Reynolds, Ally drive-bys, Caesars lead $4.6 billion day; most newbies gain; more fund inflows

By Paul Deckelman and Paul A. Harris

New York, Feb. 9 - The high-yield primary market got back into its groove on Thursday after a relatively sedate Wednesday. More than $4.6 billion of new paper came down the chute, including a trio of mega-deals.

Packaging products maker Reynolds Group Holdings Ltd. came to market with an opportunistically timed, quickly shopped $1.25 billion add-on to the 2019 bonds that it sold last summer. After that upsized deal priced at par, it was heard by traders to have moved up by at least 1 point in the aftermarket.

Also bringing a big same-day drive-by offering was lender Ally Financial Inc., which did $1 billion of five-year notes. After pricing at a discount, these also moved up.

Caesars Entertainment Corp. priced $1.25 billion of eight-year senior secured notes. But the big gaming company's deal came to market too late in the day for any kind of trading.

Another sizable deal came from medical technology company Kinetic Concepts, Inc. But that $750 million forward calendar transaction failed to excite investors and traded off after pricing.

That wasn't the case, though, for the day's two smaller deals, Polish telecommunications operator Polkomtel SA's quick-to-market $200 million of payment-in-kind notes and energy operator Lone Pine Resources Canada Ltd.'s $200 million offering of straight cash-pay bonds. Both were seen higher after being freed to trade.

As has been the case fairly steadily of late, the secondary market was largely new-deal-centric. While the overall market was firm, with statistical performance measures mostly better, participants were not seen having traded a lot of the non-new-issue bonds.

The junk market continued to float along on an easy cloud of liquidity as investor money continued to flow into high-yield mutual funds, a convenient proxy for overall Junkbondland liquidity trends.

AMG posts $1.78 billion inflow

As Thursday's session was wrapping up, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.78 billion more came into those weekly reporting funds than left them.

It was the sixth consecutive gain so far in the new year, coming on the heels of the $1.6 billion cash infusion seen by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, in the week ended Feb. 1. There have been no outflows so far in 2012, and net inflows have totaled about $9.19 billion, according to a Prospect News analysis of the numbers, up from $7.41 billion the week before.

It was also the 10th consecutive inflow, a streak that dates back to early December. Over that 10-week stretch, net inflows have totaled $12.3 billion, according to the Prospect News analysis.

Near-record EPFR inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a 10th straight week of inflows.

About $3.55 billion more came into those funds than left them during the week ended Wednesday - the second-largest weekly inflow since EPFR began tracking them, exceeded only by the $4.76 billion cash infusion seen in the week ended Oct. 26.

EPFR reported a $2.74 billion cash injection the previous week.

On a year-to-date basis, with no outflows seen so far, inflows have totaled $13.53 billion, up from the prior week's estimated $9.98 billion cumulative total.

Over that 10-week period dating back to early December, inflows have added up to an estimated $16.43 billion.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

A secondary market trader had just one word to say about the EPFR weekly inflow: "WOW." He said that the fact there was a large inflow was not surprising in the least, but its sheer magnitude was.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, 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 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.

Those fund flows are also seen as the key element behind the high-yield secondary market's fairly strong performance so far this year and the recent pickup in new-deal activity.

Caesars prices $1.25 billion

Caesars Entertainment priced a $1.25 billion issue of eight-year senior notes (B2/B/B) at par to yield 8½%.

The yield printed on top of price talk and at the tight end of the initial guidance of 8½% to 8¾%.

J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co. LLC were the joint bookrunners.

Proceeds from the notes will be used to repay bank debt and for general corporate purposes.

Reynolds massively upsizes

Reynolds Group priced a massively upsized $1.25 billion add-on to its 9 7/8% senior notes due Aug. 15, 2019 (Caa1/B-) at par to yield 9 7/8%, on top of price talk.

Credit Suisse ran the books for the quick-to-market tap, which was upsized from $750 million.

Proceeds will be used to redeem Pactiv's unsecured notes due 2012, Graham Packaging's unsecured notes due 2017 and 2018 and Graham Packaging's subordinated notes due 2014 and for general corporate purposes. The additional proceeds from the upsizing will be used for general corporate purposes.

The original $1 billion issue priced at 99.318 to yield 10% on July 26, 2011.

Ally drives through

Ally Financial priced a $1 billion issue of 5½% five-year senior notes (B1/B+) at 98.926 to yield 5¾%.

The yield printed on top of price talk.

Barclays Capital, Citigroup, Goldman Sachs and Morgan Stanley were the joint bookrunners for the quick-to-market deal.

Proceeds will be used for general corporate purposes, including debt refinancing.

Kinetic prices $750 million

Kinetic Concepts and KCI USA, Inc. priced $750 million of 12½% senior notes due Nov. 1, 2019 (Caa1/CCC+) at 98.75 to yield 12¾%.

The reoffer price and yield came on top of talk.

Morgan Stanley, Bank of America Merrill Lynch, Credit Suisse and RBC Capital Markets were the joint bookrunners.

The 12½% notes were sold to the underwriters in October, at which time a $1.75 billion issue of 10½% second-lien senior secured notes due Nov. 1, 2018 was successfully syndicated.

Polkomtel prices PIK deal

Poland's Polkomtel priced a $201 million issue of 14¼% 8.5-year PIK notes (Caa1/B-) at 95 to yield 14.89%.

The yield printed in line with the 14¾% to 15% yield talk.

Deutsche Bank, Credit Agricole CIB, Royal Bank of Scotland and SG CIB were the leads.

Proceeds will be used to repay the PIK bridge loan backing the $5.5 billion equivalent acquisition of Polkomtel by investor Zygmunt Solorz-Zak.

On Jan. 19, Polkomtel priced €920 million equivalent of eight-year senior notes (B1/B+/).

That deal included €542.5 million of 11¾% notes, which were priced at 96.268 to yield 12½%, and a $500 million tranche of 11 5/8% notes priced at 98.1 to yield 12%.

Polkomtel is Poland's second-largest mobile-phone company and is based in Warsaw.

Lone Pine prices $200 million

Lone Pine Resources priced a $200 million issue of 10 3/8% five-year notes (Caa2/B-) at 98.577 to yield 10¾%.

The yield printed inside of the price talk, which specified a yield in the 11% area with an original issue discount.

Credit Suisse, JPMorgan and Scotia Bank were the bookrunners.

The Calgary, Alta.-based oil and gas exploration, development and production company plans to use the proceeds to repay debt.

Orange taps FRN

Orange Switzerland priced a €180 million add-on to the Matterhorn Mobile SA senior secured floating-rate notes (existing ratings Ba3/BB-) at par. The interest rate is three-month Euribor plus 525 basis points.

The reoffer price came on the rich end of the 99.75-to-par price talk.

Credit Suisse and Deutsche Bank were the global coordinators and joint bookrunners for the quick-to-market add-on.

Citigroup, JPMorgan, Morgan Stanley and UBS were also joint bookrunners.

Proceeds will be used to repay bank debt.

The original €150 million issue priced at 99 on Feb. 3 as part of a CHF 900 million equivalent three-part deal that included Matterhorn Mobile's CHF 450 million of 6¾% senior secured notes due May 15, 2019 and Matterhorn Mobile Holdings SA's €225 million 8¼% senior unsecured notes due Feb. 15, 2020.

The issuing entities are special-purpose vehicles of Orange Switzerland, an Arcueil, France-based wireless telecommunications company.

Endeavour restructures

Endeavour International Corp. restructured its $500 million offering of senior notes and increased the price talk.

The maturity of the notes was decreased to six years from eight years, and the call protection was decreased to three years from four years.

Revised price talk has the notes pricing with a 12% coupon at 96 to yield 13%. Earlier talk specified a yield in the 11½% area.

There were also covenant changes.

The books are set to close at 11 a.m. ET on Friday, and the deal is expected to price thereafter.

Citigroup is the bookrunner.

Proceeds will be used to fund the acquisition of ConocoPhillips' interest in three producing U.K. oil fields in the Central North Sea and to retire existing term loan debt.

Reynolds wraps it up

When the new Reynolds Group 2019 bonds were freed for trading, a trader said he saw "a boatload" of the new bonds trading, pegging them at a bid level between 101 1/8 and 101¼ in "busy, busy" trading.

The Auckland, N.Z.-based manufacturer of consumer packaging products, including the popular Reynolds Wrap aluminum foil, upsized its quick-to-market add-on offering to $1.25 billion from an originally announced $750 million. The bonds priced at par and moved up from there.

The day's other $1.25 billion pricing - from Las Vegas-based gaming giant Caesars Entertainment - came too late in the session for any kind of aftermarket.

Ally heads up

A trader said that Ally Financial's new bonds firmed after pricing at 98.926.

The Detroit-based automotive and residential lender's quickly shopped $1 billion offering of five-year notes was seen having moved up to 99½ bid, 99¾ offered.

But the former GMAC LLC's existing bonds were seen lower on the news of the new deal. Its 6¼% notes due 2017 were down 1 point at 104 bid.

Ally's 8.3% notes due 2015 were likewise easier, at just under 111 bid.

Polkomtel pops

Also on the upside was Polkomtel's $200 million of 8.5-year payment-in-kind notes. That quick-to-market deal from the Warsaw, Poland-based mobile phone service provider priced at 95 but was seen by traders as good as 96¾ bid, 97¾ offered.

Lone Pine pops too

A trader saw Lonesome Pine Resources Canada's five-year notes trading at 100½ bid, 101¼ offered.

The Calgary, Alta.-based energy operator priced its $200 million deal earlier at 98.577, "so they moved up quite a bit," the trader said.

Kinetic gets crushed

That was definitely not the case with the day's other pricing, which was from San Antonio-based medical technology provider Kinetic Concepts.

Its $750 million issue of seven-year notes priced at 98 ¾ - but it was all downhill after that.

Several traders expressed dismay with the way the bonds traded. One of them declared that the bonds were down at least 1½ points in the aftermarket, quoting them at 97¼ bid, 97¾ offered.

"I don't know what happened to Kinetic Concepts," another said. "It did NOT do well, while everything else seemed to."

He said he heard that "they took it out to people before they actually brought it to market. They tried to 'pre-market' it" by lining up prospective buyers before the official launch of the deal on Tuesday.

He continued that "most of the people that saw it in that 'pre-market' phase said 'Nah, I don't think so.'"

He opined that with ample liquidity in the junk market and new deals getting done left and right, the issuer and underwriters may have "figured that it would just get swept up with everything else, that there's enough cash out there that they should be able to find a couple of people to buy a less-than-stellar deal. I think that was the thinking."

A new-deal centered-market

The trader said, "We were taking people out of paper in the morning, and then in the afternoon," once the deals started pricing, "things were new-deal driven."

He said he saw "a little pick-up in selling," but he added that "it wasn't a trend, just one-off issues," with most of the selling being done "to raise cash so they could play the calendar."

A second trader said that "the focus was on the calendar. There was not a ton" of non-new-deal trading going on.

"None of the high-beta names was active," the first trader said, and even the deals that came earlier in the week were quiet.

One of the few of the latter that was trading was Wednesday's $300 million issue from Synovus Financial Corp., which a trader saw offered at 1021/4.

The Columbus, Ga.-based financial services company had priced its 7 7/8% notes due 2019, upsized from an originally planned $250 million, at 99.339 to yield 8%, and the bonds had moved up in initial aftermarket dealings to 101 bid, 101½ offered.

Market indicators mixed again

Statistical measures of junk market performance were mixed for a fourth consecutive day on Thursday.

Once again, the weak point was the CDX North American Series 17 High Yield index. A trader saw it off by 9 1/6 point on Thursday to end at 97¼ bid, 97½ offered after it had eased by 3/8 point Wednesday.

The KDP High Yield Daily index gained 1 bp on Thursday to close at 74.39, after having risen by 7 bps on Wednesday. Its yield came in by 1 bp to 6.62% after having declined by 2 bps Wednesday.

But the widely followed Merrill Lynch High Yield Master II index continued to show strength, rising for an eighth consecutive session. It was up by 0.035%, on top of Wednesday's 0.179% advance.

That lifted the index's year-to-date return to 3.884% on Thursday, a new peak level for the year so far, from Wednesday's 3.847%, the previous high-water mark for the year.

© 2015 Prospect News.
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