European junk market remains busy; energy names off on oil slide; funds lose $387 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 1 – The month of September opened up in Junkbondland on Thursday much the same way that August had ended on Wednesday – with no pricing activity and not much secondary action seen among dollar-denominated domestic issues, while the European junk market was percolating.

There were two non-dollar-denominated pricings seen out of Europe on Thursday.

Italian oilfield services provider Saipem SpA priced an upsized €1 billion two-part offering, consisting of 4.5-year and seven-year notes, split into equal €500 million tranches.

And from Britain came word that Arrow Global Finance plc had come to market with a £220 million eight-year senior secured deal.

Back among the domestic issues, another big fall in crude oil prices pulled such energy credits as California Resources Corp., Chesapeake Energy Corp. and Transocean Ltd. lower.

Ocwen Financial Corp. was also a notable loser.

Recently priced issues were mostly quiet, save for Diamond Resorts International, Inc.’s unsecured notes, which edged up in active dealings.

Statistical market performance measures turned lower across the board on Thursday for the first time in more than a month; those market gauges were last previously all pointing on the downside back on July 28.

The retreat followed two straight mixed sessions on Tuesday and Wednesday, and, before that, Monday’s all-around rise.

Another statistical market performance indicator – the flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, which are considered a reliable barometer of overall junk market liquidity trends – saw its first loss this week after three consecutive weeks of net inflows.

Some $387 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the week ended Wednesday, in contrast to last week’s $162 million net inflow – one of three consecutive such cash gains, totaling $2.706 billion (see related story elsewhere in this issue).

Upsized Saipem comes tight

All of Thursday’s primary market activity came from Europe.

Italian oilfield services provider Saipem launched and priced an upsized €1 billion two-part offering of senior notes (Ba1/BB+).

The deal included €500 million of 4.5-year notes that priced at par to yield 3%. The yield printed 50 basis points below the tight end of the 3½% to 3 5/8% yield talk.

Saipem also priced €500 million of seven-year notes at par to yield 3¾%. Again, the yield printed 50 bps below the tight end of the 4¼% to 4 3/8% yield talk.

The debt refinancing deal, which was upsized from €750 million, was shopped to investors across Europe earlier in the week.

It played to over €6 billion of orders, the source said.

Global coordinator UniCredit will bill and deliver. Banca IMI, BNP Paribas, Citigroup, Deutsche Bank, Goldman Sachs International, JPMorgan, Mediobanca were also global coordinators.

Arrow Global inside talk

Arrow Global priced a £220 million issue of eight-year senior secured notes (existing B1/confirmed BB) at par to yield 5 1/8%.

The yield printed 12.5 basis points beneath the tight end of the 5¼% to 5½% yield talk.

The roadshow was cut short; when the deal was announced it was scheduled to be in the market until Friday.

Goldman Sachs, HSBC and JPMorgan were the global coordinators and physical bookrunners for the debt refinancing deal.

Reaching for yield

Counting the Wednesday crossover deal from General Motors Financial Co., a €750 million split-rated issue of 0.955% seven-year senior notes (Ba1/BBB-/BBB-) that priced at a 95 basis points spread to mid-swaps, all of this week’s primary market business in Europe blew through talk.

The spread on General Motors Financial deal came 5 bps inside the 100 to 105 bps spread talk. Initial guidance was in the 120 bps area.

Taken in conjunction with Thursday’s Saipem and Arrow Global deals, the tight pricings represent a reach for yield on the part of investors, a London-based syndicate banker said on Thursday.

Issuers are taking note, the source said, adding that there already appear to be 15 transactions lined up for the fall.

In line with what syndicate sources in the United States are forecasting, Europe will be busy in the week ahead, the banker said.

Dollar market again quiet

In the secondary realm, a trader said that overall, “there was not too much to really talk about.”

Flows were quiet on what was essentially the last full trading session of the week.

He noted that Friday’s session leading into the Labor Day holiday break in the United States “is not an early close officially” – the Securities Industry and Financial Markets Association is not recommending an early end to trading as it frequently does heading into a holiday – “but unofficially everything will probably shut down anyway, so it might as well be” official.

The extended holiday weekend will include an official full shutdown of junk and the other U.S. fixed-income markets on Monday.

Energy issues under pressure

Among specific names, a trader said that with crude oil prices continuing on the slide on Thursday, “anything E&P [oil and natural gas exploration and production] related showed some weakness.”

West Texas Intermediate for October delivery, the benchmark U.S. crude oil grade, plunged by $1.54 per barrel on Thursday, settling at $43.16 in New York Mercantile Exchange trading; it was WTI crude’s fourth straight loss after two consecutive gains and its fifth downturn in the last seven sessions. On Wednesday, WTI had slid by $1.65 per barrel.

The key international oil grade, Brent crude, was also sharply lower on the London ICE Futures Exchange on Thursday, its third loss in a row, after three straight gains, and its fourth downturn in the last seven trading days.

November Brent – the new front month – nosedived by $1.44 per barrel to $45.45.

Against that somber backdrop, the trader said, Freeport-McMoRan Inc. bonds backtracked for a third consecutive session, “off maybe ¼ point or so, generically.”

He saw California Resources’ 8% notes due 2022 down 1½ points on the day at 66¼ bid, “though on kind of light volume.”

Another trader, however, saw California Resources’ 6% notes due 2024 unchanged at 47 bid, 49 offered.

Elsewhere in the energy patch, Chesapeake Energy’s 8% notes due 2022 were down around 1/8 point at just over 95 bid, on relatively busy volume of more than $14 million.

Undersea energy driller Transocean’s 9% notes due 2023 were off by nearly ½ point at 96 3/8 bid, with over $18 million traded.

Ocwen trades off

Away from energy, Ocwen Financial’s 6 5/8% notes due 2019 lost nearly 1 point, ending at 89½ bid, with about $9 million traded.

No fresh news was seen out on the West Palm Beach, Fla.-based financial services concern.

Its New York Stock Exchange traded shares were down 20 cents, or 5.62% on the day at $3.36 per share, on twice the usual volume.

Diamond Resorts busy

Among recently priced issues, the only really active credit on the day, a trader said, was Diamond Resorts International’s 10¾% notes due 2024.

Those bonds were seen up 1/8 point at 98 3/8 bid, on volume of over $15 million.

Indicators turn lower

Statistical market performance measures turned lower across the board on Thursday for the first time in more than a month; those market gauges were last previously all pointing on the downside back on July 28.

The retreat followed two straight mixed sessions on Tuesday and Wednesday, and before that, Monday’s all-around rise.

The KDP High Yield Index lost 3 basis points on Thursday to end at 70.64, its first loss after four straight gains and its second loss in the last six sessions. The index had risen by 2 bps on Wednesday to close at 70.67, its fourth straight new closing year-to-date and 52-week peak levels, surpassing the former mark of 70.65 which had been set on Tuesday.

During Tuesday’s session, the index had firmed smartly to hit an intraday high of 70.73, a new year-to-date and 52-week high point.

Its yield rose by 2 bps on Thursday to 5.21% after having come in by 1 bp on Wednesday. Thursday was its second widening in the last six sessions.

The Markit Series 26 CDX Index lost about ¼ point for a second consecutive session on Thursday, its third straight downturn, finishing at 104 5/32 bid, 104 3/16 offered. Thursday was the index’s fourth setback in the last five sessions.

And the Merrill Lynch High Yield Index lost 0.059%, its second setback in a row, following Wednesday’s 0.065% retreat, which had broken a three-session string of gains.

Earlier in August, the index had put together a winning streak of 16 consecutive upside sessions, dating from Aug. 3 and running through Aug. 24.

The latest loss dropped the index’s year-to-date return to 14.51% from Wednesday’s 14.577%, and down as well from down from Tuesday’s 14.651% finish, which had been its third straight new year-to-date high for 2016.

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