Primary resumes lull to close relaxed week, though Toys does placement; softer tone after Fed

By Paul Deckelman and Paul A. Harris

New York, Aug. 26 – The high-yield primary sphere closed one of its lightest weeks so far this year with no new junk bond deals having priced on Friday.

There was a little news circulating around however, with Toys “R” Us, Inc. announcing that it had issued $141.540 million of new 2021 secured notes in a private placement transaction, a follow-up to the retailer’s original issue of a tranche of those notes last month as part of a debt exchange.

In non-U.S. dollar activity, Parkland Fuel Corp. brought a Canadian dollar-denominated eight-year deal.

The lack of any new deals on Friday, continuing a week-long pattern, left the week’s new-issuance total at $670 million principal amount, $384 million proceeds, in two tranches, well down from last week’s level.

Traders saw a fall-off in activity in those new bonds – the two tranches of Rule 144A private placement notes from publisher American Media, Inc. There were only a couple of large-sized trades in its new zero-coupon notes and no activity seen in its more conventional interest-bearing paper.

Traders saw a similar lack of much trading activity in recently priced new issues, with only last week’s new deal from Novelis Corp. generating any kind of decent volume.

Traders said the overall market was extremely quiet, with limited flows and a generally somewhat softer tone, especially after Federal Reserve officials indicated that another interest rate hike could soon be in the cards.

Statistical market performance measures were mixed for a third consecutive session on Friday after improving across the board on Tuesday and then turning mixed on Wednesday and staying that way for the rest of the week.

Those market measures were also ending out the week mixed versus where they had ended last Friday – the first such mixed week after three straight weeks of Friday-over-Friday gains all around.

Parkland places C$300 million

Parkland Fuel announced late Friday that it entered into an underwritting agreement to sell C$300 million of 5¾% eight-year senior notes.

The underwriters for the Rule 144A and Regulation S sale include joint bookrunners TD and National Bank Financial.

Proceeds will be used to help fund the acquisition of a majority of the Canadian business and assets of CST Brands, Inc.

Also on Friday Toys “R” Us, Inc. announced that it issued $141,549,000 of 12% senior secured notes due 2021 in a private placement. The notes are an add on to the 12% senior secured notes due 2021 that the company issued in July as part of an exchange.

Elsewhere the primary market remained quiet on Friday and will almost certainly remain so through the Labor Day holiday weekend in the United States, which gets underway following next Friday’s close.

September is shaping up to be a big month in the junk bond market. Late in the past week a syndicate banker estimated that the market could see $25 billion of issuance during the month ahead.

However not too much of that is expected to be “new money,” sources said on Friday.

A lot of the September business is apt to be refinancing, meaning that investors will have a chance to get into some new paper at the same time as bonds in their portfolios are undergoing redemption, a trader said.

In the run up to 2017, the pipeline is certainly not heavy with merger and acquisition financings, a syndicate official conceded.

That would be in keeping with year to date issuance, 56% of which has come in the form of debt refinancing deals, while only 21% of 2016 year to date issuance has been acquisition and LBO related.

Fund flows

High-yield ETFs saw substantial daily outflows on Thursday, according to a trader.

The ETFs sustained $427 million of exiting cash on the day.

Actively managed high-yield funds saw positive cash flows of $65 million on Thursday, the trader added.

The news follows a Thursday afternoon report from Lipper US Fund Flows that dedicated high-yield funds saw $162 million of aggregate inflows for the week to Wednesday’s close.

Apart from the high-yield funds, dedicated bank loan funds saw $35 million of inflows on Thursday.

Week’s activity declines

With no new dollar-denominated and fully junk-rated deals from domestic or industrialized-country issuers pricing Friday other than the purely private placement from Toys “R” Us, the week’s tally of new-date activity stayed where it had finished out the previous session, with just two tranches totaling $670 million principal amount of new paper – $328 million of proceeds – that had come to market, according to data compiled by Prospect News.

That was off from the $5.62 billion that priced last week, ended Aug. 19, in 12 tranches.

It was the slowest week in the primary market since the week ended July 1, when only $250 million of new paper had priced in one lone tranche.

This week’s new-issue activity, such as it was, edged the year-to-date total up to $148.67 billion in 223 tranches.

That was running 27.2% behind the new-deal pace seen at this time last year, when $204.34 billion had priced in 331 tranches, the Prospect News data indicated.

Last week, this year’s new-issuance pace had trailed 2015 by 26.3%.

New Toys bonds little traded

Owing to its private nature, traders did not see any real activity in the new Toys “R” Us 12% secured notes.

One market source quoted the Wayne, N.J.-based specialty retailer’s paper at 101.125, but saw only a handful of small trades in the issue.

The previously issued 12% notes had last traded on a round-lot basis at 101½ bid back on Tuesday.

Little American Media activity

The traders did not see very much activity on Friday in American Media’s new two-part deal, the only junk issue seen during the week.

One trader flatly declared that his shop “didn’t play in it.

“We never saw it.”

At another desk, a market source pegged the company’s zero-coupon notes due in March 2022 at 47 5/8 bid – up 1 1/8 points on the day from Thursday’s close – though volume was only $2 million.

That activity level was down from the $8 million that had changed hands on Thursday, when the zeroes had firmed to 46½ bid, up from the 42.75 level at which the Boca Raton, Fla.-based newspaper and magazine publisher had priced its $534 million of those bonds earlier in the week.

The other half of that deal – done as a private placement but with Rule 144A formatting and league table credit claimed by underwriter J.P. Morgan Securities LLC – meanwhile was unseen on Friday.

That was $136 million of 5½% secured notes due 2021, which priced at 73 bid, had traded around at that level on Wednesday and had risen to 76.5 bid on Thursday on turnover of some $9 million.

Only Novelis and not much more

Among recently priced issues that had come to market last week, traders saw little real trading, despite those issues having initially been active in the aftermarket.

Only Novelis’ 6¼% notes due 2024 generated any real volume, with some $7 million changing hands.

A trader located the notes at 103 bid, down 3/8 point, giving up the 3/8 point that the notes had risen on Thursday on volume of around $3 million.

The Atlanta-based producer of rolled-aluminum products and recycler had prided $1.15 billion of the bonds at par last Monday in a quick-to-market transaction that was sharply upsized from an originally announced $525 million.

Indicators remain mixed

Statistical market performance measures were mixed for a third consecutive session on Friday, after having improved across the board on Tuesday and then turning mixed on Wednesday and staying that way for the rest of the week. Friday marked the indicators’ fifth mixed session in the last six trading days.

Those market measures were also ending out the week mixed versus where they had ended last Friday – the first such mixed week after three straight weeks of Friday-over-Friday gains.

The KDP High Yield Index gained 3 basis points on Friday to close at 70.46, after losing 1 bp on Thursday, its first loss after two straight gains. Friday’s rise established new year-to-date and 52-week highs, eclipsing the old mark of 70.44 that had been set on Wednesday.

The index’s yield came in by 1 bp to 5.23% after rising by 1 bp on Thursday. It was the second narrowing in the last three trading sessions.

Those levels compared favorably with the 70.33 index reading and 5.26% yield seen last Friday.

But the Markit Series 26 CDX Index lost over 9/32 point on Friday to finish at 104½ bid, 104 17/32 offered after having edged higher on Thursday. It was the second loss in the last three sessions.

The index was also lower on the week, versus last Friday’s 104 15/16 bid, 104 31/32 offered close.

The Merrill Lynch High Yield Index improved by 0.057% on Friday, in contrast to Thursday’s 0.024% loss, which had been its first setback since Aug. 12, snapping a 16-session winning streak.

The streak-prone index’s gains of the previous 16 sessions had followed a six-session slump before that.

Friday’s upturn brought the index’s year-to-date return back up to 14.466% from Thursday’s 14.401%. That established a new year-to-date high for the year, surpassing the old zenith of 14.429%, set on Wednesday, which had been its 14th straight new peak level for the year so far.

For the week, the index rose by 0.261% – its fourth consecutive weekly gain following one loss.

The index has been up in 26 out of the 34 weeks since the start of the year, versus eight weeks in which it has lost ground.

© 2015 Prospect News.
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