Downsized Barry Callebaut prices; Yankee Candle deal snuffed out; funds lose $3.28 billion

By Paul Deckelman and Paul A. Harris

New York, June 13 - High-yield syndicate sources saw Swiss chocolatier Barry Callebaut Services NV come to market Thursday with a downsized $400 million 10-year issue, the sole purely junk-rated, dollar-denominated transaction from a domestic or industrialized-country borrower. The deal must have appealed to investors' sweet tooths, however, with a trader quoting the new issue higher in the aftermarket.

Split-rated EPR Properties also priced an offering Thursday, although the Kansas City, Mo.-based real estate investment trust's $275 million of 10-year notes was expected to mostly generate crossover interest from high-grade players reaching for yield.

Elsewhere on the primary side, Yankee Candle Co. chose to terminate its planned $450 million five-year offering as well as its companion $950 million bank debt deal. It also scrubbed the tender offer for its existing bonds that the new debt was to have paid for.

On the other side of the Atlantic, adverse market conditions also caused Switzerland's Unilabs to postpone its euro-denominated three-part deal.

Back in the dollar market, both tranches of Quicksilver Resources, Inc.'s new two-part offering of fixed- and floating-rate notes were heard to have eased from the heavily discounted levels at which the energy company's new paper priced on Wednesday.

Away from the new deals, DISH DBS Corp.'s bonds continued to firm as obstacles appeared to create roadblocks for its proposed - and quite expensive - unfriendly takeover of Sprint Nextel Corp.

Statistical measures of market performance were mixed for a second straight session.

And a key indicator of junk market liquidity trends - flows of money into or out of high-yield mutual funds and exchange-traded funds - saw their second consecutive multi-billion-dollar outflow in the latest week, a major fund-tracking service said.

AMG: $3.28 billion outflow

As Thursday's activity was finishing up, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, $3.28 billion more left those funds than came into them.

It was the second huge outflow reported in as many weeks by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp.

The week before, which ended June 5, it had announced an even bigger cash loss, $4.63 billion - the largest outflow ever recorded by Lipper/AMG, easily eclipsing the previous record-high cash hemorrhage of $3.43 billion, which was seen during the week ended June 22, 2011. It was also larger than the biggest outflows seen in each of the past two years: last year's biggest loss of $2.93 billion, set a year ago in the week ended June 6, 2012, and the largest cash loss previously seen this year, the $1.38 billion outflow seen in the week ended Feb. 6.

There have now been three consecutive weekly outflows. Besides the two giants, the mutual funds and ETFs also saw a net $874.68 million leave the market in the week ended May 29. Outflows have totaled about $8.78 billion during that stretch, according to a Prospect News analysis of the AMG/ Lipper figures.

With 24 weeks in the books so far this year, there have now been 14 inflows and 10 outflows reported, with a year-to-date cumulative net outflow of about $5.66 billion, according to the analysis.

As of press time on Thursday evening, there had been no sign of the fund-flow figures from the other major fund-tracking service, Cambridge, Mass.-based EPFR Global, whose numbers normally also circulate in the market on Thursday.

EPFR uses a different methodology than AMG/Lipper to calculate its numbers, including many non-U.S.-domiciled funds in its universe, while its more established rival's numbers are based strictly on domestic funds it surveys. But while that can result in the two services' numbers diverging widely, the two companies' results generally point in the same direction more often than not.

Cumulative fund-flow estimates, whether from EPFR or from AMG/Lipper, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

The continued flow 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 roughly $1 trillion junk market - has been seen by analysts as a key element 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 easily topped the $350 billion mark - patterns of primary activity and secondary strength that have mostly continued this year until just recently.

Outflow no surprise

As was the case last week, market participants were not surprised to see a king-sized cash bleed from the funds this week given junk's relatively poor performance in recent sessions.

"We're due for at least one more big number," a secondary market trader said before the news of just how big hit the tape late in the afternoon.

In the primary sphere, a buyside source predicted an "enormous" outflow of at least $1 billion, a figure that was way too conservative, although he also suggested that it might even top the previous week's record cash loss; however, that turned out not to be the case.

Barry Callebaut downsizes

Only one deal priced on Thursday. The market was braced for news of more huge cash outflows from the high-yield bond asset class, and cash bonds moved sideways on the day despite the fact that the stock market in the United States posted big gains.

Zurich-based chocolate-maker Barry Callebaut Services tapped the dollar market, pricing a downsized $400 million issue of non-callable 5½% 10-year senior notes (Ba1/BB+) at 98.122 to yield 5¾%.

The deal was downsized from $600 million.

The yield printed at the wide end of the 5½% to 5¾% yield talk.

Joint bookrunner Credit Suisse Securities (USA) LLC will bill and deliver. Goldman Sachs & Co., ING, Jefferies LLC, RBS Securities, Rabobank and UBS Investment Bank were also joint bookrunners.

Proceeds will be used to help fund the acquisition of Petra Foods' cocoa ingredients division.

The reduced amount of proceeds resulting from the downsizing of the bond deal will be made up with a draw on the company's bridge loan.

Elsewhere, at least one other deal was expected to price.

Early Thursday, IronGate Energy Services, LLC talked its $180 million offering of five-year senior secured notes to price with an original issue discount of about two points and to yield 11½%.

Books were scheduled to close at 4 p.m. ET on Thursday, and the deal was expected to price shortly thereafter. However, no final terms were available late Thursday, according to market sources.

A buyside source professed the expectation that the deal must have been pushed into Friday.

Jefferies is the bookrunner.

In the crossover market, EPR Properties priced an upsized $275 million issue of 5¼% 10-year notes (Baa3/BB+/BBB-) at 312.5 basis points over Treasuries.

The deal was upsized from $250 million.

The trade was done in line with guidance in the 312.5 bps area.

The bookrunners for the debt refinancing, acquisition and general corporate purposes deal were Citigroup Global Markets Inc., J.P. Morgan Securities LLC and RBC Capital Markets.

Pulled deals

The market also heard news of deal postponements, both in the United States and Europe.

Yankee Candle terminated its $450 million offering of five-year senior notes (Caal/CCC+).

No formal price talk circulated; however, the deal had been whispered in the low-to-mid 7% range, according to an investor.

Barclays and BofA Merrill Lynch were the joint bookrunners.

Proceeds, together with a $950 million term loan, had been earmarked to fund a distribution to equity holders and to refinance all of the company's existing debt.

Swiss medical diagnostics and laboratory services provider Unilabs postponed its €685 million three-part offering of notes on Thursday due to market conditions.

A sellside source in Europe said that both the credit and deal structure proved challenging for the accounts there.

The deal involved two separate issuing entities.

Unilabs SubHolding AB had two of the three tranches, representing €510 million of the overall total: a tranche of five-year senior secured fixed-rate notes (B3) that was talked to yield 8¾% to 9% and a tranche of five-year senior secured floating-rate notes (B3) talked at a 650 bps to 675 bps spread over Euribor.

Meanwhile, Unilabs MidHolding AB has the remaining €175 million, coming in the form of 5.5-year second-lien PIK toggle notes (Caa2) that were talked to price at par to yield 13%.

JPMorgan, Lloyds TSB, Nordea and SEB Bank were the joint bookrunners. JPMorgan was to bill and deliver.

While in the market, the deal had undergone structural changes and covenant changes.

The Geneva-based company had planned to use the proceeds to repay debt.

Pacnet starts Monday

Pacnet Ltd. plans to start a roadshow on Monday for its $350 million offering of five-year senior secured guaranteed notes (B2//BB), according to a market source.

The deal is expected to price during the week ahead.

Deutsche Bank, Goldman Sachs, Standard Chartered Bank and DBS Bank are the joint bookrunners.

The telecommunications services provider, which is based in Hong Kong and Singapore, plans to use the proceeds to refinance debt.

Barry Callebaut better

In the secondary realm, a trader saw Barry Callebaut's 5½% notes due 2023 as having firmed to 99½ bid, 100½ offered when the new deal hit the aftermarket.

But a second trader said that he had not seen much on that deal.

Quicksilver in a quandary

The trader did see some dealings in the new bonds from Quicksilver Resources that priced on Wednesday, and he said that the Fort Worth, Texas-based energy operator's sharply downsized two-part offering "didn't do well at all."

He saw its notes due 2021 going home at 94½ bid, 95 offered - down a little from the 94.928 level at which that $325 million tranche had priced to yield 12%.

It came to market Wednesday after having been downsized from an originally announced $675 million.

The trader meantime said that Quicksilver's floating-rate second-lien senior secured notes due 2019 finished at 96½ bid, 97 offered. The $200 million tranche had priced at 97 to yield Libor plus 575 bps.

Sanchez strengthens

Also in the oil-and-gas sector, the trader said that Sanchez Energy's 7¾% notes due 2021 "were bouncing back a little," edging up to par bid.

He said that the bonds had ended on Wednesday a little lower, at 99¼ bid, 99½ offered.

On Monday, the new Sanchez notes were trading in a 99 to 99¾ bid context, down a little from the par price at which the Houston-based oil and natural gas exploration and development company had priced its $400 million deal on Monday after upsizing it from an originally announced $350 million size.

A second trader saw the bonds little changed on the session at 99¾ bid, 100¼ offered.

Market indicators head south

Statistical junk performance indicators were mixed for a second consecutive session on Thursday.

The Markit Series 20 CDX North American High Yield index jumped by 1 3/16 points on Thursday - one of the biggest gains seen so far this year - to close at 103 15/16 bid, 104 1/16 offered. On Wednesday, it had eased by 1/32 point, its third straight loss.

But the KDP High Yield Daily index posted a third consecutive loss, declining by 4 bps to end at 73.98. It had lost 6 bps on Wednesday.

Its yield meantime rose by 2 bps to 6.02%, its third consecutive rise. It had increased by 6 bps on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index was also a loser on Thursday as it finished off by 0.182%. In contrast, it had risen by 0.108% on Wednesday, its first such advance against two losses earlier.

Thursday's downturn cut its year-to-date return to 2.572%, down from 2.759% on Wednesday.

The index's yield to worst rose on Thursday to 6.267%, a new high for the year, surpassing the old mark of 6.257%,which had been set Tuesday.

Its spread to worst over Treasuries widened to 516 bps from Wednesday's 508 bps. Thursday's spread was a new wide point for the year so far, beating the 514 bps that had been set last Thursday and which was repeated on Tuesday.

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