Chesapeake, Consol deals lead $6 billion session; new issues trade up; funds gain $640 million

By Paul Deckelman and Paul A. Harris

New York, April 10 - The high-yield primary sphere had a breathtakingly busy day on Thursday, racking up its heaviest single-session new-issuance total so far this year, according to data compiled by Prospect News.

Syndicated sources saw seven issuers bring eight tranches of new dollar-denominated, fully junk-rated paper to market, totaling $6 billion.

That topped the previous 2014 one-day record of $4.98 billion on March 26, the data indicated, although the latter date still holds the record this year for most deals and tranches at nine and 11, respectively.

Thursday's issuance was the most new paper seen in Junkbondland since the $6.04 billion that priced back on Sept. 24, 2013, according to the data - although most of that day's issuance came from just one issuer, General Motors Co., which brought a humongous $4.5 billion of bonds to market in three tranches.

In contrast, no one issuer dominated Thursday's proceedings, although oil and gas operator Chesapeake Energy Corp. did account for half of the day's total. It brought $3 billion in two quickly shopped tranches evenly split between fixed- and floating-rate notes.

Coal and natural gas producer Consol Energy Inc. was also in megadeal territory with a regularly scheduled forward calendar offering of $1.6 billion of eight-year notes.

Several other deals also priced off the calendar after investor roadshows, including engineering and construction company McDermott International Inc.'s $500 million of seven-year secured notes and airline operator Air Canada's $400 million of seven-year unsecured notes.

There were also several drive-by deals seen other than Chesapeake's, including health-care-oriented real estate investment company Medical Properties Trust, Inc., with $300 million of 10-year notes, and a pair of add-ons to existing bonds. Auto-title loan company TitleMax Finance Corp. brought an upsized $140 million addition to its outstanding 2018 secured notes, while Viasystems Group, Inc., an electronic components provider, enlarged its 2019 notes by $50 million.

Traders said the new issues were all finishing the day above their respective issue prices, with Consol and McDermott showing particular aftermarket strength.

The traders said that the new deals were the market's focus and that there was not much going on away from that arena.

However, they did see the bonds of restaurant operator Ruby Tuesday, Inc. and drugstore giant Rite Aid Corp. better, in line with gains in each company's stock, on positive investor reaction to quarterly earnings.

Statistical market-performance measures were mixed on Thursday after having finished better across the board on Wednesday.

Meanwhile, another indicator - the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends - was up solidly for a second consecutive week.

Junk funds gain $640 million

Near the close of Thursday's activity, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $640 million more came into those funds than left them during the week ended Wednesday.

It was the second consecutive weekly inflow seen, coming on the heels of the $493 million cash infusion reported last week for the period ended April 2.

Inflows over the two-week span thus total about $1.13 billion, according to an analysis of the data by Prospect News - more than offsetting the $196 million outflow reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., the week before that, ended March 26. That downturn, in turn, had been the first outflow that the funds had seen after a six-week winning streak dating back to the week ended Feb. 12, during which time an estimated $4.40 billion of cumulative inflows to the funds was recorded, according to the Prospect News analysis.

Inflows have now been seen in eight weeks out of the last nine, resulting in a cumulative net inflow over that time estimated at about $5.34 billion, according to the analysis.

The latest week's inflow was the 11th such gain seen since the beginning of the year, versus just three outflows. Those outflows were the week of March 26th and back-to-back cash losses in the weeks ended Jan 29 and Feb. 5, totaling an estimated $1.88 billion. The inflow brought the year-to-date net inflow up to an estimated $3.95 billion, according to the analysis, its peak level for the year.

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

In 2013, inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, according to the analysis.

Another fund-tracking service, the Cambridge, Mass.-based EPFR Global, meantime saw an inflow almost double that reported by AMG/Lipper.

While EPFR's methodology differs from AMG/Lipper's as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper's strictly domestic orientation, and the two services' weekly numbers usually are also quite different, the results generally point in the same direction, with a rare divergence here and there. EPFR has now seen 12 inflows and two outflows in the 14 weeks since the start of the year.

Analysts said that the sustained flows of fresh cash into junk - and the mutual funds and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of investor money coming into or leaving the more than $1 trillion junk market - has been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past two years and which has mostly continued on into this year as well.

Chesapeake restructures

A torrid Thursday session in the dollar-denominated primary market saw seven high-yield issuers price a combined eight tranches to raise $6 billion.

Five of the eight tranches were done as drive-bys.

Two of the eight were upsized.

Of the seven tranches that saw price talk widely circulated, two came at the tight (or rich) end of talk, three came in the middle or on top of talk, and one came at the wide end. And one tranche came on top of spread talk but tight to price talk.

In a deal that was restructured, Chesapeake Energy priced $3 billion of senior notes (Ba3/BB-) in two tranches.

The quick-to-market deal included a $1.5 billion tranche of five-year floating-rate notes that priced at par to yield Libor plus 325 basis points.

The spread printed on top of spread talk. The reoffer price came rich to the 99.5 price talk.

Joint bookrunner Morgan Stanley & Co. LLC will bill and deliver. Citigroup Global Markets Inc. was also a joint bookrunner.

Chesapeake Energy also priced $1.5 billion of eight-year fixed-rate notes at par to yield 4 7/8%.

The yield printed in the middle of the 4¾% to 5% yield talk.

For the 2022 notes, joint bookrunner Citigroup will bill and deliver. Morgan Stanley, Credit Agricole CIB, Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and Mitsubishi UFJ were also joint bookrunners.

A proposed tranche of non-callable 12-year fixed-rate senior notes was withdrawn.

The Oklahoma City-based oil and gas company plans to use the proceeds from the public offer to purchase its 2015 notes in a concurrent tender offer, to redeem its 2018 notes and to repay its 2012 term loan in full, with any remaining proceeds to be used for general corporate purposes including the purchase, repayment or redemption of debt.

Consol brings $1.6 billion

In a deal that priced following an investor roadshow, Consol Energy priced a $1.6 billion issue of eight-year senior notes (B1/BB) at par to yield 5 7/8%.

The yield printed in the middle of the 5¾% to 6% yield talk.

Joint physical bookrunner JPMorgan will bill and deliver for the debt-refinancing deal. Credit Suisse was also a joint physical bookrunner.

BofA Merrill Lynch, Goldman Sachs & Co. and Wells Fargo Securities LLC were joint bookrunners.

McDermott at the tight end

McDermott International priced a $500 million issue of seven-year senior secured second-lien notes (B1/BB) at par to yield 8%, at the tight end of the 8% to 8¼% yield talk.

Goldman Sachs ran the books.

The Houston-based engineering and construction company plans to use the proceeds to refinance its revolver and for general corporate purposes.

Air Canada upsizes

Air Canada priced an upsized $400 million issue of seven-year senior notes (Caa2/B-/B-) at par to yield 7¾%.

The deal was upsized from $300 million.

The yield printed at the tight end of the 7¾% to 8% yield talk.

JPMorgan, Citigroup, Credit Suisse and Morgan Stanley were the joint bookrunners for the general corporate purposes deal.

Medical Properties drives by

Medical Properties Trust priced a $300 million issue of 10-year senior notes (Ba1/BB) at par to yield 5½% in a quick-to-market transaction.

The yield came at the wide end of yield talk in the 5 3/8% area.

BofA Merrill Lynch was the left bookrunner. JPMorgan, Barclays and KeyBanc Capital Markets were the joint bookrunners.

Proceeds will be used to repay the trust's revolver and for general corporate purposes, which may include investing in additional health-care properties.

TitleMax at the rich end

TitleMax Finance, issuing via its TMX Finance LLC unit, priced an upsized $140 million add-on to its 8½% senior secured notes due Sept. 15, 2018 (B3/B) at 105.75 to yield 6.963%.

The deal was upsized from $125 million.

The yield printed at the rich end of the 105.5 to 105.75 yield talk.

Jefferies LLC and Morgan Stanley were the joint bookrunners for the general corporate purposes deal.

Viasystems taps 7 7/8% notes

Viasystems Group priced a $50 million add-on to its 7 7/8% senior notes due May 1, 2019 (B1/B+) at 107 to yield 5.903%.

Wells Fargo and Stifel Nicolaus & Co. Inc. were the bookrunners for the quick-to-market deal that was driven by reverse inquiry.

The St. Louis-based company plans to use the proceeds for general corporate purposes, including to supplement its short-term cash on hand while it recovers its losses related to the September 2012 fire in its Guangzhou manufacturing facility from its insurer.

Talking the deals

Looking to the Friday session, FTS International, Inc. talked its $500 million offering of eight-year senior secured notes (B2/B-) to price with a yield in the 6¼% area.

The deal is set to price Friday morning.

Wells Fargo is the left bookrunner. BofA Merrill Lynch, UBS Investment Bank and Barclays are the joint bookrunners.

Meanwhile, Atrium Windows and Doors, Inc. modified the structure of its $300 million offering of five-year senior secured notes (Caa1/B-), made covenant changes and set price talk.

The deal is talked to price at an original issue discount of about one point with a yield in the 8% area.

Call protection is increased to 2.5 years from two years. The first call premium is increased to par plus 75% of the coupon from par plus 50% of the coupon. A special call provision that would have allowed the issuer to redeem 10% of the notes annually at 103 during the non-call period is removed.

There were also covenant changes. (See related story in this issue.)

Physical bookrunners are Barclays and Deutsche Bank.

Caesars Growth roadshow

Caesars Growth Properties began a roadshow on Thursday in New York City for its $675 million offering of eight-year second-priority senior secured notes (Caa2/B-).

Citigroup, Credit Suisse, Deutsche Bank, UBS, JPMorgan, Morgan Stanley, Macquarie and Nomura are the joint bookrunners.

The casino development company plans to use the proceeds to purchase four properties from Caesars Entertainment Operating Co.

SGD starts roadshow

In the European high-yield primary, France-based SGD Group SAS (France) started a roadshow for a €335 million offering of five-year senior secured notes.

Joint global coordinator JPMorgan will bill and deliver. Credit Suisse is also a joint global coordinator. BNP Paribas is the joint bookrunner.

Proceeds will be used to refinance debt.

Eden Springs starts Friday

Sweden's Eden Springs plans to start a roadshow on Friday for a €210 million offering of five-year senior secured floating-rate notes (expected ratings B2/B), according to a market source.

The roadshow is scheduled to wrap up on April 17.

Joint global coordinator Credit Suisse will bill and deliver for the debt-refinancing deal. Jefferies, Rabobank and UBS are also joint global coordinators.

Consol climbs in trading

In the secondary arena, traders saw the new Consol Energy 5 7/8% notes due 2022 trading at solidly higher levels after the Pittsburgh-based coal and natural gas producer had priced its $1.6 billion deal at par.

"Consol went pretty well," one trader said. "We thought the pricing was attractive. We thought it [would yield] anywhere around the 6% area - 5¾% to 6%. We thought it was very attractive. We thought it could trade to the 5½% to 5 3/8% level, and it looks like it got there right away."

He saw the new bonds at 101½ bid, 102 offered.

Another trader saw the paper going out at 101 bid, 101½ offered.

The company's existing paper was also showing up on the radar screens on Thursday. A market source quoted its 8¼% notes due 2020 at 108 7/8 bid - down 3/8 point on the day. Over $5 million of those bonds traded.

Consol's 8% notes due 2017 also saw action - though at the end of the day, they were going home about unchanged at 104 7/8 bid, also on $5 million of volume.

Chesapeake churns higher

Both halves of the day's big deal - Chesapeake Energy's restructured $3 billion two-part issue - were trading at solidly higher levels, a market source said.

He said that the company's floating-rate notes due 2019 had moved up to 101½ bid, 102 offered after pricing at par earlier, while its 4 7/8% notes due 2022 gained more modestly to touch 100¼ bid, 100¾ offered, also up from par.

Its outstanding 9½% notes due 2015 meantime gained 5/8 point on the day, to about 107 3/8 bid, on volume of over $19 million.

Air Canada flies high

Air Canada's 7¾% notes due 2021 were seen by traders having gained some altitude, with one seeing the Montreal-based Canadian air carrier's bonds at 100¾ bid, 101¾ offered.

That was up from the par level at which the bonds had come to market after upsizing from an originally shopped $300 million.

A second trader saw the bonds even better, quoting them at 101½ bid, 102 offered.

Elsewhere among the new issues, a trader saw the new McDermott International 8% second-lien senior secured notes due 2021 bid at 101, while hearing offers at high as 102 3/8, opining that the such a spread was "wide enough to drive a truck through."

A second trader quoted the notes going home at 101¾ bid, 102¼ offered.

Rite Aid, Ruby Tuesday rally

Away from the new deals, a market source saw Rite Aid's 6¾% notes due 2021 firm to 109½ bid, a 11/4-point gain.

At another desk, its 9¼% notes due 2020 were seen up ½ point at 114¾ bid.

That followed the Camp Hill, Pa.-based No. 3 U.S. drugstore chain operator's announcement that it had notched its sixth consecutive profitable quarter in its 2014 fiscal fourth period and its second straight full-year profit.

Rite Aid also reported progress in cutting its debt, lowering its interest costs and extending its maturities during the just-concluded fiscal year. (See related story elsewhere in this issue.)

Also on the earnings front, Ruby Tuesday's 7 5/8% notes due 2020 shot up to 95¼ bid from prior levels around 90, although there were only a few round-lot trades, and most of the day's activity was in smallish odd-lot transactions.

The bonds gained after the Maryville, Tenn.-based restaurant chain operator and franchisor "reported better-than-expected results," a trader said, even though the company still ended up losing money during the quarter.

But since expectations were so low to begin with, "third-quarter sales beat estimates, and they boosted their fourth-quarter outlook," he said.

He opined that "the guys who had gone on a short spree there were trying to cover like crazy."

Indicators turn mixed

Statistical junk performance indicators turned mixed on Thursday after having been better across the board on Wednesday. Before that, they had moved lower on Tuesday to break a string of three consecutive mixed sessions.

The Markit Series 22 CDX North American High Yield index dropped by ½ point on the session to close at 107 bid, 107 1/16 offered. On Wednesday, it had gained 3/8, pulling out of a three-session skid lower before that.

But the KDP High Yield Daily index stayed in positive territory for a second straight day. It rose by 4 bps to finish at 75.10, which came on top of Wednesday's gain of 6 bps.

Its yield, meanwhile, also narrowed for a second straight session, coming in by 2 bps to 5.20%. It had declined by 3 bps on Wednesday after rising over the two sessions before that.

And the widely followed Merrill Lynch High Yield Master II index also stayed on the plus side on Thursday, its second consecutive improvement. Wednesday's gain had followed Tuesday's rare downturn, which had snapped a seven-session winning streak before that.

It rose by 0.099% on Thursday, on top of Wednesday's 0.057% advance. It had lost 0.002% on Tuesday.

Thursday's improvement raised its year-to-date return to 3.399% - a second consecutive new peak level for 2014 so far. It was up from Wednesday's 3.297%, which had been the previous peak level for the year so far.

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