Dollar market remains becalmed, though Brand on tap; new HCA, Masco, Yum! Hertz gain; energy eviscerated

By Paul Deckelman and Paul A. Harris

New York, June 14 – The dollar-denominated high-yield primary market remained in a holding pattern for a second consecutive session on Wednesday, with no fully junk-rated domestic paper seen having come to market.

Primaryside sources said that all of the action seemed to be coming out of the euro-denominated portion of Junkbondland, including pricings by Dutch cable, telecommunications and broadband provider UPC, as well as British online grocer Ocado.

But the domestic drought could come to an end as soon as on Thursday, when Brand Energy & Infrastructure Services, Inc. is expected to price a $700 million eight-year note offering.

In the secondary market, traders said that the widely expected move by the Federal Reserve to bump interest rates up a notch had little or no market impact.

They reported continued brisk volume, at higher levels, in such recently priced credits as HCA Inc., Masco Corp., Yum! Brands, Inc. and even Hertz Corp. – the latter issue seen having pulled out of the skid it was in immediately after the car-rental giant priced its upsized megadeal at the end of May.

Away from the new deals, energy issues such as California Resources Corp., Chesapeake Energy Corp., Whiting Petroleum Corp. and EP Energy Corp. were taking it on the chin, hammered down in tandem with crude oil prices, which fell badly on a rise in U.S. gasoline inventories.

Statistical market performance measures turned mixed on Wednesday, after having been higher all around on Monday and again on Tuesday; before that, the indicators had been mixed last Friday and lower across the board for the three straight sessions before that.

UPC Broadband 12-year secured notes

Most of Wednesday's primary market action took place in Europe.

UPC Broadband subsidiary UPCB Finance VII Ltd. launched and priced a €600 million issue of 12-year senior secured notes (expected ratings Ba3/BB/BB) at par to yield 3 5/8%.

Credit Suisse was the lead left bookrunner for the debt refinancing deal. BNP Paribas, Goldman Sachs, ING and SG were the joint bookrunners.

The secured deal came just one week after UPC Holding priced a €635 million issue of 3 7/8% senior unsecured notes due June 15, 2029 at par, on June 7.

Ocado, upsized and tight

British online grocer Ocado priced an upsized £250 million issue of seven-year senior secured notes (Moody's: Ba3/Fitch: BB) at par to yield 4%.

The issue size was increased from £200 million.

The yield printed at the tight end of final yield talk in the 4 1/8% area. That talk was revised from earlier guidance in the 4½% area.

Global coordinator HSBC will bill and deliver for the debt refinancing deal. Barclays was also a global coordinator. Goldman Sachs, NatWest Markets and Rabobank were the joint bookrunners.

Elsewhere Norway-based energy company Aker BP ASA announced that it has launched a $500 million offering of senior notes.

The Trondheim, Norway-based exploration and development company plans to use the proceeds to repay the its existing subordinated bond due 2022 in full and use the balance to repay, without canceling, drawn commitments under its revolving credit facility.

In the wake of Wednesday's European action there remains a euro-denominated calendar still to clear, one that is substantial in terms of euro-amount.

Sweden's Intrum Justitia is in the market with the biggest amount of euro-denominated issuance thus far in 2017, a €3 billion equivalent four-part offering of senior notes (Ba2/BB+) that includes euro and Swedish kroner-denominated floating-rate notes and two tranches of euro-denominated fixed-rate notes.

The roadshow is set to wrap up on Friday.

And Italy's NTV is selling €500 million of six-year senior secured floating-rate notes (B1//BB).

The roadshow for the NTV deal wraps up on Thursday.

Brand Energy talk 8% area

News volume in the dollar-denominated high yield primary was muted on Wednesday.

Brand Energy & Infrastructure Services, Inc. talked its $700 million offering of eight-year senior notes (S&P: CCC+) to yield in the 8% area.

The merger-funding deal, via left bookrunner Barclays is set to price on Thursday.

Market ignores Fed, mostly firms

In the secondary sphere, a trader asserted that there was “no real reaction” to the widely anticipated decision by the Federal Reserve to kick interest rates up another notch in line with a generally strengthening economy.

Instead, he said, “there was better buying still.”

Recent deals on the rise

This was most evident in the continued strength shown by recently priced offerings, such as Nashville-based hospital operator HCA’s 5½% senior secured long bonds due 2047, which seem to have attracted a following among junk investors despite the issue’s split-rating and sizable interest from high-grade accounts as well.

Those notes, which have risen ever since Monday’s par pricing, added to their already impressive gains with a nearly 1-point improvement on Wednesday, closing at 104 5/8 bid. More than $29 million of the notes changed hands.

Another split rated deal seen around the junk markets – Taylor, Mich.-based building supplies provider Masco’s 4½% bonds due 2047 – were quoted by a market source up more than 1½ points, at around 101 5/8 bid, with over $23 million trading.

Among the purely junk-rated recent issues, Yum! Brands continues to whet the appetite of junk investors, gaining ½ point Wednesday to end at 101¾ bid. More than $14 million of the Louisville, Ky.-based fast-food restaurant operator’s bonds were traded.

A trader said that even Hertz Corp.’s 7 5/8% notes due 2022 continued to improve, pushing up to 99¼ bid from previous levels around 98. Over $19 million of the Estero, Fla.-based car-rental company’s notes – which have held well below their par issue price – were traded on Wednesday.

Oil names on slippery slope

Away from the new deals, energy investors spent Flag Day running up the white flag, after a federal government report indicating unexpectedly large U.S. gasoline stockpiles – a sign of sluggish demand for the fuel – kicked world crude oil prices to the curb.

Both West Texas Intermediate for July delivery and North Sea Brent crude for August delivery settled down by $1.72 per barrel on the day, at $44.73 and $47, respectively.

Against that negative backdrop, California Resources’ 8% notes due 2022 – a benchmark issue which tends to swing wildly with gyrations in crude prices – plunged by 3 points on the day, to 66 bid, on volume of over $27 million.

Also out of the oil patch, sector peer Whiting’s 5¾% notes due 2021, dropped 1½ points, to 94¾ bid; EP Energy’s 8% notes due 2025 fell nearly 4 points, to 78 bid; while Chesapeake Energy’s 8% notes due 2027 were down by a relatively tame ½ point, at 97 bid.

Indicators turn mixed

Statistical market performance measures turned mixed on Wednesday after having been higher all around on Monday and again on Tuesday; before that, the indicators had been mixed last Friday and lower across the board for the three straight sessions before that.

The KDP High Yield Daily index was unchanged on Wednesday, ending at the same 72.55 level to which it had edged up on Tuesday when it rose by 1 basis point, its second straight gain; on Monday, the index had jumped by 10 bps, its first advance after four consecutive setbacks last week.

For a third day in a row, its yield came in by 1 bp, to 4.90%, matching the improvements seen on both Monday and Tuesday, after having risen over the previous three sessions.

But the Markit CDX Series 28 High Yield index faltered, posting its first loss after three straight better sessions. It retreated by 3/32 point on Wednesday to close at 107 11/16 bid, 107¾ offered. On Tuesday, it had firmed by around 1/8 point, while on Monday, it had risen by 5/8 point, on top of last Friday’s 3/32 point advance.

The Merrill Lynch North American High Yield index posted its fourth straight gain on Wednesday, moving up by0.039%, on top of Tuesday’s 0.116%. The four gains followed three consecutive losses before that.

Wednesday’s improvement raised the index’s year-to-date return to 5.173%, a second consecutive new 2017 year-to-date peak level. That was up from 5.132% on Tuesday, the index’s previous zenith.

© 2015 Prospect News.
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