Primary awakens with Kraton loan conversion; health care, retail, telecom active; energy down

By Paul Deckelman and Paul A. Harris

New York, Jan. 6 – The high-yield primary – in its early winter deep freeze for nearly a month – showed signs of life on Wednesday. Syndicate sources reported that Kraton Polymers LLC’s lender had converted the specialty-chemical company’s bridge loan into $440 million of 2023 bonds.

The company had marketed an eight-year note offering to prospective buyers via a roadshow last month, but the deal had subsequently languished on the forward calendar for weeks.

In the secondary market, traders saw brisk activity in a number of sectors, mostly on the downside as renewed equity market volatility weighed on Junkbondland.

There were active dealings in such health-care names as Community Health Systems, Inc., HCA Inc. and Tenet Healthcare Corp.

Retailers Neiman Marcus Group Ltd. and Claire’s Stores, Inc. were busy.

So were telecommunications issues such as T-Mobile USA Inc., Sprint Corp. and Frontier Communications Corp. after T-Mobile release preliminary subscriber data.

Energy names such as Chesapeake Energy Corp. and California Resources Corp. retreated, in line with a steep fall in crude oil prices.

Statistical measures of junk market performance turned lower on Wednesday after having been higher across the board on Tuesday; it was the second lower session in the last three trading days.

Kraton bridge loan converted

The new issue market remained dormant on Wednesday, with the only news being that lenders converted the Kraton Polymers bridge loan into $440 million of 10½% senior notes due April 15, 2023 (B3/CCC+).

The issue price was 96.225.

A $425 million offering of eight-year senior notes ran an early December roadshow just prior to the high-yield new issue market nearly freezing up due to volatility in the global capital markets, at which point the deal became hung up, sources say.

No official price talk was circulated, but early guidance had the notes pricing in the mid-10% yield context.

Credit Suisse, Nomura Securities International, Inc. and Deutsche Bank Securities Inc. led the deal backing the acquisition of Arizona Chemical Holdings Corp.

Tuesday outflows

The dedicated high-yield funds saw outflows on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield exchange-traded funds sustained $86 million of outflows on the day.

Actively managed funds saw $55 million of outflows on Tuesday.

Bank loan funds, meanwhile, saw $35 million of outflows on the day.

Kraton notes unseen

In the secondary sphere, traders said they had not seen any initial aftermarket activity in the new Kraton Polymers 10½% notes due 2023.

Health-care names active

Among specific existing secondary names, Community Health Systems’ 6 7/8% notes due 2022 were the busiest bonds in the junk market, their second consecutive session high up on the Most Actives list. They fell by 1 5/8 points to end at 92½ bid. Over $32 million of the Franklin, Tenn.-based hospital operator’s notes changed hands during the session, on top of the $28 million plus traded on Tuesday.

Its New York Stock Exchange-traded shares meantime dropped $2.05, or 7.86%, to $24.04, on more than twice the normal volume, as Raymond James downgraded the shares, following a similar downgrade Monday from Wells Fargo, and Barclays cut its share price target.

Nashville-based sector peer HCA’s 5 3/8% notes due 2025 firmed 1/8 point to 99¾ bid, with over $16 million traded.

But rival Tenet Healthcare’s 8 1/8% notes due 2022 lost ½ point to 98½ bid, with over $15 million of turnover. Dallas-based Tenet’s 6¾% notes due 2023 were down 13/16 point at just under 92½ bid, with over $14 million traded.

Telecom trades off

T-Mobile USA’s 6½% notes due 2026 finished at 100¼ bid, which a trader called down ½ to ¾ point on the day.

The bonds slipped even though the Bellevue, Wash.-based wireless carrier reported that 8.3 million more customers signed up last year, with 2.1 million in the fourth quarter, marking 11 consecutive quarters of over 1 million net adds and three quarters in a row with more than 2 million total customers gained.

“T-Mobile was driving telecom,” the trader said, seeing busy activity in sector peer Sprint’s 6 7/8% notes due 2028, off ½ point at 69, while Frontier Communications’ 11% notes due 2025 were off ¾ point at 98½ bid.

While the names were lower on the day, he noted that “these are high-beta names that fall 2 or 3 points in real down markets,” meaning that small easing was of no real concern.

Energy slide continues

Among the energy names, “there was more weakness, with oil prices off $2.00 a barrel,” the third straight session that Brent and West Texas Intermediate crude had fallen. They ended at $34.40 and $33.97 per barrel, respectively – their lowest levels in years.

That pushed Chesapeake Energy’s 8% notes due 2022 down ¾ point to 51¼ bid, with over $25 million traded.

California Resources’ 8% notes due 2022 fell 5/8 point to 52 5/8 bid, with over $15 million changing hands.

Retailers among actives

A market source called Neiman Marcus Group’s 8% notes due 2021 “one of the big traders of the day,” seeing the notes up 1½ points on the session, although a second trader saw them down 1 point.

Claire’s Stores’ 9% notes due 2019 were up 1½ points, ending at 62½ bid, with over $10 million traded.

Indicators turn lower

Statistical measures of junk market performance turned lower on Wednesday after having been higher across the board on Tuesday; it was the second lower session in the last three trading days.

The KDP High Yield Daily index was unchanged at 63.85, with a yield of 7.27%, also unchanged on the day.

On Tuesday, the index rose by 11 bps after having dropped by 17 bps on Monday.

Its yield had come in by 7 bps Tuesday after having risen by 6 bps on Monday.

The Markit Series 25 CDX North American High Yield index lost 9/16 point on Wednesday, ending at 100 5/32 bid, 100 3/16 offered, in contrast to its 3/32 point gain on Tuesday.

The Merrill Lynch North American Master II High Yield index remained choppy. It eased by 0.001% on Wednesday, versus its 0.322% rise on Tuesday, which had almost completely offset Monday’s 0.325% loss.

Wednesday’s small loss kept its year-to-date deficit at 0.004%.

The index had finished 2015 on Thursday with a 4.643% loss for the year – its first such red ink since 2008, when it had plunged by some 30% on the year.

© 2015 Prospect News.
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