Forest, Altice drive-bys lead $4.9 billion day, biggest in two months; funds lose $142 million

By Paul Deckelman and Paul A. Harris

New York, Dec. 5 - After a relatively sedate three days to begin the week and the last month of the year, the high-yield primary sphere suddenly heated up on Thursday, seeing its busiest session in nearly two months. About $4.86 million came to market in eight tranches - most of it in three mega-deal-sized transactions, and a good portion of it in quick-to-market "drive-by" pricings.

Two of the biggest deals, though, were scheduled forward calendar offerings: $1.3 billion in two tranches from Luxembourg-based Israeli telecom operator Altice VII Sarl, via a financing subsidiary, and an upsized single-tranche deal worth $1.2 billion from drugmaker Forest Laboratories, Inc.

There was also a quickly shopped and restructured $1.1 billion two-part offering from technology company NCR Corp.

Also coming to market was a $650 million drive-by offering of 3.5-year notes from Alcatel-Lucent SA, via a funding subsidiary - the Franco-American telecommunications equipment manufacturer's third visit to Junkbondland in the space of a month.

Vitamin and nutrition supplements maker NBTY Inc.'s corporate parent, Alphabet Holding Co., Inc., bulked up its existing issue of 2017 PIK toggle notes with an unscheduled $450 million add-on.

And construction materials and services provider Headwaters Inc. did a quick-to-market $150 million of five-year notes.

That broad-based pricing surge stood in contrast to the previous heaviest session, on Oct. 8, when $5.6 billion priced. All of that came from just one giant-sized deal, Deutsche Telekom AG's reoffering of five tranches of bonds of its T-Mobile US, Inc. wireless subsidiary.

Away from the new-deal realm, NII Holdings Inc., which sells Nextel wireless service in Latin America, was once again seen dominating the junk market most-actives lists.

Statistical market-performance measures turned mixed after having been lower across the board on Wednesday.

But a key indicator of junk market liquidity trends - flows of cash into and out of high-yield mutual funds and exchange-traded funds - turned negative this week after three prior weeks of strength as investors turned wary and pulled money out of the junk market.

Lipper funds lose $142 million

As Thursday's market activity was wrapping up, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that about $142 million more had left those funds than had come into them in the week ended Wednesday.

It was the first such outflow seen from the funds after three consecutive weekly net cash additions recorded by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp, including the $433 million inflow seen the previous week, which ended Nov. 27

During that three-week winning streak, inflows had totaled $1.44 billion, according to a Prospect News analysis of the figures.

Those three weeks, in turn, had been part of a larger, overwhelmingly positive recent trend, according to the analysis, which saw 11 inflows in the prior 12 weeks dating back to the week ended Sept. 11 - a stretch interrupted by just one lonely negative week, ended Nov. 6, when the funds had lost a net $879 million. That was their first outflow in two months.

During that 12-week stretch, which does not include the latest outflow, net inflows had accumulated to the tune of about $9.80 billion, according to the analysis.

But the year as a whole so far has been considerably less lopsided, with inflows having now been seen in 31 weeks, against 18 weeks of outflows, according to the analysis. For a number of weeks earlier this year, cumulative fund flows for the year as a whole even turned negative. That was due to a sizable losing streak seen during May and June that included several multi-billion-dollar outflow numbers, which was prompted by investor worries over whether the Federal Reserve would end its accommodative monetary policy. At one point in late June, the red ink topped the $9 billion mark, according to the analysis.

However, encouraged by recent indications that the central bank would not be trimming its bond-buying policies as quickly as feared due to a still-shaky economy, inflows began to mount up, with the negative number for the year gradually whittled down week by week; eventually, the year-to-date fund-flow number swung back into the black, according to the analysis, and has stayed there ever since.

Market sources said that the latest weekly outflow, though, brought the year-to-date total down to an estimated $2.67 billion.

Another fund-tracking service - Cambridge, Mass.-based EPFR Global - meanwhile paints quite a different picture, reporting inflows this week "in excess of $1 billion." EPFR uses a much different methodology than AMG/Lipper by including in its fund universe many non-U.S. domiciled funds, while its rival figures its numbers on a strictly domestic-fund basis.

EPFR said roughly 50% of its number was attributable to U.S.-based funds, 40% to European-only funds and another 10% to global high-yield funds.

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

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 - were seen by analysts as a key catalyst behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which ultimately produced $327 billion of new dollar-denominated, junk-rated paper from domestic or industrialized-country issuers, according to data compiled by Prospect News.

It was also seen as one of the major drivers behind the robust patterns of primary activity and secondary strength that had continued for much of this year's first half, before turning choppy over the past several months.

The recent run of consecutive net inflows coincided with the explosive expansion of junk primary activity seen in September, when over $47 billion of new paper priced, according to the Prospect News new-issuance data, the biggest September ever, and the continued healthy pace of scheduled - and particularly, opportunistically timed new deals - during October, November and now continuing strongly into this month as well.

Altice brings three tranches

The hard-charging high-yield primary market saw $4.86 billion of proceeds raised in eight dollar-denominated tranches from six issuers on Thursday.

Altice Financing SA priced $1.3 billion and €300 million of notes in three tranches.

All three came at the tight end of yield talk.

The deal included $900 million of eight-year senior secured notes (B1/BB-) that priced at par to yield 6½%.

In the euro-denominated secured tranche, €300 million of eight-year senior secured notes (B1/BB-) also priced at par to yield 6½%.

Both secured tranches were talked to yield 6½% to 6¾%.

Altice also priced $400 million of 10-year senior unsecured notes (B3/B-) at par to yield 8 1/8%. The unsecured notes were talked to price with a yield in the 8¼% area.

Goldman Sachs, Morgan Stanley, Barclays, Credit Agricole CIB and Deutsche Bank were the joint bookrunners for the acquisition financing.

Forest Laboratories upsizes

Forest Laboratories priced an upsized $1.2 billion issue of non-callable eight-year senior notes (Ba1/BB+) at par to yield 5%.

The issue was upsized from $1 billion.

The yield printed at the tight end of the 5% to 5¼% yield talk; early guidance was in the low 5% range.

Joint bookrunner Morgan Stanley & Co. LLC will bill and deliver. BofA Merrill Lynch was also a joint bookrunner.

The New York-based pharmaceutical company plans to use the proceeds to fund a proposed $400 million accelerated share repurchase program and for general corporate purposes, including potential acquisitions and additional share repurchases.

NCR restructures

NCR priced a restructured $1.1 billion two-part senior notes transaction (Ba3/BB).

A $400 million tranche of eight-year notes priced at par to yield 5 7/8%, at the tight end of yield talk that was set in the 6% area.

A $700 million tranche of 10-year notes priced at par to yield 6 3/8%, at the tight end of yield talk that was set in the 6½% area.

A proposed tranche of 12-year notes was withdrawn.

J.P. Morgan Securities LLC, BofA Merrill Lynch, RBC Capital Markets, SunTrust Robinson Humphrey Inc. and Wells Fargo Securities LLC were the joint bookrunners for the acquisition financing.

Alcatel-Lucent drives by

Alcatel-Lucent USA Inc. priced a $650 million issue of non-callable 4 5/8% senior notes due July 1, 2017 (B3/CCC+) at 99.593 to yield 4¾%.

The coupon came on top of coupon talk. The yield came at the tight end of the 4¾% to 5% yield talk.

Deutsche Bank Securities Inc. was the global coordinator. BNP, Credit Suisse, Goldman Sachs and JPMorgan were the joint bookrunners for the debt refinancing.

NBTY, a record-low print

Alphabet Holding priced a $450 million add-on to its 7¾%/8½% contingent cash-pay senior notes due Nov. 1, 2017 (Caa1/B-) at 102.25.

The reoffer price rendered a 6.872802% yield to worst, which is a record low print for a PIK toggle note, according to Prospect News data.

The reoffer price came on top of price talk.

Barclays was the lead left bookrunner for the dividend deal. BofA Merrill Lynch, Credit Suisse Securities (USA) LLC and Goldman Sachs & Co. were the joint bookrunners.

Headwaters' five-year deal

Headwaters priced a $150 million issue of five-year senior notes (Caa2/CCC+) at par to yield 7¼%, at the tight end of the 7¼% to 7½% yield talk.

Deutsche Bank and Citigroup Global Markets Inc. were the leads.

The South Jordan, Utah-based construction materials and services provider plans to use the proceeds to acquire an 80% equity interest in the business of Roof Tile, Inc., with any additional proceeds to fund future acquisitions and for general corporate purposes, including capital expenditures and debt repayment.

SGL Carbon prices €250 million

SGL Carbon SE priced a €250 million issue of seven-year senior secured notes (Ba3/BB+) at par to yield 4 7/8%, on top of guidance.

Joint bookrunner Deutsche Bank will bill and deliver for the debt refinancing. Credit Suisse, Commerzbank and LBBW were also joint bookrunners.

Talking the deals

Looking ahead to the Friday session, Spain's Abengoa Finance SAU talked its $400 million offering of non-callable six-year senior notes (expected ratings B2/B/B+) to yield 7¾% to 8%.

Joint bookrunner BofA Merrill Lynch will bill and deliver for the debt refinancing. HSBC, Credit Agricole CIB and Natixis are also joint bookrunners.

And Ultra Petroleum Corp. talked its $400 million offering of five-year senior notes (/BB/) to yield 5¾% to 5 7/8%.

Goldman Sachs, Citigroup, Wells Fargo, JPMorgan and CIBC World Markets are the joint bookrunners.

Altice paper pops

In the secondary market, traders saw strong initial trading levels in the two new dollar-denominated bond issues from Altice.

One trader saw its 6½% senior secured notes due 2022 firm smartly to 101 7/8 bid, 102 3/8 offered when they were freed for secondary dealings, well up from their par issue price.

A second trader saw those new bonds even better than that a little later at 102 bid, 102½ offered.

The company's 8 1/8% senior unsecured notes due 2024 followed the same kind of trajectory, with the first trader pegging them at 102¾ bid, 103½ offered, and the second seeing them a bit later having advanced a bit further to 103 bid, 103½ offered.

Headwaters heads higher

Another new deal performing well in the aftermarket, despite being the smallest of the day's issues, was Headwaters' 7¼% notes due 2019. One of the traders quoted those bonds at 102 1/8 bid, 103¼ offered, well up from their par issue price.

Forest flails around

But Forest Laboratories' 5% notes due 2021 failed to follow suit.

A trader said that when they were freed for aftermarket dealings, after having priced at par, the bonds opened at 100½ bid, 100 7/8 offered.

Then, "the 100½ bid got hit," he said, "and they're coming in now," easing back to about 100¼ bid, 100½ offered.

He opined that he was "surprised where Forest Labs priced. Granted, it's a new name, but it priced at a spread of 225 [basis points] off. It's a Ba1/BB+, and that's a pretty aggressive pricing."

And yet, he noted, the company not only managed to get the deal done there, "but they grew it in size too."

A second trader saw the Forest bonds at 100 3/8 bid, 100½ offered.

Other deals not seen

Several of the deals came too late in the session for any kind of aftermarket, including Duluth, Ga.-based consumer transaction processing technology company NCR's $1.1 billion two-part deal, Paris-based telecom equipment maker Alcatel-Lucent's $650 million offering and Ronkonkoma, N.Y.-based vitamin and supplements manufacturer NTBY's $450 million deal.

One of the traders suggested that the latter deal "probably most likely went to [accounts making] reverse inquiries" and so probably will not be trading around much.

While the new NCR bonds did not make it into the aftermarket, the ATM machine and cash register systems manufacturer's existing 5% notes due 2022 were among the most actively traded issues on the day. Over $9 million changed hands, finishing just under the 95 bid mark.

Alcatel-Lucent's established 6.45% notes due 2029 gained about ¼ point Thursday to end at 87 bid, on volume of over $5 million.

Thursday's new deal from the company marked its third visit to the junk bond well in the space of a month. It had also priced $750 million 6¾% notes due 2020 at par on Nov. 7 and then followed that up on Nov. 25 with a quickly shopped $250 million add-on to that issue, which also priced at par.

Earlier deals little seen

Traders said there meantime was not too much activity in bonds that had come to market earlier in the week. For instance, one said that Reynolds Group Holdings Ltd.'s 6% senior subordinated notes due 2017, $590 million of which had priced at par on Wednesday and then moved up to around a 101¼ bid, 101½ offered aftermarket level, pretty much stayed around that level on Thursday, on limited volume.

The Auckland, New Zealand-based food packaging products manufacturer's established 9 7/8% notes due 2019 were about unchanged at 111¼ bid, on volume of more than $9 million.

But the busiest purely junk issue remained NII Capital Corp.'s 10% notes due 2016, with over $14 million traded; the Reston, Va.-based company's recently beleaguered paper showed its second strong rebound in a row, gaining more than 4 points to end at 56½ bid.

Market signs turn mixed

Overall, statistical junk-market performance indicators turned mixed on Thursday after having been lower pretty much across the board on Wednesday. It was their fourth mixed session in the last five.

The Markit Series 21 CDX North American High Yield index suffered its fifth consecutive loss, falling by 7/32 point to end at 106½ bid, 106 9/16 offered, after having eased by 1/8 point on Wednesday.

The KDP High Yield Daily index saw its second straight loss, dropping by 7 bps to 74.29, after having retreated by 4 bps on Wednesday.

Its yield meantime rose by 3 bps to 5.66%, after having been unchanged on Wednesday.

But the widely followed Merrill Lynch High Yield Master II index got back on the winning track with a 0.012% gain on Thursday. On Wednesday, it had lost 0.054%, its first setback after eight consecutive gains before that.

Thursday's gain brought its year-to-date return back up to 6.811% from Wednesday's 6.798%, although it remained down from Tuesday's 6.855%, its peak level for the year.

© 2015 Prospect News.
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