Ball megadeal, Targa, Claire's lead $2.6 billion session; Gastar on tap; funds up $789 million

By Paul Deckelman and Paul A. Harris

New York, May 9 - The high-yield primary sphere remained active on Thursday, although it did not come close to matching the frenetic pace established on Wednesday when around a dozen deals came to market, easily the busiest day so far this year in terms of the sheer number of transactions.

Syndicate sources saw only five deals getting done on Thursday, although the more than $2.6 billion of new dollar-denominated, purely junk-rated paper from domestic or industrialized-country borrowers that priced was almost as much as Wednesday's total, which had been racked up via a plethora of smallish deals, none over $350 million.

In contrast, Thursday's headline transaction was packaging manufacturer Ball Corp.'s sharply upsized $1 billion of 10.5-year notes.

And energy midstream operator Targa Resources Partners LP priced $625 million of new paper, also with a 10.5-year tenor.

Retailer Claire's Stores Inc. brought a $320 million issue of seven-year notes to market.

All three of those offerings were opportunistically timed and quickly shopped same-day transactions.

The day also saw the financing unit of paper towel and personal hygiene products manufacturer First Quality Enterprises, Inc. do a $600 million eight-year bond deal.

Cable provider Harron Entertainment LP brought a $65 million add-on to its existing 2020 notes to market.

With most of the issues pricing fairly late in the session, traders did not see a lot of aftermarket in the day's new bonds, with Claire's Stores' new deal heard to have done the best when the notes were freed to trade.

Price talk emerged on energy operator Gastar Exploration USA Inc.'s $200 million five-year deal, and the timing moved up, the syndicate sources said, making a Friday pricing likely.

Away from the dollar deals, Irish telecommunications company eircom and Portuguese papermaker Portucel SA priced euro-denominated transactions.

Traders again said that non-new-deal secondary activity remained muted; however, statistical market performance measures turned mixed, snapping a streak of five straight sessions on the upside.

But one indicator of junk market liquidity trends - the flow of funds into or out of high-yield mutual funds and exchange-traded funds - notched its fourth consecutive weekly gain, according to one of the major fund-tracking services. It was the largest such increase in nine weeks.

AMG sees $789.4 million inflow

Early Thursday evening, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, $789.4 million more came into those funds than left them.

It was the fourth consecutive weekly inflow seen by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. It followed the $474.2 million cash addition recorded in the previous week, ended May 1.

During that four-week stretch, inflows have added up to about $2.02 billion, according to a Prospect News analysis of the Lipper figures.

The latest week's cash injection was the largest since the $820 million inflow recorded during the week ended March 6, according to the analysis.

The latest inflow consisted of $691 million of new cash flowing to traditional high-yield mutual funds and $98 million going into exchange-traded funds. This was in marked contrast to the previous week, when the ETFs outdid the mutual funds by a count of $332 million to $142 million, according to market sources.

Nineteen weeks into the year, 2013 net inflows as reported by Lipper so far have amounted to about $2.93 billion, according to the analysis.

There have now been 13 inflows and six outflows reported by Lipper so far this year.

In 2012, when cumulative net inflows for the year totaled an estimated $32 billion, according to the analysis, inflows to the funds were recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

At press time, weekly data from the other major fund-tracking service, Cambridge, Mass.-based EPFR Global, which uses a different methodology than Lipper, was not available.

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

The continued flow 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 junk market - has been seen by analysts as a key element behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $350 billion mark - patterns of primary activity and secondary strength that have mostly continued into 2013 so far.

Ball massively upsizes

The primary market continued to roll on Thursday as issuers brought drive-by deals and completed deals that had been on the road.

Five issuers, each one bringing a single tranche of notes, raised $2.62 billion.

Ball priced a massively upsized $1 billion issue of non-callable 10.5-year senior notes (Ba1/BB+) at par to yield 4%.

The deal was upsized from $600 million.

The yield printed at the tight end of yield talk set in the 4 1/8% area.

Deutsche Bank Securities Inc., BofA Merrill Lynch, Goldman Sachs & Co., Barclays, Wells Fargo Securities LLC, RBS Securities Inc., KeyBanc Capital Markets LLC and J.P. Morgan Securities LLC were the joint bookrunners for the quick-to-market deal.

Proceeds will be used to fund the tender offer for the company's 7 1/8% senior notes due 2016, to repay borrowings under the revolver and for general corporate purposes.

Targa drives by

Targa Resources Partners and Targa Resources Partners Finance Corp. priced a $625 million issue of 10.5-year senior notes (Ba3/BB) at par to yield 4¼%.

The yield printed on top of yield talk.

Wells Fargo, Barclays, Deutsche Bank, JPMorgan and RBC Capital Markets were the joint bookrunners.

Proceeds will be used to repay bank debt and for general partnership purposes.

First Quality at the tight end

First Quality Finance Co., Inc. priced a $600 million issue of eight-year senior notes (B2/BB-) at par to yield 4 5/8%.

The yield printed at the tight end of yield talk that was set in the 4¾% area.

Wells Fargo was the left bookrunner.

JPMorgan, BofA Merrill Lynch, RBS and SunTrust Robinson Humphrey Inc. were the joint bookrunners.

Claire's sells seven-year deal

Claire's Stores priced a $320 million issue of seven-year senior notes (Caa2/CCC) at par to yield 7¾%.

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

Goldman Sachs, Credit Suisse Securities (USA) LLC, JPMorgan, RBC and Apollo were the joint bookrunners for the quick-to-market deal.

Proceeds will be used to redeem $312.5 million of the company's 9¼% senior notes due 2015 and 9 5/8%/10 3/8% senior toggle notes due 2015.

Harron taps 9 1/8% notes

Harron Entertainment and Harron Finance Corp. priced a $65 million add-on to their 9 1/8% senior notes due April 1, 2020 (Caa1//) at 112.75 to yield 5.735%.

SunTrust Robinson Humphrey was the bookrunner.

Proceeds will be used to fund a $25 million equity repurchase and to repay about $35 million of outstanding first-lien bank debt comprised of term loan and revolver borrowings.

eircom upsizes

Two deals priced on Thursday in the euro-denominated market.

Ireland's eircom priced an upsized €350 million issue of seven-year senior secured notes (Caa1/B/B) at par to yield 9¼%.

Price talk was set in the 9½% area.

Goldman Sachs and JPMorgan were the joint global coordinators and joint physical bookrunners. Deutsche Bank was also a joint global coordinator as well as a joint bookrunner.

BNP Paribas, BofA Merrill Lynch and Morgan Stanley are also joint bookrunners.

The Dublin-based company plans to use the proceeds to repay bank debt.

Portucel upsizes

Portucel priced an upsized €350 million issue of seven-year senior notes (Ba3/BB) at par to yield 5 3/8%.

The deal was upsized from €250 million.

The yield printed on top of final yield talk.

Credit Suisse ran the books.

Gastar talks five-year deal

Gastar Exploration USA moved up timing on its $200 million offering of five-year senior secured notes (/B-/) and set price talk.

The deal, now set to price on Friday, is talked with a coupon in the 8¾% area at par. Original timing had it set to price during the May 13 week.

Imperial Capital is the bookrunner.

Proceeds will be used to finance the pending acquisition of mid-continent assets from Chesapeake Energy Corp., to repurchase 6,781,768 shares of the parent's common stock held by Chesapeake and to settle all current litigation with Chesapeake.

Proceeds will also be used to repay Gastar's revolver in full and for general corporate purposes.

Claire's climbs after pricing

In the secondary market, a trader quoted the new Claire's Stores 7¾% notes due 2020 bid at 1021/2, although he said that he had not seen any actual trading in the specialty retailer's new deal.

However, a trader at another shop a little later on pegged the bonds at 102½ bid, 103 offered, up from their par issue price.

Among the day's other deals, a trader located Ball's new 4% notes due 2023 at 100¼ bid.

A second trader saw the Broomfield, Colo.-based packaging company's issue at par bid, 100¼ offered, little changed from their par issue price.

He also saw the Targa Resources 4¼% notes due 2023 straddling their par issue price at 99 7/8 bid, 100 1/8 offered.

Another trader opined that he thought that the Houston-based midstream natural gas, gas liquids and crude oil services provider's deal "was priced too tight."

That trader further said that he thought that the underwriters for the First Quality 4 5/8% notes due 2021 "pushed the price on that one huge" in order to get the deal to come to market at the levels it did.

He "did not see much trading" in the Great Neck, N.Y.-based paper towel and disposable personal hygiene products manufacturer's new issue.

Split-rated Brinker trades

About the only one of the day's new issues to actually show up in any kind of volume on the Trace system, a trader said, was Brinker International Inc.'s 3 7/8% notes due 2023 - although he noted that while the Dallas-based restaurant operator's deal was listed in the high-yield queue, "it isn't really even a high-yield deal" owing to its split rating (Ba2/BBB-/BBB-),which made it more attractive to crossover buyers coming from the high-grade space.

Nonetheless, that $300 million tranche did rack up about $16 million of round-lot volume, finishing at 100 13/16 bid. The notes had priced at 99.901 to yield 3.887%.

There was no aftermarket information available on the other half of that $550 million deal - the $250 million of 2.6% notes due 2018, which had priced at 99.93 to yield 2.615%.

Little seen in Wednesday deals

One of the traders meantime said that he had seen little or no activity in the plethora of mostly small deals that came to market on Wednesday.

"Even the deals that were SEC registered saw nothing really trading," he said.

About the only recent deal racking up any kind of volume on Trace, he said, was Constellation Brands, Inc.'s 4¼% notes due 2023, with about $15 million of those bonds changing hands. The Victor, N.Y.-based wine, beer and spirits manufacturer and importer's paper was trading at just under 103 bid, although that was down about half a point on the day.

Constellation had priced $1.05 billion of those notes at par in a quick-to-market transaction back on April 30 as part of a $1.55 billion two-part deal that also included a tranche of eight-year notes. Both tranches of bonds had immediately moved up in the aftermarket, with the 10-years continuing to climb into a 103-104 context before easing from those peaks on Wednesday.

Chesapeake languishes

Away from the new-deal world, market participants said that Chesapeake Energy Corp.'s 6.775% notes due 2019 were trading in a 100½ to 101 context on Thursday on relatively small volume, around the levels at which those bonds had gone home on Wednesday in considerably more active dealings.

The bonds fell to that lower level from prior levels around 106 to 107 bid on the mid-day Wednesday announcement that the Oklahoma City-based natural gas company had prevailed in its nearly two-month legal battle with a group of holders of those bonds and the bonds' trustee, Bank of New York Mellon, over whether Chesapeake would be allowed to call those bonds at par.

A provision in the $1.3 billion issue's indenture said that it could do so during a window of opportunity that closed on March 15 - but the somewhat ambiguous wording had lawyers for the two sides firing off a barrage of legal briefs.

Chesapeake on March 15 announced a planned par redemption of the bonds for May 13. However, the bondholders and the trustee contended that other language in the indenture could be construed to mean that the redemption had to have been completed by March 15, not just announced, and even then could take place only if the company had given 30 days' advance notice. Since Chesapeake had made no such announcement in mid-February, they argued, it could not redeem the bonds at par at that point and would have to issue a considerably more expensive make-whole call if it wanted to take the bonds out subsequently.

The 6.775s had shot up as high as 109 to 110 back in March on that possibility, although they had backed off from those peaks after Chesapeake indicated that if it lost the case, it would not call the bonds but would simply leave them in place. The bonds settled in to trade between 106 and 108 bid, but after a New York federal judge ruled Wednesday that Chesapeake was within its rights to call the bonds at par, they slid back down to just a little above par.

Chesapeake said the bond redemption, instituted as part of a larger effort to cut debt and improve its balance sheet, would save it $100 million in interest it would otherwise have been paying on those bonds over the next six years.

Market indicators turn mixed

Statistical junk performance indicators turned mixed on Thursday after having been firmer across the board for the previous five sessions.

The Markit Series 20 CDX North American High Yield index lost 13/32 point on Thursday to finish at 106 7/8 bid, 107 1/16 offered. That was its first down turn after five straight sessions on the upside, including Wednesday's marginal gain.

The KDP High Yield Daily index, meanwhile eased by 1 bp on Thursday to end at 76.76, breaking a string of 12 straight sessions during which the index had risen, including Wednesday's 6-bps gain.

But its yield came in by 3 bps to end at 4.86%, its 13th straight narrowing. On Wednesday, it had declined by 2 bps for a third consecutive session.

And the widely followed Merrill Lynch High Yield Master II index continued to show strength as it posted its 16th consecutive gain on Thursday, rising by 0.033%. On Wednesday, it had moved up by 0.028%.

The latest gain lifted its year-to-date return to 5.835% - its 14th straight new peak level for the year - from Wednesday's 5.8%, the previous peak.

The index's yield to worst also dropped to a new all-time low at 4.986%, its seventh straight new low for the year. That eclipsed the previous low point of 4.988%, set on Wednesday - the first time that closely watched figure had dropped below the psychologically potent 5% mark.

Its spread to worst meantime tightened on Thursday to 427 bps over Treasuries, its seventh consecutive new tight level for the year, versus the prior tight point of 428 bps recorded on Wednesday.

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