Downsized WPX two-parter caps $4.1 billion week, bonds trade actively; energy slide continues

By Paul Deckelman and Paul A. Harris

New York, July 17 – A $1 billion two-part bond deal that priced on Friday put a decisive exclamation point on what was essentially a comeback week for the high-yield primary market, which saw its first new offerings of dollar-denominated and fully junk-rated paper from domestic or industrialized-country issuers after a long issuance drought stretching back to the end of June.

Oil and natural gas exploration and production company WPX Energy, Inc. was heard by high-yield syndicate sources to have priced that $1 billion two-part transaction, consisting of five-year and eight-year notes, after the issue was downsized from $1.2 billion originally.

According to data compiled by Prospect News, that deal brought junk market new issuance for the week up to $4.17 billion in eight tranches – a far cry from last week, which saw exactly zero deals get done in Junkbondland amid strong investor angst over Greece, China and oil prices that kept borrowers on the sidelines.

Issuance this week was up from the $1.08 billion that had priced in two tranches during the week before that, the holiday-shortened week ended July 3.

This week’s tally of new bonds was the most since the week ended June 26, when $5.66 billion had priced in 11 tranches.

As of Friday’s close, year-to-date issuance stood at $188.33 billion in 306 tranches, according to the data.

That was down by 2.46% from the new-deal market’s pace a year earlier, when some $192.06 billion of bonds had priced in 361 tranches by this point on the calendar, the data indicated.

Earlier in the year 2015’s new-deal pace had been robustly ahead of 2014’s but it has gradually slowed while year-ago comps have picked up. Last week, 2014 had been marginally ahead of this year and the week before that, ended July 3, the 2015 junk primary activity was still running about 2.7% ahead of its year-earlier pace.

Both tranches of the new WPX notes firmed on heavy volume when they hit the aftermarket.

There was also considerable trading activity in some of the other deals which have come to market over the last several sessions, notably including Thursday’s new issues from Eldorado Resorts, Inc. and Genesis Energy LP, as well as Sunoco LP’s new deal, which had priced on Wednesday.

Away from the new issues, traders saw many natural-resources names sliding in busy dealings – oil and gas credits like California Resources Corp. and Linn Energy LLC, coal operators such as Peabody Energy Corp. and Consol Energy Inc. and metals mining companies like Fortescue Metals Group Ltd.

Statistical measures of junk market performance were lower across the board on Friday, after having been higher all around on Thursday. Friday’s downturn was the second in the last three sessions.

The indicators where meanwhile ending the week mixed versus where they had finished out last Friday, July 10. It was the first mixed week after having been lower on a Friday-to-Friday basis the previous two weeks – but the third mixed week out of the last five.

WPX Energy downsizes

WPX Energy completed Friday’s sole new issuance in the high-yield primary market, a downsized $1 billion two-part amount of senior bullet notes (Ba1/BB).

The acquisition financing deal was reduced from $1.2 billion.

It included $500 million of 7½% five-year notes that priced at par to yield 7.499%. The yield printed near the wide end of the 7¼% to 7½% yield talk.

The company also priced $500 million of 8¼% eight-year notes at par to yield 8.249%. The yield of the eight-year notes also printed near the wide end of the 8% to 8¼% yield talk.

The talk had already widened from initial guidance on both tranches, market sources said.

Early whispers had the five-year paper coming in the high 6s to low 7s, while the eight-year notes were whispered in the low to mid 7s, a trader said.

Joint bookrunner Barclays will bill and deliver. Citigroup, J.P. Morgan, BofA Merrill Lynch, Wells Fargo, Credit Agricole and Scotia were also joint bookrunners.

Some market observers had been watching for news on Exterran Holdings Inc.’s $400 million offering of seven-year notes (B1/BB-) which was marketed during the past week. However neither price talk (early guidance was 8% to 8¼%) nor terms were available at press time, according to a market source.

Builders FirstSource plans deal

Issuers and dealers announced business for the week ahead.

Builders FirstSource, Inc. plans to start a roadshow on Monday in New York City for a $750 million offering of eight-year senior notes (Caa2/B-).

Citigroup, Deutsche Bank, Credit Suisse, KeyBanc and SunTrust Robinson Humphrey are the joint bookrunners for the acquisition financing and debt repayment deal.

Kenan starts Monday

Kenan Advantage Group Inc. plans to start a roadshow on Monday in New York for a $405 million offering of eight-year senior notes.

Marketing is scheduled to wrap up Thursday and the buyout deal is set to price thereafter.

Goldman Sachs is the left bookrunner. KeyBank is the joint bookrunner.

As of Friday afternoon, the July 20 week was shaping up to be a question mark, sources said.

Earlier in the July 13 week Charter Communications Inc. was heard to be headed to the high-yield primary with the $3.5 billion junk portion of its financing for the acquisition of Time Warner Cable Inc., in the week ahead.

The deal, expected to be led by Credit Suisse, was being whispered in the low 6s.

In an investment-grade execution earlier in July, Charter priced $15.5 billion of senior secured notes (Ba1/BBB-) in tranches of five-, seven-, 10- 20-, 30- and 40-year notes.

Another big deal generating a buzz in the market is Frontier Communications Corp.’s $8 billion of new debt – all of it possibly coming in the form of high-yield bonds.

However that deal has now been pushed back to the post-Labor Day period, according to a buyside source who added that lead bookrunner J.P. Morgan has reassessed the timing of the acquisition financing deal.

ETFs: ‘It’s the liquidity’

On Thursday, the first day of the new reporting period for the cash flows of the dedicated high-yield funds, junk ETFs took in another healthy chunk of cash, according to a portfolio manager.

ETFs saw $324 million of daily inflows on Thursday, while asset managers sustained $5 million of outflows.

Institutional high-yield investors are using ETFs as proxies, sources say.

The main reason is the liquidity of ETFs, the bond investor said Friday.

You can always sell an ETF share, whereas the same may not always hold true for an individual bond.

Investor Carl Icahn generated a significant buzz in the market earlier in the week when he told BlackRock chief executive officer Laurence D. Fink that ETFs give an illusion of liquidity for junk bonds that are “extremely illiquid and extremely overpriced.”

However for the investor who spoke Friday on background, the more notable quote of the week came from Jeffrey Gundlach, founder and chief executive officer of DoubleLine Capital LP, who said in a panel discussion that high-yield bonds presently offer attractive yields, but added: “Right now I am willing to dance the risk dance near the door.”

WPX bonds busy and better

In the secondary arena, both tranches of the new WPX Energy deal were the most actively traded purely junk credits – although last week’s giant-sized split-rated (Ba1/BBB-BBB-) deal from Charter Communications Inc. continues to dominate the Most Actives list on a daily basis.

WPX’s 8¼% notes due 2023 were trading at 100 5/8 bid, a market source said, on volume of over $51 million, while its 7½% notes due 2020 were up ¼ from their par issue price at 100¼ bid. Over $50 million of the latter credit had changed hands.

Another trader saw the 7½% notes trading in a par to 100½ bid context, with the 8¼% paper trading between 100¾ and101 bid.

Genesis moves lower

Thursday’s issue of 6¾% notes due 2022 from Houston-based midstream energy master limited partnership Genesis Energy began trading on Friday after having priced late in the session on Thursday – but while the new bonds initially moved higher, they gave it all back and then some as the day wore on.

A trader said that the notes – which had priced at 98.629 in a quick-to-market offering, yielding 7% – had moved as high as 99½ to par bid. “But that was in the morning – later they faded as oil prices fell.”

He saw the paper going home in a 98¼ to 98½ range, “a little below their issue price.”

“GEL opened higher, in a wide market,” another trader opined, but then “they moved below where they came.”

Over $36 million of the notes traded, with a trader pegging the paper up ¼ point from its issue level.

Sunoco seen off

Sliding oil prices – West Texas Intermediate lost 50 cents a barrel, or 1% on the New York Mercantile Exchange, ending at $50.91 – also pushed Houston-based master limited energy partnership Sunoco LP’s new 5½% notes due 2020 lower.

A trader saw the bonds on Friday at par bid – down 5/8 point from the 100 5/8 bid level at which those bonds had traded on Thursday.

He had seen over $10 million of the notes traded.

Sunoco had priced $600 million of the notes on Wednesday as a drive-by offering, after upsizing the deal from the originally planned $500 million.

Eldorado on the rise

Away from the new-deal energy-oriented credits, Eldorado Resorts’ new 7% notes due 2023 were trading on Friday above the par level at which the Reno, Nev.-based gaming company had priced its regularly scheduled $375 million forward calendar offering on Thursday.

A trader said that the bonds were in a 100½ bid to 101 offered context, before ending at 100 7/8 bid.

Another trader, also seeing the notes trading higher at 100 7/8 bid, which he called up ½ point on the session, with over $11 million having changed hands.

Indicators end lower

Statistical measures of junk market performance were lower across the board on Friday, after having been higher all around on Thursday. Friday’s downturn was the second in the last three sessions.

The indicators where meanwhile ending the week mixed versus where they had finished out last Friday, July 10. It was the first mixed week after having been lower on a Friday-to-Friday basis the previous two weeks – but the third mixed week out of the last five.

The KDP High Yield Daily Index slid by 22 basis points on Friday to end at 69.77, after having inched up by 1 bp on Thursday, its second straight gain.

Its yield meanwhile rose by 6 bps to 5.79%, after having come in by 3 bps on Thursday, its second straight narrowing.

The index reading was down from where it had ended the previous Friday, July 10, at 69.87, although, in a rare divergence, its yield was lower than the prior Friday’s 5.81%.

The Markit Series 24 CDX North American High Yield Index lost 1/16 point Friday to close at 106 29/32 bid, 106 15/16 offered, after having risen by 5/16 point on Thursday. Friday’s loss was its second downturn in in the past three sessions.

For the week, though, the index was up from the previous Friday’s close at 106 13/32 bid, 106 15/32 offered.

The Merrill Lynch North American Master II High Yield Index dropped by 0.24% on Friday, after having been unchanged on Thursday and having been higher over five consecutive sessions before that.

Friday’s loss dropped its year-to-date return to 2.452%, down from Wednesday and Thursday’s closing level of 2.699%.

The year-to-date figure remained well 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 up by 0.066% – its first weekly gain after three successive weekly losses, including the 0.379% drop seen last week, which had left the year-to-date index reading at 2.385%. Week-over-week gains have now been seen over 18 weeks since the start of 2015, with 10 weeks of losses.

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