Primary busts loose with $2.73 billion session; new deals trade up; overall market seen easier

By Paul Deckelman and Paul A. Harris

New York, July 13 – Junkbondland saw its busiest new-issue session in a month on Wednesday, with syndicate sources saying that $2.73 billion of dollar-denominated, fully junk-rated paper had come to market from five issuers.

That was the most new junk bonds to have priced since June 13, when $4.91 billion had come to market in seven tranches, according to data compiled by Prospect News.

The big deal of Wednesday’s session came from television station ownership company Nexstar Broadcasting Group, Inc., which did a quick-to-market $900 million offering of eight-year notes.

Health care-oriented real estate owner Medical Properties Trust, Inc. also did a quickly shopped same-day deal, pricing $500 million of 10-year notes.

Besides those drive-by offerings, there was a trio of regularly scheduled transactions coming off the forward calendar.

Energy operator Extraction Oil & Gas Holdings, LLC priced an upsized $550 million of five-year notes.

Holly Energy Partners, LP, a petroleum pipeline company, came in with an issue of eight-year notes that was twice increased to reach its final $400 million size.

Ashland Inc.’s soon-to-be spun off Valvoline motor oil subsidiary priced $375 million of eight-year notes.

Traders said that the Extraction, Holly and Valvoline deals all pushed solidly higher in initial aftermarket dealings.

But they said that International Wire Group, Inc.’s new offering had given up some of the gains it had notched after pricing on Tuesday.

And Transocean, Ltd.’s recently strong new issue had also come down from the highs set over the past few days.

They put those losses in the context of an overall softness in the junk market, after several robust sessions.

That was borne out by statistical market performance measures, which turned lower across the board on Wednesday after having been higher all around for four straight sessions before that.

Nexstar sees significant reverse

The primary market roared to life on Wednesday, apparently shaking off the post-Brexit doldrums.

Five issuers, each bringing single-tranche deals, raised a total of $2.73 billion.

Two of the five deals were upsized – one upsized twice. Two of the five came as drive-bys.

Executions bore the stamp of a market in which demand is outstripping supply, where investors have surplus cash to put to work: Four of the five deals came at the tight end of talk, while the fifth came on top of downwardly revised talk.

Nexstar Broadcasting Group priced a $900 million issue of eight-year senior notes (B3/B+) at par to yield 5 5/8% in a quick-to-market deal.

The yield printed at the tight end of yield talk in the 5¾% area. Early guidance was in the high 5% to 6% range.

The issue played to a significant amount of reverse inquiry, sources said.

BofA Merrill Lynch was the left bookrunner.

Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., SunTrust Robinson Humphrey Inc., Barclays and Wells Fargo Securities LLC were the joint bookrunners.

Proceeds, together with future secured debt, cash from the divestiture of some assets and the issuance of new common stock, will be used to fund the acquisition of Media General, Inc., repay existing Nexstar credit facilities and repay Media General debt.

Extraction Oil & Gas upsizes

Extraction Oil & Gas Holdings and Extraction Finance Corp. priced an upsized $550 million issue of five-year senior notes (Caa1/B-) at par to yield 7 7/8%.

The issue size was increased from $500 million.

The yield printed at the tight end of yield talk in the 8% area. Official talk was tight to initial guidance in the low-to-mid 8% yield context.

Barclays was the lead left bookrunner for the debt refinancing. Goldman Sachs & Co., RBC Capital Markets and Wells Fargo were the joint bookrunners.

Medical Properties prices tight

Medical Properties Trust priced a $500 million issue of 10-year senior notes (Ba1/BBB-) at par to yield 5¼% in a quick-to-market deal.

The yield came at the tight end of price talk in the 5 3/8% area and inside of early guidance in the 5½% area.

At the early guidance a deal so near investment grade was bound to attract a decent following, an investor remarked on Wednesday morning.

Goldman Sachs was the left active bookrunner. J.P. Morgan Securities LLC was the joint active bookrunner.

About $474.3 million of the proceeds will be used to redeem all of the MPT Operating Partnership/MPT Finance 6 7/8% senior notes due May 1, 2021. The remaining proceeds will be used to pay down the company's revolver and for general corporate purposes, which may include investing in additional health-care properties.

Holly upsizes twice

Holly Energy Partners, along with co-issuer Holly Energy Finance Corp., priced an upsized $400 million issue of eight-year senior notes (B1/BB) at par to yield 6%.

The deal was upsized from $350 million after having earlier been upsized from $300 million

The yield printed at the tight end of the 6% to 6¼% yield talk.

Along with the upsizing, timing was moved ahead; a previously announced timeline had the deal in the market until Thursday.

Citigroup Global Markets Inc. was the left bookrunner. BofA Merrill Lynch, BBVA, MUFG, U.S. Bancorp Investments Inc. and Wells Fargo were the joint bookrunners.

Valvoline atop tightened talk

Valvoline Inc. priced a $375 million issue of eight-year senior notes (Ba3/B+) at par to yield 5½%.

The yield printed on top of final yield talk that had been revised earlier Wednesday from talk of 5¾% to 6%.

Citigroup was the left bookrunner for the debt refinancing deal that is related to Ashland’s spinoff of Valvoline.

BofA Merrill Lynch, Morgan Stanley & Co. LLC, Scotia Capital, Deutsche Bank Securities Inc., Goldman Sachs and JPMorgan were the joint bookrunners.

People have cash

The fund flows of the dedicated high-yield bond funds were positive on Tuesday, according to a portfolio manager.

High-yield exchange-traded funds saw $330 million of inflows on the day, the source said.

Asset managers saw $185 million of inflows on Tuesday.

Tuesday's ETF inflow came on the heels of Monday's whopping $1.05 billion daily inflow to the high-yield ETFs, the portfolio manager said, adding that ETFs were lifting things above where they probably should be on Tuesday.

People have cash, market sources say.

Monday's aggregate inflow to the dedicated high-yield bond funds was $2 billion, a sellside source said, adding that it's the biggest daily inflow in the history of the market.

Holly higher in busy dealings

In the secondary sphere, traders said that the new Holly Energy Partners 6% notes due 2024 firmed smartly, in active volume, when they moved into the aftermarket.

One trader quoted the Dallas-based petroleum pipeline operator’s new paper trading in a 101-to-101¼ bid context.

A second located them around 101½ bid, 102½ offered.

And a third also pegged them around 101½ bid, well up from their par issue price, with over $35 million having changed hands, putting the credit high up on the day’s Most Actives list.

Valvoline, Extraction gain

One of the traders initially saw the new Valvoline 5½% notes due 2024 at 101½ bid, 102½ offered.

He later said that the Covington, Ky.-based motor oil producer and marketer’s new deal was heading home around 102 bid, 103 offered.

And he saw Denver-based exploration and production company Extraction Oil & Gas Holdings’ new 7 3/8% notes due 2021 at 101 bid, 102 offered.

Both the Valvoline and the Extraction notes had moved up from a par issue price.

The scheduled forward calendar deals all priced earlier in the session than did the day’s drive-by offerings, from Birmingham, Ala.-based health-care REIT Medical Properties Trust and Irving, Texas-based broadcaster Nexstar.

Consequently, several traders queried by Prospect News did not report having seen any initial aftermarket activity in the latter two issues.

Recent deals retreat

While those of Wednesday’s new deals that reached the aftermarket were heard to be doing well, other recently prices issues were seen losing ground.

For instance, a market source said that International Wire Group’s 10¾% senior secured notes due 2021 finished at 96 3/8 bid, down 1 1/8 point on the day, with over $18 million having traded.

Another trader said that the Camden, N.Y.-based electrical wire and cable products manufacturer’s $260 million scheduled forward calendar deal had moved up to 97½ bid in initial dealings after pricing on Tuesday at a deeply discounted 96.286 to yield 11¾%.

But in Wednesday’s trading, he said, they lost a point off that high, going home somewhere between 96 3/8 and 96½ bid.

Also on the slide were the heretofore strongly trading 9% notes due 2023 that Transocean, a Vernier, Switzerland-based provider of deep-water drilling services to the energy industry, had brought to market last week.

A trader called them down 1 3/8 points on the day, finishing at 97 7/8 bid, on volume of more than $33 million.

That eagerly anticipated deal – the first to price in the junk market since June 20 – had priced last Thursday at 97.5 to yield 9.499% after having been downsized to $1.25 billion from $1.5 billion originally.

It had surged in the aftermarket once it began trading on Friday, generating active volume as it moved up, finally closing on Tuesday above the 99 bid area, before coming down on Wednesday.

Market seen softer

Overall, a trader said, “things were relatively unchanged to a little softer.”

He allowed that while there were some non-new-deal names that were “here and there” a little higher, most of the market was softer after having run up for four straight sessions.

For instance, he said, Laval, Que.-based drug manufacturer Valeant Pharmaceuticals International, Inc.’s 6 1/8% notes due 2025 were down by nearly 2 points on the session, ending at 83¼ bid on volume of more than $35 million.

He said that Stamford, Conn.-based wireline telecom provider Frontier Communications Corp.’s 11% notes due 2025, “a generic high-beta name,” were down ½ point, closing at 106½ bid, on busy volume of more than $23 million.

“So you had kind of a mixed bag” on the day.

Indicators turn lower

Accordingly, statistical market performance measures turned lower across the board on Wednesday, after having been higher all around for four straight sessions before that. It was the first setback for those market gauges since June 27 and only the third such downturn in the last 14 trading days.

The KDP High Yield index finally weakened after having risen over the previous 10 consecutive sessions, losing 3 basis points on Wednesday to finish at 69.25. That loss immediately followed gains of 37 bps on Monday and 39 bps on Tuesday.

Its yield was meantime unchanged on the day at 5.53%, its low for the year. Before that, it had tightened over 10 straight sessions, including Tuesday, when it came in by 13 bps.

The Markit Series 26 CDX index saw its first loss after five straight gains, retreating by nearly 1/8 point to close at 104 11/16 bid, 104¾ offered. On Tuesday, it had improved by 17/32 point.

The Merrill Lynch High Yield index also went home lower, falling back by 0.245% on Wednesday after having improved over the previous four sessions in a row, including Tuesday’s 0.558% upturn.

Wednesday’s setback lowered the index’s year-to-date return to 11.948% from Tuesday’s 12.223%, which had been its fourth consecutive new peak level for the year.

© 2015 Prospect News.
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