Upsized Kinder Morgan megadeal, Capsugel lead $2 billion session; funds gain $753 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 31 - High-yield borrowers remained opportunistic on Thursday, syndicate sources said, as a trio of new dollar-denominated, fully junk-rated deals totaling some $2 billion were quickly shopped around to investors.

Most of that volume, however, came from just one deal: energy pipeline operator Kinder Morgan Inc.'s hugely upsized $1.5 billion two-part offering. Those bonds were seen having moved up modestly when they were freed for trading.

Capsugel Holdings US, Inc., which produces drug-dosage capsules for the pharmaceutical industry, did an unscheduled and upsized $465 million of PIK toggle notes, which also firmed when they hit the aftermarket.

There was a smallish add-on to its existing notes pricing from cancer center operator Vantage Oncology, LLC.

Traders said there was some junk market interest in a split-rated crossover offering from computer hard-drive maker Seagate Technology plc, which did an upsized $800 million of new paper via a subsidiary.

Traders also saw some upside for two deals that had priced late Wednesday and that didn't get to trade until Thursday. They were from telecommunications operator Level 3 Communications, Inc. and electronic transaction company First Data Corp.

Away from the new deals, bonds of the company formerly known as TXU Corp. were the most actively traded junk issues, helped by the news that the cash-strapped utility company will make a big scheduled interest payment on Friday.

Statistical market-performance measures turned mixed after having been higher during Wednesday's dealings.

But one key indicator - flows of fresh cash into and out of high-yield mutual funds and exchange-traded funds, considered a good indicator of overall liquidity trends - showed strong inflows for an eighth consecutive week.

Lipper funds gain $753 million

Late in the session on Thursday, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, about $753 million more came into those funds than left them.

It was the eighth consecutive weekly gain in the junk funds going back to the week ended Sept. 11.

The latest inflow followed the $2.02 billion gain reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., during the week before, which ended Oct. 23.

During that eight-week stretch - which also included two other giant-sized inflows of $3.1 billion during the week ended Sept. 25 and $1.40 billion in the week ended Sept. 18 - net inflows have totaled about $9.25 billion, according to a Prospect News analysis of the fund-flow numbers.

For the year so far, inflows have now been seen in 28 weeks, against 16 weeks of outflows, according to the analysis. For a number of weeks, cumulative fund flows for the year as a whole were negative, due to a sizable losing streak that 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 - a scenario reiterated anew just this week with the latest announcement from the Fed - investors have been pumping money back into Junkbondland through the funds, analysts said, causing the cumulative outflow number to be gradually whittled down week by week and eventually swinging the year-to-date fund-flow number back into the black, according to the analysis.

The latest week's cash injection raised the year-to-date cumulative net inflow to around $1.62 billion from the previous week's $867 million - which had been the first positive bulge seen since late May.

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.

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 some $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.

However, the recent run of consecutive net inflows coincided with the explosive expansion of junk primary activity seen last month, 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 this month.

Kinder Morgan greatly upsizes

The primary market put up $2.02 billion of issuance on Tuesday. Three issuers brought a combined four tranches of dollar-denominated, junk-rated notes.

Kinder Morgan upsized its two-part sale of non-callable senior secured notes (Ba2/BB/BB+) to $1.5 billion from $1 billion and priced the quick-to-market deal.

It included a $750 million tranche of 7.25-year notes that priced at par to yield 5%, at the tight end of the 5% to 5 1/8% yield talk.

Kinder Morgan also priced a $750 million tranche of 10-year notes at par to yield 5 5/8%, at the wide end of the 5½% to 5 5/8% yield talk.

Active bookrunner Barclays will bill and deliver for the debt refinancing deal. RBC Capital Markets and Wells Fargo Securities LLC were also active bookrunners.

Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, RBS Securities Inc. and UBS Securities LLC were the passive bookrunners.

Capsugel PIK toggle deal

Capsugel priced an upsized $465 million issue of 5.5-year PIK toggle notes (Caa1/B-) at par to yield 7%.

The notes pay a cash coupon of 7%, which steps up by 75 basis points to 7¾% in the event of a PIK coupon payment.

The deal was upsized from $415 million.

The yield printed at the tight end of the 7% to 7¼% yield talk.

Goldman Sachs & Co., UBS, KKR Capital Markets, Barclays, Credit Suisse, Deutsche Bank Securities Inc. and Macquarie Capital (USA) Inc. managed the dividend-funding deal.

Vantage taps 9½% notes

Vantage Oncology priced a $50 million add-on to its 9½% senior secured notes due June 15, 2017 (B2/B) at par to yield 9½%, on top of price talk.

Jefferies LLC was the bookrunner for the quick-to-market add-on.

The Manhattan Beach, Calif.-based owner and operator of radiation oncology centers plans to use the proceeds to refinance its credit facility, to finance an acquisition and for general corporate purposes.

Seagate's split-rated deal

In the crossover market, Seagate HDD Cayman launched and priced an upsized $800 million issue of split-rated, non-callable five-year senior notes (Ba1/BBB-/BBB-) at par to yield 3¾%.

The deal was upsized from $500 million.

The yield printed at the tight end of yield talk set in the 3 7/8% area.

Morgan Stanley was the bookrunner.

The Dublin, Ireland-based hard drive maker plans to use the proceeds for general corporate purposes, which may include, but are not limited to, debt repayment, capital expenditures and other investments in its business.

AA prices £350 million

The sterling-denominated market saw PIK toggle issuance as well on Thursday.

British motoring association AA Ltd. priced a £350 million issue of unrated six-year senior PIK toggle notes at par with a cash yield of 9½%.

The yield and reoffer price came on top of talk.

The notes pay a 9½% cash coupon and a 10¼% PIK coupon.

Global coordinator Deutsche Bank will bill and deliver. Royal Bank of Scotland was also a global coordinator.

Barclays and Mizuho Securities were joint bookrunners.

Proceeds will be used to refinance debt of Acromas Mid Co Ltd. and pre-fund the first three interest payments on the notes following the issue date.

NH Hoteles upsizes

Madrid-based NH Hoteles SA priced an upsized €250 million issue of six-year senior secured notes (/B/B+) at par to yield 6 7/8%.

The issue was upsized from €225 million.

The yield printed at the tight end of yield talk set in the 7% area.

JPMorgan and Deutsche Bank were the joint global coordinators for the debt refinancing deal.

Bankia, SA, Banco Bilbao Vizcaya Argentaria, SA and Banco Santander, SA were the joint bookrunners.

Tullow tightens talk

Tullow Oil plc ratcheted down yield talk on its $500 million offering of seven-year senior notes (expected B1//).

Revised talk is 6% to 6¼%, down from earlier talk in the 6½% area.

Discussions had taken place in a yield context above 7% for the company's notes, according to a market source.

Investors were licking their chops as it appeared the energy exploration and production company would make concessions for (a) being a first-time issuer, (b) reporting its reserves in a manner that is different from that of its counterparts in the United States and (c) having an "emerging markets" aspect. (The company is based in London, but its largest operations are in Africa and the Atlantic Margins).

However, those concessions began to vanish as investors worked on the deal, the source said, adding that it will come nowhere near as cheap as some on the buyside were hoping.

It is expected to price on Friday.

JPMorgan and Deutsche Bank are the global coordinators for the debt refinancing deal. BNP, BofA Merrill Lynch, Barclays, Credit Agricole and Standard Chartered are the joint bookrunners.

Nuance Travel talks FRN

Nuance Travel Group talked its €200 million offering of six-year senior secured floating-rate notes (B2/B+) with a Euribor spread of 500 bps to 525 bps, at a reoffer price of 99.5 to par.

Timing on the deal was moved ahead. Books close at 6 a.m. ET on Friday. The roadshow had been previously expected to carry into next week.

Joint bookrunner Credit Suisse will bill and deliver.

BNP, UniCredit, UBS and Banca IMI are also joint bookrunners in a syndicate of banks that includes Credit Agricole, ING and Mediobanca.

The Glattbrugg, Switzerland-based travel retailer plans to use the proceeds to refinance bank debt.

Day's deals trade up

In the secondary sphere, traders saw the day's new deals notching modest gains when they were freed for aftermarket action.

A trader saw both tranches of Houston-based energy pipeline operator Kinder Morgan's new deal trading at 100 5/8 bid, 100 7/8 offered.

A second trader saw the company's 5% notes due 2021 at 100¾ bid, 101 offered, while its 5 5/8% notes due 2023 were at 100 5/8 bid, 101 1/8 offered.

And yet another trader said the 10-year notes had moved up to 100¾ bid, 101 offered.

Both of those drive-by tranches had priced at par.

So did Morristown, N.J.-based pharmaceutical capsule manufacturer Capsugel's upsized and quickly shopped 7%/7¾% PIK toggle notes due 2019, which got as high as 100¾ bid on the break before finally going home at 100½ bid, 101 offered.

Traders saw no secondary market action in Vantage Oncology's add-on to its 9½% senior secured notes due 2017, owing to the deal's small size.

But traders did see some junk participation in Irish computer hard-drive manufacturer Seagate's 3¾% notes due 2018, despite its mostly investment-grade ratings.

A pair of them quoted the bonds at 100 5/8 bid, 101 offered, versus their par issue price, while a third pegged the deal at 100¾ bid, 100 7/8 offered.

Level 3, First Data firm

Both of Wednesday's new issues - which had priced too late in the day for any kind of real aftermarket activity -were seen having gained at least 1 point when they were finally freed to trade on Thursday.

For instance, a trader said that Level 3's new 6 1/8% notes due 2021 rose to 101½ bid, 102 offered.

That was well up from the par level at which the Broomfield, Colo.-based telecom and internet backbone services provider had priced its quick-to-market $630 million offering, which got done via the company's Level 3 Financing, Inc. subsidiary.

A second trader had them slightly better than that, at 101 5/8 bid, 102 offered.

Atlanta-based credit card transaction-processor First Data's $1 billion add-on to its 11¾% senior subordinated notes due 2021 were quoted as high as 101 bid, well up from the par level at which that giant-sized drive-by deal had priced after having been upsized from an originally planned $500 million.

At another shop, a trader saw the bonds a little lower than that, at 100½ bid, 101 offered. And he said he had only seen morning trading in the issue and no trades in the afternoon.

The trader also opined that he saw "very little trading in new issues from earlier in the week."

Quieter secondary

A trader, in keeping with the spirit - or perhaps, spirits - of the day said that "the new issues were a thriller while the secondary was frightfully dead."

Another trader agreed with him that the overall market was "very quiet, with only a limited amount of names" seen trading around on any kind of volume.

TXU trades up

That having been said, however, market participants did see heavy trading in Energy Future Intermediate Holdings Corp.'s 10% notes due 2020, which gained 1¼ points on the session to go home at 105¼ bid.

A market source said that over $32 million of the Dallas-based utility operator and merchant power company's paper had traded.

Texas Competitive Electric Holdings Co.'s 15% notes due 2021 were even busier, with over $45 million changing hands. They finished at 29¼ bid, up 2 5/8 points on the day.

A trader said that the paper rose on the news that the company - successor to the old TXU Corp. - had failed to come to an agreement with its various creditors on a pre-packaged reorganization of the company in the face of Friday's deadline for making an important interest payment on one of its bond issues.

The company thus decided to make the $270 million payment, the trader said, averting a possible default on the issue and the triggering of cross-default provisions on some of its other bonds.

"So that's why all of a sudden people are scrambling for the bonds," the trader said.

Market signs stay mixed

Overall, statistical junk-market performance indicators were mixed for a second consecutive session on Thursday, after having been higher across the board on Tuesday. It was the third mixed day in the last four sessions.

The Markit Series 21 CDX North American High Yield index edged up by 1/32 on Thursday to end at 106½ bid, 106 5/8 offered, after having lost 13/32 on Wednesday.

But the KDP High Yield Daily index fell by 3 bps to 74.61, after having gained 11 bps on Wednesday, its second straight advance.

Its yield pushed up by 1 bp to end at 5.65%, after having come in by 2 bps for a second consecutive session on Wednesday, its third straight tightening.

© 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.