Harsco drops deal, primary quiet to end $9.2 billion week; recent deals busy but market easier

By Paul A. Harris and Paul Deckelman

New York, June 5 – The high-yield primary market closed out the first week of June on Friday on a quiet note after several sessions characterized by heavy new issuance.

Not only did no deals price all day, but the one deal on the forward calendar that looked like it might come to market on Friday was instead heard to have been pulled. Harsco Corp., a Camp Hill, Pa.-based industrial services and engineered products company, cited unfavorable market conditions as the reason it withdraw its planned $250 million offering of five-year notes.

Other than that, there was no news coming out of the new-deal realm.

The lack of any pricing action left the week’s tally of new U.S. dollar-denominated and fully junk-rated paper right where it had been at the close on Thursday, with $9.22 billion heard by syndicate sources to have come to market in 15 tranches during the week.

That was up from the $8.97 billion that got done by domestic and industrialized-country borrowers during the week ended May 29, also in 15 tranches, according to data compiled by Prospect News.

This week’s deals meanwhile brought year-to-date new junk bond issuance up to $172.00 billion in 273 tranches as of Friday’s close, running 15.3% ahead of the pace seen last year, when $149.07 billion of paper had priced in 277 tranches by this point on the calendar, according to the data. That was something of an acceleration from last week, when this year’s new issuance had been running about 12% ahead of last year’s pace.

While there was no new-issue activity during the session, traders reported brisk volume in some of the recently priced junk deals such as Thursday’s offerings from XPO Logistics Inc., CEB, Inc., Life Time Fitness Inc. and DuPont Fabros Technology, LP, as well as the Tenet Healthcare Corp. transaction that priced earlier in the week. All of those issues were lower on the session, in line with a generic ¼ to ½ point retreat in junk overall.

Reflecting that downturn, statistical indicators of junk market performance were lower across the board for a fourth consecutive session on Friday.

They were also down all around from where they had finished out last week, in contrast to the across-the-board week-over-week gain seen at that time. This week’s downturn was the second such retreat in the last three weeks.

Harsco pulled

The Friday session produced very little news in the new issue market. The news which did circulate was negative.

Harsco cited market conditions late Friday as it withdrew its proposed $250 million offering of five-year senior notes (Ba1/BB/BBB-).

The five-year notes ran a roadshow during the early part of the June 1 week, at the conclusion of which yield talk of 6% to 6¼% surfaced, according to an informed source.

Books were scheduled to close late Wednesday and the deal was set to price Thursday, but was first pushed into Friday’s session and then pulled.

Citigroup, Credit Suisse, HSBC, J.P. Morgan, MUFG, RBC and U.S. Bancorp were the joint bookrunners.

The week ahead

The coming week is a question mark, with continued volatility in Treasuries creating headwinds for high-yield issuers, especially the better-rated opportunistic ones that may not be able to realize the ultra-low costs of capital which issuers enjoyed earlier this year.

Nevertheless, pending market conditions, the week ahead will get underway with at least four issuers from across the high-yield credit spectrum in search of hospitable market conditions in which to price junk bond deals, a debt capital markets banker said on Friday.

None of those four deals will be sized over $1 billion, the banker added.

Outflows on Thursday

Meanwhile the cash flows of dedicated high-yield funds were negative on Thursday, the most recent session for which data was available at press time, according to a market source.

High-yield ETFs saw $271 million of outflows on Thursday, the source said.

Actively managed funds saw $105 million of outflows.

At another desk, a trader saw “lots of ETF redemptions today. We saw bid lists all day long.”

Overall, “stuff was definitely softer,” he said.

He added that generically, junk was about ¼ point softer, “some stuff more than that – the longer duration, and more sensitive to Treasuries, down as much as ½.”

Thursday deals trade lower

Among the issues that were seen heading south were the new deals which had come to market on Thursday.

Thursday’s big deal of the day – XPO Logistics’ 6½% notes due 2022 – was seen by one trader during the morning around 99½ bid, par offered.

Later on in the session, that had narrowed to a 99 7/8 to 100 1/8 bid context, another trader said, calling them down 3/8 point on the day.

Later still, a market source pegged the bonds at par, saying they were down ¼ point on the session. Volume was a brisk $24 million putting the issue among Junkbondland’s most actively traded credits.

The Greenwich, Conn.-based transportation logistics provider priced $1.6 billion of those notes at par on Thursday as part of a two-piece deal that also included a euro-denominated tranche of six-year fixed-rate notes. That regularly scheduled forward calendar offering had originally also included a prospective third tranche, of euro-denominated floating-rate notes, and a fourth tranche, of sterling-denominated paper, although those extra tranches were dropped.

After their pricing, the new dollar bonds traded a little above their issue price on Thursday, on heavy volume of over $114 million.

CEB’s 5 5/8% notes due 2023 were also actively traded on Friday, with a market source seeing more than $20 million of the Arlington, Va.-based business solutions company’ paper changing hands. He saw the bonds down 5/8 point on the day, ending at 100 1/8 bid.

A second trader said the notes were “trading really wide,” around a 100¼ to 101¼ context during the morning.

Later on, he said, “a bunch” were trading in a tighter 100¼ to 100½ context, before ending somewhere between 100 1/8 and 100 3/8.

The $250 million issue had priced at par on Thursday off the forward calendar.

Life Time Fitness’ 8½% notes due 2023 finished at 99 7/8 bid, a trader said, calling that down about 1/8 point, on volume of about $16 million.

A second market source saw them trading between 99 7/8 and 100¼, which he reckoned as down 3/8 point.

The Chanhassen, Minn.-based operator of professional fitness centers, family recreation and spa destinations priced $450 million of the notes on Thursday at par off the calendar, after the deal was downsized from $600 million originally. The notes traded around par when they initially hit the aftermarket.

DuPont Fabros’ 5 3/8% notes due 2023 fell by 1 1/8 point on Friday to 99 3/8 point, a market source said, seeing more than $16 million changing hands.

The Washington, D.C.-based data-centers operator, priced $250 million of the notes at 99.205 to yield 5¾% after the forward calendar offering had been restructured from what originally was a 10-year piece of paper, with the issue’s call protection was also shortened accordingly.

Tenet trades off

Tenet Healthcare’s big new issue of 6¾% notes due 2023 continued to trade actively on Friday, though at lower levels.

A trader said that more than $39 million of those bonds moved around on Friday, pegging them off about 1/8 point at 100 15/16.

However, at another desk, a trader said that while the Dallas-based hospital operator’s notes had been “wrapped around 101 first thing this morning,” they softened up a little during the day to trade between 100 5/8 and 101 bid.

“So they were a little softer on the session, but still well above their issue price,” he said.

Tenet had priced $1.9 billion of those notes at par on Tuesday, as part of a quick-to-market $2.8 billion offering that also included $900 million of senior secured floating-rate news due 2020.

When both tranches of bonds began trading Wednesday, they were easily the busiest junk credits, with over $277 million of the fixed-rate bonds and $143 million of the floaters having traded.

The fixed-rate notes had jumped to the 101 level on Wednesday and had stayed there on Thursday, when over $74 million changed hands.

Indicators extend skid

Statistical indicators of junk market performance were lower across the board for a fourth consecutive session on Friday.

They were also down all around from where they had finished out last week, in contrast to the across-the-board week-over-week gain seen at that time. This week’s downturn was the second such retreat in the last three weeks.

The KDP High Yield Daily Index slid by 16 basis points on Friday to close at 71.10, its fourth straight loss and fifth setback in the last six sessions. It had also plunged by 15 bps on Thursday to 71.26, after having registered smaller losses on Tuesday and Wednesday.

Its yield rose by 6 bps to 5.48%, its third straight widening. On Thursday, it had ballooned out by 10 bps, after having moved up by 1 bp on Wednesday.

Those levels compared unfavorably with the 71.49 index reading and 5.32% yield recorded the previous Friday, May 29.

The Markit Series 24 CDX North American High Yield Index lost 7/32 point on Friday to close at 106½ bid, 106 17/32 offered, its fourth consecutive loss. It had also been down by 5/32 point on Thursday and 7/32 point on Wednesday.

The index finished the week down from the 107 1/16 bid, 107 3/32 offered seen at the close last Friday.

The Merrill Lynch North American Master II High Yield Index meanwhile lost ground for a fifth successive session, dropping by 0.303%, on top of Thursday’s 0.18% retreat and Wednesday’s 0.155% downturn.

Friday’s setback lowered the index’s year-to-date return to 3.293% from 3.606% on Thursday. Those levels, in turn, were down from last Friday’s 4.062%, the index’s peak level for the year so far.

For the week, the index lost 0.739%, its first weekly loss after the previous week’s 0.159% gain. It was the second weekly loss in the last three sessions.

© 2015 Prospect News.
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