Upsized CSC, Moss Creek cap $7.3 billion week; recent deals ease but still higher

By Paul Deckelman and Paul A. Harris

New York, Jan. 12 – The high-yield primary market closed out its first week of new issuance this year on Friday with a trio of deals collectively worth $1.8 billion.

CSC Holdings, LLC – part of cable operator Cablevision, now a unit of Europe’s Altice NV – priced $1 billion of 10-year guaranteed notes after doubling the deal in size from an originally shopped$500 million.

Oil and natural gas exploration and production operator Moss Creek Resources Holdings, Inc. also did an upsized deal, bringing $700 million of eight-year notes to market.

Standard Industries Inc., a diversified holding company active in the building materials industry, did a $100 million add-on to its existing $900 million of 10-year notes.

The day’s three new deals brought issuance for the week up to $7.3 billion, running a little bit ahead of the of the pace seen at this time last year.

Traders meantime said that recently priced issues like Ensco plc, Ardagh Group SA and Aramark Services Inc. came off their peak levels seen earlier in the week.

But they said that those deals were still trading at healthy premium to their issue prices.

Statistical market performance measures turned mixed on Friday, after finishing higher across the board on Thursday, which in turn followed two straight lower sessions before that.

For the week, the indicators ended lower versus where they had been the week before, ended Jan. 5 – when they had been higher for the first time after two straight mixed weeks.

CSC upsized and tight

In Friday’s primary market, CSC Holdings priced an upsized $1 billion issue of 10-year senior guaranteed notes (Ba2/BB-) at par to yield 5 3/8%.

The amount was increased from $500 million and the yield printed at the tight end of yield talk that was set in the 5½% area. Early guidance was 5½% to 5¾%.

The overall size of the New York-based cable operator’s debt financing backing the spinoff of Altice USA from Altice NV grew to $2.5 billion from $1 billion with the increase of the concurrent term loan to $1.5 billion from $500 million.

Goldman Sachs was the left bookrunner for the bond offer. J.P. Morgan, BNP Paribas and Credit Agricole were the joint bookrunners.

Proceeds from the bonds and loan, including the upsizes, will be used to refinance $300 million of 7 7/8% senior debentures due February 2018, as well as to refinance all $750 million of Cablevision’s 7¾% senior notes due April 2018 and to fund a $1.5 billion dividend to Cablevision, the direct parent of the CSC Holdings, which will in turn use those proceeds to fund a dividend to Altice USA in connection with a spinoff that will divided parent company Altice’s portfolio in two.

Moss Creek upsized

Moss Creek Resources priced an upsized $700 million issue of eight-year senior notes (B3/B+) at par to yield 7 ½%.

The deal was increased from $650 million and printed at the wide end of the 7¼% to 7½% yield talk.

Early guidance was 6 7/8% to 7 1/8%, a trader said.

There were also covenant changes.

Not long before the books close the market heard there were orders totaling $1.5 billion, the trader said.

BMO was the left bookrunner. Wells Fargo, Citigroup and Capital One were the joint bookrunners.

The Dallas-based independent oil and gas exploitation, production and acquisition company plans to use the proceeds to pay off its term loan and repay a portion of its revolver, with any remaining proceeds to be used for general corporate purposes.

Standard Industries taps 4¾s

Standard Industries priced a $100 million add-on to its 4¾% senior notes due Jan. 15, 2028 at par in a quick-to-market transaction Friday.

BofA Merrill Lynch managed the sale.

Three holders of the existing 4¾% notes are believed to have spoken for most of the Friday tap, a trader said.

Meredith investor call

Meredith Corp. plans to launch a $1.4 billion offering of eight-year senior notes on a Tuesday investor conference call.

The is set to price later in the Jan. 15 week.

Credit Suisse is the lead bookrunner. RBC, Barclays and Citigroup are the joint bookrunners.

The Des Moines-based media and marketing company plans to use the proceeds to help fund its purchase of Time Inc. and to refinance existing debt.

Noisy fund flow numbers

Recent data on the cash flows for dedicated high-yield bond funds tends to be somewhat misleading, a trader said on Friday.

It's a story of good news that is not that good and bad news that is not that bad.

The $2.65 billion of net inflows to the funds reported Thursday by Lipper US Fund Flows for the week to the Wednesday, Jan. 10 close had to be front-loaded data, meaning that there were big inflows in the early part of the reporting period because flows – especially the outsized flows for high-yield ETFs – were decidedly negative during the latter part of the period, the trader said.

Hence the good news is not necessarily that good.

The initial flows of the new reporting period, i.e. Thursday’s daily flows, are also decidedly negative, although not as dire as the figures suggest at first glance.

On Thursday high-yield ETFs sustained $1.05 billion of outflows, the trader said, but went on to explain that those negative flows resulted from a holder’s election to convert shares to bonds. So although the cash flowed out of the ETFs, the market impact one might expect on the heels of a large negative cash flow did not materialize because no bonds actually came up for sale.

So the bad news is not that bad.

The Thursday daily cash flows for asset managers were also decidedly negative; actively managed high-yield funds sustained $605 million of outflows on the session.

Issuance passes last year’s

Friday’s three new deals, totaling $1.8 billion, brought to $7.3 billion the amount of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers which had gotten done in 11 tranches, according to data compiled by Prospect News.

That was a strong pickup from the previous two weeks, ended Jan. 5 and Dec. 29, when no deals had priced, in line with the traditional year-end market lull.

The week before that, ended Dec. 22, saw the last two deals of 2017 pricing, generating $350 million in two tranches.

That was down from the $5.19 billion which had come to market in 10 tranches the week before that, ended Dec. 15.

With just this week’s new deals as the sole issuance of 2018 so far, year-to-date volume was running 9.4% ahead of the primary pace seen at this time a year ago, when volume had totaled $6.7 billion in 11 tranches.

For all of 2017, junk market issuance came to $281.57 billion in 524 tranches, running 24.1% ahead of the $226.78 billion which had priced in 359 tranches in 2016, the Prospect News data indicated.

Recent deals ease slightly

A trader said that things were busier in the morning on Friday but then they quieted down in the afternoon, especially heading into the approaching three-day Martin Luther King Jr. Day holiday break in the United States.

The junk market and all other fixed-income markets were scheduled to close on Monday in observance of that federal legal holiday.

But the market kept to regular hours on Friday, several participants indicated.

Against that backdrop of somewhat lessened activity, traders said that some of the recently priced new issues came down from the peak levels they had hit in initial aftermarket dealings.

For instance, a trader said that Ensco’s new. 7¾% notes due 2026 were trading off a little, seeing the company’s big new deal falling back to 101 bid, which he said was off by around ½ point.

On Thursday, Ensco, a London-based offshore oil and natural gas drilling company, had priced $1 billion of those 7¾% notes – double the $500 million originally announced for that regularly scheduled forward calendar deal.

The notes came to market at par and quickly moved up to around 102¼ bid on volume of more than $56 million.

The company’s several series of existing bonds also firmed during the week, in the wake of Ensco’s announcement that it would tender for a portion of those existing notes, financing the tender offer with the proceeds from the new deal.

A trader said that the new Ardagh 8¾% senior secured PIK notes due 2023 were still in the high 102 range, opining that “they’ve moved up pretty well.”

The Ireland-based manufacturer of glass and metal product containers priced $350 million of the notes at par on Thursday via its ARD Securities Finance Sarl funding subsidiary.

That forward calendar deal shot up to nearly 103 bid in brisk Thursday aftermarket dealings of over $61 million, only to give up some of those gains in Friday’s market action.

Aramark’s 5% notes due 2028 were “still hanging in there pretty well” on Friday, a trader said, quoting that paper in a 102 bid context.

Aramark, a Philadelphia-based business services, foodservice and uniform supply company, priced $1.15 billion of those 5% notes on Wednesday.

The quick-to-market issue appeared too late in the day on Wednesday for any kind of real secondary activity but more than made up for it on Thursday, when it topped the junk market’s Most Actives list, with over $115 million changing hands, far busier than any other issue.

Traders said that the new bonds jumped to bid levels around 102¾ to 103¼ bid by the day’s end on Thursday, well up from their par issue price, and they still held most of those gains in Friday’s dealings.

Energy issues ease

Away from the new-deal arena, traders said that some of the oil and natural gas and energy drilling issues were also off from their recent highs.

“They traded off a little despite oil prices being better,” one trader said.

For example, he said that Los Angeles-based exploration and production company California Resources’ 8% second-lien senior secured notes due 2022 were trading around 87 3/8 on Friday, which he said was down about 1 point from that energy sector benchmark bond’s recent peak levels.

He allowed, though, that the Cal Res bonds “have had a great run” in the last few weeks, spurred on by higher crude prices.

He suggested that after those gains, “maybe there was some profit-taking today [Friday] in those energy names.”

Calgary, Alta.-based shale company MEG Energy’s 6 3/8% notes due 2023 were seen down 1 full point at 90 bid, a market source said.

Among the drillers, Noble Holding International’s 7¾% notes due 2024 were “another active name on the day,” seeing those bonds down ½ point on day at 94¾ bid.

Its sector peer Transocean’s 7% notes due 2028 fell a full 3½ points on Friday, ending at 100½ bid.

The retreat in those energy credits came despite a fifth consecutive advance in world crude oil prices on Friday, as they continue to trade at their highest levels since early 2015.

Key domestic grade West Texas Intermediate for February delivery rose by 50 cents per barrel in New York Mercantile Exchange dealings, settling at $64.30, while the main international grade, March-contract North Sea Brent crude, was up by 61 cents per barrel in London futures trading, ending at $69.87.

Community Heath climb continues

For a second straight session, traders said that Community Health Systems’ bonds traded higher, with a market source seeing the Franklin, Tenn.-based hospital operator’s 6 7/8% notes due 2022 up more than 2 points on the day at 66 bid, on top of the gains that it and the company’s other issues had mapped out on Wednesday. In that session the 6 7/8% notes had jumped nearly 4 points on the day.

The bonds firmed along with the company’s shares – which zoomed by 24% on Wednesday and which rose another 3% on Thursday on the news that Shanda Group, a Chinese investment company that is currently Community Health’s largest shareholder, said in a Securities and Exchange Commission filing that it had increased its already considerable stake, bringing its holding to 24% of the outstanding shares.

Indicators turn mixed

Statistical market performance measures turned mixed on Friday after finishing higher across the board on Thursday, which in turn followed two straight lower sessions before that. They had dropped on Tuesday – their first overall negative performance since Dec. 19 – breaking a string of six consecutive sessions in which the indicators had all been higher.

For the week, the indicators ended lower versus where they had been the week before, ended Jan. 5 – when they had been higher for the first time after two mixed weeks.

The KDP High Yield Daily Index dropped by 6 basis points on Friday to 72.11, after having risen by 5 bps on Thursday, which had been its first gain after two sessions on the downside on Tuesday and Wednesday.

Its yield rose by 1 bp, to 5.20% after narrowing by 1 bp on Thursday.

Those levels compare unfavorably with last Friday’s 72.22 index reading and 5.15% yield.

The Markit CDX Series 29 index eased by 1/16 point on Friday to close at 108 21/32 bid, 108 /16 offered.

On Thursday, it had gained more than 3/16 point. On Wednesday, it had lost 5/32 point, after easing by 9/32 point on Tuesday, its first losses following six straight sessions before that on the upside.

The index was also down week-to-week from last Friday’s 108 29/32 bid, 108 15/16 offered.

However, the Merrill Lynch High Yield Index was better for a second straight session on Friday, improving by 0.019% on top of Thursday’s firming by 0.114%, in contrast to losses of 0.247% on Wednesday and 0 .011% on Tuesday. Before that, the index had improved over five straight sessions including Monday, when it had closed up by 0.057%.

Friday’s gain lifted its year-to-date return to 0.736% from 0.716% on Thursday. However, it remained below Monday’s close at 0.862%, its peak cumulative level for the new year so far.

For the week, the index declined by 0.068% a– its first weekly setback after eight straight weekly advances.

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