NII, Plains Exploration drive-bys, James River pace primary; deals move up; funds drop big

By Paul Deckelman

New York, March 24 - The high-yield primary market kept on humming right along on Thursday. More than $2 billion of new dollar-denominated paper priced, along with euro- and sterling- denominated paper.

A pair of same-day drive-by deals from familiar junk issuers, both sharply upsized from their originally announced amounts, set the pace.

International wireless provider NII Holdings, Inc. did a $750 million issue of 10-year notes, while energy operator Plains Exploration & Production Co. doubled the size of its 10-year deal to $600 million.

Also upsizing, although nowhere nearly that much, was James River Coal Co., which mined the junk market for $275 million of fresh cash with an eight-year offering.

From the Far East came word that Japanese telecommunications company eAccess Ltd. had successfully priced its two-part, seven-year transaction, which included an upsized $420 million component as well as a euro-denominated piece.

British mobile phone retailer Phones4U was heard by European junk sources to have priced a sterling-denominated secured notes deal.

When the James River, Plains and eAccess deals were freed for secondary dealings, traders saw them firm solidly.

Junk prices were meantime seen generally firmer, with even the badly battered DirectBuy Holdings firming off its recent lows - although the company's bonds are still well down from where they had been at the start of the week.

Performance indicators pointed in a positive direction. But high-yield mutual funds - considered a reliable barometer of overall market liquidity trends - showed a sizable outflow in the latest week, their second consecutive downturn.

Junk funds plunge $2.8 billion - or do they?

After the session's activity had wound down, participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, a mammoth $2.8 billion more left those funds than came into them.

It was the second consecutive loss of capital by the funds, which had seen an outflow of $470.6 million the week before, which ended March 16 - the first outflow of the year and the first after 14 straight weeks of inflows, dating all the way back to early last December and totaling more than $8 billion in that time.

The $2.8 billion outflow would likely set a new record for biggest-ever cash loss shown in one week by the funds - assuming it is valid.

Although the huge number was reported in a number of places, some people in the market were skeptical. A market source said that he had heard that the number-crunchers at a major financial institution felt the Lipper's numbers just didn't add up - especially since its data showed a $380 million inflow to loan funds, which share similar characteristics to bond funds - and challenged the Lipper analysts. He said he had heard that they were told that the real outflow number was something more like $830 million - a sizable outflow to be sure, but seemingly more in line with recent market performance.

There was no independent confirmation of that scenario, and efforts on Thursday night by Prospect News to get a clarification from Thomson Reuters, Lipper's parent company, were not successful.

On Lipper's website, the company said Thursday night, "We are aware of the large outflows of money within the high yield classification. This is in part due to two funds that have ceased operation in the middle of the month: the Fidelity Capital & Inc. F share class and the Fidelity High Income F share class. These two funds have closed; therefore, the money shown flowing out of those funds is accurate. At this time we have not been able to confirm whether the outflows should have been offset by going into another fund or if the funds truly liquidated. If the money moved into a different fund the flows will be offset in the future with the assets moving into the other fund. We hope this explanation helps with your understanding of the high yield flows data this week."

EPFR sees $419 million outflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG, meantime reported a $419 million outflow in the latest week, which followed the previous week's $802 million downturn.

As was the case with the AMG numbers, the latest week's outflow was the second consecutive loss of cash from the funds following the string of 14 consecutive inflows dating back to early December. It brought the year-to-date net inflow number down to $13.879 billion from $14.298 billion previously.

AMG and EPFR calculate their respective fund-flow totals differently, although the two services' numbers generally point toward the same trends. EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds.

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

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though quantifiable, percentage of the total amount of money coming in - fueled the record new deal borrowing binges seen in both 2009 and then in 2010 as well as the robust secondary market seen both years. Both of those trends have been continuing in 2011 as well, at least till now.

NII drive-by a bell-ringer

On the new-deal front, the biggest transaction of the more than $2 billion session was NII Holdings' quickly shopped, upsized tranche of 10-year senior notes.

The $750 million issue - solidly increased from the $500 million the company announced during the morning hours - was priced though NII Capital Corp., a wholly owned subsidiary of NII Holdings. The parent company, based in Reston, Va., provides mobile telecommunications services for business customers in various countries in Latin America.

The bonds priced at par to yield 7 5/8%, in the middle of pre-deal market price talk envisioning a yield between 7½% and 7¾%.

Goldman Sachs & Co., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Morgan Stanley & Co. Inc. were joint bookrunners on the deal.

The company plans to use the proceeds for general corporate purposes, which it said could include acquiring telecom spectrum, network expansion, deployment of new technologies and refinancing, repaying or repurchasing outstanding debt.

Traders said the NII bonds came to market too late for any kind of aftermarket action.

Plains pops in, pops up

Another company dropping by with a suddenly appearing and radically larger than originally 10-year deal was Plains Exploration & Production, which priced a $600 million offering of senior notes due in 2021.

The Houston-based oil and gas operator doubled the size of its quickly shopped deal from the $300 million outlined in a prospectus that the company filed with the Securities and Exchange Commission Thursday morning as it was announcing its plans for a transaction, which was structured as a public offering from its previously filed shelf registration statement.

The issue priced at par to yield 6 5/8%, at the wide end of its price talk of 6½% to 6 5/8%, market sources said.

JPMorgan, Barclays Capital Inc., BMO Capital Markets Corp., BNP Paribas Securities Corp., Scotia Capital (USA) Inc. and Wells Fargo Securities, LLC were joint bookrunners on the deal.

TD Securities (USA) LLC, Merrill Lynch, Citigroup Global Markets Inc., Lloyds Securities LLC, RBS Securities Inc., ING Financial Markets LLC, Morgan Stanley and RBC Capital Markets LLC were co-managers.

The company plans to use the proceeds to repay borrowings under its senior revolving credit facility and for general corporate purposes.

A trader said that when the new Plains Exploration bonds were freed for secondary dealings, they were bid at 100 7/8 versus their par issue price.

A second trader saw the Plains bonds trading later at 100¾ bid, 10 ¼ offered, "so up a point from issue."

James River jumps

Also out of the energy sphere - albeit in the coal space rather than oil and natural gas - James River Escrow Inc. came to market with an upsized $275 million offering of eight-year senior notes, increased from the $250 million that Escrow's parent company, Richmond, Va.-based coal producer James River Coal, had announced on Monday.

The bonds priced at par to yield 7 7/8%, inside of price talk envisioning a yield of 8%, high yield syndicate sources said.

Timing on the offering was moved up versus original expectations that the deal would price on Friday.

Deutsche Bank and UBS Securities LLC were the bookrunners on the deal, with Raymond James & Associates Inc., Brean Murray, Carret & Co. LLC, Dahlman Rose & Co., LLC, Johnson Rice & Co. LLC and Macquarie Group as co-managers.

The company plans to use the proceeds to pay a portion of the purchase price and other costs and expenses related to its previously announced acquisition of International Resource Partners LP.

Financing for that acquisition will also include the proceeds of a concurrently announced convertible note offering and an equity offering. Any remaining bond-deal proceeds would be slated for general corporate purposes, which could include acquiring or investing in businesses or debt repayment.

If the acquisition is abandoned or otherwise not completed by June 1, the notes will be redeemed at par plus accrued interest.

A trader said that the James River bonds, although they priced late in the day, firmed smartly when they reached the aftermarket, quoting the notes as high as 102¾ bid, 103¼ offered, well up from their par issue price.

eAccess accessible to market

Japan's eAccess was heard by syndicate sources to have priced an upsized two-part offering of seven-year senior notes, including an upsized dollar-bond component.

The Tokyo-based provider of mobile broadband and voice services priced $420 million of dollar-denominated bonds - up from an initially planned $400 million - and €200 million of euro-denominated paper.

The dollar tranche priced at par to yield 8¼%, in line with price talk that circulated in the financial markets on Wednesday. The euro tranche priced at par to yield 8 3/8%, also in line with talk envisioning the yield on the euro-denominated notes 12.5 basis points above the dollar bonds' yield.

UBS was the lead left bookrunner for deal. ING and Credit Agricole CIB were the joint bookrunners.

A trader said that the dollar portion of the deal was trading at 100 7/8 bid on the break.

At another shop, a trader saw the bonds improve from that initial level, quoting them going home at 101½ bid, 102½ offered, although he cautioned that he "didn't see a lot of volume in it."

eAccess began shopping the bond deal around to potential investors on March 10 - ironically, the day before Japan was hit with a massive earthquake, followed by an equally catastrophic tsunami. The disaster did not dissuade the company from going forward with the bond deal, and it shopped the transaction around to investors in the United States and Europe.

eAccess plans to use the new-deal proceeds, together with borrowings under a new senior secured credit facility, to repay and terminate its old credit facilities; the bond-deal proceeds are to be escrowed pending the funding under the new credit facility, which is expected to take place on March 31.

Phones4U brings sterling deal

From Europe came word of a sterling-denominated pricing from Phones4U Finance plc, a unit of British mobile telephone retailer Phones4U.

The company came to market on Thursday with a £430 million issue of seven-year senior secured notes, which priced at par to yield 9½%.

The joint bookrunners were Goldman Sachs, Deutsche Bank and ING. Lloyds was the joint lead manager, while Commerz Markets LLC was co-manager.

Proceeds from the deal will be used to partly finance BC Partners' £700 million acquisition of Phones4U from Providence Equity Partners.

Talk out on Crestwood...

Apart from the deals that actually priced, a couple are waiting in the wings.

Crestwood Midstream Partners LP's $200 million offering of eight-year senior notes is expected to price at a yield in the area of 7¾%, according to price talk on the deal that surfaced on Thursday.

Primaryside sources said that the order books for the Houston-based natural gas company's prospective transaction will close at 11 a.m. ET on Friday. Pricing could take place after that.

UBS, BNP Paribas, RBC Capital Markets and RBS Securities are joint bookrunners on the offering.

Crestwood plans to use the proceeds from the offering to finance a portion of its recently announced acquisition of midstream assets in the Fayetteville Shale and the Granite Wash plays from Frontier Gas Services for about $338 million as well as fees and expenses associated with the transaction.

...and on Aperam

Price talk also emerged on Thursday on European steelmaker Aperam SA's $500 million two-part offering, high-yield syndicate sources said, with pricing seen possible after the order books are closed on Friday.

They heard that the $250 million senior notes due 2016 were being talked at a yield between 7¼% and 7½%, while the $250 million of senior notes due 2018 were being talked in the 7¾% area.

Citigroup, Credit Agricole, Goldman Sachs and ING are the bookrunners on the deal, which surfaced on Tuesday and was being pitched to investors via a short roadshow that began on Tuesday in New York and included stops in Boston and Los Angeles.

The sources heard that the order books were closed as of 5 p.m. ET on Thursday, except for West Coast accounts. Those West Coast books are slated to close at 10 a.m. ET on Friday, with pricing seen possible after that.

Aperam - a Luxembourg-based stainless steel producer spun off from international steel giant ArcelorMittal earlier this year - plans to use the deal proceeds, along with cash on hand, to repay outstanding amounts under its bridge facility with its former corporate parent.

CNL Lifestyle slates

The high-yield forward calendar grew as CNL Lifestyle Properties, Inc. was heard to have begun marketing a $400 million offering of eight-year senior notes to potential investors. That roadshow is scheduled to run through Thursday.

The Orlando, Fla.-based real estate investment trust - which owns a portfolio of 150 of what it calls "lifestyle properties" ranging from ski resorts, marinas, amusement parks, golf courses and other recreational attractions to senior living facilities - plans to use the proceeds from the bond deal to repay debt and for general corporate purposes.

Jefferies & Co. and Merrill Lynch are the joint book-running managers on the deal. Fifth Third Securities Inc., BB&T Capital Markets and Morgan Keegan & Co. Inc. are the co-managers.

Recent deals keep doing well

Among recently priced offerings, a trader said that CIT Group Inc.'s new bonds "were rallying" after having spent Wednesday clinging around their par issue price.

He saw the New York-based commercial lender's 5¼% series C second-priority senior secured notes due 2014 move up to 100 5/8 bid, 100 7/8 offered.

Its 6 5/8% series C paper due 2018 meantime firmed to 100 7/8 bid, 101¼ offered.

He saw the company's existing bonds, some of which are to be taken out using the proceeds from Wednesday's $2 billion behemoth of an offering, "all active, but unchanged," with the series A 7% 2013 and 2014 bonds trading around their respective call prices.

Kabel BW's dollar-denominated 7½% senior secured notes due 2019 traded at 102 3/8 bid, 102 7/8 offered; the German cable company had priced that $500 million of bonds at par on Wednesday.

Secondary indicators firmer

Away from the new-deal world, a trader saw the series 15 Markit CDX North American High Yield index up ½ point on Thursday to end at 103 11/16 bid, 103 13/16 offered after having been unchanged on Wednesday.

The KDP High Yield Daily index meantime rose by 5 bps on Thursday to 75.63, erasing the previous session's 5 bps loss. Its yield came in by 2 bps to 6.74% after having edged up by 1 bp for a second day in a row Wednesday.

The Merrill Lynch High Yield Master II index rose for a seventh consecutive session on Thursday, by 0.032%, after Wednesday's 0.010% rise. That lifted its year-to-date return to 3.677% from Wednesday's 3.643%, although it remained below its 2011 peak level of 3.73%, set on March 9.

DirectBuy gyrates, rallies

Among specific issues, investors continued to watch DirectBuy Holdings, the bond that recently "fell out of bed" - as one market source put it - on news the company's chief financial officer was resigning.

"It was definitely where there was some focus," the source said. "It's always great to see an issue fall 30 points just two months after it was issued."

The Merrillville, Ind.-based company sold $335 million of the 12% notes due 2017 on Jan. 24. The bonds priced at 97 with a 12.721% yield.

The source said the notes traded in the 60s but ended the day 70 bid, 75 offered.

"It's really wide and really tough to figure out where it is going to go next," he said. "But it feels like it has got some support."

Another source pegged the notes at 70 bid, 71 offered.

At another shop, a trader said the bonds hit a high around 76 before finishing the day around 72 bid, 74 offered.

The bonds began to plummet on Tuesday, when they traded down to the high 70s from the low 90s. The declines continued through Wednesday, when the debt closed in the mid 60s.

DirectBuy Holdings is a home improvement and furnishings club.

Rite Aid gains

Rite Aid Corp. debt was trading up, albeit marginally, during Thursday's session.

A market source pegged the 8 5/8% notes due 2015 at 91¾ bid, a gain of about a quarter-point.

Another trader placed the 9 3/8% notes due 2015 at 92 bid, 92½ offered.

Earlier this month, Rite Aid regained compliance with the New York Stock Exchange. While that was seen as largely positive, recent quarterly results from rival Walgreen Co. - along with a more than $400 million acquisition of drugstore.com, which was announced Thursday - reminded some market watchers why Rite Aid is not yet out of the woods.

"The company is still challenged by poor comps," wrote Gimme Credit LLC analyst Kim Noland in a note to clients. Though February sales were better, they were not as good as many had hoped, she explained. "Although at least the data was positive, it continues to trouble us."

Noland also remarked that while the Camp Hill, Pa.-based drugstore chain had regained listing compliance, "it really can't help provide financing options to the company which has over $6 billion of debt."

Stephanie N. Rotondo contributed to this report

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