Ashton Woods prices, firms; new NGPL tranches jump on big volume; energy upturn continues

By Paul Deckelman and Paul A. Harris

New York, July 26 – Things quieted down a little in Junkbondland on Wednesday, as just one modestly-sized dollar-denominated deal was heard by syndicate sources to have priced – homebuilder Ashton Woods USA LLC’s $250 million eight-year issue.

Secondary traders said those new bonds firmed smartly in busy aftermarket dealings.

But it was Tuesday’s two-part $1.4 billion offering of five- and 10-year notes from energy pipeline operator NGPL PipeCo LLC that was the star of the show on Wednesday, with both tranches shooting up more than 2½ points on the day in heavy trading.

Also busy were recently priced new issues from the likes of AMC Networks, Inc. DAE Funding LLC and Exela Technologies.

Another recent deal – from Extraction Oil & Gas, Inc. – was quoted solidly higher, in line with a continued firming trend among energy credits such as California Resources Corp., EP Energy Corp. and Continental Resources Corp., helped by a third consecutive session of hefty gains in world crude oil prices.

Traders meantime saw continued weakness among hospital operators like HCA Inc., Tenet Healthcare Corp. and Community Health Systems Inc.; the sector was seen under pressure in response to disappointing earnings that HCA reported on Tuesday, as well as the uncertainty swirling around the fate of existing healthcare laws in the United States and their possible replacements.

Elsewhere, Toys R Us Inc.’s bonds were seen posting solid gains, although traders could not readily explain the rise in the specialty retailer’s paper.

Statistical market performance measures were better across the board for a second consecutive session on Wednesday; they had improved all around on Tuesday, after having been mixed for two straight sessions before that, on Friday and again on Monday.

Ashton Woods prices

Ashton Woods USA LLC priced the sole deal on a quiet Wednesday in the primary market.

At the conclusion of a roadshow the Atlanta-based luxury home builder crossed the finish line with a $250 million issue of eight-year senior notes (Caa1/B-) that came at par to yield 6¾%.

The yield printed in the middle of the 6 5/8% to 6 7/8% yield talk.

J.P. Morgan and Wells Fargo were the joint bookrunners for the debt refinancing deal.

Conerstone Chemical starts Thursday

Cornerstone Chemical Co. climbed aboard a thin late-July forward calendar on Wednesday.

A roadshow is set to start on Thursday for a $430 million offering of seven-year senior secured notes backing the buyout of the company.

Initial talk has the notes coming to yield in the low-to-mid 7% area, an investor said.

Goldman Sachs is the left bookrunner. Credit Suisse and KeyBanc are the joint bookrunners.

Proceeds will be used to fund the acquisition of Cornerstone Chemical Co. by Littlejohn & Co. LLC from H.I.G. Capital, and to repay debt.

Meanwhile Vivint, Inc. (APX Group, Inc.) remains in the market with a $400 million offering of seven-year senior notes (Caa2/CCC), which had been expected to price on Tuesday.

Talk remains in the 8% area, the investor said, and added that there is a $200 million anchor order that hinges on the issuer making some concessions with respect to the covenant package.

And AssuredPartners, Inc. is on the road with a $450 million offering of eight-year senior notes (Caa2/CCC+) expected to price before the end of the week.

The triple-hooks deal is being guided at 7½% to 7¾%, the investor said.

A slow-to-moderate deal pace appears to be in the offing between now and Labor Day, the investor said on Wednesday.

Bridge loan syndications have been underway for H&E Equipment Services, Inc. and Staples, Inc., both expected to lead to bond deals in the near-to-intermediate term (see related story in this issue).

Mixed Tuesday flows

The daily cash flows of the dedicated high-yield funds were mixed on Tuesday, according to an investor.

High-yield ETFs sustained $130 million of outflows on the day.

However asset managers saw $120 million of inflows on Tuesday.

The cash balances of the funds are healthy, the investor commented.

The JP Morgan high-yield index was posting a composite yield to worst of 5.89%, as tight as it has been since September 2014, the investor said.

New Ashton Woods firms

In the secondary sphere, traders said that the new 6¾% notes due 2025 from builder Ashton Woods USA traded up when they moved over to the aftermarket.

“They were up a little on the break,” said one trader who saw those bonds going out at 101 1/8 bid, up from the par level at which that regularly scheduled forward calendar offering had priced.

A second trader pegged the new notes at 101¼ bid, and said the more than $15 million of volume put the credit high up on the day’s Most Actives list.

Yet another trader quoted the bonds in a 100 5/8-to-101 1/8 bid context.

Pipeline paper pushes upward

The most notable name of the day, though was NGPL PipeCo LLC, which priced a quickly shopped $1.4 billion two-part offering late in the session on Tuesday.

With only limited aftermarket dealings at that time due to the lateness of the hour at which the issue finally appeared, the real aftermarket activity in those bonds held off until Wednesday, when the floodgates opened.

“They seemed to be trading pretty well,” a trader opined, locating both tranches of that deal around the 102¾ bid level.

A market source said that more than $160 million of NGPL’s 4 7/8% notes due 2027 changed hands, firming smartly to around 102 7/8 bid.

He also saw more than $100 million traded in the other half of that deal – the 4 3/8% notes due 2022, which he quoted at 102¾ bid.

Both of those tranches were well up from the par level at which the Houston-based owner and operator of natural gas pipelines, compression facilities and storage reservoirs had priced its deal, evenly split into two $700 million tranches.

At another desk, a market source said that the company’s existing 7.768% bonds due 2037, which had traded actively on Tuesday around the 120 bid level, had jumped nearly 4 points on the day, ending at 123¾ bid.

Recent deals active

Among other recently priced issues, a trader said that last Friday’s big new deal from DAE Funding LLC “moved up ½ point” across the board, “still trading on decent volume.”

Another trader saw the of 4% notes due 2020 up ¼ point on the day at 101¼ bid, 101 5/8 offered. He saw the new 4½% notes due 2022 3/8 point better at 101½ bid, 101 7/8 offered, while the 5% notes due 2024 gained ½ point to close at 101¾ bid, 102 1/8 point.

DAE Funding, a financing arm of the United Arab Emirates-based aircraft leasing company Dubai Aerospace Enterprise, priced all three tranches of that $2.3 billion bond behemoth at par on Friday, after the regularly scheduled forward calendar offering had been upsized from an originally announced $1.9 billion, and the three-year note tranche added to what had originally been structured as a two-part offering.

The first trader said that given the sheer size of the deal – $500 million of the three-year notes, $800 million of the five-year paper and $1 billion of the seven-years – “it’s likely that some junk investors” were buying the deal, along with emerging-markets accounts, and “investment-grade core-plus accounts too.

“It’s kind of a mixed bag buying this,” he said, adding “though I could see some junk guys definitely playing in it.”

Looking at other recent issues, AMC Networks’ 4¾% notes due 2025 were trading around the 101 bid level, which one trader called down 1/8 point on volume of over $10 million.

A second trader also saw the notes at 101 bid, calling them “almost unchanged.”

AMC Networks, a New York-based cable network operator and content provider, had priced its quick-to-market $800 million issue at par last Wednesday after the offering was upsized from an originally announced $500 million.

Going back a little further, the Exela Technologies 10% first priority senior secured notes due 2023 were seen having gained ¼ point on the day to close at 97½ bid, on volume of over $10 million.

Exela – a new transaction processing and technical services provider being formed through the merger of Quinpario Acquisition Corp. 2, SourceHOV LLC and Novitex Holdings Inc. – priced its $1 billion forward calendar issue at par back on June 28, after the deal was upsized from an originally announced $525 million.

In the aftermarket, those bonds struggled from the get-go, falling over a period of days into the mid-90s, before battling their way back to their current levels in the 97ish area.

Extraction O&G moves up

Another recent deal seen trading on Wednesday was Extraction Oil & Gas, Inc.’s 7 3/8% notes due 2024, which a trader said had shot up by 1 point on the day, to 103 bid, 103½ offered.

The Denver-based oil and natural gas exploration and production company had priced its $400 million drive-by issue at par on July 18, after the deal was upsized from $350 million originally.

Energy credits up with crude

The Extraction deal was one of a number of oil and gas names riding the crest of recent upside momentum in world crude oil prices.

Los Angeles-based E&P operator California Resources Corp.’s sector bellwether 8% notes due 2022 were up ¾ point on the day at 65¾ bid, with over $22 million having traded.

Houston-based EP Energy’s 8% notes due 2024 were likewise up ¾ point, at 102 bid, with over $10 million traded.

And Denver-based Continental Resources Corp.’s 4½% notes due 2023 gained ¼ point to end at 97¾ bid, with around $10 million having moved around

A trader said that “some of the energy names were spiking on the run-up in oil and the drawdown in inventories.”

September-contract West Texas Intermediate, the benchmark U.S. crude grade, rose by 86 cents per barrel Wednesday on the New York Mercantile Exchange, settling in at $48.75 – its third consecutive upside session. On Tuesday, it had shot up by $1.55.

September-delivery North Sea Brent crude, the key international grade, also rose for a third straight day, finishing London trading up 77 cents per barrel at $50.97; Brent had jumped by $1.63 per barrel on Tuesday.

The strength in crude prices was helped on Wednesday when the U.S. government Energy Information Administration reported that crude inventories fell by more than 7 million barrels this week – more than twice the roughly 3 million barrel drawdown that analysts had been looking for.

That drawdown marks the fourth straight week of significant inventory decreases, and pushes the total inventory figure below year-ago levels – the first time that has happened so far this year.

While the trader also saw the California Resources 8% paper on the rise Wednesday, he said the rising tide was not necessarily lifting all boats.

For instance, he said that EP Energy’s 8% notes due 2025 were unchanged on the day at 79 bid.

And he said that Sanchez Energy’s 6 1/8% notes due 2023 “actually trading down 2½ points,” at 83 bid. He said the Houston-based company’s notes were “very active.”

But he also said that “generally,” things in the sector “were a little bit higher.”

For instance, offshore oil drilling contractor Noble Energy’s 7¾% notes due 2024 moved as high as 81 bid, “but then moved back,” to end at 80½ bid, up only slightly on the day

Healthcare still hurting

Away from the energy empire, a trader said that the healthcare names “have been trading off because of Hospital Corp.’s [i.e., HCA’s] announcement of earnings.”

He said that HCA’s 5½% notes due 2047 were down 1/8 point at 105 1/8 bid.

The Nashville-based hospital giant on Tuesday reported a 4% gain in revenue during the second quarter, to $10.73 billion, missing analysts' estimate of $10.85 billion.

Adjusted earnings came in at $657 million, or $1.75 per shares, about a nickel lower than Wall Street was expecting.

HCA issued lower guidance, projecting earnings per share for the year in the range of $7 to $7.30 – down from the $7.20-to-$7.60 context it previously forecast.

HCA’s bad news proved to be contagious, with other sector names also falling.

The trader saw Dallas-based rival hospital operator Tenet Healthcare’s 6¾% notes due 2023 down ¾ point at 100¼ bid.

Its5 1/8% notes due 2025 were off by 1/8 point at 101 5/8 bid.

But the big loser for the sector was Franklin, Tenn.-based Community Health Systems, whose 6 7/8% notes due 2022 plunged by plunged by more than 4 points, ending at 85¾ bid, on volume of over $29 million, a market source said.

Besides the bad earnings news from HCA, the sector was seen under pressure due to the continued uncertainty arising out of Washington maneuverings on whether or not to repeal the current Affordable Care Act – “Obamacare” – and replace it with some other healthcare plan, whose parameters have not been worked out yet.

On a related note, among the pharmaceuticals, a trader saw “a little action” in Canadian drug manufacturer Valeant Pharmaceuticals International Inc.’s 6 1/8% notes due 2025, which he saw down 1/8 point at 86¼ bid. He said the issue generated “reasonable volume.”

Toys trades up

Elsewhere, traders saw better levels in Toys ‘R’ Us paper – although none saw any fresh news out about the Wayne, N.J.-based specialty retailer, which has been fighting an uphill battle to retain market share against online retailers like Amazon.com, to explain its rise.

A trader saw its 12% notes due 2021 up ½ point, at 96¾ bid, with about $9 million traded.

A second trader saw its 7 3/8% notes due 2018 doing even better, up by 1 7/8 points to end the day at 99¼ bid.

Indicators again show improvement

Statistical market performance measures were better across the board for a second consecutive session on Wednesday; they had improved all around on Tuesday, after having been mixed for two straight sessions before that, on Friday and again on Monday.

The KDP High Yield Daily Index rose by 5 basis points on Wednesday to end at 72.66, its second gain in a row; on Tuesday, it had risen by 6 bps, in contrast to Monday’s 4 bps loss, which had been its first setback after eight straight upside moves.

The Markit CDX Series 28 High Yield Index also posted a second straight upturn, finishing up almost 3/32 point at 107 11/16 bid, 107 13/16 offered. On Tuesday, it had edged up by 1/16 point, after easing on Monday by that same 1/16 point, its second consecutive setback after two straight gains before that.

The Merrill Lynch North American High Yield Index saw a third straight upside session, improving by 0.102% on top of its 0.08% rise on Tuesday.

The latest advance lifted the index’s year-to-date return to 6.117% from 6.009% on Tuesday, in the process establishing a third consecutive new peak level for the year.

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