Gastar prices to close out $11.5 billion week; market weakens; second report sees fund inflows

By Paul Deckelman and Paul A. Harris

New York, May 10 - Gastar Exploration USA, Inc. priced $200 million of five-year secured paper on Friday, according to high-yield syndicate sources, capping one of the busiest weeks on the year in the Junkbondland primary arena.

The oil and gas exploration and production company's offering was the sole pricing during the session of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers, according to the sources.

That deal finished off a week which saw $11.5 billion of new junk come to market in 29 tranches, according to data compiled by Prospect News, well up from the $5.98 billion in 14 tranches which had priced the previous week, ended May 3. This week was the single busiest for new junk issuance since the week ended March 22, when just under $17 billion had priced in 26 tranches - the busiest of the year so far, according to the data.

On a year-to-date basis, the $126.94 billion of new issuance that has come to market in 284 tranches since the start of the year was running about 4.9% ahead of the year-ago pace, when $120.92 billion had priced in 249 tranches by this point on the calendar, the Prospect News data indicated.

Traders did not see any sign of the smallish new Gastar deal in the aftermarket later in the day.

Among deals from earlier in the week, they said that a number of new credits, including Thursday's megadeal from Ball Corp. and the Targa Resources Partners LP transaction were off from their respective issue prices, and they saw weakness in such other recent names as Seminole Hard Rock Entertainment Inc. and Cash America International Inc., reflecting a somewhat weaker tone in a tired market trying to digest an enormous load of new paper. But other recent names like Claire's Stores Inc., First Quality Enterprises, Inc. and especially Seven Generations Energy Ltd. continued to more than hold their own.

Statistical measures of market performance, which had been strong across the board at the beginning of the week but which turned mixed on Thursday, gave up the ghost on Friday and were seen lower all around on Friday, although they were still up on a week-to-week basis from the previous Friday's levels.

And a major service that tracks high yield mutual funds and exchange-traded funds - considered a key gauge of overall junk market liquidity trends - reported a major net inflow to junk funds in general and to U.S.-domiciled funds specifically in the latest week, confirming similar data seen earlier in the week.

EPFR sees $2 billion inflow

EPFR Global, of Cambridge, Mass., reported that in the week ended Wednesday, $1.99 billion more came into the junk mutual funds and ETFs that it tracks in its universe than left them.

It was the fourth straight inflow seen by the service, including the $2.2 billion cash addition recorded the week before, ended May 1. During that stretch, inflows have totaled $6.517 billion, according to a Prospect News analysis of the company's data.

On a year-to-date basis, EPFR has now seen 16 weeks on inflows, versus just three weeks of outflows since the start of 2013, with a cumulative net inflow during that time frame of $15.555 billion, according to the analysis.

The EPFR figures tell essentially the same story as statistics reported Thursday by the other major fund-tracking service, AMG Data Services, Inc., of Arcata, Calif., a unit of the Lipper analytics division of ThomsonReuters Corp, which saw $789.4 million more having come into the junk funds it follows than had left them during that week, raising its cumulative net inflow tally for the year to $2.93 billion, according to a Prospect News analysis of its data.

Although the AMG/Lipper and EPFR numbers usually point in the same direction most weeks in identifying liquidity trends, the two services use quite different methodologies to reach their respective calculations; usually resulting in a wide variation in their numbers. While AMG/Lipper focuses strictly on domestic mutual funds and ETFs, rival EPFR includes a number of non-U.S.-domiciled funds in its universe.

Calculating the results only from U.S-based funds, a data subset more closely aligned with AMG/Lipper's EPFR said that inflows totaled $1.35 billion this week - the fourth consecutive inflow it has recorded in the domestic-only funds, including last week's $1.15 billion cash injection. Inflows to those funds have totaled $3.63 billion in that time.

On a year-to-date basis, EPFR's U.S.-only funds have seen inflows in 12 weeks since the start of the year, versus seven outflows, for a total cumulative net inflow to those domestic funds of $6.036 billion, according to the Prospect News analysis of the company's statistics.

Cumulative fund-flow estimates, whether from EPFR or from AMG/Lipper, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

The continued flow of fresh cash into junk - and the mutual funds and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of investor money coming into or leaving the junk market - has been seen by analysts as a key element behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes, and its record active new-deal pace, which easily topped the $350 billion mark - patterns of primary activity and secondary strength which have mostly continued into the new year, so far.

Gastar prices at tight end

Gastar Exploration completed Friday's lone high yield deal.

The Houston-based oil and gas exploration and production company priced a $200 million issue of 8 5/8% five-year senior secured notes (Caa2/B-/) at par to yield 8 5/8%.

The coupon came at the tight end of coupon talk set in the 8¾% area. The reoffer price came on top of price talk.

Imperial Capital was the bookrunner.

The timing of the deal was moved up; original timing had it pricing during the week ahead.

Proceeds will be used to finance the pending acquisition of mid-continent assets from Chesapeake Energy Corp., to repurchase 6,781,768 shares of the parent's common stock held by Chesapeake and to settle all current litigation with Chesapeake.

Proceeds will also be used to repay Gastar's revolver in full and for general corporate purposes.

Pacific Drilling to roadshow

Meanwhile the forward calendar for the week ahead continued to take shape.

Pacific Drilling SA plans to start a roadshow on Monday for a $750 million offering of seven-year senior secured notes (B1/B).

The deal is expected to price late in the week ahead.

Goldman Sachs, Citigroup, Deutsche Bank and Barclays are the joint bookrunners.

The Luxembourg-based ultra-deepwater drilling contractor plans to use the proceeds to refinance bank debt.

Sugarhouse's second-lien deal

Sugarhouse HSP Gaming Prop. Mezz. LP and Sugarhouse HSP Gaming Finance Corp., units of Sugarhouse Gaming, plan to start a roadshow on Monday for a $235 million offering of eight-year second-lien notes (B3/CCC).

The deal is expected to price on Thursday or Friday.

Goldman Sachs, Wells Fargo, BofA Merrill Lynch and Fifth Third are the joint bookrunners.

The Philadelphia-based casino entertainment enterprise plans to use the proceeds to refinance its 8 5/8% senior secured notes due 2016, fund capital expenditures and redeem preferred shares.

Millicom mandates banks

Elsewhere Millcom International Cellular SA mandated J.P. Morgan and Standard Bank to serve as joint global coordinators and joint bookrunners, and BNP Paribas to serve as a joint bookrunner for an expected benchmark offering of senior notes.

The deal, which would come as a Rule 144A and Regulation S transaction, will be under discussion as dealers and the company meet with fixed-income investors on Monday in London.

An investor call is set for 11 a.m. ET on Monday.

A New York meeting is set for Wednesday, depending on demand.

Meanwhile Australia's Barminco Finance Pty Ltd., which was originally expected to price its $500 million offering of five-year senior notes (B1/B-) on Friday, extended its roadshow into the week ahead.

The deal will be presented to investors in London on Monday, and is expected to price on the same day.

J.P. Morgan, Goldman Sachs and HSBC are the joint bookrunners.

Also carrying over into the week ahead is Magnetation LLC and Mag Finance Corp.'s $325 million offering of seven-year senior notes (B3/B-), according to a market sources.

The deal had been set to price on Friday.

J.P. Morgan, Jefferies and Deutsche Bank are the joint bookrunners.

Price talk has yet to circulate, according to a trader who spoke on the telephone just ahead of the Friday close.

Pro forma pricing for the deal is in the 9¾% area, the trader added.

Gastar deal unseen

The day's sole new deal, Gastar's 8 5/8% notes, proved to be a no-show in Friday's secondary market.

A trader who focuses on energy issues said: "I didn't see it. I never saw any Street bid."

He suggested that because the deal was on the smallish side - just $200 million - buyers had already been lined up via reverse inquiry and the new offering had been put away without any trading.

Some new deals struggle

A trader at another shop opined that "the market today was a little apathetic" as the very busy week finally wound down, "and the deals that came in the last couple of days that were slightly interest-rate sensitive" were having a tough time rising beyond their respective issue prices - or in some cases, even staying at those levels and not giving up ground.

For instance, he said that Ball Corp.'s 4% notes due 2023 was "a great credit - but it couldn't get out of its own way."

A second trader agreed, quoting the Broomfield, Colo.-based packaging manufacturer's $1 billion drive-by deal at 99½ bid, 99¾ offered.

The bonds had priced at par on Thursday after the deal was massively upsized from an originally announced $600 million.

Yet another also saw the bonds at the 99¾ level, and noted that Ball was one on the most heavily traded credits on Friday in the junk world, with over $51 million having changed hands by mid-afternoon - with final volume probably well above that.

The first trader said that another new credit that likewise "couldn't get out of its own way" was Targa Resources Partners' 4¼% notes due 2023, which he quoted at 99 5/8 bid, 99 ¾ offered. Houston-based Targa, a midstream natural gas, natural gas liquids and crude oil services provider, had priced its $625 million issue of those 10.5-year notes at par, and they had initially gone home straddling that level, at 99 7/8 bid, 100 1/8 offered.

"They didn't really trade too well, another trader said, seeing the bonds in a 99 to 99 5/8 context, while a third pegged them at 99 3/8 bid, 99 7/8 offered.

Other recent deals seen to be struggling on Friday included Fort Worth, Texas-based specialty financial services provider Cash America International and Tampa, Fla.-based hospitality concern Seminole Hard Rock Entertainment.

A trader saw each of those bonds down 1½ points on the day, with Cash America's upsized $300 million of 5¾% notes due 2018 finishing at a wide 99½ bid, 101½ offered, and Seminole Hard Rock's $350 million of 5 7/8% notes due 2021 ending at par bid, 100¼ offered. Both deals had priced at par on Wednesday and had initially moved up by more than a point.

Other new deals stronger

On the other hand, one of the traders declared, "the yield-happy ones like Claire's Stores were doing well."

He saw the Hoffman Estates, Ill.-based specialty retailer's $320 million of quick-to-market 7¾% notes due 2020 having pushed up to around a 103ish bid, versus Thursday's par issue price. The bonds had firmed to the 102½ bid level in initial aftermarket activity Thursday.

Another deal seen doing extremely well was Calgary, Alta.-based oil and gas operator Seven Generations Energy's upsized $400 million of 8¼% notes due 2020, which priced at par on Tuesday and has been going "up, up and away" ever since then, a trader said, pegging them up 7 points on the week.

A second trader said they were up "at least 5 or 6 points or more," and suggested that "the yield hogs" were buying the deal.

He said that "hedge funds striving for yield are buying the riskier, higher-yielding deals - while the insurance companies that have to be more careful and conservative were buying the deals like Ball Corp."

Another gainer in initial aftermarket dealing was Great Neck, N.Y.-based paper products manufacturer First Quality's $600 million of 4 5/8% notes due 2021, which had priced Thursday at par. On Friday, a trader saw those bonds initially at 101¼ to 1011/2, and said they later got "closer to 102."

Market indicators turn weaker

Overall, statistical junk performance indicators - which had been stronger across the board for the first three sessions of the week before turning mixed on Thursday - tumbled from their pedestal on Friday and were reported weaker all around - although they remained better on a week-to-week basis than where they had been at the end of last week, on Friday, May 3.

The Markit Series 20 CDX North American High Yield Index was down by ¼ point on Friday to end at 106 11/16 bid, 106 13/16 offered, its second consecutive loss. On Thursday, the index retreated by 13/32 point.

However, it was up versus the previous Friday's close at 106 5/8 bid, 106¾ offered.

The KDP High Yield Daily Index, meanwhile fell by 6 basis points on Friday to end at 76.70, also its second straight loss. On Thursday, it had eased by 1 bp.

Its yield rose by 2 bps to 4.88%, its first rise after 13 consecutive sessions during which the yield had come in, including Thursday's 3-bps tightening.

But those levels still compare favorably with the previous week's 76.65 index reading and its 4.95% yield.

And even the widely followed Merrill Lynch High Yield Master II index finally moved into the loss column on Friday, dipping by 0.13%. That snapped a string of 16 consecutive sessions on the upside dating back to April 18, and including Thursday's 0.33% gain.

The loss left its year-to-date return at 5.697% - down from Thursday's 5.835%, its peak level for the year. Thursday had marked the 14th consecutive session in which the index had posted a new high point for the year.

On the week, though, the index still gained 0.258% to notch its third straight weekly gain. It had also risen by 1.002% the week before, when the year-to-date return had stood at 5.425%.

The index's yield to worst increased to 5.04% from Thursday's 4.986%, which had been its seventh consecutive new all-time low.

Its spread to worst also widened on Friday to 428 bps over Treasuries from Thursday's 427 bps, which had been its seventh consecutive new tight level for the year.

© 2015 Prospect News.
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