Quiet primary session closes out $5.87 billion week; new issues busy, add to small gains

By Paul Deckelman and Paul A. Harris

New York, May 20 – The high yield dollar-denominated primary market quieted down on Friday, syndicated sources said, after several busy sessions during the week that saw large-sized offerings.

No new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers priced during the session, in contrast to Thursday, when $1.1 billion of such paper came to market in two tranches.

The only offering that priced during the day came out of Europe, where bookmaker William Hill plc priced £350 million of new seven-year notes.

The lack of any new dollar paper during the session left the week’s new-issuance tally where it was on Thursday, with $5.869 billion having come to market in nine tranches, according to data compiled by Prospect News – down from the $8.869 billion that got done in 13 tranches during the week ended last Friday, May13.

The week’s new issuance, in turn, raised the year-to-date total of new junk paper to $81.425 billion in 109 tranches – although that was down by some 46.4% from the new-deal pace seen a year ago, when $151.957 billion had priced in 237 tranches by this point on the calendar, according to the data.

Among this week’s newly priced issues, traders said that there once again was busy activity in both tranches of NXP BV’s two-part offering, as well as in Thursday’s new issues from Tempur Sealy International, Inc. and Universal Health Services, Inc.

The new paper was generally firm, mostly adding on to the small aftermarket gains those issues have notched since their respective pricings.

Statistical market performance measures turned higher across the board on Friday, after been lower all around on Wednesday and again on Thursday. Friday was the indicators’ second higher session in the last five trading days.

The indicators ended the day mixed versus where they had been last Friday, May13, when they were all higher versus the previous week. It was their second mixed week out of the last four.

In an otherwise dead quiet primary market William Hill plc priced a £350 million issue of senior notes due Sept. 7, 2023 (Ba1/BB+) at par to yield 4 7/8% on Friday.

The yield printed at the tight end of yield talk in the 5% area.

Active bookrunner Royal Bank of Scotland will bill and deliver. Lloyds and Santander were also active bookrunners. Barclays and Mediobanca were passive bookrunners.

The London-based bookmaking operation plans to use the proceeds for general corporate purposes including debt repayment.

The week ahead

The week ahead should be an active one, provided the backdrop in the global capital markets remains reasonably supportive, sources said on Friday, although no one volunteered specific issuer names.

There are deals lined up, a trader said, and added that it seems as though investors still have cash to put to work.

The week ahead is set to get underway with four deals on the active forward calendar.

Gogo Intermediate Holdings LLC is in the market with a $500 million offering of senior secured notes due 2022 (B2/CCC).

The deal, via Morgan Stanley, JP Morgan and BofA Merrill Lynch, was scheduled to launch on an investor call late in the past week, and some market watchers had expected to see it clear before the weekend.

It is coming with 12%-handle early guidance, a trader said, and added that timing is to be determined.

PennyMac Financial Services, Inc. has been on a roadshow with its $300 million offering of five-year senior bullet notes (expected B2/confirmed B+) since the beginning of the past week.

Early guidance has the notes pricing with a yield in the low-to-mid 9% range, a trader said on Friday.

JP Morgan, Barclays, BofA Merrill Lynch, Credit Suisse and Goldman Sachs are the joint bookrunners.

U.S. Concrete, Inc. expects to price a $350 million offering of eight-year senior notes (B3/BB-) on Tuesday, also via JP Morgan.

And EMI Publishing Group North America Holdings Inc. is expected to roadshow its $350 million of eight-year senior notes through Thursday.

Goldman Sachs is the left bookrunner. UBS is the joint bookrunner.

On the heels of Dell Inc.'s landmark $20 billion six-part issue of investment grade secured notes, which came in the past week in a deal said to have played to $80 billion of demand – 20% of it from high yield accounts – the unsecured portion of that mammoth financing for the $67 billion acquisition of EMC Corp. is not expected to come in the week ahead, a trader said on Friday.

Heavy ETF outflows on Thursday

The cash flows of the dedicated high yield bond funds were mixed on Thursday, the most recent session for which data was available at press time.

High yield ETFs saw “heavy” outflows of $853 million on the day, according to a trader.

Up until mid-day Thursday traders reported seeing a succession of bids-wanted-in-competition (BWIC) lists. However things had turned around by mid-Friday morning, a trader said, adding that the ETFs were buying.

Meanwhile actively managed funds saw $125 million of inflows on Thursday.

Reports of Thursday's daily flows trails the news that the dedicated high yield bond funds saw $1.135 billion of inflows for the week to Wednesday's close, according to Lipper-AMG.

Another fund-tracking service, Cambridge. Mass.-based EPFR Global, meanwhile recorded a $150 million outflow in the latest week – the third consecutive weekly cash loss, though considerably smaller than the nearly $2 billion outflows seen in each of the previous two weeks.

EPFR’s methodology differs from AMG/Lipper’s, as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper’s solely domestic orientation.

A market source familiar with the EPFR numbers said the biggest outflows came from the European high yield funds.

The latest outflow brings the total for the year seen by EPFR up to 11, versus nine weekly inflows, while Lipper has seen 12 inflows and eight outflows so far this year.

While the two services’ respective weekly results usually point pretty much in the same direction, that hasn’t always been the case; besides the latest week, the two services’ findings have diverged two other times so far this year, and several times last year.

New issues show small gains

In the secondary market, there was some active trading going on in some of the recently priced new deals, with only small gains of 1/8 point to ¼ point generally seen.

A trader suggested that this was because the issuers “were pricing things to perfection.”

“Nothing was really running away,” a second trader said.

He opined that “it was a combination of things – either they priced [a deal] at the tight end of the [price talk] range, or they priced it in the middle of the range, but they upsized everything, so there was just a lot more supply.”

A market source said that probably the most active junk credit of the session was NXP’s new 4 1/8% notes due 2021, calling them up by 1/8 point on the day at 100¼ bid. Over $37 million of those notes changed hands.

He meanwhile saw NXP’s other new tranche of bonds – its 4 5/8% notes due 2023 – also up 1/8 point on the day, at 100 3/8 bid, on volume of over $19 million.

The Dutch semiconductor company did a $1.75 billion two-part deal on Wednesday, upsized from an originally announced $1 billion.

That quickly shopped transaction consisted of $850 million of the 4 1/8% notes and $900 million of the 4 5/8%notes, both of which priced at par.

Another one of the deals that priced on Wednesday – the $1billion drive-by offering of 5 3/8% notes due 2026 from New York-based satellite and internet radio broadcaster Sirius XM Holdings, Inc. – was quoted by a trader in a tight range of par to 100 1/8 bid, little changed from its issue price. About $9 million of those notes traded.

One of the market sources said that Tempur Sealy International, Inc.’s 5½% notes due 2026 “were a little better, trading around 100½ bid, while at another desk, a trader saw them get as good as 101 bid, up ¼ point on the day, with over $36 million traded.

The Lexington, Ky.-based mattress-maker brought an unscheduled $600 million of the notes to market at par on Thursday after upsizing the deal from $500 million.

They traded at 100½ bid, 101offered on Friday morning.

Senior analyst Kim Noland of the Gimme Credit independent advisory service pointed out in a Friday research note that the proceeds from the new deal “will be used in part to redeem the higher coupon $375 million of 6.875% notes due 2020.

“The company's credit measures are already strong, but the new issue will reduce interest expense a bit and extend the maturity profile.”

Noland also said that while the company’s management has set as a goal reducing leverage using its free cash flow as soon as possible, “we think improvement will be slow.”

Universal Health Services’ new 4¾% notes due 2022 gained 1/8 point, to 102 3/8 bid, with about $14 million traded.

The King of Prussia, Pa.-based hospital operator priced $400 million of those split-rated notes – an add-on to its existing paper – and $400 million of 5% notes due 2026, in a quick-to-market transaction on Thursday.

Indicators up on day, mixed on week

Statistical market performance measures turned higher across the board on Friday, after having been lower all around on Wednesday and again on Thursday. Friday was the indicators’ second higher session in the last five trading days.

The indicators ended the day mixed versus where they had been last Friday, May13, when they were all higher versus the previous week. It was their second mixed week out of the last four.

The KDP High Yield Daily index rose by 7 basis points on Friday, ending at 67.17 – the index’s first such gain after two straight downturns, including Thursday’s 30 bps slide. It was the index’s third such advance in the last five sessions.

Friday’s yield, accordingly, came in by 3 bps to 6.31%, after having widened out by 11 bps on Thursday and having been unchanged on Wednesday. It was the yield’s third narrowing in the last five sessions.

But Friday’s levels compared unfavorably to last Friday’s 67.28 index reading and 6.29% yield.

The Markit Series 26 CDX North American High Yield index saw its first gain after three successive losses and its second gain in the last five sessions. It rose to 101¾ bid, 101 25/32 offered, up 7/32 on the day – after having lost 7/32 point on Thursday.

But Friday’s close was down from 102 bid, 102 1/32 offered last Friday.

The Merrill Lynch North American High Yield Master II index improved by 0.293% on Friday, after having been off the previous two sessions including Thursday, when it lost 0.399%.

Friday marked the index’s third gain in the last five sessions.

On the week, the index rose by 0.236%, its second straight weekly gain and seventh such upturn over the last eight weeks. Last week, the index had gained 0.463%.

The index’s year-to-date return strengthened to 7.16% on Friday, versus 6.848% on Thursday, 6.908% last Friday and its peak level for the year so far of 7.398%, reached back on May 2.

© 2015 Prospect News.
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