Primary turns quiet, though Downstream Development on tap; new T-Mobile busy, better; EP leads oils up

By Paul Deckelman and Paul A. Harris

New York, Jan. 23 – Things quieted down drastically in the high-yield primary market on Tuesday – the first session in nearly two weeks that did not see any new dollar-denominated and fully junk-rated paper price.

Some $2.5 billion had come to market in two quickly shopped tranches during Monday’s session.

But Tuesday’s dearth of new issuance is not expected to last very long – syndicate sources said that price talk surfaced on tribal gaming operation Downstream Development Authority’s planned five-year secured notes deal, which could price after books close late Wednesday morning.

In the secondary realm, traders said that Monday’s big deal from wireless service provider T-Mobile USA, Inc. easily dominated the day’s Most Actives list, with both tranches of that two-part transaction seen having moved modestly higher in very heavy trading.

Friday’s megadeal from Meredith Corp. was also seen to be pretty active, though the publisher’s paper was little changed on the day.

Away from the new and recent deals, energy names were better, led by EP Energy Corp., which on Monday had had released a bullish 2018 outlook update.

The sector was also helped by a second straight session of firmer prices.

Intelsat SA’s several series of notes from its Luxembourg and Jackson subsidiaries were seen higher across the board, though on no specific news about the communications satellite company.

Frontier Communications Corp.’s paper remained active in the wake of the news that the wireline service provider’s recently announced amendments to its credit agreement had been finalized – although those recently universally strong notes ended the day mixed.

Statistical market performance measures strengthened for the first time in nearly two weeks on Tuesday, firming after having been mixed for the previous two sessions and for four out of the prior six trading days, sandwiched around two lower across-the-board sessions.

Downstream talk 10½% coupon at discount

No deals were priced during an ultra-quiet Tuesday primary market session.

Downstream Development Authority talked its $265 million offering of five-year senior secured notes (B2/B) with a 10½% coupon and a reoffer price of 98 to 99.

Books close at 11 a.m. ET Wednesday.

Credit Suisse is the bookrunner.

Proceeds will be used to refinance the tribal gaming authority’s entire capital structure.

Norwegian Air Shuttle tap

In the European market Norwegian Air Shuttle ASA announced that it mandated Danske Bank, Nordea and Pareto Securities to investigate the possibility of placing a €65 million tap of its bonds maturing in December 2019, of which €185 million are presently outstanding.

A global investor call was scheduled to take place on Tuesday.

The Norwegian low cost air carrier plans to use the proceeds for general corporate purposes and to further the growth of the group.

It's beginning to look like a slow week in Europe's high-yield primary, a London-based sellside source said on Tuesday.

However it was a busy week last week, the source pointed out, adding that there ought to be a few deals in the Jan. 29 week.

February could be busy, the London-based sellsider said.

Elsewhere Burford Capital Ltd. announced in a Tuesday press release that it plans to sell 6 1/8% Eurodollar bonds due Aug. 12, 2025.

Peel Hunt LLP will be the lead manager.

The deal is expected to close on Feb. 6.

The issuer has previously raised £90 million, £100 million and £175 million through issues of bonds.

T-Mobile trades up

In the secondary market, a trader said that both tranches of Monday’s huge new deal from T-Mobile USA, Inc. “were trading up a little bit from their issue price, but not a ton.

He pegged the Bellevue, Wash.-based wireless service provider’s 4½% notes due 2026 in a 100½-to-100¾ bid range, while its 4¾% notes due 2028 were in a 100 5/8-to-100 7/8 context.

“They moved up throughout the day, after having opened a little bit lower,” he said.

And he said that the new paper was “absolutely active,” with almost $170 million of the 4¾% notes having changed hands and more than $150 million of the 4½% issue.

A market source at another desk said that both of those tranches had moved up from the modest gains they had seen in relatively thin initial aftermarket dealings following Monday’s pricing.

He said the 4¾% notes were up by nearly ½ point on the day, ending at 100 11/16 bid, while the 4½% paper ¼ point better, closing at 100 5/8 bid.

T-Mobile had priced $1 billion of the eight-year notes and $1.5 billion of the 10-year paper both at par on Monday in a quick-to-market offering.

T-Mobile plans to use the proceeds from its new deal to redeem up to $1.75 billion of its existing 6 5/8% senior notes due 2023 and up to $600 million of its 6.836% senior notes due 2023, with the balance to be used for general corporate purposes, including a partial paydown of the T-Mobile USA revolving credit facilities.

A market source said that the 6 5/8% notes were marginally higher on the day, ending at just over 104 bid, with over $14 million having traded.

And he said that T-Mobile’s 6½% notes due 2026, which are not slated to be redeemed using the new-deal proceeds, were ½ point better, at 109½ bid, on volume of more than $12 million.

Busy Meredith bonds unchanged

Elsewhere among the recently priced new deals, Meredith Corp.’s 6 7/8% notes due 2026 were quoted by a trader little changed on the day at 102½ bid, on volume of more than $26 million.

On Friday, the Des Moines, Iowa-based magazine publisher and broadcaster had priced $1.4 billion of those notes at par in a regularly scheduled forward calendar offering.

The oversubscribed issue had soared in Friday’s initial aftermarket dealings, with an astounding nearly $260 million of the notes having traded – easily the busiest name of that session in Junkbondland – zooming by almost 2½ points from their par issue price as they finished in a 102 3/8-to-102½ bid context.

The notes again topped the high yield Most Actives list on Monday, with the bonds firming slightly to 102½ bid, on volume of nearly $40 million.

Mattel notes busy and better

Going back a little further, Mattel, Inc.’s recently priced 6¾% notes due 2025 were seen having jumped nearly 3 points on the session to end at 102 bid, on turnover of more than $40 million.

That followed Monday’s more than $20 million traded, when the notes had firmed by 1/8 point.

The Tuesday surge in the El Segundo, Calif.-based toy manufacturer’s bonds came in tandem with an equally impressive climb in the company’s New York Stock Exchange-traded shares.

The stock soared on Tuesday by $1.67, or 10.38%, closing at $17.76. Volume of more than 18 million shares was nearly twice the norm.

News reports indicated the shares rose on market scuttlebutt that rival toymaker Hasbro may make another offer to acquire Mattel, which spurned a previous takeover bid in November.

Mattel executives refused to comment Tuesday on such market speculation.

Mattel sold $1 billion of the 6¾% paper in one of the last deals of 2017, pricing them at par in a regularly scheduled transaction on Dec. 15.

The bonds have mostly languished at or below their issue price for most of the time since then.

EP Energy leads oils higher

Away from new or recently priced offerings, traders said that EP Energy’s paper firmed smartly in Tuesday dealings, with one seeing the Houston-based oil and natural gas exploration and production company’s 9 3/8% notes due 2024 gain 1¼ points on the day to close at 86½ bid, on volume of over $40 million.

The company’s 8% notes due 2025 were up a little more than that, ending at 80 5/16 bid, with over $33 million having traded.

The bonds climbed after EP on Monday released a bullish 2018 outlook update.

Among other things, the company expects $600 million to $650 million of oil and gas expenditures, excluding acquisition capital, and expects production to rise to between 81,000 and 87,000 barrels of oil equivalent per day from 82.3 thousand in 2017. It expects to produce between 46,000 and 50,000 barrels daily of oil production, up from 46.1 thousand in 2017.

It said its anticipated production is hedged to protect against downside move in oil or natural gas prices, while retaining the upside to the expected higher prices for oil.

And it said that it achieved improved financial flexibility in 2017 with an extended debt maturity profile.

“We are excited about our future as we look to build on our recent success and grow cash flows, reduce costs and improve capital efficiency,” said company president and chief executive officer Russell Parker.

“In addition to hitting our targets in 2017, we increased our financial flexibility and established a solid path for further improvement to our balance sheet. We have entered into the largest acquisition in our company's history with a bolt on to our high-quality Eagle Ford position in a leverage neutral manner by divesting of a small portion of our Altamont acreage. During the year, we also entered into two drilling joint ventures, which increased capital efficiency. We continue to explore opportunities within each program to further increase asset performance and returns. As we look ahead, 2018 will be a year in which we blend fresh concepts and explore new opportunities across the company to drive higher value for all of our stakeholders.”

EP’s notes, and those of other energy companies, also get a boost from a second straight session of better crude oil prices.

West Texas Intermediate crude for March delivery - the new front month – jumped by 90 cents per barrel in New York Mercantile Exchange settling at $64.47, while March contract North Sea Brent crude was up by 93 cents per barrel in London futures dealing, to $69.96.

Energy sector bellwether issue California Resources Corp.’s 8% notes due 2022 gained nearly 1 full point on the day to close at just over 87 bid. Volume in the Los Angeles-based E&P operator’s issue was $8 million

Frontier stays active

Continuing the trend seen in in recent weeks, Frontier Communications Corp.’s notes were among the most actively traded of the day Tuesday despite not changing much in price.

Since finalizing amendments to its credit agreement, the Norwalk, Conn.-based wireline telecommunications firm’s notes have remained highly active, according to a trader, citing its 10½% notes due 2022 rising slightly to around 83 5/8 bid, although its 11% notes due 2025 eased by ½ point to end the day at 77¾ bid.

Volume was $21 million and $16 million, respectively.

“They’ve traded up a good bit since the amendment news,” the trader said.

Intelsat issues up

Elsewhere in the communications sphere, Intelsat Luxembourg SA’s and Intelsat Jackson Holdings SA’s notes were also heavily traded Tuesday, and moved higher

Intelsat Luxembourg 7¾% notes due 2021 were the main driver, trading up more than 2½ points on the day to end at 48 5/8 bid, with over $17 million having traded, followed by the unit’s 8 1/8% notes due 2023, up more than 3 points to 45 1/8 bid, with around the same volume.

Intelsat Jackson’s 7¼% notes due 2020 traded up over a point to 88½ bid, with over $26 million having changed hands.

A trader said that the high volume of trades in the Luxembourg-based satellite communications company’s paper was not due to any particular news, but just an indicator of the market as a whole.

“Bonds have been soft for a week and a half,” the trader said. “There had been a fair amount of sell pressure – but it looks like today, somebody decided to start buying, hence the move upward.”

Indicators turn better

Statistical market performance measures strengthened for the first time in nearly two weeks on Tuesday, firming after having been mixed for the previous two sessions and for four out of the prior six trading days, sandwiched around two lower across-the-board sessions. It was the first mostly higher session since Jan. 11.

The KDP High Yield Daily index ended unchanged Tuesday at 71.91, after having suffered four consecutive losses before that, including Monday’s 3-basis point easing and plunges of 8 bps on Friday and 10 bps on Thursday.

Its yield was also unchanged, holding steady at 5.27% after four straight sessions of having widened out, including Monday’s 1 bps rise.

But the Markit CDX Series 29 index posted its third gain in a row on Tuesday, firming for a second straight session by 1/8 point to close at 108 23/32 bid, 108 25/32 offered; on Friday, it had turned positive, improving by almost 3/32 point, breaking a string of five consecutive losses before that.

The Merrill Lynch High Yield index put up its second gain in as many days on Tuesday, improving by 0.162%, on top of Monday’s 0.063% rise. Those gains follow three straight sessions before that on the downside, including Friday’s 0.06% easing.

Tuesday’s advance raised the index’s year-to-date return to 0.841% from 0.678% at the close Monday.

However, it remained down from its Jan. 8 close at 0.862%, its peak cumulative level for the new year so far.

James McCandless contributed to this review

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