Market quiet, but tone firm in pre-holiday session; new Scotts stays strong; Chemours climbs again

By Paul Deckelman and Paul A. Harris

New York, Oct. 9 – The high-yield market ended the week on a quiet note Friday ahead of the three-day Columbus Day holiday weekend, which includes Monday’s full market shutdown.

Traders saw light flows, with many market participants having chosen to be absent or making an early day of it.

However, they said that overall the market retained the firm tone that it had enjoyed all this week.

Among the continued gainers, they said, was the new Scotts Miracle-Gro Co. issue that had come to market on Wednesday and then firmed smartly when it moved into aftermarket dealings.

The lawn-care company’s $400 million deal was the week’s only new issue of U.S.-dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers to come to market during the week – although that was an improvement from last week, ended Oct. 2, which had seen no junk deals of any sort price.

Year-to-date issuance meantime stood at $230.25 billion in 360 tranches, according to data compiled by Prospect News.

That was down by 10.6% from the new-deal pace seen at this time a year ago, when $257.76 billion had come to market in 485 tranches.

Syndicate sources said that no new issues were actively being marketed. There were suggestions that issuers might wait and see whether the current market conditions hold before bringing any further new deals, although some in the market said the progress made this week in bouncing back from the recently volatile conditions might lure the issuers in.

Away from the new deals, traders saw continued gains in the bonds of Chemours Co., helped for a second straight session by market buzz that Apollo Management might be interested in buying the specialty chemicals manufacturer spun off earlier this year from industry giant E.I. du Pont de Nemours & Co.

Statistical measures of junk market performance turned mixed on Friday after having been higher across the board on Wednesday and Thursday. Friday was the second mixed session in the last four and the fourth such session in the last six trading days.

However, those market measures ended higher all around versus where they had been last Friday – the first such higher weeks after three straight weeks in which they were lower on a Friday-to-Friday basis. It was the second higher week in the last five and the third higher week in the last seven.

Lowell kicks off £795 million

Friday’s primary market session was quiet heading into the extended Columbus Day holiday weekend in the United States.

There was one new deal announcement and it came out of the sterling-denominated market.

Lowell Group plans to start a roadshow on Monday for a £795 million two-part offering of high-yield notes.

On offer will be £555 million of seven-year senior secured notes (B+), in a tranche for which Goldman Sachs International will bill and deliver.

The transaction also includes £240 million of eight-year senior unsecured notes (B-), for which Credit Suisse will bill and deliver.

The roadshow wraps up on Thursday.

Goldman Sachs, Credit Suisse, Citigroup, ING and JP Morgan are joint bookrunners for the LBO deal.

ETFs driving the bus

The outlook for the dollar-denominated primary market remained somewhat uncertain heading into the holiday weekend, sources say.

There could be some deals next week, a syndicate official said.

Look for an offering from a higher-quality industrial and aerospace name, the sellsider said, adding that the deal-size won’t be huge.

Opportunistic issuers are looking for some sustained stability, sources said on Friday.

ETF buying and short covering have been synthetically propping up the secondary market, prompting the dealers to adopt a more cautionary tone with respect to bringing new deals, a debt capital markets banker said.

“They’re looking for some indication of sustained positive sentiment in the real-money accounts,” the banker added.

The numbers bear out this color.

On the surface, fund flow news that circulated on Thursday was positive: $735 million of aggregate inflows to the dedicated high-yield accounts for the week to Wednesday’s close.

Bore down into those numbers and a somewhat different picture emerges.

During the week actively managed funds actually sustained $675 million of outflows.

High-yield ETFs, however, saw a whopping $1.41 billion of inflows on the week to Wednesday.

Traders also report that ETFs have been big-time buyers in the high-yield market during the past week – although one trader saw the junk ETFs buying on Friday morning, but doing a modest amount of selling, heading into the end of the week.

Bonds, or maybe loans

In structuring financing agreements, the dealers are being careful to leave themselves leeway to move proceeds around to the different components of the financing in order to accommodate the demand picture of the hour, sources say.

Indeed, on Friday news surfaced that Greatbatch Ltd. shifted $75 million of proceeds to its term loan A from its expected bond deal, downsizing the bonds to $360 million from $435 million.

However the technical picture in the bank loan market is less than wonderful, a banker said on Friday.

Bank loan funds sustained $354 million of outflows on the week to Wednesday’s close, the source said.

It was the eleventh consecutive outflow as “deflation” headlines have lately overtaken concerns about rising interest rates.

Assets under management for the retail leveraged loan base have fallen by $10 billion during the past four months, the source said, citing data reported by Lipper-AMG.

Assets under management are now at a 27-month low of $110 billion, the banker said.

Meanwhile in the junk bond market the post-Columbus Day week will get underway with no dollar-denominated deals on the active forward calendar, as sources were forecasting during the latter half of the past week.

The underwriters finished the week in “wait-and-see” mode.

“What we’d like to see is a week of stability,” a syndicate banker said.

Several secondary traders were a bit more sanguine about the prospects for seeing some new deals soon.

“We’ll see how the week starts on Tuesday,” one said, noting that he had heard chatter indicating that “the market conditions have firmed up enough that we could see some deals back next week.”

A second trader likewise hopefully predicted that “people will come back in” if the currently positive tone holds up.”

Firm tone seen

In the meantime, the latter trader said, “there’s just no supply. So secondary paper has definitely improved a lot.”

He said that “the market’s got a real good tone to it,” with things up “about ¼ point or so” on the day, “generically speaking.”

He said that he has seen “a lot of buying by the ETFs. I wouldn’t be surprised if through the second half of the week you’re going to have more inflows.”

But in the meantime, on Friday “flows were light.”

The first trader opined that “it’s been kind of a pretty muted day, trading-wise, with the holiday. I think everything seems to be taking a little bit of a breather at the same time, given the run we’ve had this week.”

He saw most issues – “anything that is trading – around unchanged levels.”

New Scotts paper staying firm

The new paper from the week’s only pricing – the Scotts Miracle-Gro 6% notes due 2023 – were “hanging in there,” a trader said, quoting the notes having traded at 102 3/8 bid.

A second said that paper was “doing good, trading with a high 102 handle today.”

At one point, he said, there had been a locked market at 102 7/8, causing him to peg the bonds in a 102¾ to 103 context.

The Marysville, Ohio-based manufacturer of lawn-care products priced its quickly shopped $400 million deal at par on Wednesday after the offering was upsized from an originally announced $300 million.

Those notes came to market fairly late in the session on Wednesday, but still saw more than $10 million of trading, jumping to 102½ after having broken earlier in the afternoon at 101 bid.

The notes continued to firm on Thursday to highs around 102¾ bid, on volume of more than $48 million, making it one of that day’s most heavily traded credits.

However, activity on Friday was considerably more restrained.

Recent issues hold their own

Among other recently priced deals, Neptune Finco LLC’s 6 5/8% senior guaranteed notes due 2025 were quoted Friday at 103¾ bid. They had priced at par on Sept. 25, issued as part of the financing for the $17 billion acquisition of Bethpage, N.Y.-based cable operator and newspaper publisher Cablevision Systems Corp. by European sector peer Altice NV. Those bonds had initially firmed after pricing, but then traded down into a 99ish context amid last week’s market volatility. However, they had moved up to 102¾ bid on Monday and then just kept firming,

The issuer’s 10 1/8% notes due 2023, which had also dipped below par last week, had jumped to almost the 105 bid level by mid-week and were still quoted going home on Friday at 104¼ bid.

Its 10 7/8% notes due 2025, also trading under par last week, got as good as the 106 mark around mid-week and finished out the week at 105½ bid.

Stamford, Conn.-based telecommunications provider Frontier Communications Corp.’s 10½% notes due 2022 – which had priced at par back on Sept. 11 as part of a three-part, $6.6 billion behemoth of a bond deal – initially traded up but then were hammered down into the mid-90s during the late-September market volatility. However, they pushed back above the par level this week, and closed the week at 101 5/8 bid.

Oil prices support energy

One of the week’s notable stories has been the solid gains notched by oil and natural gas exploration and production paper, buoyed by continued strong gains in crude oil prices.

With West Texas Intermediate crude for November delivery briefly moving above $50 per barrel for second straight session before coming off that peak level but still finishing up on the day (settling at $49.56, up $13 cents in New York Mercantile Exchange trading Friday, on top of Thursday’s $1.62 per barrel jump), energy issues went along for the upside ride.

Los Angeles-based E&P operator California Resources Corp.’s 6% notes due 2024 zoomed to 71¾ bid on Friday, up some 3 points on the day, with over $15 million having changed hands.

Chemours churns higher

Wilmington, Del.-based specialty chemicals manufacturer Chemours’ two series of bonds continued to firm solidly for a second consecutive day, helped by media reports that private equity powerhouse Apollo Management might be interest in acquiring the company, which was spun off from industry giant DuPont in July.

Its 6 5/8% notes due 2023 “were all over the place,” a trader said, pushing as high as 71½ bid and going out in a 71 to 71½ bid range, up from the 69½ bid at which it had ended trading on Thursday, when the bonds had leapt by 1¾ points. Volume of over $7 million, though, was well down from Thursday’s turnover that topped $50 million.

Its 7% notes due 2025 moved up by 1¼ points on Friday to 69¼, with over $10 million traded; on Thursday, more than $30 million had changed hands as the credit gained 2½ points.

However, a trader cautioned that with Chemours potentially on the hook for the millions of dollars in damages that former corporate parent DuPont could be socked with in lawsuits brought by thousands of people who are blaming crippling illnesses they suffered on past dumping by DuPont of toxic chemicals that eventually leached into drinking water supplies, could complicate prospects for a sale of Chemours. A federal jury in Ohio this week found in favor of a woman alleging such DuPont-caused damage, assessing $1.6 million in compensatory damages.

“There’s a lot of hair on that one,” he declared.

Indicators turn mixed

Statistical measures of junk market performance turned mixed on Friday after having been higher across the board on Wednesday and Thursday. Friday was the second mixed session in the last four and the fourth such session in the last six trading days.

However, those market measures ended higher all around versus where they had been last Friday – the first such higher weeks after three straight weeks in which they were lower on a Friday-to-Friday basis. It was the second higher week in the last five and the third higher week in the last seven.

The KDP High Yield Daily Index firmed by 32 basis points Friday to close at 67.29 – its fifth straight gain and sixth such rise in the last eight sessions. It had been up by 17 bps on Thursday following surges of 31 bps and 58 bps on Tuesday and Wednesday, respectively.

Its yield came in by 7 bps on Friday to 6.56% – its fifth straight narrowing and sixth such tightening in the last eight sessions. On Thursday it had declined by 3 bps.

Those levels compared favorably with the 65.55 index reading and 7.05% yield seen last Friday, Oct. 2.

The Markit Series 25 CDX North American High Yield Index failed to keep pace, easing by 1/16 point on Friday to finish at 102 5/16 bid, 102 11/32 offered – its first loss after two straight gains and after six gains in the previous seven sessions. On Thursday, it had risen by 3/8 point. Friday’s setback was its second downturn in the last four sessions.

But the index finished the week well up from the 100 5/32 bid, 100 3/16 offered at which it had closed last Friday.

The Merrill Lynch North American Master II High Yield Index rose for a fifth time in a row on Friday and its sixth time in the last eight sessions, gaining 0.552%, on top of the 0.146% gain on Thursday and Wednesday’s 0.774% rise, which had been its biggest single-session gain seen so far this year.

Friday’s gain cut its year-to-date loss in half, to 0.45% from 0.996% on Thursday, and greatly reduced from the 3.069% year-to-date loss seen last Friday, which had been its biggest cumulative loss for the year so far and its lowest level since Oct. 5, 2011, when the index had shown a 3.834% year-to-date deficit.

For the week, the index jumped by 2.702% – easily the biggest one-week surge seen so far this year and one of its biggest one-week gains ever. The previous largest weekly gain this year was 0.964%, during the week ended Feb. 6.

It was the first weekly advance for the index after three straight weekly losses and its fourth weekly gain in the last seven weeks. The volatile index lost 1.78% last week – its largest weekly loss of the year.

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