Primary pauses; recent deals active; Chesapeake up on asset sale; funds lose $1.8 billion

By Paul Deckelman and Paul A. Harris

New York, May 5 – Fresh off two sessions which saw pricing activity, the high-yield primary arena fell quiet on Thursday, with no new dollar-denominated and fully junk-rated deals announced and none seen having come to market during the session.

Syndicate sources did see some activity in the European junk market.

And they said that the upcoming week would likely be a busy one in terms of dollar-denominated deals.

Secondary traders saw continued active dealings in some of the offerings which have priced this week, including United States Steel Corp., PTC Inc., Mobile Mini, Inc. and HanesBrands, Inc.

Away from the new deals, oil and natural gas issues were the focus of the day, particularly Chesapeake Energy Corp. Its bonds were solidly higher after the big natural gas producer announced plans to sell some of its surplus acreage to Newfield Exploration Co., generating $470 million of proceeds.

It also announced quarterly results in line with analysts’ expectations.

Sector peers like California Resources Corp., Continental Resources Inc. and Whiting Petroleum Corp. were all seen having moved higher as oil prices improved; a large wildfire in Canada’s oil-producing region potentially threatening a disruption in crude supply was cited as a proximate cause for the upturn.

Statistical market performance measures were lower across the board for a third consecutive session on Thursday; they had turned southward on Tuesday after having been mixed for three straight sessions before that. Thursday was the fourth such lower session in the last nine trading days.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – posted its first net outflow in five weeks, as $1.807 billion more cash left those funds than came into them.

That was a sharp deterioration from the week before when the market had seen almost $297 million of inflows (see related story elsewhere in this issue).

Travis Perkins oversubscribed

In the European primary market, Travis Perkins plc launched a £300 million offering of senior notes due Sept. 7, 2023 (BB+) with a 4½% yield on Thursday, market sources said.

The deal was playing to orders in excess of £800 million.

Earlier price talk was 4 5/8% to 4¾%.

HSBC, Santander and Royal Bank of Scotland are the active bookrunners

Elsewhere Inovyn talked its €300 million offering of senior secured notes due 2021 to yield 6¼% to 6½%.

The deal is expected to price on Friday.

Big week ahead

The dollar-denominated primary market produced no news on Thursday.

Friday will also likely be a quiet session in the U.S. market, sources said.

However the week ahead is shaping up to be a busy one, according to a debt capital markets banker who is looking for the week to show high-yield new issuance volume in the $7 billion to $8 billion range, and perhaps as high as $10 billion.

Look for a couple of big deals from the energy sector, in part due to the recent price recovery staged by crude oil, but also because prospective issuers are now getting out of their earnings blackout periods, the banker said.

Also look for one big deal from the industrial sector in the week ahead, the banker added.

Recent bonds stay busy

With no new deals in the market on Thursday, investors turned their focus on some of the recently priced offerings.

For instance, U.S. Steel’s 8 3/8% senior secured notes due 2021 remained among the day’s busiest junk bond issues, although it was not the volume leader, after having held that top spot over the prior two days.

A market source said that those notes “traded a little better.”

He had seen the bonds get as good as 102¼ bid, before coming back in to end around 101¾ bid.

At another desk, the bonds were seen going home marginally better than 101½ bid, Wednesday’s closing levels.

More than $31 million of the notes traded – although that was off from the more than $220 million of turnover seen on Tuesday, and the $73 million of volume on Wednesday.

The Pittsburgh-based integrated steel producer priced $980 million of those notes at par on Tuesday, after the regularly scheduled forward calendar offering had been upsized from an originally announced $500 million.

Mobile Mini moves up

There was also substantial trading in Mobile Mini’s5 7/8% notes due July 2024, a trader seeing the bonds ending around the 102 bid level, on volume of over $27 million.

A second trader saw the notes climbing to 102¼ bid, calling that up 1¾ points on the day.

The Tempe, Ariz.-based provider of portable storage containers and office trailer structures to various industries priced $250 million of those notes at par on Wednesday.

PTC holds gains

A trader saw PTC’s 6% notes due 2024 “holding steady” around a 102 to 102¼ bid context on Thursday.

A second trader likewise called the bonds unchanged on the day, at 102¼ bid, with more than $26 million seen having changed hands.

The Needham, Mass.-based software company priced $500 million of those notes at par on Wednesday as a scheduled forward calendar offering.

Hanes stays higher

A trader said that HanesBrands’ two tranches of new bonds were both trading in a 101 to 101½ bid context, building on the gains which had been generated on Wednesday.

Another market source saw the company’s 4 7/8% notes due 2026 at 101 3/8 bid, calling them up 3/8 points on the day.

Volume was over $18 million.

The Winston Salem, N.C.-based marketer of everyday basic apparel priced a total of $1.8 billion in two equally-sized $900 million tranches on Tuesday, the 4 7/8% notes and a tranche of 4 5/8% notes due 2024, after the forward calendar offering was upsized from an originally announced $1.5 billion.

Both tranches had been seen in a 100 7/8 to 101 1/8 bid context on Wednesday.

Chesapeake churns higher

Away from the new-deal world, a trader said that Chesapeake Energy’s bond were “clearly the star of the day,” rising on news of an asset sale by the Oklahoma City-based oil and natural gas producer.

A trader saw its 8% second-lien notes due 2022 ending in a 66 to 67 bid context, calling them up 3 points.

“They traded as high as 69 today,” well up from Wednesday’s levels around 63½ bid, he said, “then they came off those highs a little.”

He saw the 8s as the most active issue in the company’s structure.

He also saw considerable activity in Chesapeake’s floating-rate notes due 2019, pegging those bonds up more than 3 points on the day at 63 bid, although they came off their highs of 66 bid.

Volume on the issue was more than $21 million.

The bonds shot up after the company announced that it will sell $470 million in assets in Oklahoma to Newfield Exploration as part of its plans to shore up finances. It said it expects further divestitures during the second and third quarters.

Chesapeake also lowered its forecast for 2016 production costs to $3.40 per barrel to $3.60 per barrel of oil equivalent from $3.60 per barrel to $3.80 per barrel of oil equivalent.

It said that it continues to weigh all options, including the use of additional secured debt, private transactions with bondholders and other types of exchange offers and open market purchases.

Its quarterly results were mixed, with earnings in line with estimates and revenue missing expectations.

Chesapeake’s net loss narrowed to $964 million in the just-finished quarter, from $3.78 billion a year earlier. The year-earlier period included one-time items of $3.8 billion. Excluding an $853 million impairment charge, the loss was 10 cents per share. Revenue fell to $1.95 billion, which missed analysts’ expectations for $2.55 billion in revenue.

Oil issues gain

Apart from Chesapeake, traders saw brisk upside activity in various energy exploration and production company bonds, helped by higher crude prices.

The benchmark U.S. crude grade, West Texas Intermediate for June delivery, gained 54 cents in Thursday trading on the New York Mercantile Exchange, settling at $44.32 per barrel, its second straight gain after three straight sessions before that of decline.

The key international benchmark grade, Brent crude for July delivery, broke out of a four-day rut in Thursday dealings on the London ICE Futures Exchange, ending the session at $45.01 per barrel, up 39 cents.

That was a contrast to Wednesday, when prices had been weaker on oversupply concerns, weighing on the various bonds.

The supply concerns faded on Thursday on the news of a raging wildfire in Canada’s oil-rich province of Alberta.

That caused as much as a third of Canada’s daily crude capacity to be cut and some major pipelines closed after more evacuations were ordered.

With a better price environment, energy issues moved up.

California Resources 8% notes due 2022 jumped by 4¼ points to 66½ bid on volume of more than $21 million.

Continental Resources’ 5% notes due 2022 were 1½ points better at 91½ bid, with over $20 million traded.

Whiting Petroleum’s 5 ¾% notes due 2021 gained ¼ point to close at 75½. Over $19 million of the notes changed hands.

Indicators stay lower

Statistical market performance measures were lower across the board for a third consecutive session on Thursday; they had turned southward on Tuesday after having been mixed for three straight sessions before that. Thursday was the fourth such lower session in the last nine trading days.

The KDP High Yield Daily Index notched its fourth consecutive loss on Thursday, retreating by 16 basis points to end at 67.30, after having fallen by 7 bps on Wednesday. Those losses followed three consecutive gains before that. Thursday was index’s seventh loss in the last 10 sessions.

Its yield rose by 7 bps to 6.28% its third straight widening; on Wednesday, it had gained 3 bps. Thursday was the yield’s fourth widening in the last eight sessions.

The Markit Series 26 CDX North American High Yield Index dropped by 9/32 point, closing at 101 11/16 bid, 101¾ offered. It was the index’s third successive loss and fifth loss in the last six sessions; on Wednesday, it had ended off 3/8 point.

The Merrill Lynch North American High Yield Master II Index meantime retreated by 0.023% on Thursday, its third consecutive setback and fourth such downturn in the last five sessions, including Wednesday’s 0.214% loss.

The latest downside move cut the index’s year-to-date return to 6.766% from Wednesday’s 6.79%, and from Monday’s close of 7.398%, the peak level for the year so far.

-Rebecca Melvin contributed to this review

© 2015 Prospect News.
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