Upsized Central Garden prices; market awaits Arvin, Niska, others; funds gain $470 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 24 - Central Garden & Pet Co. priced an upsized offering of senior subordinated notes on Thursday, the sole high-yield market pricing of the session. The lawn, garden and pet supply producer's new bonds appeared too late in the day for aftermarket dealings.

Syndicate sources meantime heard price talk on a slew of deals expected to price on Friday. Probably the best known junk name of the bunch is auto components maker ArvinMeritor Inc., selling $250 million of eight-year notes, and the biggest deal is Niska Gas Storage's $800 million offering of units composed of senior notes from its U.S. and Canadian arms. Talk was also heard on two other deals likely to price on Friday - a pair of $500 million offerings from communications services provider Equinix, Inc. and truck and special-access vehicle maker Oshkosh Corp. Friday is also expected to see a sterling-denominated deal from British bookmaker Ladbrokes Group Finance plc price.

The overall secondary market was slightly easier, with no overarching themes seen. There was a fair amount of activity seen in Eastman Kodak Co.'s new bonds, which priced on Wednesday, although the notes ended little changed from issue.

Junk funds see $470 million inflow

As trading was wrapping up for the day, market participants familiar with the fund-flow statistics generated by AMG Data Services of Arcata, Calif. - a closely watched indicator of overall junk market liquidity trends - reported that in the week ended Wednesday $470 million more came into those funds than left them.

The inflow - which had been predicted by several traders earlier in the week, based on the upturn which the secondary market has seen from the lows it fell to just before the Presidents Day holiday break - broke a two-week losing streak which had seen some $1.9 billion hemorrhage from the funds in that time, including the $916 million outflow recorded during the previous week, ended Feb. 17. Those two weeks of outflows had occurred amid investor angst about European debt problems and the continued softness of the U.S. economy, which sparked redemptions from many of the junk funds.

The inflow dragged the year-to-date fund-flow total back into the black, a week after it had fallen into negative territory for the first time since early April of 2008, according to a Prospect News analysis of the AMG figures. Since the beginning of the year, the funds have now shown a net inflow of $113 million, bouncing back from the $357 million net outflow seen the previous week, according to the analysis. While back in the black, the 2010 net inflow figure remains well off its peak level of $1.576 billion, seen in mid-January. In the eight weeks since the beginning of the year, AMG has reported five inflows, including this week's, against three outflows, including last week's, the Prospect News analysis indicated.

EPFR sees $632 million cash gain

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime also reported that some $632 million more came into the funds than left them in the latest week. That also lifted the funds from a two-week rut which had seen some $1.76 billion of combined outflows, including $614 million last week.

Reflecting the difference in the way AMG and EPFR calculate their respective fund-flow totals, the latter said that on a year-to-date basis, the mutual funds are showing a $1.08 billion net inflow, widening from $452 million in the previous week, though still well down from the year-to-date peak of over $2 billion seen at the beginning of the month.

Its analysts said in a research note late Thursday that "with U.S. Fed chairman Ben Bernanke predicting low U.S. interest rates for some time to come, yield-hungry investors" moved into both junk bonds and emerging markets debt, which many had shunned the previous two weeks.

Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past.

Central Garden upsizes

In primary market news, Central Garden & Pet priced an upsized $400 million issue of eight-year senior subordinated notes (B3/B-) at par to yield 8¼% on Thursday.

The yield printed on top of price talk. The amount was increased from $300 million.

J.P. Morgan Securities Inc. and Oppenheimer were joint bookrunners.

Proceeds will be used to fund a concurrent tender for the company's 9 1/8% senior subordinated notes due 2013.

Shortly after price talk surfaced, a high-yield mutual fund manager commented that although Central Garden is not a bad deal, it had a big restricted payments basket.

Later a source close to the deal agreed that there was a little pushback with respect to the restricted payments basket, but added that the upsized deal, which priced on top of price talk, went well.

A big Friday

The Friday session figures to be a busy one in the new issue bourse, with more than $2 billion of dollar-denominated junk expected to price before the market closes for the week.

Niska Gas Storage talked its $800 million offering of eight-year senior notes units to yield 8¾% to 9% on Thursday.

The units are being issued via Canada- and U.S.-based financing units.

Each unit will be comprised of $218.75 issued by Niska Gas Storage US Finance Corp. and $781.25 from Niska Gas Storage Canada Finance Corp.

Morgan Stanley, UBS Investment Bank, Goldman Sachs & Co., Credit Suisse and RBC Capital Markets are joint bookrunners.

Equinix talked its planned $500 million offering of eight-year senior notes (Ba2//) at the 8% area.

Citigroup Global Markets Inc. and J.P. Morgan Securities Inc. are joint bookrunners.

Oshkosh Corp. set price talk for its $500 million offering of senior notes (B3/B-) on Thursday.

The Oshkosh, Wis.-based special access equipment-maker talked its $200 million minimum tranche of seven-year notes to yield 8¼% to 8½%, and its $200 million minimum tranche of 10-year notes to yield 8½% to 8¾%.

Bank of America Merrill Lynch, Goldman Sachs & Co. and J.P. Morgan Securities Inc. are joint bookrunners.

And ArvinMeritor talked its $250 million offering of eight-year senior notes (expected Caa2/confirmed CCC-) to yield 10¾% to 11%.

Bank of America Merrill Lynch, J.P. Morgan Securities Inc., Citigroup Global Markets Inc. and RBS Securities Inc. are joint bookrunners.

New Central Garden bonds unseen

Central Garden & Pet Co.'s new $400 million offering of 8¼% senior subordinated notes due 2018 came too late in the session for aftermarket activity.

New Kodak bonds holding steady

A trader characterized Kodak's new 9¾% senior secured notes due 2018 as "a little active today."

He said that there had been "a lot" of activity first thing in the morning in the Rochester, N.Y.-based photography products company's $500 million issue, which had been upsized from the originally announced $400 million when the deal priced Wednesday at 97.967 to yield 10 1/8%. He saw the bonds initially trading at 98¼ bid, but by the end of the day they were trading in a 97 7/8-98 context. The bonds had been quoted as high as 99 bid, though with no offering, on Wednesday after they were freed.

"They ran up a little bit, then they came in a little bit, and then kind of went out right around the issue price."

At another desk, a trader quoted the new Kodak bonds at 97½ bid, 98 offered.

New RDS Ultra-Deepwater not seen

Several traders said they saw no dealings Thursday in RDS Ultra-Deepwater, Ltd.'s 11 7/8% senior secured notes due 2017. A slightly upsized $270 million of the maritime energy drilling company's bonds had priced on Wednesday at 97.131 to yield 12½%, and had firmed to a 99½ bid, par offered level in initial aftermarket dealings.

NewPage hangs in there

A trader saw NewPage Corp.'s 11 3/8% senior secured notes due 2014 were trading between 95½ and 953/4, about consistent with the levels the Miamisburg, Ohio-based coated-paper manufacturer's existing bonds had been trading at, joined by the company's new $70 million add-on issue, which priced on Wednesday.

TreeHouse holds gains

A trader saw TreeHouse Foods Inc.'s 7¾% notes due 2018 at 102¾ bid, 103 offered - slightly off the 103 bid peak levels which the Westchester, Ill.-based private-label foods producer's $400 million issue reached on initial aftermarket activity after its pricing the previous Friday.

But the trader said that's where the issue has been pretty much all week, holding onto most of the handsome gains it notched after it priced at par to yield 7¾% and then rose.

Market indicators ease off

Among bonds not connected with the new-deal market, a trader saw the CDX Series 13 index down 1/8 point Thursday at 96¾ bid, 97¼ offered, after having been unchanged on Wednesday.

The KDP High Yield Daily Index meanwhile fell by 7 basis points on Thursday to close at 70.39, after having risen by 4 bps on Wednesday. Its yield widened by 2 bps to 8.43%, after having narrowed by 1 bp the session before.

Advancing issues fell behind decliners on Thursday for the first time in eight sessions, although the difference was only about a dozen issues out of the more than 1,400 tracked.

Overall market activity, as measured by dollar-volume levels, was up by around 8% from Wednesday's pace.

A trader called Thursday's session "one of these ho-hum days, for lack of a description."

He said that "we were really close on a lot of items - but then we just couldn't get either side to budge."

At another desk, a trader said that "people in the high yield space remain better sellers."

Lehman active on case settlement

Among specific issues, a trader said that Lehman Brothers Holding Co.'s legacy bonds "moved up," apparently helped by the news that the remnants of the failed New York-based investment banking icon had agreed with JPMorgan Chase & Co to settle a $7.68 billion claim stemming from collateral obligations after Lehman's bankruptcy filing in 2008.

He pegged the issues up around a point to the 231/2-24 area at their peak, although he saw them ending at 23 bid, which he called a ½ point gain on the session.

Another market source saw active dealings in its 6 7/8% notes due 2018, with over $15 million having changed hands by mid-afternoon, making it among the busiest overall issues in Junkbondland. These ended up about 3/8 point at 23, the source said. Also active were its 5.50% notes due 2016, ending up ½ point at 221/4; its 6% notes due 2012, which gained more than a full point to close just under the 23 mark; and its 6 5/8% notes due 2012 - one of the few downsiders in the structure, losing ¾ point to end around 211/4. Its 5 5/8% notes due 2013 firmed to 21.5.

Under the terms of the settlement, Lehman will make a one-time cash payment of $557 million to JPMorgan, which had provided various financial services to Lehman's primary broker-dealer unit prior to Lehman's bankruptcy filing in September 2008, and JPMorgan in turn will reduce a $7.68 billion claim it had against Lehman to $557 million.

Blockbuster seen mixed

A trader said that Blockbuster Inc.'s 9% senior subordinated notes due 2012 were "penetrating slightly above" the 20 mark at which they had finished out on Wednesday, but spent most of the day "hugging 20 in a 193/4-20½ context. He meantime saw the company's 11¾% senior secured notes due 2014 around the 72 bid level, but after some initial trading there, he "hadn't seen that in the last couple of hours."

At another shop, a trader saw "pretty active" volume on the latter bonds, but saw them down a little from peak levels around 74-76 notched on Wednesday. "There was good activity in it," he said, meantime seeing the 9s down a little less than 1 point.

The Dallas-based movie-rental company's bonds had firmed between 1 and 2 points on Wednesday after The Wall Street Journal reported that it had hired the law firm of Weil, Gotshal & Manges and the Rothschild Inc. investment bank, to study ways to reduce its roughly $1 billion debt burden and explore other strategies, such as acquisitions or partnerships - even possibly including the purchase of some assets from the again-bankrupt Movie Gallery Inc., which operates Blockbuster's main rival among traditional brick-and-mortar rental stores, Hollywood Video.

Blockbuster's chairman , James W. Keyes, told the paper that his company "does not contemplate" following its smaller competitor into Chapter 11.

U.S. Concrete comes off early highs

A trader said that U.S. Concrete Inc.'s 8 3/8% senior subordinated notes due 2014 "got to be as good" as a 57-57¼ trading range during the afternoon, up slightly from levels seen on Wednesday, when "you did have some trades up around the 57½ level, but then they came in."

© 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.