Primary quiets down, closing out $2.2 billion week; new bonds mostly hold gains; AMC deal slates

By Paul Deckelman and Paul A. Harris

New York, Oct. 21 – Things were more or less back to normal in Junkbondland on Friday, traders said – just one day after investors saw a huge secured deal from wireless telecommunications company Sprint Corp. price.

No further deals priced during Friday’s session, leaving the week’s tally of new high-yield paper where it had finished out Thursday, with $2.20 billion of new U.S. dollar-denominated and fully junk-rated notes having come to market in five tranches – a clear improvement over last week, when new issuance did not even hit $1 billion.

While there were no pricings, there was some activity going on in the primary arena, notably the news that movie-theater operator AMC Entertainment Holdings, Inc. will shop a $900 million two-part subordinated note offering around to investors via a roadshow scheduled to begin on Monday.

Among recently priced names, the new Sprint secured notes, which had come to market on Thursday, were easily the most actively traded credit; they continued to hold above the 101 bid level at which they had traded in Thursday’s initial aftermarket dealings.

Statistical market performance measures were mixed for a second straight session on Friday; they had turned mixed on Thursday after being higher across the board on both Tuesday and Wednesday. Friday marked their third mixed session in the last five trading days.

Those indicators were meantime higher all around on the week – their first stronger week following two successive mixed weeks.

AMC starts Monday

The primary market put up a goose egg on Friday, with no deals pricing.

However the week ahead should be a comparatively busy one in the dollar-denominated new issue market, syndicate sources said on Friday.

AMC Entertainment plans to start a roadshow on Monday for a $900 million equivalent two-part offering of senior subordinated notes.

The deal, which is being led by Citigroup, is coming in dollar-denominated 10-year notes and sterling-denominated eight-year notes.

The dollar notes come with initial yield guidance in the low 6% area, a buyside source said.

Tranche sizes remain to be determined.

The Leawood, Kan.-based theater exhibitor plans to use the proceeds to help fund its acquisition of Odeon & UCI Cinemas Group and Carmike Cinemas, Inc., and to repay outstanding debt of Odeon & UCI.

Also in the week ahead Rackspace Hosting Inc. is expected to price a $1.2 billion offering of eight-year senior notes (//BB-) on Tuesday.

That deal is coming with early guidance in the low 9% area.

And an offer that ran a roadshow during the past week, UCP, Inc.’s $200 million of five-year senior notes (B3/B), is also expected to price in the week ahead.

During the roadshow, which was scheduled to wrap up last Wednesday, initial yield guidance was 8¼% to 8½%, according to market sources.

Codere to roadshow

Codere plans to market €775 million equivalent of five-year senior secured notes (B) on an international roadshow set to get underway on Monday.

The deal is coming in tranches of dollar-denominated and euro-denominated notes, with tranche sizes to be determined.

Joint bookrunner BofA Merrill Lynch is the global coordinator. Barclays, Jefferies and Morgan Stanley are also joint bookrunners.

Proceeds, along with cash on the balance sheet, will be used to refinance €865.2 million of existing bonds and to fund call premiums in connection with the repayment of the second lien notes and third lien notes.

Notwithstanding the AMC sterling-denominated notes and the Codere euro-denominated notes, the week ahead could be a relatively quiet one in the European new issue market, a London-based debt capital markets banker said on Friday.

Possibly there will be a deal announced in the health care sector, the London source added.

Daily inflows on Thursday

Cash flows for dedicated high-yield bond funds were positive on Thursday, the most recent session for which data was available at press time, a portfolio manager said.

High-yield ETFs saw $129 million of inflows on the day.

Asset managers saw $10 million of inflows on Thursday.

News of those daily inflows comes on the heels of Thursday’s report that the dedicated junk bond funds sustained $160 million of outflows during the week to last Wednesday’s close, according to Lipper US Fund Flows.

The Thursday daily flows for dedicated bank loan funds were also positive, at $25 million, the portfolio manager said.

A busier week

With no pricings seen during Friday’s session, the week’s total of new U.S. dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers remained where it had been at the close on Thursday, $2.20 billion in five tranches, according to data compiled by Prospect News.

That was up from the $770 million which had priced in just two tranches last week, ended Oct. 14, though still down from the $3.49 billion that came to market in eight tranches the week before that, ended Oct. 7.

Last week – shortened by one day because of the market close in observance of Columbus Day on Oct. 10 – was the quietest week the primary had seen since the week ended Sept. 2, when no deals priced at all.

The latest week’s new deals pushed year-to-date issuance up to $184.77 billion in 284 tranches.

That was running 18.9% behind the new-deal pace seen at this time last year, when $228.11 billion had priced in 360 tranches by this point on the calendar, the Prospect News data indicated.

That was the same-sized percentage gap between this year’s and last year’s issuance as last week.

Sprint volume heavy

Among specific names a trader said that Sprint Spectrum’s new 3.36% senior secured notes due 2021 was the most actively traded issue on the day, with over $110 million changing hands and at least some of those transactions involving traditional junk investors, despite the credit’s nominally investment-grade rating.

He saw the bonds trading between 101 and 101 7/16 bid.

A second trader saw them between 101 1/8 and 101¼ bid, “up more than a point from their issue price.”

The company, a subsidiary of Overland Park, Kan.-based Sprint Corp., the number-three U.S. wireless service provider, priced its $3.5 billion regularly scheduled forward calendar offering on Thursday after the deal was announced the week before.

The notes, carrying a 3.36% coupon, priced at 99.99834 to yield 3 3/8%.

In Thursday’s initial aftermarket dealings, junk investors were getting into the bonds despite the debt’s high-grade rating and a coupon that was relatively sparse by usual junk standards, a market source said, pegging the notes in a 101 1/8 to 101 3/8 bid context.

And at another shop, the paper was seen going home on Thursday trading between 101 5/16 and 101 7/16 bid.

Market sources said that the deal played to more than 400 accounts which placed orders for more than $30 billion of bonds, far dwarfing even the deal’s own considerable size.

Diamondback, NGL hold gains

Back among the purely junk-rated issues, a trader said that the new Diamondback Energy 4¾% notes due 2024 “were trading well,” pegging those bonds in a 101¼ to 101½ bid context, with more than $38 million traded.

Another saw them at 101¼ bid, calling that down 1/8 point.

That was about where those notes had settled on Thursday after the Midland, Texas-based oil and natural gas name had priced its $500 million drive-by deal at par, although Friday’s volume was down from the more than $90 million which had moved around in initial aftermarket dealings Thursday.

Out of that same energy sector, traders saw NGL Energy Partners’ 7½% notes due 2023 about unchanged on the day at 102 1/8 bid, on volume of over $12 million.

The Tulsa, Okla.-based company priced $700 million of the notes at par on Wednesday after that regularly scheduled offering was upsized from $400 million. The bonds quickly rose to the 102 bid level and remained there for the rest of the week.

Indicators remain mixed

Statistical market performance measures were mixed for a second straight session on Friday; they had turned mixed on Thursday after being higher across the board on both Tuesday and Wednesday. Friday marked their third mixed session in the last five trading days.

Those indicators were meantime higher all around on the week – their first stronger week following two successive mixed weeks.

The KDP High Yield Index climbed 6 basis points on Friday to end at 71.76, its sixth straight gain after two losses and its fourth consecutive new year-to-date and 52-week high. On Thursday, the index rose 11 bps.

Its yield came in by 1 bp on Friday to 5.27% after tightening by 5 bps on both Tuesday and Wednesday and by 3 more bps on Thursday. Friday marked its fifth straight narrowing after one unchanged session and the sixth tightening in the last seven trading days.

Those levels meanwhile compared favorably with the 71.24 index reading and 5.43% yield seen at the end of last Friday, Oct. 14.

The Markit Series 27 CDX Index edged up by 1/32 point on Friday, finishing at 104 7/16 bid, 104½ offered, its third gain in the last four trading days. It had eased by around 1/16 point on Thursday.

The index was up on the week from last Friday’s 104 1/8 bid 104 3/16 offered close.

The Merrill Lynch High Yield Index, though, lost 0.012% on Friday, a far cry from Thursday’s 0.127% gain. Friday’s slight downturn snapped a streak of five straight gains after three consecutive setbacks.

That downturn cut the index’s year-to-date return to 16.632% on Friday down from Thursday’s 16.647%, which had been its fifth consecutive new peak cumulative return for the year, surpassing the previous mark of 16.499% set on Wednesday.

For the, week, the index rose by 0.613%, its fifth straight weekly gain after two consecutive weekly losses. It had risen by 0.078% last week.

So far this year, the index has risen in 32 weeks, versus 10 weeks during which it has declined.

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