Diamond, Norshore deals price; Charter bonds busy on Time Warner news; funds jump $1.45 billion

By Paul Deckelman and Paul A. Harris

New York, Feb. 13 - Activity in the high-yield primary sphere slowed on Thursday. Syndicate sources saw two deals totaling $380 million of proceeds come to market - less than one-quarter of the $1.6 billion of new junk-rated, dollar-denominated paper that had priced on Wednesday.

Diamond Foods, Inc., a San Francisco-based packaged snack foods producer, brought a $230 million offering of five-year notes to market. Investors apparently found the new offering tasty, as it was quoted having notched firm gains in the aftermarket.

Norwegian offshore energy drilling contractor Norshore Atlantic BV did a restructured $150 million of new 4.8-year senior secured notes. The company's paper was seen having firmed after pricing.

There was heavy volume for a second consecutive session in the new five-year notes from CIT Group Inc. The New York-based commercial lender and banking company's new deal was seen continuing to move up from its issue price.

There were also continued brisk dealings for a fourth consecutive session in the new bonds that Troy, Mich.-based automotive components manufacturer Meritor Inc. priced on Monday.

Apart from the deals that have already priced, market participants were awaiting an expected Friday pricing from family dining restaurant franchisor CEC Entertainment, Inc., which is doing a $255 million offering of eight-year notes.

Outside the new-deal realm, Charter Communications Inc. bonds were among the day's busiest and biggest-gaining bonds, apparently given a boost by the news that Charter's would-be acquisition target, Time Warner Cable, instead opted to be acquired by the larger Comcast.

Overall, activity was quiet, with a harsh winter storm holding down market attendance in New York and other Northeastern business centers.

Statistical market-performance measures rolled to their sixth consecutive higher session.

Another indicator - the flow of cash into and out of high-yield mutual funds and exchange-traded funds, considered a key barometer of junk market liquidity trends - got back into the black this week after having been strongly negative over the previous two weeks.

Funds gain $1.45 billion

As Thursday's Junkbondland activity was drawing to a close, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $1.45 billion more came into high-yield mutual funds and ETFs than had left them in the week ended Wednesday.

It was the first inflow seen after two consecutive large downturns seen by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., which reported a $909 million outflow in the week ended Jan. 29, followed by a $972 million cash loss in the week ended Feb. 5.

Those twin downturns, totaling $1.88 billion according to a Prospect News analysis of the numbers, were the first outflows seen so far this year and followed the three consecutive inflows with which the year opened, totaling about $1.13 billion, the analysis said.

Including the outflow in the latest week - the biggest cash addition the funds have seen since the week of Oct. 23 last year, when a $2.02 billion net inflow was recorded - what had been a year-to-date net cash outflow of about $721 million last week got back into the black this week with a cumulative net inflow of $702 million, according to the analysis.

In 2013, inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, according to the analysis.

Cumulative fund-flow estimates may be revised upward or downward or may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts said that the sustained flows 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 or leaving the more than $1 trillion junk market - have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past two years and which continued on into the new year.

Diamond prices tight

Although severe weather in the Northeastern United States managed to slow activity in the high-yield market on Thursday, two issuers priced single-tranche dollar-denominated deals to raise a combined total of $380 million.

Diamond Foods priced a $230 million issue of five-year senior notes (Caa2/CCC+) at par to yield 7%, at the tight end of the 7% to 7¼% yield talk.

Credit Suisse Securities (USA) LLC, Wells Fargo Securities LLC, Barclays, BMO Securities and SunTrust Robinson Humphrey Inc. were the joint bookrunners for the debt refinancing deal.

Norshore prints at 12%

Thursday's other dollar-denominated deal was priced on syndicate desks in Scandinavia.

Norway-based drilling contractor Norshore Atlantic priced a restructured $150 million issue of senior secured notes due Dec. 21, 2018 at par to yield 12%.

The yield printed at the wide end of the 11% to 12% yield talk. The reoffer price came on top of price talk.

The deal underwent structural changes. The maturity of the bond decreased to 4.8 years from five years. Call protection increased to three years from two years.

The bonds were shored up with covenant changes and added security features, and there were concessions to investors.

These include a $50 million escrow account pledged and blocked on a first-priority basis to the trustee on behalf of the bondholders.

A cash sweep commences after year two at the lowest of 108% and the call levels.

There is a $3 million semiannual amortization.

Arctic Securities ASA and ABG Sundal Collier were the joint lead managers.

Plays mostly to U.K., U.S.

Following the changes that addressed the deal's risk, it was very well received, according to an informed source.

The majority of the order book was comprised of accounts from the United Kingdom, with 55% of the orders, and the United States, with 24% of the orders.

Scandinavian accounts comprised 15% of the Norshore Atlantic deal, with 5% being taken down by Asian accounts.

Innovia atop tightened talk

In the euro-denominated market, England-based specialty films company Innovia Group (Finance) plc priced a €342 million issue of three-month Euribor plus 500 basis points six-year senior secured floating-rate notes (B2/B) at 99.5.

The Euribor spread came on top of spread talk that had been revised tighter from earlier talk in the 525 bps area.

Joint bookrunner Deutsche Bank will bill and deliver for the debt refinancing deal. Barclays and HSBC were also joint bookrunners.

Chuck E. Cheese downsizes

Thursday's action all but cleared the active calendar, with only one transaction scheduled to price ahead of the three-day Presidents Day holiday weekend in the United States.

CEC Entertainment, the Irving, Texas-based operator of Chuck E. Cheese's family dining and entertainment stores, downsized its bond deal to $255 million from $305 million and talked the offered eight-year senior notes to yield 7¾% to 8%.

In conjunction with the downsizing of the bonds by $50 million, the company upsized its loan by $35 million, increasing it to $760 million from $725 million. It will draw the remaining $15 million of proceeds from cash on hand.

In addition to the resizing and price talk, there was a covenant change.

Books close at 9 a.m. ET on Friday, and the deal is set to price thereafter.

Credit Suisse, Deutsche Bank Securities Inc., Morgan Stanley & Co. LLC, UBS Investment Bank and Apollo are the joint bookrunners.

Diamond deal sparkles

In the secondary market, a trader quoted Diamond Foods' 7% notes due 2019 as having gotten as good as 102 bid, 102½ offered.

The popcorn, potato chip and nut company's deal had priced earlier in the session at par.

Norshore quoted higher

A trader also said that Norshore Atlantic's new 12% senior secured notes due 2018 would likely move around in a context of 100½ to 1011/2, even though he had not yet seen any actual dealings in the issue.

"It's supposed to be a pretty good company," he said.

CIT stays busy

Among the deals that priced on Wednesday or earlier, a market source saw CIT Group's new 3 7/8% notes due 2019 dominating the Trace most actives list for a second consecutive session.

He said that over $32 million of those notes had changed hands by the time the market closed, seeing the bonds up about ¼ point on the session at 100½ bid.

On Wednesday, after that $1 billion issue had priced at par, over $51 million of the new bonds had changed hands, moving up about 1/8 point when they were freed for aftermarket activity.

A trader at another shop said that the new CIT paper "didn't move much all day," seeing the bonds anchored in a 100 3/8 to 100½ bid context.

Yet another trader saw the bonds doing "pretty good" at 100½ bid, 100¾ offered.

No traction for Griffon

Wednesday's other deal, from New York-based diversified management and holding company Griffon Corp., "just couldn't get out of its own way today," a trader opined.

He suggested that left joint bookrunner Deutsche Bank "sort of kept it to themselves. They kept it relatively quiet and didn't put much in the Street."

He saw the bonds trading around 99 5/8 to 99 7/8 bid, or 99¾ to par.

After that $600 million deal priced at par, following its upsizing from $550 million, the trader said that he had heard that "someone paid as high as 100¼ for a block."

But then on Thursday, he said, "the market was weaker earlier, even though it got better later," and the bonds traded in a 99¾ to par range.

Meritor again active

Meritor's new 6¼% notes due 2024 were among the most active issues in Junkbondland for a fourth consecutive session on Thursday. A market source saw over $15 million of the bonds changing hands during the session, although for the first time, he said, they were a little lower on the day, retreating by around 1/8 point to end at 100½ bid.

The Troy, Mich.-based automotive components manufacturer's quick-to-market $225 million issue has been racking up hefty volume totals ever since it priced at par on Monday, when more than $51 million traded once it was freed for secondary market dealings. The bonds rose by about 3/8 points at that time and then tacked on another ¼ point on Tuesday, when volume totaled a still-formidable $23 million. On Wednesday, they had held those slightly stronger levels on turnover of more than $14 million.

Charter churns higher

Away from the new deals, traders saw Charter Communications' bonds better, apparently helped by investor relief that the Stamford Conn.-based cable and broadband company's $38 billion hostile bid to buy larger rival Time Warner Cable had been trumped by industry leader Comcast's $45 billion offer - meaning Charter will not have to go out and finance such a big deal by issuing more debt.

Charter's 5¼% notes due 2022 were seen up ½ point at 97½ bid on volume of more than $28 million, while its 5¾% notes due 2024 gained more than a point to go home at 99 3/8 bid on volume of over $20 million.

A second trader saw the 5¾% notes doing even better, ending at par bid, 100½ offered.

"Yesterday [Wednesday], they were at 98 3/8 to 98 5/8, so they're up almost 2 points from yesterday," he noted.

However, he cautioned that a Comcast takeover of Time Warner was by no means a done deal. Federal regulators could decide that the combined company would have too large a share of the U.S. cable TV market.

Market indicators stay strong

Statistical junk-market performance indicators were predominantly higher for a sixth consecutive session on Thursday after having been mixed the two sessions before that.

The Markit Series 21 CDX North American High Yield index gained 1/8 point on Thursday to finish at 107 5/8 bid, 107¾ offered. On Wednesday, it had been unchanged.

The KDP High Yield Daily index posted its sixth consecutive gain, improving by 5 basis points to finish at 74.75 after climbing by 6 bps on Wednesday.

Its yield declined by 2 bps for a second straight session, going home at 5.45%.

And the widely followed Merrill Lynch High Yield Master II index meanwhile made it a lucky seven gains in a row on Thursday, rising by 0.027% on top of Wednesday's 0.121% advance.

The gain raised its year-to-date return to 1.469%, its third straight new high for the year so far. That was up from its previous zenith of 1.442%, set on Wednesday.

The index's yield to worst rose marginally to 5.51% from Wednesday's 5.505%. Those levels were down from last Tuesday's 5.735%, its peak level for the year so far, while also remaining well above the low yield for the year, 5.386% on Jan. 22.

Its spread to worst widened to 421 bps over comparable Treasuries, versus Wednesday's 416 bps. Those spreads remained in from last Tuesday's 444 bps, the wide point for the year so far, although they also were well above the tight spread for the year, 398 bps on Jan. 22.

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