Sprint mega-deal, big TXU two-parter lead nearly $4 billion session; funds gain $809 million

By Paul Deckelman

New York, Aug. 9 - The junk bond juggernaut rolled on Thursday. The high-yield primary arena had its second huge day in a row, pricing nearly $4 billion of new dollar-denominated junk-rated paper.

That came on top of Wednesday's more than $5 billion session, as borrowers rushed in to take advantage of lucrative financing conditions and easy liquidity.

The roughly $9 billion of new paper over those two sessions accounts for nearly half of the almost $20 billion of junk that has priced so far this month.

The big deal of the day was Sprint Nextel Corp.'s $1.5 billion offering of eight-year notes. That massive drive-by deal was restructured from an originally announced two-part transaction.

Another big borrower was Energy Future Intermediate Holding Co. LLC, a unit of the big Texas-based utility company formerly and more familiarly known as TXU Corp. It did an upsized $850 million two-part offering of senior secured notes, one of them an add-on to the more than $1 billion of second-lien paper the company sold back in February.

Speaking of add-ons, homebuilder Lennar Corp. did a $50 million tack-on to an issue of five-year notes it sold just a couple of weeks ago in mid-July.

There were also quickly shopped standalone deals from some less-familiar names including chemical maker Olin Corp., mortgage services provider PHH Corp. and dictation and transcription services provider Nuance Communications, Inc. Broadband and cable operator WaveDivision Holdings LLC did the sole scheduled deal that had started the week on the forward calendar.

Amid all of that new-deal activity, West Corp. was heard to have abandoned its plans for a $250 million bond deal, reasoning instead that the bank-debt market provided more favorable borrowing terms.

The debt markets are being buoyed by continued generous liquidity, and a key measure of that factor - the flow of cash into or out of high-yield mutual funds and exchange-traded funds, showed a big gain for a ninth consecutive week.

AMG gains $809 million

As things were wrapping up in Thursday's market, participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $809 million more came into those funds than left them.

That was slightly more than double the $401 million gain reported last week by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division.

The latest inflow was the ninth consecutive strong showing by the junk mutual funds and ETFs, a winning streak that dates back to the week ended June 13.

Those inflows have totaled about $9 billion, according to a Prospect News analysis of the figures, representing a continuing solid turnaround from the pattern of weakness that had been prevalent in late May and early June, when the funds lost $6.43 billion over the space of four weeks, including two huge cash hemorrhages each in excess of $2 billion, according to the analysis.

On a year-to-date basis, that latest inflow pulled the cumulative net inflow figure up to about $28 billion, including the ETFs, according to the Prospect News analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters, the company said. Excluding those ETFs and just tallying the mutual funds, the year-to-date net inflow stood at around $21 billion.

Inflows have now been seen in 27 out of the 32 weeks since the start of the year against just five outflows.

Cumulative fund-flow estimates 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 strong performance so far this year versus other fixed-income asset classes and its relatively active new-deal pace, with issuance volume running about 8% below last year's year-to-date totals.

Pricing parade continues

That issuance pace has picked up this week. After Monday's $3 billion session, there was a relative lull on Tuesday, with only about half that amount being priced.

But Wednesday saw a veritable explosion of issuance. More than $5.2 billion came to market - one of the heaviest new-issue days of this year so far.

On Thursday, what one trader called "the barrage of new issues" continued, with about $3.83 billion more coming to market in eight tranches.

And it shows no signs of stopping.

A trader said that "as long as the Fed is saying that it's not doing anything [to raise interest rates as a defense against inflation], it's a free for all. Any CFO worth his salt is asking himself whether there is any high-coupon debt that he can repay, and where can he borrow money?"

At the same time, he said, "every banker is telling [the CFOs] that he can raise whatever amount of money they want at ridiculously low interest rates - so come and get it."

While this is going on, he continued, "bond investors out there are saying that 'everybody I compete against is buying these deals, so I have to buy them.' Meanwhile, the pension funds and the insurance companies have to put yield on their books, so they are buying anything that's got a coupon on it."

He opined that the currently giddy market "really feels toppy to me," but he said he sees nothing on the immediate horizon to derail the New Deal Express.

Supersized Sprint leads

The biggest deal of Thursday's session was Sprint Nextel's $1.5 billion of eight-year notes (B3/B+). High-yield syndicate sources said that the quick-to-market issue priced at par to yield 7%, in line with price talk seeing a yield in the 7% area.

The Overland Park, Kan.-based No. 3 U.S. wireless service provider's offering was originally announced as a two-part transaction, to consist of the eight-year notes as well as a tranche of 10-year bonds, but the latter portion was ultimately dropped before the pricing.

The deal was brought to market by joint book-running managers J.P. Morgan Securities LLC, Deutsche Bank Securities Inc., Barclays, Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Goldman Sachs & Co.

The senior co-managers on the deal were Credit Suisse Securities (USA) LLC, Scotia Capital (USA) Inc. and Wells Fargo Securities LLC.

Williams Capital Group, LP was a co-manager on the transaction.

Sprint plans to use the deal's net proceeds for general corporate purposes, which may include, among other things, redemptions or service requirements of outstanding debt, network expansion and modernization and potential funding of Clearwire Corp. - about 48% owned by Sprint - and its subsidiary, Clearwire Communications LLC.

The Sprint bonds came too late in the session for any kind of aftermarket.

A Texas two-step

That was also the case with the day's other really big deal, the $850 million two-part issue from Energy Future Intermediate Holding, a unit of Energy Future Holdings Corp., the Dallas-based utility operator and merchant electric power producer formerly known as TXU Corp.

The upsized junk issue came too late in Thursday's session for any kind of trading.

Along with its subsidiary, EFIH Finance Inc., Energy Future Intermediate Holding did a drive-by offering that consisted of $250 million of senior secured first-lien notes due 2017 that priced at par to yield 6 7/8% (Caa3/B-) and a $600 million add-on to the company's existing 11¾% senior secured second-lien notes due March 1, 2022 (Caa3/CC), which priced at 102.25 for a yield to worst of 11.295%.

The add-on tranche was upsized from the originally announced $500 million.

The five-year notes priced on the tight side of price talk in the 7% area. Talk on the add-on was in the 102 to 102.25 range.

The deal was brought to market via joint bookrunners Citigroup, Goldman Sachs, Credit Suisse, JPMorgan and Morgan Stanley & Co. LLC.

As was the case with the original billion-dollar-plus issue of the 2022 notes from back in February, the proceeds of the new bond deal will be used to pay a dividend to parent Energy Future Holdings, which will in turn use the proceeds to repay a portion of the demand notes payable by it to another of its wholly owned subsidiaries, Texas Competitive Electric Holdings Co. LLC that have arisen from cash loaned by Texas Competitive Electric to Energy Future Holdings.

Olin trades up

While the bigger Sprint and TXU deals did not trade around due to the lateness of the hour, that was not the case with one of the smaller issues that came to market, Olin's $200 million issue of 10-year notes (Ba1/B+).

That rapidly marketed transaction was upsized from an originally announced $175 million and priced at par to yield 5½%. That print came at the narrow end of pre-deal market price talk of 5½% to 5¾%.

A trader said that Olin was one of the busiest names on the Trace bond-tracking system. More than $38 million of the new bonds changed hands once they hit the aftermarket.

The bonds moved up to around the 102 level from par.

The deal came to market via bookrunners Bank of America Merrill Lynch, Citigroup and Wells Fargo.

Olin, a Clayton, Mo.-based manufacturer of chemicals and firearms ammunition, plans to use the net proceeds of the offering, once they are released from escrow, to partially fund its pending $328 million all-cash purchase of K.A. Steel Chemicals Inc., a privately held Lemont, Ill.-based bleach manufacturer and distributor of caustic soda products. Closing on that deal is anticipated some time during the current third quarter.

Catch the Wave

Another well-received deal, a trader said, was WaveDivision Holdings' $250 million issue of eight-year notes (Caa1/B-). After that deal priced at par to yield 8 1/8%, actually tighter than price talk of 8¼% to 8½%, it shot up in the secondary market, rising to 102¼ bid, 103 3/8 offered.

However, the trader noted that WaveDivision was no Olin. Volume in then new credit was relatively sparse even as the bonds firmed.

The deal came to market via joint bookrunning managers Deutsche Bank, Wells Fargo, RBC Capital Markets Corp. and SunTrust Robinson Humphrey Inc.

WaveDivision, a Kirkland, Wash.-based owner and operator of broadband cable systems, plans to use the net proceeds of the offering, along with the proceeds from a concurrent term loan and revolving credit facility, to help fund the acquisition of the company by Oak Hill Capital Partners, GI Partners and management from the current owner, Sandler Capital Management.

PHH comes to market

Rounding out the day's pricing activity, PHH, a Mount Laurel, N.J.-based outsource provider of residential mortgage production, residential mortgage servicing and fleet management services, priced $275 million of seven-year notes (Ba2/BB+). That quickly shopped deal was upsized from an originally announced $250 million and priced at par to yield 7 3/8%, in line with pre-deal market price talk.

The deal was brought to market by Bank of America Merrill Lynch, JPMorgan, Barclays, Citigroup, RBC, RBS Securities Inc. and Wells Fargo.

The co-managers on the deal were BNY Mellon Capital Markets, LLC, CIBC World Markets Corp., Deutsche Bank, Goldman Sachs and Scotia Capital (USA) Inc.

PHH plans to use the net proceeds of the offering, along with cash on hand, to repurchase up to roughly $418 million of its 7 1/8% notes due 2013 via a previously announced tender offer and to pay related fees and expenses.

Nuance comes early

Nuance Communications came to the junk market on Thursday with an upsized $700 million issue of eight-year notes (Ba3/BB-), surprising a few people because the timing on the transaction was heard to have been moved up. The roadshow for the bonds, which started on Tuesday, was originally supposed to have concluded on Friday.

But conclude on Thursday it did, and the deal priced at par to yield 5 3/8%, versus price talk in the 5½% area. It was upsized from an originally announced $600 million.

Barclays and Morgan Stanley were the main underwriters.

Nuance, a Burlington, Mass.-based voice and language solutions provider, plans to use the estimated $687.6 million of net proceeds from the deal for acquisitions and general corporate purposes, including working capital and capital expenditures.

The day's smallest deal came from a fairly well-known issuer, Miami-based homebuilder Lennar. It priced a $50 million add-on (B2/B+) to the 5.5-year notes that it sold just a few weeks ago. Those 4¾% senior notes due Dec. 15, 2017 priced at par.

Lennar plans to use the deal proceeds for working capital and general corporate purposes, including repurchases of its senior notes or other debt.

Lennar sold the original $350 million of those bonds last month, pricing them at par on July 17.

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