Upsized Warner behemoth, Level 3 lead pricing parade; new ExamWorks gains; MTR gone; funds up

By Paul Deckelman and Paul A. Harris

New York, July 14 - After weeks of relative inactivity, the high-yield primary sphere had its busiest day in more than a month on Thursday, as five issuers came to market with seven tranches, generating collective proceeds of more than $2 billion - eclipsing in one session the amount priced in all of last week.

The biggest borrower was New York-based music publishing and recording giant Warner Music Group Corp., which weighed in with an upsized $1.065 billion three-part issue, including an add-on to its existing secured bonds maturing in 2016 as well as new seven- and eight-year notes. Traders saw brisk activity and good aftermarket gains particularly in the upsized $765 million tranche of seven-year paper.

Another very familiar junk issuer slipping in with an upsized deal - this one a drive-by add-on to existing bonds - was internet service provider Level 3 Communications Inc., which doubled the original size of its eight-year deal to $600 million. After pricing at a discount to par, the bonds moved up to around the par level when they were freed for trading.

ExamWorks Group, Inc.'s $250 million offering of eight-year bonds was not upsized, but the health care insurance services company's deal was heard to have moved up smartly when it was freed for trading.

The junk market's chickens came home to roost, as a trader put it, with the pricing of the long-awaited El Pollo Loco, Inc. $105 million seven-year secured deal. However, neither the California-based grilled chicken restaurant chain's new bonds nor the upsized and quickly shopped $115 million add-on offering from another West Coast issuer - San Diego defense contractor Kratos Defense and Security Solutions, Inc. - was seen in the aftermarket.

Apart from the deals actually priced, defense contractor SRA International Inc.'s $400 million offering of eight-year notes was seen likely to come to market on Friday morning after price talk on the deal circulated.

But MTR Gaming Group, Inc.'s planned $500 million secured-paper offering is not expected to appear any time soon, after the Chester, W. Va.-based race track and casino company was heard to have postponed the offering.

Away from the dollar market, there were no deals from any French companies being shopped around on Bastille Day, but cable operator Coditel Holdings SRA, based in neighboring Belgium, was heard ready to close the books on its seven-year euro-denominated deal on Friday, after price talk emerged on Thursday.

In the secondary market, General Maritime Corp.'s bonds ran around in heavy trading after the oil tanker operator announced some covenant amendments to its credit facilities.

Overall, statistical performance indicators were seen as pretty much mixed. But high-yield mutual fund flows - a key measure considered a good proxy for overall liquidity trends in Junkbondland - were absolutely positive with the largest year-to-date inflow for a second big cash injection in a row.

Funds gain $1.3 billion

As Thursday's session was wrapping up, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $1.3 billion more came into those weekly reporting funds than left them.

The huge gash gain was notable for several reasons, according to data compiled by Prospect News. It's the first inflow of more than $1 billion seen in more than three months, since the $1.04 billion recorded in the week ended April 6.

This marks the biggest inflow seen so far this year, barely nosing out the $1.299 billion inflow for the week ended Feb. 9, and is the absolute biggest since the massive $1.391 billion cash addition notched more than a year ago in the week ended June 23, 2010.

The stunningly large inflow followed - and dwarfed - the $884 million cash injection, sizable in its own right, seen in the week ended July 6.

Those two inflows, totaling some $2.184 billion, in turn, followed a stretch of five straight outflows, dating back to the week ended June 1 and including the huge cash hemorrhage of $3.43 billion - thought to be a record - suffered in the week ended June 22. During that losing streak, which ran through the week ended June 29, net outflows totaled $6.259 billion, according to the Prospect News data, as nervous investors pulled money out of a previously hot junk market suddenly gone cold.

That 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 data.

The latest week's inflow raised that cumulative total back up to an estimated $3.746 billion, according to the data, versus the previous week's $2.446 billion. With a little over half the year gone, there have now been 19 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 inflows seen the past two Thursdays.

EPFR $645 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, reported a $645 million inflow to the funds in the latest week.

That gain followed the $556 million cash addition the week before, which had snapped 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 EPFR year-to-date net inflow number to around the $16.2 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 22 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, from which it is just now recovering.

Warner Music three-part deal

Warner Music priced an upsized, restructured $1.065 billion three-part high-yield notes transaction.

At the operating company level, WMG Acquisition Corp. priced $150 million add-on to its 9½% senior secured notes due June 15, 2016 (Ba2/BB-/) at 104.75 to yield 8.053%.

The reoffer price came 0.25 rich to price talk of 104 to 104.50.

The original $1.1 billion issue priced at 96.289 to yield 10¼% in May 2009.

Also at the operating company level, WMG Acquisition priced an upsized $765 million issue of 11½% senior unsecured notes due Oct. 1, 2018 (B3/B-/) at 97.673 to yield 12%.

The tranche was upsized from $695 million. The yield printed 25 basis points beyond the wide end of the 11½% to 11¾% price talk.

At the holding company level, WMG Holdings Corp. priced a downsized $150 million issue of senior notes due Oct. 1, 2019 (B3/B-/) at par to yield 13¾%.

The holding company tranche was downsized from $200 million. The yield printed on top of price talk, which had the holding company notes pricing 1¾% area behind the unsecured operating company notes.

Credit Suisse Securities (USA) LLC and UBS Investment Bank were the joint bookrunners for the transaction, the overall size of which was upsized from $1.045 billion.

Proceeds will be used to fund the LBO of the company by Access Industries and to refinance debt.

Level 3 doubles size

Bringing a drive-by deal doubled in size, Level 3 priced a $600 million add-on to its 8 1/8% senior notes due July 1, 2019 (Caa1/CCC) at 98.545 to yield 8 3/8%.

The yield printed on top of the yield talk.

Citigroup Global Markets was the left bookrunner for the issue, which was upsized from $300 million.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc., Morgan Stanley & Co. and Credit Suisse Securities (USA) LLC were the joint bookrunners.

The Broomfield, Colo.-based provider of fiber-based communications services company plans to use the proceeds to redeem outstanding Global Crossing debt in connection with closing of the acquisition of Global Crossing.

The original $600 million issue priced at 99.264 to yield 8¼% on May 25, 2011.

ExamWorks at the tight end

ExamWorks Group priced a $250 million issue of eight-year senior notes (B3/CCC+/) at par to yield 9%, at the tight end of the 9% to 9¼% price talk.

Bank of America Merrill Lynch, Barclays Capital Inc., SunTrust Robinson Humphrey Inc., Wells Fargo Securities LLC, Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. were the joint bookrunners.

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

Kratos drives by

Kratos priced an upsized $115 million add-on to its 10% senior secured notes due June 1, 2017 (B3/B+) at 105.

The reoffer price came on top of the price talk.

As a result of the issue premium, the yield to maturity is 8.88% and the yield to worst is 8.707%.

Jefferies & Co., Inc. ran the books for the quick-to-market add-on, which was upsized from $80 million.

The San Diego-based defense contractor plans to use the proceeds to partially fund the acquisition of Integral Systems.

The original $225 million issue priced at par in May 2010.

A previous $285 million add-on priced at 107 to yield 8.515% in March 2011.

El Pollo Loco wraps

El Pollo Loco privately placed $105 million of 17% 6.5-year second-priority senior secured notes.

The notes priced at 97 to yield 17.793%.

The deal was concluded in line with price talk.

The coupon pays 12½% in cash and 4½% in kind.

Jefferies & Co. was the placement agent for the debt refinancing.

GFI prices split-rated deal

In the crossover space, GFI Group priced a $250 million split-rated issue of seven-year senior notes (Ba2/BBB-/BBB) at par to yield 8 3/8%.

There was no official price talk on the deal, which was led by Jefferies.

Talking the deals

Looking ahead to Friday's session, SRA International talked its $400 million offering of eight-year senior notes (Caa1/CCC+/) with a yield in the 11% area.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Goldman Sachs & Co. are the joint bookrunners.

And Belgian cable operator Coditel Holding SA talked its €260 million offering of seven-year senior secured notes (B3/B/B+) with an all-in yield in the 10½% area.

Morgan Stanley is the global coordinator and a joint bookrunner. ING is also a joint bookrunner.

Warner bonds a winner

A trader joked that after weeks of having not much to talk about, "we've got loads of new issues - lots of stuff to talk about!"

Probably the most eagerly anticipated and keenly watched deal among the slew priced on Thursday was Warner Music, especially its big senior notes tranche due 2018, the largest part of the three-piece deal.

He said that that $765 million issue - upsized from the originally shopped $695 million - was really "the only one" that he saw trading. He saw those 11½% notes up 2 points on the session, at 99½ bid, after having priced earlier in the afternoon at 97.673.

A second trader saw the bonds at 99½ and said they were left at 99¼ bid, 99¾ offered. Yet another trader also saw the "Big One" going out at that level.

A trader saw Warner's $150 million of 13¾% eight-year notes - downsized from the original $200 million - going out at par bid, 100¾ offered, after having priced at par.

However, another trader said that those bonds were unseen on the day, with most investor action focused on the seven-year paper.

One of the traders saw the 9½% senior secured notes due 2016 trading at 105½ bid, 106½ offered early in the session, in advance of the pricing of its add-on tranche, but did not see those bonds afterward. But another quoted them late in the day at 105 bid, 106 offered, up a little from the 104.75 level at which the $150 million deal had priced.

Level 3 well-liked

Apart from the Warner Music megadeal, traders saw good response to very familiar junk bond name Level 3 Communications' upsized $600 million add-on to its 2019 notes that originally priced in late May.

That drive-by offering was seen by one trader going home at par bid, 100¼ offered - well up from the 98.545 level at which the Broomfield, Colo.-internet backbone network operator had priced its deal.

A second trader saw the bonds straddling par, at 99¼ bid, 100¼ offered, while a third quoted them at 100¼ bid.

Exam passes with flying colors

The less familiar ExamWorks Group eight-year notes, which priced at par, "really traded well," one market source said, quoting the $250 million issue at 101¾ bid, 102¼ offered.

A second trader pegged the new deal from the Atlanta-based provider of independent medical examinations and bill reviews to the health insurance industry at 102 bid.

Kratos, Loco no-shows

The two smallest deals of the day, however, were not seen trading around at all.

A trader opined that he doubted that there would be much trading in Kratos Defense and Security Solutions' $115 million add-on to its 10% senior secured notes due 2017. That drive-by offering from the California defense contractor priced at 105, "and they were probably 105 bid, but that was all done on reverse inquiry; they only contacted existing holders."

He noted that the existing issue had been quoted as high as 108 before the deal.

Costa Mesa, Calif.-based restaurant chain El Pollo Loco - "the crazy chicken" - finally got off the fence after having roosted on the junk bond forward calendar for a few weeks, but traders did not see it in the aftermarket after its pricing.

That did not prevent wags in the market from having a little fun with the $105 million deal; one, noting that its ticker symbol would be 'LOCO", suggested that in view of the very generous coupon, investors "might be loco to pass this one up."

Another quipped: "On every coupon payment, they'll bring lunch to the office of the largest bondholders."

MTR folds its hand

Traders noted that MTR Gaming, which operates race tracks and casinos, had chosen to walk away from the table at least for now, postponing its planned $500 million eight-year secured deal.

One trader declared that the proposed issue "was a doggy deal. Any time you're trying to do a deal during a recession, which involves lending money to open a consumer-driven business in the state of Ohio, it's a losing proposition." Proceeds were to go for a video-terminal lottery parlor in Columbus, where the company already runs a track.

"Video lottery in Ohio? It's not happening. Nobody could get comfortable with that," a trader added.

However, another trader said that while the company had received expressions of interest from would-be investors about getting the deal done with a 12% yield, "the company didn't want to price it at that price."

He was of the opinion that the company may believe that it will be able to get better terms later in the year, when the currently unsettled markets calm down a little, "or they have another way of going about re-doing their capital structure," such as doing bank debt. "Clearly, the company must believe they have a better possibility" than bringing a bond deal now.

Secondary signs turn mixed

Away from the new deal realm, traders saw statistical measures of market performance, which were firmer on Wednesday, going back to a more mixed status on Thursday.

One saw the CDX North American Series 16 HY Index unchanged on the day at to end at 100 9/16 bid, 100 11/16 offered, after having gained 1/8 point on Wednesday.

The KDP High Yield Daily Index eased by 2 basis points on Thursday to close at 75.12, after losing three bps on Wednesday. Its yield was unchanged at 6.84%, after having risen by 4 bps Wednesday.

But the Merrill Lynch High Yield Master II Index, which had broken a two-session slump with a win on Wednesday, added to those gains on Thursday, up 0.038% on top of the prior session's 0.164% advance.

That lifted its year-date return to 5.632% from Wednesday's 5.592% level. However, the cumulative return for the year still remains down from its year-to-date peak level of 6.071%, which was reached back on May 20.

General Maritime's rough seas

Among specific issues, General Maritime's 12% notes due 2017 were "down a good bit," a trader said, seeing the paper fall to 70 bid, 71 offered from levels around 78 previously.

The decline came as the company said it had amended the terms of its credit facilities in order to avoid a covenant breach.

"That must have had a negative impact," he said, noting that the change to the terms must "not be good for the bonds."

Another trader also saw the paper falling to 70 from 77½ bid, 78½ offered the day before.

The New York-based oil tanker company said on Wednesday that it had changed the terms on its loans. Under the new terms, GenMar will have to maintain a balance of $35 million between cash and equivalents and borrowings available under its revolving credit facility through Dec. 31.

The company previously had to maintain a balance of $50 million.

Additionally, the company must have a minimum of $40 million in cash available through March 31.

Stephanie N. Rotondo contributed to this report

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