Flextronics prices $1 billion two-part deal; new NII bonds continue rise; market has firmer tone

By Paul Deckelman and Paul A. Harris

New York, Feb. 12 - The high-yield primary arena slowed down on Tuesday from Monday's busy pace, as just one deal totaling $1 billion of purely junk-rated, dollar denominated paper came to market.

The deal was from Flextronics International Ltd., a Singapore-based contract electronics manufacturer, which did a two-part offering of seven-year and 10-year bonds, junk market syndicate sources said. Traders did not see any initial aftermarket dealings in the new bonds.

However, there was continued activity in the new bonds from NII International Telecom SCA, which had priced on Monday and then proceeded to firm smartly when freed to trade. Market sources said that the bonds continued to climb solidly in Tuesday's dealings.

While that was happening, the international wireless service provider's existing bonds were also trading actively around.

Automotive electronics manufacturer Delphi Corp.'s new 10-year notes, which also priced on Monday, were among the most active issues of the session in Junkbondland and moved up notably from their par issue price when they were freed for trading.

And traders saw better levels on telecommunications operator Fairpoint Communications, Inc.'s six-year secured notes, another one of Monday's deals.

Apart from the deals actually priced, the primary sphere was pretty quiet on Tuesday, with just one new deal heard to have surfaced - a dollar- and sterling-denominated offering from British communications infrastructure provider Arqiva Broadcast Finance plc, which began marketing it to investors via a U.S. roadshow, with Europe to follow.

Overall, traders said that the secondary enjoyed a firmer tone, although no one issue really stood out.

Statistical market performance measures were mostly better for a second consecutive session.

Flextronics oversubscribed

Flextronics brought Tuesday's sole deal, a $1 billion transaction comprised of non-callable senior notes (Ba1/BB+/BBB-) in two $500 million tranches.

A tranche of seven-year notes priced at par to yield 4 5/8%. The yield printed in the middle of the 4½% to 4¾% yield talk. Earlier guidance on the seven-year notes was in the 4¾% area.

Meanwhile, a tranche of 10-year notes priced at par to yield 5%, on top of both yield talk and early guidance.

The deal was multiple-times oversubscribed, according to an investor, who added that people were cut back on orders.

For the 4 5/8% seven-year notes, investors were instructed to tier their orders, beginning in the low 5% range and going all the way down to the low end of price talk at 4½%.

The 4 5/8% notes, which were going out at par ½ bid, 101 offered, would have come at 4½% two weeks ago, but the market has backed up a bit in the interim, the investor said.

High-yield buyers are eying a 10-year Treasury that is lately hovering around - and even breaching - the 2% mark, and it's causing them to think a little longer and harder about "four-handle double B bonds," the investor said.

"If Treasury rates are going up, it may mean that the economy is improving," the buysider said.

"In that case, single Bs and triple Cs could be the outperformers."

Merrill Lynch and J.P. Morgan will bill and deliver and were the active bookrunners for the Flextronics debt refinancing deal. Citigroup was also an active bookrunner.

BNP Paribas, HSBC, RBS and Scotia were passive bookrunners.

Arqiva starts roadshow

England's Arqiva Broadcast Finance began a roadshow on Tuesday in the United States for its £600 million-equivalent offering of seven-year senior notes, which it intends to issue in dollar-denominated and sterling-denominated tranches.

The debt refinancing deal, which will also run a roadshow in Europe, is set to price in the week ahead.

Deutsche Bank, J.P. Morgan and Royal Bank of Scotland are the physical bookrunners. J.P. Morgan will bill and deliver for the dollar-denominated notes, while Royal Bank of Scotland will bill and deliver for the sterling-denominated notes.

Merrill Lynch, Barclays, HSBC, Lloyds and UBS are joint bookrunners.

Arqiva was the only high yield primary market news out of Europe on Tuesday.

That market could remain quiet in the near term, according to a London-based debt capital markets banker.

However, expect activity to pick up during the last week of February, when euro-denominated issuers are expected to show up with as many as three deals, the banker said.

Flextronics a no-show

Flextronics' two-part megadeal came too late in the session for any meaningful aftermarket dealings, traders said.

NII bonds continue climb

However, traders saw continued activity on Tuesday in NII International Telecom's 11 3/8% notes due 2019, which priced at par on Monday and firmed nicely almost immediately afterward, a trend which continued into Tuesday.

One of the traders pegged the $750 million issue at 103 5/8 bid, 104 offered, while a second put them at 103 7/8 bid, 104 3/8 offered, which he called up 1 5/8 points from Monday's initial aftermarket level of 102¼ bid, 102¾ offered.

Yet another dealer called them "definitely the best performer [Monday]," while also seeing them continue to rise on Tuesday.

"A lot of the other stuff was stuck around issue, up a quarter or a half-[point], but those are a solid 3 or 3½ points higher."

He opined, "We've seen this with a couple of the other names - it's because this matures inside of the [company's] other bonds, so when you put a big coupon on something and make it the first to mature in the stack just to get a deal done, that's got to trade well.

He noted: "I remember that [Alpha Natural Resources Inc. and Arch Coal Inc.] both did this back around four or five months ago."

He said that the two coal mining companies each had "2019 bonds, so they had to print a deal in 2018 or 2017. It just had to mature before [the existing issue] and they slapped a big coupon on it because everything else was trading at such a distressed level. So that's the recipe for something to trade well."

He went on to suggest that the Reston, Va.-based provider of wireless services to Latin American countries under the "Nextel" brand had to give such an atypically generous coupon - nearly double the sub-6% average junk bond yield and almost three times some of the 4% area coupons new junk deals have occasionally been seen carrying - because "this is a tough business, and I'm surprised they got anything done [...] so I think it was a big win for them, no matter what the pricing is".

Existing NII bonds busy

While NII International's new deal was wowing everyone in the secondary market, the company's existing NII Capital Corp. paper also saw a considerable amount of activity as some of those issues were on the high-yield most-actives list for the session.

However, a trader said the "old debt" was not seeing much benefit from the new issue.

While the new bonds jumped, he saw the established 7 5/8% notes due 2021 inch up half a point to 711/2, while the 10% notes due 2016 held in at 90 3/8.

A market source at another desk, locating both bonds around those levels, noted that they were among the day's busiest purely junk issues, with over $10 million of volume on each by mid-afternoon.

The first trader said that NII Capital's 8 7/8% notes due 2019 were seen slipping slightly to 751/4, with almost $10 million of mid-afternoon volume.

Yet another trader said the company's whole capital structure was "somewhat active" following the pricing of NII's new deal and its rapid climb in the aftermarket.

But, "the old bonds didn't necessarily benefit from the strength in the new deal," that trader said.

He saw the 7 5/8% notes at 71 bid, 72 offered and the 10% notes at 90 bid, 91 offered, both unchanged.

Delphi motors higher

Back among the newly priced bonds, Delphi's 5% notes due 2023 were seen having firmed smartly when they began trading in the secondary.

The Troy, Mich.-based automotive electronics manufacturer had priced $800 million of those notes at par on Monday in a quick-to-market deal, which came too late in that session for any kind of aftermarket.

When they were finally freed to trade early Tuesday, a trader saw the bonds at a wide 100½ bid, 101¼ offered, but said that they had tightened later on to around 101 bid, 101¼ offered.

A second trader saw the new bonds doing even better than that, at 101¾ bid, 102¼ offered.

Yet another market source parked the bonds at 101½ bid and noted that nearly $12 million of the new Delphi notes had changed hands by mid-afternoon, making it one of the busiest junk credits.

Fairport firms up

A trader said that Fairport Communications' 8¾% senior secured notes due 2019 "were trading higher," seeing those bonds on Tuesday at 100¾ bid, 101 offered.

A second said that the Charlotte, N.C.-based telecommunications operator's bonds had gone out on Monday in a 1001/4-to-100½ bid context after the $300 million deal came to market at par. Then, on Tuesday, "they caught a bid" and had moved up to 100¾ to 101 bid.

He said that after the initial investors "got out of this thing at par, it started to inch up."

Triumph doesn't trade much

Triumph Group, Inc.'s 4 7/8% notes due 2021 weren't seen trading around much on Tuesday, market sources said - just as they had been overshadowed by the NII deal on Monday.

The Berwyn, Pa.-based aircraft systems and components maker had priced a quick-to-market $375 million of those bonds at par, after upsizing the offering from an originally announced $350 million.

Those bonds had traded a little above issue on Monday, around 100¼ to 1001/2.

On Tuesday, a trader saw them at midday trading between 100¼ and 100¾ bid.

"The bonds were not particularly active," said another trader, who didn't really see too much of them in that setting and who had them going home offered at 101.

Smurfit flat on day

Among recent euro-denominated deals, Smurfit Kappa Acquisitions' 4 1/8% senior secured notes due 2020 traded wrapped around 98½ on Tuesday, according to a London-based source.

"It was a touch cheaper than that in the afternoon, but it's pretty much unchanged on the day," the trader said.

The Dublin, Ireland-based paper-based packaging manufacturer sold €400 million of the notes at par on Jan. 23.

Packaging sector quiet

Other bonds in that same packaging sector ended flat on the day, a source in London said.

"There hasn't been a lot of movement," the source said.

Ardagh Packaging Finance plc's and Ardagh Holdings USA Inc.'s 5% senior secured notes due Nov. 2022 saw some trading over the session, going out at 983/4, the source said.

"It has been a pretty quiet day," the source said. "The whole packaging sector is pretty quiet."

The Dublin, Ireland-based supplier of glass and metal packaging.sold €250 million of the notes at par on Jan. 16.

Secondary market quiet

Apart from the trading in such new-deal names as NII International or Delphi, traders did not see much going on in the secondary market.

"There was a muted tone," one said. "The market opened flat-to-unchanged, and then got a little bitter."

But he said that no particular names stood out.

A second trader said there was "not that much to say."

Market signs hold gains

Statistical junk market performance indicators were mostly higher on for a second consecutive session on Tuesday, coming off a string of sessions last week in which they had been mostly lower or, at best, mixed.

The Markit Series 19 CDX North American High Yield index rose by 9/32 on Tuesday, its third straight gain, to finish at 102 3/8 bid, 102 5/8 offered, after having gained 5/32 of a point on Monday.

But the KDP High Yield Daily index saw its first loss after two straight gains, easing by 1 basis point to close at 75.17.

However, the index's yield declined for the first time after six straight sessions on the rise. It tightened by 1 bp to 5.74%.

The widely followed Merrill Lynch High Yield Master II index, meanwhile, posted its second straight gain after having snapped a five-session losing streak, as it rose by 0.021%, building on Monday's 0.l052% gain.

That raised its year-to-date return to 1.109% from 1.087% on Monday, although it remained well down from its peak level for 2013 so far of 1.991%, set on Jan. 28.

Cristal Cody and Stephanie N. Rotondo contributed to this review

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