Quiet start to final full trading week of year; Real Alloy may be on tap; energy slides; CGG plunges

By Paul Deckelman and Paul A. Harris

New York, Dec. 15 – The final full trading week of 2014 began on a quiet note in the junk bond market on Monday, with no new deals announced or heard to have priced.

Many market sources expressed belief that no further junk deals are likely to price given the extreme volatility in the high-yield market, resulting from rapidly eroding world crude oil prices and their impact on the energy exploration and production sector, which continues to get hammered.

However, Real Alloy Holding Inc.’s $300 million secured bond offering remains on the forward calendar, and the company is still holding out the possibility that it may price this year.

Away from the primary sphere, energy names were once again taking it on the chin, in tandem with continually sliding oil prices.

Notable sector losers on Monday included Linn Energy LLC, Swift Energy Co. and Comstock Resources Inc., among others.

But the biggest decline came in CGG SA, the French provider of seismic services to the oil and gas drillers. The company’s bonds swooned in tandem with its shares on the news that prospective buyer Technip had decided to not move forward with its previous plans to buy CGG.

Statistical market-performance measures were lower across the board for a fourth consecutive session.

Real Alloy may price

Noting that the high-yield energy sector of the BofA Merrill Lynch US High Yield Master II Option-Adjusted Spread index is now officially in distressed territory – at a 1,002 basis points spread to Treasuries in the middle of the New York morning on Monday – a trader professed the belief that the last new junk issue for 2014 is likely already in the book.

Other market sources held the same view on Monday.

However, one company remains in the market, hoping to price its deal before the end of the year.

A spokesman from Real Alloy Holding said during a Monday telephone conversation that its $300 million offering of five-year senior secured notes could still be 2014 business.

The source declined to discuss any other details about the deal.

Goldman Sachs and Deutsche Bank are the joint bookrunners.

In a Monday prospectus, Signature Group Holdings, Inc., the parent of Real Alloy Holding, announced an offer of 4 million shares of stock. The stock offer is expected to close before other financings it has in the market, the company said.

Proceeds from the bonds and stock will be used to fund the global recycling and specification alloys business of Aleris Corp.

Outflows continue

Dedicated high-yield funds continued to see cash outflows on Friday, the most recent session for which daily fund flow information was available at press time, a market source said.

High-yield ETFs saw $126 million of outflows, while actively managed funds saw a whopping $1.4 billion of outflows on Friday.

Outflows from ETFs are apt to accelerate when the Monday numbers are reported, according to the source who reported seeing the biggest Bid-Wanted-In-Competition list of bonds in at least two weeks.

Linn leads energy slide

In the secondary market, the beleaguered oil and natural gas exploration and production companies were once again selling off against a backdrop of sliding crude oil prices on the world commodity markets.

The benchmark West Texas Intermediate crude oil fell by $1.90, or 3.3%, in New York Mercantile Exchange trading, to close at $55.91 a barrel – its lowest level since May 2009.

A trader saw considerable activity in Linn Energy’s bonds, with the Houston-based E&P company’s 6½% notes due 2019 down 2½ points, to 76 bid, on volume of more than $30 million.

The 6¼% notes due 2019 lost 1 point to end at 76¼ bid, with more than $18 million having changed hands.

The company’s 7¾% notes due 2021 were seen down by as much as 3 points, at 74½ bid.

After the market closed, Linn announced that it had closed on the previously announced $1.95 billion sale of its entire position in the Granite Wash and Cleveland plays located in the Texas Panhandle and western Oklahoma to privately held institutional affiliates of EnerVest, Ltd. and FourPoint Energy, LLC.

Linn plans to use the proceeds from that sale, along with the proceeds from last month’s $350 million sale of some of its holdings in Texas’ Permian Basin to Fleur de Lis Energy, LLC, to repay in full a $1.3 billion term loan – the only remaining interim financing from its $2.3 billion acquisition of assets from Devon Energy Corporation, which closed on Aug. 29 – and reduce borrowings under its revolving credit facility.

Following repayment of the term loan and a portion of its revolver debt with the proceeds from the two asset-sale transactions, Linn will have pro forma liquidity of about $2.4 billion as of Sept. 30.

More energy angst

Elsewhere in the energy space, a trader saw that Frisco, Texas-based E&P company Comstock Resources’ 7¾% notes due 2019 lost 4 points, going home at 64 bid, on volume of about $8 million.

Houston-based Swift Energy’s 7 1/8% notes due 2017 plummeted by 14½ points, to close 55 bid from prior levels north of 69 bid. However, a trader said, volume was only about $2 million.

CGG shakes and quakes

An even bigger loser on the day was CGG’s paper. Its 6½% notes fell 20 points to close around 72 bid, although a trader said that only about $5 million changed hands.

The company’s 6 7/8% notes due 2022 lost 11½ points to end at 77 1.2 bid, though also on only $5 million of turnover.

The bonds got crushed on the news that prospective buyer Technip had decided not to go through with its acquisition of CGG, a Paris-based company that provides seismic services to the energy industry.

Indicators continue slide

Statistical indicators of junk market performance were off across the board for a fourth consecutive session on Monday and were down all around for the sixth session in the last seven, a bearish pattern only interrupted by last Tuesday’s mixed session.

The KDP High Yield Daily index suffered its seventh consecutive loss on Monday, plunging by 50 basis points to go out at 69.4, on top of the 41 bps nosedive that the index took on Friday to fall below the psychologically significant 70.0 mark for the first time since October of 2011.

Before that, the index had been down by 25 bps on Thursday.

The yield rose by 10 bps for a second straight session, finishing at 6.3%, its seventh straight widening.

The Markit CDX North American High Yield Series 23 index saw its fourth consecutive loss on Monday and its seventh downturn in the last eight sessions, retreating by 11/32 of a point to 104 1/8 bid, 104 5/32 offered. Friday, it had lost 5/32 of a point.

The Merrill Lynch U.S. High Yield Master II index was a loser for a seventh successive session, declining by 0.479%, on top of Friday’s 0.611% retreat.

The latest downturn more slashed its year-to-date return by more than half, to 0.364% from Friday’s 0.847% finish, which had been the first time since early February that that figure had fallen below 1%.

Monday’s close was the index’s lowest level since Jan. 6, when it ended at 0.33%.

The year-to-date return also remained well below its peak level for the year of 5.847%, recorded on Sept. 1.

Several other index components notched new marks for the year. Its yield to worst rose to a sixth consecutive new high for the year at 7.105% from the previous high of 7.006% on Friday.

The spread to worst rose to558 bps over comparable Treasuries, its sixth consecutive new wide point of the year. On Friday, it had risen to 554 bps.

And its average price fell to 97.10219, its seventh straight new low for the year, from 97.63583 on Friday.

© 2015 Prospect News.
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