Rite Aid, iStar drive-by deals lead primary; CNG, Affinity ahead; funds jump by $1.19 billion

By Paul Deckelman and Paul A. Harris

New York, May 3 - The high-yield primary market had a busy day Thursday paced by a trio of opportunistically timed and quickly marketed drive-by offerings.

Leading the way was a very familiar high-yield name. Drugstore chain operator Rite Aid Corp. priced a $421 million add-on to its existing senior guaranteed notes due 2020, which priced earlier this year. The notes firmed modestly when they were freed for secondary dealings.

Commercial real estate lender iStar Financial, Inc. did an upsized $275 million of five-year notes - the only Thursday deal that was not an add-on. The new bonds, which came at a discount to par, were seen slightly firmer on the session.

Builder M/I Homes, Inc. added to its existing 2018 notes with an upsized $30 million offering.

High-yield syndicate sources meanwhile heard terms on a $40 million add-on deal from transaction and payment processing company Evertec, LLC, which had actually priced late Wednesday night.

Apart from the issues that have actually priced, the sources heard price talk on alternative financial services provider CNG Financial, Inc. and casino operator Affinity Gaming LLC. Both of those eight-year deals are expected to price on Friday. So are a pair of euro-denominated offerings from roofing products maker Monier Group Sarl and paper manufacturer Lecta SA.

The forward calendar gained a deal. Magnum Hunter Resources Corp. is shopping around a $450 million offering of eight-year notes. But out of that same sector, MBI Energy Services Inc. was heard to have withdrawn its $250 million tranche of eight-year notes.

Away from the new deals, there was still more activity in Chesapeake Energy Corp.'s volatile bonds, which were seen a little better after Wednesday's sharp drop.

Statistical junk market performance indicators were mixed.

But there was just no stopping another indicator, high-yield mutual fund flows, which are seen as a good proxy for overall Junkbondland liquidity trends. They notched their third consecutive weekly inflow with over $1 billion of fresh cash coming in.

AMG posts $1.19 billion inflow

As Thursday's session was drawing to a close, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.19 billion more came into those weekly reporting funds than left them.

It was the third consecutive inflow and followed the $644 million cash addition seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - the week before, which ended April 25, and the nearly identical $637 million inflow seen the week before that, which ended April 18.

In that three-week stretch, an estimated $2.41 billion more came into those weekly reporting domestic junk funds than left them, according to a Prospect News analysis of the figures.

The latest week's inflow was the first billion-dollar-plus cash addition reported by AMG in more than two months. The last was the $1.77 billion injection recorded in the week ended Feb. 15.

The inflow brought the year-to-date net inflow figure up to an estimated $17.7 billion, according to the Prospect News analysis, up from the previous week's $16.52 billion.

It also established a new peak net inflow total for the year so far, eclipsing the old mark of $16.53 billion seen in the week ended April 4, according to the analysis.

Inflows have now been seen in 17 weeks of 2012 so far against just one solitary outflow, although that was a big one - the yawning $1.29 billion cash hemorrhage seen in the week ended April 11. That outflow snapped an amazing string of 18 straight weeks of inflows totaling $18.64 billion that dated back to the week ended Dec. 7, according to the Prospect News analysis.

EPFR sees $1.84 billion inflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG's, saw an inflow of $1.84 billion in the latest week. This was on top of the previous week's $1.03 billion cash addition.

As was the case with the AMG number, it was the third consecutive inflow following the gigantic $1.17 billion outflow seen in the week ended April 11 - the first such outflow seen this year after 14 straight inflows. That outflow also broke a larger 18-week winning streak that had dated back to the beginning of December, according to an analysis of the numbers.

EPFR inflows over the past three weeks have totaled $3.52 billion, according to the analysis.

On a year-to-date basis, the cumulative inflow figure rose to more than $35 billion.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from some non-U.S. domiciled funds that are excluded from the more narrowly focused AMG tally of domestic junk mutual funds and exchange-traded funds.

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

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's strong performance so far this year and its active new-deal pace, with issuance volume continuing to run roughly neck and neck with last year.

Rite Aid taps 9¼% notes

Three issuers, each bringing a single tranche of notes, priced $726 million of notes in a Thursday primary market that generated a heavy volume.

Rite Aid priced a $421 million add-on to its 9¼% senior guaranteed notes due March 15, 2020 (Caa2/CCC) at 101.25.

The reoffer price, which came at the rich end of price talk that was set in the 101 area, renders an 8.962% yield to worst.

Citigroup Global Markets Inc., Bank of America Merrill Lynch, Wells Fargo Securities LLC and Credit Suisse Securities (USA) LLC were the joint bookrunners for the quick-to-market add-on.

The original $481 million issue priced at par on Feb. 14.

The Camp Hill, Pa.-based drugstore chain plans to use the proceeds to fund the tender offer for its 9 3/8% senior guaranteed notes due 2015.

iStar upsizes drive-by deal

iStar Financial priced an upsized $275 million issue of 9% senior notes (Caa1/B+) at 98.012 to yield 9½%.

The yield printed at the tight end of yield talk that was set in the 9 5/8% area. The reoffer price came in line with discount talk of about two points

Bank of America Merrill Lynch was the left bookrunner. Barclays Capital Inc. and J.P. Morgan Securities LLC were the joint bookrunners.

The New York-based finance and investment company plans to use the proceeds to repay a portion of its floating-rate convertible notes due 2012.

M/I Homes taps 8 5/8% notes

M/I Homes priced an upsized $30 million add-on to its 8 5/8% senior notes due Nov. 15, 2018 (Caa1//) at 99.

The reoffer price renders an 8.829% yield to maturity.

Citigroup and JPMorgan were the joint bookrunners for the quick-to-market add-on, which was upsized from $25 million.

The Columbus, Ohio-based homebuilder plans to use the proceeds for general corporate purposes, which may include acquisitions of land, debt repayment, capital expenditures and working capital.

The original $200 million issue priced at 98.587 to yield 8 7/8% in October 2010.

Magnum Hunter kicks off deal

There was only one roadshow announcement on Thursday.

Magnum Hunter Resources plans to price a $450 million offering of eight-year senior notes during the week ahead.

Citigroup and Credit Suisse are the joint physical bookrunners and will be joint allocators. Credit Suisse will bill and deliver.

BMO Securities, Capital One Southcoast, Deutsche Bank Securities Inc., Goldman Sachs & Co., RBC Capital Markets and UBS Securities LLC are the joint bookrunners.

The Houston-based independent oil and natural gas exploration and production company plans to use the proceeds to fund its acquisition of Baytex Energy Corp., to repay its existing revolver and term loan and for general corporate purposes.

Talking the deals

Dealers set the stage for a busy Friday session with price talk on a pair of deals that have been on the road and are expected to cross the finish line before the weekend.

CNG Financial talked its $350 million offering of eight-year senior secured notes (B3/B) with a yield in the 9½% area.

Credit Suisse, Jefferies & Co. and Wells Fargo are the joint bookrunners.

Affinity Gaming talked its $200 million offering of eight-year senior notes (Caa1/B) with a yield in the 9% area.

Deutsche Bank, JPMorgan, Jefferies and Macquarie Capital are the joint bookrunners.

Busy Friday in Europe

The European high-yield primary market also figures to be busy on Friday.

Luxembourg-based Lecta set size ranges and price talk for its two-part offering of senior secured notes (B1//) on Thursday.

The deal will feature €330 million to €360 million of six-year floating-rate notes that come with two years of call protection and are talked with a Euribor spread of 525 basis points to 550 bps at a reoffer price of 99.

In addition, Lecta is offering €230 million to €260 million of seven-year fixed-rate notes that come with three years of call protection and are talked with a yield in the 9% area.

Joint bookrunner Deutsche Bank will bill and deliver. Credit Suisse and Morgan Stanley are also joint bookrunners.

Also, Germany's Monier Group talked its €250 million offering of seven-year senior secured notes (B2//B+) to yield 10¼% to 10½%.

JPMorgan, Deutsche Bank and Morgan Stanley are the bookrunners.

Also possible Friday business is the Europcar Groupe SA's €335 million offering of five-year senior subordinated secured notes (Caa1/B-).

However, good news about the Europcar deal was in short supply on Thursday, market sources said.

There was a big seller of the French car rental company's existing 9 3/8% senior subordinated notes due 2018, which traded at 71½ bid 76½ offered, down from the low 80s on Wednesday, according to a London-based sellside source.

Europcar's new senior subordinated secured notes were talked earlier in the week to yield 12¼% to 12½% and to price with 3 to 5 points of original issue discount.

That talk is dramatically higher than initial guidance, according to a market source who said that initial conversations were targeting a 10% to 11% yield range.

Rite Aid rises a little

When the new Rite Aid add-on to its existing 9¼% senior guaranteed notes due 2020 were freed for secondary dealings, a trader saw the Camp Hill, Pa.-based No. 3 U.S. drugstore chain operator's new paper having firmed a little from its 101.25 issue price. He quoted the bonds at 101½ bid.

A second trader saw that $421 million drive-by issue at 101½ bid, 102 offered.

The company's 9 3/8% notes due 2015 - the issue being taken out via a tender offer funded with the new-deal proceeds - were seen 1 point higher on the day at 103 bid.

iStar improves

Several traders saw New York financial services firm iStar's new 9% notes due 2017 having pushed a little higher after pricing, quoting the bonds going out at 98½ bid, 99 offered.

The quickly shopped $275 million deal, upsized from an originally planned $250 million, priced at just over 98 earlier in the session.

M/I, Evertec deals unseen

Owing to their small size, traders saw no aftermarket activity Thursday in the other two new add-on deals - Thursday's same-day, upsized $30 million issue of 8 5/8% notes due 2018 from Columbus, Ohio-based builder M/I Homes and San Juan, Puerto Rico-based electronic transaction and payment processing company Evertec's $40 million addition to its 11% notes due 2018.

That latter deal had actually priced at 105 very late on Wednesday night.

Recent deals hold most gains

Among the deals that came to market over the previous several sessions, a trader said that Sabre, Inc.'s 8½% senior secured notes due 2019 were trading Thursday at 102¼ bid, 102¾ offered.

That's around the same levels at which the Southlake, Texas-based travel information technology company's $400 million issue traded at on Wednesday after that deal priced at par off the forward calendar.

A second trader, however, said he had not seen any dealings Thursday in the new Sabre bonds.

A trader said that both tranches of CIT Group Inc.'s new bonds, which priced on Tuesday, were "trading inside" a bid range of 100 5/8 to 101 1/8.

The New York-based commercial lender and online banking company had priced $2 billion of new junk that day in a two-part quick-to-market deal consisting of $1.25 billion of 5% notes due 2017 and $750 million of 5 3/8% notes due 2020. Both tranches came to market at par.

When they began trading on Wednesday, the five-year tranche was being quoted as good as 101¾ bid, 101 offered, while the 5 3/8s were pegged around 100½ bid, 101 offered.

On Thursday, a trader said that the 5% notes were trading just a tad below 101, while he did not even see the 5 3/8s.

Two traders did not see any activity Thursday in the airline passthrough certificates that Tempe, Ariz.-based carrier US Airways Group Inc. brought to market on Monday.

That quickly shopped $623.38 million three-part deal was a split-rated affair consisting of $379.79 million of investment-grade 5.9% class A certificates due 2024 (Ba2/BBB/A-), $124.96 million of junk-rated 8% class B certificates due 2019 (B2/BB+BB-) and $118.64 million of 9 1/8% class C certificates due 2015 (B3/B/B).

After pricing at par Monday, the class A certificates had moved up to levels around 100 7/8 bid, 101 1/8 offered, and the class B certificates had moved up to levels around 101¾ bid, 1021/4.

There were no aftermarket dealings in the single-B junk-rated series C certificates.

'Watching paint dry'

Away from the new deals, a trader said that looking at Thursday's market "was like watching paint dry" in terms of how boring things were.

With the coming of the warmer weather, he said, "the trading week, really, looks like from mid-day Tuesday to midday Thursday, and the rest of the time is just down time."

He said that much of the activity on Trace in the junk market on Thursday was really in crossover names - "they were busy," he said - while most everything else was "one-off stuff. There didn't seem to be a lot of trading volume" in most junk credits.

Chesapeake churn continues

One of the few legitimate junk names to be trading in size was Chesapeake Energy, whose bonds have been among the busiest issues this week as investors reacted to the barrage of news developments - most of them unfavorable - coming out of the Oklahoma City-based No. 2 U.S. natural gas company. Besides Chesapeake's own weak performance in the face of sagging natural gas prices, there has also been all of the noise about the personal finances and business activities of its chief executive officer, Aubrey McClendon, ranging from disclosures about his huge borrowings against his stake in the company's wells, exceeding $1 billion, to the latest disclosure of his having run a hedge fund speculating in energy futures at the same time he was running Chesapeake.

The Chesapeake bonds had firmed by about 2 points on Tuesday on the news that McClendon had been stripped of his chairmanship role while remaining as CEO and the company announced further cutbacks in its output in an attempt to boost natural gas prices.

Then on Wednesday, the bonds slid badly after Chesapeake reported poor quarterly earnings and increased debt and Reuters reported on McClendon's hedge fund activities, prompting criticism from some analysts who saw at least the appearance of a conflict of interest and some calls for an investigation.

Sure enough, on Thursday came the news that the Securities and Exchange Commission will begin an informal inquiry into some aspects of McClendon's investing activities, looking to see if there have been any conflicts with his fiduciary duty to the company's shareholders.

But after the beating that Chesapeake's bonds took on Wednesday, traders saw that paper actually a little improved on Thursday, suggesting that the sell-off the previous day was overdone.

"They bounced back," one said in quoting the bonds up between a half point and a full point.

"Chesapeake was all over the place with news out," a second trader said, though on the whole, he said the bonds were up.

A third trader quoted the company's bonds up "anywhere from an eighth to a point, depending on the issue."

He saw its 9½% notes due 2015 up five-eighths of a point around the 108½ bid, while its 6.775% notes due 2019 gained 1 1/8 points, he said, to 96 1/8 bid.

"I hate that issue," he said. "That was the issue that I questioned why anybody bought it when it came. It's one of the things where you had no upside, only downside - and it sure came home to roost this time."

As for McClendon's role in all of this, he said that "it's not the first time he almost blew up the company," referring to the sharp drop Chesapeake's stock took in 2008 when McClendon was forced to dump most of his holdings in order to meet margin calls.

Market measures mixed

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

A trader saw the Markit Group CDX North American Series 18 High Yield index off by 5 1/16 point on Thursday to end at 95 5/16 bid, 95 9/16 offered after having been unchanged the two previous sessions.

The KDP High Yield Daily index meanwhile gained 11 bps to finish at 74.21 after having fallen by 5 bps on Wednesday. Its yield declined by 5 bps Thursday to 6.43% after having risen by 3 bps on Wednesday.

And the widely followed Merrill Lynch U.S. High Yield Master II index posted its eighth straight daily gain Thursday, rising by 0.13% following Wednesday's 0.075% advance.

That lifted its year-to-date return to 6.703%, a new peak level for 2012, from 6.565% on Wednesday, the previous 2012 high-water mark.

That lifted the cumulative return to its highest level since Dec. 31, 2010, when it ended that year at 15.19%.

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