Frontier drive-by, AerCap, downsized Momentive price; Bon-Ton battered; funds gain $182 million

By Paul Deckelman and Paul A. Harris

New York, May 17 - Frontier Communications Corp. came to market on Thursday with a quickly shopped $500 million offering of nine-year notes, high-yield syndicate sources said. After pricing late in the day, the bonds were quoted up a little. However, the telecommunications provider's existing paper was seen off on news of the new deal.

The primary arena - back from its hiatus on Wednesday, when no deals priced - also saw two other offerings completed, although Momentive Performance Materials Inc.'s deal didn't get done without a struggle. The syndicate sources heard that the specialty chemical and materials company had to cut its previously upsized 8.5-year secured deal in half, to $250 million, and offer a fatter yield. The new bonds traded somewhat below issue.

In contrast, aircraft leasing company AerCap Aviation Solutions BV's $300 million transaction hit no turbulence when it priced earlier in the session, and the bonds stayed around issue in the aftermarket.

Price talk emerged on several deals that could get done on Friday. Metals miner HudBay Minerals Inc. is doing a $400 million eight-year deal, and metals processor Kaiser Aluminum Corp. is also doing an eight-year deal worth $200 million.

Carrols Restaurant Group, Inc. meantime was heard putting a $140 million secured paper offering on the junk menu for likely pricing next week.

Away from the new deals, Bon-Ton Stores Inc.'s bonds and shares got hammered after the department store operator reported sharply worse first-quarter results versus a year ago and greatly scaled back its previous guidance.

On the upside, Media General Inc.'s bonds zoomed, though on relatively muted activity, on the news that Berkshire Hathaway Inc. will buy most of its newspaper holdings and extend the company a big loan.

But that was the exception to the rule in Thursday's junk market. Most names were seen off, and statistical performance measures were lower across the board.

However, another indicator - high-yield mutual fund flows, which are seen as a reliable barometer of overall junk market liquidity trends - remained positive for a fifth consecutive week and the 19th week out of 20 so far this year, a major fund-tracking service said, as yield-hungry investors continued to put more money into junk than they took out.

AMG posts $182 million inflow

As things were coming to a close on Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $182 million more came into those weekly reporting funds than left them.

It was the fifth consecutive inflow following the $754 million cash addition seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - the week before, which ended May 9.

In that five-week stretch, an estimated $3.41 billion more came into those weekly reporting domestic junk funds than left them, according to a Prospect News analysis of the figures.

The inflow brought the year-to-date net inflow figure to an estimated $18.64 billion, according to the Prospect News analysis, up from the previous week's $18.46 billion.

It also established a new peak net inflow total for the year so far, eclipsing the old mark set the week before, according to the analysis.

Inflows have now been seen in 19 weeks of 2012 so far against just one solitary outflow, although that was a big one - the yawning $1.29 billion cash hemorrhage seen in the week ended April 11. That outflow had snapped an amazing string of 18 straight weeks of inflows totaling $18.64 billion, which dated back to the week ended Dec. 7, according to the Prospect News analysis.

EPFR sees loss with asterisk

While AMG/Lipper saw a modest inflow to the junk funds, the other major fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG's, actually saw an outflow of $433 million in the latest week. It was a relatively rare divergence between the two services, whose numbers usually differ but whose direction is generally the same.

However, EPFR cautioned that the latest week's numbers should be looked at with an asterisk, as it were, due to the highly unusual circumstances behind that outflow.

EPFR advised its clients on Thursday that the week's outflow was due to just one very distinct and unique fund-flow transaction: a $780 million flow from an exchange-traded fund run by State Street Corp., the SPDR Barclays Capital High Yield Bond ETF.

According to news reports, an unidentified institutional investor who had built a position in the fund over a period of weeks redeemed those accumulated ETF shares on May 10 in exchange for the underlying bonds that make up the Barclays index that the fund mimics.

According to the reports, analysts and other experts regarded this not as a run-of-the-mill redemption but rather as an unusual, even clever tactic by the anonymous investor to obtain a large holding of bonds without actually going into the junk market and buying them outright and thus causing price levels to change.

Rather than being a case of an investor pulling cash out of the market, EPFR declared that "consequently, this 'outflow' from this ETF was not a true outflow from the high yield asset class but a shift from owning the bonds via the ETF to owning the bonds directly."

Even with that caveat, the latest week's "outflow," such as it was, followed the previous week's inflow of $1.2 billion, which had been the fourth consecutive weekly cash addition. The inflows totaled about $4.7 billion during that time.

The latest week's outflow - only the second recorded by EPFR so far this year - left the year-to-date cumulative net inflow figure somewhere north of $35 billion.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from some non-U.S. domiciled funds that are excluded from the more narrowly focused AMG tally of domestic junk mutual funds and ETFs.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from 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, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's strong performance so far this year and its active new-deal pace, with issuance volume remaining near last year's totals.

Frontier drives by

The volatility that continued to rock the global capital markets on Thursday did not spare the high-yield primary market, sources said.

Nevertheless, three deals crossed the finish line. Three issuers, each bringing a single dollar-denominated tranche, raised a combined total of $1.05 billion.

In an a.m.-to-p.m. drive-by, Frontier Communications priced a $500 million issue of non-callable nine-year senior notes (Ba2/BB) at par to yield 9¼%, on top of yield talk.

Deutsche Bank Securities Inc was the left bookrunner for the debt-refinancing deal. Barclays Capital Inc., Morgan Stanley & Co. LLC and RBS Securities Inc. were the joint bookrunners.

AerCap, in the middle of talk

AerCap Aviation Solutions priced a $300 million issue of non-callable five-year senior notes (/BB+/BBB-) at par to yield 6 3/8%, in the middle of the 6¼% to 6½% yield talk.

Citigroup Global Markets Inc. was the left bookrunner. UBS Investment Bank was the joint bookrunner.

The Amsterdam-based integrated aviation company plans to use the proceeds to acquire, invest in, finance or refinance aircraft assets and for other general corporate purposes, which will include the repayment of the company's E note facilities.

Momentive slashes deal size

In a deal that was announced Wednesday as an a.m.-to-p.m. drive-by, Momentive Performance Materials ended up pricing its downsized $250 million issue of 8.5-year senior secured notes (B2/B-) on Thursday.

The issue priced at par to yield 10%.

The yield printed on top of revised yield talk, which had been widened from previous yield talk that had been set in the 9¼% area.

J.P. Morgan Securities LLC, BMO Securities, Bank of America Merrill Lynch, Citigroup, Credit Suisse Securities (USA) LLC, Deutsche Bank, Goldman Sachs & Co., Morgan Stanley and UBS were the joint bookrunners for the deal, which was downsized from $500 million after having been upsized late Wednesday from $450 million.

With the downsizing of the notes, Momentive plans to use the proceeds to repay its Libor plus 350 basis points term loan due 2015.

The company withdrew its tender offer for its 12½% second-lien notes, which had been a designated use of proceeds prior to the downsizing of the new 10% notes.

Talking the deals

The Friday session was a question mark at Thursday's close, sources said.

The forward calendar features eight deals totaling $2.8 billion announced earlier in the week as business expected to price before the weekend.

Whether or not they actually will all price before Friday's close is an open question, one syndicate banker said, adding that it would be remarkable if at least some of that $2.8 billion of business is not carried over into next week.

Only two of the eight deals have official price talk, and both were talked on Thursday.

Toronto-based HudBay Minerals talked its $400 million offering of eight-year senior notes (B3/B) with a yield in the 9¾% area.

The books close at 2 p.m. ET on Friday except for accounts meeting with the company on Friday. The deal is set to price thereafter.

Bank of America Merrill Lynch is the bookrunner.

Kaiser Aluminum talked its $200 million offering of eight-year senior notes (Ba3/BB-) to yield 8% to 8¼%.

The books close at 1 p.m. ET on Friday, and the deal is set to price Friday afternoon.

JPMorgan has the books.

Carrols brings secured deal

Looking to the week ahead, the Thursday session saw one new addition to the active forward calendar.

Carrols Restaurant Group plans to price a $140 million offering of eight-year senior secured second-lien notes during the May 21 week.

Wells Fargo Securities LLC is the left bookrunner. Jefferies & Co. is the joint bookrunner.

The Syracuse, N.Y.-based company plans to use the proceeds to repay borrowings under its senior credit facility and for general corporate purposes.

Day's bonds trade near issue

When the new AerCap Aviation Solutions 6 3/8% notes due 2017 were freed for secondary dealings, a trader saw the Netherlands-based aircraft-leasing company's $300 million deal offered at par, and a second trader saw them offered at 1001/4, both without having seen any bid side.

But yet another trader later did see a two-sided market, quoting the bonds going out at 99¾ bid, par offered. The deal priced at par.

Momentive Performance Materials' 10% 1.5-lien senior secured notes due October 2020 were meantime seen trading in a 99-to-par context when the downsized $250 million issue was freed to trade.

The Columbus, Ohio-based specialty chemicals and materials manufacturer's issue, which priced at par, was quoted by another trader going out at 99 3/8 bid, 99 7/8 offered.

A trader saw Frontier Communications' 9¼% notes due 2021 at 101 bid after the quick-to-market $500 million deal priced late in the day at par. He saw no right side.

Another trader, who did not see the new bonds trading, said that he expects the new Frontier bonds to do well. "I like the name. I like the credit," he said.

Existing bonds pushed lower

Several existing issues of bonds from Thursday's new-deal papers were meantime seen lower.

Momentive Performance Materials' existing 9% notes due 2021 had lost 2 points on Wednesday when news of the upcoming bond issue was announced because the new debt will rank higher in the company's capital structure. They continued to lose ground for a second consecutive session on Thursday.

They were seen having lost another 3¼ points to close at 78 bid, or down more than 5 points in two days of trading.

A trader said that Frontier Communications' existing 2013, 2014 and 2015 paper was little changed on the day even though the Stamford, Conn.-based telecom company will used the new-deal proceeds to take out up to $500 million of its $1.1 billion of outstanding 8¼% notes due 2014 and 7 7/8% notes due 2015.

He said there was a fair amount of trading in the 2014 bonds, "but not any kind of size," being all odd-lots.

He saw them trading between the 108 and 109 level, adding that "over the course of the week, they've done virtually nothing."

However, he said the company's longer-dated issues "didn't do nearly as well."

He said the bonds "got clobbered." For example, the 8½% notes due 2020 opened at 101¼ bid but went home at 991/4.

He said that "$500 million isn't a lot" in terms of the company's capital structure, which he said includes "several billion-dollar-plus issues out there," so he did not know why investors were punishing those longer bonds.

He theorized that perhaps the investors were just displeased because "they announced a new deal in the midst of the debacle that was the market today."

Junk market struggles

A trader said that Thursday's market was "just garbage."

A second trader saw "a lot of things for sale, especially in the short end. That's the first thing to go in the sell-off here."

He further said that "there was not a ton of volume, just a lot of things for sale. But [while] people wanted to sell, the buyers weren't getting the price that they wanted. So it was kind of like a standoff."

Several of the traders used the phrase "an ugly day all around" or a similar variation to express their opinions of Thursday's dealings.

Another said, "Everything seems to be coming in. All of the stuff that priced in the last two to four weeks, it all seems lower."

Market indicators again easier

Statistical indicators of market performance closed lower for a fifth consecutive session on Thursday.

The Markit Group CDX North American Series 18 High Yield index fell by 9/16 point for a second straight day on Thursday to finish at 91 7/8 bid, 92 offered. It was the fifth consecutive loss and the 10th loss in the last 11 sessions for the index.

The KDP High Yield Daily index meanwhile nosedived by 56 bps Thursday to end at 72.91 on top of Wednesday's plunge of 24 bps. It was its fifth straight loss. Its yield ballooned upward by 23 bps to 6.92% after having shot up by 10 bps on Wednesday.

And the widely followed Merrill Lynch U.S. High Yield Master II index fell by 0.645% on Thursday, its fourth straight retreat. That followed Wednesday's 0.274% loss.

The latest downturn left its year-to-date return at 5.445%, down from 6.129% on Wednesday and well down from the peak level for 2012 so far, 6.80%, set on May 7.

Thursday's finish marked the first time the year-to-date return has been below 6% since April 26, when it stood at 5.818%, and was its lowest level since the 5.303% reading seen on April 23.

Bon-Ton battered

Among specific names, traders saw huge activity in Bon-Ton Stores' 10¼% notes due 2014 after the York, Pa.-based department store chain operator announced poor first-quarter numbers.

A trader said, with some understatement, "We did see that a few times today." More than $57 million of the notes changed hands, making it the top-volume issue in Junkbondland.

Those bonds, which closed out trading on Wednesday at 69¾ bid, opened near that level Thursday but then plummeted all the way down to 63½ bid during the session in size trading. They tried to come back later on, and a few trades were actually seen up near the 69 level, but the bonds were seen around 66½ bid by the end of the day, a market source said.

Another trader called then down 5 points on the day in a 65¾ to 66¼ context.

Bon-Ton's Nasdaq-traded shares meantime lost 39 cents, or 8.84%, on the day to close at $4.02, although volume of 508,000 shares was only a little bit busier than normal.

Bon-Ton's securities swooned after the company announced that during the 2012 first quarter ended April 28, it had a net loss of $40.8 million, or $2.23 per share, versus year-earlier red ink of $36 million, or $2.01 per share. Wall Street was only expecting a loss in the $1.57 to $1.60 per share area.

Revenues fell by 1.4% to $640.8 million from a year-earlier $649.9 million, and analysts had expected as much as $654 million of sales.

Bon-Ton revised its previously issued full-year guidance down to reflect the weaker sales environment, predicting that it could show a loss of as much as 95 cents per share or a profit of up to 50 cents per share. That was in contrast to earlier expectations of earnings between 15 cents and 75 cents a share, with no losses expected.

Media General moves up

On the upside, the news that Berkshire Hathaway has agreed to pay $142 million to purchase 63 daily and weekly newspapers from Media General sent the Richmond, Va.-based publishing and broadcasting company's 11¾% notes due 2017 shooting up to the 102¼ bid level, versus Wednesday's close at 90¾ on an odd-lot basis and versus the most recent previous round-lot trade at 94¼ bid on Tuesday.

But activity was relatively restrained, with just about $4 million of the bonds having changed hands.

In addition to buying those papers, Berkshire, controlled by legendary stock guru Warren Buffett, will also loan Media General $400 million.

After unloading those papers, the company will still own a few titles in the Tampa, Fla.-area as well as its broadcasting and online publishing operations.

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