CommScope megadeal leads busy session; Sabine Pass pays return visit; funds gain $472 million

By Paul Deckelman and Paul A. Harris

New York, May 15 - After having essentially played hooky for one day, the high-yield primary market came roaring back with a vengeance on Thursday. Syndicate sources recorded $3.06 billion of new dollar-denominated and fully junk-rated bonds having come to market in six tranches on the day, in contrast with Wednesday's shutout.

The big deal of the day was an upsized $1.3 billion two-part drive-by offering from CommScope Inc., a Hickory, N.C.-based provider of communications infrastructure services. That offering - evenly split into tranches of seven and 10 years - came late in the day and was not seen trading around afterwards.

On the other hand, there was quite a bit of aftermarket dealings in Arlington, Va.-based power generator AES Corp.'s quick-to-market and upsized $775 million five-year issue of floating-rate notes, which was one of the busiest credits of the day in Junkbondland, a market source said.

Yet another same-session deal came from Sabine Pass Liquefaction, LLC - provoking a sense of déjà vu among primaryside players, since the energy company had just been in the junk market on Tuesday with an upsized $2 billion of 10-year secured notes. This time around, the company brought a $500 million add-on to its 10-year bond issue that the company had issued in April 2013.

Besides those quickly shopped issues, two regularly scheduled deals priced off the forward calendar. Columbia, Md.-based health-care-oriented real estate investment trust CareTrust Partnership LP brought $260 million of seven-year notes, and Canadian rock-salt producer Kissner Milling Co. Ltd. did an upsized $220 million of five-year secured notes.

There meanwhile was continued market trading in new deals that had priced earlier in the week, such as Sabine Pass' 10-year behemoth and vehicle-rental giant Avis Budget Car Rental LLC's new eight-year deal.

Statistical market performance indicators turned lower across the board on Thursday after having been mixed over the previous two sessions.

Meanwhile, another indicator - the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends - was higher for a second consecutive week.

Junk funds gain $472 million

As things were winding down on Thursday, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $472 million more came into those funds than left them in the week ended Wednesday.

A trader remarked that "people just keep putting their money in" to those funds.

According to one of the sources, 29% of the latest week's inflow total was attributable to ETFs, with the remaining 71% related to more traditional mutual funds.

This week's addition of funds was the second consecutive inflow. It followed on the heels of the $368 million cash injection reported last week by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended May 7.

Inflows over that two-week span have totaled $840 million - the apparent beginning of a new strengthening trend following a recent stretch of choppiness. After a strong start to the year, the previous few weeks had seen the emergence of a back-and-forth pattern of essentially alternating weeks of inflows and outflows, according to a Prospect News analysis of the figures.

Inflows had dominated the early part of the year. In its first 11 weeks, ended March 19, inflows had been recorded in nine of those weeks, against just two outflows, in the weeks ended Jan. 29 and Feb. 5. At one point, there were six consecutive weeks of inflows totaling an estimated $4.40 billion, according to the analysis.

The week ended March 26, which saw a $196 million outflow, broke that six-week streak and signaled a change in that pattern, with the flows shifting to a more choppy mode.

There were inflows of $493 million and $640 million recorded in the weeks ended April 2 and April 9, respectively, but they were followed by a $223 million outflow in the week ended April 16. That, in turn, led to a $250 million inflow in the week ended April 23, followed by a $631 million outflow in the week ended April 30 and then the inflows seen over the past two weeks.

A market source said that the fund flows' four-week trailing average is now back in the black at $115 million, versus the $59 million average outflow figure seen for the most recent four weeks ended May 7.

Counting the latest week's results, there have now been 14 inflows seen to the weekly-only reporting funds in the 19 weeks since the start of the year, according to the analysis, against five outflows.

The latest week's inflow raised the year-to-date cumulative net inflow number to an estimated $4.18 billion, according to the analysis - a new peak level for the year so far. That was up from the previous week's figure of an estimated $3.71 billion and up as well from the $3.97 billion seen in the week ended April 23 - the previous peak level for the year so far.

The year-to-date inflows are seen as having been 3% ETF-related.

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.

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.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime saw an inflow of "more than double" the AMG/Lipper amount in the latest week, a market source said.

EPFR's methodology differs from AMG/Lipper's, as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper's strictly domestic orientation. Accordingly, the two services' weekly numbers are also generally quite different. While their respective weekly results usually point pretty much in the same direction, that has not always been the case; in some weeks in which AMG/Lipper showed outflows, EPFR saw overall inflows.

The latest weekly inflow was EPFR's 17th such gain recorded in the 19 weeks since the start of the year, versus just two outflows, in the weeks ended Jan. 29 and Feb. 5.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1 trillion junk market, their flows are very observable and quantifiable, more so than those of other, larger cash sources, and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years and which has mostly continued on into this year as well.

A market source meantime said that AMG/Lipper had recorded outflows from leveraged loan funds this past week of $259 million. It was the fourth such cash loss in the last five weeks from the loan funds, which previously had notched a long unbroken string of inflows, reflecting the willingness of investors to play in that part of the credit markets.

But even with the recent outflows, the source said that those loan funds have seen a $5.8 billion cumulative net inflow so far this year, with 17% of that ETF-related.

CommScope upsizes

A busy Thursday session in the dollar-denominated high-yield primary market saw five issuers bring a combined six tranches with which they raised an overall total of $3.06 billion.

Executions continue to appear solid and demand robust, market sources say.

Of Thursday's six tranches, four came as a.m.-to-p.m. drive-bys.

Four were upsized.

Of the five for which official talk circulated, three came at the tight or rich end and the remaining two came on top of talk.

CommScope upsized its two-part senior notes offering (B2/B+) to $1.3 billion from $1.1 billion and priced both tranches in a quick-to-market Thursday transaction.

The deal included an upsized $650 million tranche of seven-year notes that priced at par to yield 5%, at the tight end of the 5% to 5¼% yield talk.

CommScope also priced an upsized $650 million tranche of 10-year notes at par to yield 5½%, on top of yield talk that had the 10-year notes coming 50 basis points behind the seven-year notes.

Both tranches were upsized from $550 million.

J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and BofA Merrill Lynch were the joint bookrunners for the debt refinancing.

AES upsizes floaters

In a floating-rate deal, AES priced an upsized $775 million issue of five-year senior floating-rate notes (Ba3/BB) at 99.75. The coupon is Libor plus 300 bps.

The deal was upsized from $500 million.

The Libor spread came on top of spread talk. The reoffer price came at the rich end of the 99.5 to 99.75 price talk.

Citigroup Global Markets Inc., Barclays, BofA Merrill Lynch and Credit Suisse Securities (USA) LLC were joint bookrunners for the bank debt refinancing.

Sabine Pass returns

Two days after pricing a new, upsized $2 billion 10-year deal, Sabine Pass Liquefaction returned on Thursday to price a $500 million add-on to its non-callable 5 5/8% senior secured notes due April 15, 2023 (expected ratings Ba3/BB+) at 101.5 to yield 5.41%.

The drive-by deal launched earlier Thursday at 101.5.

RBC Capital Markets, LLC was the sole structuring agent and a joint bookrunner. Mizuho Securities USA Inc., SG Americas Securities LLC, Morgan Stanley & Co. LLC, HSBC Securities (USA) Inc., Scotia Capital (USA) Inc., Credit Suisse, Lloyds Securities Inc., Mitsubishi UFJ Securities (USA) Inc., Credit Agricole Securities (USA) Inc., ING Financial Markets LLC, Banca IMI SpA, Standard Chartered Bank and JPMorgan were also joint bookrunners.

The Houston-based liquid natural gas company plans to use the proceeds to pay capital costs in connection with the construction of liquefaction trains 1 through 4 and to repay bank debt.

The Thursday deal came just two days after Sabine Pass raised $2 billion in the high-yield primary market, for the same uses of proceeds, by selling $2 billion of non-callable 5¾% senior secured notes due May 15, 2024.

CareTrust at the tight end

CareTrust Partnership priced a $260 million issue of seven-year senior notes (B2/B+) at par to yield 5 7/8%.

The yield came at the tight end of yield talk in the 6% area.

Wells Fargo Securities LLC was the left bookrunner. SunTrust Robinson Humphrey Inc. and RBC were the joint bookrunners.

Kissner Milling upsizes

Kissner Milling priced an upsized $220 million issue of five-year senior secured notes (B3/B-) at par to yield 7¼%.

The issue was upsized from $200 million.

The yield printed on top of yield talk.

Jefferies LLC was the left bookrunner. Credit Suisse was the joint bookrunner.

Proceeds will be used to refinance debt and to fund a distribution.

Motor Oil at the tight end

In the European market, Motor Oil (Hellas) Corinth Refineries SA priced a €350 million issue of five-year senior notes at par to yield 5 1/8%.

The deal, said to be massively oversubscribed, was upsized from €300 million.

The yield printed at the tight end of yield talk in the 5¼% area.

Global coordinator and joint bookrunner HSBC will bill and deliver.

Alpha Bank, Citigroup, Credit Suisse Securities (Europe) Ltd., HSBC, National Securities and Piraeus Bank were also joint bookrunners.

The Athens-based oil refiner plans to use the proceeds to repay debt and for general corporate purposes.

Talking the deals

The Friday session gets underway with three roadshow deals, in three different currencies, set to price before the weekend.

Group 1 Automotive Inc. is talking its $300 million offering of eight-year senior notes (B1/BB) to yield in the 5% area.

JPMorgan, Wells Fargo and BofA Merrill Lynch are the joint bookrunners.

Sweden-based steel producer Ovako AB upsized its offering of five-year senior secured notes (B3/B) to €300 million from €285 million and set talk in the 6½% area.

Lead bookrunner JPMorgan will bill and deliver. Nordea is also a lead bookrunner. Deutsche Bank is a joint bookrunner.

And England's Matalan Finance plc set price talk for its £492 million two-part offering of senior secured notes, which are also set to price Friday.

A £342 million tranche of five-year first-lien notes (expected ratings B2/B-) is talked to yield in the 7% area. Early guidance was in the low 7% range.

And a £150 million tranche of six-year second-lien notes (expected ratings Caa2/CCC) is talked to yield in the 9% area. Early guidance was in the low 9% range.

Joint global coordinator and joint physical bookrunner Morgan Stanley will bill and deliver. Lloyds is also a joint global coordinator and joint physical bookrunner. Barclays is a bookrunner.

The week ahead

Looking beyond the coming weekend, primary market watchers are anticipating a busy May 19 week.

Of deals presently on the road, 24 Hour Fitness Worldwide Inc.'s $500 million offering of eight-year senior notes (expected Caa1/confirmed CCC+) is shaping up in a yield context of 8% to 8¼%, sources say.

The LBO deal, via JPMorgan, Deutsche Bank and Morgan Stanley, is going fairly well, according to a source who is watching.

Investors seem fairly positive on the credit, and there has not been a lot of pushback, the source said.

People think it's fair (at 8% to 8¼%), but it might price on the wide end, the source added.

Also at least one dollar-denominated whopper appears headed to market during the week ahead, a sellside source said. Look for a $2 billion-plus transaction to surface in the industrial sector, the sellsider added.

And the May 19 week is shaping up to be a busy one in the European market, where sellside sources are looking for as many as 10 deals to surface before the Friday, May 23 close.

New AES is active

In the secondary market, a trader said that the new floating-rate notes due 2019 from AES "were doing OK," seeing them get as good as 100¾ bid, 101 offered.

A second trader also saw the power generating company's notes at that level.

A market source at another desk said the AES bonds were right near the top of the junk market's Most Actives list, with more than $27 million having changed hands by late afternoon. He saw the bonds having firmed to 100 5/8 bid, up from their 99.75 pricing level.

AES' existing 8% notes due 2020 were meantime quoted down ½ point on the day at 119¾ bid.

CareTrust climbs

The first trader said that CareTrust Partnership's new 5 7/8% notes due 2021 were also "doing OK," seeing them trading in a 100¾ to 100 7/8 bid context, versus their par issue price.

A second trader saw the health-care REIT's deal at 100 5/8 bid, 101 7/8 offered.

Kissner Milling moves

A trader quoted the new Kissner Milling 7¼% senior secured notes due 2019 at 102¼ bid, 103¼ offered, versus the par issue price on the rock salt producer's deal.

However, he cautioned that the "wide market" quoted may not be representative of where the bonds actually were.

"We only saw [the quote] from one person, and it's only a $220 million deal, so I don't think that you're going to see much secondary activity in that one.

"But it did trade up a couple of points."

A trader at another shop pegged the bonds at a more moderate 101 to 102½ context going home.

Existing CommScope bonds busy

The big CommScope two-part offering priced too late in the session for any real aftermarket activity, market participants said.

"Everyone is waiting for that one," one trader said late in the afternoon.

However, he did see "a lot of activity" in the communications infrastructure services provider's 8¼% notes due 2019, calling them up ¾ point at 109 bid.

"It was probably the most active issue today, even though it's not Traceable," he declared.

"A lot of paper was trading as soon as the [new] deal was announced," he said.

New Sabine bonds firmer

A trader said that Sabine Pass Liquefaction's new 5 5/8% senior secured notes due 2023 "were trading up a little bit" at 102 bid, versus the 101.5 price at which that $500 million quick-to-market add-on transaction had priced.

The company's 5¾% senior secured notes due 2024 that priced on Tuesday were meantime "doing all right," he said, quoting the bonds in a 101¾ to 102 bid context, "so that's hanging in there."

The Houston-based liquefied natural gas company - a subsidiary of Cheniere Energy Partners, LP - priced $2 billion of those 10-year secured bonds after having upsized its quickly shopped offering from the originally announced $1.5 billion.

The new bonds moved up to around a 100½ to 101 trading level when they were freed for the aftermarket and then managed to get above that to around 101½ bid. Traders saw the issue continuing to climb to and beyond the 102 bid mark on Wednesday before coming in a little from its peak levels on Thursday, but it still retained most of its gains.

Avis stays active

Traders saw continued activity in Avis Budget Car Rental's new 5 1/8% notes due 2022, albeit at somewhat lower levels than earlier in the week.

A trader on Thursday saw the bonds in a 100¼ to 100½ bid context, while a second quoted them at 100¼ bid, 100 7/16 offered.

The Parsippany, N.J.-based vehicle rental giant drove by the junk market on Tuesday to sell $400 million of the notes, which priced at par after the issue was upsized from $350 million originally.

Market hangs in there...

One of the traders opined that "with stocks off a decent amount" - both the bellwether Dow Jones industrial average and the S&P 500 indexes fell by about 1% on the day Thursday - "I saw the high-yield index was off about ¼ point. Overall, I think the market held in pretty well. It was a little softer, and I saw some bids get hit, but generically, I wouldn't say things were off much more than a quarter."

...but Clear Channel clobbered

However, he said, "You did have isolated issues that got hit harder."

One such credit, he said, was Clear Channel Communications Inc.'s 10% notes due 2018, $850 million of which priced at par in a quick-to-market deal on April 28 after the offering was radically upsized from an originally announced $400 million - and which then proceeded to fall below their issue price and never get back up there.

"Those things were trading around 98 [Wednesday] afternoon," he said. "This afternoon, I saw bonds trade into a 95 7/8 bid, and it left them offered at 961/4.

"So that got hit pretty hard today."

The San Antonio-based radio broadcasting and outdoor advertising company's new paper has been struggling almost from the get-go, at times trading as low as a 95-handle bid level.

He said that "so far this week, the thing had sort of been creeping back up there. But whatever it was able to recapture this week, it gave it all up today."

Indicators head lower

Statistical junk performance indicators were seen by market sources having turned lower across the board on Thursday after having been mixed for the previous two sessions.

The Markit Series 22 CDX North American High Yield index suffered its second consecutive loss on Thursday as it retreated by 13/32 point to end at 106¾ bid, 106 7/8 offered. On Wednesday, the index had eased by 1/32 point - its first loss seen after five straight sessions on the upside before that.

The KDP High Yield Daily index dipped by 6 bps Thursday to go out at 74.95 after having gained 3 bps on Wednesday.

Its yield meantime rose by 1 bp to 5.1% after having declined by 2 bps on Wednesday.

Even the usually robust and widely followed Merrill Lynch High Yield Master II index was worse for the wear on Thursday, losing 0.041%. It was the index's first downturn after 13 consecutive sessions on the upside dating back to April 28, including Wednesday, when it was up by 0.075%.

The loss dropped the index's year-to-date return to 4.316%, down from Wednesday's 4.358%, which had been its 13th consecutive new peak level for 2014 so far.

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