Salix, Walter, Arch lead $2.44 billion session; existing Arch bonds up; funds gain $16 million

By Paul Deckelman and Paul A. Harris

New York, Dec. 12 - With the high-yield primary already on a busy run ahead of the looming end of the year, the floodgates opened further on Thursday as seven issuers priced $2.44 billion of new dollar-denominated, fully junk-rated paper.

Syndicate sources said that a majority of the day's deals were opportunistically timed and quickly shopped drive-by offerings, although not the two biggest transactions.

Those would be the day's biggest deal, a $750 million scheduled forward calendar offering of eight-year notes from drug maker Salix Pharmaceuticals Ltd., and in the runner-up spot, an upsized $575 million of eight-years from mortgage company and asset manager Walter Investment Management Corp.

One other such scheduled deal that priced after a roadshow was Greek oil tanker and LNG carrier operator Eletson Holdings Inc.'s upsized $300 million of secured eight-year paper.

Eletson was one of three deals successfully brought to market on Thursday by companies engaged in the transportation and storage of various types of fuels and related logistics operations. Tesoro Logistics LP, an operator of crude oil and refined product storage assets and pipelines, along with its Tesoro Logistics Finance Corp. subsidiary, did a quickly shopped $250 million add-on to its 2020 notes. And Kenan Advantage Group, Inc., which hauls fuels, chemicals and other liquefied commodities via a large fleet of tank trucks, likewise priced a quick-to-market $150 million add-on to its 2018 paper.

Another energy-related name tapping the junk market with a drive-by deal was Arch Coal, Inc., which did an upsized $350 million of secured five-year paper.

Rounding out the day's pricings was poultry processor and pet food manufacturer Simmons Foods, Inc.'s $50 million drive-by add-on to its secured 2017 notes.

And the syndicate sources said that price talk meantime emerged on deals expected to see Friday pricings, such as energy operator Memorial Resource Development LLC and grocer Roundy's Supermarkets, Inc.

Secondary market activity was largely new-deal related. Arch Coal's established bonds all rose more than a point, some in brisk trading, on the company's new-deal plans. Monday's megadeal from Sprint Corp. continued to hold most of its initial aftermarket gains.

Statistical indicators of market performance turned lower across the board after having been mixed for two sessions before that.

Another indicator - the flow of cash into and out of high-yield mutual funds and exchange-traded funds, considered a key barometer of junk market liquidity trends - edged back into black in the latest week after having turned negative last week for the first time in four weeks.

Lipper funds gain $16 million

As Thursday's market activity was wrapping up, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $16 million more came into those funds than left them in the week ended Wednesday.

As fund flows go, it wasn't very much - almost statistically negligible - although it did represent an improvement, however small, from the result seen the week before, when Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., reported an outflow of $142 million in the period ended Dec. 11. That downturn had been the first such outflow seen from the funds after three consecutive weekly net cash additions totaling about $1.44 billion, according to a Prospect News analysis of the figures.

Those three weeks, plus the lone outflow and this week's inflow, have been part of a larger, overwhelmingly positive recent trend, according to the analysis, which has seen 12 inflows in the past 14 weeks dating back to the week ended Sept. 11, when that positive run began.

During that 14-week stretch, including the latest inflow, the funds have seen net gains accumulate to the tune of about $9.67 billion, according to the analysis.

But the year as a whole so far has been considerably less lopsided, with inflows having now been seen in 32 weeks, against 18 weeks of outflows, according to the analysis. For a number of weeks earlier this year, cumulative fund flows for the year as a whole even turned negative. That was 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, with the negative number for the year gradually whittled down week by week; eventually, the year-to-date fund-flow number swung back into the black, according to the analysis, and has stayed there ever since.

Market sources said that the latest weekly inflow brought the year-to-date total up to an estimated $2.69 billion.

Another fund-tracking service - Cambridge, Mass.-based EPFR Global - meanwhile essentially echoed the AMG/Lipper results. After having seen inflows last week "in excess of $1 billion," the rival service this week noted only "modest inflows."

EPFR uses a much different methodology than AMG/Lipper by including in its fund universe many non-U.S. domiciled funds, while its rival figures its numbers on a strictly domestic-fund basis. Only about 50% of EPFR'S numbers are attributable to U.S.-based funds, with 40% in Europe-only funds and another 10% in global high-yield funds.

Cumulative fund-flow estimates, whether from AMG/Lipper or EPFR, may be revised upward or downward or may 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 in September, 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, November and now continuing strongly into this month as well.

Salix at the tight end

Seven issuers finished dollar-denominated single-tranche deals on Thursday, as dealers worked to clear a busy calendar heading into the end of the year.

The combined Thursday take was $2.44 billion in seven tranches.

Four of the seven came as drive-bys.

Three of the seven were upsized.

One deal priced inside of price talk. Three priced at the tight end. And three priced on top of talk.

Salix Pharmaceuticals priced a $750 million issue of seven-year senior notes (B2/B) at par to yield 6% via bookrunner Jefferies LLC.

The yield printed at the tight end of the 6% to 6¼% yield talk.

Proceeds will be used to help fund the company's merger with Santarus, Inc.

Walter Investment upsizes

Walter Investment Management priced an upsized $575 million issue of eight-year senior notes (B3/B) at par to yield 7 7/8%.

The deal was upsized from $500 million.

The yield printed on top of yield talk.

Barclays, Morgan Stanley & Co. LLC, BofA Merrill Lynch, Credit Suisse Securities (USA) LLC, RBS Securities Inc. and J.P. Morgan Securities LLC were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Arch Coal comes inside of talk

Arch Coal priced an upsized $350 million issue of five-year senior second-lien notes (B3/CCC+) at par to yield 8%.

The deal was upsized from $300 million.

Yield talk was set in the 8¼% area.

BofA Merrill Lynch was the left lead bookrunner for the debt refinancing. PNC Capital Markets LLC, Citigroup Global Markets Inc., Credit Suisse and Morgan Stanley were the joint bookrunners.

Eletson upsizes

Eletson Holdings priced an upsized $300 million issue of 9 5/8% eight-year senior secured first-priority ship mortgage notes (B3/B) at 98.617 to yield 9 7/8%.

The yield printed in the middle of the 9¾% to 10% yield talk.

The reoffer price came at the cheap end of price talk that specified 1 to 1.5 points of OID.

Jefferies and DNB Markets were the joint bookrunners for the deal, which was upsized from $290 million.

Proceeds will be used to refinance debt and for general corporate purposes, including the acquisition of future vessels.

Tesoro at the rich end

Tesoro Logistics and Tesoro Logistics Finance priced a $250 million add-on to their 5 7/8% senior notes due Oct. 1, 2020 (B1/BB-) at 102.25 to yield 5.334%.

The reoffer price came at the rich end of the 102 to 102.25 price talk.

Wells Fargo Securities LLC was the left bookrunner for the debt refinancing.

Citigroup and JPMorgan were the joint bookrunners.

Kenan taps 8 3/8% notes

Kenan Advantage Group priced a $150 million add-on to its 8 3/8% senior notes due Dec. 15, 2018 (B3/B-) at 105 to yield 6½%.

The reoffer price came at the rich end of the 104.5 to 105 price talk.

Goldman Sachs & Co., KeyBanc Capital Markets, Wells Fargo and SunTrust Robinson Humphrey Inc. were the joint bookrunners for the quick-to-market debt refinancing deal.

Simmons Foods taps 10½% notes

Simmons Foods priced a $50 million add-on to its 10½% second-lien senior secured notes due Nov. 1, 2017 (Caa1/CCC) at 104.75 to yield 8.59%.

The reoffer price came on top of price talk.

Wells Fargo was the left bookrunner for the debt refinancing. BMO Capital Markets Corp. was the joint bookrunner.

PortAventura upsizes

The Thursday session saw the euro-denominated primary market clear its calendar.

PortAventura Entertainment Barcelona BV completed an upsized €420 million two-part senior secured notes transaction (B3/B-).

An upsized €270 million tranche of seven-year fixed-rate notes priced at par to yield 7¼%, on top of final yield talk that had been revised from earlier talk of 7½% to 7¾%. The fixed-rate notes tranche was upsized from €250 million.

The deal also included a €150 million tranche of three-month Euribor plus 562.5 bps six-year floating-rate notes that priced at 99.00. The floating-rate notes also came on top of revised price talk; earlier talk had the floater pricing at 99 with a Euribor spread of 550 bps to 575 bps.

The overall transaction size was increased from €400 million.

Global coordinator JPMorgan will bill and deliver. KKR was also a global coordinator.

Banca March, BNP, Caixa, Commerzbank and Nomura were joint bookrunners.

The Salou, Spain-based integrated destination resort plans to use the proceeds to repay debt and fund a shareholder distribution.

Talking the deals

Dealers set the stage for the final session of the busy Dec. 9 week, which market sources are forecasting to be the last highly active week of the year and the second-to-last week likely to see any new issue activity whatsoever.

Memorial Resource Development and Memorial Resource Finance Corp. talked their $350 million offering of five-year senior PIK toggle notes (B3/B-) with a 10% cash coupon and a 10¾% PIK coupon at a reoffer price in the 98 area.

Citigroup, BMO and Wells Fargo are the joint bookrunners.

And Roundy's Supermarkets talked its $200 million offering of seven-year senior secured second-lien notes (B3/CCC) to price at a discount with a yield in the 11% area.

Credit Suisse and JPMorgan are the joint bookrunners.

Arch Coal, Kenan improve

In the aftermarket, traders did not see much in the way of dealings in Thursday's new issues, with most of those deals having priced way too late in the session for any kind of further activity.

However, one trader did see Arch Coal's new 8% senior secured second-lien notes due January 2019 having firmed to a 101 to 101½ bid context.

That was up from the par level at which the St. Louis-based coal producer had priced its upsized and quickly shopped new deal.

At another shop, a trader - who did not initially see any market in Arch's new bonds - saw good-sized activity at higher levels in the company's existing bonds, presumably driven by the news of its new bond offering, the proceeds of which will be used to repay existing debt.

He said that Arch's 7¼% notes due 2021 gained ½ point to end at 77½ bid. Volume of over $25 million put the bonds among the day's most actively traded Junkbondland issues.

He also saw Arch's 7¼% notes due 2020 up 1½ points at 78 1/8 bid, with over $19 million having changed hands.

The company's 9 7/8% notes due 2019 similarly firmed to around the 89½ bid level on mid-afternoon volume of over $7 million.

Arch's 7% notes due 2019 gained 1¼ points to close at 80 3/8 bid, although the trader said that there had been only $4 million of turnover.

A trader meantime quoted Kenan Advantage's 8 3/8% notes due 2018 at 105¼ bid, 105¾ offered - up a little from the 105 bid level at which Kenan, a North Canton, Ohio-based provider of logistics and liquid bulk transportation services, had priced its quick-to-market add-on to its existing bonds.

Wednesday deals trade around

Among the deals that came to market on Wednesday, a trader saw Churchill Downs Inc.'s new 5 3/8% notes due 2021 around 101 bid, 102 offered.

That was around where those bonds had traded right out of the starting gate on Wednesday, when the Louisville, Ky.-based race track operator and gaming technology provider's upsized $300 million forward calendar deal had priced at par.

Endo Health Solutions Inc.'s 5¾% notes due January 2022 were seen by one trader at 100 1/8 bid, 100½ offered, up from the par level at which the Malvern, Pa.-based specialty health-care company's Endo Finance Co. subsidiary had priced its $700 million drive-by issue after nearly doubling it in size from an originally announced $375 million. The bonds had come to market too late on Wednesday for any aftermarket dealings at that time.

A second trader saw that paper get even better on Thursday, pegging the notes at 100½ bid, 101½ offered.

Digicel Group Ltd.'s $500 million add-on to its 8¼% notes due 2020 moved up by ¾ point on Thursday, a trader said, locating those bonds at 103¾ bid, 104¾ offered, versus the 103 bid, 103¾ offered level where he had seen the notes trading late Wednesday.

Another trader quoted them at 103½ bid, 104 on Thursday.

The Kingston, Jamaica-based international wireless provider had priced its quick-to-market issue on Wednesday at 103 to yield 7.488%.

The traders did not see any aftermarket dealings in Wednesday's other new deal, Leatherhead, U.K.-based equipment rental company Ashtead Group plc's drive-by add-on to its 6½% second-priority senior secured notes due July 2022; that paper had priced at 106 to yield 5.608%.

New Sprint holds gains

Traders saw the new Sprint 7 1/8% notes due 2024 continuing to hold most of the gains that the megadeal had notched when it began trading after Monday's pricing.

One saw the bonds at 101½ bid, 102¼ on Thursday afternoon, while a second said they were at 101¾ bid, 102½ offered.

That was down a little from the peak aftermarket levels of 102 bid, 102¼ offered seen on Wednesday.

The Overland Park, Kan.-based No. 3 U.S. wireless carrier had priced its quickly shopped $2.5 billion deal - one of the year's biggest junk deals - at par on Monday, too late for any trading at that time.

On Tuesday, the notes quickly firmed to around 101 7/8 bid and did not stray far from that area.

Market signs head south

Overall, statistical junk-market performance indicators declined across the board on Thursday after having been mixed on Wednesday for a second straight day. The market barometers had been higher over the two sessions before that.

The Markit Series 21 CDX North American High Yield index suffered its third consecutive loss on Thursday, easing by 1/16 point to end at 106 25/32 bid, 106 29/32 offered. It had fallen by 3/8 point on Wednesday.

The KDP High Yield Daily index lost 4 bps on Thursday to finish at 74.33, which followed two consecutive sessions during which it had been unchanged.

Its yield rose for a second straight session on Thursday, moving up by 1 bp to 5.68%. That followed a 4 bps widening on Wednesday.

And even the widely followed Merrill Lynch High Yield Master II index went south, losing 0.075% on Thursday - its first setback after five consecutive gains before that, including Wednesday's 0.024% advance.

The loss dropped its year-to-date return to 7.011%, down from Wednesday's 7.091%, which had been its fourth straight new 2013 peak level.

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