Upsized Lennar prices but Nielsen is a false alarm; new Encore bonds sizzle as JBS fizzles; funds up $644 million

By Paul Deckelman

New York, April 23 -- Lennar Corp. priced a quickly-shopped upsized offering of eight-year bonds late in the session on Thursday, as the healthy pace of high yield primary market activity quickened - for the first time this year, new junk deals have priced on four consecutive days of a single week.

But even as that deal was being successfully brought in, the primary market got a bit of a false start on another front, as news screens indicated that Nielsen Finance LLC and Nielsen Finance Co. would bring a $300 million bond issue; as it turned out, no such deal is expected at this time, with the company clarifying that a press release touting the supposed deal was filed to the Securities and Exchange Commission's Edgar system "erroneously."

Meanwhile, newly priced issues for Encore Acquisition Co. and JBS USA LLC were seen trading around, a day after both of those offerings came to market. However, while energy operator Encore's new bonds were seen having firmed smartly in their initial aftermarket activity, skeptical participants were characterizing the deal for beef and pork producer JBS as a pig.

Among the established issues, Ford Motor Co.'s bonds were seen continuing to firm smartly, even with the Dearborn, Mich.-based Number-Two domestic carmaker expected to report a sizable first-quarter loss on Friday, as investors continue to regard Ford as likely to be the last of the traditional "Big Three" auto producers that will be left still standing when the dust clears from the current car-industry carnage and longtime arch-rivals General Motors Corp. and Chrysler have fallen by the wayside .

Junk funds show $644 million inflow

And as trading was winding down for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday some $644.1 million more came into the weekly reporting funds than left them. It was the sixth consecutive inflow, including the $539.7 million cash infusion seen in the previous week, ended April 15.

That six-week winning streak has generated $4.009 billion of inflows, according to a Prospect News analysis of the AMG figures. With 16 weeks of the year now history, inflows have been seen in all but three of them - a losing streak back in late February and early March which saw cumulative outflows of $996 million.

Including the latest week's inflow number, the year-to-date net inflow for the weekly reporting funds has swelled to $6.622 billion, according to the analysis, up from $5.978 billion the week before.

The massive multibillion-dollar flow of funds into high yield is seen as having been primarily responsible for the relatively strong pace of new issuance and the solidly positive year-to-date returns that were seen in Junkbondland for about the first two months of the year, as high yield sought to recover from last year's staggering 25%-plus loss and sharply reduced primary activity. While both of those trends subsequently moderated for a while, largely coinciding with the three weeks of outflows, new issuance and secondary performance have each more recently been on the rebound.

A market source also said that in the latest week, funds which report on a monthly basis rather than doing so weekly were down by $21.2 million on the week, versus the week before, when the total was up by $25.8 million. The latest week's result brought the year-to-date cumulative inflow for such funds down to $5.952 billion from around $5.97 billion the week before.

The source also said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $12.573 billion more has come into the funds than has left them, compared with the previous week's aggregate figure of $11.95 billion.

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, analysts also noted that the junk funds had recorded inflows for a sixth straight week, pushing year-to-date inflows over $6 billion, "with increased risk appetite encouraging investors to seek the higher returns offered by this asset class," declared its managing director, Brad Durham.

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers generally differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe.

Any and all cumulative fund-flow totals 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 market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash coming into the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Lennar livens up primary

Lennar Corp. became the latest junk-rated company to bring in a new deal this week, following in the footsteps of Encore Acquisition and JBS USA, which priced on Wednesday, DigitalGlobe Inc., which came to market on Tuesday, and Georgia-Pacific LLC, which appeared on Monday.

Thus, for the first time this year, new deals have priced on four consecutive days of a week - and there is always the possibility that a quickly-emerging drive-by offering could appear on Friday and make for a clean sweep, the first time in many months that that will have happened in Junkbondland, although syndicate sources did not see any obvious Friday deal candidates on the horizon.

"I assume that we'll be closed for the rest of the week," one suggested as Thursday's session dragged sleepily onward - although that was before the late-afternoon flurry that saw the Lennar pricing disclosed and the emergence of the supposed Nielsen deal.

Lennar, a Miami-based homebuilder, priced $400 million of bonds (B3/BB-) that will come due on May 15, 2017 -- upsized from the $250 million originally talked around the market.

The new bonds carried a 12¼% coupon, and priced at 98.123 to yield 12 5/8%, the sources said. The bonds priced at a spread of 969.6 basis points over Treasuries.

Price talk on the deal did not circulate beforehand. The suddenly appearing issue priced late in the session, and there was no immediate aftermarket activity seen.

Market sources said that Citigroup was the bookrunner on the issue.

Proceeds will be used for general corporate purposes, possibly including repayment of debt.

A market source meantime saw Lennar's existing 5 1/8% notes due 2010 trading down a point at 90 bid.

Nielsen a no-show

The only other excitement in the primary market, also seen fairly late in the day, turned out to be much ado about nothing. Several new-deal sources reported that Nielsen Finance - a subsidiary of Nielsen Co. BV, would be bringing a $300 million Rule 144A/Regulation S offering of seven-year senior notes to market. The New York-based media and information company, best known as the television ratings people and the publisher of such media and entertainment trade publications as Billboard, The Hollywood Reporter and Adweek, would ostensibly use the deal's proceeds for general corporate purposes, which could include capital expenditures or the retirement of a portion of the company's £149 million of sterling-denominated notes and related obligations, according to the press release that was posted to the SEC's Edgar website as part of the company's 8-K filing Thursday.

However, sources at some of the banks which had acted as underwriters for some of Nielsen's past debt issues and which could reasonably be expected to fulfill the same role again were, oddly, unaware of the deal - and apparently, with good reason.

A spokesman for Nielsen, Gary Holmes, told Prospect News: "That 8-K was filed erroneously" and should be disregarded.

"Where we stand now is that we have not made a determination whether to proceed with the debt offering." He added that "that's not to say that the decision won't be made at some point - soon, later, whenever."

While Holmes declined to officially speculate whether a deal could actually still emerge some time in the near term, a syndicate source flatly declared that "they have no immediate plans to do a deal," and characterized the dissemination of the press release as "a misfire."

The Nielsen spokesman did not confirm or deny whether there had, in fact, been advanced discussions on whether to do such a deal at this time, although the fact that materials in support of such an offering had been put together, including the press release, the actual 8-K form announcing the deal and a disclosure statement listing the company's current debt status and capitalization, also posted with the SEC, might imply that Nielsen had been recently studying the market and actively considering whether to do such a deal.

As of press time on Thursday night, the 8-K filing remained posted on the SEC's Edgar public website.

New Encore bonds excel

Elsewhere, a buyside source who tracks energy credits was quoting the new Encore Acquisition 9½% senior subordinated notes due 2016 at 94¼ bid, 94¾ offered - well up from the 92.228 level at which the Fort Worth, Tex.-based oil and natural gas exploration and production company had priced its upsized $225 million issue of the bonds on Thursday.

He characterized dealings in the new bonds as "pretty active across several brokers," adding that "the entire EAC cap structure has been pretty active today."

At another desk, a trader said that "we were active this morning in Encore," as the bonds rose to at least 94 bid, 94½ offered, although he added that "that faded after noon."

The first source meantime saw the company's existing bonds trading at firm levels, with its 6% notes 2015 at 79½ bid, 81 offered, its 6¼% notes due 2014 at 83 bid, 84½ offered, and its 7¼% notes due 2017 at 80½ bid, 82 offered.

Overall, he declared, "it's a good credit."

JBS deal disappoints

The same, unfortunately, could not be said for Wednesday's other new deal, the upsized $700 million offering of 11 5/8% senior notes due 2014 of Greely, Colo.-based meatpacker JBS USA, an arm of South American global beef and pork giant JBS SA.

Those bonds - solidly upsized from the $400 million originally talked around the market - priced at 95.046 to yield 13%, and while they initially shot as high as 96½ bid on the break, by the end of the day Wednesday, they had come back down to trade at around - or, some traders said, actually slightly below - their issue price.

And it was more of the same on Thursday. A strategist saw them near 95 bid and opined that "that's what I expected from a bond that doesn't have good support from both" high yield and emerging market sectors.

The bonds seemed like a "backdoor way to finance whatever they want," the strategist continued, adding that "the pricing was ridiculous."

With single-digit EBITDA numbers, "I don't know why they think they can afford this," the strategist said.

The deal served to reinforce the notion that "you don't come unless you really have to," the strategist added.

Market indicators move up

Back among the established issues, a market source saw the CDX Series 12 High Yield index - which had eased by 1/8 point on Wednesday - gain 3/8 point on Thursday, closing at 74¼ bid, 74¾ offered.

Meanwhile, the KDP High Yield Daily Index, which had edged up by 3 bps on Wednesday, rose another 16 bps to 56.34 Thursday, while its yield tightened by 5 bps to 12.48%.

Advancing issues, which on Wednesday had moved ahead of trailers by a five-to-four margin, continued to hold that lead on Thursday.

Overall market activity, measured by dollar-volume totals, rose by 7% from Wednesday's levels.

A trader said that in the secondary on Thursday, "I would say that people looking for offers, versus people looking for bids, probably outnumbered them 10-to-1, so demand in the secondary is still heavily skewed towards buyers."

He noted the phenomenon that "high yield accounts [are] active, not only across the high-yield bond market, but in loans and also venturing into the [investment-grade] corporate market a little bit.

"So they're going up in quality, they're going down in quality. People are putting risk back into their portfolios."

He also observed the flow of liquidity into the junk market over the last six weeks - including the latest big AMG funds flow number - characterizing it as "nice - just what we needed.

"We've probably had $4 billion or $4.5 billion of new deals price in the past 10 days, and we've had close to that come in in cash, so net-net, people's cash positions are still in the 5-plus percent area, I would think."

The trader said that "overall trading volumes up and down the Street are still relatively light," adding that he saw "very little re-trading" in the new issues.

He warned that "there's a lot of chicanery by street brokers, crazy pictures in the Street, especially on the offered side. There are a lot of guys offering stuff - and then you go to lift it and they're not there."

He characterized the whole market as "still in a price-discovery mode."

Ford firmer, though GM can't gain traction

Among specific names, Ford's bonds were largely better ahead of the company's earnings release on Friday. But its rival General Motors did not fare as well, a trader said, seeing Ford's 7¼% notes due 2011 about 2 points better at 73.5, with around $20 million changing hands. He also saw the 7.45% notes due 2031 at 40.5 and the 6 5/8% notes due 2028 at 37, both a point firmer.

A second trader placed the 7¼% notes at 73 bid, 74 offered, noting "maybe that's up a point." He also saw the 9.30% notes due 2030 at 38 bid, 39 offered.

"I would say they are up slightly to unchanged, depending on which one you are looking at," he said.

But GM's bonds closed a tad lower, traders reported. The first trader placed both the 8¼% notes due 2023 and the benchmark 8 3/8% notes due 2033 at 7 7/8.

The second trader gave a generic quote of 6.5 bid, 8.5 offered.

Another trader said that at his shop, "we saw buyers of Ford paper, and we've had them for a couple of days, but we're not seeing a lot of sellers."

Another trader saw the 7.45%s up 1½ points at 39 bid, 41 offered.

He also saw GM's 8 3/8s better by ½ point at 8½ bid, 9½ offered.

However, another market source saw the long bonds down more than a point at 8¼ bid, while GM's

7 1/8% notes due 2013 also fell more than a point to 9 bid.

Ford Motor Credit Co.'s 7¼% notes due 2011 gained more than 2 points to end at 74.

Ford is expected to report its largest loss in history on Friday. However, it is also largely believed that the company will not need to file for bankruptcy, nor will it need to access emergency bailout funds from the government.

Meanwhile, bankruptcy chatter continues to heat up for Detroit-based GM as the U.S. Treasury Department has reportedly begun putting together a bankruptcy filing for rival Chrysler LLC. Furthermore, Canada and certain provinces are considering putting up as much as $6 billion for both Chrysler and GM to use in the event of a Chapter 11 filing.

Aaron Hochman-Zimmerman and Stephanie N. Rotondo contributed to this report.

© 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.