Eco Services, Natural Resource Partners price; AMD declines; funds see $1.28 billion inflow

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Oct. 9 – The Thursday session saw stocks hammered, with the major indexes in the United States dropping by 2%, but the primary high-yield market appeared orderly, sources said.

Two fully junk-rated deals, one from Eco Services Operations LLC and the other from Natural Resource Partners LP, priced for a combined total of $324 million of proceeds. The former priced on top of talk, and the latter came notably cheap to talk.

One deal was postponed. However, the issuer, Breitburn Energy Partners LP, is an oil and gas exploration and production company, and the reasons for pulling the offer had mostly to do with the sector, according to a source close to the deal.

The funds flow news was positive. Dedicated high-yield funds saw $1.28 billion of inflows for the week to Wednesday, according to a trader who cited information contained in a weekly report from Lipper-AMG.

The secondary high-yield market dropped further Thursday following the equity market reversal, which was due in large part to concerns about a slowing global economy.

Advanced Micro Devices Inc. didn’t need the day’s negative tone to decline, however. The company’s debt dropped Thursday following an announcement on Wednesday that its president and chief executive officer was stepping down.

With the company slated to put out earnings soon, the move has some wondering if it means that a turnaround effort is not going as well as hoped.

The weak marketplace did little to help the already trampled coal, energy and mining sectors.

“Coal, energy and anything oil and gas related is just getting bombarded,” a trader said.

Eco Services atop talk

Eco Services Operations and Eco Finance Corp. priced a $200 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8½%.

The yield printed on top of yield talk.

Credit Suisse Securities (USA) LLC, Jefferies LLC and Citigroup Global Markets Inc. were the joint bookrunners for the acquisition deal.

Natural Resource well wide

Natural Resource Partners and NRP Finance Corp. priced a $125 million add-on to their 9 1/8% senior notes due Oct. 1, 2018 (B3/B+) at 99.5 to yield 9.276%.

The reoffer price came $1.25 cheap to the 100.75 to 101.25 price talk.

Wells Fargo Securities LLC was the left bookrunner. Citigroup was the joint bookrunner.

The Houston-based master limited partnership plans to use the proceeds to fund a portion of its pending acquisition of a non-operated working interest in oil and gas assets in the Williston basin in North Dakota.

Breitburn Energy postpones

Breitburn Energy Partners and Breitburn Finance Corp. have withdrawn their $400 million offering of 8.5-year senior notes (expected ratings B3/B-) due to market conditions.

The deal, which was expected to be a Wednesday drive-by, came with initial talk in the 8% area, according to a source close to the transaction.

“The market got softer throughout the day, Wednesday, especially for E&P names,” the source added.

The exploration and production space may have suffered disproportionately due to plummeting crude oil prices and a glut of E&P paper that has come into the market since late summer.

In particular the source referenced California Resources Corp., which priced $5 billion of bonds on Sept. 11.

That deal, which traded spectacularly in the wake of pricing, was seen lower with the rest of the market – and especially E&P paper – on Thursday, a trader said.

The California Resources 5% notes due 2020 were 99¼ bid, par offered on Thursday, according to the trader, who said they had traded as high as 102¾ bid, 103 offered.

The 5½% notes due 2021 were par 3/8 bid, par ¾ offered.

And the 6% notes due 2024 were par ½ bid, 101 offered; those bonds traded as high as 103 bid, 103¼ offered, the trader said.

Another trader saw the 6% notes, a $2.25 billion issue that priced Sept. 11, off a point at 101 5/8.

Breitburn Energy Partners had planned to use the proceeds from the bond deal to pay down its revolver.

Metaldyne sets talk

Metaldyne Performance Group Inc. talked its downsized $600 million offering of eight-year senior notes (B3/B+) to yield in the 7¼% area.

That talk comes at the wide end of initial guidance of 7 1/8% to 7¼%, according to a trader.

The deal was downsized from $700 million earlier in the week. Proceeds were shifted to the company's term loan, upsizing it to $1.35 billion from $1.25 billion.

Pricing is set for Friday.

Deutsche Bank Securities Inc., Goldman Sachs & Co., BofA Merrill Lynch, KeyBanc Capital Markets, Morgan Stanley & Co. LLC, Nomura and RBC Capital Markets are the joint bookrunners.

Megadeals expected to price

Meanwhile, no price talk surfaced Thursday for a pair of megadeals that are expected to price Friday.

In the center ring is Dynegy Inc. with a whopping $5.1 billion of senior notes in three tranches (B3/B+).

Although talk is yet to be heard, a tranche of 5.25-year notes has preliminary guidance in the 6½% area, according to a trader. A tranche of eight-year notes was given preliminary guidance of 7 1/8% area. And the long 10-year non-call-five tranche has preliminary guidance in the 7½% area.

At a mere $1 billion is Lundin Mining Corp.

Again, no formal price talk, but a $500 million tranche of six-year notes comes with early guidance in the low 7% yield context, according to a trader. And a $500 million tranche of eight-year notes has early guidance in the mid-7% yield context.

High yield loses ground

High-yield bond indexes turned south yet again on Thursday as the equity markets erased gains from the midweek session.

“The market got clobbered today,” a trader said.

The reversal was blamed on concerns about the global economy, especially as Germany, Europe’s largest economy, reported a 5.8% decline in exports in August, the biggest drop since January 2009.

The KDP High Yield index slipped to 72.02 with a 5.65% yield from Wednesday’s reading of 72.17 with a 5.6% yield. The Markit CDX Series 22 index meantime lost over half a point, closing at 105.7 bid, 105.81 offered.

AMD slips on CEO change

A trader said Advanced Micro Devices’ debt was down 4 to 5 points after the chipmaker said Wednesday that its president and CEO is leaving the company.

The trader pegged the 7% notes due 2024 at 92 post-news.

Another market source saw the 7¼% notes due 2022 falling 4½ points to 97½.

At another desk, that same issue was quoted in a 97 3/8 to 98 context. The paper was trading at or near par at the market’s open, which was down from 101½ on Wednesday.

As for the company’s stock, it was down 33 cents, or 10.06%, at $2.95 (NYSE: AMD).

Rory Read is leaving the post he has held for the last three years as the company attempts to take market share from Intel. Lisa Su, chief operating officer, will take over.

But analysts at Wedbush Securities were concerned about the transition, which comes so close to the company’s next earnings release. The move could indicate that the company’s turnaround is taking longer than anticipated.

Wedbush cut its rating on the equity to “neutral” from “outperform” and its price target to $3.00 from $6.00.

Additionally, Wedbush lowered its fourth-quarter guidance for the company while maintaining its third-quarter outlook.

Looking to the fourth quarter, Wedbush is now predicting earnings of 4 cents per share, down from its previous 8 cents per share. Revenue estimates were lowered to $1.44 billion from $1.9 billion, both falling below the consensus estimates of 5 cents earnings per share on $1.49 billion of revenue.

Coal, energy, mining weaken

The coal, energy and mining sectors were “getting bombarded,” a trader said.

Among the coal companies – which were “getting hammered,” according to a trader – Arch Coal Inc. “had a ton of trading” in the 7¼% notes due 2021, a trader said.

He saw at least $20 million of the bonds changing hands, with the paper rising half a point to 37½.

However, he said the 7% notes due 2019 dropped almost 6 points to 39 and the 9 7/8% notes due 2019 lost a full 6 points to close around 42½ – albeit on less volume than the 2021 maturity.

Peabody Energy Corp. meantime dropped a fair amount as well.

One trader said the 6% notes due 2018 fell 5 points to 93. The 6¼% notes due 2021 declined more than 2½ points to 90 5/8, and the 6½% notes due 2020 fell 3 points to 91¼.

Another trader pegged the 2021 issue at 89½, “down a couple points.”

In Walter Energy Inc., a trader said the 11% PIK toggle notes due 2020 closed 2 points lower at 45½.

Alpha Natural Resources Inc.’s 6% notes due 2019 fell 4 points to 51 5/8.

In the mining space, Cliffs Natural Resources Inc. was “down a bunch more,” a trader said, seeing the 4 7/8% notes due 2021 trading around 64 and the 3.95% notes due 2018 in the low 70s.

Another trader placed the 4 7/8% notes at 64 3/8, down more than 4½ points on the day. The 3.95% notes ended off 4 points at 73.

And the 6¼% notes due 2040 fell 3½ points to 60¼ on “tons of trades,” according to a trader.

Among energy names, Halcon Resources Corp.’s 9¾% notes due 2020 finished at 94, off 6 points from Wednesday levels.

Private energy exploration and development company Samson Investments Co.’s 9¾% notes due 2020 remained under pressure, falling 4¼ points to 83.

Fannie, Freddie bounce

Activity in Fannie Mae and Freddie Mac preferreds seemed to be leveling out, even as the companies’ paper was “bouncing back a little bit,” according to a trader.

However, the issues were the most actively traded securities of the day of paying and non-paying preferred shares.

The trader said the upward moves came on the heels of reports indicating that it doesn’t matter who wins the next presidential election, neither side wants the government to act as a mortgage insurer, meaning a wind-down of some sort is still likely in the cards.

However, it could take several more years to iron that out.

Fannie’s 8.25% series S fixed-to-floating-rate noncumulative preferreds were up a nickel, or 1.49%, at $3.40 (OTCBB: FNMAS). Freddie’s fixed-to-floating-rate noncumulative perpetual preferreds were up 6 cents, or 1.70%, at $3.42 (OTCBB: FMCKJ).

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