WOW! restructures; Unit prices add-on; SuperValu swoons on numbers; funds gain $1.49 billion

By Paul Deckelman and Paul A. Harris

New York, July 12 - WOW! Internet Cable & Phone came to market on Thursday with its restructured $1.02 billion two-part offering of senior and senior subordinated notes, high-yield syndicate sources said.

When the mega deal hit the aftermarket, the senior tranche was heard to have firmed a little, but not the subordinated piece.

The primary side also saw a quick-to-market $400 million add-on deal from energy exploration and production operator Unit Corp., which did not trade in the secondary market.

Two names joined the forward calendar. Syndicate sources heard that convenience store operator Pantry, Inc. and Dutch marine transport company Fairstar Heavy Transport NV will be shopping issues around.

Away from the dollar market, talk emerged on German chemical film manufacturer Klockner Pentaplast GmbH & Co. KG's euro-denominated five-year deal, which is expected to price on Friday.

In the secondary market, SuperValu Inc. was by far the big-volume leader. The supermarket operator's various bond issues were viciously hammered down in very heavy trading - some credits losing 10 points or more - in response to Wednesday's release of poor quarterly numbers, forcing the company to explore strategic alternatives.

Taking a cue from Wall Street, where stocks slid across the board for a sixth consecutive session amid warnings about tech-sector weakness, the heretofore fairly strong junk bond market also moved generally lower, as borne out by statistical performance measures.

However, technical factors, such as liquidity, remain positive, with both of the major agencies that track high-yield mutual funds, a key liquidity indicator, reporting a fifth consecutive week of strong inflows.

AMG up by $1.49 billion

As Thursday's session was wrapping up, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.49 billion more came into those funds than left them.

It was the fifth consecutive strong showing by the junk mutual and exchange-traded funds in as many weeks. It came on the heels of the $779 million inflow seen the previous week, which ended July 4.

Those five inflows also included a $960 million gain in the week ended June 27, a massive cash injection of $1.2 billion in the week ended June 20 and the $568 million cash addition the week before that, which ended June 13.

The inflows, collectively worth just under $5 billion, have represented a solid turnaround from the pattern of weakness seen in the four weeks before that, dating back to the week ended May 16, when a total of $6.43 billion of outflows were recorded from those funds, according to a Prospect News analysis of the figures. That included two huge cash hemorrhages: $2.9 billion in the week ended June 6 - the third-largest cash loss on record since Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, began tracking fund flows some years ago - and $2.46 billion seen in the week ended May 23.

On a year-to-date basis, the latest inflow pulled the cumulative net inflow figure up to around the $22 billion mark, according to the analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters, the company said.

However, the cumulative inflow still remains well below its peak level for 2012 of an estimated $24 billion seen in the week ended May 9, according to the analysis.

Including an outflow seen earlier in the year - the $1.29 billion recorded in the week ended April 11 - there have been just five outflows seen so far this year, while inflows have now been seen in 23 out of the 28 weeks since the start of the year.

EPFR: Funds up $2.65 billion

A rival fund-tracking service, Cambridge, Mass.-based EPFR Global, reported that in the week ended Wednesday, $2.65 billion more came into the funds it follows than left them, confirming the recent turnaround in the fund-flow trajectories.

EPFR said that the inflow was the biggest it has seen in 22 weeks, since the gigantic $3.55 billion cash injection seen in the week ended Feb. 8 - EPFR's second highest ever.

As was the case with the AMG Lipper numbers, EPFR - which uses a different methodology, but whose numbers usually point in the same direction as AMG - reported that this was the fifth consecutive large inflow number, and it followed the previous week's $1.7 billion cash addition.

That in turn had followed inflows of $1.8 billion in the week ended June 27, $1.58 billion in the week ended June 20 and $391 million the week ended June 13.

Those four inflows followed four straight weeks of sizable outflows, including the $3.6 billion that had left the funds in the week ended June 6.

The latest inflow lifted EPFR's year-to-date total return to about $36.3 billion, according to an analysis of the figures.

Cumulative fund-flow estimates, whether from AMG/Lipper 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 observable and 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, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's strong performance during the first half of this year versus other fixed-income asset classes and its relatively active new-deal pace, with issuance volume not running too far behind last year's totals.

WOW! prices $1.02 billion

The Thursday primary market saw two issuers bring a combined three tranches of junk, raising a total of $1.41 billion.

WOW! Internet Cable and Phone priced a restructured $1.02 billion two-part notes transaction (Caa1/CCC+).

Final pricing saw $25 million shifted to the senior tranche from the subordinated tranche.

The senior tranche was an upsized $725 million issue of seven-year senior notes that priced at par to yield 10¼%.

The issue was upsized from $700 million. The yield and reoffer price came on top of price talk, which was tightened from earlier talk that had the notes pricing at a discount of zero to one point to yield 10¼%.

The subordinated tranche was a downsized $295 million issue of 13 3/8% senior subordinated notes due on Oct. 15, 2019 that priced at 98.337 to yield 13¾%.

The subordinated tranche was downsized from $320 million.

The coupon and yield came on top of revised talk. The reoffer price came slightly rich to the roughly 98.25 price talk. Talk on the subordinated notes widened from earlier talk that had them coming in the 13% area, including zero to one point of original issue discount.

The $25 million shifted to the senior notes from the subordinated notes reflected demand, market sources said. They noted that demand for the 10¼% senior notes was sufficient to enable the dealers to withdraw the previously proposed original issue discount.

The par-pricing 10¼% senior notes were wrapped around 101 on Thursday afternoon, according to a market source who watched the deal and who added that the 13 3/8% subordinated notes will not likely be extensively traded.

Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, RBC Capital Markets, LLC, SunTrust Robinson Humphrey Inc. and Mitsubishi UFJ Securities (USA) Inc. were the joint bookrunners for the acquisition financing and debt refinancing deal, which originally came into the market as a single $1.02 billion tranche of eight-year senior notes.

Unit drives by

The drive-by market remained active on Thursday. Unit Corp. priced a quick-to-market, upsized $400 million add-on to its 6 5/8% senior subordinated notes due May 15, 2021 (B2/BB-/BB-) at 98.75 to yield 6.814%.

The reoffer price came at the rich end of the 98.50 to 98.75 price talk.

The deal went sufficiently well to bring about the $50 million upsizing and tight pricing, a syndicate source commented.

Bank of America Merrill Lynch and BMO Capital Markets Corp. were the joint bookrunners.

The Tulsa, Okla.-based oil and gas company plans to use the proceeds to partially fund the acquisition of strategic oil and gas assets in the Granite Wash, Cleveland and Marmaton plays from Noble Energy, Inc. and for general corporate purposes.

The original $250 million issue priced at par in May 2011. The add-on notes will become fungible with the original issue upon registration.

Talking the deals

Looking to the Friday session, Germany's Klockner Pentaplast talked its €255 million offering of five-year senior secured second-priority notes (expected ratings Caa1/CCC) to yield 11¾% to 12%.

Earlier guidance had the deal coming at 11½% to 12%, according to a buyside source.

The bonds are set to price on Friday via bookrunner Jefferies & Co. Inc.

Also Canada's Golf Town Canada Inc. and Golfsmith International Holdings, Inc. talked their C$150 million offering of five-year senior second-lien notes (S&P: B/DBRS: B (low)) to yield 9½% to 10%.

Pricing is expected on Friday at the earliest.

Scotia Capital Inc., TD Securities Inc. and BMO are the bookrunners.

Fairstar plans dollar deal

Fairstar Heavy Transport plans to conduct a roadshow during the July 23 week for its $335 million offering of five-year senior secured notes, according to a company source.

Imperial Capital will lead the deal.

The marine transport company, which is based in Rotterdam, the Netherlands, plans to use the proceeds to refinance its current one-year facility with ING Bank.

In addition, proceeds will be used to provide liquidity to meet Fairstar's current liabilities, including any of the outstanding unsecured Norwegian krone-denominated bonds that may be put to the company on Monday as the result of Dockwise White Marlin BV's recent purchase of more than 33% of Fairstar's outstanding shares.

Also, $20 million will be applied to fund the second installment of the semi-submersible vessel Fathom. The company announced its plans to build the vessel on April 20.

The remaining proceeds will be used for general corporate purposes.

WOW! senior bonds firm

When WideOpenWest Finance LLC's big two-part deal was freed for aftermarket activity, traders said it didn't exactly live up to the company's name and really "WOW!" everyone, the way some other recent new deals have done. But the senior portion, at least, did trade at respectable levels.

A trader saw those 10¼% notes due July 2019 trading at 100 5/8 bid, 100 7/8 offered, up from the par level where the Denver-based telephone and broadband service provider's upsized $725 million senior tranche priced.

A second trader pegged those bonds even a little better in the aftermarket at 100¾ bid, 101¼ offered.

However, the first trader saw the other half of that deal - the downsized $295 million of 13 3/8% senior subordinated notes due October 2019 - at 97¾ bid, 98 offered, below the 98.337 issue price.

The second trader said that he had not seen the subordinated tranche trading around.

Beazer holds gains

Traders said that Beazer Homes USA Inc.'s new 6 5/8% senior secured second-lien notes due 2018 remained pretty much around the levels to which they rose in their initial aftermarket activity after pricing on Wednesday.

One trader saw the bonds Thursday at 100¾ bid, 101 offered, while a second said that he saw a bunch of small trades locked at 100 7/8 on both sides.

"The bid side was real," he said, in estimating that the Atlanta-based builder's new issue was going out at 100 7/8 bid, 101¼ offered.

The quickly shopped $300 million deal priced at par after being upsized from an originally announced $275 million, and in Wednesday's secondary dealings, it had moved up to around the 1003/4-to-101 area.

Beazer's existing 12% senior secured notes due 2017 - which are to be redeemed using the proceeds from the new deal - were seen trading busily, with over $11 million of turnover. They went out at 108 3/8 bid, around the anticipated takeout level.

Recent deals hold their levels

Going back a little farther, a trader saw the new 5¾% notes due 2020 from SBA Communications Corp. trading around 102 bid, 102½ offered, little changed from the levels that the Boca Raton, Fla.-based communications antenna tower operator's new issue hit after pricing on Tuesday and then held on Wednesday.

On Tuesday, the quick-to-market $800 million deal - upsized from an originally announced $650 million - priced at par then moved up to around 101½ bid, 102½ offered.

A second trader did see them Thursday off a little from their peaks at 101¾ bid, 102 offered.

A trader meantime said that Eagle Rock Energy Partners LP's new $250 million add-on offering of 8 3/8% notes due 2019 was offered at 98½ on Thursday, though he saw no bid side. The Houston-based midstream natural gas company's quickly shopped deal priced at 98.501 on Tuesday to yield 8.666% and traded on Wednesday around 98 5/8 bid, 98¾ offered.

Wellington, Fla.-based aircraft interior and components maker B/E Aerospace Inc.'s 5¼% notes due 2022 were trading Thursday at 103 bid, 103½ offered. A trader opined that "for a 5¼% coupon, that's pretty impressive."

That opportunistically timed, quickly shopped $800 million add-on to its existing series of 2022 bonds priced on Monday at 102 to yield 4.934% after being upsized from an original $675 million. The new bonds were seen having gained a little altitude in initial aftermarket dealings, moving up to 103 bid. They stayed there Tuesday but had not been seen trading on Wednesday.

B/E's 6 7/8% notes due 2020 were quoted trading at 110 on volume of more than $9 million.

A trader saw the new CHS/Community Health Systems Inc. 7 1/8% notes due 2020 having moved up a little on Thursday to 102 bid, 102¼ offered, while a second also saw them bid at 102, though he had not seen any right side.

A market source said activity was brisk, with more than $18 million having changed hands by mid-afternoon.

The Franklin, Tenn.-based hospital operator priced its $1.2 billion drive-by deal - upsized from an originally announced $1 billion - at par on Monday, with several traders having then seen the bonds trading around the 1013/4-to-102 level and again on Tuesday

Its existing 8% notes due 2019 hovered around 106 1/8 bid on mid-afternoon volume of more than $9 million.

Market measures head south

Away from the new-deal arena, statistical market performance measures were lower across the board on Thursday after having turned higher on Wednesday.

A trader saw the Markit Group CDX North American Series 18 High Yield index down 3/8 point on Thursday to end at 95 7/8 bid, 96 3/8 offered. It was unchanged on Wednesday.

The KDP High Yield Daily index dropped by 17 bps Thursday to 73.49 after having gained 7 bps in Wednesday's dealings. Its yield rose by 4 bps to 6.43% on Thursday after having narrowed for 10 consecutive sessions before that, including Wednesday, when it came in by 2 bps.

And the widely followed Merrill Lynch U.S. High Yield Master II index finally gave up the ghost and turned lower on Thursday, albeit only slightly, after having recorded gains in the previous 12 sessions.

It lost 0.09% Thursday, versus Wednesday's 0.082% rise.

That left its year-to-date return at 7.843%, down from Wednesday's 7.94% reading - the peak level for 2012 so far and the highest the index has been since the end of 2010, when it returned 15.19%.

SuperValu a super loser

Among specific names, traders said that SuperValu stood out. It was getting crushed after the Eden Prairie, Minn.-based operator of such supermarket chains as Albertsons, Save-A-Lot, Osco, Jewel and Shaw's, to name just a few, reported sharply lower-than-expected earnings in the latest quarter, suspended its dividend and said it would evaluate strategic alternatives. "Not exactly a 'buy' signal," one trader observed.

Its 8% notes due 2016 were far and away the volume leader, with over $88 million recorded. A trader quoted the bonds at 90 bid, 91 offered, calling them down 10 points on the session. "This is an ugly story," he declared - no small understatement.

He saw more than $65 million of the company's 7½% notes due 2014 having changed hands, calling them down at least 4½ points, at the 96-to-97 bid range. He added that "as soon as we're done talking, [that quote] is probably going to be old. They're still banging away at those things.

"That's a lot of pain."

Another active issue was the 7¼% notes due 2013 originally issued by Albertsons prior to its 2006 acquisition by SuperValu. More than $30 million of those bonds changed hands, a trader said, losing more than 2 points to go down to around a 98-99 context.

"They're trading below par, with just 10 months to go to maturity," he said, a sure sign of investor caution on a short piece of paper that would normally be considered money good.

At the longer end of the spectrum, a trader said that the company's 8% bond due 2031 "got its head handed to it today," seeing that issue having nosedived by 15 or 16 points all the way down to 62 bid, 64 offered.

While that was the biggest-magnitude loss, he said, activity fell off considerably from the shorter bonds - only about $5 or $6 million.

"The shorter ones weren't down as much," another trader agreed, although he too saw the relatively short 2016 bonds getting pounded down over 10 points.

SuperValu's New York Stock Exchange-traded shares were getting bombed just as badly if not more so, losing $2.60, or a breathtaking 49.5% of their value, to end at $2.69. Volume of 72 million shares was over 10 times the norm.

The bonds and shares came under fire after the company reported late Wednesday that fiscal first-quarter profits slid by 45% from a year ago to just 19 cents per share - only half of what Wall Street had been expecting.

Revenue fell 4.5% to $10.6 billion, below expectations for $10.8 billion.

SuperValu said that it would look at strategic alternatives - which could include the sale of the whole company - although observers said that its heavy debt burden of more than $6 billion makes that a less-likely scenario.

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