High-yield primary quiets down as holiday run-up starts; secondary levels seen better

By Paul Deckelman and Paul A. Harris

New York, July 1 - The high-yield market kicked off the new month and the second half of the year in a quiet fashion on Monday.

Syndicate sources saw no new deals having priced during the session, nor were any others announced, and no news emerged on any of the prospective offerings seen on the forward calendar's horizon.

This was expected to be the norm for all of this week as things slow ahead of Thursday's July 4th holiday in the United States.

In the secondary market, traders saw firmer levels on some of the recently priced deals, including last week's issues from Hercules Offshore, Inc. and Valeant Pharmaceuticals International, Inc.

Away from the new-deal arena, the traders saw better bids on a number of credits, including such familiar names as Level 3 Communications, Inc. and E*Trade Financial Corp.

Statistical indicators of secondary market performance were up across the board on Monday, after having been mixed on Friday.

The lack of primary market activity came as no surprise to a New York-based debt capital markets banker.

Tuesday will likely come and go in the same fashion, and there will almost certainly be no activity on Wednesday, said the banker, who was referring to Wednesday's early close.

Many market participants are using vacation time to stretch the July 4 holiday in to a four-day weekend by taking off Friday as well, sources throughout the market said on Monday.

Possible parade of deals

Depending upon market conditions, primary market activity could ratchet significantly higher during the second week in July, the banker said.

"A lot of product could be coming if there's not too much volatility," the official remarked.

The technical picture in the high yield is not what it was in the halcyon days of the past winter, the sellsider said.

That's because redemptions have hit with significant force, with $12.2 billion of outflows over the past five weeks, according to a Prospect News analysis of data reported weekly by Lipper-AMG.

"That's a lot of cash," the banker remarked.

"So there's less cash out there, but lately we have not been seeing a lot of supply."

A look at weekly issuance totals bears out this sellsider's color.

For the year through the end of May, weekly issuance averaged a robust $7.2 billion, according to Prospect News data.

Since the end of May - a period of time that coincides with the onset of successive weekly outflows from the high yield funds - issuance has slowed to a comparatively anemic $2.8 billion per-week trickle.

Summer could see that weekly volume increase again, provided market conditions move back in favor of junk, said the banker.

Quiet but firm

In the secondary arena, a trader characterized Monday as "pretty quiet, as kind of expected."

"I'd say the market definitely had a firmer tone, though, along with equities," which were higher across the board on signs of strength in manufacturing and construction sectors, even though the major stock indexes did finish off their session highs on late profit-taking. The bellwether Dow jones industrial Average gained 65.36 points, or 0.44%, to end at 14,974.96.

Back in Junkbondland, the trader declared that "it seemed like the go-go names were better-bid today. They move along with the broader market," which was generally stronger.

Level 3 leads the way

For instance, Level 3 Communications' 8 1/8% notes due 2019 were being quoted by a market source as having gained 2¼ points to finish at 107¾ bid.

The Broomfield, Colo.-based fiber-optic network operator and internet backbone provider's 9 3/8% notes, also due 2019, were almost 2 points better, a trader said.

And its 10% notes due 2018 were seen going home at 107¾ bid, with around $6 million of the bonds having changed hands by mid-afternoon, making it one of the more actively traded junk issues.

Another even busier name seen Monday was NRG Energy Inc.'s 8½% notes due 2019, seen by a trader up 1 point on the day at 108¼ bid.

A second trader meantime pegged the Princeton, N.J.-based power generating company's bonds a little higher on the session at 107¾ bid on mid-afternoon volume of over $6 million.

J.C. Penney Co., Inc.'s 5 5/8% notes due 2020 were seen having gained 1½ points to finish out at 85 bid. Almost $5 million of the Plano, Texas-based retailer's bonds had traded at mid-afternoon.

New York-based financial services company E*Trade Financial's 6 3/8% notes due 2019 gained 1½ points, closing at 103½ bid, a market source said, with over $4 million of those notes traded.

But its 6¾% notes due 2016 were seen down 1 1/8 point, at 104½ bid.

CCC bonds generate activity

A trader said that he saw "a little profit-taking" on what he called "some of the dicey credits - the CCC credits that obviously have been trading where they've been trading [at high dollar prices] because of their high coupons.

Recent deals hold most gains

Among recently priced issues, a trader said that Hercules Offshore's 8¾% notes due 2021 were trading Monday morning at 101½ bid, 102¼ offered - off a little from the 101¾ bid, 102 offered that he had seen the bonds at on Friday.

However, a second trader pegged the Houston-based oilfield maritime services provider's new paper at 101 7/8 bid, 102 3/8 offered, which he called up a quarter-point on the session.

He also saw both halves of Valeant Pharmaceuticals' giant-sized new offering a little better on the day, adding to the hefty gains, which those bonds had notched after pricing on Thursday and then had built upon on Friday.

He saw the 7½% notes due 2021 having gained a quarter-point from Friday's closing highs, quoting them at 104¼ bid, 104 5/8 offered.

And he saw its 6¾% notes due 2018 having gained 3/8 points to end at 103 bid, 103½ offered.

Another trader saw slightly more conservative levels on both, with the 6¾% notes at 102 3/8 bid, 102 5/8 offered, and the 7½% notes at 103½ bid, 103¾ offered.

On Thursday, Valeant, a Canadian specialty drug manufacturer, came to market with a $3.225 billion two-part offering, which was both the first megadeal seen in the junk market in over a month and the biggest since late March.

The company priced $1.625 billion of the 7½% notes and $1.6 billion of the 6¾% notes, both at par, and both of those tranches were seen to have traded strongly higher when the new issue was freed for secondary market dealings later Thursday.

Activity in the new Valeant bonds was said to have been busy, with seemingly everyone wanting a piece of the deal, one market participant said.

Going back to other new deals that had priced earlier last week, a trader said that Solera Holdings Inc.'s 6% notes due 2021 were a quarter-point softer at 100¼ bid, 100¾ offered.

The Westlake, Texas-based insurance industry software provider had priced $850 million of the notes at par in a drive-by issue on Thursday via its Audatex North America Inc. subsidiary, after having upsized the issue from an originally announced $700 million. The notes moved up to a 100¼ to 100½ in initial aftermarket dealings.

TransDigm, Inc.'s 7½% senior subordinated notes due 2021gained 1¼ points on Monday, a trader said, going home at 102½ bid, 103 offered.

The Cleveland-based aircraft components manufacturer's $500 million quick-to-market deal had priced at par last Tuesday. The bonds had then jumped more than a point during Wednesday's strong market, held at that higher altitude on Thursday and Friday and resumed their climb on Monday.

Gibson Energy, Inc.'s 6¾% notes due 2021 were up 1 point, the trader said, locating the bonds at 99½ bid, 100½ offered. The Calgary, Alta.-based energy operator's $500 million deal had priced last Tuesday at 98.476 to yield 7% as part of a larger two-part offering that also included a tranche of Canadian dollar bonds.

Market indicators move higher

Statistical junk market performance indicators turned higher across the board on Monday, after having been mixed on Friday. It was the third session in the last four in which all of the signposts were pointing northward.

The Markit Series 20 CDX North American High Yield index rose by ¾ of a point on Monday to end at 103 3/8 bid, 103 5/8 offered, in contrast to Friday's 9/16 of a point loss. That downturn had snapped a three-session streak of improved readings.

The KDP High Yield Daily index notched its fourth consecutive advance on Monday, finishing up by 13 basis points at 72.99. That follows a 6-bps rise on Friday. Its yield, meanwhile, fell for a fourth consecutive session, ending down 4 bps at 6.37%, on top of Friday's 3 bps narrowing.

And the widely followed Merrill Lynch High Yield Master II index also recorded its fourth improvement in a row on Monday, rising by 0.139%, on top of Friday's 0.212% upturn.

Monday's gain lifted the index's year-to-date return to 1.642%, up from 1.46% on Friday, and well up from last Tuesday's 0.384% reading - its lowest level for the year.

© 2015 Prospect News.
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