Elan leads $1.82 billion primary ahead of sleepy Friday; Europe busy; funds gain $376 million

By Paul Deckelman and Paul A. Harris

New York, May 23 - The high-yield primary sphere spent a busy day on both sides of the Atlantic on Thursday essentially clearing out the cupboard by pricing whatever residual active deals were still on the forward calendar ahead of Friday's session, which is expected to be short and sleepy going into the three-day Memorial Day holiday break in the United States.

Syndicate sources said that $1.82 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers came to market, with the biggest chunk of that being an upsized $850 million issue of eight-year senior notes from Irish pharmaceutical concern Elan Corp. plc. The deal was done through a pair of its subsidiaries.

Energy operator Midstates Petroleum Co., Inc. priced $700 million of eight-year notes, while metals manufacturer Century Aluminum Co. rolled out a $250 million offering of secured eight-year notes.

While that was going on, European issuers were also seen having a busy day. British travel services provider Thomas Cook Group and Spanish transportation services company Avanza Spain SAU each priced euro-denominated deals, and U.K. financial services company Equiniti did a sterling-denominated transaction. Avanza and Equiniti each consisted of two tranches of bonds.

Traders did not see much aftermarket activity in the new dollar bonds, with only Elan's issue seen up around a point in light volume. They did see some trading around in recent new issues from US Airways Group, Inc., B&G Foods, Inc. and Ball Corp.

Statistical indicators of market performance, which had been mixed on Wednesday, slid across the board on Thursday.

However, a key indicator of junk market liquidity trends - the flow of funds into or out of high-yield mutual funds and exchange-traded funds - was seen by one of the major fund-tracking services to have turned positive in the latest week after having tumbled in the previous week.

AMG sees $376 million inflow

Junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported on Thursday evening that during the week ended Wednesday, $376 million more came into those funds than left them.

That was a solid comeback following the $402.8 million outflow seen the week before, ended May 15, by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. That had been the first such cash loss recorded after four consecutive weeks of inflows before that totaling about $2.02 billion, according to a Prospect News analysis of the Lipper figures.

Twenty-one weeks into the year, 2013 net inflows as reported by Lipper so far have amounted to about $2.9 billion, according to the analysis.

There have now been 14 inflows and seven 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 had been recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

At press time, fund flow numbers from the other major tracking service, Cambridge, Mass.-based EPFR Global, which also normally circulate on Thursday, had not been immediately seen.

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.

$1.82 billion primary session

Volume in the primary market remained high on Thursday, with many of the issues coming out of Europe.

Three companies completed single-tranche dollar-denominated deals, raising a combined total of $1.82 billion.

Executions, however, were a decidedly mixed bag with respect to Thursday's dollar deals.

As volatility rocked the global capital markets, two of Thursday's three issuers came significantly wide of price talk, while the third came on top of talk.

And Thursday's session was notably bereft of drive-by action.

Two drive-bys were expected, according to a trader who had no specific names. However, Thursday's volatility would have made an undesirable backdrop for a drive-by, sources said, adding that Thursday's no-shows have been pushed into the post-Memorial Day week, at least.

Elan upsizes

Thursday's biggest dollar deal came from Ireland's Elan Finance plc and Elan Finance Corp., which priced an upsized $850 million issue of eight-year senior notes (Ba3/B+) at par to yield 6¼%.

The yield printed on top of yield talk.

Morgan Stanley & Co. LLC ran the books for the deal, which was upsized from $800 million.

The Dublin-based biotechnology company plans to use the proceeds for general corporate purposes, acquisitions, share purchases and capital expenditures.

Midstates prices $700 million

Elsewhere, Midstates Petroleum Co., Inc. and Midstates Petroleum Co. LLC priced a $700 million issue of eight-year senior notes (Caa1/B-) at par to yield 9¼%.

The yield printed beyond the wide end of yield talk set in the 8 7/8% area.

Morgan Stanley and SunTrust Robinson Humphrey Inc. were the joint global coordinators and joint bookrunners. BofA Merrill Lynch, RBC Capital Markets LLC, SG CIB, Citigroup Global Markets Inc., Goldman Sachs & Co., Natixis Securities Americas LLC and RBS Securities Inc. were joint bookrunners.

The Houston-based independent exploration and production company plans to use the proceeds to fund the purchase of assets.

Century Aluminum secured deal

Century Aluminum priced a $250 million issue of 7½% eight-year senior secured notes (B3/B) at 98.532 to yield 7¾%.

The yield printed 25 basis points beyond the wide end of the 7¼% to 7½% yield talk.

Credit Suisse Securities (USA) LLC and Wells Fargo Securities LLC were the joint bookrunners for the debt refinancing deal.

Thomas Cook's seven-year notes

In Europe, England's Thomas Cook Finance plc priced a €525 million issue of seven-year senior notes (expected ratings /B/B+) at par to yield 7¾%.

The yield printed in the middle of the 7 5/8% to 7 7/8% yield talk.

Barclays, BNP, Credit Suisse, DNB, Jefferies, Lloyds, SG CIB and Royal Bank of Scotland were the bookrunners.

RBS will bill and deliver.

The Melbourne, England-based travel services provider plans to use the proceeds to repay bank debt.

Avanza at the tight end

Transportation services provider Avanza Spain priced a €490 million two-part high-yield notes transaction.

A €315 million tranche of five-year senior secured notes (B1/B+) priced at par to yield 7½%, at the tight end of the 7½% to 7¾% yield talk. The secured notes were issued via special-purpose vehicle AG Spring Finance Ltd.

Meanwhile, AG Spring Finance II Ltd. priced €175 million of six-year senior unsecured notes (B2/B-) at par to yield 9½%, at the tight end of the 9½% to 9¾% yield talk.

Joint bookrunner Goldman Sachs will bill and deliver. JPMorgan and UniCredit were also joint bookrunners.

Proceeds will be used to refinance bank debt.

The company is based in Madrid.

Equiniti's two-part deal

Financial services provider Equiniti completed a £440 million two-part issuance of 5.5-year notes (B3/B).

A £250 million tranche of fixed-rate notes priced at par to yield 6¾%, at the tight end of the 6¾% to 7% yield talk.

And a £190 million tranche of floating-rate notes priced at par to yield Libor plus 550 bps. The Libor spread and reoffer price came on top of price talk. The target tranche size range was £175 million to £200 million.

Joint bookrunner JPMorgan will bill and deliver. Lloyds and Citigroup were also joint bookrunners.

Proceeds will be used to repay bank debt.

Quiet Friday expected

Thursday's action cleared the forward calendar for the remainder of the week.

Looking ahead to Friday's early close ahead of the three-day Memorial Day holiday weekend, an investor said that the Friday session figured to be not only quiet but "dead."

"It's raining in Manhattan, and the forecast calls for rain over the weekend," the investor said.

"People won't be in a hurry to get away because there's no sunshine to get away to.

"But I don't expect anything to happen on Friday."

Nor have the dealers been talking up the week ahead, the buysider added.

"People have been focused on moving this massive calendar of deals through the market before the holiday weekend, and now that has been done."

Secondary quiet

In the aftermarket, a trader said, "It was a pretty quiet. Not much trading in the secondary market."

He said that it looked like "people are already clearing out," taking something of an early exit on Thursday ahead of what is expected to be a deadly dull Friday preceding the Memorial Day holiday break in the United States.

The Securities Industry and Financial Markets Association has recommended a 2 p.m. ET early close on Friday to go along with the scheduled full market closure on Monday - but the trader said that the reality is that "a lot of the guys I talked to will either just come in for a few minutes in the morning or try and work from home."

Elan issue quoted better

A trader quoted Elan's new 6¼% notes due 2021 at 101 bid, 101½ offered.

At another desk, a trader who had not seen Elan trading opined that such a level "wouldn't surprise me, but I don't know how much actual trading there is."

Traders did not report any immediate aftermarket activity in energy operator Midstates Petroleum's new eight-year notes nor in the new secured eight-year paper of Monterey, Calif.-based metals producer Century Aluminum.

US Airways trades actively

Among issues that priced earlier in the week, a trader said that US Airways' new 6 1/8% notes due 2018 were "active again" on Thursday after having clearly been the busiest credit in Junkbondland on Wednesday, when over $41 million changed hands. He saw the bonds hovering around the 99 7/8 to 100 1/8 bid area, straddling their par issue price. That was about where traders had seen the Tempe, Ariz.-based airline holding company's new deal on Wednesday. US Airways had brought that $500 million issue to market at par on Tuesday after upsizing the quickly shopped transaction from the originally announced $400 million.

A market source at another desk quoted the bonds off by 7/8 on the day at 99 bid. While the $12 million of volume he saw paled in comparison to Wednesday's hurried pace, it still left US Airways on the list of the day's most active junk credits.

B&G, Ball bonds busy

A market participant said that B&G Foods' 4 5/8% notes due 2021 were actively traded during Thursday's session, with more than $11 million of turnover, although they were unchanged on the day at 101 5/8 bid.

B&G, a Parsippany, N.J.-based food products manufacturer - whose well-known brands include Cream of Wheat hot cereal, Polaner jams and jellies, Ortega Mexican-style food specialties and Accent spices - did a quick-to-market $700 million offering of the bonds on Monday, pricing them at par.

That source also said that Ball's new 4% notes due 2023 lost 5/16 point on the day to end at 97 13/16 bid, on volume of over $14 million.

The Broomfield, Colo.-based packaging company's $1 billion drive-by deal has been struggling in the aftermarket ever since it priced at par on May 9, after being massively upsized from the originally announced $600 million size.

Provident pops up

A trader said that he "was looking for" Provident Funding Associates, LP's new 6¾% notes due 2021 on Thursday around the 102 level.

The Burlingame, Calif.-based mortgage company, along with its PFG Finance Corp. subsidiary, had priced its $540 million deal on Wednesday at par after having upsized the issue from an initially planned $500 million.

Market indicators head south

Statistical junk performance indicators turned decidedly lower on Thursday after having been mixed on Wednesday and mostly better on Tuesday.

The Markit Series 20 CDX North American High Yield index saw its second consecutive loss on Thursday, dropping by 3/8 point to finish at 106 3/16 bid, 106 5/16 offered. That followed Wednesday's 15/32 point loss.

The KDP High Yield Daily index meantime plunged by 29 bps to close at 76.20 after having risen by 3 bps on Wednesday. Thursday's loss was its first after four straight sessions on the upside. Its yield widened out by 9 bps to 5.11% after having narrowed by 1 bp on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index also closed lower, falling 0.37% on the day to snap a three-session string of advances, including Wednesday's 0.005% gain.

The loss dropped its year-to-date return to 5.095% from Wednesday's 5.485% reading and also left it well down from its peak level for the year of 5.835%, set on May 9.

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