Tallgrass prices; Big Tex keeps climbing; Corrections Corp. nosedives; funds gain $889 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 18 – The recently busy high-yield primary market quieted down on Thursday, pricing just one $400 million offering – a fall-off from new-deal volume so far this week of $1.9 billion on Monday, $1.55 billion on Tuesday and $1.76 billion on Wednesday.

The day’s sole issuer was Tallgrass Energy Partners LP, an energy master limited partnership, which came to market with a regularly scheduled offering of eight-year notes.

Traders saw the new notes trade up solidly when they hit the aftermarket, though not on particularly large volume.

Syndicate sources indicated that the Tallgrass pricing essentially clears the forward calendar cupboard of potential new deals. Nothing else is being actively marketed at this time, although opportunistically timed and quickly shopped deals could still pop up during the run-up to Labor Day over the next couple of weeks.

Among already priced issues, traders saw Wednesday’s seven-year secured deal from Big Tex Trailers continuing to gain ground, on active volume.

They also saw continued brisk activity in Wednesday’s other transaction, the two-part megadeal from Diamond Resorts International, Inc. Its seven-year secured notes were trading around their par issue price, but its eight-year unsecured paper was still barely treading water.

Away from the new deals, traders said that Corrections Corp. of America’s bonds nosedived, along with its shares, as the federal government announced that it would phase out the use of privately owned and operated corrections facilities of the type that CCA operates, feeling they are less efficient and safe than federally run institutions.

Statistical market performance measures turned mixed on Thursday, after having been unchanged to higher on Wednesday. It was the second mixed session in the last three trading days.

Another numerical indicator, flows of investor cash in to or out of high-yield mutual funds and exchange-traded funds, were on the upside for a second consecutive week, continuing to bounce back after two straight weeks of net outflows, one of them the largest such cash loss seen so far this year.

Some $889 million more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday, on top of the $1.66 billion net inflow reported last Thursday for the week ended Aug. 10. (See related story elsewhere in this issue.)

Tallgrass prices tight

Tallgrass Energy Partners priced Thursday's sole deal, a $400 million issue of eight-year senior notes (B1/BB+) that came at par to yield 5½%.

The yield printed at the tight end of the 5½% to 5¾% yield talk.

Official talk came in line with the mid-to-high 5% initial guidance, according to an investor.

Barclays was the lead left bookrunner for the debt refinancing deal. Wells Fargo Securities LLC, Capital One, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, PNC Capital Markets and TD Securities were the joint bookrunners.

The Tallgrass transaction cleared the active forward calendar as market sources expected a quiet Friday in the new issue market and indeed a generally quiet run-up to Labor Day, two weeks hence.

There could be a deal or two next week, a trader said on Thursday.

Apart from that we may be finished for the summer, the source added.

Tallgrass trades up

In the secondary market, traders saw gains in the new Tallgrass Energy Partners 5½% notes due 2024, after the Leawood, Kan.-based energy MLP’s scheduled forward calendar offering priced at par.

One quoted the new bonds in a 101-to101½ bid context, while a second saw them get as good as 102¼ on the offered side.

“We’re trying to buy bonds,” said a third trader, pegging them in a 101¼-to-101¾ bid range.

Big Tex gains continue

Wednesday’s $670 million issue from Big Tex Trailers, a Southlake, Texas-based freight container company, continued to do well in the aftermarket.

A trader saw those bonds finishing at 103 bid, up ¾ point on the day, with over $32 million traded, putting the issue high up on the Most Actives list.

The notes priced on Wednesday at par and had firmed to a 101½-to-102 bid context when they broke into the aftermarket.

Diamond Resorts still mixed

Wednesday’s other issue, from Las Vegas-based hospitality and vacation resort company Diamond Resorts International, remained mixed in Thursday trading.

Its 7¾% senior secured notes due 2023 were trading around par to 100¼ bid, “hanging in there,” a trader said, on volume of over $23 million, after having priced at par.

He saw its 10¾% unsecured notes due 2024 between 97½ and 98½ bid, versus their 98.691 issue price.

Corrections Corp. clobbered

Away from new or recently priced deals, traders said that the major mover in Thursday’s market was Corrections Corp. of America’s 4 5/8% notes due 2023, which plunged 15½ points on the session to 86¼ bid, on volume of over $17 million.

Another market source quoted the bonds as low as 85½ bid going home – a 16¼-point swoon.

The Nashville-based private correctional facilities operator’s New York Stock Exchange-traded shares meantime nosedived by $9.65, or 34.45%, ending at $17.57, on volume of over 39 million shares – 50 times the norm.

The bonds and shares plummeted after the Department of Justice revealed it will phase out its use of private prisons, saying that federally run facilities would be safer and more efficient than privately maintained penal institutions.

The department also cited “reforms that would ensure more proportional sentences and effective use of federal resources.”

A quiet but firmer session

Overall, one of the traders opined that there was “not too much” going on.

“It was somewhat of a quieter day.”

He noted that oil prices “had a nice rally, up $1.50” per barrel – the commodity’s sixth consecutive gain and seventh in the last nine sessions, helping to boost energy issues.

Beyond that, “the whole market has kind of come around to the sense that the Fed is completely out of the picture until the end of the year,” in terms of potential interest rate hikes, “so it’s risk-on.”

Indictors turn mixed

Statistical market performance measures turned mixed on Thursday, after having been unchanged to higher on Wednesday. It was the second mixed session in the last three trading days.

The KDP High Yield index lost 1 basis point on Thursday to end at 70.28, its first setback after four straight gains, and nine gains in the previous 10 sessions. That included Wednesday’s 8 bps climb, which had left the index at 70.29, its peak level for the year so far and for the last 52 weeks.

Its yield was unchanged at 5.27%, after having come in by 1 bp on Wednesday, its fourth consecutive narrowing and ninth in the previous 10 sessions.

The Markit Series 26 CDX Index rose by 9/32 point on Thursday to close at 105 1/16 bid, 105 1/8 offered, after having been unchanged on Wednesday and having lost 1/8 point on Tuesday. Thursday’s advance was its second in the last four sessions.

The Merrill Lynch High Yield index was meanwhile up for a 12th successive session on Thursday, firming by 0.104%, on top of Wednesday’s 0.026% rise.

The streak-prone index’s gains of the last 12 sessions follow a six-session slump before that.

Thursday’s upturn brought the index’s year-to-date return up to 14.152%, its 10th straight new peak level for the year, versus Wednesday’s 14.034% close.

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