Downsized Intrepid Aviation caps busier $5.66 billion week; California Resources retreats

By Paul A. Harris and Paul Deckelman

New York, June 26 – The week ended quietly on Friday in the high-yield primary sphere, with market sources reporting one dollar-denominated, fully junk-rated issue having priced – a downsized $120 million offering from aircraft leasing company Intrepid Aviation Group Holdings, LLC.

Traders did not immediately see the new bonds in the aftermarket.

The deal brought the week’s tally of new high yield debt to $5.66 billion in 11 tranches, according to data compiled by Prospect News – more than double the $2.45 billion of such paper from domestic or industrialized-country issuers that came to market last week, ended June 19.

The week’s issuance, in turn, raised the year-to-date new deal total to $182.55 billion in 295 tranches, according to the data, running about 4.5% ahead of the primaryside pace seen last year, when $174.12 billion had priced in 326 tranches by this point on the calendar.

However, year-over-year issuance was continuing a recent trend of slowing down; last week, the 2015 pace had been about 8.4% ahead of 2014’s, and it had been running more than 12% ahead during the week before that, ended June 12, the data indicated.

Back in Friday’s Junkbondland market, traders said that recently priced deals such as those from TI Group Automotive Systems LLC and Endo International plc were mostly holding around the levels seen on Thursday.

Away from the new or recently priced issues, traders said that California Resources Corp.’s paper was being hammered down in heavy trading after a brokerage firm specializing in short-selling said the energy exploration and production company’s stock was worthless and warned that its debt would have to be restructured.

In that same sector, Chesapeake Energy Corp.’s bonds were notably lower in active dealings as oil prices remained under pressure.

Statistical market-performance measures were seen lower across the board for a second consecutive session and for a third session in the last four on Friday.

Those indicators were meantime ending mixed versus where they had been last Friday, their second straight mixed week.

Intrepid Aviation downsizes

Intrepid Aviation priced Friday’s sole dollar-denominated deal, a downsized $120 million issue of non-rated two-year senior notes that came at par to yield 8¼%.

The deal was reduced from an originally announced size of $125 million.

The yield printed on top of yield talk.

Jefferies was the bookrunner.

The Stamford, Conn.-based commercial aircraft leasing company plans to use the proceeds for general corporate purposes including the purchase of aircraft.

Douglas Downsizes

In the European market Douglas AG priced a downsized €635 million two-part high-yield notes transaction.

The deal was originally announced at €1,055,000,000 before being reduced first to €855 million and then, at pricing, to its final size.

To compensate for the reduction, the company shifted €420 million of proceeds to its bank loan.

The deal came in tranches of secured and unsecured notes.

Kirk Beauty Zero GmbH priced €300 million of seven-year senior secured notes (B1/B) at par to yield 6¼%. The secured notes tranche was cut from €435 million after previously being downsized from €635 million. The yield printed at the tight end of the 6¼% to 6½% yield talk.

Kirk Beauty One GmbH priced €335 million of eight-year senior unsecured notes (Caa1/CCC+) at par to yield 8¾%. The secured notes tranche was trimmed from €420 million. The yield printed at the wide end of the 8½% to 8¾% yield talk.

Joint bookrunner Deutsche Bank will bill and deliver. Goldman Sachs, JPMorgan and UniCredit were also joint bookrunners.

The issuing entities were formed for the execution of the buyout of Douglas by CVC Capital Partners from Advent International and the Kreke family.

Proceeds will be used to help fund the buyout.

The week ahead

The pre-Independence Day week will probably be a quiet one, a syndicate official said on Friday afternoon.

It’s highly unlikely any issuers will start a full roadshow and risk having a deal in the market through the three-day Fourth of July weekend, which commences at Thursday’s close, the banker said.

This official had visibility on a couple of deals, one from the consumer sector and the other from the industrial sector.

Neither one is an especially big deal, the banker said, declining to rule out the possibility that either or both could come on a foreshortened marketing timeline, or even as a drive-by.

High-yield market watchers began paying lip-service to investor Carl Icahn’s Wednesday remarks to the effect that the high-yield bond market looks overheated.

“I don’t think that’s what’s slowing things down, new issue-wise,” the banker said on Friday afternoon.

Rather, it is the northward march of Treasury rates, with 10-year government paper yielding 2.48% at Friday’s close.

The week gets underway with deals set to price at the conclusions of roadshows.

These include SS&C Technologies Holdings Inc.’s $500 million senior notes due 2023 (B3/B+), an offering set to price early in the week.

Also StandardAero is scheduled to wrap up a roadshow for its $485 million eight-year senior notes (Caa2/CCC) on Monday.

Meantime the calendar also hosts several smaller deals, some of which had been expected to price during the June 24 week.

Only one generated any news on Friday.

Moody’s Investors Service assigned a first-time provisional Ba3 rating to Georgia Renewable Power, LLC’s $225 million offering of senior secured notes due 2022, which is in the market via bookrunner Seaport Global. The outlook is stable.

Moody’s said the rating recognizes the company’s long-term contract arrangements, a key credit strength balanced by operational, construction-related and contractual shortcomings that together result in the speculative-grade rating.

Outflows on Thursday

Daily cash flows for dedicated high-yield funds turned negative on Thursday, the trader said.

High-yield ETFs saw $83 million of outflows on the day.

Asset managers underwent $30 million of redemptions on Thursday.

Recent deals mostly steady

Traders did not see any immediate aftermarket dealings Friday in the new Intrepid Aviation 8¼% notes due 2017.

Among recently priced offerings, traders saw them mostly holding steady around the levels they had already been trading at over the previous few sessions.

One trader, for instance, said that TI Group Automotive Systems’ 8¾% notes due 2023 “were trading right around par, still,” while a second pegged the paper in a par to 100¼ bid context.

At another desk, a trader saw the notes ending up ¼ point on the day at 100¼ bid on volume of $10 million.

The Auburn Hills, Mich.-based provider of fluid storage, carry and delivery systems to the automotive industry priced its $450 million regularly scheduled forward calendar offering at par on Thursday after the deal was downsized from $550 million originally.

A trader said that Endo International’s 6% notes due 2023 had stopped shooting up and were steady around a 102¼ to 102½ bid context, around where the Dublin, Ireland-based drug manufacturer’s bonds had closed on Thursday. A second market source actually saw the paper down 1/8 point at 102¼ bid on weak volume of around $8 million.

Endo had priced its $1.64 billion forward calendar offering via its Endo Ltd., Endo Finance LLC and Endo Finco Inc. subsidiaries at par on Wednesday after the deal was upsized from an originally announced $1.44 billion.

The bonds then firmed smartly in very heavy dealings, jumping nearly 2 points on the day late Wednesday when they were freed to trade, on volume of over $190 million. They tacked on another ½ point of gains on Thursday with over $57 million having changed hands.

One of the traders opined that “some of the more high-quality recent new deals were selling off along with Treasuries,” mentioning that Ball Corp.’s 5¼% notes due 2025 had eased to around 99½ bid, 99¾ bid.

The Broomfield, Colo.-based beverage can manufacturer had priced $1 billion of those notes at par in a quick-to-market transaction on Monday. The new notes were seen mostly trading in a 99¾ to par context.

California Resources clobbered

Away from the new deals, a trader said that “the big volume leader” was California Resources Corp., particularly the Los Angeles-based oil and natural gas exploration and production company’s benchmark 6% notes due 2024.

He estimated the notes were down “2 or 3 points or so,” seeing the 6s at 87½ bid, 88 offered, down from previous levels around 90 to 91.

At another shop, a market source said that “all three tranches” of its paper “were down a couple of points.”

He said that the 6% bonds had dropped as low as around 87, “but they did firm a little after that,”

He meantime saw its 5% notes due 2020 declining to 90 bid, 90½ offered, while its 5½% notes due 2021 were ending around 89 to 90.

A market source said the 6% bonds were easily the most active issue on the day, falling 1¾ points to 88 bid, after having been as low as 86 bid intraday. More than $109 million of those notes changed hands.

About $27 million of the 5½% notes traded around, ending down a deuce on the day at 89¼ bid, although that was up from the day’s lows around 87.

And over $17 million of the 5% notes traded, with the issue seen down 3¾ points at 90½ bid, although that was up from the day’s lows around 88.

The bonds tumbled even as the company’s New York Stock Exchange-traded shares dropped 41 cents, or 5.73%, to end at $6.75 on more than four times normal volume after Blue Mountain Capital Management LLC, a brokerage firm, declared in a research note that “we believe that the company’s common stock is worthless and that its bonds are worth around 23 cents on the dollar, taking into account coupons and ultimate recovery upon default.

It further said that “CRC’s oil fields have high overhead costs; proceeds from the sale of the oil and gas produced there “do not come close to covering its debt.”

There was no immediate response to the screed from California Resources.

Chesapeake heads lower

Elsewhere in the energy sector, a trader said that weak oil prices were pushing oil and gas names like Chesapeake Energy lower.

He saw the Oklahoma City-based natural gas and oil producer’s 5½% notes due 2017 ending down 3/8 point at 102½ bid on volume of over $21 million while its 5¾% notes due 2023 lost ½ point to close at 91¼ bid on turnover of more than $18 million.

Indicators off again on session

Statistical indicators of junk market performance were lower for a second consecutive session on Friday; they had headed south on Thursday after having been mixed on Wednesday. It was the third lower session in the last four trading days.

The indicators were at the same time ending mixed versus where they had closed out last Friday, the second straight mixed week after two consecutive lower weeks before that.

The KDP High Yield Daily Index slid by 9 basis points on Friday to finish at 70.52, its third retreat in a row. The index had lost 8 basis points on Wednesday and again on Thursday.

Its yield, meanwhile, widened by 3 bps to close at 5.65%, its second successive widening. It had risen by 2 bps on Thursday after having been unchanged two sessions before that.

Those levels compared unfavorably to the 70.71 index reading and 5.62% yield seen last Friday, June 19.

The Markit Series 24 CDX North American High Yield Index ended off by 1/8 point on Friday at 106 27/32 bid, 106 29/32 offered, after having been unchanged on Thursday and up by 9/16 point on Wednesday – part of a recently choppy pattern of alternating gains and losses.

However, the index finished up on the week from last Friday’s 105 31/32 bid, 106 offered level.

The Merrill Lynch North American Master II High Yield Index suffered its fourth consecutive loss on Friday, dropping by 0.186% after having backtracked by 0.086% on Thursday, which had followed Wednesday’s 0.055% downturn and Tuesday’s 0.059% retreat.

The latest loss lowered its year-to-date return to 2.901% from 3.093% on Thursday. It also moved it further down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

For the week, the index was down by 0.248%, in contrast to the previous week’s 0.062% improvement, which had lifted its year-to-date reading to 3.157%.

The latest weekly downturn was the third seen in the last four weeks and the fourth in the last six weeks. Losses have been seen in eight weeks of this year so far, against 17 weeks in which the index had finished up from the Friday before.

© 2015 Prospect News.
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