INC, Saratoga price; INC edges up; Equinix busy; Nortel jumps again; funds break losing streak

By Paul Deckelman and Paul A. Harris

New York, July 7 - INC Research, Inc. and Saratoga Resources, Inc. came to market on Thursday with upsized new deals, high-yield syndicate sources said.

They saw INC, a provider of contract research and testing to the pharmaceutical industry, price a $300 million offering of eight-year notes. The new bonds initially rose by a point but then gave up most of those early gains to end just slightly higher.

Saratoga, an energy exploration and production company, upsized its tranche of five-year senior secured notes slightly in order to generate the full $125 million of proceeds, which the company was looking for after pricing at a discount. Traders saw no aftermarket in the issue.

The syndicate sources also heard of several borrowers hitting the road to market new deals for pricing likely next week: racetrack and casino operator MTR Gaming Group, Inc., information technology services contractor SRA International, Inc. and medical examinations company ExamWorks, Inc.

Price talk emerged on Greif Luxembourg Finance SCA's euro-denominated 10-year offering. The European arm of U.S. packaging manufacturer Greif, Inc. is slated to price that deal after a Friday morning books-closing.

The new deal from Equinix, Inc. which priced late Wednesday but did not trade much after that, saw very heavy trading volume on Thursday as junk players tried to get a piece of the data center operator's well-liked drive-by offering.

Traders saw a mostly firm tone in the secondary market, although much of the attention was monopolized for yet another day by failed Canadian telecommunications equipment maker Nortel Networks Corp. Just as they had done on Wednesday, its several series of bonds shot up by multiple points in very heavy dealings on Thursday in the wake of the successful auction of the liquidating company's valuable patents.

In line with the brighter tone in Junkbondland, high yield mutual fund flows - considered a good proxy for overall market liquidity trends - busted out of a five-week slump. The inflow in the week ended Wednesday was the first such cash injection seen since the end of May.

Funds gain $884 million

As Thursday's session was winding down, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $884 million more came into those weekly reporting funds than left them.

It was a sharp turnaround from the previous five weeks, dating to the week ended June 2, which saw more than $6.2 billion flee from those funds, according to a Prospect News analysis of the figures, including the $321 million outflow seen last week. That losing streak included the breathtaking $3.43 billion cash hemorrhage seen the week ended June 22, thought to be a record loss.

The sustained blood-letting over those five weeks erased most of the comfortable net inflow surplus, which had been built up over the first five months of the year and had reached an estimated peak year-to-date level of $7.82 billion in the week ended May 25, according to the analysis.

The latest week's inflow raised that cumulative total back up to an estimated $2.446 billion, according to the analysis, versus the previous week's $1.562 billion, the lowest seen this year since the $734.4 million recorded in the first week of 2011, the analysis indicated. With just over half the year gone, there have now been 18 inflows recorded against nine outflows.

Fund-flow patterns began the new year on a roll with cash infusions totaling more than $8 billion seen over a 14-week stretch from early December through mid-March, including the more than $6 billion taken in during the first 10 weeks of this year. Then, fund-flow patterns turned choppy: two weeks of declines in March totaling $1.146 billion followed by three weeks of inflows totaling $1.78 billion and then two more weeks of outflows in late April adding up to $190 million.

That was then followed by inflows seen over the next four weeks, totaling $1.14 billion. Those gains were then far overshadowed by the most recent string of cash losses, which was snapped by the inflow seen on Thursday.

EPFR $556 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, reported a $556 million inflow to the funds in the latest week, snapping what it said was a string of four consecutive downturns, including a roughly $2 billion inflow in the June 29 week.

That losing streak, estimated at more than $8.2 billion, also included two other giant-sized cash losses - an agency record $3.51 billion cash bleed in the June 22 week on top of a $2.08 billion outflow the week ended June 15. Those four weeks of outflows had, in turn, followed a 10-week stretch of inflows up through the week ended June 1.

The latest week's cash gain raised the year-to-date net inflow number to around the $15.5 billion mark, although it remains well below the peak level for the year, north of $20 billion.

AMG/Lipper's numbers and EPFR's figures generally point in the same direction, although their actual figures usually differ markedly since the two services calculate their respective fund-flow totals quite differently. EPFR, for instance, includes results from some non-U.S. domiciled funds as well as the domestic funds.

EPFR's calculations show 21 weeks of inflows so far this year against six outflows.

Cumulative fund-flow estimates, whether from Lipper/FMI or 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. Those trends had pretty much continued into 2011 as well, although the market hit something of a dry patch last month.

Inflow was not unexpected

Several secondary market traders told Prospect News before the inflow number came out that they wouldn't be surprised to see a sizable positive number, given the relatively strong numbers that the market has put up so far this week and the solid gains notched last week, particularly toward the end of the week.

One said he had heard talk of a one-day surge of fund inflows in the area of around $300 million.

A second trader agreed, predicting "a healthy positive number."

He said that if there had been a $300 million one-day surge, "that would not surprise me at all," suggesting that it could have happened on Tuesday, or going back to before the July 4th holiday, even last Thursday night or Friday, which would both be included in this week's fund-flows total.

"This market had a bid for it on Friday, even though nobody was around, and then on Tuesday morning" - the first session back after the break - "people were nosing around to see what was there, and then by late Tuesday afternoon, it was bid for. [Wednesday], it was bid for."

As an example of the kind of market strength and confidence that would certainly translate into money coming back into the funds after having fled them over the prior five weeks, he pointed to the very well-received Equinix deal.

"I believe there's money out there, and I believe the money is looking to buy bonds."

INC upsizes

INC Research priced an upsized $300 million issue of eight-year senior notes (Caa1/B-/) at par to yield 11½%, at the wide end of the 11¼% to 11½% price talk.

Morgan Stanley, RBC and ING were the joint bookrunners for the issue, which was upsized from $250 million.

Call protection was increased to four years from three years.

Proceeds will be used to help fund the purchase of Kendle International Inc. and refinance INC and Kendle debt.

Fast moving market

The INC bonds were upsized due to less robust interest in the bank loan, according to a mutual fund manager who put in for a small amount of bonds, but was nevertheless cut back on the allocation.

The bank loan downsized to $300 million from $350 million - the same amount as the upsizing of the bonds.

As the deal shaped up at the wide end of price talk and the company threw in some extra call protection and some covenant changes favoring investors, the order book grew to around $500 million for the $300 million deal, the buysider added.

"Once we got the employment number everybody was in," said the investor, referring to the ADP Employment Report, which suggested that private payrolls grew in June by 157,000, more than double the 60,000 that was expected.

"The market was moving so fast, you had to pay the full price or more, or you could not get any paper anywhere," the investor added.

The JP Morgan High Yield index, which had been lagging since early June, is plowing back and has returned an impressive 1.25% on the week to date, the investor said.

Saratoga prices with talk

Elsewhere on Thursday, Saratoga Resources raised $125.23 million with the placement of its 12½% five-year senior secured notes.

The non-rated notes priced at 98.221 to yield 13%, in line with price talk, which specified a 12½% coupon at a discount to yield 13%.

The face amount of the deal was upsized to $127.5 million from $125 million in order to raise $125 million of proceeds, factoring in the discount.

Imperial Capital, LLC ran the books.

The notes feature a make-whole call at Treasuries plus 50 basis points until Jan. 1, 2014, at which time they become callable at 106.25. A special call provision allows the issuer to redeem 10% of the issue annually during the non-call period at that initial call premium of 106.25.

Proceeds will be used to repay substantially all of the company's existing debt, including all debt under its existing credit facilities.

The notes offering was decreased from the originally contemplated $150 million, with $30 million of proceeds shifted to a PIPE offering.

Greif sets price talk

The only deal slated to price on Friday is a euro-denominated offer.

Greif Luxembourg Finance talked its €200 million offering of 10-year bullet notes (Ba2/BB/) with a 7¼% to 7½% yield on Thursday.

The order books are scheduled to close at 10 a.m. London time on Friday, and the deal is expected to price thereafter.

Joint bookrunner Bank of America Merrill Lynch is the global coordinator and will bill and deliver. J.P. Morgan Securities LLC and RBS Securities Inc. are also joint bookrunners.

Proceeds will to repay non-U.S. borrowings under the company's revolving multi-currency credit facility and for general corporate purposes, including the financing of acquisitions.

The issuing entity is a Luxembourg-based financing unit of Greif Inc., a Delaware, Ohio-based producer of steel, plastic, fiber, flexible and corrugated containers and container board.

MTR starts roadshow

MTR Gaming began a roadshow on Thursday for its $500 million offering of eight-year senior secured second lien notes (/B-/).

The deal is expected to price on Wednesday.

J.P. Morgan is the bookrunner.

The Chester W. Va.-based owner and operator of gaming facilities and horse racing tracks plans to use the proceeds to fund the tender offer for its 9% notes due 2012 and its 12 5/8% notes due 2014, and to establish a video lottery gaming facility at Scioto Downs.

SRA starts Friday

SRA International plans to start a roadshow on Friday for its $400 million offering of eight-year senior notes (Caa1/CCC+).

That deal is also set to price during the week ahead.

Bank of America Merrill Lynch, Citigroup and Goldman Sachs are the joint bookrunners for the LBO deal.

ExamWorks brings $250 million

ExamWorks Group will start a roadshow on Friday for its $250 million offering of eight-year senior notes.

A global investor call is set for Monday.

The deal is also expected to price mid-to-late in the week ahead.

Bank of America Merrill Lynch, Barclays, SunTrust, Wells Fargo, Credit Suisse and Goldman Sachs are the joint bookrunners.

Proceeds will be used to repay revolver debt and for general corporate purposes, including acquisitions.

INC deal up a little

When INC Research's new eight-year issue was freed for secondary dealings, a trader said that the bonds moved up to 100½ bid, 101 offered level after the upsized $300 million issue had priced at par. But then they traded into a 100½ bid and were left offered at that level.

A second trader saw the bonds get as good as 101 bid, 101½ offered early on, but then by mid-afternoon, they had come into a wider 100¼ bid, 101¼ offered and continued to ease from there, finally going out offered at 1001/2.

Yet another trader said he had the Raleigh, N.C.-based contract pharmaceutical research organization's paper earlier at 100½ bid, 101 offered.

Saratoga a secondary no-show

Several traders told Prospect News that they had seen no trace of Saratoga Resources' slightly upsized $127.5 million offering of five-year senior secured notes in the aftermarket, after the Houston-based energy operator's deal had priced at 98.221.

Equinix does excellently

The big news among the new or recently priced bonds, a trader said, was Equinix's 7% notes due 2021. The Redwood City, Cal.-based data centers operator had priced $750 million of those bonds - upsized from the originally announced $500 million - on Wednesday at par late in the session, and they had been quoted going home at the end of that session at 102 bid, 102½ offered, although aftermarket action was limited due to the lateness of the hour.

But on Thursday, a trader said, "most of the action today was in Equinix." He said that heading toward the close, at least $120 million of the bonds had been seen having traded on Trace "and the number was probably higher."

He said that while there were "a couple of trades" around 102, most of the days dealings took place somewhere in a bid range between 102 1/8 and 102 3/8, "mostly a pretty tight picture.

"That was most of the excitement."

A second trader said that the new Equinix deal "did very well," quoting the bonds going home as high as 102½ bid, 103 offered.

Yet another trader pegged the bonds at 102¾ bid, 103 offered. He said that with an issue that size, "sure it was possible" that $120 million of the bonds had been given over to the flippers... and had traded, as the first source suggested.

He said that these days, "the crossover guys are very much buyers of high-yield paper" as they reach for the kinds of fatter yields they just can't get with investment-grade bonds, while looking for the security afforded by only playing in the top end of the junk ratings pile.

"They were in Equinix pretty big; that would be my bet."

He said, "You've got a '4-B' credit that's known to crossover guys already because of the prior deal," its upsized $750 million of 8 1/8% notes due 2018 that priced at par in February 2010.

"The prior deal is trading up around 109-110. Your Ba2/BB talk is 7% to 7¼%, it's a decent-sized issue - $500 million - which at least gets everybody to look at it."

The deal was then increased to $750 million, and he said that the salesmen "were running around, telling everybody the book is one time, two times, three times [oversubscribed]. By the end of the day, you've got a pig party of the first degree."

He said that "everybody piles in, everybody's unhappy with their allocations, the bonds go up 2½ points, and nobody wants to trade any more after that. It's kinda ludicrous."

Market indicators improve

Away from the new deal arena, traders saw statistical measures of market performance, which had been mixed through with a little bit of a positive bias over the prior two sessions, solidly higher on Thursday, continuing the general strong pattern seen last week and this week.

A trader saw the CDX North American Series 16 HY Index up 9/16 of a point on Thursday to end at 102 3/16 bid, 102 5/16 offered, after having lost 5/16 of a point on Wednesday.

The KDP High Yield Daily Index shot up by 15 basis points on Thursday to close at 75.4, after having gained 3 bps on Wednesday. Its yield fell by 7 bps to 6.73%, after having declined by 2 bps on Wednesday.

And the Merrill Lynch High Yield Master II Index showed its seventh consecutive gain on Thursday, up by 0.234% on top of Wednesday's 0.065% rise.

The latest gain lifted its year-to-date return to 5.69% on Thursday from Wednesday's 5.443% level, although the index still remains well down from its year-to-date peak level of 6.071%, which was reached back on May 20.

Nortel not stopping

Among specific names, a trader said that once again Nortel Networks' bonds traded sharply higher on big size on Thursday, continuing the amazing surge in very heavy trading, which the bankrupt Canadian communications technology company's bonds have seen since last week's auction of its portfolio of some 6,000 patents.

That auction, won by a consortium of five high-tech stalwarts - Apple, Inc., Microsoft Corp., EMC, Ericsson and Research in Motion Ltd. - produced a winning bid of $4.5 billion, about three times what analysts had expected and five times the initial $900 million stalking-horse bid submitted by Google, Inc., which reportedly dropped out of the bidding process at $4 billion, leaving the field to its rival. The winning bid, should it pass muster with the Canadian government and with the courts in Ontario and Delaware overseeing Nortel's liquidation process, will provide for a bigger potential recovery for bondholders and other creditors.

The trader saw Nortel's 10¾% notes due 2016 up 3 points on the day at 108 7/8 bid, with $62 million traded - the most active issue in the Nortel capital structure and easily the busiest on any high-yield bonds. On Wednesday, $63 million of the bonds had changed hands, and the bonds had also gained over 2 points.

He saw Nortel's 10 1/8% notes due 2013 up 3¼ points at 108¾ bid, on volume of $50 million. That was on top of the $30 million which had traded on Wednesday, when the bonds were up 2 points.

Its 6 7/8% notes due 2023 rose to 80 bid on Thursday, a gain of 3¾ points, with $11 million of turnover. On Wednesday, those bonds had gained almost 6 points on the session on volume of better than $16 million.

The trader also saw Nortel's 7 7/8% bonds due 2026 up "a whopping 9½ points" to finish out at 102½ bid. However, he cautioned that only about $4 million of that particular credit has traded on Thursday.

With the company mired in a bankruptcy process, all of the Nortel bonds routinely trade flat, or without any accrued interest.

Thursday's $200 million total volume was up by one-third from the roughly $150 million of Nortel bonds traded on Wednesday, when its issues again dominated the high-yield most-actives lists.

The Nortel bonds had also shot solidly higher during Friday's thinly traded session when market players first digested the auction results.

"The distressed guys are figuring out what the trade claim is and what each tranche is going to get back" when the complex process of divvying up the company's assets, including the proceeds from the patent sale, among the various classes of creditors, is completed, the trader theorized.

At another desk, a market source saw the 6 7/8s gain 4¾ points on the day to end at 79½ bid, on top of a 5 7/8-point advance on Wednesday. Nortel's 103/4s were seen up 1 7/8 points, at 108 7/8, building on Wednesday's 13/4-point rise, while the 10 1/8s improved by a deuce, the same as Wednesday's action, to reach the 108¾ mark.

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