Clear Channel drive-by caps $11.6 billion week, new deals dominate trading, Quiksilver gyrates

By Paul Deckelman and Paul A. Harris

New York, Sept. 5 – Clear Channel Communications Inc. visited Junkbondland on Friday, bringing a quickly-shopped $750 million issue of eight-year secured notes.

The San Antonio, Texas-based diversified media company’s offering was the sole pricing of the session, syndicate sources said.

However, it topped off one of the busiest new-issuance weeks seen this year, helping to validate predictions by market sources that the high-yield primary market – which had pretty much fallen into a late-summer torpor after its last previous pricing, all the way back on Aug. 14 – would quickly come roaring back to life right out of the gate once Labor Day was past with a heavy volume of pent-up financing transactions on the way to what could well be a September to remember.

As of the close of trading, some $11.56 billion had come to market this week in 20 tranches, according to data compiled by Prospect News – a stark contrast to the goose-eggs that the primary had put up over the previous two weeks.

Even counting just the issues that had priced on Wednesday and Thursday, without Clear Channel, this week had already surpassed the $10.43 billion that got done in 22 tranches during the week ended June 13, the most recent prior week for heavy new issuance.

This was, in fact, the heaviest volume seen since the $14.21 billion that priced in 19 tranches during the week ended May 23, the biggest volume week so far this year.

The week’s flood of post-Labor Day pricings raised year-to-date issuance to $218.01 billion in 430 tranches, according to the data, running about 3.6% ahead of the pace seen a year ago, when $210.53 billion of new junk paper had priced in 478 tranches by this point on the calendar. That was a pickup from the previous week’s 1.9% year-versus-year gap, reflecting this year’s post-Labor Day surge.

The new Clear Channel bonds were quoted at slightly firmer levels after their pricing.

Meanwhile, trading remained heavy in the issues that priced earlier in the week, particularly Thursday’s megadeals from Linn Energy, LLC and Steel Dynamics, Inc. And trading remained brisk in Wednesday offerings such as Frontier Communications Corp. and T-Mobile US, Inc.

New deals pretty much dominated the secondary realm, but away from those issues, there was considerable trading in Quiksilver Inc.’s bonds, which gyrated around after the disappointing earnings the sports apparel maker reported late Thursday – but which seemed to strengthen from their early lows.

Statistical market performance indicators were mixed on Friday, after having been lower across the board for a second straight session on Thursday; they had been mixed for six consecutive sessions before that.

But the indicators were all heading south from where they had finished out last week, when they had been mixed week-over-week. It was the first such all-negative weekly finish since Aug. 1.

Clear Channel drives by

Clear Channel Communications priced Friday’s sole deal, a $750 million drive-by issue of eight-year priority guarantee notes (Caa1/CCC+) that came at par to yield 9%, on top of yield talk.

Goldman Sachs was the left bookrunner for the bank debt refinancing deal. Morgan Stanley, Citigroup, Credit Suisse, Deutsche Bank and Wells Fargo were the joint bookrunners.

The deal was half done on reverse inquiry, according to a trader who said that demand for the remaining bonds may have been less than robust.

“It’s a high-beta credit and people were hoping for a little more than 9%,” the trader said.

The source had the new Clear Channel 9% notes at par bid, par ½ offered in the street late Friday afternoon.

A portfolio manager, who passed on the deal, said that there may have been an attempt to grow it to $1 billion and added that there was a belief that at 9% the new notes were fairly priced to Clear Channel’s existing 11¼% priority guarantee notes due March 2021.

Big books, but...

The portfolio manager said that prices of recent issues don’t seem especially congruent with some of the big order book-sizes dealers touted throughout the massive post-Labor Day week, which reached $12.2 billion in 21 tranches, according to one syndicate banker’s count.

Bonds tend to be at or slightly above new issue prices, with some deals lagging their issue price.

For example, Frontier Communications’ 6 7/8% bullet due January 2025 (Ba2/BB-/) was at 99½ bid, 99¾ offered, the investor said. It came at par on Thursday in a $775 million tranche, part of a $1.55 billion two-piece deal that also included $775 million of 6¼ senior notes due September 2021.

Meanwhile some of the reported book sizes are awesome, according to the investor who related hearing the book for the T-Mobile $3 billion two-part deal, which priced Wednesday, was 12-times oversubscribed.

Capstone starts Monday

Capstone Mining Corp. plans to start a roadshow on Monday in New York City for a $300 million offering of eight-year senior notes (expected ratings B2/B+).

The bank debt refinancing deal is expected to price on Thursday.

Citigroup and Wells Fargo have the books.

The week ahead

Elsewhere, the week ahead gets underway with a $6.2 billion active calendar.

The 800 pound gorilla is California Resources Corp.’s $5 billion of senior notes (Ba1/expected BB) coming in three bullet tranches.

The deal, to help fund a $6 billion distribution to Occidental Petroleum Corp. as part of the spin off of California Resources, will likely generate interest among crossover accounts because California Resources is expected to deleverage in the months ahead.

There may be involvement on the part of high-grade syndicate desks, sources say, noting that the high-grade officials have experience with A-rated Occidental Petroleum, and the deal – which is being roadshowed like a junk bond deal – has the bullet structure germane to high-grade bonds.

However high-yield syndicate officials from left lead bookrunner BofA Merrill Lynch are out working the deal, market sources say.

It could be on the road for the better part of the week ahead, a debt capital markets banker said on Friday.

$10-$12 billion week possible

Depending upon how receptive the market is, the week ahead could generate another $10 billion to $12 billion of issuance, a buyside source said on Friday.

In addition to the announced business, look for a deal per day on Monday, Tuesday and Wednesday, from JP Morgan, the source said, adding that these are not expected to be big, and are not expected to be drive-by executions.

JP Morgan might also have a deal on Thursday, the source added.

Look for Deutsche Bank to announce a $200 million senior notes offer from the industrial space in the early part of the week.

If the market is good, Sprint and HCA could show up with drive-bys.

And an energy company could show up with an add-on deal via RBC.

The buyside has cash, the source said, adding that asset managers have been getting money in steadily since Aug. 11.

Two deals that were expected to clear on Friday appear to have been pushed into the week ahead, sources said.

These include the only euro-denominated offer now in the market.

Belgium-based Nyrstar was scheduled to wrap up the roadshow for its €350 million offering of five-year senior notes (B3/B-) on Friday.

Price talk was expected earlier in the week, but did not materialize, and the deal may be facing headwinds, sources say.

Whisper in the low-8% yield context was circulated, and some people were disappointed, expecting the deal to come with a nine-handle, a banker said Friday.

The structure of the Nyrstar deal may also be revisited, sources said.

Meanwhile the books were also scheduled to close Friday for Athens-based Dynagas LNG Partners LP’s $250 million offering of five-year senior notes, which were talked to yield in the 6¼% area on Thursday.

No terms were available at press time, according to market sources who added that the deal is primarily being worked by emerging markets desks.

New deals dominate, again

For a third consecutive session – coinciding with the return of primaryside activity – the new and recent deals were the dominant factor in the secondary market.

“Everything was new-issue trading,” one market source said.

Away from the new deals, things were, for the most part “really, really slow. Nobody cared about the [traditional non-new-deal] secondary.”

He saw most of the action in this week’s new deals “trading right around the deal [issue] price. The market firmed up a little bit this afternoon and some stuff was trading maybe ¼ [point] or so above the deal price – but for the most part, they were wrapped around the deal price on a lot of these names.

He added that “nobody broke out, either way,” given how little room there was for anything to run since the issues mostly priced so tight.

Clear Channel firms slightly

A market source said that the new Clear Channel Communications 9% senior secured priority guarantee notes due 2022 were steady to slightly firmer. He quoted the radio broadcasting and outdoor advertising company’s paper in a par to 100½ context when it reached the aftermarket.

Linn leads the way

A trader said that both halves of Linn Energy’s big new two-part offering were high up on the junk Most Actives list, with the Houston-based oil and natural gas company’s 6½% notes due 2021 topping the actives. More than $90 million of that issue traded. He pegged the bonds at 98¾ bid, calling that a loss of ¼ point from their initial highs.

Linn priced $650 million of those notes at 98.619 on Thursday to yield 6.75%, as part of a quick-to-market $1.1 billion two-part offering, which it upsized from the originally announced $1 billion.

That offering also included a $450 million add-on to the company’s existing 6½% notes due 2019, which priced at 102 to yield 6.001%. Those bonds initially firmed by around 1/8 point; on Friday they gained another 1/16 to finish at 102 3/16, with more than $44 million having changed hands.

Steel Dynamics stands out

Thursday’s other big deal – from Fort Wayne, Ind.-based metals producer Steel Dynamics – was seen having firmed from the par level at which both tranches of its quickly shopped and upsized two-part deal had come to market on Thursday.

A market source said that both its 5 1/8% notes due 2021 and its 5½% notes due 2024 were trading around 100½ bid. He saw more than $78 million of volume in the seven-year notes, which had been upsized to $700 million from $500 million originally, while more than $75 million of the 10-year notes were moving around.

A second trader pegged the 7-year paper trading between 100 5/8 and 100 7/8, while the 10-years were in a 100 3/8 to 100 5/8 context.

Steel Dynamics plans to use the proceeds from the bond deal, as well as cash on hand and borrowings under its asset-based revolving credit facility to fund the $1.625 billion purchase of Russian steelmaker OAO Severstal’s plant in Columbus, Miss. Acquisition of this facility will boost Steel Dynamic’s annual shipping capacity by about 40% to 11 million tons. It will give Steel Dynamics new capabilities to sell to the automotive market as well as to manufacturers of pipe and tube products used in petroleum industry.

These new capabilities do not come without some cost. In a research note Friday, senior analyst Evan Mann of the Gimme Credit LLC independent advisory service noted that the company’s leverage will increase initially from the deal and cautioned that while Steel Dynamics expects to restore its net debt leverage to less than three times trailing EBITDA within a reasonable timeframe “this implies credit deterioration over the near term.”

However, Mann – who rates the company’s bonds as an “underperform” – also acknowledged that the company’s “credit ratios remain solid, liquidity is adequate, and free cash flow is sufficient to fund growth projects and reduce debt,” He said Gimme Credit is “cautiously optimistic” regarding the company’s intermediate to longer term prospects.

Ultra Petroleum busy

Another Thursday deal – Houston-based energy operator Ultra Petroleum Corp.’s 6 1/8% notes due 2024 – was also among the most active issues, with more than $36 million trading.

The company priced $850 million of the notes at par after that deal – the sole non-drive-by offering of the week – was upsized from an originally announced $700 million.

The notes initially traded slightly below that par issue price; on Friday, they were seen having moved back up to around the par level, which one trader said represented 1/8 point firming.

Wednesday megadeals still active

The two big deals that priced on Wednesday and which had dominated secondary trading on Thursday – T-Mobile and Frontier Communications – were again very busy on Friday, although their volume levels were well down from Thursday when each of T-Mobile’s two tranches racked up more than $200 million of trades and each of Frontier’s saw more than $125 million changing hands.

On Friday, Frontier’s 6¼% notes due 2021 were seen by a trader firming 5/16 point to 100½ bid, with more than $45 million trading, while its 6 7/8% notes due 2025 were seen off ¼ point at 99 5/8 bid, on volume of more than $41 million.

The Stamford, Conn.-based telecommunications company priced $775 million of each issue at par in a quick-to-market transaction on Wednesday.

As for T- Mobile, its 6% notes due 2023 and its 6 3/8% notes due 2025 were each being quoted at 100¼ bid, up ¼ point and 1/8 point, respectively, on volume of over $33 million apiece.

The Bellevue, Wash.-based Number-Four U.S. wireless carrier priced $1.3 billion of the 6% paper and $1.7 billion of the 6 3/8% notes at par late in the session on Wednesday. That $3 billion drive-by deal had been massively upsized from the $2 billion originally announced.

A trader said Friday that Linn Energy, Frontier and T-Mobile “are all super-liquid names. Then you had stuff that was priced really late that started trading today, like Steel Dynamics. Linn started trading more today, while T-Mobile and Frontier just continue to trade heavily.

He suggested that “of course with T-Mobile, there is all kinds of headline news about [whether it is] being bought and who’s going to buy them.”

German communications giant Deutsche Telekom, which owns about two-thirds of T-Mobile, has been in talks to sell the company for some months. Negotiations with T-Mobile rival Sprint Corp., the third-largest U.S. wireless operator, broke off several weeks ago, but other potential bidders have emerged, such as French telecom company Iliad SA and the second-biggest U.S. satellite broadcaster, DISH Network Corp., which reportedly recently contacted Deutsche Telekom to express interest in T-Mobile.

“With DISH possibly coming back into the game, I think that is adding to the volume” in the new issue.

Quiksilver gyrates around

Away from the new deals, one of the busiest credits in the junk world on Friday was Quiksilver Inc.’s 7 7/8% notes due 2018. More than $78 million of the Huntington Beach, Calif.-based swimwear and sports apparel manufacturer’s bonds traded on Friday, in the wake of the company’s announcement late Thursday of disappointing quarterly financial results.

Those bonds opened around 88 bid, off nearly a point from their late-Thursday level and traded in an upper-80s context all morning in very busy round-lot dealings. However, around mid-day the bonds started to move higher, rising to around the 92½ bid mark and pretty much staying there the rest of the day, ending the session at 92 bid, up 3¼ points on the day.

The company’s unsecured 10% notes due 2020 gyrated wildly around, falling from their late-Thursday levels in the mid-60s to as low as 53 bid in early trading on Friday. But around mid-day, those bonds too began to creep back up from their early lows finally going home at 63¼ bid, a loss of about 1½ points on the day, though well up from their lows. More than $28 million of the bonds changed hands. Those bonds had last traded in any appreciable size in mid-August, when they hovered around 80 bid.

The company’s New York Stock Exchange-traded shares meantime got hammered on Friday, plunging by 70 cents, or 24.73%, to $2.13.

The bonds and shares were reacting to the results released late Thursday.

For the quarter ended July 31, Quiksilver posted a net loss of $220.1 million, or $1.29 per share. That compared to a profit of $2.1 million the year before.

Revenue dropped 19% to $395.7 million. On a segmented basis, revenues were most impacted in the Americas, declining 26%. The Europe-Middle Eat-Africa segment saw revenues fall 16%.

Analysts polled by Thompson Reuters had predicted a 2 cents per share profit on revenue of $441 million.

Gross margins slipped to 47.8% from 49.1%.

Last year, the company began a multiyear plan to turn itself around, focusing on core brands and cutting costs. But the quarter’s results brought that plan and its progress into question.

“Quiksilver is experiencing declining revenue and deteriorating credit measures, leaving some doubt as [to] the efficacy and timing of its profit improvement program,” wrote Gimme Credit senior analyst Kim Noland in an afternoon comment out Friday.

Indicators mixed on day, off on week

Statistical indicators of junk market performance turned mixed on Friday, after having been lower across the board for the two previous days, although they had been mixed for six consecutive sessions before that.

However, they were down all around compared with where they had closed out the previous week, when they had been mixed versus the week before. It was the first week-over-week drop seen since the week ended Aug. 1.

The KDP High Yield Daily Index suffered its sixth straight loss on Friday, plunging 17 basis points to end at 73.63, nearly doubling Thursday’s 9 bps downturn.

Its yield meantime rose 9 bps to 5.19%, its seventh successive widening. On Thursday, it had risen 3 bps.

Those levels compared unfavorably with the 74.00 index reading and 5.03% yield seen at the close of the previous week on Friday, Aug. 29.

The Markit CDX Series 22 index broke out of its rut of the previous two sessions, gaining 1/16 point to end at 107 13/16 bid, 107 27/32 offered. On Thursday, it had lost 7/32 point.

But the index was down for the week from the 108 bid, 108 1/16 offered level seen the previous Friday.

The widely followed Merrill Lynch High Yield Master II Index continued to struggle, retreating for a fourth session in a row. It ended down 0.212%, following Thursday’s 0.144% setback.

That dropped its year-to-date return to 5.345%, down from Thursday’s 5.569% finish and down as well from 5.847% on Monday, its peak level for the year so far.

On the week, the index surrendered 0.438%, its first weekly loss after four consecutive weekly gains, including the 0.167% advance the previous week, when its year-to-date return stood at 5.808%.

-Stephanie N. Rotondo contributed to this review

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