Polkomtel prices, pops, Ardagh appears; Kodak crushed on Chapter 11; junk funds' gains go on

By Paul Deckelman and Paul A. Harris

New York, Jan. 19 - A pair of European issuers were heard by high-yield syndicate sources to have come to market on Thursday with dollar-denominated junk deals.

Polish telecommunications operator Polkomtel SA did an upsized and restructured offering to eight-year notes denominated in dollars and euros, after dropping a third tranche of local-currency bonds. Both surviving tranches priced at a discount to par and were seen having moved up in the aftermarket.

Irish container-maker Ardagh Packaging meantime did an all-dollar two-part issue consisting of add-ons to existing bonds, one fungible and the other one not. The slightly upsized deal did not appear on the scene in time to trade around.

Even away from the issues that actually priced, non-U.S. borrowers continued to dominate the primary sphere on Thursday, as price talk emerged on dollar-denominated offerings from Belgium's Taminco Global Chemical Corp. and British telecommunications operator Cable & Wireless Communications plc. Both deals could price on Friday.

So could a pair of domestic offerings, from building materials producer Summit Materials LLC and from Westmoreland Coal Co.

Tuesday's mega-deal from Fresenius Medical Care US Finance II Inc. - yet another overseas-domiciled issuer - was heard by traders to have hung on to the aftermarket gains the bonds had reached on Wednesday.

Apart from the new-issue universe, Junkbondland was seen mostly firm, with stronger statistical indicators.

Sears Holdings Corp.'s paper was probably the busiest and the retailer's bonds continued to move up from recent lows.

But Eastman Kodak Co. bucked the generally positive trend and retreated after the once-mighty American manufacturing icon filed for bankruptcy protection.

AMG posts $1.35 billion inflow

A junk bond trader predicted that "the inflow number should be pretty decent" - and he was absolutely right.

As Thursday's session was coming to a close, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday $1.35 billion more came into those weekly-reporting funds than left them.

It was the third consecutive gain so far in the new year, coming on the heels of the $1.786 billion cash infusion seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - in the week ended Jan. 11. There have been no outflows so far in 2012, while net inflows have totaled $3.91 billion, according to a Prospect News analysis of the numbers, up from $2.531 billion the week before.

It was also the seventh consecutive inflow, a streak that dates back to early December and includes a massive $1.94 billion gain seen in the week ended Dec. 7. Over that seven-week stretch, net inflows have totaled some $7.022 billion, according to the Prospect News analysis.

EPFR sees $1.63 billion gain

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a seventh straight week of inflows to start the new year off on the same kind of positive note that the old year had ended upon.

It saw a $1.63 billion inflow in the week ended Wednesday, on top of the previous week's $1.94 billion. With no outflows recorded yet three weeks into the year, EPFR's year-to-date inflows stand at $4.71 billion, according to an analysis of the figures.

During the seven-week winning streak dating back to the first week in December, $7.583 billion more has come into those funds than has left them, according to the analysis.

A junk trader was not surprised; he noted the fact that EPFR - which also reports junk fund inflows and outflows on a daily basis - "hasn't had an outflow since back on Dec. 23. Cash just keeps coming into the junk market."

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ markedly since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from 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 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 fairly strong performance so far this year.

Another trader frankly declared that "we speak to accounts that realize that a lot of things in their portfolios are perhaps overvalued - but they don't want to sell because they have so much cash.

"They're not going to get rich putting it in a money-market account."

Polkomtel's dual currency deal

The primary market saw two Europe-based issuers price a combined three tranches of notes on Thursday, to raise totals of $902 million and €522 million.

Poland-based mobile-phone company Polkomtel priced €920 million equivalent of eight-year senior notes (B1/B+) in two tranches.

The deal included €542.5 million of 11¾% notes which were priced at 96.268 to yield 12 ½%. The yield printed at the wide end of the 12¼% to 12½% price talk.

Polkomtel also priced a $500 million tranche of 11 5/8% notes at 98.1 to yield 12%, on top of price talk.

Deutsche Bank and Credit Agricole were the global coordinators and joint bookrunners. Royal Bank of Scotland and SG were joint bookrunners.

Proceeds will be used to take out bridge financing backing the $5.5 billion equivalent acquisition of Polkomtel, Poland's second-largest mobile-phone company, by investor Zygmunt Solorz-Zak.

A struggle for Polkomtel

An investor in the United States who played the Polkomtel euro-denominated tranche said that the deal struggled somewhat, although after the break the euro notes traded to 98¼ bid, 98½ offered, away from the bookrunner.

The bonds were originally slated for early to mid December 2011 but were sidelined when volatility related to the credit crisis in the euro zone adversely impacted yield discussions.

The dollar-denominated tranche did not appear to go well, the investor said, adding that a number of U.S. accounts who looked at the dollar deal ultimately chose not to play.

Perceptions of the deal seemed to shift during the time it was in the market, the investor added, noting that it burst on the scene with the cachet of a European corporate, but was increasingly perceived as an emerging markets corporate as marketing went on.

Also the removal of the planned Polish zloty-denominated tranche did the deal no good, the investor added.

"When the locals don't want any it's a bad sign."

Ardagh prices two-parter

Elsewhere on Thursday, Ireland's Ardagh Packaging priced $420 million of notes in two tranches.

The fungible senior tranche was a $160 million add-on to Ardagh Packaging Finance plc's 7 3/8% senior secured notes due Oct. 15, 2017 (Ba3/BB-). The add-on priced at 100.476 to yield 7¼%. The reoffer price came rich to the par area price talk.

The original $350 million issue priced at par on Sept. 30, 2010.

The non-fungible junior tranche was a $260 million issue of notes mirroring Ardagh Packaging Finance plc and Ardagh MP Holdings USA Inc.'s 9 1/8% senior notes due Oct. 15, 2020 (B3/B-). The mirror notes priced at 96.356 to yield 9¾%. The reoffer price came rich to the 96 area price talk.

Citigroup ran the books.

The Dublin, Ireland-based supplier of glass and metal packaging plans to use the proceeds for general corporate purposes, including acquisitions and debt repayment.

Ten-times demand for 7 3/8s

The Ardagh deal "got a little crazy," according to one investor who was played, and who added that some buy-side people felt "squeezed."

Initially both tranches were discussed in a "low-99s" context, the buysider recounted.

However with the order book for the fungible 7 3/8% senior tranche being 10-times oversubscribed, price talk moved to par, and pricing ultimately came just shy of par 1/2.

With the intense demand for the fungible paper it became necessary to play the non-fungible 9 1/8% senior notes in order to secure an allocation of the fungible paper, the buysider added, noting that this bargain caused the order book for the non-fungible paper to be two-times oversubscribed.

Talking the deals

A relatively busy Friday is on tap for the primary market.

And again - as has been the theme throughout the week - Friday will have something of a European flavor.

Having achieved better than expected pricing on its term loan, Belgium's Taminco Global Chemical upsized it to $505 million from $452 million and downsized the concurrent bond offering to $400 million from $452 million.

The bonds, eight-year second-priority senior secured notes, are talked with a 9¾% to 10% yield.

Timing on the bonds has been moved forward. Books close at noon ET on Friday, and the deal is set to price after that. The roadshow was initially planned to carry into the week ahead.

Credit Suisse, UBS, Citigroup, Nomura, Deutsche Bank and Goldman Sachs are the joint bookrunners for the LBO deal.

Pricing on Taminco's term loan saw the Libor spread drop to 500 basis points from 525 bps, while the original issue discount narrowed to 98 from 97.

Those price moves prompted the re-sizing of the financing, an informed source said.

Meanwhile England's Cable & Wireless Communications talked its $350 million offering of eight-year senior secured notes (Ba2) with an 8¾% to 9% yield.

The books close at 9 a.m. ET on Friday, and the deal is set to price after.

JPMorgan, Barclays, HSBC, and Royal Bank of Scotland are the underwriters.

Turning to Canada, Western Energy Services Corp. set the minimum deal size and price talk on Thursday for its seven-year senior notes.

The C$125 million offering of notes due Jan. 27, 2019 (B3/B+) is talked to yield in the 8% area.

RBC is the bookrunner for the debt refinancing and general corporate purposes deal.

There is one other Canadian dollar-denominated deal on the active forward calendar.

Price talk is expected on Friday for Cash Store Financial Services Inc.'s C$125 million offering of five-year senior secured notes, in the market via bookrunners Imperial Capital and Canaccord Genuity.

Polkomtel pops after pricing

In the secondary market, a trader said that the new Polkomtel dollar-denominated bonds "did pretty well," seeing the Warsaw-based wireless telecom operator's eight-year notes at par bid, 100½ offered - well up from the 98.1 level at which that $500 million tranche had priced.

After pricing in Europe, the bonds had initially moved up to 99¼ bid, 99¾ offered, according to a market source, who also saw the other half of that deal - €542.5 million of eight-year notes - at 97¾ bid, 98¼ offered, up from their 96.628 pricing level.

As trading moved into the States, several traders saw the dollar bonds, at least, move up to around par, also noting that the bonds had come at a discount.

Ardagh Packaging's two-part dollar-denominated offering of fungible and non-fungible add-ons to its existing bonds came to market too late for aftermarket dealings on Thursday.

Fresenius stays firm

Traders saw the new Fresenius Medical Care US Finance II two-part deal, which had priced on Tuesday, continuing to hold the gains those bonds notched when they began trading on Wednesday and moved up to around the 101 bid level from a par issue price for both tranches.

But there was not much activity seen in the Bad Homburg, Germany-based healthcare company's $1.5 billion offering.

Fresenius - which provides products and services to kidney dialysis patients - priced $800 million of 5 5/8% notes due 2019 and $700 million of 5 7/8% notes due 2022 at par.

The bonds came too late in Tuesday's session for trading, and then both tranches pushed up to 101 bid on Wednesday.

On Thursday, a trader said the bonds "haven't done much." About an hour before the closing, he quoted the bonds trading in a narrow range between 101 and 101 3/8.

Another trader said they were firm, adding perhaps 1/8 to ¼ point from Wednesday's close. He pegged the bonds at 101 1/8 bid, 101½ offered.

A third trader saw them going out at 101¼ bid, 101½ offered.

The first trader theorized that junk players might not be terribly enthused by the relatively low coupon the company was able to get the issue priced with.

"With the lower coupon, they may be a little Treasury-sensitive to a certain extent - and Treasuries gave up some ground in the last few sessions."

He also speculated that "when you [as a junk participant] start seeing paper with a "five coupon, you say "oh my God!"

Market moves continues

Away from the new-deal sphere, statistical measures of junk market performance - which were up both Tuesday and Wednesday - extended their gains on Thursday.

A trader saw the CDX North American Series 17 High Yield index gain 3/8 point on Thursday to finish at 95 13/16 bid, 95 1/16 offered - its highest level since the 96¾ bid, 96 7/8 offered seen back on Aug. 4, 2010. On Wednesday, the index had risen by a full point.

The KDP High Yield Daily Index zoomed by 26 basis points on Thursday to end at 73.08, after having been unchanged on Wednesday.

Its yield - which had also been unchanged on Wednesday - narrowed by 8 bps Thursday to 7.17%.

And the Merrill Lynch High Yield Master II Index rose for a fourth straight session on Thursday, rising by 0.336%, on top of Wednesday's 0.071% advance.

That latest gain raised the index's year-to-date return to 1.601% for the year, a new 2012 peak level. That was up from Wednesday's 1.261% which had been the previous peak level for the year so far.

A trader said that junk was "better again" on Thursday, up ½ point to a full point. He said that "one of the easy ways to see it was Ally Financial's 8% notes due 2031, traded "up with a 102 handle - up another 1 to 2 [points] kind of thing."

Sears boosted by CIT news

Once again, the busiest junk issue, as has been the case over a number of recent sessions, was Sears Holdings' 6 5/8% notes due 2018 - a market source saw over $49 million of the bond having changed hands.

A trader said that Sears was better on word that CIT Group was again providing financing to the retailer's vendors.

He called the notes up "almost 3 [points]" at 831/2.

Another trader said the bonds "got a bit of a pop," quoting the issue at 83 bid, 83½ offered.

"That helped," he said of the CIT news.

Last week, it was reported that CIT was halting loans to Sears' vendors. Though the lender has agreed to provide financing, it is also looking for more detailed information about Sears' finances and may require letters of credit for orders.

Rumors have been circulating recently that the company's chairman, Eddie Lampert, is considering taking the company private. Last month, the struggling Hoffman Estates, Ill.-based retailer said it intended to shutter 120 underperforming stores in an effort to bolster its balance sheet.

Negative developments for Kodak

On the downside, Kodak announced Thursday that it had filed for Chapter 11 protections in order to reorganize its business, causing its junior bonds to retreat by as much as 5 points.

The filing answered the question that has been plaguing investors for months: Will they or won't they?

On the news, the bonds began to trade flat, or without accrued interest.

One trader called the 7¼% notes due 2013 down a point at 291/2.

A second said that the bonds were actually down 4 points or so from their last previous round-lot trading levels around 33-34.

The first trader meantime said that Kodak's 9¾% notes due 2018 and 0 5/8% notes due 2019 "looked higher," he said. "Interesting."

The 9¾% notes were up 5 to 6 points, the trader said, at 86 bid, 87 offered. The 10 5/8% notes were also quoted at 86 bid, 87 offered, up 6 or 7 points.

However, the traders saw no round-lot trading at those levels and even limited odd-lot dealings. They said the 7¼% notes were considerably busier, with some size trading going on.

The Rochester, N.Y.-based photo imaging technology company said it was filing for bankruptcy in an effort to "bolster liquidity in the U.S. and abroad, monetize non-strategic intellectual property, fairly resolve legacy liabilities and enable the company to focus on its most valuable business lines."

Citigroup has provided a $950 million 18-month debtor-in-possession facility "to enhance liquidity and working capital," Kodak said in a statement. "The company believes it has sufficient liquidity to operate its business during chapter 11 and to continue the flow of goods and services to its customers in the ordinary course."

Though the indication that the company has "sufficient liquidity" to operate while in bankruptcy, Dave Novosel, a senior analyst with Gimme Credit LLC, thought such a statement "calls into question why the company needed to draw on its revolver back in the fall.

"We may learn more next week as Kodak is scheduled to release fourth quarter earnings," he said in an intraday comment posted on the firm website.

Stephanie N. Rotondo contributed to this report

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