Drive-by deals from CenturyLink, Navios dominate $2.46 billion day; funds gain $219 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 14 - Quickly shopped drive-by deals continued to rule the roost in the junk bond world on Thursday. Domestic or industrialized-country issuers brought five such same-day transactions totaling $2.46 billion of new dollar-denominated, fully junk-rated paper to market, almost twice Wednesday's $1.26 billion tally.

The day's biggest deal came from telecommunications operator CenturyLink, Inc., which did an upsized $750 million of 10-year notes. That was also easily the busiest deal of the day in Junkbondland, with traders seeing more than $55 million of the new bonds having changed hands in the aftermarket, gaining more than a point.

Another big deal came from Greek cargo-ship operator Navios Maritime Holdings Inc., which sailed away with $650 million from an issue of new ship mortgage notes. That deal came too late in the day for any trading.

The energy sector produced a pair of deals, midstream services provider Hiland Partners LP's $200 million add-on to its existing 2020 notes and pipeline operator Energy Transfer Equity, LP's $450 million of 10-year paper. The latter deal was first upsized and then downsized before it finally came to market.

Education-oriented software provider Ellucian, Inc. capped off the session with an upsized $400 million of PIK toggle notes.

It was an active day in the secondary market, with several new or recent deals among the busiest names; besides CenturyLink, transactions from Toll Brothers Inc. and Stone Energy Corp. saw robust trading volume.

Statistical indicators of market performance were mixed for a second consecutive session.

And the flow of money into and out of high-yield mutual funds and exchange-traded funds - considered a key barometer of overall junk market liquidity trends - returned to the positive column this week after having suffered a big loss the week before.

Lipper funds gain $219 million

Near the end of Thursday's session, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, $219 million more came into those funds than left them.

It was a definite, though modest, comeback from the week before, ended Nov. 6, when the funds had lost a net of $879 million - their first outflow in two months since the week ended Sept. 4, when there had been a $416 million net outflow. Last week's downturn had snapped a string of eight consecutive weekly gains in the junk funds reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., going back to the week ended Sept. 11 and totaling $9.25 billion, according to a Prospect News analysis of the fund-flow numbers.

In the latest week, according to market sources, the mutual funds actually did better than the overall inflow total, ending the period $370 million in the black - but the volatile ETF component had outflows of $151 million.

The four-week moving average of fund flows was seen to have slipped to $528 million from $629 million last week.

For the year so far, inflows have now been seen in 29 weeks, against 17 weeks of outflows, according to the Prospect News analysis. For a number of weeks, cumulative fund flows for the year as a whole were negative due to a sizable losing streak seen during May and June that included several multi-billion-dollar outflow numbers, which was prompted by investor worries over whether the Federal Reserve would end its accommodative monetary policy. At one point in late June, the red ink topped the $9 billion mark, according to the analysis.

However, encouraged by recent indications that the central bank would not be trimming its bond-buying policies as quickly as feared due to a still-shaky economy, inflows began to mount up. The negative number for the year was gradually whittled down week by week and eventually swung the year-to-date fund-flow number back into the black, according to the analysis.

Market sources said that the latest weekly inflow brought the year-to-date total up to an estimated $1.6 billion, although they noted that the ETFs accounted for 98% of that sum.

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

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 - were seen by analysts as a key catalyst 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 ultimately produced $327 billion of new dollar-denominated, junk-rated paper from domestic or industrialized-country issuers, according to data compiled by Prospect News.

It was also seen as one of the major drivers behind the robust patterns of primary activity and secondary strength that had continued for much of this year's first half before turning choppy over the past several months.

The recent run of consecutive net inflows coincided with the explosive expansion of junk primary activity seen last month, when over $47 billion of new paper priced, according to the Prospect News new-issuance data - the biggest September ever - and the continued healthy pace of scheduled and, particularly, opportunistically timed new deals during October and now continuing into this month.

Meanwhile, according to the market sources, loan funds continued to rack up the gains, with an $829 million inflow in the latest week. They said those funds have now compiled an amazing 74-week winning streak, dating back to the summer of 2012, during which net inflows to those loan funds have totaled more than $56 billion.

CenturyLink prices tight

Driven by technical tailwinds that remain strong, the primary market continued to exhibit vigor on Thursday, sources said.

Five issuers raised a total of $2.46 billion with five tranches of dollar-denominated bonds.

All five deals came as drive-bys.

Three of the five were upsized.

CenturyLink, upsized its offering of non-callable 10-year senior notes (Ba2/BB) to $750 million from $500 million and priced them at par to yield 6¾%.

The yield printed at the tight end of the 6¾% to 6 7/8% yield talk.

Wells Fargo Securities LLC was the left bookrunner. BofA Merrill Lynch, Morgan Stanley & Co. LLC and RBC Capital Markets were the joint bookrunners.

The Monroe, La.-based wireline telecommunications company plans to use the proceeds to fund a tender offer for Qwest Communications International Inc.'s $800 million 7 1/8% notes due 2018 and to redeem any notes not purchased in the tender offer. The additional proceeds resulting from the $250 million upsizing will be used to settle a claim.

Navios brings mortgage notes

Greece's Navios Maritime Holdings and Navios Maritime Finance (US) Inc. priced a $650 million issue of first-priority ship mortgage notes due Jan. 15, 2022 (B1/BB-) at par to yield 7 3/8%, in the middle of the 7¼% to 7½% yield talk.

Morgan Stanley, J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. were the joint bookrunners for the debt refinancing deal.

The dealer closed the book when it was two-times oversubscribed, according to an investor who played and who added that there was some expectation that the books could have remained open until Thursday's close, and the deal price Friday instead of Thursday, had demand not been as strong as it was.

This investor's allocation of bonds was cut back but not unexpectedly so.

The bonds were up a point in the secondary, the investor said.

'A well-known entity'

The fact that Navios, a tanker ship company, is domiciled in the financially strapped Hellenic Republic of Greece does not seem to trouble high-yield investors in the United States, the investor said, adding that management met with accounts in New York on Wednesday, and people seemed to go away from the encounter with a decent amount of comfort.

"They are a well-known entity," the investor said, recounting that in late October, just a couple of weeks ago, Navios priced $610 million of 8 1/8% first-priority ship mortgage notes due Nov. 15, 2021 (B3/B/) at par.

Morgan Stanley was also on the left for that transaction.

Energy Transfer atop talk

Energy Transfer Equity priced a $450 million issue of non-callable 10-year senior notes (Ba2/BB) at par to yield 5 7/8% on Thursday.

The deal was ultimately upsized by $50 million. The size was reduced to $450 million from $500 million subsequent to an earlier upsizing to $500 million from $400 million.

The yield printed on top of yield talk.

Credit Suisse Securities (USA) LLC, Deutsche Bank, Citigroup Global Markets Inc. and Goldman Sachs & Co. were the joint global coordinators and joint bookrunners for the debt refinancing.

Barclays, BofA Merrill Lynch, Mitsubishi UFJ Securities (USA) Inc., Mizuho Securities USA Inc., Morgan Stanley, RBC, RBS Securities Inc. and UBS Securities LLC were also joint bookrunners.

Ellucian PIK toggle deal

Ellucian priced an upsized $400 million issue of five-year senior PIK toggle notes (Caa2/CCC+) at 99 to yield 9.88%.

The notes pay a cash coupon of 9 5/8%, which steps up by 75 basis points to 10 3/8% in the event of a PIK coupon payment.

The deal was upsized from $350 million.

The yield came in line with the 9¾% to 10% yield talk.

JP Morgan, BofA Merrill Lynch, Credit Suisse, BMO and Deutsche Bank were the joint bookrunners for the dividend deal.

Hiland Partners taps 7¼% notes

Hiland Partners and Hiland Partners Finance Corp. priced a $200 million add-on to their 7¼% senior notes due Oct. 1, 2020 (B3/B-) at 106 to yield 5.814%.

The yield printed at the rich end of the 105½ to 106 price talk.

BofA Merrill Lynch, Wells Fargo and RBS were the joint bookrunners for the debt refinancing deal.

Vivacom sets talk

In a deal playing before high-yield and emerging markets investors, Bulgarian telecom Vivacom talked its €400 million offering of five-year senior secured notes (B1/BB-) to yield in the 6¾% area.

The official talk comes at the tight end of the earlier 6¾% to 7% initial guidance, the source added.

Books close at 1 p.m. London time Friday, and the deal is set to price thereafter.

Global coordinator Credit Suisse will bill and deliver. VTB Capital is also a global coordinator. Barclays and Deutsche Bank are the joint bookrunners.

The deal is attracting a good response from investors, according to a London-based sellside source who added that accounts like the company's market position and growth potential as well as its performance since restructuring.

However, accounts are still attempting to become comfortable with the company's relatively small size, its reliance on the Bulgarian market and regulatory uncertainty.

Salamander dollar deal

London-based Salamander Energy is in the market with a $150 million offering of callable, non-rated high-yield senior bonds due 2020.

The deal, which is being led by Pareto Securities, is expected to price following a roadshow.

In other news from Europe, Portugal's Energias de Portugal, SA's new 4 1/8% senior notes due Jan. 20, 2021 (Ba1/BB+/BBB-) were 99 3/8 bid late in London's Thursday afternoon, according to a debt capital markets banker there.

The €600 million issue priced at 99.253 to yield 4¼% on Wednesday, at the tight end of the 4¼% to 4 3/8% yield talk, which had been revised tighter from earlier talk in the 4½% area.

It was viewed as a crossover play and was priced on the investment-grade desk.

CenturyLink leads the way

In the secondary realm, traders noted that the day's activity conformed to the recent pattern that's become the new norm in the junk precincts: a flurry of new deals getting announced during the morning (ET) hours, then people "waiting around all day," one of them said, with a slew of pricings fairly late in the session. Not all of the deals priced in time for aftermarket activity on Thursday.

But one that did was CenturyLink's new 6¾% notes due 2013. In fact, there was so much activity in the telecom company's new issue that it shot to the top of the Trace Most-Actives list, with over $55 million of the new bonds having changed hands, a market source said. He pegged the bonds at 101 13/16 bid just before the close, a gain of nearly 2 points from their par issue price earlier.

Another trader located the bonds within a 101½ to 102 bid context, while a third saw them somewhere between 101 5/8 and 101 7/8.

The company's existing paper was also being actively traded in the wake of its new issue.

A market source saw its 7.995% long bonds due 2036 up ¼ point, at 101, on volume of over $16 million, although he acknowledged that there were only a handful of big-block trades, supplemented by considerable odd-lot activity.

Other busy credits included its 6.45% notes due 2021, which firmed to 101 bid on volume of more than $12 million, and its 5.8% notes due 2022, going home at 99¼ bid on volume of over $10 million.

Hiland holds near issue

Elsewhere, a trader saw Hiland Partners' 7¼% notes due 2020 at 105¾ bid, 106¾ offered.

The Enid, Okla.-based midstream energy services company had earlier priced its add-on to those bonds at 106 bid.

Other deals unseen

Owing to the relative lateness of the hour when they were priced, traders did not see any initial aftermarket activity in the day's other three new deals: Dallas-based pipeline operator Energy Transfer Equity's 5 7/8% notes due 2024, Fairfax, Va.-based education software provider Ellucian's 9 5/8%/10 3/8% PIK toggle notes due 2018 or Piraeus, Greece-based dry bulk cargo-ship operator Navios Maritime Holdings' 7 3/8% first-priority ship mortgage notes due 2022.

However, there was some activity in Navios' existing 8 7/8% notes due 2017, which traded at about the 105 level, on more than $9 million of turnover.

Post Pop continues

Among deals that came to market on Wednesday or earlier in the week, the traders saw continued improvement in Post Holdings, Inc.'s 6¾% notes due 2021, which had priced at par on Wednesday after the St. Louis-based breakfast cereal producer had upsized its drive-by deal to $525 million from an originally announced $450 million.

Those bonds had immediately firmed above the 101 bid mark when they hit the aftermarket on Wednesday. In Thursday's dealings, they continued to firm, with one trader quoting them at 101 5/8 bid, 102 offered, a ½ point gain, and another seeing them up ¼ point on the day at 101¾ bid, 102 offered.

Post's established 7 3/8% notes due 2022 meantime were one of the more active credits on the day, rising by 3/16 point to go home at 105 11/16 bid, on volume of more than $18 million.

Wednesday's add-on to Stone Energy's 7½% notes due 2022 was even more popular with investors. A market source saw over $25 million of those notes trading around the 104 bid level, though he called that little changed on the day.

Stone, a Lafayette, La.-based oil and gas exploration and production company, had priced its $475 million quick-to-market add-on at 103 to yield 7.042% after upsizing the deal from the originally announced $400 million.

And Toll Brothers' 4% notes due 2018 were seen up ¼ point at 100 5/8, with over $13 million having changed hands.

The Horsham, Pa.-based luxury homebuilder's Toll Brothers Finance Corp. unit had priced $350 million of those notes on Tuesday at 99.95 to yield 4% in a quick-to-market transaction.

It also had priced $250 million of new 5 5/8% notes due 2024 at 99.985 to yield 5 5/8%. The latter bonds remained at or a little below their issue price ever since, with a trader on Thursday seeing them at 99 3/8 bid, 99¾ offered, down 3/8 point on the session. Another trader pegged them at 99½ bid, 99 5/8 offered.

Market signs stay mixed

Traders said activity in the new issues dominated the secondary realm, with little seen away from that new paper.

Overall, statistical junk-market performance indicators were mixed for a second consecutive session on Thursday, after having been lower across the board on Tuesday.

It was the sixth mixed session in the last seven trading days and the 10th in the last 12 trading days.

The Markit Series 21 CDX North American High Yield index gained 1/16 point on Thursday to end at 106 9/16 bid, 106 11/16 offered, after having risen by 3/16 point on Wednesday.

But the KDP High Yield Daily index suffered its 10th straight loss Thursday, easing by 3 basis points to end at 74.02. That small setback followed plunges of 16 bps on Tuesday and 20 bps on Wednesday.

However, its yield uncharacteristically came in by 1 bp to 5.78%, after having risen over the previous three consecutive sessions, including Wednesday's 2 bps widening and increases of 6 bps on both Monday and Tuesday.

The widely followed Merrill Lynch High Yield Master II index meantime gained 0.169% on Thursday, after having fallen the two previous sessions, including Wednesday's 0.09% retreat.

The gain brought its year-to-date return back above the psychologically significant 6% marker, to 6.048%, versus Wednesday's 5.869% reading. However, it remained down from last Thursday's finish at 6.367%, its peak level for 2013 so far.

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