Junk off early lows, cuts losses; Pimco, conferences, quarter-end still activity; Zebra on tap

By Paul Deckelman and Paul A. Harris

New York, Sept. 29 – The high-yield primary sphere was quiet for a second consecutive session on Monday, with syndicate sources reporting that no new dollar-denominated, fully-junk rated issues were seen pricing during the day.

However, the sources said that price talk was out on a $1.25 billion eight-year offering from Lincolnshire, Ill.-based printing technologies company Zebra Technologies Corp., which could price after the books close on the megadeal on Tuesday afternoon.

But while that deal is expected to get done, the sources said that General Cable Corp., a Highland Heights, Ky.-based producer of copper, aluminum and fiber-optic wire and cable products, had postponed its planned $250 million offering, citing market conditions.

In the secondary realm, traders said that activity was dull, while one described the day’s dealings as “lackluster.”

Among the factors cited were the continued fallout from Friday’s unexpected announcement from investment giant Pimco that longtime bond guru Bill Gross will leave the company following heavy redemptions from its funds. Players were trying to strategize what that shakeup might mean to the market and how they can play it.

Another factor cited was this week’s Deutsche Bank leveraged finance conference in Arizona, an always well-attended event that pulls portfolio managers and other key decision makers away from the day-to-day market.

And traders noted the looming end of the month and the calendar third quarter as one more excuse for investors not really to do much.

The secondary market began the day well down, taking its cue from a stock market that was spooked by political protests in Hong Kong and their possible impact on China’s economy, as well as a disappointing forecast by automotive bellwether name Ford Motor Co.

Although junk came off its lows, in line with a later partial rebound in stocks, most names were seen lower.

Among those easier names were such recent bond deals as Burger King Worldwide, Inc., Tembec Industries, Inc. and Virgin Media.

Statistical indicators of junk market performance were lower across the board for a third straight session on Monday and their fifth such session in the last six market days.

Zebra talk 7¼% to 7½%

No issues priced in the Monday primary market, and the news flow was on the thin side.

Zebra Technologies talked a $1.25 billion offering of eight-year senior notes (B2/B) to yield 7¼% to 7½%.

In addition to setting talk, the company added registration rights to the deal, making it a Rule 144A with registration rights offer. It had previously been in the market as a Rule 144A for life offer.

Books close at 2 p.m. ET on Tuesday.

Morgan Stanley and J.P. Morgan are the joint bookrunners for the deal that began roadshowing last week.

Zebra is one of three deals on the active calendar set to price before the end of the week.

Also in the market is Halyard Health, Inc., which kicked off a $250 million offering of senior notes (B2/B+) late last week and was scheduled to begin a roadshow for the deal on Monday.

No price talk has surfaced on the deal, which is set to price late this week. Early yield guidance is 6% to 6 1/8%, a trader said.

Consolidated Energy deal

The third of the three issuers intending to price a deal this week is Consolidated Energy Ltd., which announced its offering on Monday.

On offer is a $1.25 billion two-part offering of notes set to mature on Oct. 15, 2019.

The deal, slated to place late this week, includes a $1.05 billion tranche of fixed-rate notes and a $200 million tranche of floating-rate notes.

Early guidance has the fixed-rate tranche coming in the context of 6¾% to 7%, according to a trader.

Morgan Stanley is the bookrunner for the acquisition financing deal.

General Cable postpones

General Cable cited market conditions as it postponed its $250 million offering of five-year senior notes (B3/B+).

“Uncertain and weak overall conditions in the high-yield debt market led us to conclude that the proposed offering of senior unsecured notes would not be in the best interest of shareholders under terms currently available,” stated Gregory B. Kenny, the company's president and chief executive officer.

J.P. Morgan, BofA Merrill Lynch, Credit Agricole, Deutsche Bank and HSBC were the joint bookrunners.

An easier market

A trader stated, “The whole market just opened very weak this morning, given the opening in stocks,” which were sharply lower across the board. Later on in the day, equities cut their losses and ended only moderately lower with the bellwether Dow Jones Industrial Average finishing down 41.93 points, or 0.25%, at 17,071.22, after having been down almost 170 points earlier.

“You started seeing some bids fill in during the afternoon as stocks rebounded. But in general, the tone was pretty weak today.”

After a shaky start, another trader said, “late this afternoon, the market caught a little bid.”

He cautiously said that the junk market “rallied into the close” to end above its earlier lows, but he said that it has clearly been under pressure the past few sessions.

The trader said that nothing really stood out in Monday’s dealings.

“Everything was under pressure. There was nothing that I saw underperformed significantly, or vice versa, that outperformed. It was kind of a lackluster day.”

He saw most items trading off by ¼ to ½ of a point on Monday, “the same as Friday.”

For a second consecutive session, there were no pricings of any dollar-denominated issues in the domestic market.

“If anything was supposed to price today, it’s probably been pushed off,” he noted. For instance, the General Cable deal was postponed, a deal which originally was expected to come to market late last week and had been carried over on the forward calendar to this week.

With September having already fulfilled everyone’s wildest expectations of more than $40 billion of new junk paper pricing, “we’re probably looking at a lighter calendar going into October,” the trader concluded.

Light activity level

Traders said that Monday’s market was characterized by relatively light volume.

One factor cited was the approaching end of the month and end of the calendar third quarter. A market source suggested that “accounts have already closed the books” and won’t be doing anything until the new quarter gets under way on Wednesday.

Another possible explanation for the reduced activity was the absence of many portfolio managers and other key investment decision-makers, with everyone being out in Scottsdale, Ariz. for this week’s Deutsche Bank annual leveraged loan conference, always a well-attended event and a highlight of the junk world year.

Puzzling over Pimco

And Friday’s unexpected announcement that fund manager Bill Gross was leaving investment giant Pimco after a run of recent redemptions from its funds was continuing to weigh on the junk market, some traders declared.

“The focus has pretty much been on the Pimco story,” one trader said, “so there’s been pretty big pressure across the high-yield market – all the markets, really, but we did see significant pressure on Friday, and we did see it today as well, overall.”

A second trader asserted that Pimco-related considerations were the driver for much of what he called Monday’s “spotty” activity.

“People are anticipating what Pimco might sell, selling what they think Pimco might sell, asking if Pimco has anything for sale, asking how much money Pimco might lose, or asking where will Pimco’s money will go? That was pretty much it. There were 50 questions about Pimco – and maybe one about the real world.”

However, at another desk, a trader took a contrarian view on whether Pimco is the main catalyst right now in Junkbondland.

“If people think there’s going to be redemptions out of Pimco, so they might be selling some stuff, people trying to get in front of that, that’s the only thing I can speculate – but I don’t see how that’s going to set the fundamental tone in high yield.”

He pointed out, “If they’re going to face redemptions because he’s leaving, then that money is going to be going somewhere else – whether it’s to Janus [Capital] with him, whether it’s going to other asset managers.

“I think people are just stretching for something if that’s what their rationale for the market is,” he added.

New issues easier

Among specific names, traders saw generally easier levels among recently priced issues.

Burger King’s 6% senior secured notes due 2022 were seen down 1/8 of a point at 98 23/8 bid, 99 1/8 offered.

The Miami-based fast-food giant priced $2.225 billion of those notes at par this past Wednesday as part of the $12.5 billion of financing it has lined up for its planned acquisition of Canadian coffee-and-donut chain Tim Hortons Inc.

Canadian lumber, paper and forest products company Tembec Industries’ 9% senior secured notes due 2019 were trading at 99¾ bid, 100¾ offered, a trader said, down ¼ of a point on the day. That $375 million issue of 5.25-year notes priced at par last Wednesday.

And Virgin Media’s 6% notes due 2024 were seen by a trader down 5/8 point at 99¼ bid, 99¾ offered. The New York-based provider of cable, internet and telephone service in the United Kingdom priced $500 million of those notes at par last Tuesday as part of a quickly shopped two-part offering that also included a tranche of 10-year sterling denominated bonds.

Going back a little further, a trader said that J.C. Penney Co. Inc.’s recently priced 8 1/8% notes due 2019 were trading as low as 97 bid during the afternoon.

“That’s almost an 8.90% yield. If you ask me, a five-year bullet with an 8.90% coupon, trading at a discount from a company that seems to be improving, that’s something I’d want in my portfolio.”

The Plano, Texas-based department-store operator priced $400 million of those notes at par on Sept. 10, after upsizing the deal from an original $350 million.

The Penney bonds had initially traded up to 101 bid before coming off those levels and then slipping below their par issue price in recent days.

Natural resources names come in

Several traders noted that resources – energy and mining credits – seemed particularly vulnerable.

One said that MolyCorp’s bonds “continue to drift lower,” pegging the 10% notes due 2020 down at 66½ bid, “so that’s down another few points.”

Another market source said that the Greenwood Village, Colo.-based rare earths and rare metals producer’s bonds were ending at 66¾ bid, down 2¾ points on the day.

He saw no fresh news out about the company.

Also in the mining sphere, a trader said that coal credits “continue to get slaughtered,” with the sector feeling the after-effects of the recent Goldman Sachs warning about likely continued erosion in the metallurgical coal space.

The trader said that “the unsecureds are trading in the high 20s.”

Among the better-secured credits, he saw Arch Coal’s 7¼% notes due 2021 having traded down to around the 47 bid level, calling them off 2 to 3 points, while the St. Louis-based coal producer’s other bonds were in the lower 50s. But he said that was down about 2 points, “so coal continues to be weak.”

A market source at another desk saw the Arch 7¼s going out at 47¼ bid, down some 2¼ points on the day. But he quoted crosstown rival Peabody Energy’s 6¼% secured notes due 2021 up ¾ of a point at 92¾ bid.

Among the oil names, Houston-based independent exploration and production operator Endeavour International’s 12% notes due 2018 were at 70 bid, down 3½ points.

Denver-based oiler Quicksilver Resources’ 9 1/8% notes due 2019 were quoted at 65 bid, down 2 points.

Indicators keep sliding

Statistical indicators of junk market performance were lower across the board for a third straight session on Monday and their fifth such session in the last six market days.

The KDP High Yield Daily index plunged by 28 basis points to finish at 71.63 – its sixth successive setback. It was the index’s lowest reading since Dec. 16, 2011, when it had finished at 71.61. On Friday, the index had slid by 32 bps.

The yield rose by 8 bps, to 5.83%, its fifth consecutive widening out. On Friday, the yield had ballooned out by 12 bps.

The Markit CDX Series 22 index lost 17/32 of a point on Monday to end at 105 3/8 bid, 105 13/32 offered, its third downturn in a row. On Friday, it was down by 1/8 of a point.

The widely followed Merrill Lynch High Yield Master II index continued to stumble downward for a sixth consecutive session, retreating by 0.258%, on top of Friday’s 0.398% setback.

The latest decline left its year-to-date return at 3.218%, marking its lowest level since April 3, when it had closed at 3.127%. That was down from Friday’s 3.485% cumulative return and well down as well from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was closed for all intents and purposes due to the Labor Day holiday break.

Several other index components hit new record levels for the year so far for a fifth straight session. Its yield to worst rose to 6.455% from the previous 2014 high of 6.363% on Friday, while its spread-to-worst widened to 485 bps over comparable Treasuries from Friday’s 475 bps, the previous wide point for the year.

The index’s average price fell to 101.3226, a new low for the year. The previous low point had been Friday’s 101.649033.

© 2015 Prospect News.
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