High yield weaker despite positive data; Alliance One improves on earnings; coal deteriorates

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, June 9 – The high-yield market took yet another hit Tuesday, traders reported.

“Things in general were weak,” one trader remarked.

However, the weakness wasn’t affecting everyone the same.

Alliance One International Inc. saw its bonds pop after the company reported earnings. One trader said the name was also quite active.

Meanwhile, the coal arena was down in the dumps yet again as the industry was seen losing a fight against the federal government. A lawsuit brought by the Murray Energy Inc. and others within the sector aimed at nixing new Environmental Protection Agency rules was dismissed on Tuesday, as judges deemed the effort premature.

No new issues priced during Tuesday’s session and there was only a light volume of news in the primary market.

My Alarm Center markets deal

Among the limited primary happenings, My Alarm Center, LLC and My Alarm Center, Inc. started a roadshow for a $265 million offering of five-year senior secured notes.

Imperial Capital is the bookrunner.

The notes are expected to garner credit ratings in the low single B range from Moody’s Investors Service and Standard & Poor’s.

The Newtown Square, Pa.-based security alarm and home automation company plans to use the proceeds to refinance debt, terminate an interest rate swap, and to fund general corporate purposes.

Carmike sets talk

Carmike Cinemas, Inc. talked its $230 million offering of eight-year senior secured notes (B1/BB) at a yield of 6% to 6¼%.

That price talk was on top of early guidance.

The debt refinancing deal is set to price Wednesday afternoon.

J.P. Morgan, Macquarie and RBC are the joint bookrunners.

Labco starts Wednesday

In the European primary market, Labco SA plans to start a European roadshow on Wednesday for an €800 million offering of seven-year senior secured notes.

Joint bookrunner JPMorgan will bill and deliver. Barclays, Deutsche Bank, HSBC, Morgan Stanley, Natixis and UBS are also joint bookrunners.

The company and its dealers expect single B credit ratings to be assigned to the notes.

Proceeds will be used to refinance Labco’s debt following Cinven’s acquisition of a majority stake in the company in May.

Mixed flows

Cash flows for dedicated high-yield bond funds were mixed on Monday, with high-yield ETFs seeing substantial outflows, according to an investor.

The ETFs saw $704 million of cash exit on Monday.

On the same day actively managed funds added $5 million of inflows.

There were a handful of bid-wanted-in-competition (BWIC) solicitations, amounting to $140 million, in the market Tuesday morning, the investor said.

Junk closes lower

Overall junk market indicators were weak Tuesday, according to market sources.

The declines came despite a U.S. wholesale inventories report that showed gains – due in part to stabilizing oil prices – and a Labor Department report showed that job openings were outpacing hirings.

But investors weren’t as much focused on data as they were on a looming interest rate hike and the ongoing Greek saga.

A trader noted that Greek officials are seeking to extend the country’s current bailout terms until March 2016. If that isn’t approved, the nation has three weeks to work out some other deal with European leaders.

Should the country fail to get a deal done, that could mean a hefty increase in volatility, the trader said.

Meanwhile, the weekly jobless claims report scheduled for Thursday will be eyed closely since it is the last report on employment that the Federal Reserve will see ahead of its next meeting on June 16, at which point many expect the central bank to indicate it will move forward with a rate increase in September.

The KDP High Yield Index closed Tuesday at 70.84, with a 5.58% yield. That compared to a reading of 70.97 with a 5.55% yield on Monday.

As for the CDX North American Series 23 index, it slipped a touch to 106¼ bid, 106.33 offered.

Weakness was also seen in recently priced issues.

Tenet Healthcare Corp.’s $1.9 billion of 6¾% notes due 2023 – a deal that priced June 2 at 99½ to yield 6.832% – were pegged at par ½ by one trader, down almost a point on the day.

The trader also saw Meritor Inc.’s $225 million add-on to its 6¼% notes due 2024 – a deal that came Monday at par – at par ¼.

“Those were quite active,” the trader said.

Alliance One rises

Alliance One International’s debt got a boost Tuesday after the tobacco distributor reported earnings.

One trader said the company’s 9 7/8% notes due 2021 were a “big mover,” rising 4 points to 90¾.

Another trader said the bonds were “up about 5 points,” trading in a 91 to 92 context after the numbers.

For the fourth fiscal quarter ended March 31, total sales and operating revenue rose 19.9% to $738.1 million. Operating income increased nearly 40% to $40 million.

Net income was $3.8 million, or 4 cents per share. That compared to a net loss of $17.1 million, or 18 cents per share, the year before.

For fiscal 2015, total sales and operating revenues declined 12.3% to $2.07 billion. The decline was due in large part to a 10.9% decrease in volumes and a 3.6% decline in average sales prices.

Operating income fell 7% to $110.8 million.

Still, the net loss narrowed to $15.4 million, or 17 cents per share, from $86.7 million, or 99 cents per share, the previous year.

As of March 31, available cash and credit was $813.2 million, including $143.8 million in cash and $669.4 million in credit.

Coal softer after court ruling

Murray Energy and other coal producers were “down again,” a trader said Tuesday.

The declines came as a federal judge ruled that Murray and others could not challenge new coal plant rules proposed by the Environmental Protection Agency until the rules had actually been finalized.

At one desk, a trader said Murray’s 11¼% second-lien senior secured notes due 2021 were off a couple of points, trading around 90.

That trader also saw Peabody Energy’s 10% notes due 2020 fall to 69. Its 6½% notes due 2020 and the 6¼% notes due 2021 meantime dipped into the mid-40s.

“People look at it like they lost the initial fight,” the trader said. “It’s just more negative headwinds for the coal space.”

At another desk, a trader saw Peabody’s 6¼% notes falling over 1½ points to 45¼, while the 6½% notes dropped 2 points to 47.

Arch Coal Inc.’s 8% notes due 2019 meantime declined “almost 2 points” a trader said, placing the issue at 28.

And, Walter Energy Inc.’s 9½% notes due 2019 were seen “down a couple points from a week ago” at 51.

On Monday, it was reported that Walter could be filing for bankruptcy as soon as this month.

In its ruling, three circuit court judges deemed a lawsuit brought by Murray and other coal companies – as well as 14 coal-producing states – premature, given that the EPA rules have yet to be finalized.

The EPA first proposed the rules back in June. Once they go into effect, the rules – aimed at reducing greenhouse gas emissions – could close plants, hinder the construction of future plants and slow U.S. coal demand.

© 2015 Prospect News.
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