Equinix, Charter lead $4 billion primary explosion; Penney pounded; funds up $70 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 28 - Saving its best for last - in this case, the last day of the month - the high-yield primary market unleashed an avalanche of issuance to close out February, with some $4 billion of new U.S.-dollar-denominated, junk-rated paper having come to market, all of it in the form of opportunistically timed and quickly shopped drive-by issues.

Among them were two giant offerings that reached or topped the psychologically potent $1 billion mark.

Data center operator Equinix, Inc. brought an upsized $1.5 billion two-part offering of seven- and 10-year notes to market, while the very familiar junk issuer Charter Communications, Inc. priced $1 billion, also in a two-part transaction that was equally split between eight-year and 10-year paper. Charter's new deal was heard to have edged up from issue - the only one of the day's deals that was seen having actually reached the aftermarket, with most having priced very late in the session.

In descending order of size, amusement park operator Cedar Fair, LP did a $500 million issue of eight-year notes, while printer R.R. Donnelley & Sons Inc. brought an upsized $450 million of eight-years. Gaming concern Isle of Capri Casinos Inc. dealt the market $350 million of paper - another eight-year affair - while chemical manufacturer Huntsman International LLC did a $250 million addition to its existing 2020 notes.

In the non-dollar market, familiar car rental giant Avis Budget Finance plc and French carmaker Peugeot SA each priced a euro-denominated offering of eight-year and five-year paper, respectively.

Away from the new deals, traders predictably saw brisk activity at lower levels in J.C. Penney Co. Inc.'s bonds, after the big department store operator reported an even bigger fourth-quarter loss, especially since it had posted a profit a year earlier.

There was also considerable trading going on in Plains Exploration & Production Co.'s bonds, on the news that Freeport McMoRan -- the investment-grade metals mining concern that is buying the junk-rated energy company in a pending deal - had sold some $6.5 billion of new bonds to help finance that acquisition.

Statistical indicators of junk market performance turned mixed, after having been higher all around on Wednesday.

But flows of cash into and out of junk-rated mutual funds and exchange-traded funds - seen as a useful barometer of overall market liquidity trends - turned positive for the first time in four weeks, according to one of the agencies that keep tracks of such funds.

AMG sees $70 million inflow

As things were finishing up on Thursday afternoon, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday $69.9 million more came into those funds than left them.

It was the first inflow after three consecutive weeks of outflows totaling some $1.67 billion, according to a Prospect News analysis of the data, including the $125 million cash loss seen the week before, ended Feb. 20.

Those three outflows broke a string of four consecutive inflows before that, stretching back to early January that had been reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. During that four-week stretch, inflows had totaled nearly $2.3 billion, according to the Prospect News analysis of the figures,

Nine weeks into the new year, 2013 net inflows as reported by Lipper so far have amounted to about $214 million, according to the analysis.

Inflows and outflows remain almost evenly matched, with five inflows and four outflows having been reported by Lipper so far this year.

In 2012, when cumulative net inflows for the year totaled an estimated $32 billion, according to the analysis, inflows to the funds had been recorded in 39 weeks of the year, and outflows in the remaining 13 weeks.

EPFR reports $287 million inflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, saw its second straight inflow in the latest reporting week, also ended Wednesday, as $287 million more came into the funds which it tracks than left them.

That was a continuation of the trend seen the week before, when the service recorded a $135 million cash injection, its first after two outflows totaling $1.537 billion, according to a Prospect News analysis of the figures. Those two outflows, in turn, had broken a six-week winning streak seen by the service. Inflows during that time, which also includes the final reporting week of 2012, had totaled $4.4 billion, according to the Prospect News analysis.

The latest week's inflow was the seventh so far this year recorded this year by EPFR, against the two outflows, and thus raises the year-to-date net inflow total to about $3.1 billion.

EPFR and Lipper calculate their respective fund-flow statistics using different methodologies; EPFR includes some non-U.S. domiciled mutual funds and exchange-traded funds in its tabulations, while the Lipper number is purely domestic funds. Despite the differences in the actual numbers, the two services' weekly results usually point in the same direction.

Reporting only the U.S. funds that it tracks - a category usually more closely aligned with the Lipper totals - EPFR said that those domestic funds "accounted to a little less than half" of the overall number's rise.

That broke a losing streak of five straight cash losses for that category, including the previous week's $230 million outflow. EPFR has actually now seen six weekly net outflows from the U.S.-only funds since the start of the year, against just three weekly inflows. The latest week's gain reduced the 2013 net outflow for those domestic-only funds down to about $800 million, according to the analysis.

In 2012, EPFR's overall figure showed a cumulative net inflow of some $72.3 billion. According to the Prospect News analysis of the data, EPFR recorded 42 weeks of inflows last year, against just 10 weeks of outflows.

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 the junk market - has been seen by analysts as a key element behind the high-yield secondary market's strong performance last year versus other fixed-income asset classes, and its record active new-deal pace, which easily topped the $300 billion mark - patterns of primary activity and secondary strength which have mostly continued into the new year, so far.

Equinix massively upsizes

The primary market, which sleep-walked through most of the February-March crossover week as players attended the J.P. Morgan high yield and leveraged finance conference in Miami, roared to life on Thursday.

Five issuers brought a combined eight tranches, raising $4.04 billion.

Equinix priced a massively upsized $1.5 billion two-part senior notes transaction (Ba3/existing BB-). The transaction had been announced at $1 billion.

The deal included a $500 million tranche of seven-year notes which priced at par to yield 4 7/8%. The yield printed at the tight end of the 4 7/8% to 5 1/8% yield talk.

In the long tranche, Equinix priced $1 billion of 10-year notes at par to yield 5 3/8%. The yield printed at the wide end of yield talk which had the 10-year notes coming 37.5 basis points to 50 bps behind the seven-year notes.

J.P. Morgan Securities LLC, Barclays, Citigroup Global Markets Inc., BofA Merrill Lynch and Deutsche Bank Securities Inc. were the joint bookrunners for the quick-to-market deal.

The Redwood City, Calif.-based provider of data center services plans to use the proceeds to redeem its 8 1/8% senior notes due 2018 and for general corporate purposes.

Charter's $1 billion drive-by

Charter Communications priced a $1 billion two-part senior notes transaction (B1/BB-).

The short duration tranche came as a $500 million issue of notes due March 15, 2021 which priced at par to yield 5¼%, on top of yield talk.

The long duration tranche, also sized at $500 million, featured notes maturing on Sept. 1, 2023 which priced at par to yield 5¾%, also on top of yield talk.

Deutsche Bank Securities Inc., BofA Merrill Lynch, Citigroup Global Marekts, Barclays, Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. and UBS Investment Bank were the joint bookrunners.

The Stamford, Conn.-based cable operator plans to use the proceeds for general corporate purposes, including to repay existing bank debt.

Cedar Fair at the tight end

Cedar Fair priced a $500 million issue of eight-year senior notes (B1/B) at par to yield 5¼%.

The yield printed at the tight end of the 5¼% to 5½% yield talk.

J.P. Morgan Securities LLC, UBS Investment Bank and Wells Fargo Securities LLC were the joint bookrunners.

Proceeds will be used to refinance a portion of the company's credit facilities.

Cedar Fair is a Sandusky, Ohio-based regional amusement-resort operator.

Donnelley upsizes

R.R. Donnelley priced an upsized $450 million issue of non-callable 7 7/8% eight-year senior notes (Ba3/BB) at 99.50 to yield 7.961%.

The deal was increased from $350 million.

The yield came in line with yield talk that had been set in the 8% area.

BofA Merrill Lynch, J.P. Morgan Securities LLC, Mitsubishi UFJ Securities (USA) Inc. and Wells Fargo Securities LLC were the joint bookrunners for the quick-to-market deal.

The integrated communications company plans to use the proceeds to partially fund the tender offers for its 6 1/8% notes due 2017, its 8.6% notes due 2016 and its 7¼% note due 2018.

Isle of Capri at tight end

Isle of Capri Casinos priced a $350 million issue of eight-year senior notes (B2/B+) at par to yield 5 7/8%.

The yield printed at the tight end of yield talk set in the 6% area.

Wells Fargo Securities LLC was the left bookrunner for the quick-to-market deal. Credit Suisse Securities (USA) LLC and Deutsche Bank Securities Inc. were the joint bookrunners.

The St. Louis-based developer, owner and operator of branded gaming facilities and related lodging and entertainment facilities plans to use the proceeds to repay its term loans, with any remaining proceeds for general corporate purposes.

Huntsman taps 4 7/8% notes

Huntsman International priced a $250 million add-on to its 4 7/8% senior notes due Nov. 15, 2020 (B1/BB-) at 98.50 to yield 5.112%.

The reoffer price came at the rich end of the 98 to 98.5 price talk.

J.P. Morgan Securities LLC, BofA Merrill Lynch, Barclays, Citigroup Global Markets Inc., Goldman Sachs & Co., HSBC Securities (USA) Inc., RBC Capital Markets LLC and Wells Fargo Securities LLC were the joint bookrunners.

The Salt Lake City-based specialty chemicals company plans to use the proceeds to redeem its 5½% senior notes due 2016 and for general corporate purposes.

Avis atop talk

Avis Budget priced a €250 million issue of eight-year senior notes (B2/B) at par to yield 6%.

The yield printed on top of yield talk.

Joint bookrunner Citigroup Global Markets Inc. will bill and deliver. Credit Agricole CIB, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC were also joint bookrunners.

Proceeds will be used to help finance the acquisition of Zipcar Inc.

Avis is a Parsippany, N.J.-based provider of vehicle rental services. Zipcar is a Cambridge, Mass.-based car-sharing network.

Ford crossover deal

In the crossover market, Ford Motor Credit Co. LLC on Thursday priced $500 million of senior floating-rate notes due 2014 (Baa3/BB+/BBB-) at par to yield Libor plus 110 basis points.

There is no call option.

Bookrunners were Citigroup Global Markets Inc. and RBC Capital Markets LLC.

The financing arm of automaker Ford Motor Co. is based in Dearborn, Mich.

Charter edges up

A trader said that the new Charter Communications 5¼% notes due 2021 had edged up to 100¼ bid, 100 ½ offered from their par pricing level.

He did not see any such initial trading levels in the other half of that $1 billion drive-by deal - the 5¾ notes due 2023, which had also priced at par.

At another desk, a trader saw one of the company's established issues - its CCO Holdings 5¼% notes due 2022 - having fallen about 1 3/16 points on the day to end at 98¾ bid, on busy round-lot volume of over $12 million.

Other deals are no-shows

A trader said that otherwise, he had seen no immediate aftermarket dealings in any of the other of the day's deals, which he called "a new-issue extravaganza," owing to the lateness of the hour at which those pricings had taken place.

"It seemed like they priced them all in the last 15 or 20 minutes or so," he said at around 5 p.m. ET.

He opined that "the only person trading them tonight [Thursday] will be the underwriter, and if the underwriter doesn't want to buy' em, because they're selling them mostly to [investment-grade] guys, they don't even have to make a market tonight - they'll just say 'we're going to open them in the morning."

Redwood City, Calif.-based data centers operator's Equinix's established 8 1/8% notes due 2018 were seen trading around the 111 mark on Thursday afternoon, with over $6 million having changed hands.

Secondary seen quiet

As has been the case pretty much all week, secondary market activity away from the new deals realm was seen as pretty quiet.

Although the big J.P. Morgan high yield and leveraged finance conference that took place over the first three days of the week down in Miami was officially over, several market participants agreed that the various portfolio managers, analysts and other senior decision makers who were down there would probably be in no hurry to rush back north, west or elsewhere for just the one or two days remaining in the week.

"They'll enjoy another day or two of Florida sunshine," one said.

A trader said that outside of the new deals, "the secondary market for the most part was all crossover paper, with only a few high-yield names."

He said that "if you back out the CenturyLinks, the Sallie Maes, and the Fords" - all split-rated and mainly appealing to high-grade investors - from among the most active issues listed on Trace, "there's not much left."

There was a fair amount of Plains Exploration & Production paper seen having traded - for instance, the Houston-based oil and natural gas company's 6 7/8% notes due 2023 and its 6½% notes due 2020 each racked up over $28 million of volume. But he said "that was also mostly high-grade guys," even though those B1/B bonds are squarely located in Junkbondland - at least for now, anyway. Plains is in the process of being bought by high-grade credit Freeport-McMoRan, which sold $6.5 billion of new bonds Thursday in that market, providing the catalyst for the active Plains trading.

Penney paper pounded

One junk name which did see a fair amount of legitimate junk trading Thursday was J.C. Penney, whose debt dropped Thursday on the back of the company's dismal earnings release issued after Wednesday's close.

One trader said the name was the "big mover of the day," seeing the 5.65% notes due 2020 falling as much as 5 points intraday, before recovering to end just 3½ points lower.

The issue finished with an 81 handle, the trader said.

The trader also saw the 7.4% notes due 2037 drop to a low of 80¾ before coming back to end around 82. That was still down 4 points on the day.

And the 5¾% notes due 2018 lost 3 points, closing at 833/4.

A second trader said the 5.65% notes were the most active of the structure, though he called all the bonds down 2 to 4 points "depending on the maturity." As for the 5.65% notes, he pegged them at 81, down 4 points.

Earlier in the session, a market source had deemed the 5.65% notes down 5 points at 80 bid.

As for the company's New York Stock Exchange-traded shares, they were down $3.59, or 16.97%, to finish at $17.57, although that was an improvement from the day's low of $16.57.

Volume was about five times average.

One trader said the earnings out Wednesday were "disastrous," while another called them "horrible."

For the fourth quarter, the Plano, Texas-based retailer reported a net loss of $552 million, or $2.51 per share.

That compared to a profit of $294.1 million, or $1.28 per share, the year before.

Excluding one-time charges, net loss was $427 million, or $1.95 per share. Analysts had forecast a loss of 28 cents per share.

Revenues were down 28.4% to $3.8 billion, despite it being a big holiday quarter. Additionally, same-store sales declined by 31.7%.

For the year, the company lost $985 million, or $4.49 per share. Revenues declined by 24.8% to $12.99 billion.

Same-store sales - the key retailing industry performance metric - were down 25%.

Market indicators turn mixed

Statistical junk market performance indicators turned mixed on Thursday - their third time there in the last four sessions - after having been higher on Wednesday.

The Markit Series 19 CDX North American High Yield Index lost 3/16 point on Thursday to end at 102 13/32 bid, 102 17/32 offered, after it had risen for a second straight session on Wednesday with a 13/32 gain.

But the KDP High Yield Daily Index was solidly higher, rising by 11 basis points Thursday to close at 75.36; it was the index's second consecutive improvement, although it had only edged up by 1 bp on Wednesday.

Its yield declined by 3 bps to finish at 5.63% on Thursday, coming in for a second straight session. On Wednesday, it had narrowed by 1 bp, after having been unchanged on Tuesday.

And the widely followed Merrill Lynch High Yield Master II index posted its second straight gain Thursday, rising 0.147%, on top of the 0.104% advance on Wednesday.

The gain raised the index's year-to-date return to 1.845% from 1.696% Wednesday, although it still remained down from its peak level for 2013 so far of 1.991%, set on Jan. 28.

Stephanie N. Rotondo contributed to this review

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