AmSurg, Alliance, GrafTech, Sealed Air price, Bombardier drops out; funds lose $1.3 billion

By Paul Deckelman and Paul A. Harris

New York, Nov. 15 - Thursday was another busy day for the high-yield primary market, with four dollar-denominated, junk-rated deals pricing for a total of over $1.3 billion of new paper, mirroring Wednesday's issuance total.

The big deal of the day, ironically, was downsized before it priced, as Sealed Air Corp. restructured its planned two-part offering into a one-tranche transaction, bringing $425 million of eight-year bonds to market - just half the deal's original size.

Alliance Data Systems Corp. did a $400 million offering of five-year notes, while GrafTech International Ltd. contributed $300 million of eight-year bonds. AmSurg Corp. also brought an eight-year offering of $250 million.

All of the day's deals were seen on the upside when they hit the secondary market.

While those issues were pricing, syndicate sources heard talk out on several other issues likely to price on Friday, including Walter Energy, Inc., Thompson Creek Metals Co., Inc., and Pacific Drilling V Ltd.

However, Bombardier Inc. postponed its planned $1 billion deal, citing unfavorable market conditions.

Away from the new-deal realm, Overseas Shipholding Group Inc.'s bonds continued to trade actively in the wake of the oil tanker operator's Chapter 11 filing.

J.C. Penney Co., Inc.'s bonds were seen continuing to drift lower in the wake of the department store operator's recent disappointing earnings report.

Innovation Ventures LLC's bonds were quoted lower - though with no real trading actually seen - on news reports linking its popular 5-Hour Energy drink to several deaths. The reports said the federal Food and Drug Administration was investigating. The company insists that its product is safe.

Statistical market performance indicators were seen pointing lower across the board.

And the flow of fresh cash into or out of high-yield mutual and exchange traded funds - seen as a key barometer of overall junk market liquidity trends - showed a major loss in the latest week, a sign of increased investor wariness about the market.

AMG: funds plunge $1.3 billion

As things were winding down for the day on Thursday, market sources familiar with the weekly AMG high-yield mutual fund-flow statistics said that in the week that ended Wednesday $1.3 billion more left those funds than came into them.

It was the latest, and the largest, in a string of recent choppy movements in the fund flows to be reported by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division; the week before, ended Nov. 7, had seen an $82 million inflow, which in turn had followed a $618.6 million outflow in the week ended Oct. 31. The week before that, ended Oct. 24, things had been almost unchanged, with a tiny $9.5 million inflow.

On a year-to-date basis, according to a Prospect News analysis of the figures, the estimated cumulative net inflow figure fell to $29.3 billion - well down from the estimated $32.4 billion total seen in the week ended Sept. 19 - the peak net inflow level for the year so far, according to the analysis.

That year-to-date figure counts monthly-reporting funds as well as the weekly reporters, Lipper said, and includes exchange traded funds, which have emerged as a popular investment vehicle alongside more traditional mutual funds.

Inflows have now been seen in 36 out of the 46 weeks since the start of the year, against 10 outflows, according to the analysis.

EPFR sees $957 million outflow

Another major fund-tracking service that uses a different methodology - Cambridge, Mass.-based EPFR Global - also reported a sizable $957 million outflow in the latest week. EPFR has also recently seen a back-and forth funds-flow pattern, with the big outflow wiping out a nearly identically sized $953.8 million inflow recorded last week. That had followed a $210.9 million outflow in the week ended Oct. 31, and a $1.43 billion inflow in the week ended Oct. 24.

On a year-to-date basis, cumulative net inflows have now totaled $68.2 billion according to a Prospect News analysis of the figures, down from the 2012 peak level for $69.2 billion set last week. The agency has seen inflows in 38 weeks so far this year, against eight outflows, the analysis indicated.

EPFR's calculation method differs from Lipper's, since the former includes non-U.S. domiciled mutual funds and ETFs in its tally, while Lipper is focused on domestic funds. The two services' numbers generally point in the same direction, although they diverge sometimes, including several times recently when Lipper reported net outflows from the funds while EPFR saw net inflows.

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 money coming in - has been seen by analysts as a key element behind the high-yield secondary market's strong performance so far this year versus other fixed-income asset classes, and its active new-deal pace, which has recently surged past 2011's year-to-date totals.

Sealed Air slashes deal size

The primary market continued to generate a high news volume on Thursday.

Dollar-denominated issuance came to $1.37 billion, one tranche apiece from four separate issuers, much less than expected as the number of junk tranches pulled in the post-presidential election market jumped to five, after having started the day at two.

Sealed Air cut its anticipated amount of issuance in half on Thursday, as it priced a $425 million tranche of non-callable eight-year senior notes (B1/BB-) at par to yield 6½%.

The yield came 12.5 basis points beyond the wide end of price talk that had been set in the 6¼% area.

Prior to the downsizing, Sealed Air had planned to bring a two-part deal totaling $850 million. In addition to the eight-year notes, the company had planned an identically rated tranche of 10-year senior notes, which had been talked in the 6½% area.

Merrill Lynch, Citigroup, Credit Agricole, Morgan Stanley and RBS were the joint bookrunners.

Proceeds, along with cash on hand, will be used to repurchase all of the company's outstanding notes due in 2013. Prior to downsizing the deal Sealed Air had also planned to take out its notes maturing in 2017.

Alliance restructures, prices

Alliance Data Systems priced a restructured, non-rated $400 million issue of non-callable 5¼% five-year senior notes at 98.912 to yield 5½%.

The maturity was decreased to five years from six years.

The yield printed at the wide end of the 5¼% to 5½% yield talk.

Timing was moved back. The deal was announced on Wednesday morning as a same-day drive-by, only to be subsequently pushed into the Thursday market session.

J.P. Morgan, Merrill Lynch, RBC and Wells Fargo were the joint bookrunners.

Proceeds will be used to fund the pending acquisition of Hyper Marketing Inc. and for general corporate purposes

GrafTech comes mid-talk

GrafTech International priced a $300 million issue of eight-year senior notes (Ba2/BB+) at par to yield 6 3/8%, in the middle of the 6¼% to 6½% yield talk.

J.P. Morgan, Merrill Lynch, BNP, RBS and Wells Fargo were the joint bookrunners for the debt refinancing deal.

AmSurg at the tight end

The only Thursday deal to price at the tight end of price talk came from AmSurg, which priced a $250 million issue of eight-year senior notes (Ba3/B) at par to yield 5 5/8%, at the tight end of price talk that had been set in the 5¾% area.

Following the break, the bonds were trading at 101 bid, 101½ offered, the source added.

SunTrust, Merrill Lynch, Citigroup and Wells Fargo were the joint bookrunners for the debt refinancing deal.

Com Hem completes PIK deal

In the euro-denominated primary market, NorCell 1B AB, the holding company for Swedish cable operator Com Hem Group, priced a €250 million issue of seven-year senior PIK notes (Caa2/CCC+) at 97.925 to yield 13% in a quick-to-market transaction on Thursday.

The initial 12.4% coupon steps up 100 basis points after Dec. 1, 2017.

The yield printed on top of yield talk. The reoffer price came slightly lower than the cheap end of talk for 1 to 2 points of discount.

Joint bookrunner Deutsche Bank will bill and deliver for the debt refinancing deal. Morgan Stanley and Goldman Sachs were also joint bookrunners.

Talking the deals

Friday's session will get underway with a $4 billion active forward calendar. Most of that business is scheduled to price before the weekend.

On Thursday Walter Energy talked its $500 million offering of eight-year senior notes (B3/B) to yield 9¾% to 10%.

Morgan Stanley, Barclays, Merrill Lynch, Citigroup and Credit Agricole are the bookrunners.

And Pacific Drilling V talked its $500 million offering of five-year senior secured notes (B3/B+) with a yield in the 7¼% area.

Goldman Sachs, Deutsche Bank, Citigroup and DNB Nor are the underwriters.

Thompson Creek restructures

Thompson Creek Metals restructured its $350 million offering of senior secured first-priority notes (B1/B).

The maturity of the notes was trimmed to five years from 5.25 years. Call protection was increased to three years from 2.25 years, and the first call premium is decreased to par plus 50% of the coupon from 75% of the coupon. In addition the 35% equity clawback coverage was extended to three years from 2.25 years.

The notes are talked to yield 9¾% to 10% with approximately 1 point of original issue discount.

Books close at 10 a.m. ET on Friday, and the deal is set to price after that.

Deutsche Bank has the books.

Other Friday possibles

In addition to deals that were talked on Thursday, there is a substantial calendar of deals that were announced earlier in the week as business expected to clear before the weekend.

These include Rex Energy Corp. with a $250 million offering of eight-year senior notes (B3/B-) via left bookrunner Wells Fargo, and joint bookrunners KeyBanc, SunTrust and RBC.

Discussions on the deal took place in the mid-to-high 8% yield context, according to a buyside source.

In addition Legacy Reserves LP and Legacy Reserves Finance Corp. are marketing a $300 million offering of eight-year senior notes (Caa1/B-) via Merrill Lynch and RBC.

Initial guidance was 7%, the buysider said.

And Eldorado Gold Corp. is in the market with a $500 million offering of eight-year senior notes (Ba3/BB) via J.P. Morgan, Citigroup, HSBC and Merrill Lynch.

Although no official price talk had been heard by the Thursday close, discussions have taken place in the context of 6½% to 6¾%, according to the buyside source.

Bombardier postpones

Bombardier Inc. postponed a $1 billion two-part offering of senior notes (Ba2/BB/BB) that was expected to price on Thursday.

The company cited market conditions that were not satisfactory.

Along with the pulled Sealed Air tranche, Thursday's trio of pulled deals ups the count of pulled days since Election Day on Nov. 6 to five.

In addition to Thursday's trio of withdrawn tranches, two from Bombardier and one from Sealed Air, Epicor Software withdrew its $340 million offering of five-year senior discount notes due to market conditions on Wednesday.

And late last week Australia's BlueScope Steel Ltd. postponed its $300 million offering of six-year senior notes (B1/BB-) due to market conditions.

Citing a $1.3 billion outflow from high-yield mutual funds during the week to Wednesday's close, a debt capital markets banker said that the market tone has become decidedly cautious.

As the market backs up, issuers are measuring it against their expectations when they undertook to raise capital, the banker said.

"Maybe if the difference is a quarter of a point you go ahead anyway," the sellsider said.

"But if the difference is half a point it's a much tougher call to make."

New bonds firm up

AmSurg's new 5 5/8% notes were the first issue to price during the session; when the bonds were freed for secondary market dealings, a trader saw the Nashville-based surgical centers operator's new issue at 100¾ bid.

A second trader saw the bonds trading between 100 5/8 and 100 7/8 bid, with most of the trades going off at 100¾ bid.

Alliance Data Systems' 5¼% notes moved up to 99¾ bid, 100 1/8 offered, a trader said, after the Dallas-based marketing solutions company's deal had priced nearly a point below that, at 98.912.

A second trader saw the bonds up better than a point in the aftermarket at 100 3/8 bid, 100 5/8 offered.

GrafTech's 6 3/8% notes were well-received, a trader said, pegging those bonds at 101½ bid, 102½ offered, after the Parma, Ohio-based manufacturer of graphite electrodes and needle coke priced its issue at par.

A trader said that Sealed Air's new 6½% notes were also seen trading in a 101½ to 102 context. That followed their pricing at par by the Elmwood Park, N.J.-based provider of food safety and security, facility hygiene, and product protection solutions.

Arch Coal backs off

Among the bonds issued earlier in the week, Arch Coal Inc.'s 9 7/8% notes due 2019 were seen by traders as having given up the gains that the St. Louis-based coal company's new deal had notched after it priced on Wednesday and was freed to trade.

While the bonds had gone home on Wednesday quoted at 97½ bid, 97¾ offered - well up from the 95.934 level at which the upsized $375 million had priced to yield 10¾% - Thursday was quite a different story. One trader saw the bonds trading all day between 95½ and 961/2, before finally ending at 96 bid - just slightly above their issue price.

As for Wednesday's other deals, which had priced too late in that session for an aftermarket, a trader on Thursday said that AK Steel Corp.'s $350 million of 8¾% senior secured notes due 2018 traded at 99¾ bid, par offered, just below their par issue price. A second trader, though, said that the West Chester, Ohio-based specialty steel manufacturer's bonds "held their own, but didn't go anywhere;" he saw the notes at 100 1/8 bid, 100 3/8 offered.

Denver-based energy operator Antero Resources Finance Corp.'s 6% notes due 2020 traded at 99½ bid, 99 7/8 offered, just below the $300 million issue's par pricing level.

Overall market lower

A trader pronounced the overall junk market lower, continuing the recent pattern of softness.

Among statistical market performance indicators, the Markit Series 19 CDX North American High Yield index fell by 3/8 point on Thursday to end at 96 15/16 bid, 97 1/16 offered, after having retreated by ½ point on Wednesday.

The KDP High Yield Daily Index dropped by 25 basis points on Thursday to 73.38, after having lost 26 bps on Wednesday. Its yield rose by 8 bps for a second consecutive session, to end at 6.37%.

And the widely followed Merrill Lynch U.S. High Yield Master II Index lost 0.404% on Thursday, on top of Wednesday's 0.102% retreat. Its year-to-date return fell to 12.214% from Wednesday's 12.668%.

Overseas Shipholding busy

Among specific non-new-deal names, a trader noted that Overseas Shipbuilding Group's 8 1/8% notes due 2018 were last trading around 35 bid, although on a more representative round-lot basis, the final trade had taken place at 36 ¼ bid.

A second trader said that Overseas Shipbuilding's bonds "opened up in the lower 30s and traded up to the high 30s," pegging them around the 36-37 area.

He noted that the New York-based oil tanker operator's bonds had gyrated wildly on Wednesday on news that the company had sought Chapter 11 protection from its bondholders and other creditors.

"They got down to around 20, and then got up to the lower 30s by the end of the day - so they got back to about unchanged on the day, when you look at that price flat" - i.e. without accrued interest - "versus where it was trading the day before.

"So we continue to see some strength in that one, post-filing."

A market source saw the bonds open at 38 bid, dip as low as 35, and then go home a bit above 36 bid - off from the opening but still well up from Wednesday's finish at 23 bid. Some $25 million of the bonds changed hands on a round-lot basis, making it one of the most active junk issues.

On Wednesday, over $50 million of the bonds had traded. The source said that strictly in round lots, they had bounced around between 18 bid and 31, before going home on a low tick at 23.

Penney punishment continues

J.C. Penney's bonds continued their recent downward spiral, amid investor dismay over the weak quarterly results that the Plano, Texas-based department store operator reported last week.

"I don't know if you'd call them distressed - but they certainly are on people's radar screens" following those negative results, a trader said.

"It continues to come in," like the 5.65% notes due 2020, which he saw trading down around 83 bid, which he called a loss of "a few more points," for a total of 6 or 7 points on the week.

"It just continues to drift lower."

On Friday, the company reported results that included its worst decline in same-store sales - a key retailing industry performance metric since Penney began its new shopping platform, a move away from coupons and sales events.

Part of its strategy involves the company essentially looking to transform its stores into a conglomeration of mini-boutiques.

Same-store sales were down 26.1% in the third quarter. Analysts had expected a decline of 17.9%.

Total sales were down 26.6% at $2.93 billion.

Still, net loss narrowed to $123 million, or 56 cents per share, from $143 million, or 67 cents per share.

Gross margin was 32.5%, versus 37.4% the year before.

On Tuesday, Standard & Poor's reacted to the release by cutting its ratings on the company to B- from B+.

The outlook is stable.

5-Hour quoted lower on reports

A market source said that Innovation Ventures' 9½% notes due 2019 may have fallen as much as 10 points during the day's trading on news reports that the FDA was investigating whether the Farmington Hills, Mich.-based company's well-known 5-Hour Energy drink may have been a factor in at least 13 deaths across the country and even a reported spontaneous abortion for one woman who had consumed the heavily caffeinated product.

Company officials deny that their popular "energy shot" drink - sold across the country in familiar two-ounce bottles - had anything to do with the reported deaths or other unfortunate side effects.

"With that bad news, I saw them very wide," a trader said. The paper had been in the low 90s before the barrage of bad publicity hit on Thursday, but afterward, he said, the bonds were being offered at 89, with a low-80s bid.

"I don't know if it ever traded, but it certainly seemed as if it had drifted into the 80s, from the lower 90s."

He opined that "the initial reaction to the headlines was that people offered it down [from prior levels] but then it seemed like some bids filled in - but I do not know if it traded at all."

Another trader said that he had seen the news stories about the product - but could find no sign of the bonds on the Trace system. The company had sold an upsized $450 million of the notes at par back in July.

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