High yield ends week in negative territory; GM Financial gains on S&P upgrade

By Paul A. Harris and Stephanie N. Rotondo

Phoenix, Sept. 26 – Most markets turned positive Friday after new GDP data indicated that the U.S. economy grew at its fastest pace in more than two years – but high-yield missed out on the broader rally.

Rather than looking at the economic statistics, junk was more shaken by the news that Bill Gross was leaving Pimco for a competitor, Janus Capital Group.

Gross’ departure comes as Pimco has suffered from massive outflows. Chatter is that Pimco was considering firing Gross before he resigned.

But the high yield space, though it remained weak, did show some signs of rallying.

“It was very heavy in the morning,” one trader said. “But everything seemed like it was going to bounce a little bit.”

Friday’s session in the dollar-denominated high yield primary saw a thin news flow and no deals priced.

In trading General Motors Financial Co.’s debt – including a $2 billion two-tranche deal that came Monday – was pushing higher during the session. The bonds were reacting positively to Standard & Poor’s upgrading of the name to investment grade.

In junkier names, 21st Century Oncology’s notes got a huge boost at the end of the week on news the company had received a $325 million investment. The company plans to use some of the proceeds to pay down debt.

However, positive news was not helpful to Cliffs Natural Resources Inc. The company has reportedly received some interest on its Australian assets as the company looks to shed non-core businesses.

Weekly flows turn positive

Meanwhile the flows to mutual funds were back in the green after three straight weeks in the red.

Dedicated high yield funds saw $528 million of net inflows for the week to Wednesday’s close, according to market sources who were relating numbers reported Thursday by Lipper-AMG.

However all of those inflows went to exchange-traded funds (ETFs), which actually saw $584 million of inflows for the period, a source said. Actively managed funds sustained moderate outflows for the week, reducing the net to $528 million from $584 million.

Daily flows were most positive in the early part of the most recent reporting period, Thursday, Sept. 18 and Friday, Sept. 19, sources said. Daily flows turned negative in the early-to-mid part of the present week.

The $528 million inflow for the week to Wednesday reverses the previous week’s negative tide: a $1.2 billion outflow for the week the Sept. 17, which capped three consecutive weeks of outflows that amounted to $2.15 billion, according to a Prospect News analysis of the data.

Halyard sets call for Monday

In primary news, Halyard Health, Inc. scheduled an investor conference call at 10:30 a.m. Monday to discuss a $250 million of offering of senior notes (B2/B+).

The deal, backing Kimberly-Clark Corp.’s spinoff of Halyard, roadshows in New York on Monday and in Boston on Tuesday, and is expected to price late in the week ahead.

The tenor of the bond remains to be announced.

Morgan Stanley, Citigroup, Deutsche Bank and RBC are the joint bookrunners.

Elsewhere it was crickets on Friday.

Earlier in the week General Cable Corp. set a timeline for its $250 million offering of five-year senior notes (B3/B+) that had the deal on track to price Friday.

However neither terms nor talk surfaced on the final day of the week, sources said. The deal had initial guidance of 5¾% to 6%, according to a trader.

Keepmoat comes wide

In the sterling-denominated market Keepmoat Group raised £260 million by selling 9½% five-year secured notes (B3/B-) at 99.02 to yield 9¾%.

The yield printed 62.5 basis points beyond the wide end of yield talk in the 9% area.

Joint physical bookrunner Lloyds will bill and deliver. JPMorgan was also a joint physical bookrunner. RBC was also a bookrunner.

The Doncaster, England-based home builder plans to use the proceeds, along with equity and cash on its balance sheet, to finance the acquisition of the company by TDR Capital and Sun Capital and to repay debt.

Enterprise Inns sets talk

Enterprise Inns plc talked its £200 million minimum offering of fixed-rate secured notes due October 2023 (/BB-/) to yield 5 7/8% to 6%.

In a press release earlier in the week the company stated that it expected to pay interest at a minimum rate of 5¾%.

The notes are part of the financing for a tender offer for the company’s £600 million of 6½% secured bonds due 2018.

The bond deal is expected to price on Tuesday, pending results of the tender.

Deutsche Bank, Royal Bank of Scotland plc and Barclays are global coordinators. BNP Paribas and Lloyds are bookrunners.

GM upgraded

Back in the secondary, General Motors Financial’s bonds were pushing higher Friday in reaction to a rating upgrade from S&P.

Part of the company’s most recently priced deal, its $1.25 billion issue of 4 3/8% notes due 2021, was pegged at 101¾, up nearly a point on the day.

That issue came to market on Monday as part of an offering that totaled $2 billion.

Among the company’s other issues, the 6¼% notes due 2043 were “up almost 2 points” at 117, while the 4 7/8% notes due 2023 increased 3½ points to 105¾.

The 2¾% notes due 2016 added almost ½ point, closing around 101.

Late Thursday, S&P said it had raised the Fort Worth-based finance subsidiary of General Motors Co. to BBB- from BB and had removed the ratings from CreditWatch positive, as the company was deemed a “core” subsidiary.

General Motors Financial’s unsecured debt was also raised to BBB- from BB-.

iHeart still weak

iHeart Communications Inc. saw its debt continue to dribble down, even its $250 million add-on to the 9% notes due 2022.

A trader said the bonds fell 1¾ points to 98¼.

Among the company’s other debt, the 14% notes due 2021 dropped over a point to 92¾, while the 10% notes due 2018 lost about the same amount to 85 1/8.

Another trader said the debt was “pretty active” and “definitely in general weaker, though they rebounded from the day’s lows.”

That trader said the 14% notes were “much lower this morning,” dropping to a 91 to 92 range, though they closed around 93.

As for the new 9% notes, they were “definitely weaker” at 98 bid, 98½ offered.

21st Oncology raises new funds

21st Century Oncology received $325 million in new funds on Friday, as the company privately placed series A convertible preferred stock with Canada Pension Plan Investment Board.

On the news, the Fort Myers, Fla.-based company’s debt gained, massively for some tranches.

A trader said the 8 7/8% notes due 2017 had a “smart rebound,” moving up to 103¼ from par.

“A little liquidity never hurts,” the trader mused.

But it was the 9 7/8% notes due 2017 that really posted large gains, jumping 18 points to 98½, he said.

Another trader said the 9 7/8% notes were “up huge,” closing in a 99 to par context, versus levels around 80 before.

The 8 7/8% notes were pegged at 103½ bid, 103¾ offered, up from par.

The radiation therapy services company sold 385,000 of the 9.875% convertible preferreds to the investor, who also got $30 million of 10-year warrants.

Proceeds will be used to pay down a revolving credit facility, to repay obligations under the South Florida Radiation Oncology credit facilities, to repay other debt and capital leases, to provide capital for near-term strategic initiatives and for general corporate purposes.

The equity investment replaces a previously announced recapitalization agreed with noteholders that would have converted 72% of the company’s outstanding subordinated notes into 95% of its equity.

Cliffs’ bonds tank

Cliffs Natural Resources’ Australian assets – iron ore mines in Western Australia – have reportedly attracted some interest from companies like Mineral Resources Ltd. and Mount Gibson Iron Ltd., according to news reports.

But the news failed to stem the company’s recent string of losses, as the bonds were again diving on Friday.

One trader said the 4.8% notes due 2020 were off 6-plus points to around 74, while the 6¼% notes due 2021 dropped 3¾ points to 70.

Another trader placed the 4.8% notes in the mid-70s, which were “down a bunch more, another 5 points.” The 6¼% notes were seen in the lower 70s, down from 80.

“It keeps getting hit,” the trader said.

The Australian mines are thought to be valued at as much as A$1 billion.

Cliffs has been looking to sell its Australian assets, as well as its U.S. coal assets as it deals with declining iron and coal prices.

New deals trade

Recent deals remained in focus, with Burger King Worldwide’s $2.25 billion of 6% notes due 2022, continuing to take the majority of the focus.

The deal priced Wednesday and came at the wide end of talk.

One trader said the notes “rallied a bit in the afternoon with the market,” seeing the paper trade down to 99 from 99¾ early in the day, only to have the bonds come back to close at 99½ bid, 99¾ offered.

Another trader said the debt was off a point at 99.

Tenet Healthcare Corp.’s $500 million of 5½% notes due 2019 were meantime seen around par.

Indicators decline again

High yield market indicators were again weak on Friday, even as the broader markets got an end-of-the-week boost on positive economic data.

The Markit CDX Series 22 index slipped just a touch to 105 7/8 bid, 106 1/16 offered.

But for the second day in a row, the KDP High Yield Index hit a new 52-week low.

The index fell to 71.91, with a 5.75% yield, from 72.23, with a 5.63% yield.

The moves left the KDP index more than 1 point below its level a week earlier. It had ended the previous week at 72.98.

The Markit CDX Series 22 was down just over 2½ points from its 107 11/32 level last Friday.

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