Primary turns quiet in mostly softer market; new Jones notes ease; Continental Resources busy on S&P upgrade

Paul Deckelman and Paul A. Harris

New York, Feb. 13 – New-deal activity in the high-yield market dried up on Tuesday, reflecting renewed investor caution amid continued uncertainty in the financial markets.

Overall, Junkbondland seemed considerably easier on Tuesday, in contrast to Monday’s mostly stronger market; unlike on Monday, when equities had set the pace in the junk precincts by firming solidly for a second straight session following last week’s big losses, stocks mostly meandered around in negative territory for much of the day Tuesday before finally posting modest advances late in the session, not enough to inspire much high yield follow-through.

Traders said that Monday’s new deal from oil and natural gas exploration and production company Jones Energy Holdings, LLC traded actively on Tuesday, but down from the peak levels they had hit in initial aftermarket dealings Monday after that five-year secured paper had priced at a hefty discount to par.

They also saw last week’s new deal from Jones sector peer Sanchez Energy Corp. actively traded Tuesday, again down from the recent levels seen following a below-par pricing.

Away from the new deals, yet another oil and gas name was in the spotlight, as Continental Resources, Inc.’s bonds were active across that company’s capital structure, with its shorter-dated paper seen having firmed smartly on the news that Standard & Poor’s had upgraded its ratings, lifting it out of junk territory.

Statistical market performance measures turned lower across the board on Tuesday after having firmed all around on Monday, their first overall stronger session since Jan. 25. The indicators had also been mixed on Friday and were lower on Thursday.

The high-yield primary market failed to generate any news on Tuesday.

There is a decent pipeline of deals awaiting a subsidence in capital markets volatility, sources say.

However an earnings blackout period looms ahead, which could serve to crimp activity in the new issue market.

Western Bulk mandates Pareto

Away from the dollar-denominated primary market Western Bulk Chartering AS mandated Pareto Securities AS to arrange a series of meetings with fixed income investors, according to a Tuesday press release.

The Oslo-based dry bulk shipping company is assessing its options for refinancing a bond that matures on April 19, 2019, by means of a call option, the release stated.

New Jones issue comes off highs

In the secondary market, traders saw considerable activity in the new Jones Energy 9¼% senior secured notes due 2023, with over $40 million changing hands, topping the Most Actives list.

They said that those bonds had come off the initial aftermarket highs above 99 bid that those bonds had notched on Monday after the Austin, Texas-based oil and gas E&P operator, along with co-issuer Jones Energy Finance Corp., had priced its $450 million regularly scheduled forward calendar issue at a considerably discounted 97.526, yielding 9 7/8%.

A trader on Tuesday morning – who had seen the notes finishing on Monday in a 99½-to-99 5/8 bid context – pegged them starting out Tuesday’s session between 98 and 98½ bid.

A second trader saw the notes finishing at that same lower level.

And another trader saw them going home at 98¼, calling them down 11/16 point on the session.

Sanchez Energy on the slide

Last Wednesday’s new issue from Houston-based Sanchez Energy was also among the busier credits on the day, with a market source seeing those 7¼% senior secured first-lien notes due 2023 at 98 1/8 bid, 98 5/8 offered.

That was down nearly 1 point from the levels at which that paper had been trading on Monday.

Turnover was more than $23 million.

A second trader located the notes at 98¼ bid, calling them down 11/16 point on the day.

Sanchez had priced that $500 million deal off the forward calendar last Wednesday at 98.973, yielding 7½%, after the issue was upsized from an originally announced $400 million.

The bonds had traded as high as a 99½-to-par bid range when they were freed for aftermarket dealings, and they continued to hold those higher levels for the remainder of last week and on into Monday.

Other recent issues easier

A trader said that several other recently priced new deals were active in Tuesday’s market.

T-Mobile USA, Inc.’s 4¾% notes due 2028 were seen down 5/8 point, ending at 97 3/8 bid, on volume of more than $14 million.

The Bellevue, Wash.-based cellular phone service provider had priced $1.5 billion of those notes at par in a quick-to-market transaction on Jan. 22, along with $1 billion of 4½% notes due 2026.

And Aramark Services, Inc.’s 5% notes due 2028 eased by ¼ point to end at 99¾ bid, with around $13 million traded.

The Philadelphia-based business services, foodservice and uniform supply company had priced a quickly shopped $1.15 billion of those notes at par back on Jan. 10.

Continental climbs on ratings upgrade

Away from the new or recently priced deals, a trader said that Continental Resources’ paper “was active across their [capital] structure, after Standard & Poor’s upgraded the Oklahoma City based oil and gas company’s ratings.”

“The longer end was down a little – but the shorter, more mid-range stuff was up.”

For instance, he saw the company’s 4 3/8% notes due 2028 ease by ½ point to 98 bid, with over $39 million seen having traded.

But its 5% notes due 2022 gained 1½ points to close at 101½ bid, on over $27 million of volume.

And its 4½% notes due 2023 did even better, firming by some 2 3/8 points to end at 101 5/8 bid, with over $19 million traded.

S&P raised Continental Resources’ corporate credit rating to BBB- from BB+, with a stable outlook.

At the same time, the agency said it raised the issue-level rating on the company's senior unsecured debt to BBB- from BB+.

“The upgrade reflects our view that Continental's credit measures will improve meaningfully and the company will keep capital spending in line with cash flows over the next few years,” S&P said in a news release.

Moody’s Investors Service meantime has the ratings at Ba3.

Easier session seen

Apart from the Continental Resources paper, though, most junk issues were seen ending the day lower, in contrast to Monday’s generally stronger session.

“There was a definite firmness in the market yesterday [Monday], especially in the afternoon,” one of the traders said.

In contrast, he said Tuesday “was overall generally weaker in cash – cash bonds under performed the CDX index,” which was actually off a little bit, “but the CDX still outperformed cash.”

He characterized the session as “kind of a mixed bag still – people were trying to figure out which way to go. Treasuries actually rallied a little bit today, while oil was off slightly.”

Overall, he reiterated, “it was till a mixed bag. I think everybody is still repricing and re-racking where they stand as far as where spreads are and where they kind of want to be next.

“There seems to be a lot of that going on.”

Indicators turn lower

Statistical market performance measures turned lower across the board on Tuesday after having firmed all around on Monday, their first overall stronger session since Jan. 25. The indicators had also been mixed on Friday and were lower on Thursday.

The KDP High Yield Daily Index fell by 15 basis points on Tuesday to end at 70.21, more than reversing Monday’s 6-bps gain, which had been its first advance after 11 consecutive losses, including Friday’s 54 bps freefall, the biggest of several recent double-digit declines.

Its yield rose by 5 bps to 5.82%, after having come in on Monday by 1 bp; before that, it had widened out for the previous 10 straight sessions, including Friday, when it had ballooned out by 17 bps.

The Markit CDX Series 29 index lost ground Tuesday after two straight gains before that; it was off by 5/32 point, closing at 108 3/8 bid, 108 13/32, after having firmed by almost 9/16 point on Monday after having edged upwards by about 1/32 point on Friday. It had most recently fallen on Thursday, when it lost 7/8 point.

The Merrill Lynch High Yield Index was also lower, by 0.27%, after having improved by 0.328% on Monday, its first gain after two straight losses.

Tuesday’s loss widened the index’s year-to-date loss to 1.191% from 0.923% on Monday, although it remained shy of the 1.248% cumulative loss posted on Friday, its second straight new widest deficit level for the year.

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