Quiet session leads market into holiday; Europe’s Lindorff prices first deal in weeks

By Paul Deckelman and Paul A. Harris

New York, Sept. 4 – As widely expected, Junkbondland headed into the Labor Day holiday weekend on Friday with a quiet and abbreviated session. Trading desks were lightly staffed, with many market participants making an early day of it. The junk market will be closed on Monday.

Primaryside sources did note that the first junk deal to price in several weeks got done, as Norway-based financial information services provider Lindorff Group AB brought an upsized €230 million two-part offering of add-on notes to its existing secured floating-rate notes due in 2020 and fixed-rate secured notes due 2021 to market.

That euro-denominated deal was the first junk pricing seen since Aug. 19, when KIK Custom Products Inc., a Canadian maker of swimming-pool chemicals and personal care and household products, did a $390 million issue of eight-year senior notes.

The syndicate sources were meantime anticipating what is expected to be a robust post-holiday pricing environment for prospective new deals from issuers like Frontier Communications Corp., Charter Communications Inc. and Dish Network Corp., to name just three.

In the secondary market, traders saw little in the way of real price moves or volume – most names were either unchanged or were up or down by perhaps 1/8 to ¼ point.

With crude prices seen lower for the first time in several sessions, the traders reported slightly softer prices in some names such as SandRidge Energy, Inc. and Linn Energy LLC, but volume was not convincing.

They reported no fresh activity in Vantage Drilling Co. paper, which had fallen sharply at mid-week on the news that Brazil’s state oil company had abruptly terminated a long-term contract to lease one of Vantage’s maritime energy drilling vessels.

Statistical measures of junk market performance turned mixed on Friday after having been higher across the board on Wednesday and again on Thursday after a downside session on Tuesday. With two mixed sessions recorded before that, they have now been mixed in three out of the last six sessions. They were also mixed versus where they had finished out last Friday, when the indicators had been higher all around, their first weekly gain after three straight weeks before than when they were lower on a Friday-to-Friday basis.

Upsized Lindorff atop talk

Terms surfaced Friday on the first new high-yield issue to clear the market since Aug. 19.

Oslo-based financial information services provider Lindorff Group priced an upsized €230 million two-part secured add-on deal (B2/BB-).

An upsized €200 million add-on to the company’s Euribor plus 550 basis points floating-rate secured notes due Aug. 15, 2020 priced at 99.5, on top of price talk. The size was increased from €150 million.

In a tranche added subsequent to Thursday’s deal announcement, Lindorff priced a €30 million add-on to its 7% senior secured notes due Aug. 15, 2021 at 106 to yield 5.79%. The reoffer price came on top of price talk.

The overall size of the transaction was raised from €150 million.

Joint bookrunner Goldman Sachs will bill and deliver. Deutsche Bank and Nordea were also joint bookrunners.

Proceeds will be used to repay bank debt.

Lindorff was the first deal to price in 12 market sessions. Prior to it, KIK Custom Products priced a $390 million issue of 9% senior notes due Aug. 15, 2023 (Caa2/CCC) at 89.57 to yield 11% on Aug. 19.

Brave the market

The dollar-denominated primary market passed the Friday pre-holiday session quietly, as expected, sources said.

However a substantial September deal pipeline could begin to emerge when participants return from the extended Labor Day weekend, according to market sources who anticipate $25 billion to $35 billion of business in September, depending on market conditions.

Should the capital markets volatility that has carried over from August continue, some of those issuers might wait, sources say.

However there are some deals that are apt to brave the chop, they add.

One such deal is from Dish Network, which is expected to come with $3.3 billion of bonds. Proceeds will be used to repay approximately $3.3 billion of “very small business” credits awarded to Northstar Wireless, LLC and SNR Wireless, LLC in last year’s AWS-3 wireless spectrum auction held by the U.S. Federal Communications Commission (FCC).

Time is an issue with that transaction, a portfolio manager said.

In an Aug. 17 memorandum, the FCC found that Dish holds 85% equity interests in Northstar and SNR, rendering those entities ineligible for the credits awarded to small businesses participating in the auction, the FCC said.

Hence Dish has 30 days to put up $3.3 billion in cash or standby letters of credit.

Bookrunners for the Dish deal have not yet been announced, sources say.

Meanwhile, Frontier Communications is expected be first out of the gate in the post-Labor Day week, kicking off a $6.5 billion multi-tranche bond deal set to launch on Wednesday, sources say.

J.P. Morgan will be the lead.

Negative flows

Cash flows for dedicated high-yield funds were negative on Thursday, the most recent session for which information was available at press time, according to a portfolio manager.

High-yield ETFs saw $238 million of outflows on the day.

Asset managers sustained $74 million of outflows.

Dedicated bank loan funds, meanwhile, saw $71 million of outflows on Thursday, the investor said.

A quiet session

In the secondary market, a trader set the tone for Friday’s quiet session by saying, only half in jest, that “I probably have pretty much nothing to tell you – it was that kind of day.” He said that he had gotten into the office “kind of late” – around 9:30 a.m. ET – and rhetorically asked “why did I even bother?”

He said there was “no notable volume or price movement on anything.”

A second trader echoed that sentiment. “I don’t know what I can even tell you today. It [the market] never really opened.

It was “dead quiet,” a third declared. “A lot of people are not even in.”

At his shop, he said “we did a canvas of our account base – and most guys have called it a weekend already.”

He also did not see much in the way of price activity Friday.

He noted that the widely followed Markit CDX Series 24 contract was in about ¼ point on Friday, “but it’s been vacillating, up and down, all week, depending on how the market’s moved.”

There was “no significant move” in pricing Friday, “maybe 1/8 to ¼ [point.].”

One of the traders said that the most active “regular [i.e. non-distressed] high yield” credit was Sprint Corp.’s 7¾% notes due 2021; he saw the Overland Park, Kans.-based wireless provider’s issue losing 3/8 point to end at 99 bid on volume of about $9 million.

Beyond that, he said, “nothing else had more than a half-dozen trades.”

For instance, he said that Denver-based oil and natural gas company MarkWest Energy Partners LP’s 4 7/8% notes due 2024 were up ¾ point – but just on a single trade, ending at 95¾ bid.”

Energy credits ease

In the energy arena a trader said that SandRidge Energy’s 7½% notes due 2021 ended at 29½ bid, which he called unchanged on “a fair amount of trading.”

He said that the Oklahoma City-based exploration and production company’s 8¾% notes due 2020 were down ¾ point to 30 bid, on just “a single trade there.”

He said that Houston-based Energy XXI Ltd.’s 7¾% notes due 2021 gained 5/8 point, again on just a single trade, to finish at 21½ bid.

Beyond that, he said, “there was not much else – just a smattering of single trades here and there – nothing to shake a stick at.”

Houston-based Linn Energy LLC’s 8 5/8% notes due 2020 were off ½ point at 37 bid on just one trade.

Market-watchers noted that crude oil prices – which had begun the week on a sharp upside tear – were lower on Friday, with the October contract for West Texas Intermediate seen down 70 cents per barrel at $46.05 on the New York Mercantile Exchange.

A trader said that even though some of the oil names have retreated a little from the highs they had hit on Monday – the third consecutive day of big gains in crude oil prices – “we have seen some guys trying to put money to work in the E&P space – in the better names, for sure.” He said that names “that had been beaten up pretty dramatically” during the recent energy sphere volatility had “really snapped back by 2, 3, 4 points from their lows,” credits such as Range Resources Corp. and Whiting Petroleum Corp.

“A lot of guys were shorting them – but now, some real money guys are in trying to buy them. It’s an interesting dynamic.”

Among some of the other better quality energy names on Friday, Sabine Pass Liquefaction LLC’s 5 5/8% notes due 2021 were off 3/8 point at 98 5/8 bid, on “just a couple of trades,” a market source said.

Another trader said that Rice Energy, Inc.’s 6¼% notes due 2022 “have been active in the last couple of days.” He said the Canonsburg, Pa.-based exploration and production company’s notes were trading “not so much today,” with about a half-dozen trades, leaving them unchanged at 93 bid, “but they were active [Thursday].”

In the coal space, a trader said that “there’s been some volume in BTUs [Peabody Energy Corp.] this week – the 10s have been trading around 43.” But he said that “there was not much else in the other coal names today.

Another trader saw St. Louis-based Peabody’s 6% notes due 2018 off ¼ point to 35¾ on “a couple of trades.”

He saw “just a smattering” of activity in coal, with Consol Energy’s 5 7/8% notes due 2022 off ½ point at 72¼ bid.

Vantage bonds fall silent

A trader said that he had “not seen one Street quote today” in Vantage Drilling’s notes, which had plunged precipitously around mid-week and had been fairly active again on Thursday, “and there’s not been a trade at all in the name.”

Another trader said that he saw a few lower bids – but no prints.

He said there were bids as low as 38½ “”but no trades.”

He estimated that its 7½% notes were still around the same 40-41 context at which they had finished on Thursday.

Abengoa bonds dive

The bonds of Spain-based renewable energy company Abengoa SA took a sharp dive on Friday on news that the company has retained Lazard Ltd. in an advisory capacity ahead of a possible share sale.

Abengoa bonds, which had actually shown strength in recent days, were down between 10 points and 20 points on Friday, a trader said.

The Abengoa dollar-denominated 8 7/8% notes due 2017 traded on Friday at 40, according to a trader, who added that the last previous real trades were in the context of 68 to 69.

Later on in the session, a trader saw those bonds going home at 43 bid – still down a full 9 points on the day.

Although Abengoa’s stated purpose for retaining Lazard is to raise capital, investors are apprehensive that the company might also be seeking advice on a possible restructuring, the trader

Looking ahead to calendar

One of the traders said that “we heard there was a huge calendar building for September.”

He speculated that “everybody is going to rush to get it in before the Fed [raises interest rates], we’ll see.”

He opined that it’s “a 50-50 chance whether they go in September or December” with a rate hike, thinking September is more likely.

“They’ll want to get it over with – one and done, and that’s it.”

He noted that equity markets were getting clobbered on continued uncertainty about a rate hike, especially after Friday’s inconclusive job numbers – August came in weaker than expected, but prior months were revised upward – leaving everyone still puzzled. The Dow Jones Industrial Average fell 272.38 points, or 1.66%, to end at 16,102.38.

In the junk world, he said, we’re going to see some of that following through to next week.”

He also said that with a big calendar on tap, “I would imagine that you’d see some selling in names” as accounts seek to build cash to play in the expected new issues.

Indicators turn mixed

One of the traders said “it’s Friday heading into a long weekend.”

While he allowed that “the past few days, in general, have felt like there was better buying going on in the market, given what stocks are doing today, I think people are probably just taking a pause, from buying stuff.” He theorized that “once some levels have dipped, then they’ll put their buying hats back on.”

Meantime, statistical measures of junk market performance turned mixed on Friday after having been higher across the board on Wednesday and again on Thursday after a downside session on Tuesday. With two mixed sessions recorded before that, they have now been mixed in three out of the last six sessions.

The indicators were also mixed versus where they had finished out last Friday, when the indicators had been higher all around, their first weekly gain after three straight weeks before than when they were lower on a Friday-to-Friday basis.

The KDP High Yield Daily Index rose by 4 basis points Friday to end at 67.99, its third straight gain; it had also risen by 7 bps on Thursday and by 4 bps on Wednesday. Besides its third straight gain, Friday’s showing was also the index’s sixth advance in the last seven sessions and its seventh in the last nine sessions.

Its yield, meanwhile, came in by 2 bps on Friday to close at 6.32%, its third narrowing in a row; it had tightened by 4 bps on Thursday and 3 bps on Wednesday. The yield has now narrowed in six sessions out of the last seven and in seven sessions out of the last nine.

Those levels compare favorably with last Friday’s 67.86 index reading and 6.36% yield.

However, the Markit Series 24 CDX North American High Yield Index dropped by 11/32 point on Friday to close at 103¾ bid, 103 25/32 offered, breaking a two-session upturn which had seen the index gain 3/32 point on Thursday and 3/16 point Wednesday. The loss Friday was its fourth in the last six sessions.

The index was also down almost a full point from its 104 25/32 bid, 104 13/16 offered level of the previous Friday

The Merrill Lynch North American Master II High Yield Index lost 0.042% on Friday, its first setback after two straight gains, including Thursday’s 0.243% rise. It was the second loss in the last four sessions.

The loss dropped its year-to-date return to 0.227% versus Thursday’s 0.270%. It also remains well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

For the week, the index gained 0.276% – the same size gain seen last week, which had left its year-to-date level in negative territory, with an 0.048% loss.

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