Murphy caps $7.5 billion week, firms in trading; new Valvoline, Charter busy; Revlon up

By Paul Deckelman and Paul A. Harris

New York, Aug. 4 – The high-yield primary market was a little more relaxed on Friday, with syndicate sources seeing just a single medium-sized offering getting done as energy operator Murphy Oil Corp. priced $550 million of eight-year notes off the forward calendar

That represented a breather from the previous three busy sessions, which saw multiple deals totaling in the billions of dollars getting done, including some megadeal-sized offerings and two-tranche transactions.

Accordingly, the Murphy deal closed out a busier week which saw $7.54 billion of new dollar-denominated high-yield paper price – the heaviest new issuance total in Junkbondland since the end of May, according to data compiled by Prospect News.

Traders said the new Murphy bonds were actively traded once they hit the aftermarket, firming modestly.

They said Friday’s investors were mainly focused on the flood of new deals which came to market during the week, seeing considerable activity dealings in such recently priced credits as Valvoline, Inc., Charter Communications, Inc., Cornerstone Chemical Co. and Superior Energy Services, Inc.

Away from the new issues, Revlon Inc.’s bonds were busy. The cosmetics company’s 2021 notes firmed smartly on the day on brisk volume – even as its shares fell following the release of quarterly results.

Statistical market performance measures were lower across the board for a second consecutive session on Friday.

The indicators were meantime mixed versus where they had finished last Friday, July 28, marking their first mixed week after three straight weeks before that in which they had shown Friday-over-Friday gains.

Murphy prices $550 million

Friday’s sole business in the new issue market came from Murphy Oil, which priced a $550 million issue of eight-year senior notes (Moody’s: Ba3/Fitch: BB) at par to yield 5¾%.

The yield printed on top of talk for a yield in the 5¾% area.

J.P. Morgan and BofA Merrill Lynch were the joint physical bookrunners. BNP Paribas, DNB, Scotia, MUFG, Wells Fargo and Goldman Sachs were the joint bookrunners.

The El Dorado, Ariz.-based independent oil and natural gas exploration and production company plans to use the proceeds to redeem its 2½% notes due December 2017.

The week ahead

The primary market moves into the Aug. 7 week with just one deal on the active calendar.

Triumph Group, Inc. is in the market with a $500 million offering of eight-year senior notes (B3/B-) which is expected to price early in the week ahead.

JP Morgan and Citigroup are leading the debt refinancing deal.

The past week, which featured $6.99 billion in 13 junk-rated tranches, was bigger than anticipated, a syndicate banker said on Friday.

The week ahead should be a big one as well, with $3 billion to $5 billion of new issue business anticipated.

Watch for Staples Inc. to show up with a senior notes offer that will replace the $1.6 billion unsecured bridge loan put in place during July, the banker said.

The bridge is capped at 10¼%.

BofA Merrill Lynch, UBS, Wells Fargo, Credit Suisse, Deutsche Bank, Fifth Third, Jefferies, RBC, Citigroup, Goldman Sachs, KKR and Natixis were the leads on the bridge loan.

Proceeds will be used to help fund the buyout of the company by Sycamore Partners.

Looking beyond the Aug. 7 week, activity in the primary market is expected to diminish as the month of August wears on and market participants leave for vacation, sources say.

Issuer momentum

If the August 7 week does turn out to be a big one in the primary market it will be interesting to see if issuers are able to maintain their phenomenal momentum, sources say.

That momentum has been manifesting itself in two conspicuous ways: tumbling price talk and aggressive covenants.

Last Wednesday Ashtead Group plc priced $1.2 billion of second priority senior secured notes (Ba2/BBB-) in two tranches.

The deal included $600 million of notes due Aug. 15, 2025 which priced at par to yield 4 1/8%. The yield came inside the 4¼% to 4½% yield talk and deep beneath initial guidance of 4½% to 4¾%.

In addition the company priced $600 million of notes due Dec. 31, 2027 at par to yield 4 3/8%. The yield came inside of the 4½% to 4¾% yield talk. Initial guidance on the 10-year paper was 4¾% to 5%.

Elsewhere issuers are coming with aggressive covenant packages, sources say.

On Wednesday AK Steel Corp., a familiar high-yield name, priced a $280 million issue of eight-year senior notes (B3/B-) at par to yield 6 3/8%.

That low single B deal came with investment-grade covenants, a trader subsequently marveled.

In some cases issuers are engendering pushback on aggressive covenants.

On Tuesday, Diamond Offshore Drilling, Inc. priced a $500 million issue of 7 7/8% eight-year senior bullet notes (Ba3/BB-) at 99.272 to yield 8%.

The yield printed on top of talk in the 8% area. However earlier guidance was 7½%, sources said.

Diamond Offshore pricing headed north amid some investor pushback on covenants, a trader said.

The company apparently selected to pay up as opposed to relenting on the covenant language in question, the source added.

Thursday inflows

Daily cash flows for dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, a trader said.

High-yield ETFs saw $71 million of inflows on the day.

Actively managed funds saw $40 million of inflows on Thursday.

The news follows a Thursday afternoon report from Lipper US Fund Flows that dedicated high-yield bond funds saw $195 million of inflows in the week to last Wednesday’s close.

Busiest primary week since May

Friday’s $550 million offering from Murphy Oil raised the week’s total of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers to $7.54 billion in 14 tranches, according to data compiled by Prospect News.

Included among that was the $2.85 billion of new paper which priced in four tranches on Thursday – the most paper seen in a single session since back on June 5, when $5.08 billion of new junk had priced in seven tranches, according to the data, including four tranches alone totaling $3.78 billion from hospital operator Tenet Healthcare Corp.

The total for the week just ended was well up from the $3.48 billion which priced in six tranches the previous week, ended July 28, as well as the week before, ended July 21, when $2.53 billion had come to market, also in six tranches.

It also nosed out the $7.26 billion which had gotten done in 14 tranches during the week ended June 30, and in fact was the most issuance recorded since the week ended May 26, when $9.69 billion came to market in 18 tranches.

This week’s tsunami of deals lifted year-to-date issuance for 2017 to $161.51 billion in 303 tranches, running about 19.9% ahead of the $134.63 billion which had priced in 199 tranches by this point on the 2016 calendar, the Prospect News data indicated.

Murphy firms in active dealings

The Murphy Oil 5¾% notes due 2025, which priced just a day after word of the upcoming new deal had first made the rounds of the junk market, were among the day’s most actively traded credits, with a market source estimating that more than $34 million of the new notes had changed hands.

He saw them finishing the day at 100½ bid, up from their par issue price.

A second trader pegged the paper a bit lower than that, at 100¼ bid.

At another desk a trader located them in a range of 100 3/8 to 100 5/8 bid.

Valvoline most active

Among the week’s other newly priced issues, a trader said that Valvoline’s 4 3/8% notes due 2025 “were doing pretty well,” quoting that paper at 101½ bid.

Another trader also saw the bonds at those levels, estimating that volume in the credit totaled $37 million, the most of any junk issue.

The Lexington, Ky.-based maker of automotive lubricants priced its $400 million of the notes at par on Thursday in a quick-to-market transaction.

Other issues active

Elsewhere among the recently priced issues, a trader said that Charter Communications’ new 5% notes due Feb. 1, 2028 “were not going anywhere,” seeing them finishing the day at par, which he called unchanged.

At another desk, a market source also located those new notes at par, but called that down 3/16 point on the day. Over $27 million having traded.

The Stamford, Conn.-based cable, internet and phone services provider priced $1.5 billion of those notes – upsized from $1 billion originally – at par on Thursday via is CCO Holdings, LLC and CCO Capital Corp. funding subsidiaries in a quickly shopped transaction.

One of the traders said that Cornerstone Chemical’s 6¾% senior secured notes due 2024 “were struggling a little bit,” seeing that paper finishing at 100¼ bid.

A second trader, also seeing the notes at 100¼ bid, called them unchanged on the day, with over $18 million of volume.

The Waggaman, La.-based chemical company priced $450 million of the notes at par on Thursday via its CSTN Merger Sub Inc. financing unit in a forward calendar transaction that was upsized from $430 million.

Superior Energy Services’ 7¾% notes due 2024 were seen holding steady Friday around the 101 level to which they had risen on Thursday after the Houston-based oil and gas priced $500 million of the votes via its SESI, LLC subsidiary.

Over $14 million traded on Friday.

Revlon on the rise

Away from the new deals which dominated most of the proceedings, traders saw Revlon’s 5¾% notes due 2021 jump more than 2 points on the day to 86¼ bid on $12 million of activity.

Its shares did not fare as well, falling by $1.15, or 6.48%, to end at $16.60 on over three times normal volume after the company released its quarterly results.

But in addition to its reported losses, the New York-based cosmetics company said that as of June 30, it had had drawn $87.5 million on its revolving credit facility and had over $300 million of liquidity, consisting of $83.2 million of unrestricted cash and cash equivalents, as well as $231 million in available revolver borrowing capacity.

“The company has taken steps to improve its domestic liquidity position, such as repatriating cash to the U.S. using tax-effective methods and effectively managing its working capital needs,” Revlon added.

Indicators stay down

Statistical market performance measures were lower across the board for a second consecutive session on Friday. They had fallen on Thursday after being better all around on Tuesday and again on Wednesday following two straight sessions before that during which they had been mixed.

The indicators were meantime mixed versus where they had finished last Friday, July 28, marking their first mixed week after three straight weeks before that in which they had shown Friday-over-Friday gains.

The KDP High Yield Daily Index lost 3 basis points for a second consecutive session on Friday to 72.56. Those losses followed two straight gains on Tuesday and Wednesday.

Its yield was unchanged on Friday at 5.06% after ballooning out by 9 bps on Thursday.

Those levels compared unfavorably to the 72.62 index reading and 4.93% yield seen last Friday.

The Markit CDX Series 28 High Yield Index also saw its second straight loss on Friday, ending down 1/16 point at 107 17/32 bid, 107 19/32 offered. It had also retreated by nearly 5/32 point on Thursday, its first loss after three straight improvements.

For the week, the index was off slightly from last Friday’s 107 9/16 bid, 107 5/8 offered finish.

The Merrill Lynch North American High Yield Index backtracked by 0.032% on Friday after Thursday’s 0.045% retreat, in contrast to its gains the two previous sessions.

Friday’s loss dropped the index’s year-to-date return to 6.152% from Thursday’s 6.186%, and down as well versus Wednesday’s 6.233%, which had been its second straight new 2017 cumulative peak level.

For the week, the index gained 0.025%, its fourth straight weekly upturn. It had finished 0.231% higher the previous week.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.