, to help finance the spin-off of the company from W. R. Grace & Co., underwent covenant changes.

Goldman Sachs was the left bookrunner. Deutsche Bank, BofA Merrill Lynch and Citigroup were the joint bookrunners.

Amid chop, good executions

Although just two deals priced during the holiday foreshortened Jan. 18 week – one on Thursday and one on Friday – both went well sources say.

Thursday’s deal was TreeHouse Foods’ $775 million issue of senior notes due Feb. 15, 2024 (Ba3/BB) which priced at par to yield 6%, at the tight end of the 6% to 6¼% yield talk. It was said to have played to a book that was multiple times oversubscribed.

The new TreeHouse bonds traded as high as 103 bid, 103½ offered on Friday, according to a sellside source who had them going out at 102 bid, 102½ offered.

Food is the hot sector of 2016, so far, the sellsider said, adding that Pinnacle Foods Inc.’s $350 million issue of eight-year senior notes (B2/B+), which priced at par to yield 5 7/8% on Jan. 11, also went well.

However the field of 2016 deals, to Friday’s close – five have priced, four of which were widely syndicated – is hardly vast, the source conceded.

Tight lips, crossed fingers

What the past week’s two strong executions portend for the week ahead remained unclear heading into the weekend, sources said.

The dealers were not saying much on Friday.

People have their fingers crossed, hoping that the stability seen on Thursday and Friday will indeed carry into the week ahead, providing a supportive backdrop for a regenerated new issue market.

Although there is a shadow calendar that contains bridged deals which are time-sensitive – with dealers keen to syndicate the bonds – it’s not clear who will step forward should the stability in the capital markets carry over into the week ahead.

Acadia Healthcare Co. Inc.’s expected $390 million of senior notes should be close at hand, a debt capital markets banker said on Friday. BofA Merrill Lynch and Jefferies are the leads for the deal backing the Priory Group acquisition.

And Endurance International Group Holdings Inc. (EIG Investors Corp.) could be nearby with a $350 million offering of senior notes to help fund the acquisition of Constant Contact Inc. The bonds are expected to be led by Goldman Sachs and Credit Suisse.

As reported, the company launched its $735 million incremental seven-year first-lien term loan on Thursday with price talk of Libor plus 500 basis points with a 1% Libor floor and an original issue discount of 98.

Based on those numbers, the bonds should yield around 9%, the banker said.

Heading into late-January, earnings blackouts will impede activity in the primary market, the source added.

Mixed flows

Cash flows for dedicated high-yield bond funds were mixed on Thursday, the most recent session for which data was available at press time, according to a trader.

High-yield ETFs saw $191 million of inflows on the day.

However actively managed funds sustained $300 million of outflows on Thursday.

Those numbers trailed Thursday’s news that the dedicated junk funds sustained $2 billion of outflows during the week to Wednesday’s close.

Away from the bond market, dedicated bank loan funds saw $360 million of outflows on Wednesday, the trader said.

GCP paper pops

In the secondary market, traders noted the strong upside showing of the new GCP Applied Technologies 9½% notes due 2023.

“They were actively traded around 103” bid, a trader said, well up from their par issue price.

A second trader also saw the bonds bid at 103.

At another desk, a market source said that he had seen two-sided dealings in a 102¾ to 103¼ context.

Treehouse trades up, again

Those gains mirrored the strong showing made by the week’s other new deal, Thursday’s issue of 6% notes due 2024 from Treehouse Foods.

“Treehouse did trade well,” a trader said, hitting highs “north of 103,” although he saw the issue going out in a 102 to 102½ bid context.

“That was on pretty good volume,” he said.

A second trader saw the bonds at 102 1/8 bid, 102 5/8 offered.

But at another desk, a trader quoted the paper in a 102 7/8 bid, 103 3/8 context.

The Treehouse issue had priced at par late in the session on Thursday and had moved up to a 101½ to 102¼ bid context.

A trader noted the role played by pent-up demand for new paper in the smart gains recorded by the new issues of both GCP and Treehouse; the latter new deal was the first new issue in Junkbondland since another packaged foods manufacturer – Parsippany, N.J.-based Pinnacle Foods Inc. – priced $350 million of 5 7/8% notes due 2024 at par back on Jan. 11.

“Obviously, there have been very few deals of decent quality,” he said.

So there was definitely some pent-up demand.”

“There’s been so much stuff that’s been blowing up in the market,” another trader opined, “that I think that if a deal can get done in the market then obviously it’s a safer piece of paper and people are comfortable with it.”

He also said that “it helped that the overall tone of the market changed a bit” over Thursday’s and Friday’s sessions.

He speculated that “deals are probably pricing on the wider end, given the general tone of the market. In a more normalized market, would these deals have priced a good deal tighter?”

Overall market firmer

A trader said that the “the overall market was much, much stronger than we’ve seen all year so far,” adding that “it had been under significant pressure for most of the year, so at some point there was going to be some kind of a bounceback.”

He said that “definitely, these distressed E&P names saw a move back up today.”

Oil price gains spur energy

As was the case on Thursday, higher crude oil prices were a key driver in the energy sector’s recovery.

The March contract for the benchmark U.S. crude oil grade, West Texas Intermediate, jumped by $2.66 per barrel in Friday trading on the New York Mercantile Exchange, ending at $32.19.

That came on top of Thursday’s rise of $1.18 per barrel, which had broken a three-session losing streak that had seen the WTI price down in the upper 20s.

The March contract for the benchmark international grade, Brent crude, rocketed up by $2.93 per barrel in Friday trading on the London ICE Futures Exchange, settling at $32.18, on top of having soared by $1.37 per barrel on Thursday – also its first upturn after three straight days of losses.

“Energy was rebounding, big time,” one of the traders said, seeing the Oasis Petroleum 6½% notes due 2021 up by more than 12 points, closing at 54¾ bid.

He saw Whiting Petroleum’s 5% notes due 2019 gaining 9 points on the day.

At another desk, a market source saw the Denver-based E&P company’s paper up 7 3/8 points on the day at 59 5/8 bid.

At another desk, a trader saw California Resources Corp.’s 8% notes due 2022 “trading in the low 40s – that’s up a few points.”

He saw Chesapeake Energy’s 8% notes due 2022 move up to a 46-47 context, versus 43 on Thursday.

“Part of that was the rally and part of that was the news about them suspending their preferred dividend – I guess that preserves cash that they could possibly use for [bond] buybacks or whatever.

“Them not paying out [dividends] to the lower parts of the cap structure, the preferred dividends, is a good thing.”

Other energy names on the rebound Friday included Carrizo Oil & Gas, Inc.’s 7½% notes due 2020, which were up 6 points to 73½ bid, a market source said.

He also saw WPX Energy’s 6% notes due 2022 as 5 point winners, finishing the day at just over 57 bid.

Halcon Resources Corp.’s 8 5/8% notes due 2020 ended at 62 bid, up 4¾ points.

Sprint surge continues

Away from the energy credits, “Sprint remained topical and one of the most active names,” a trader said, seeing them “a little bit better today.”

It was the second straight session the Sprint bonds were going up by multiple points – after having been badly beaten down on Tuesday and again on Wednesday.

He saw the Overland Park, Kan.-based Number-Three U.S. wireless carrier’s 7 7/8% notes due 2023 trading around 65 bid, up from a 62-63 context on Thursday.

Sprint’s 7% notes due 2020 – Wednesday’s biggest loser, having been slashed by 12 point that session down to 60 bid – were trading “as high as 67,” he said. That was up from the 63 bid level to which the bonds had risen on Thursday as they began their rebound.

“The various parts of the Sprint capital structure were up from 2 to 4 points” on Friday, he said, matching the Thursday gains.

Another trader said that “some of the back-end Sprint stuff was up by 1 to 2 points on Friday.

He saw the Sprint 2023 bonds up 2½ points and saw its 7 5/8% notes due 2025 up by 3 points, “on very heavy volume as well.”

Indicators up on day, week

Statistical measures of junk market performance during the holiday-shortened week moved higher for a second consecutive session Friday; the indicators had turned higher on Thursday after having been mixed on Wednesday – their first such unified upturn since Jan. 5.

Propelled by the strong gains of the past two sessions, those indicators were also going home higher than they had been at the end of last week. It was their first higher week after two straight weeks in which the market measures had been lower on the week, and the third higher week in the last five.

The KDP High Yield Daily Index zoomed by 64 basis points on Friday to end at 62.44. It was the second straight gain for the index, which had also jumped by 39 bps on Thursday, breaking a seven-session losing streak.

During the week, the index had set a fourth straight new low of 2016 and a new 52-week closing low of 61.41 on Wednesday – its lowest close since May 27, 2009, when it finished at 61.36.

Its yield, meantime, tightened by 20 bps on Friday, finishing at 7.41%, its second consecutive narrowing; on Thursday, it had come in by 12 bps. It was the third narrowing in the last 10 sessions, a stretch which included at one point five successive trading days during which the yield had risen.

Friday’s levels compared favorably to the 62.18 index reading and the 7.50% yield seen last Friday.

The Markit Series 25 CDX North American High Yield Index posted its second straight gain on Friday and its third advance in the last seven trading days. It soared by 1 1/16 points to go home at 98 31/32 bid, 99 1/32 offered, after having risen by ¼ point on Thursday.

For the week, it was up from last Friday’s 97 ¾ bid, 97 7/8 offered level.

The Merrill Lynch North American High Yield Master II Index saw its biggest one-day gain for the year so far on Friday, as it climbed by 0.984% – its second straight gain after one loss and its fourth such upturn in the last five sessions.

On Thursday, it had been seen up by 0.488%. That gain, in turn, followed Wednesday’s plunge of some 1.416% on Wednesday – its biggest one-day loss for the year so far and one of the biggest one-day retreats ever recorded.

Friday’s gain cut the index’s year-to-date loss to 2.679% from 3.627% on Thursday and from 4.095% Wednesday – its worst level for the year so far.

For the week, the index rose by 0.111%, its first weekly gain so far this year after two straight weekly losses.

It was only the second weekly gain in the last 10 trading weeks. It had been lost 2.521% during the week ended Jan. 15 – easily the biggest weekly loss on the year and one of the largest weekly downturns ever.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.