Getty, First Quantum lead $2 billion day; Getty jumps; MetroPCS falls; funds lose $892 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 4 - A pair of scheduled deals pricing off the forward calendar led a $2 billion high-yield primary session on Thursday, syndicate sources said.

Getty Images Inc., a source of still photographs, videos and other media products, came to market with a downsized $550 million of eight-year notes. Junk bond traders said that when the new bonds hit the aftermarket, they firmed by as much as three points.

Mining concern First Quantum Materials Ltd. priced $350 million of seven-year notes fairly early in the session, which saw some trading around later on.

Thursday also saw a trio of opportunistically timed quick-to-market offerings. The largest came from pet supplies retailer Petco Holdings, Inc., which did $550 million of five-year senior PIK toggle notes.

There was also a $290 million offering of 8.25-year paper from familiar junk name LIN Television Corp. and an upsized $300 million 10-year deal late in the day from industrial machinery maker Manitowoc Co., Inc.

Away from the new deals, traders saw some residual activity in the bonds of cellular phone companies such as MetroPCS Communications, Inc., seeing those bonds give back whatever they had gained on Wednesday following the announcement that the prepaid wireless carrier will be acquired by the larger T-Mobile USA.

Statistical measures of junk market performance were mostly better on the day for a second consecutive session.

But another gauge - money flows into and out of high-yield mutual funds and exchange-traded funds, considered a good barometer of overall liquidity trends - posted a second straight weekly outflow after 15 consecutive weeks of inflows dating back to early June.

AMG: funds lose $892 million

On Thursday evening, market sources familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $891.8 million more left those funds than came into them.

It was the second consecutive week in which an outflow was reported by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division. A $310 million cash loss was seen last week.

Those outflows, totaling about $1.2 billion, brought an abrupt end to the amazing 15 straight weeks of inflows - dating all the way back to the week ended June 13 - that had dominated the market for the previous few months. Those inflows had totaled $13.69 billion, according to a Prospect News analysis of the figures.

According to a market source, even while the junk bond mutual funds and ETFs were seeing that big outflow this week, it was a completely different story among the investment-grade funds, which took in $1.23 billion of fresh cash, with at least some investors apparently switching from one asset class to the other.

On a year-to-date basis, this week's outflow pulled the cumulative net inflow figure down to about $31.2 billion, including the ETFs.

That was down from last week's estimated $32.15 billion cumulative total and down as well from the estimated $32.46 billion total seen the week before that, which ended Sept. 19, according to the Prospect News analysis - the peak net inflow level for the year so far.

That year-to-date figure counts monthly reporting funds as well as the weekly reporters, Lipper said.

Inflows have now been seen in 33 out of the 40 weeks since the start of the year against just seven outflows.

There was no immediate word late Thursday on fund flow totals for this week from the other major tracking service followed by the junk market, Cambridge, Mass.-based EPFR Global. Last week, EPFR saw a net inflow of $1.59 billion while Lipper was reporting an outflow - a rare case where the two tracking services' results diverged. They generally point in the same direction, although their figures differ due to the different methodologies they use to compile their respective numbers.

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.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the successive record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

At least up till now, those fund flows, and the underlying broader trend of ample liquidity, have also been seen as the 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.

Getty Images at the tight end

In the primary, a busy Thursday session saw $2 billion of issuance come in single tranches from five different issuers.

Two of the deals, both drive-bys, saw price talk announced and then revised tighter.

Another priced inside of price talk.

Demand for deals remains intense, a buyside source said, adding that it's fair to say that just about every deal these days is multiple-times oversubscribed.

Getty Images priced a $550 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 7%, at the tight end of the 7% to 7¼% yield talk.

J.P. Morgan Securities LLC, Goldman Sachs & Co., Barclays, Credit Suisse Securities (USA) LLC and RBC Capital Markets were the joint bookrunners.

The deal was downsized to $550 million from $750 million upon the finalization of the $200 million upsizing of the company's concurrent term loan, taking it to $1.9 billion from $1.7 billion.

There were also covenant changes. (See related story elsewhere in this issue.)

Demand came to $4 billion, according to a buyside source, who added that the deal was oversubscribed before word circulated that the company had agreed to covenant changes.

Proceeds will be used to help fund the $3.3 billion purchase of Getty Images by the Carlyle Group and management from Hellman & Friedman and to repay existing bank debt.

Petco PIK toggle dividend deal

Petco Holdings priced a $550 million issue of five-year senior PIK toggle notes (Caa1/CCC+).

The notes have a cash coupon of 8½% and a PIK coupon that steps up to 9¼% in the event of an in-kind interest payment.

The notes priced at 99.5 to yield 8.624%.

The coupon printed on top of coupon talk. The reoffer price came at the rich end of the 99 to 99.5 price talk. The yield printed at the tight end of the 8 5/8% to 8¾% yield talk.

Price talk was revised tighter from earlier talk of an 8¾% to 9% yield at 98 to 99.

Petco is the second issuer to bring a PIK toggle dividend deal - a structure and use of proceeds that market watchers often characterize as "aggressive" and thus indicators of a hot market gone frothy - since late September.

On Sept. 25, Emergency Medical Services Corp. priced a $450 million issue of five-year senior PIK toggle notes (Caa1/B-) at 97 with a cash coupon of 9¼% and a PIK coupon of 10%.

And proceeds from that deal were slated to fund a one-time dividend to shareholders.

Characterizing Petco as a "clubby" deal, a trader forecast that it would go OK.

Speaking mid-morning on Thursday before the price talk on Petco circulated, the trader said that Petco is not expected to exercise the PIK option but wanted it available.

JPMorgan, Credit Suisse, Goldman Sachs, Bank of America Merrill Lynch, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC were the joint bookrunners for Petco.

Manitowoc upsizes

Meanwhile, Manitowoc priced an upsized $300 million issue of 10-year senior notes (B3/B+) at par to yield 5 7/8% on Thursday.

The yield printed on top of yield talk that had been revised tighter from earlier talk of 6% to 6¼%.

Demand for the paper was intense, said a buyside source, recounting that the issuer and its business are very familiar to high-yield investors and very well liked.

JPMorgan, Deutsche Bank Securities Inc. and Wells Fargo were the bookrunners for the bank debt refinancing.

LIN at the tight end

LIN Television priced a $290 million issue of 8.25-year senior notes (B3/B-) at par to yield 6 3/8%, at the tight end of yield talk that was set in the 6½% area.

JPMorgan and Deutsche Bank were the joint bookrunners for the quick-to-market acquisition financing. SunTrust Robinson Humphrey Inc. was the co-manager.

First Quantum inside of talk

In a deal that played to both high-yield and emerging markets investors, First Quantum Minerals priced a $350 million issue of seven-year senior notes (B1/B+/BB) at par to yield 7¼%, 12.5 basis points inside of yield talk that was set in the 7½% area.

Citigroup Global Markets Inc. and Jefferies & Co. were the joint global coordinators and joint bookrunners. BNP Paribas Securities Corp. was a joint bookrunner.

The Vancouver, B.C.-based mining and metals company - which has operations in Africa - plans to use the proceeds for general corporate purposes.

Elsewhere in the emerging markets space, Cemex Finance LLC launched a $1.5 billion offering of 10-year senior secured notes (/B-/B+) at 9 3/8% late Thursday afternoon.

The final terms were expected to be announced shortly thereafter. However, those terms were unavailable at press time.

Although the transaction was being run by both high-yield and emerging markets syndicates, the deal is expected to essentially trade as emerging markets, a high-yield bond trader commented.

JPMorgan, Barclays, RBS Securities Inc., Credit Agricole Securities (USA) Inc., HSBC Securities (USA) Inc. and ING Financial Markets LLC are the bookrunners.

David's Bridal downsizes

David's Bridal Inc. downsized its offering of eight-year senior notes (Caa2/CCC+) to $250 million from $270 million as it shifted $20 million to its credit facility.

The notes were also talked with a yield in the 7¾% area.

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

Morgan Stanley, Bank of America Merrill Lynch, Barclays, Goldman Sachs, Credit Suisse and Deutsche Bank are the joint bookrunners.

Good going, Getty

In the secondary market, a trader said that the new 7% notes due 2020 from Getty Images - priced by way of its Griffey Intermediate Inc. special-purpose vehicle - "did very nicely" when they were freed for aftermarket activity, moving as high as 103 bid.

That was well up from the par level at which the Seattle-based photo image distributor's $550 million issue priced after downsizing from an originally shopped $750 million.

After hitting that peak, he said, "they kind of faded back but still closed in that 102-to-102½ area."

A second trader saw the bonds at 102½ bid, 103 offered.

However, at another desk, a trader registered more conservative gains for the bonds, pegging them at about 101 7/8.

Day's deals trade up

Among the other issues that priced during the session, a trader saw First Quantum Materials' 7¼% notes due 2019 at 100½ bid, 101 offered, and a second trader at another shop agreed.

The Vancouver, B.C.-based mining and metals company priced its $350 million scheduled forward calendar offering earlier in the day at par.

Among the quickly shopped "drive-by" deals that came to market on Thursday, a trader saw Petco Holdings' 8½% PIK senior toggle notes due 2017 at 100¼ bid but noted that such a level was better than it looked because the San Diego-based pet supply retailer's $550 million deal came at a discount, pricing at 99.5 to yield 8.624%.

A second trader located the bonds at 100 3/8 bid, 100 7/8 offered.

LIN Television's 6 3/8% notes due 2021 priced at par fairly late in the session. However, a trader said he heard that the Providence, R.I.-based TV station ownership company's $290 million deal had traded at 99½ bid, par offered on the break before moving up a little to 99¾ bid, 100¼ offered.

Manitowoc's 5 7/8% notes due 2022 came to market too late in the session for any kind of aftermarket activity, a trader said.

The Manitowoc, Wis.-based maker of construction cranes and food-service equipment's $300 million deal priced at par after having been upsized from an originally announced $250 million.

Earlier deals hold their own

Among the issues that came to market on Wednesday, a trader saw Quebecor Media Inc.'s 5¾% notes due 2023 trading at 101½ bid, 102 offered "in the morning, but that was about it."

However, another trader saw that $850 million issue trading a little later in the day at 101¼ bid, 102 offered.

The Montreal-based media and communications company's quick-to market deal had priced at par late Wednesday as part of an upsized $1.36 billion equivalent two-part offering that also included a 10.25-year Canadian dollar-denominated tranche. However, it appeared too late in Wednesday's session for any trading and was not freed till early Thursday, a trader said.

Crown Castle International Corp.'s 5¼% notes due 2023 were seen having moved up a little from the levels seen immediately after their pricing on Wednesday. Two separate traders said that the Houston-based communications antenna tower owner and operator's deal was "straddling 102," although another saw them get as good as a 102-to-102½ bid range.

On Wednesday, those bonds had been seen trading around 101¼ bid, 101¾ offered. The quick-to-market $1.65 billion offering had priced earlier at par.

A trader saw Houston-based oil and natural gas exploration and production operator Swift Energy Co.'s 7 7/8% notes due 2022 at 105 1/8 bid, 105 5/8 offered. That was slightly above the 105 level where the company priced its $150 million fungible-upon-registration add-on offering to its existing series of those same bonds. They yielded 6.993% at pricing but were not seen trading around on Wednesday.

Basic Energy Services Inc.'s 7¾% notes due 2022 were seen by a trader on Thursday at 100 3/8 bid, 100 7/8 offered.

The Midland, Texas-based oilfield services company's quickly shopped $300 million issue - upsized from an originally shopped $250 million - priced at par on Monday but had not really been seen in the aftermarket after that.

Indicators stay strong

Away from the new deals, statistical indicators of junk market performance were mostly higher for a second straight session on Thursday.

The Markit Group CDX North American Series 19 High Yield index was up by 3/8 point on Thursday to end at 100½ bid, 100¾ offered after having gained 5/16 point on Wednesday.

The KDP High Yield Daily index meantime rose by 6 bps to close at 74.29 after having edged upward by 1 bp on Wednesday.

However, its yield, unusually, was reported up by 10 bps, at 6.13%, after it had eased off by 1 bp on Wednesday.

And the widely followed Merrill Lynch U.S. High Yield Master II index posted its sixth consecutive gain on Thursday, rising by 0.136%. On Wednesday, it had pushed upward by 0.047%.

That lifted its year-to-date return to 12.39% from Wednesday's 12.238%.

However, the year-to-date level remains below its 2012 peak level of 12.814%, which was set on Sept. 19.

MetroPCS bonds bombed

Among specific names, prepaid wireless carrier MetroPCS' bonds were seen lower on Thursday after having pushed higher during the previous two sessions, first on the rumor Tuesday that the Richardson, Texas-based company was to be acquired by a larger, deeper-pocketed rival and then on the actual news Wednesday that this indeed was the case. It will be acquired by Deutsche Telekom AG and combined with the German communications giant's T-Mobile USA wireless carrier.

A trader saw the company's bonds - which had been very active Wednesday - as "still active" on Thursday, "though on the downside."

He said the company's 7 7/8% notes due 2018 lost a half point to end around 109 bid, with over $17 million changing hands, versus about $20 million that traded on Wednesday. It was still one of the busiest junk issues both days.

But the big loser on the day, he said, was the 6 5/8% notes due 2020, which had topped the Junkbondland most actives list on Wednesday with over $40 million having changed hands. Those bonds, which had risen solidly on Wednesday on the T-Mobile merger news, gave it all back and then some on Thursday, diving to 107 bid from Wednesday's levels as high as 111.

A second trader also saw the MetroPCS bonds down 4 points on the day.

Rival pay-as-you-go operator Leap International's Cricket Communications Inc.'s 7¾% notes due 2020, which had risen some 2 points on Wednesday along with the MetroPCS paper, also in heavy trading, were following it down on Thursday.

A trader saw the San Diego-based phone company's bonds off by 1½ points Thursday to end at 99½ bid, with about $13 million or $14 million having traded.

Larger sector peer Sprint Nextel Corp.'s 6 7/8% notes due 2028 gained 1¾ points to end at 93 bid, while its 6% notes due 2016 were a point higher at 104¼ bid.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.