Primary pause continues; secondary firmer but featureless; Cenveo gains; funds plunge $2.3 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 22 - The high-yield primary market chalked up its fourth consecutive session during which no new deals were announced or priced in either the United States or Europe, bored syndicate sources said Thursday.

That string of goose eggs is widely expected to continue at least through Labor Day in the United States, and even after that, Junkbondland is likely to still be pretty sedate, the sources opined.

The recently priced issue from NuStar Logistics, LP was seen easing, though on modest volume after several sessions that saw no movement.

Other new deal names, like R.R. Donnelley & Sons Co., were unchanged, traders said. But Iron Mountain Inc.'s recently priced offering continued to show some aftermarket activity.

Away from the new deals, Cenveo Corp.'s bonds and its shares rose in response to the commercial printing company's late-Wednesday announcement that it will acquire the operating assets of the bankrupt National Envelope for $25 million in cash and stock.

Statistical indicators of market performance turned mixed on Thursday after having been down across the board on Wednesday.

But flows of money into and out of high-yield mutual funds and exchange-traded funds - a key indicator of overall junk market liquidity trends - remained negative, and sharply so, in the latest week.

Lipper funds plunge

As Thursday's market activity was winding down, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, some $2.334 billion more left those funds than came into them.

It was the second consecutive outflow reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of ThomsonReuters Corp, following the $388.2 million cash loss that the funds had experienced in the week ended Aug. 14.

It was also the third outflow seen in the last four weeks, with the pattern interrupted only by the $485.6 million inflow reported during the week ended Aug. 7.

During that four-week period, cumulative net outflows have totaled an estimated $3.26 billion, according to a Prospect News analysis of the fund-flow numbers.

The mostly negative recent stretch, in turn, followed four consecutive weeks beginning in early July and running through the week ended July 24, which saw cumulative net inflows during that time of some $6.4 billion, according to the Prospect News analysis.

For the year so far, inflows have now been seen in 19 weeks against 15 weeks of outflows, but cumulative flows for the year as a whole remain negative due to a sizable losing streak seen during May and June, which was prompted by investor worries over whether the Federal Reserve would end its accommodative monetary policy.

The latest outflow swelled that year-to-date net outflow figure to about $5.98 billion, according to the analysis, from the previous week's $3.64 billion deficit.

Cumulative fund-flow estimates may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

The sustained flows of fresh cash into junk - and the mutual funds and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of investor money coming into or leaving the roughly $1 trillion junk market - have been seen by analysts as a key element behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $350 billion mark.

It was also seen as one of the major drivers behind the robust patterns of primary activity and secondary strength, which had continued for much of this year's first half before turning choppy over the past several months.

Crickets in the primary

The high-yield primary market saw no activity during the Thursday session, according to market sources.

No deals priced, and no deals were announced.

The quiet that has pervaded the Aug. 19 week is very likely to continue right up until Labor Day weekend, sources say.

Also the post-Labor Day week, abbreviated on the front end by the actual Labor Day holiday in the United States and on the back end by the Rosh Hashanah holidays, will likely be a quiet week, sources are saying.

Although a September calendar will no doubt begin to shape up, no names have been offered as "September business" during conversations with the deal-makers.

However, there appears to be a substantial pipeline of new issue business away from the energy sector for September, one dealer offered on Thursday.

NuStar trades off

In the secondary market, a trader saw the recent offering of 6¾% notes due 2021 from NuStar Logistics down by about three-quarters of a point, pegging those bonds at 99¼ bid, par offered.

At another shop, the bonds were seen having finished off just a quarter-point, at 99¾ bid, with more than $2 million of the notes having changed hands.

That movement followed several consecutive sessions of little or no movement at all, a market source said.

Nu Star, a San Antonio, Texas-based provider of petroleum terminaling and storage services, priced its $300 million issue at par last Wednesday.

After the bonds get as good as a 101-to 101½ context in initial aftermarket trading, they began to gradually come back in to around the par issue price and, from there, down to current levels.

Iron Mountain stays active

For a second straight session, the market sources saw a decent amount of activity in Iron Mountain's recently priced 6% notes due 2023.

A trader said that the bonds were up about a quarter-point at 99 bid on round-lot volume of over $6 million - a fairly respectable level of turnover on an otherwise sleepy day.

On Wednesday, the bonds had eased by about three-quarters of a point, with volume over $9 million.

Boston-based Iron Mountain, which provides document storage and information technology services, priced its $600 million issue of those bonds at par on Aug. 8 as part of a larger two-part drive-by deal that also included a tranche of eight-year Canadian dollar-denominated paper.

The U.S. dollar notes priced after having been upsized from an originally announced $450 million, while the Canadian dollar piece was accordingly downsized to C$200 million from the initially planned C$300 million.

The U.S. dollar bonds initially held around their par issue price but did not advance beyond there, despite the fact that Iron Mountain is a familiar and general well-regarded issuer. In subsequent days, the bonds came down from that par level and have been trading below their issue price pretty much since then.

New Donnelly bonds quiet

However, other recent issues were seen quiet.

R.R. Donnelley & Sons' 7% notes due 2022, for instance, were seen unchanged from prior levels around 100¾ bid on sparse activity.

The Chicago-based printing, packaging and marketing company had priced its quick-to-market $400 million issue at par on Aug. 12, after upsizing the deal from an initially announced $350 million.

Those bonds had gotten as good as 101 5/8 bid, 102½ offered in the aftermarket a week ago, but gradually came in from those peaks as activity quieted down.

The existing 6 1/8% notes due 2017 were seen by a market source to have gained 2 points on Thursday to end at 111 bid.

A trader at another shop, who also saw the bonds go home there, said it was only up a point on just one round-lot trade, although there was a busy amount of smaller off-lot transactions in the credit going on.

The company's 7¼% notes due 2018 went home down a half-point at 110½ bid on volume of more than $2 million.

Cenveo soars on deal

Donnelley sector peer Cenveo's bonds and shares were among the busiest high-yield credits of the session. Given the overall lack of activity, however, that was not such a high bar to hurdle.

The Stamford, Conn.-based commercial printer's 11½% notes due 2017 jumped 3 points on the day, a trader said, going home at 94½ bid. Round-lot volume in the credit was over $8 million.

Cenveo's 8 7/8% notes due 2018 gained 1 point on the day to end at 99 1/8 bid, with over $7 million having changed hands.

And its New York Stock Exchange-traded shares zoomed by 27 cents, or 9.89%, to close at an even $3. Volume of 2.17 million shares was almost four times the norm.

Cenveo's paper popped in apparent response to the company's announcement, made as the market was closing on Wednesday, that it will acquire the operating assets of National Envelope, the largest privately-held manufacturer of envelopes in North America.

Cenveo will pay $20 million cash and $5 million of its common stock. National Envelope filed for Chapter 11 in June to facilitate the sale. The closing is subject to Bankruptcy Court approval and customary closing conditions.

Cenveo said that it expects that the acquisition of National will deliver about $300 million of incremental annual sales and $30 million of incremental EBITDA when the integration of the two companies is complete.

The company expects the acquisition "will better position it for continued revenue growth through an enhanced portfolio of products and services, increased geographic presence and improved financial stability."

The issuer further said that it "expects to benefit from overhead cost actions and facility consolidations, as well as implementing and investing in manufacturing efficiencies and best practices. The transaction is expected to enhance Cenveo's credit profile and be accretive to earnings and cash flow per share."

Firm but featureless

Overall, a trader said that there was "not really" anything going on in Thursday's dealings, although he allowed that the market seemed firmer, improving from the softness seen pretty much across the board on Wednesday as participants reacted to lack of any real clarity from the Federal Reserve in the minutes of its policy-setting committee as to when the central bank would begin throttling back on the quantitative easing program that it has pursued over the past several years in order to keep interest rates low and spur the recovery.

"It kind of opened with a firmer tone this morning," he said, adding, "The cash market was unchanged, and the [Markit Series 20 CDX North American High Yield] index was up as much as a point."

Despite that firmer tone, he said, nothing really jumped out. "But it was definitely firmer."

Market indicators mixed

Statistical junk market performance indicators turned mixed on Thursday after having been lower across the board on Wednesday.

The Markit index gained 21/32 on Thursday to finish at 104 3/16 bid, 104 5/16 offered, after having lost 11/32 of a point on Wednesday.

But the KDP High Yield Daily index meanwhile showed no such improvement, skidding to its eighth consecutive loss as it dropped by 4 basis points to end at 72.98 - its first close under the psychologically significant 73 level since July 10, when it went home at 72.91. On Wednesday, the index had lost 11 bps.

The yield rose for a sixth consecutive session on Thursday, tacking on 2 bps to go out at 6.34%. It had widened by 5 bps on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index also remained in a rut, posting its sixth downturn in a row on Thursday as it fell by 0.077%, essentially identical to Wednesday's 0.073% retreat.

The latest loss dropped the index's year-to-date return to 2.376%, down from Wednesday's 2.455% close. The return remained well down from its peak level for the year so far of 5.835%, recorded on May 9, though still up solidly from its 2013 low point of 0.384% set on June 25.

© 2015 Prospect News.
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