Primary stays quiet as market returns from break; Chesapeake up on Williams deal; market firms

By Paul Deckelman and Paul A. Harris

New York, Sept. 8 – It was back to work on Tuesday for junk market denizens following the Labor Day holiday break, which had seen a quiet and abbreviated session on Friday followed by a full market close on Monday.

But with participants still straggling back to work after the long weekend, no new deals priced during the session, continuing the status quo – Junkbondland’s last dollar-denominated pricing activity was all the way back on Aug. 19.

However, the syndicate sources expect things to pick up shortly, with megadeals from familiar issuers like telecom operator Frontier Communications Corp. and satellite television broadcaster Dish Network Corp. expected to hit the market, possibly as early as Wednesday. Cable and broadband service provider Charter Communications Inc. is also seen waiting in the wings.

Away from the communications sphere, packaging products maker Berry Plastics Group., Inc., which is scheduled to kick off a big bank debt financing with a lender meeting on Wednesday, is said to be readying a $700 million junk bond deal somewhere in the near term.

In the secondary market, traders said prices were mostly firmer, helped in part by a sizable rebound in stocks, which had fallen on Friday.

Chesapeake Energy Corp. was a standout performer, its bonds higher in active trading on the news that the oil and natural gas company had signed new gas-gathering agreements with Williams Cos. that will effectively lower Chesapeake’s unit costs at two of its main natural gas fields.

Statistical measures of junk market performance turned higher across the board on Tuesday for a second straight day. Those indicators that were published on Monday despite the holiday had also been unchanged to higher, while the market gauges had been mixed on Friday.

Frontier, Dish possibilities

There were no deals announced or priced on Tuesday, as participants took their places following the extended Labor Day holiday weekend.

However, Wednesday stands to be a different story, sources say.

For over a week the market has been expecting Frontier Communications to kick off a $6.5 billion multi-tranche bond deal on Wednesday via J.P. Morgan Securities LLC.

In addition, Dish Network could step up on Wednesday with $3.3 billion of bonds, sellside sources say.

No bookrunners have stepped forward, but Deutsche Bank Securities is expected to lead the Dish deal.

Dish will use the proceeds to repay about $3.3 billion of “very small business” credits awarded to Northstar Wireless, LLC and SNR Wireless, LLC in last year's AWS-3 wireless spectrum auction held by the U.S. Federal Communications Commission.

Time is an issue with that transaction, a portfolio manager said.

In an Aug. 17 memorandum, the FCC found that Dish holds 85% equity interests in Northstar and SNR, rendering those entities ineligible for the credits awarded to small businesses participating in the auction, the FCC said. Hence Dish has 30 days to put up $3.3 billion in cash or standby letters of credit.

Berry Plastics, which scheduled a Wednesday bank meeting for its $1.9 billion first-lien term loan, is also expected to show up in the near term with around $700 million of bonds via Goldman Sachs & Co., according to a sellside source.

Proceeds will be used to help fund the acquisition of Avintiv for about $2.45 billion in cash on a debt-free, cash-free basis from Blackstone Group.

Other potential September issuers heard in the market on Tuesday included Platform Specialty Products Corp. As previously reported, the company received a $1,875,000,000 interim debt facility, via Credit Suisse, to help fund its acquisition of Alent plc.

Also Konecranes Terex plc is expected to come in September with bonds to take out a $1.15 billion senior unsecured bridge loan that was led by Credit Suisse.

Proceeds will be used to help fund the merger of Terex Corp. and Konecranes plc and to refinance existing bank facilities at both companies as needed.

Everyone will be watching September's early executions, which will help to point the way ahead, a debt capital markets banker said late on Tuesday.

Should the primary market prove reasonably hospitable, look for $25 billion to $30 billion of new issuance to price in the run-up to October, the banker added.

‘Wait-and-see’

Secondary market traders were also speculating about what may or may not be happening on the primary side of the fence.

One said that “it’s probably going to be ‘wait-and-see’ this week.”

He suggested that “it’s going to be kind of spotty between now and next Wednesday and Thursday,” when the Federal Reserve’s policy-setting Federal Open Market Committee will meet, with the financial world’s eyes fixated on whether the U.S. central bank will finally raise rates after holding them at what some critics call artificial lows for years in order to spur economic growth.

The Fed meeting comes in the wake of Friday’s U.S. jobs data for August. Job creation lagged expectations with non-farm payrolls up by only 173,000 jobs, well below analysts’ estimates of around 217,000 new positions, although the July figure was revised higher to 245,000 from an originally reported 215,000. While the official unemployment rate ticked lower to 5.1%, the percentage of eligible workers participating in the workforce dropped to 62.6%, its lowest level since the late 1970s.

Against that backdrop of inconsistent data, the trader said, “it really doesn’t give a lot of guidance. Nobody seems to know [what’s going to happen]. I think it’s split on what’s going to happen.”

Another trader theorized that “the Fed goes [for a rate hike] on Sept. 17, and you’ll see a little bit of disruption, but then things will kind of calm down and we can rally through the end of the year.”

He opined that the expected 25-basis-point rise in its base rates that the Fed may enact “is not that impactful. I don’t think that it signals any longer-term move to higher, higher and higher rates. I think we will just be sitting here,” rate-wise.

He further asserted that “it’s not monetary policy that drives the economy – it’s fiscal policy, and unless and until there’s some move to cut taxes or reduce entitlements, you’re just not going to have any kind of significant pickup in economic activity in this country.”

Chesapeake churns higher

Away from the possibility of new deals coming to market soon, traders said that probably the most significant development on Tuesday was Oklahoma City-based oil and natural gas operator Chesapeake Energy’s announcement that it has finalized new gas-gathering agreements with Williams Cos. in Chesapeake’s Haynesville Shale operating area in northwest Louisiana and its dry gas Utica Shale operating area in eastern Ohio.

One of the traders said that Chesapeake’s paper was up on that news. “It’s quite positive.”

A trader saw the company’s 6 5/8% notes due 2020 up 1½ points on the session, going home at 83½ bid, on volume of more than $12 million, putting the credit high up on the high-yield Most Actives list for the day.

He saw its 6½% notes due 2017 firm to 97¾ bid, up ¾ point on the day, with over $11 million traded, while its 6 1/8% notes due 2021were up 7/8 point from their most recent round-lot levels, seen last Thursday; the notes finished Tuesday at 80½ bid, on volume of more than $10 million.

A market source at another desk saw Chesapeake’s 4 7/8% notes due 2022 ending at 74½ bid, up 1 1/8 points on the day.

Chesapeake said that its renegotiated deal with Williams, a big gatherer, processor and transporter of natural gas, will provide “a significant improvement” in per-unit gathering rates. It estimates savings of 20 cents per thousand cubic feet in 2016 and 2017 and as much as a 30 cents in 2018 in the Haynesville Shale. Chesapeake will also devote more capital to those areas and increase its volume, allowing it to meet its contractual minimum volume obligations, letting Williams in turn gather and ship more gas.

Chesapeake said that the alignment of the two companies’ strategic interests, expected drilling economies and more efficient utilization of Williams’ midstream assets make the deal “a win-win” for both parties.

Market seen firmer

Overall, a trader said that “the market definitely had a firm tone and bid to it.”

He said that “in general, high yield was up ¼ to ½ point generically across the board.”

He said that higher-bet names, such as Sprint Corp., “were probably on the higher end” of that, “so the Sprints of the world will move a little bit. You’re going to get a bigger pop out of them.”

A trader at another desk saw the Overland Park, Kans.-based wireless provider’s 7 7/8% notes due 2023 up 7/8 points on Tuesday, ending at 98 7/8 bid, on volume of over $14 million.

Indicators are firmer

Statistical measures of junk market performance turned higher across the board on Tuesday for a second straight day. Those indicators that were published on Monday despite the holiday had also been unchanged to higher, while the market gauges had been mixed on Friday after having seen gains on Thursday and Wednesday.

The KDP High Yield Daily index rose by 12 basis points on Tuesday from where it had been on Friday, ending the session at 68.11. It was the index’s fourth straight gain, its seventh advance in the last eight sessions and its eighth in the last 10 sessions, including Friday’s 4-bps rise. The index was not published on Monday due to the Labor Day holiday.

Its yield, meanwhile, came in by 4 bps on Tuesday to 6.28% after having narrowed by 2 bps on Friday. Tuesday’s tightening was its fourth decline in a row as well as its seventh in the last eight sessions and its eighth in the last 10 sessions.

The Markit Series 24 CDX North American High Yield index jumped by 27/32 point on Tuesday to close at 104 19/32 bid, 104 5/8 offered. The index was published on Monday, despite the official holiday, and was unchanged on the day from its levels on Friday, when it had dropped by 11/32 point, which had been its fourth loss in the previous six sessions. But the index had risen in two sessions before that and has thus firmed in three sessions out of the last five.

The Merrill Lynch North American Master II High Yield index rose by 0.214% on Tuesday, its second straight gain, its fourth advance in the last five days, its seventh gain in the last nine sessions and its eighth in the last 11. The index had risen by 0.058% on Monday even though the market was closed; it had dipped by 0.042% on Friday, its first setback after two straight gains before that.

Tuesday’s gain raised its year-to-date return to 0.50% from 0.286% on Monday and 0.227% on Friday. However, it still remains well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

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