Ashland megadeal prices; Clear Channel drives by; Linn, Berry busy; funds off $125 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 21 - The high-yield primary sphere had a busy afternoon on Thursday. Nearly $3 billion of new junk-rated, dollar-denominated paper from domestic or developed-country issuers came to market in five tranches.

However, four of those five tranches belonged to just one spectacularly large quick-to-market deal. Chemical manufacturer Ashland, Inc. priced $2.3 billion of new junk: three standalone issues of three-, five- and 30-year bonds plus an add-on to its existing 2022 notes. Although the bonds are nominally junk rated in the BB area, syndicate sources said the deal was done off the investment-grade desk of the lead underwriter.

Those new bonds were trading at somewhat higher levels when they hit the aftermarket.

The day also saw an upsized $575 million of quickly shopped eight-year notes from media powerhouse Clear Channel Communications, Inc., which came to market too late for any secondary dealings.

There was also a sterling-denominated offering from British communications infrastructure provider Arqiva Broadcast Finance plc, which scrubbed plans for a matching dollar-denominated tranche of bonds.

In the secondary market, there was considerable activity in the bonds of Berry Petroleum Co. and Linn Energy LLC on the news that Linn will acquire Berry. While Linn's bondholders approved of the deal, Berry's voted with their wallets and the bonds sold off.

Traders said that generally, the market turned softer, an erosion confirmed by statistical performance indicators, which moved to the downside across the board after having been mixed on Wednesday and higher all around on Tuesday.

And flows of fresh cash into and out of high-yield mutual funds and exchange-traded funds - considered a reliable barometer of overall market liquidity trends - notched their third consecutive weekly downturn, according to one of the major bond-tracking services. The other saw overall junk fund flows slightly better on the week but noted continued weakness in strictly domestic funds.

AMG sees $125 million outflow

As things were winding down on Thursday afternoon, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, $125 million more left those funds than came into them.

It was the third consecutive weekly outflow and followed the $165.5 million cash loss seen in the week ended Feb. 13, which in turn had followed a massive $1.38 billion money hemorrhage recorded the week before that, ended Feb. 6 - the biggest downturn the funds had seen since last June.

Those three outflows, totaling about $1.67 billion, broke a string of four consecutive inflows before that stretching back to early January that had been reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. During that four-week stretch, inflows had totaled nearly $2.3 billion, according to a Prospect News analysis of the figures.

Eight weeks into the new year, 2013 net inflows as reported by Lipper so far have amounted to about $144 million, according to the analysis.

Besides the outflows the last three weeks and the four inflows before that, Lipper had also seen a $473 million cash loss recorded in the first reporting week of the year, ended Jan. 2.

Outflows and inflows are thus now evenly matched, with four of each having been reported by Lipper so far this year.

In 2012, when cumulative net inflows for the year totaled an estimated $32 billion, according to the analysis, inflows to the funds had been recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

EPFR sees $135 million inflow

On the other hand, the other major fund-tracking service, Cambridge, Mass.-based EPFR Global, saw a small inflow in the latest reporting week, also ended Wednesday, as $135 million more came into the funds that it tracks than left them.

That was in contrast to the results seen the week before, when those funds saw a net erosion of $207 million, which had followed the big $1.33 billion cash bleed seen in the Feb. 6 week, the biggest outflow EPFR had seen in 11 weeks, since the week ended Nov. 21, when a net of $1.45 billion cash flowed out of the funds.

Those two outflows, totaling about $1.5 billion, had in turn broken a six-week winning streak seen by the service. Inflows during that time, which also includes the final reporting week of 2012, had totaled about $4.4 billion, according to a Prospect News analysis of the figures.

The latest week's inflow was the sixth so far this year recorded by EPFR against the two outflows and thus raises the year-to-date net inflow total to about $2.9 billion.

EPFR and Lipper calculate their respective fund-flow statistics using different methodologies; EPFR includes some non-U.S. domiciled mutual funds and ETFs in its tabulations, while the Lipper number is purely domestic funds. Despite the differences in the actual numbers, the two services' weekly results usually point in the same direction, although this week was a rare exception.

Reporting only the U.S. funds that it tracks - a category usually more closely aligned with the Lipper totals - EPFR saw a $230 million outflow in the latest week - the fifth straight cash loss for that category. The previous week saw a $29 million outflow. It has actually now seen six weekly net outflows from the U.S.-only funds since the start of the year against just two weekly inflows - a reversal of the overall tally for the funds so far this year. That pushed the 2013 net outflow for those domestic-only funds up to $943 million, according to the analysis.

In 2012, EPFR's overall figure showed a cumulative net inflow of about $72.3 billion. According to the Prospect News analysis of the data, EPFR recorded 42 weeks of inflows last year against just 10 weeks of outflows.

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

The continued flow 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 the junk market - has been seen by analysts as a key element behind the high-yield secondary market's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $300 billion mark - patterns of primary activity and secondary strength that have mostly continued into the new year so far.

Ashland prices four tranches

Two issuers brought a combined five tranches of high-yield notes, raising a total of $2.87 billion during the Thursday session.

Ashland priced a restructured $2.3 billion four-part senior notes transaction (Ba1/BB) on Thursday, according to a market source.

A $600 million tranche of three-year notes priced at par to yield 3%, on top of yield talk.

A $700 million tranche of five-year notes priced at par to yield 3 7/8%. The yield printed at the tight end of the 3 7/8% to 4% yield talk.

A $650 million add-on to the 4¾% senior notes due Aug. 15, 2022 priced at 99.06 to yield 4 7/8%. The yield printed at the tight end of the 4 7/8% to 5% yield talk.

And a $350 million restructured tranche of 30-year notes priced at par to yield 6 7/8%. The yield printed at the tight end of the 6 7/8% to 7% yield talk. In a restructuring, the maturity of the long-dated notes was extended to 30 years from 12 years.

The overall $2.3 billion deal saw $7.5 billion of orders and generally attracted more interest among high-yield investors than from their investment-grade counterparts, according to an informed source.

Citigroup Global Markets Inc. was the lead left bookrunner for the deal, which was run on the investment-grade desk.

BofA Merrill Lynch, Deutsche Bank Securities Inc., Scotia Capital and PNC Capital Markets were the joint bookrunners.

The Covington, Ky.-based specialty chemical company plans to use the proceeds to repay a substantial amount of its secured term loans A and B.

Clear Channel upsizes

Clear Channel Communications priced an upsized $575 million issue of eight-year priority guarantee notes (Caa1/CCC+) at par to yield 11¼%.

The quick-to-market deal was upsized from $500 million.

The yield printed at the wide end of the 11% to 11¼% yield talk.

Citigroup, Deutsche Bank, Goldman Sachs & Co. and Credit Suisse Securities (USA) LLC were the joint bookrunners.

The San Antonio-based media and entertainment company plans to use the proceeds, along with a draw on its ABL facility, to repay its existing term loan A due 2014 in its entirety.

The new notes are a standalone issue. However, they come with the same maturity and security as the Clear Channel 9% priority guarantee notes due March 1, 2021 as well as a covenant package that is substantially identical. Those 9% notes priced in a $1 billion issue in February 2011.

Arqiva prices £600 million

In the European market, England's Arqiva Broadcast priced a £600 million issue of seven-year senior notes (B3//B-) at par to yield 9½%.

The yield printed at the tight end of the 9½% to 9¾% yield talk.

A proposed dollar-denominated tranche of notes, which had been talked to yield 9¼% to 9½%, has been withdrawn from the market.

Deutsche Bank, J.P. Morgan Securities LLC and Royal Bank of Scotland were the physical bookrunners. Royal Bank of Scotland will bill and deliver.

BofA Merrill Lynch, Barclays, HSBC, Lloyds TSB and UBS were the joint bookrunners.

Proceeds will be used to refinance bank debt.

Two for Friday

Two deals are on deck to price during the Friday session.

Station Casinos LLC talked its $500 million offering of eight-year senior notes (Caa1/CCC+) with a yield in the 7¼% area.

Deutsche Bank, BofA Merrill Lynch, JPMorgan and Goldman Sachs are the joint bookrunners.

In addition, Aramark Corp. plans to price a $1 billion offering of senior notes on Friday.

Goldman Sachs and JPMorgan are leading the deal.

Proceeds will be used to repay some outstanding debt of the company and/or its indirect parent, Aramark Holdings Corp.

Ashland issues move up

In the secondary market, a junk trader said that "it looked like there wasn't a lot of trading activity" in the big new four-part offering from Ashland, which had priced earlier in the session off the investment-grade desks of the underwriters despite nominally high-yield ratings on the Covington, Ky.-based specialty chemical manufacturer's multi-part offering.

"It was probably the underwriters, and they were bidding up most of the par issue paper by a quarter [point]," he declared, seeing those three tranches - the 3% notes due 2016, the 3 7/8% notes due 2018 and the 6 7/8% notes due 2043 - all going home trading around 100¼ bid, 100¾ offered, up from the par level at which those three quick-to-market tranches had priced a day after the deal surfaced in the market.

He meantime saw the add-on to Ashland's existing 4¾% notes due 2022 "up a quarter as well" from their 99.31 issue price, "so it looked like all of the Ashland paper was a quarter [to] three quarters on the inside."

A second trader did see some variation in the late levels for the Ashland deal. He pegged the 3% notes due 2016 going out at 100¾ bid, 101¼ offered, saw the 3 7/8% notes due 2018 at 100½ bid, 101 offered, located the 4¾% 2022 notes add-on at 100¼ bid, 100¾ offered and also saw the 6 7/8% long bonds at 101¼ bid, 102¼ offered.

Yet another trader remarked that most of the activity in the new Ashland bonds came from investment-grade accounts reaching for yield rather than from traditional junk players - and he opined that "an upgrade in them is still a long way off."

Clear Channel comes late

Clear Channel Communications' new 11¼% priority guarantee notes due 2021 came too late in the session for any real aftermarket. The San Antonio-based broadcasting and billboards giant's $575 million same-day issue had priced at par after having been upsized from an originally announced $500 million.

A trader said that while the new issue had a very tempting yield - especially given the recent trend in the junk market of coupons at or below 5% or even 4% in many cases - he noted that with that attractive yield "comes a lot of risk."

Among the company's existing bonds, a trader said the 9½% notes due 2021 fell to 91½ bid, 92 offered.

However, he saw shorter-dated issues rising. He pegged the 5½% notes due 2014 at 98½ and the 4.9% notes due 2015 around 92.

A second trader who quoted the 9½% notes as high as 92½ bid said that they generated busy volume of more than $7 million by mid-afternoon.

He also saw the company's 4.9% notes due 2015 trading around 90¼ bid, with over $6 million having changed hands by mid-afternoon.

At yet another desk, a trader saw those 4.9% notes having risen 7/8 points to reach that 90¼ level. But he also saw the 9% notes having tumbled as much as 2 points on the day to go home at 911/2.

Euro zone quiet

In the market for recently priced euro-denominated paper, market sources saw those levels generally trading lower due to a mix of weaker data in the euro zone.

"It felt quiet," one trader said.

"The market's a little soft today."

Deal not Berry well received

Away from the new deals, there was considerable activity in the bonds of Berry Petroleum and Linn Energy on the news that Houston-based Linn will acquire the Denver-based Berry for $2.42 billion in stock, a transaction valued at $4.3 billion with the assumption of Berry's debt.

But while Berry shareholders were delighted with the deal - its New York Stock Exchange-traded shares jumped $7.43, or 19.25%, to end at $46.02 on volume of 11.1 million shares, nearly 15 times the norm - the holders of that Berry debt were underwhelmed.

The company's 6 3/8% notes due 2022 fell 2¼ points on the session to finish at 104 bid, on round-lot volume of $29 million, making Berry one of the busiest Junkbondland issues on the day.

Its 6¾% notes due 2020 dipped 1¼ points to end at 105¾ bid, with over $13 million of the bonds having changed hands on a round-lot basis.

On the other hand, Linn's 6½% notes due 2019 edged up by a half-point to 103 bid, with over $10 million traded. Its 8 5/8% notes due 2020 rose by 1½ points to close at 111, though volume was only a little over $3 million.

Market indicators head south

Statistical junk market performance indicators turned lower on Thursday after having been mixed on Wednesday.

The Markit Series 19 CDX North American High Yield index fell by ¼ point to end at 102 bid, 102 3/8 offered, its second straight decline. It lost 7/16 point on Wednesday.

The KDP High Yield Daily index dropped by 14 basis points on Thursday to finish at 75.2, its first loss after five straight sessions of gains. It had been up by 3 bps on Wednesday.

Its yield meantime rose 5 bps to 5.7%, the first such widening seen after having come in over the previous four sessions including Wednesday, when it had narrowed by 2 bps.

And even the widely followed Merrill Lynch High Yield Master II index couldn't buck the trend. It fell by 0.106% on Thursday, snapping an eight-session winning streak that included Wednesday's 0.065% advance.

The loss dropped the index's year-to-date return to 1.43% on Thursday, down from 1.538% on Wednesday. It also remained well down from its peak level for 2013 so far of 1.991%, which was set on Jan. 28.

Stephanie N. Rotondo and Cristal Cody contributed to this review

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