Consol, Coffeyville lead $4 billion pricing parade; Frontier upsized; funds gain $539 million

By Paul Deckelman

New York, March 25 - The seemingly unstoppable junk bond juggernaut continued to roll on on Thursday, as another $4 billion in new paper priced.

The biggest deal to come clattering down the chute was Pennsylvania coal and natural gas operator Consol Energy Inc.'s $2.7 billion offering of seven-year and 10-year senior notes, which priced too late in the session for aftermarket activity.

Another energy name coming to market was Coffeyville Resources, LLC/Coffeyville Finance Inc., which also did a two-part deal, consisting of five-- and seven-year senior secured notes. The Texas-based company's new bonds were seen to have done well when they were freed for secondary activity, although the shorter piece - a first-lien issue - traded more strongly than the longer tranche, which was just second priority.

The energy sector actually made it a hat trick, with a third deal pricing out of that space - El Paso Pipeline Partners Operating LLC, which brought a $425 million offering of 10-year senior notes to market. That deal also priced too late in the day for trading action

The lone non-energy deal to price was a familiar name that many in the market had no trouble recognizing - ITC^DeltaCom, Inc., since the Huntsville, Ala.-based telecommunications company had shopped that same six-year offering of first-lien senior secured notes around to prospective buyers just six weeks ago in early February, only to pull the deal off the forward calendar due to worsening market conditions. This time around though, there were no problems, and the revived deal traded up in the secondary market.

Also in the telecom world, the $2 billion bond offering connected with Frontier Communications Corp.'s pending takeover of Verizon Communications Inc.'s landline phone assets in 14 states was heard by market sources to have been radically upsized to more than $3 billion, split into four parts from the original two, and was expected to price on Friday afternoon.

Lyondell Chemical Co.'s mega-deal, which priced on Wednesday and then firmed smartly in the aftermarket, continued to rise Thursday in secondary action.

Funds gain $539 million

The brisk primary pace and the strong secondary continue to be underpinned by more-than-ample liquidity, as evidenced by the latest high yield mutual fund flow numbers generated by AMG Data Services of Arcata, Calif. - a closely watched indicator of overall junk market liquidity trends - which showed a fifth straight weekly inflow.

As dealings were wrapping up for the session, market participants familiar with those fund flow statistics generated by AMG Data Services reported that in the week ended Wednesday $539 million more came into those weekly-reporting high yield funds than left them.

It was the fifth consecutive cash infusion as Junkbondland continued to bounce back from two massive outflows seen before that in mid-February, totaling $1.9 billion, which had reflected at least a temporary state of heightened investor angst.

However, between the latest inflow and the $2.358 billion which came into the funds over the previous four weeks, according to a Prospect News analysis of the AMG figures - including the $597 million liquidity injection seen the week before, ended Wednesday, March 17 -- inflows over that five week winning streak have now totaled $2.715 billion, according to the Prospect News analysis.

That, in turn, has lifted the year-to-date net inflow total for 2010 to $2.358 billion - the peak level for 2010 so far, according to the analysis, eclipsing the old mark of $1.819 billion seen the week before. The year-to-date fund flow totals have gyrated between that new peak cumulative inflow level and a net outflow of $357 million seen in the week ended Feb. 17, which had been the first such year-to-date net loss for the funds since early April 2008, according to the analysis. In the 12 weeks since the beginning of this year, AMG has now reported nine inflows, including this week's, against three weeks of outflows, the analysis indicated.

EPFR sees $812 million cash gain

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported that $812 million more came into the funds than left them in the latest week.

That cash infusion followed the $954 million inflow seen in the previous week. Following the pattern seen in the AMG figures, the EPFR statistics have now shown five straight weeks of inflows, lifting the funds from a two-week rut in the Feb. 10 and Feb. 17 weeks which had seen $1.76 billion of combined outflows.

Reflecting the difference in the way AMG and EPFR calculate their respective fund-flow totals, the latter - which includes results from certain non-U.S. domiciled funds as well as the domestic funds - said that on a year-to-date basis, the mutual funds are now showing a $4.56 billion net inflow, widening from $3.7 billion in the previous week. The latest week's figure represents a new peak level for the year.

All cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past. Last year's strong pattern of inflows - with AMG reporting over $20 billion having come in to the weekly-reporting funds over the course of the year, along with over $10 billion more into funds which only report on a monthly, rather than weekly basis, and EPFR posting similarly robust numbers - was seen as a proxy for the overall surge of liquidity into the junk market from all sources, which helped to fuel record 2009 new-issuance of over $160 billion and unprecedented secondary returns topping 57%.

Consol is colossal

The day's biggest deal was for Consol Energy, which priced $2.75 billion of new senior notes, split between a seven-year and a 10-year tranche. Both tranches priced at par.

It priced $1.5 billion of 8% notes due 2017, at the tight end of price talk in the 8 1/8% area, and priced $1.25 billion of 8 ¼% notes due 2020, at the tight end of talk projecting a yield 25 basis points to 37.5 bps over the seven-year issue.

The deal fascinated traders, who spent much of the day speculating whether it would appear on Thursday or be floated off as Friday's business. In the end, Thursday won out, although the offering priced too late to go into the secondary arena.

The bonds came to market via joint bookrunners Banc of America Merrill Lynch, PNC Capital Markets LLC and RBS Securities Inc.

Consol, a Canonsburg, Pa.-based coal and natural gas company, plans to use the deal proceeds to help fund its previously announced $3.475 billion purchase of most of the Appalachian oil and gas exploration and production business of Dominion Resources, Inc.

Market takes a big cup of Coffeyville

Coffeyville Resources, LLC and Coffeyville Finance Inc. priced a $500 million two-part offering of five- and seven-year first- and second-lien senior secured notes, high yield syndicate sources said., and the new bonds firmed smartly when they moved over to the secondary side.

"Coffeyville traded very well on both tranches," a trader said. "The first [lien notes] traded better than the second [lien paper], but the second did well also. The first is going out up about 2 points and the second up about a point, so Coffeyville traded well."

Another trader who agreed with that glowing assessment saw the first-lien notes at 101¼ bid, 101¾ offered, while the second-lien notes were at 99½ bid, par offered.

Some $275 million of 9% first-lien notes due 2015 (Ba3/BB-) priced at 99.511 to yield 9 1/8% - at the tight end of unofficial price talk which had circulated on Wednesday projecting a 9¼% yield, a market source said, while $225 million of 10 7/8% second-lien notes due 2017 (B3/BB-) priced at 98.811 to yield 11 1/8%, at the wide end of the 11% area price talk.

The tranche sizes on the issue, which were originally expected to be equally split at $250 million apiece, were adjusted before pricing to increase the size of the first-lien piece and decrease the size of the second-lien portion.

The bonds came to market via joint bookrunners Deutsche Bank Securities, Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and RBS.

Coffeyville Resources - a unit of Sugar Land, Tex.-based diversified energy company and fertilizer manufacturer CVR Energy Inc. - plans to use the deal proceeds to repay term loan debt under its first-priority credit facility, and for general corporate purposes.

El Paso Pipeline prices drive-by

Also out of the energy sector, El Paso Pipeline Partners Operating LLC priced $425 million of 10-year senior notes (Ba1/BB/BBB-). The notes priced at par to yield 6½% - inside of unofficial price talk envisioning a 6¾% yield.

The quickly shopped deal was announced on Thursday morning and priced later in the day. A syndicate source said that the split-rated issue was marketed to both investment grade and high yield accounts. Initially, it was thought that the deal would price on Friday, but it was moved up.

The issue was brought to market by joint bookrunners Morgan Stanley & Co. Inc. and RBS Securities Inc. BNP Paribas Securities Corp. and Scotia Capital (USA) Inc. acted as passive bookrunners, a market source said.

El Paso Pipeline Partners Operating is a Houston-based wholly owned operating subsidiary of El Paso Pipeline Partners, LP, which owns and operates natural gas transportation pipelines and storage assets in the southern and western part of the United States.

It plans to use the net proceeds from the bond deal, $236 million of cash on hand from a public offering of common units in January and other monies to finance an $810 million deal, announced on Thursday, under which El Paso Pipeline Partners and its operating subsidiary will buy a 51% interest in both Southern LNG Co. LLC, which owns a liquefied natural gas terminal facility in Georgia, and El Paso Elba Express Co. LLC, a pipeline operator, from El Paso Pipeline Partners' 74% owner, Houston-based energy company El Paso Corp., which will continue to own the remaining interest in those two companies.

ITC^DeltaCom returns to market

ITC^DeltaCom Inc. made a triumphant return to the junk bond primary market, pricing a quickly-shopped $325 million offering of six-year first-lien senior secured notes on Thursday - the same deal which the telecommunications company had pulled from the market just six weeks earlier due to then-unfavorable market conditions.

ITC^DeltaCom thus follows the recent example of Bombardier Inc., which last week came back to the market exactly a month after having pulled its own $1 billion bond deal due to unfavorable conditions - and not only was the Canadian transportation equipment company's revived deal in enough demand to be upsized, but they moved up in secondary dealings

ITC^Delta Com's 10½% notes priced at 97.857 to yield 11%. Price talk did not circulate on the deal, which was announced Thursday morning and which priced just hours later. In the aftermarket, a trader saw the bonds up about 1½ points from issue. A second trader pegged them as having risen to 99 3/8 bid, 99 7/8 offered.

The deal came to market via bookruner Credit Suisse, which had also been a joint bookrunner on the original pulled deal, along with Jefferies & Co., Inc. However, Jefferies was not involved this time around.

ITC^DeltaCom had originally launched a virtually identical deal on Feb. 2, but by Feb. 10, amid worsening market conditions, including a substantial jump in the anticipated cost of doing the deal, the company announced that it was withdrawing its offering. Since that time, conditions have improved substantially, with spreads having tightened close to 100 bps in the interim, and, in fact, trading considerably tighter than they were when the company first floated its deal around the market.

It plans to use the deal proceeds to refinance existing bank debt and for general corporate purposes.

Frontier expected on Friday

Away from the issues that priced, syndicate sources said Thursday that the already massive bond deal (Ba2/BB) being shopped around in connection with Frontier Communications Corp.'s pending purchase of landline telecommunications assets from Verizon Communications Inc. was upsized by more than 50%, and the two-tranche deal had been restructured as a four-tranche offering. Tranche sizes were set and price talk was issued on the multi-part senior notes transaction, which is expected to price on Friday.

The original $2 billion size was upped to $3.2 billion, and tranches of five-year and 12-year notes were added to the seven- and 10-year pieces originally announced on Wednesday, when the issue began a short roadshow for the deal that is scheduled to wrap up on Friday. The $1.1 billion seven-year tranche is expected to price to yield around 8¼%. The $500 million five-year tranche is expected to price 25 to 50 basis points inside the seven-year yield. The $1.1 billion offering of 10-year notes will price at 25 bps over the seven-year, while the $500 million 12-year portion will price at 50 bps over the seven-year.

Order books will close at 10 a.m. ET on Friday, and pricing is expected around mid-afternoon.

The deal will be run by joint bookrunning managers J.P. Morgan Securities Inc. and Credit Suisse.

In announcing the upcoming mega-deal on Wednesday, Frontier - a Stamford, Conn.-based telecommunications provider which used to issue bonds under the Citizens Communications Corp. name -

said that New Communications Holdings Inc., a Verizon subsidiary, will sell the bonds, the proceeds of which will be used to facilitate Frontier's purchase from Verizon of the latter's landline business in 14 states -- 4.8 million landlines leased to residential and small business customers - in a complex $8.6 billion deal announced last May, which must still be approved by federal authorities as well as utility regulators in those states. New Communications was formed for the purpose of holding those Verizon assets.

Frontier said that the proceeds from the bond offering will be deposited into an escrow account, from which New Communications will then fund a portion of a special cash payment to Verizon in connection with the deal. New Communications will then be spun off to Verizon's shareholders and subsequently merged with and into Frontier, giving the latter company control of the landline assets and operations.

New Lyondells livin' large

Traders said Houston-based chemical maker Lyondell's huge new issue of 8% senior secured notes due 2017 - some $2.25 billion and €375 million of which priced on Wednesday at par and then jumped more than 2 points - continued to move on up.

One primary source quoted the bonds as having pushed well above the 103 mark, while a secondary trader said the bonds "continued to grind higher" to get over the 103 mark. Yet another trader saw the bonds at 103 bid, 103¼ offered.

Noting the fact that the Lyondell issue had done so well - and other new deals were strong as well - one of the trader said that "high yield continues to rally in the face of supply."

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