Junk market quiet heading into holiday; no primary activity seen; secondary firm but illiquid

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 – High-yield market participants headed home for the holidays on Friday following an extremely quiet and abbreviated session.

The Securities Industry and Financial Markets Association had recommended a 2 p.m. ET early close Friday for fixed-income markets in the United States ahead of the Christmas holiday, with a full market shutdown slated for Monday. However, the reality was that what little activity there was had wrapped up long before the official closing time, with many participants heading for the exits around midday, if not sooner.

As had been expected, the primary market saw no new deals either announced or priced during Friday’s truncated session.

Just one prospective offering remained as a possibly active new issue on the forward calendar, Canadian mining company Baffinland Iron Mines Corp.’s $350 million offering of five-year senior secured notes. Although that deal was heard to have been restructured at mid-week, with covenant changes making it more favorable to investors added, there has been no word since then as far as price talk or possible timing.

In the secondary market, traders saw little of note going on.

Among recently priced issues, the Noble Holding International Ltd. seven-year issue that priced on Dec. 14 remained among the more active credits, although, for a change, that paper was actually strengthening a little after having lost ground repeatedly since pricing at a steep discount to par.

Away from the new issues, Bonanza Creek Energy, Inc.’s bonds rose after the oil and natural gas exploration and production company announced plans for a pre-packaged bankruptcy reorganization.

Statistical market performance measures were trending higher on Friday after having turned mixed on Thursday. It was their second stronger session in the last three trading days.

Primary quiet

All was quiet in the primary market on Friday, with the expectation that it would remain so into the new year.

“We hear there has been some activity in the Santa sevens,” a portfolio manager quipped, “but you'll have to stay up late to see.”

Following a couple of small, early-week new issues, word went out on Wednesday that Baffinland Iron Mines Corp., which has been in the market since Dec. 9 with a $350 million offering of five-year senior secured notes (Caa1/B-), restructured the bonds and made investor-friendly covenant changes.

There were no follow-up announcements, such as timing and price talk, however.

Heading into year’s end, it is the sole deal on the active forward calendar.

Mixed cash flows

High-yield exchange-traded funds saw solid inflows of $219 million on the day.

However, actively managed high-yield funds sustained $80 million of outflows on Thursday.

The news follows a Thursday afternoon report from Lipper US Fund Flows that the dedicated high-yield funds saw $19 million of outflows on the week to Wednesday's close.

Meanwhile, the daily cash flows of the dedicated bank loan funds remained robust on Thursday, the trader said.

The loan funds saw $445 million of inflows on the day.

Greatly reduced new issuance

With no new deals having priced over the last three sessions, new-deal stats finished the week exactly where they had been on Tuesday.

Just $198 million of new dollar-denominated and fully junk-rated paper from domestic or industrialized-country borrowers had priced in two tranches during the week, according to data compiled by Prospect News.

That was way off from the $7.33 billion that had priced in 16 tranches during the week ended Dec. 16 and off even more from the $9.60 billion that had gotten done in 16 tranches during the week ended Dec. 9.

This week’s primary activity, such as it was, nudged the year-to-date issuance total up slightly to $226.78 billion in 359 tranches.

That was running 12.8% behind the new-deal pace seen at this time last year, when $260.02 billion had priced in 408 tranches by this point on the calendar, the Prospect News data indicated.

That was unchanged from the percentage gap between this year’s and last year’s issuance that had been seen last week.

Noble issue firmer

Among recently priced new deals, a trader said that Noble Holding International’s 7¾% notes due 2024 “seemed to be a little active,” seeing the issue going home around 96½ bid.

A second trader also pegged the bonds at that level and called them up about ½ point from their opening and ¼ point better on the day, with around $8 million traded.

That was enough to put that credit high up on a shrunken Most Actives list.

That $1 billion issue had priced on Dec. 14 at 98.01 as a regularly scheduled forward calendar offering, to yield 8 1/8%, after the Cayman Islands-based energy drilling company’s deal was doubled in size from an originally shopped $500 million.

But those bonds have struggled in the aftermarket ever since then, continuing to lose a little more ground each session.

They bottomed at around 96 bid at mid-week, although they had crept slightly above that level as this week was ending, finishing around 96½ bid.

An uneventful session

Away from the little activity in the recent new deals represented by the Noble Holding notes – which a trader called “probably one of the more notable names” – a trader said that only a few bonds were standing out doing anything.

For instance, he said that Frontier Communications Corp.’s 11% notes due 2025 “traded a little bit,” with volume estimated at around $9 million.

He saw the Stamford, Conn.-based wireline telecommunications provider’s notes closing around the 103 bid level.

He said that was representative of “the bigger go-go type names, but the [usual active] volume is just not there.”

A second trader saw those Frontier bonds at 103¼ bid, calling them up 5/8 point on the day.

Bonanza gets bankruptcy bounce

One bond that did show a heft gain on the day – but only on volume of around $11 million, with round-lot issues accounting for about $7 million of that – was Bonanza Creek Energy’s 6¾% notes due 2021.

A market source said those bonds – recently trading at around the 63 bid level – opened on Friday on a round-lot basis around 68½ bid and had moved up to around 73 3/8 bid by the close.

That rise coincided with the announcement by the Denver-based exploration and production company that it will make a pre-packaged Chapter 11 bankruptcy filing in the U.S. Bankruptcy Court for the District of Delaware by Jan. 5 after reaching a restructuring support agreement with holders of its 6¾% senior notes due 2021 and 5¾% senior notes due 2023 and crude oil purchase and sale pipeline counterparty NGL Crude Logistics, LLC.

The company said the pre-packaged plan of reorganization “will significantly deleverage its balance sheet and provide Bonanza Creek with $200 million of additional liquidity” from an equity rights offering backstopped by some of the senior noteholders. (See related story elsewhere in this issue.)

Indicators turn firmer

“The Street’s shutting down right about now,” a trader said just before noon ET – at least two hours ahead of the officially recommended closing time.

Statistical market performance measures were meantime trending higher on Friday after having turned mixed on Thursday. It was their second stronger session in the last three trading days.

The KDP High Yield index rose by 3 basis points on Friday to end at 71.38, its third consecutive advance after five straight sessions on the downside before that. On Thursday, it had risen by 7 bps, on top of Wednesday’s 4 bps gain.

Its yield came in by 1 bps on Friday, to 5.47%, after having tightened by 2 bps on both Wednesday and Thursday, in contrast to its 1 bp rise on Tuesday.

Friday’s levels also compared favorably with the 71.28 index reading and 5.51% yield seen last Friday, Dec. 16.

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