Primary quiet, forward calendar thin; Boyd Gaming dominates; Genworth backs off of Monday’s gains

By Paul A. Harris and Abigail W. Adams

Portland, Me., June 12 – The domestic and European primary market was quiet on Tuesday with no new deals pricing and the forward calendar thin.

New issue activity may be muted due to news impacting interest rates expected from the Federal Reserve Bank, the European Central Bank and the Bank of Japan prior to Friday’s close, according to a market source.

However, a dollar-denominated deal from a European issuer is expected to launch on Wednesday, and Ardent Health Services is marketing a $535 million offering of senior notes due 2026 on a roadshow set to wrap up on Thursday.

Meanwhile, Boyd Gaming Corp.’s newly priced 6% senior notes due 2026 (existing B3/confirmed B/confirmed B+) dominated secondary market activity although the deal “was kind of a snoozer,” with the notes hovering around par, a market source said.

Intelsat SA’s junk bonds remained busy in the secondary space although the notes were backing off Monday’s gains.

Genworth Financial Inc.’s junk bonds were also coming in slightly on Tuesday after a 5 point jump on Monday after news broke the acquisition of the Richmond, Va.-based insurance company by Beijing-based China Oceanwide Holdings Group Co. Ltd. had passed a regulatory hurdle.

A pipeline

The junk market remained dormant on Tuesday, sources said.

The conspicuous quiet in the new issue market is temporary with a dollar-denominated deal from a European issuer expected to launch on Wednesday, according to a senior debt capital markets banker in New York.

The financial calendar and political headlines may be serving to mute primary market activity this week, the banker said, noting that the Federal Reserve Bank, the European Central Bank and the Bank of Japan are each expected to generate news bearing upon interest rates, prior to Friday's close.

And all of that atop uncertainties surrounding the historic summit meeting between President Trump and North Korean leader Kim Jong Un at the Capella Hotel on Singapore's Sentosa Island.

News surrounding the technical backdrop of the high-yield market has tended to be somewhat negative, with rising interest rates and a steady flow of retail cash away from the asset class.

In the latter category, the dedicated high-yield bond funds were heard to sustain $2.42 billion of outflows in the week to the June 6 close, according to a report late last week from AMG Data Services Inc.

As the biggest weekly outflow in six weeks, it was conspicuous among a steady stream of outflows for the year, the banker said.

The junk funds, including high-yield mutual funds and ETFs, are in the red to the tune of $17.52 billion, year-to-date, according to a Prospect News analysis of the AMG data.

Good executions

The above-mentioned headwinds notwithstanding, issuers are seeing good executions in the high-yield primary market, the banker said.

On Monday, Boyd Gaming priced an upsized $700 million issue 6% senior notes due August 2026 (existing B3/confirmed B/confirmed B+).

The oversubscribed deal, which came at par, upsized from $500 million, printed at the tight end of the 6% to 6¼% talk and traded to a premium in the secondary market, the source recounted.

On the other hand, there was a high-profile deal postponement during the June 4 week, as Matterhorn Telecom SA (Salt Mobile, SA) pulled its CHF 2,085,000,000 equivalent four-part offering of senior secured notes on Friday, at the end of an international roadshow.

While the company cited market conditions, Matterhorn was a deal-specific story rather than a harbinger of market turbulence, the banker said, adding there absolutely was a clearing price for the deal.

Meanwhile in a higher beta segment of the junk bond market, Aleris International, Inc. saw a good execution in its $400 million placement of 10¾% senior secured junior priority notes due July 2023 (Caa2/CCC+), sources say.

Dealers got the market's attention when early guidance in the 11¼% area circulated, generating a book that was twice deal size, enabling Aleris to complete its deal well inside of that early talk.

And notwithstanding the tightening – to 10¾% from the 11¼% area – the notes have performed well in the secondary market. They were 102 1/8 bid heading into the Tuesday noon hour, a trader said.

“Right now, you're seeing good executions with deals tending to price at the tight end of talk, or in the middle of talk,” the syndicate banker said.

“Of course, it's important for issuers to have expectations that are in line with the way rates have moved in the past few months.

“You can get a good execution. But you've got to get the pricing right.”

Thin calendar

In any case, the active forward calendar was thin at Tuesday's close.

Ardent Health Services is marketing $535 million senior notes due 2026 on a roadshow set to wrap up on Thursday.

And TDC A/S was scheduled to begin a roadshow in the United States for its €1.4 billion equivalent two-part offering of five-year senior notes in dollar- and euro-denominated notes.

A European roadshow is set to run in the June 18 week.

Boyd dominates

While no new paper entered the secondary space on Tuesday, new paper that priced on Monday was in focus.

Boyd Gaming’s new 6% senior notes due 2026 dominated secondary market activity on Tuesday with more than $106 million of the bonds traded by late afternoon.

While the notes were a top volume mover “they were just barely above par,” a market source said. The notes were quoted at par 1/8 bid, par 3/8 offered with trades between par 1/8 to par ½, sources said.

The lack of movement in the notes was attributed to the company’s sector.

“Gaming credits and housing credits don’t do great breaks,” a market source said. “Historically, there’s nothing too exciting there.”

Intelsat ‘busy’

Intelsat’s junk bonds saw another high-volume day on Tuesday although the notes were backing off of their gains on Monday.

Intelsat’s 9¾ senior notes due 2025 traded as high as 106 ½ on Monday but were quoted on Tuesday at 105½, a market source said.

Intelsat’s 7¾% senior notes due 2021 remained the most actively traded in the structure on Tuesday with more than $27 million of the bonds on the tape.

The notes were down about ¾ points to trade at 92¼ on Tuesday after rising more than 7 points to 93 on Monday.

Intelsat’s junk bonds have been active and making gains since Monday when the company announced a concurrent convertible notes and equity offering, which priced after the market close.

The convertible notes deal was welcome news to high yield investors, a market source said. “It opens a different financing door to the company and it’s a lower interest-bearing security,” the source said.

If the deal performs well, Intelsat will be able to return to the convertibles market for additional financing, the source said.

Intelsat’s 4.5% convertible notes due 2025, which priced at par, traded as high as 112 outright during Tuesday’s session.

Proceeds from the convertible notes offering will be used to purchase the 7¾% notes due 2021.

Genworth’s buyout

Genworth Financial’s junk bonds were coming in slightly on Tuesday after the structure saw large gain on Monday, a market source said.

The company’s 7 5/8% senior notes due 2021 were quoted at 104 bid, 104½ offered on Tuesday, a market source said. They had climbed 5 5/8 point to 105 bid, 106 offered on Monday.

Genworth’s 4.9% senior notes due 2023 were relatively unchanged on Tuesday after a 6 point gain on Monday. The notes closed Tuesday at 91. The notes were trading at 85 on Monday.

Genworth’s 4.345% junior subordinated unsecured notes due 2066 were down about 1 point on Tuesday to 60 after an 11 point gain on Monday.

The big move in Genworth’s junk bonds on Monday came after the Committee on Foreign Investments in the United States approved China Oceanwide Holdings planned acquisition of the company.

“With the way the government has been treating mergers with Chinese companies, the feeling was (the acquisition) would get kyboshed. People didn’t think it would go through,” a market source said.

The spike in Genworth’s junk bonds was partly due to short covering and partly due to some holders cashing in on the profits.

The committee’s approval was just one of many that are needed before the acquisition can take place. “They still have a long ways to go,” a market source said.

Indexes gain

Benchmarks for the high-yield secondary market saw gains for the second consecutive trading day on Tuesday.

The KDP High Yield index was up 4 basis points to 70.71 with the yield now 5.81%. The index was up 5 basis points on Monday.

The Merrill Lynch High Yield index pushed further into positive territory on Tuesday. The index was up 8.8 bps on Tuesday with the year-to-date return now 0.44%.

The CDX High Yield 30 index was up 4 bps to close Tuesday at 106.66 after an 11 bps rise on Monday.

© 2015 Prospect News.
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