No pricings as post-holiday market resumes; Charter pitches big bond deal; oils, coal slide

By Paul Deckelman

New York, July 6 – The high-yield market got back to work on Monday following the long Independence Day holiday break – but not much was accomplished.

Traders said that junk market activity was restrained, as a witches’ brew of negative factors kept many players on the sidelines, starting with the unexpectedly resounding “no” vote by Greeks to a bailout plan with strong austerity measures attached; that resulted in a slide in equity markets around the world, including the United States.

There was also a steep fall in oil prices, caused in part by Greece-related jitters, as well as worries over China’s economy and prospect of an Iran nuclear deal, which could result in America and other western nations lifting sanctions and putting Iranian oil back into the market. This all hurt the shares and bonds of energy companies.

On top of that was the usual post-holiday lassitude, as junk players straggled back to their offices after a long weekend of red-white-and-blue revelry.

High-yield syndicate sources said no new issues priced in Junkbondland on Monday, nor were any new deals announced.

They did hear of Charter Communications Inc. having begun to market its $13.8 billion offering of new secured and unsecured notes that will be part of the financing for the cable company’s pending acquisitions of larger competitor TimeWarner Cable Inc. and smaller rival Bright House Networks LLC.

Not much else was shaking on the domestic front. Magazine publisher American Media Inc. said it would consider refinancing options for its 11½% secured notes due 2017, but announced no concrete plans, and steelmaker Arcelor Mittal announced the completion of a Swiss franc-denominated notes offering.

The main story in the domestic bond market seemed to be the sharp slide in oil prices, which dragged energy names such as California Resources Corp., SandRidge Energy, Inc. and Chesapeake Energy Corp. lower.

Commodity price weakness, spurred by economic worries, also pushed the likes of coal operator Peabody Energy Corp. and iron ore miner Fortescue Metals Group Ltd. down.

Statistical indicators of junk market performance fell across the board Monday after having been higher all around at the end of last week.

Charter begins presentations

The new-deal arena saw no pricings during the session, nor any new-deal announcements.

However, Charter Communications began shopping around its planned $13.8 billion multi-tranche bond deal around to prospective investors on Monday, according to a regulatory filing.

That offering – $6 billion of senior secured first-lien notes and $3.5 billion of senior unsecured notes via its Charter Communications Operating, LLC subsidiary, as well as $4.3 billion of senior unsecured notes via another subsidiary, CCO Holdings, LLC – will back and ultimately replace in Charter’s capital structure the $13.8 billion of bridge loans that the company lined up last month to help initially finance the cash portions of the Stamford, Conn.-based cable and broadband provider’s planned acquisitions of sector peers TimeWarner Cable Inc. and Bright House Networks LLC. Those two cash, stock and partnership interest transactions are valued at a total of nearly $90 billion, with Charter launching about $30 billion of new bond and bank debt.

Charter’s chief financial officer, Christopher Winfrey, and its senior vice president for corporate finance, Charles Fisher, made a presentation about the pending acquisitions and the proposed bond financing to “certain potential investors,” according to Charter’s 8-K filing with the Securities and Exchange Commission, and the presentation was posted on the company’s website.

Further details about other possible presentations to additional would-be debt investors and the overall anticipated timing of the bond deal as well as the precise structure of the planned bond offering in terms of the number, size and other features of the different bond tranches were not immediately available.

Credit Suisse Securities (USA) LLC, Goldman Sachs & Co., Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and UBS Securities LLC are the underwriters for the financing (see related story elsewhere in this issue).

American Media mulls refinancing

Elsewhere in the primary realm, American Media is evaluating refinancing options for its $273.2 million of outstanding 11½% first-lien notes due 2017, its chief executive officer said Monday.

David J. Pecker – who also serves as the chairman and president of the magazine publisher – said that the

decision to consider refinancing is based on “significant de-leveraging” during its 2015 fiscal year ended March 31, the company’s strong print and digital advertising performance, the stabilization of formerly falling newsstand sales and AMI's projected cash flow from operations of $35 million for the current 2016 fiscal year that began on April 1.

The Boca Raton, Fla.-based company – which publishes celebrity and entertainment-oriented magazine titles such as National Enquirer, Star, OK!, Globe, National Examiner and Soap Opera Digest, as well as health and fitness-oriented publications like Men's Fitness, Muscle & Fitness, Flex and Muscle & Fitness Hers, along with running companion websites for its various titles – also cautioned in its statement announcing the recently reported financial fiscal 2015 results that “any refinancing of the outstanding first-lien notes will be subject to market conditions.”

Arcelor Mittal comes to market

Out of Europe came word that Luxembourg-based steelmaking giant Arcelor Mittal had issued CHF 225 million of 2½% notes (Ba1 / BB / BB+) due July 3, 2020 under its €6 billion wholesale euro medium-term notes program.

The notes were priced at par.

A high-yield primary market source said the notes were brought to market via bookrunners Credit Suisse and Deutsche Bank, with an original CFH 200 million offering upsized to CHF 225 million.

He opined that the Swiss franc-denominated segment of the high-yield market “is very much a microcosm – you’ve got very specific type buyers of the paper.”

“Whenever you bring a high-yield name to the Swiss franc market, you are selling on name recognition,” he continued.

Although Arcelor Mittal had not done a Swiss franc issuance before, it was well known to the market participants for its previous euro- and dollar-denominated issuances, including its $1 billion two-part dollar-denominated drive-by megadeal of five- and 10-year notes that priced at par back on May 27.

He called the Swiss franc market pricing “a very good outcome, because as you can see these days, especially in high yield, you’re [usually] looking at quite heftier concession numbers.”

He said that around 90% of the eventual buyers were retail accounts, attracted by their recognition of the world’s largest steel manufacturer’s name.

A down day in the market

A trader said that Monday’s session “wasn’t too much more active than Thursday’s had been,” noting the usual slowness in getting back to normal after a long holiday weekend.

A second trader called things “real slow,” between the post-holiday returnees straggling back to work, as well as the dampening effects of the weekend events in Greece, where over 61% of the public voted against a European Union bailout plan that would have provided the troubled nation with liquidity – but at a cost of imposing unpopular austerity measures. The “no” vote raises the likelihood that Greece may leave the EU altogether, a source of continued anxiety in the international financial markets.

U.S. stocks fell, with the bellwether Dow Jones Industrial Average ending off by 46.53 points, or 0.26%, at 17,688.58, with other popular indexes also lower.

The Greek vote, as well as concerns about China’s slowing economy and worries that a nuclear power agreement with Iran could lead to an end of sanction and millions of barrels of Iranian oil coming to world markets, knocked oil prices for a loop, with the benchmark West Texas Intermediate crude off by $4.40, or 7.7%, on New York Mercantile Exchange trading, at $52.53 per barrel.

A trader said that all of those factors taken together – Greece, stocks oil, the post-holiday hangover and last week’s big outflows from junk market mutual and exchange-traded funds (AMG Lipper saw a $3 billion cash loss from the funds, while EPFR Global pegged its outflow measure at $3.5 billion) – conspired to keep many junk investors on the sidelines.

“So they kind of sat back and watched the [stock] market,” he said – and where there were junk bonds trading, they were mostly lower.”

“Oil, coal, iron ore, all were weaker.”

Oil names slide

In the energy patch, California Resources’ 6% notes due 2024 were down a deuce on the day at 82 bid, a trader said, with over $24 million traded, making it one of the most active junk bonds of the day.

The Los Angeles-based oil and natural gas exploration and production company’s 5% notes due 2020 slid by 2 5/8 points, to end at 85 bid, with over $16 million traded.

SandRidge Energy’s 8¾% notes due 2020 ended down 2¼ points at 88¾ bid, with over $10 million traded, a market source said. He added that the Oklahoma City-based oiler’s “much junkier” 7½% notes due 2021 fell 1½ points to 43 bid.

Oklahoma City-based Chesapeake Energy’s 5¾% notes due 2023 dropped by 2 points to 89½, with over $13 million changing hands.

Linn Energy’s 7¾% notes due 2021 slid by 1¾ points to 75 bid – even as the Houston-based energy operator announced plans to sell some Permian Basin assets for $281 million, on top of finalizing previously announced deals for Quantum Energy Partners and GSO Capital Partners to fund Linn’s exploration and development operations to the tune of $1 billion and $500 million, respectively.

Coal, iron ore off

Traders said that other resource-based names were also pulled lower.

Australian iron ore producer Fortescue Metals Group’s 9¾% notes due 2022 nosedived 3¼ points to 99 bid, with over $23 million traded, while its 8¼% notes due 2019 ended at 81¼ bid, down 1 5/8 points, on about the same volume. Its bonds began sliding last week after the Australian government announced lower iron ore prices.

Peabody Energy’s 10% notes due 2022 lost 1¼ point to end at 58¼ bid, with over $17 million traded. The St. Louis-based coal mining company’s bonds have been under pressure since it warned last week that second-quarter adjusted EBITDA and per-share earnings would come in weaker than the company had previously forecast.

Indicators head south

Statistical market-performance measures turned lower across the board on Monday after having been higher for three consecutive sessions before that.

The KDP High Yield Daily index plunged by 19 basis points on Monday to end at 70.07. It had risen by 6 bps on Wednesday and by another 2 bps on Thursday. The index was not published on Friday due to the Independence Day holiday.

Its yield widened out by 5 bps on Monday to 5.74%, after having come in by 4 bps on Wednesday and by 1 bp on Thursday.

The Markit Series 24 CDX North American High Yield index lost nearly ½ point on Monday to finish at 106 1/16 bid, 106 3/32 offered. Before that, it had risen over three consecutive sessions, including Thursday, when it was up by 1/16 point. The index was published this past Friday, despite the holiday, but saw no change.

The Merrill Lynch North American Master II High Yield index slid by 0.268% on Monday after having advanced for four straight days, including Thursday’s 0.047% advance and a 0.019% gain on Friday, when the index was published despite the holiday.

Monday’s loss dropped its year-to-date return to 2.499% from 2.755% on Thursday and 2.774% on Friday.

It remained well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

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