Primary quiet ahead of holiday to cap $10.17 billion week; McClatchy active in secondary

By Paul A. Harris and Paul Deckelman

New York, Feb. 13 – There were no black cats wandering around Junkbondland on Friday the 13th – but there also wasn’t very much going on in either the primary or secondary markets.

For a second consecutive session, no new dollar-denominated, fully junk-rated deals were heard to have priced. That was in sharp contrast to the heavy pace of primary activity seen earlier in the week, including two straight sessions in the multi-billion-dollar range.

Among the factors weighing on issuance was the current earnings blackout, preventing would-be issuers from marketing prospective new deals.

Another was the relaxed pre-holiday atmosphere ahead of Presidents Day, which will shutter financial markets on Monday. There was no formal early market close, but traders said that lot of people did take the opportunity to call it a day a few hours ahead of the normal time.

With no new issuance on either Thursday or Friday, the week’s total came to a still-impressive $10.17 billion in 18 tranches, according to data compiled by Prospect News. That was well north of the $7.80 billion which priced in 13 tranches last week, ended Feb. 6.

That stepped-up issuance raised the tally of new junk bonds so far this year to $38.55 billion in 62 tranches, running about 18.4% ahead of the new-deal pace seen last year, when $32.56 billion of new junk paper had priced in 61 tranches by this point on the calendar. That represented a turnaround from just a week ago, when new issuance was running neck and neck with a year earlier.

With no new deals having priced, traders said that market participants were playing in recently priced issues, such as those from Wynn Las Vegas LLC, Ally Financial, Inc. and Citgo Holding Inc.

Away from the new deals there was some activity in credits like McClatchy Co.

Statistical market performance measures were higher for a second straight session, finished up from where they had closed out the previous Friday for a second successive week.

PetSmart guidance grinds tighter

For the second consecutive day the new issue market put up a goose egg.

No deals priced. There were also no new deal announcements.

The active new issue calendar in the high-yield market carried just one deal into the three-day Presidents Day weekend, sources say.

And it won’t come cheap, according to a bond trader.

PetSmart, Inc. was scheduled to begin a roadshow on Friday in California for a $1.9 billion offering of eight-year senior notes (B3/B-) backing the leveraged buyout of the company.

On Thursday, when the deal was announced, it came with pro forma yield guidance of 8% to 8¼%, the trader recounted.

However by late Friday conversations were taking place in a yield context of 7½%, said the trader, who added that there is an expectation in the market that the deal could come tighter still.

After the three-day holiday weekend in the United States, the roadshow is scheduled to move to the East Coast and wrap up in the mid-to-late part of the week ahead.

Joint bookrunner Barclays will bill and deliver.

Citigroup, Deutsche Bank, Nomura, Jefferies, RBC and Natixis are also joint bookrunners.

Quiet week expected

Deal tips were in somewhat short supply on Friday.

The week ahead could see three deals, a syndicate banker said late Friday afternoon.

Two of the three would come from the industrial sector, with the third coming from the financial services sector.

None of the three are big.

And all three will come as drive-bys.

Earnings blackouts are impeding high-yield issuance at present, according to market sources.

Hearing this color, the syndicate banker said: “Maybe,” but added that another constricting force on new issuance is use of proceeds.

“There just aren’t that many deals that need to get done, right now,” the banker said.

“There is not a lot in the pipeline.

“Right now it’s scary quiet.”

Strong technicals

One factor coming into play in the tightening guidance of the above-mentioned PetSmart deal is the presently strong technicals of the junk bond market.

For the week to last Wednesday, high-yield funds took in $2.935 billion, according to a report from Lipper-AMG.

Of that amount, 41% went to high-yield ETFs, a syndicate banker said on Friday morning.

Pre-holiday quiet

A trader noted that with a three-day holiday coming up, “we had kind of an early close. Today was pretty quiet in general. Things continued to be better-bid for.”

He said that there were “a lot” of offers wanted in competition, “across the board, but nobody really showing offers into them.”

But it was not just during Friday’s session: he said “that’s been the kind of the model the last two or three weeks.”

He opined that at his shop, “we were just talking about how we need to see more new issues, because it’s been extremely difficulty to find supply. Nobody seems to want to offer much at all – the bottom line is they can’t replace it right now.

“Supply seems to be at a premium.”

Recent deals trade

Among recently priced issues, a market source saw Citgo Holdings’ 10¾% senior secured notes due 2020 moving up to 98¼ bid, a gain of 2¼ points on the session.

The Houston-based unit of Citgo Petroleum Corp. – itself a subsidiary of Venezuela’s state-owned oil monopoly, PDVSA – priced $1.5 billion of the securities on Monday at 95.071 to yield 12%. They had inched up gradually from their issue price subsequently, but made their big move on Friday.

At another desk a trader saw Ally Financial’s recently priced 4 1/8% notes due 2022 trading at par, on relatively busy pre-holiday volume of around $9 million. The Detroit-based online banking company and automotive lender Ally had done a $1.25 billion two-part quick-to-market offering on Tuesday. One part was its $650 million of 4 1/8% notes, which came at 98.506 to yield 4 3/8%. The company also priced $600 million of 3¼% notes due 2018, which came to market at 99.294 to yield 3½%.

A trader saw a fair amount of trading in Wynn Las Vegas’ 5½% notes due 2025 – over $23 million had changed hands putting the Las Vegas-based gaming company’s new deal near the top of the day’s Most Actives list.

He said that the bonds had traded all day in a context of par to 100¼, although he saw the final print going home at 101 1/8 bid, and wondered whether it was a Trace system error – or the start of a move upward in the bonds.

Wynn had priced $1.8 billion of the notes on Wednesday at par after upsizing the issue from $1.75 billion originally.

McClatchy moves lower

Away from the new deals, a trader saw “a lot of prints” between 102 1/8 and 102½ bid for McClatchy Co.’s 9% notes due 2022.

A source at another desk said that over $15 million of the Sacramento, Calif.-based diversified media company’s notes had traded, going home at 102¾ bid – up slightly on the session versus the previous round-lot level. However, the bonds had traded in busy odd-lot dealings on Wednesday and Thursday in a 103 to 104 context.

Indicators stay strong

Statistical indicators of junk performance were higher on Friday for a second consecutive session and the third time in the last four sessions. They were also up versus where they had finished the previous Friday for a second consecutive week.

The KDP High Yield Daily Index gained 3 basis points to end at 71.63, on top of the 6 bps gain seen on Thursday.

Friday was the second straight gain for the index, its third advance in the last four sessions and the eighth such upturn in the last 10.

Its yield, though, atypically rose by 1 bp to 5.28%, even though the yield customarily declines as the index reading rises. On Thursday, it had come in by 3 bps.

Those levels compared favorably to the71.54 index reading and 5.30% yield seen at the end of the prior week, on Friday, Feb. 6.

The Markit Series 23 CDX North American High Yield Index was up by 1/32 point on Friday, its second consecutive gain and its third in four sessions. It had also improved by ¼ point on Thursday.

The index was up from the previous Friday’s 106 11/32 bid, 106 3/8 offered close.

And the Merrill Lynch U.S. High Yield Master II Index notched its 20th consecutive gain on Friday, advancing by 0.085%, on top of Thursday’s 0.107% rise.

The latest improvement lifted its year-to-date return to 1.906%, its 16th consecutive new peak level for 2015, up from the previous high point, 1.819%, on Thursday.

For the week, the index was up by 0.244% – its fourth consecutive weekly gain and its fifth upturn in the six weeks since the start of the year. The week before, it had climbed by 0.964% to lift the year-to-date cumulative return figure to 1.659%.

© 2015 Prospect News.
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