Apex Tool, Flexi-Van cap $3.4 billion primary week; overall market off, energy slides

Paul Deckelman and Paul A. Harris

New York, Feb. 9 – The high-yield primary sphere closed out the week on Friday with a pair of new deals off the forward calendar totaling $625 million, syndicate sources said.

Apex Tool Group, LLC, a manufacturer of hand and power tools, priced $325 million of five-year notes at par.

And Flexi-Van Leasing, Inc., a supplier of equipment such as trailer chassis for the intermodal cargo shipping industry, did $300 million of five-year secured paper, which priced at a deep discount to par.

Traders saw the latter notes move up solidly – though on only modest volume – when they were freed to trade.

They meantime did not see the new Apex credit initially trading around, though it was quoted slightly above its issue price.

The day’s two new deals closed out a week which saw $3.4 billion of new dollar-denominated and fully junk-rated paper price, down from last week’s total. It was the third consecutive week in which new issuance fell from the week before, according to data compiled by Prospect News.

Year-to-date new-deal volume has meantime fallen off precipitously from the pace at this time last year, the data indicated.

Traders saw continued busy dealings in Wednesday’s new issue from Sanchez Energy Corp. but considerably less trading in other recent deals, including Thursday’s issues from Gran Tierra Energy International Holdings, Ltd. and TerraForm Global, Inc.

Away from the new deals, energy issues like California Resources Corp. were seen on the slide, hurt by a combination of overall market weakness amid continued equity market volatility and yet another sizable downturn in crude oil prices.

Notes of Hexion, Inc. gained amid rumors the privately held chemical company’s sponsor, Apollo Global Management, was considering splitting it up to unlock investor value.

Statistical market performance measures turned mixed on Friday after being lower across the board on Thursday. It was their third mixed performance in the last four trading days.

However, those indexes were down all around versus the levels they had held last Friday, Feb. 2.

It was the indicators’ second straight weekly loss after one weekly gain, and the fourth negative week out of the last five.

Apex brings five-year deal

Apex Group braved Friday’s turbulence in the global capital markets, pricing a $325 million issue of five-year senior notes (Caa1/B-) at par to yield 9%.

The debt refinancing deal came within talk, with the yield printing at the wide end of the 8¾% to 9% yield talk and wide of 8½% to 8¾% initial guidance.

Barclays was the lead left bookrunner. Goldman Sachs, Morgan Stanley, RBC, Deutsche Bank and SMBC were the joint bookrunners.

Big discount on Flexi-Van

Flexi-Van Leasing priced a $300 million issue of 10% five-year second lien senior secured notes (Caa1/B-) at a substantial discount of 94.417 to yield 11½%.

The coupon and issue price came on top of talk. Initial price talk was in the high 9% to low 10% area.

BofA Merrill Lynch, Citizens, Deutsche Bank and Regions were the joint bookrunners for the debt refinancing deal.

Meanwhile Jones Energy Holdings, LLC was scheduled to price its $450 million offering of senior secured first-lien notes due March 15, 2023 (B2).

That deal was talked with a 9½% coupon at approximately 2 points of original issue discount to yield 10% on Thursday.

There were also document changes.

The company’s existing bonds had been under pressure earlier in the week.

On Friday, sources said it was radio silence on the Credit Suisse-led deal.

As the market awaited word on whether Jones Energy is pushed into the Feb. 12 week, the outlook is for an active new issue market in the week ahead if the volatility in the global capital markets declines somewhat, a syndicate banker said on Friday.

Entertainment One taps notes

In the sterling-denominated market Entertainment One Ltd. priced a £70 million add-on to its 6 7/8% senior secured notes due Dec. 15, 2022 at 105.75, giving a 3.9% yield to worst.

The tap came at the cheap end of the 105.75 to 106 price talk.

JP Morgan was the lead.

Proceeds will be used to partially fund the cash consideration for the acquisition of the remaining 49% minority stake of Deluxe Pictures, doing business as the Mark Gordon Co., and for general corporate purposes which may include financing targeted content acquisitions or paying down amounts drawn under the company’s revolving credit facility.

Thursday outflows

Daily cash flows for dedicated high-yield bond funds were decidedly negative on Thursday, a trader said.

High-yield ETFs sustained $396 million of outflows on the day.

Actively managed funds underwent $220 million of outflows on Thursday.

The news follows a Thursday afternoon report from Lipper US Fund Flows that dedicated high-yield bond funds sustained $2.74 billion of outflows on the week to Wednesday’s close.

New deal pace eases again

Friday’s two new deals, totaling $625 million of proceeds, brought to $3.44 billion the amount of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers which had priced in 10 tranches in the week just completed, according to data compiled by Prospect News.

The week’s activity was down from the $4.79 billion of new junk bonds which priced in 11 tranches the week before, ended Feb. 2.

That issuance, in turn, was down from the $5.18 billion of new junk bonds pricing in eight tranches the week before that, ended Jan. 26.

Junkbondland’s new deal activity has been on the slide over the past three weeks since peaking at the $8.31 billion which got done in 14 tranches going back another week, ended Jan. 19 – a feat that was all the more notable since that week was one trading day shorter than usual as fixed-income markets in the United States closed on Jan. 15 in observance of the Martin Luther King Day federal holiday.

As of the close Friday, year-to-date issuance had grown to $29.02 billion in 54 tranches – but that was running about 18% behind the $35.4 billion which had gotten done in 65 tranches by this point on the calendar last year.

The week before, the 2017 and 2018 new-issuance totals were about even – and just a few weeks ago, this year’s primary pace was running 30% above last year’s at the same time. That gap was closed and then reversed due to the recent slide in this year’s issuance, combined with a pick-up in issuance which occurred during the corresponding period in 2017.

For all of 2017, junk market issuance came to $281.57 billion in 524 tranches, running 24.1% ahead of the $226.78 billion which had priced in 359 tranches in 2016, the Prospect News data indicated.

Flexi-Van up from discount

Among specific names, the new Flexi-Van 10% second-lien senior secured notes due 2023 were seen moving up by several points in aftermarket dealings following the issue’s pricing at a deeply discounted level of 94.417 to yield 11½%.

Before the news of that pricing emerged, a trader opined that Friday “was such a volatile day” he didn’t know whether the Kenilworth, N.J.-based supplier of equipment to the intermodal cargo transportation industry was going to be able to do its deal or whether it might be floated off until Monday to await calmer financial market conditions.

But once the deal had priced, “it was trading pretty well,” he said, seeing the bonds going out in a 98¾ to 99¼ bid context.

He suggested that “it was understandable” that on a day like Friday, amid market volatility and wariness, such a deal would require a deep discount to get done.

A second trader saw the new Flexi-Van issue in a 98 to 99 bid range, although he said there was “not that much trading,” totaling around $16 million.

The traders meantime did not immediately report any initial trading in Spark, Md.-based tool producer Apex’s new 9% notes due 2023.

One source did hear the bonds quoted at 100¼ to 100½ after pricing at par, although he had not seen any actual trades.

Sanchez stays busy

A trader said that Sanchez Energy’s new 7¼% secured notes due 2023 was busy for a second straight day, with over $29 million traded.

The bonds were up by 1/8 point to 99 bid.

On Thursday, the Houston-based E&P name had topped the actives list, with almost $100 million traded.

The company priced its $500 million issue on Wednesday at 98.973 to yield 7½%.

Traders meantime saw little activity Friday in other recent deals, including the Thursday issues from Grand Tierra Energy and Terra Form Global.

Oil drives energy names

Away from the new deals, market sources said that energy names made up a lot of Friday’s activity, precipitated by another fall in crude oil futures.

Benchmark E&P credit California Resources’ 8% notes due 2022 fell by 1½ points on the session to 78¼ bid, with $56 million of the Los Angeles-based company’s paper having traded.

Elsewhere in the sector, Minnetonka, Minn.-based oil and gas name Northern Oil and Gas paper ended the week in high volume after earlier announcing plans for a note exchange that included other plans for new equity and management changes.

In trading Friday, the 8% paper due 2020 lost ¼ point to close at about 86¾ bid.

Houston-based oil and gas producer EP Energy also saw a bump in activity. Its 7¾% issues due 2022 traded up almost 3½ points to close at 75½ bid. The 6 3/8% issues due 2023 shaved off 1 point to close at 62 bid.

Notes of State College, Pa.-based natural gas name Rex Energy remained in free fall, market sources confirmed. The company is currently in talks with advisers for a committee of holders of its senior notes on a potential restructuring, financing, refinancing and other transactions. The company also recently submitted a non-binding restructuring proposal.

The 8 7/8% notes due 2020 fell 21¾ points to close at about 10¼ bid.

Hexion active on split rumors

On the plus side, Columbus, Ohio-based chemical name Hexion saw its notes take a jump in activity on rumors that private equity firm Apollo Global Management, the company’s sponsor, was contemplating a split-up of the company, a market source said.

“If they sell some of the business it’ll mean an influx in cash,” a trader said. “It doesn’t look like they’re talking about refinancing the bonds, which explains why they didn’t pop up too high. But to pop up at all in the face of heavy ETF selling means it’s a good day for them.”

The 9% notes due 2020 rose 3¾ points to end at 81 bid. The 6 5/8% notes due 2020 rose 1¾ points to close at 92 bid.

Much selling seen

Overall, a trader said: “There was a lot of selling today, people hitting bids. It wasn’t really a panic mode – but I think [investors] were trying to take a few chips off the tables here and there.

“Certainly the ETFs were heavy sellers.”

He said that there were “only $2.7 billion of outflows for the week – but [Thursday] was probably a lot heavier” in terms of money flowing out of the junk funds.

However, he noted that “we did see a nice rally in the market [Friday] – we’re probably off the lows in the CDX by ¾ point.”

Also helping matters, he said, “you had a nice close in the equity market,” with the bellwether Dow Jones Industrial Average ending the session up 330.44 points, or 1.38%, at 24,190, after having swooned by more than 1,000 points on Thursday.

Indicators turn mixed

Statistical market performance measures turned mixed on Friday, after being lower across the board on Thursday. It was their third mixed performance in the last four trading days.

However, those indexes were down all around versus the levels they had held last Friday, Feb. 2.

It was the indicators’ second straight weekly loss after one weekly gain and the fourth negative week out of the last five.

The KDP High Yield Daily Index was in an absolute freefall on Friday, plummeting by 54 basis points to end at 70.30, its 11th consecutive decline. That dwarfed Thursday’s 7 bps fall and Wednesday’s 3 bps easing, although the index had slid by 15 bps on Tuesday and had nosedived by 26 bps on Monday.

Its yield ballooned out by 17 bps on Friday to 5.78%, its 10th straight widening out. It had also increased by 3 bps on Thursday.

Those levels compared very unfavorably with the 71.35 index reading and 5.48% yield recorded last Friday.

However, the Markit CDX Series 29 index edged up by about 1/32 point on the day to end at 105 31/32 bid, 106 offered after falling by 7/8 point on Thursday, its second straight downturn. It had dropped by almost 13/32 point Wednesday, after having pushed upwards by almost 1/8 point on Tuesday.

It was down, though from 107 7/16 bid, 107½ offered last Friday.

The Merrill Lynch High Yield Index, though, was on the downside for a second straight session on Friday, sliding by 0.672%, on top of Thursday’s 0.504% loss.

The latest setback dropped the index’s year-to-date return to a 1.248% loss on the year from a 0.58% deficit on Thursday, its second straight new peak deficit level for the year.

For the week, the index lost 1.426%, its second straight weekly loss and fifth weekly loss for the year so far against two weekly gains.

-James McCandless contributed to this review

© 2015 Prospect News.
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