Domestic primary sphere remains on hold, activity seen in Europe; energy issues off as crude surge snapped

By Paul Deckelman and Paul A. Harris

New York, July 5 – It was back to work in Junkbondland on Wednesday, following Tuesday’s Independence Day holiday break in the United States – but not very much was seen going on in the domestic dollar-denominated primary market, which saw its third consecutive shutout, in terms of no new deals pricing.

But there was activity in the non-dollar part of the market, including the pricing of euro-denominated deals from Italy’s Kedrion SpA and Germany’s Hapag-Lloyd AG.

Also in Europe, participants looked forward to a likely pricing on Thursday from Germany’s Kloeckner Pentaplast.

There was some dollar-market news – out of Europe, though, with British prospective issuer McLaren Automotive heard to be shopping around a dollar-denominated tranche of five-year secured notes, as part of a two-part offering that will also include a tranche of euro-denominated paper.

Back among domestic names, traders saw a fair amount of volume in some of last week’s newly priced issues, including VeriSign, Inc. and Venator Materials plc

Trading was generally light in new or recently priced names, with results mixed.

However energy credits – including last week’s new deal from Carrizo Oil & Gas, Inc. as well as established issues from the likes of California Resources Corp., Chesapeake Energy Corp. and EP Energy Corp. – were all seen lower on the day, amid the abrupt end to what previously been an eight-session surge in world crude oil prices.

Away from energy, Rite Aid Corp.’s debt was seen lower, giving back some of the hefty gains it notched last week on the news that it will sell nearly half of its stores to larger industry rival Walgreens Boots Alliance, Inc., and put most of the anticipated $5 billion in net proceeds towards debt paydown.

Statistical market performance measures turned lower across the board on Wednesday, after having been mostly higher on Monday heading into the holiday break, after having been mixed for the previous four consecutive sessions.

Kedrion upsizes

The dollar-denominated high-yield primary market put up a goose egg on Wednesday, with market participants returning to their desks following the July 4 Independence Day holiday in the United States, a holiday some managed to turn into an extended four-day weekend.

However the news flow from the European market remained strong and steady, with deals pricing, deals announced and news on offerings that were announced earlier.

In drive-by action, Italian biopharmaceutical firm Kedrion SpA priced an upsized €350 million issue of non-rated 3% five-year notes at 99.43 to yield 3 1/8%.

The issue size was increased from €300 million.

The yield printed at the tight end of the 3 1/8% to 3¼% yield talk; initial talk was 3 3/8%.

Banca IMI SpA., Mediobanca, Banca di Credito Finanziario SpA and Natixis managed the debt refinancing deal.

The European market plowed right through the Independence Day holiday in the United States.

Amid the rockets’ red glare, stateside, Hapag-Lloyd AG priced an upsized €450 million issue of seven-year senior notes (expected ratings Caa1/B-) at par to yield 5 1/8% on July 4.

The debt refinancing deal was increased from €300 million.

The yield printed at the tight end of yield talk in the 5¼% area.

Kloeckner Pentaplast PIK toggle talk

Looking ahead Germany's Kloeckner Pentaplast talked its €395 million offering of six-year PIK toggle notes with a cash yield in the 8½% area.

The deal, which is being managed by Credit Suisse, is set to price Thursday.

McLaren dollar/euro deal

England's McLaren Automotive generated Wednesday’s sole dollar-denominated primary market news nugget when it started a European roadshow for a £525 million equivalent two-part offering of five-year senior secured notes, coming in dollar- and euro-denominated notes.

The European roadshow wraps up on Friday.

A roadshow in the United States is set to take place during the week of July 10.

JP Morgan is the physical bookrunner. HSBC is the joint bookrunner.

The Woking, United Kingdom-based performance automobile manufacturer plans to use the proceeds to fund the purchase of shares from its former chairman Ron Dennis, and to refinance debt.

RAC Group roadshows £275 million

RAC Group plans to sell £275 million of Class B1 secured notes with a 5.5-year expected maturity.

The deal, which is set to roadshow in London on Wednesday and Thursday, has an expected maturity in November 2022 and a final maturity of May 2046.

Global coordinator Deutsche Bank will bill and deliver. Barclays is also a global coordinator.

BNP Paribas, Citigroup, HSBC, JP Morgan, Mizuho Securities, NatWest and Santander are the joint bookrunners.

The United Kingdom-based motorist services provider plans to use the proceeds to make certain payments to its shareholders which may be effected either through a payment on shareholder loans, by means of a dividend or otherwise.

An easier session

In the secondary arena, a trader said that he saw “pretty light flows.

“Stuff may be a little bit softer, with equities flat.” The bellwether Dow Jones Industrial Average slipped by 1.10 points, or 0.01, to close at 21,478.17%. The Standard & Poor’s 500 gained 3.53 points, or 0.15%, closing at 2,432.54.

He estimated that high yield was “maybe down 1/8 [point].

Energy leads way lower

The trader said that the slippage in high yield “was more energy related than anything else, with WTI down to $45.”

That benchmark domestic crude grade, West Texas Intermediate for August delivery, nosedived by $1.94 per barrel in trading Wednesday on the New York Mercantile Exchange, settling in at $45.13, while the key European crude grade, North Sea Brent for September delivery, swooned by $1.82 per barrel to finish the day on the London ICE Futures Exchange at $47.79.

It was the first loss for WTI after an eight-session surge – the longest such winning streak of the year – that saw prices lifted by 11%.

Those oil prices were hammered down viciously early in the day, falling by as much as 5.4% on news reports indicating that Russia was expected to oppose any proposal to deepen world oil output cuts. Prices did recover somewhat late in the day when American Petroleum Institute estimates showed U.S. crude inventories falling by 5.8 million barrels last week, but the day’s losses still represented a sharp reversal of the recently bullish crude price trend that had been lifting energy-oriented junk bonds in its wake.

With oil prices trading off, the trader said, “that stuff would be under pressure” – although he added that he “didn’t see a lot of that stuff quoted.”

For instance, the normally active energy sector bellwether bond – Los Angeles-based exploration and production company California Resources’ 8% notes due 2022 – finished the day down 1½ points at 62¾ bid, though a market source said that only around $3 million traded.

And he saw no round-lot trading at all – just a few million dollars’ worth of smallish odd-lot transactions – in CRC’s 6% notes due 2024, which dropped 2 5/8 points to end at 50¼ bid.

Elsewhere in the oil patch, Houston-based EP Energy’s 9 3/8% notes due 2020 were 1¼-point losers Wednesday, ending at 77¾ bid, with around $8 million of the notes changing hands.

Oklahoma City-based Chesapeake Energy’s 8% notes due 2022 were ¼ point lower at 105½ bid, though with only about $1 million traded.

But its 8% notes due 2025 – the $750 million issue that priced at par in a quickly-shopped transaction near the end of May – saw more than $10 million of turnover Wednesday, closing down 1¼ point on the day at 99 bid.

Denver-based oiler Whiting Petroleum Corp.’s 5¾% notes due 2021 ended at 94 3/8 bid – down more than 3 points from Monday’s closing odd-lot levels, though only down by 1/8 point from their most recent previous round-lot transaction, on Friday.

A trader said that more than $5 million of the notes traded.

Carrizo issue pushed lower

The weakness in energy issues spilled over to last week’s new 8¼% notes due 2025 from Houston-based E&P operator Carrizo Oil & Gas; a trader saw those notes down ¾ point on Wednesday, at 101½ bid, on volume of around $4 million.

That $250 million issue had priced at par last Thursday in a regularly scheduled forward calendar offering, and then had surged in active aftermarket trading to above the 102 bid mark by Friday.

Recent deals a mixed bag

Elsewhere among recently priced deals, a trader said that he had “seen some trading” in the new issues from VeriSign, Inc. and Venator Materials.

VeriSign’s 4¾% notes due 2027 seemed to buck the market’s overall easier trend to finish up around 1/8 point, at 101 5/8 bid, on respectably active volume of over $11 million.

The Reston, Va.-based internet security and services provider had priced $550 million of those notes at par last Thursday, after that quick-to-market issue was upsized from an originally announced $450 million.

Venator Materials’s new 5¾% notes due 2025 were seen by a market source to have lost 1/8 point on the day, ending at 100 7/8 bid, with over $10 million moving around.

Venator – a chemical company based in The Woodlands, Texas, being spun off by nearby corporate parent Huntsman Corp. – priced $375 million of those notes at par last Thursday, after the regularly scheduled forward calendar offering was upsized from an originally planned $350 million.

Zayo Group, LLC’s 5¾% notes due in January of 2027 eased by about ¼ point on Wednesday to 104½ bid, of volume of over $5 million.

The Boulder, Colo.-based provider of communications infrastructure services had priced a $300 million add-on to its existing $1.35 billion of those notes last Thursday last Thursday at 104.25 to yield 5.063, in a quickly shopped transaction.

Zayo’s existing 6% notes due 2023 saw relatively brisk volume on Wednesday, with over $13 million traded; they were quoted having edged up by around 1/16 to 1/8 point, finishing around 105 5/16 bid.

Rite Aid in retreat

Away from the recently priced deals, a trader said that Rite Aid Corp.’s 6 1/8% notes due 2023 was probably the busiest issue in the junk market on Wednesday, with over $30 million of the notes having traded.

He pegged the bonds down about ½ point on the session, at 98½ bid.

However, a second trader, seeing the bonds at that same level, called them “essentially unchanged” on the day.

Those Rite Aid notes have hovered around that 98½-to-99 bid context since the announcement last week that the Camp Hill, Pa.-based Number-Three U.S-based drugstore chain operator and larger rival Walgreens Boots Alliance had dropped their planned merger – fearing federal antitrust regulators would quash the deal, with Rite Aid instead selling 2,186 of its stores, or almost half of its total, to Walgreens for $5.175 billion.

Rite Aid then announced plans to use most of that windfall to bring down its debt load of more than $7.2 billion, in the process halving its leverage ratio of net debt as a multiple of adjusted EBITDA, which now stands at 6.8 times.

Indicators head south

Amid a generally softer tone in the overall junk market, statistical market performance measures turned lower across the board on Wednesday for the first time since back on June 21. They had been mostly higher on Monday heading into the holiday break, and were mixed for the four consecutive sessions before that.

The KDP High Yield Daily Index plunged by 10 basis points on Wednesday to end at 72.12, after having been unchanged on Monday after retreating by 2 bps on Friday, in contrast to last Thursday’s 8 bps rise.

The index was not published on Tuesday in observance of the Independence Day holiday in the U.S.

Its yield rose by 2 bps to 4.97%, after having been unchanged on Monday and having risen by 1 bp on Friday, which was its first widening out after having come in over the previous four straight trading days, including a 2 bps tightening last Thursday.

The Markit CDX Series 28 High Yield Index finished down 3/16 point on Wednesday at 106 25/32 bid, 106 27/32 offered, its second loss in a row. Although the market was officially closed on Tuesday, the index did publish, and was marginally lower. Before that, it had gained nearly 1/8 point on Monday, its second consecutive upturn.

The Merrill Lynch North American High Yield Index finally suffered a loss on Wednesday, easing by 0.009% after eight straight advances before that, including gains of 0.017% on Tuesday, when the index published even with the market closed for July 4, and 0.067% on Monday.

Wednesday’s retreat dropped the index’s year-to-date return to 4.99% from 4.999% on Tuesday and a 4.981% close on Monday. Those levels remain below its high point for the year to date of 5.173%, recorded on June 14.

© 2015 Prospect News.
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