Valeant, Rockwood mega-deals pace nearly $6 billion session; funds post $1.36 billion gain

By Paul Deckelman and Paul A. Harris

New York, Sept. 20 - For the second time in less than a week, the high-yield primary machine was firing on all cylinders Thursday with virtually non-stop activity. A slew of morning new-deal announcements led to continual midday price talk updates and finally an afternoon pricing barrage.

When it was all over, more than $5.7 billion of new paper had emerged. It was one of the heaviest new-issue days seen so far this year, exceeded only by two sessions that topped the $6 billion mark, including last Friday's, the busiest day of the year so far.

Thursday's activity was paced by a pair of giant-sized deals: a $2.25 billion quick-to-market behemoth from Canadian drug manufacturer Valeant Pharmaceuticals, which priced a restructured two-part offering of eight-year notes, and a sharply upsized $1.25 billion eight-year offering from chemical manufacturer Rockwood Specialties Group, Inc.

The twin mega-deals' pricing parade was joined by a gaggle of smaller deals including opportunistically timed and quickly shopped offerings from Baker & Taylor Acquisitions Corp., SBA Communications Corp., Jones Group, Inc., Sabre Inc. and Michaels Stores Inc., the latter three all add-ons to existing issues. They were joined by General Cable Corp. and CNO Financial Group, Inc., which, like Rockwood, had come off the forward calendar. It priced after having been shopped around via a roadshow process.

The new deals that managed to make it to the aftermarket were seen generally firmer on the day, particularly the bonds from CNO, General Cable and Rockwood.

And even as all of Thursday's transactions were getting done, other would-be issuers were lining up in the wings for possible pricings on Friday including Air Lease Corp., Sotheby's, P.H. Glatfelter & Co., Iberian Minerals SA and also perhaps Calpine Corp., whose $615 million secured deal had been expected to price on Thursday but never made it.

Traders said that new-deal activity was the main focus in Junkbondland, with precious little attention left over for the non-new-deal secondary market.

Statistical indicators of junk market performance, strong on Wednesday, were lower across the board on Thursday.

But another gauge - money flows into and out of high-yield mutual funds and exchange-traded funds, considered a good barometer of overall liquidity trends, were strongly positive for a 15th consecutive week.

AMG gains $1.36 billion

Near the end of the day on Thursday, market sources familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.36 billion more came into those funds than left them.

The number was up from the $951 million that was reported last week by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, which in turn followed the only $201 million gain - the smallest in many months - recorded the week before that, which ended Sept.5.

This week marked the 15th consecutive week of such inflows by the junk mutual funds and ETFs, a winning streak that dates back to the week ended June 13.

In those 15 weeks, net inflows have totaled about $13.69 billion, according to a Prospect News analysis of the figures. The gains represent a continuing solid turnaround from the pattern of weakness that had been prevalent in late May and early June, when the funds lost $6.43 billion over the space of four weeks, including two huge cash hemorrhages each in excess of $2 billion, according to the analysis.

On a year-to-date basis, that latest inflow pulled the cumulative net inflow figure up to about $32.46 billion, including the ETFs, according to the Prospect News analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters, the company said.

Inflows have now been seen in 33 out of the 38 weeks since the start of the year against just five outflows.

EPFR sees near-record inflow

The robust trend of inflows was confirmed by another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from Lipper's. It said that in the week ended Wednesday, $3.63 billion more came into those funds than left them, up from the $1.95 billion cash gains reported the prior week.

The figure for the latest week is the second-biggest weekly inflow number the company has ever seen; it is surpassed only by the $4.76 billion seen in the week ended Oct. 26, 2011.

As was the case with the Lipper numbers, it was the 15th consecutive week in which the funds showed a net injection of cash. Those cash infusions total up to about $26.48 billion, according to a Prospect News analysis of that data.

On a year-to-date basis, the service has seen inflows in 33 weeks, with just five weeks of outflows, most of those recorded during the stretch from mid-May through early June.

EPFR said that total 2012 inflows in the latest week totaled $59.5 billion. Those figures include the monthly reporting funds as well as strictly weekly reporters and also include the ETFs.

EPFR and Lipper use different methodologies to track fund flows, resulting in significantly different numbers - but the basic direction for the two services is generally the same.

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.

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 successive 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 versus other fixed-income asset classes and its active new-deal pace, which has recently surged past 2011's year-to-date totals.

Valeant prices $2.25 billion

A massive Thursday session in the primary market saw nine issuers bring a total of 10 tranches, raising $5.74 billion.

Valeant Pharmaceuticals priced $2.25 billion of eight-year senior notes (B1/BB-) at par to yield 6 3/8% in two tranches that came with identical terms.

The yield printed on top of price talk.

Valeant Pharmaceuticals International Inc. priced $500 million. Proceeds will be used for general corporate purposes, including acquisitions

VPI Escrow Corp. priced $1.75 billion. Proceeds will be used to help fund the acquisition of Medicis Pharmaceutical Corp.

J.P. Morgan Securities LLC, Goldman Sachs & Co. and RBC Capital Markets were the joint bookrunners for the quick-to-market deal.

In a restructuring, the issuer abandoned a three-part structure that would have seen Valeant Pharmaceuticals International bring a $500 million add-on to its 7¼% notes due July 15, 2022 and VPI Escrow bring 7% mirror notes due 2020 and 7¼% mirror notes due 2022.

Rockwood massively upsized

Rockwood Specialties Group priced an upsized $1.25 billion issue of eight-year senior notes (Ba2/BB) at par to yield 4 5/8%.

The yield printed at the tight end of price talk that had been set in the 4¾% area.

Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Morgan Stanley & Co. LLC and UBS Investment Bank were the joint bookrunners for the issue, which was upsized from $750 million.

The Princeton, N.J.-based specialty chemicals and advanced materials company plans to use the proceeds for general corporate purposes.

General Cable at the wide end

General Cable priced an upsized $600 million issue of 10-year senior notes (B1/B+) at par to yield 5¾%, at the wide end of the 5½% to 5¾% yield talk.

JPMorgan, Deutsche Bank, Wells Fargo Securities LLC, Credit Agricole CIB and Goldman Sachs were the joint bookrunners for the debt refinancing deal, which was upsized from $550 million.

SBA drives by

SBA Communications priced an upsized $500 million issue of seven-year senior notes (B2/B-) at par to yield 5 5/8%, in the middle of the 5½% to 5¾% yield talk.

JPMorgan, Barclays and Citigroup were the joint bookrunners for the quick-to-market deal, which was upsized from $300 million.

Proceeds will be used to pay for a portion of the cash consideration payable in the TowerCo merger or, to the extent that the merger does not close, for general corporate purposes. The additional proceeds from the upsizing will be used for general corporate purposes.

Sabre upsizes tap

Sabre priced an upsized $400 million add-on to its 8½% senior secured notes (B1/B) at 103.5 to yield 7.718%.

The reoffer price came at the cheap end of the 103.5 to 104 price talk.

Goldman Sachs was the left lead bookrunner for the quick-to-market debt refinancing deal, which was upsized from $250 million.

The joint bookrunners were Morgan Stanley, Deutsche Bank, Bank of America Merrill Lynch, Barclays, Natixis Securities and Mizuho.

CNO at the tight end

CNO Financial Group priced an upsized $275 million issue of eight-year senior secured notes (Ba3/B+) at par to yield 6 3/8%, at the tight end of price talk that was set in the 6½% area.

Goldman Sachs and JPMorgan were the joint bookrunners for the deal, which was upsized from $250 million.

Proceeds will be used to repay bank debt, to fund a tender offer for the company's 9% senior secured notes due 2018 and to buy back 7% convertible senior debentures due 2016 from entities affiliated with Paulson & Co.

The additional proceeds from the upsizing will be used to put cash on the balance sheet.

Michaels Stores taps 7¾% notes

Michaels Stores priced a $200 million add-on to its 7¾% senior notes due Nov. 1, 2018 (Caa1/CCC+) at 106.5 to yield 6.005%.

The reoffer price came 50 cents rich to the mid point of price talk that had been set in the 106 area.

Deutsche Bank, Barclays, Credit Suisse Securities (USA) LLC, JPMorgan, Morgan Stanley and Wells Fargo were the joint bookrunners for the quick-to-market debt refinancing deal.

Baker & Taylor moves up timing

Baker & Taylor Acquisitions priced a downsized $145.38 million issue of five-year senior secured notes (B3/CCC) at par to yield 15%, on top of yield talk.

The deal was downsized from $150 million, and the company's last-out ABL tranche was upsized by $4.63 million to $49.63 million.

Jefferies ran the books for the debt refinancing deal.

Timing on the deal was moved ahead. When announced, the deal was expected to be in the market into the early part of next week.

Jones Group taps 6 7/8% notes

Jones Group priced a $100 million add-on to its 6 7/8% senior notes due March 15, 2019 (Ba3/B+) at 103.5 to yield 6.21%.

Citigroup was the left bookrunner for the quick-to-market general corporate purposes deal.

JPMorgan, Bank of America Merrill Lynch, SunTrust Robinson Humphrey Inc. and Wells Fargo were the joint bookrunners.

Talking the deals

No rest for the weary as far as Friday's session goes. The primary market has $1.8 billion of deals on tap ahead of the weekend.

Price talk surfaced Thursday on some of that business.

Sotheby's talked its $300 million offering of 10-year senior notes (Ba3/BB) with a yield in the 5¼% area.

Goldman Sachs and JPMorgan are the joint bookrunners.

Iberian Minerals is planning a $200 million issue of five-year senior secured notes (expected ratings B2/B+/B) with price talk in the 10% area.

Citigroup, BNP and Standard Chartered Bank are joint bookrunners.

And P.H. Glatfelter talked its $200 million offering of eight-year senior notes (Ba1/BB+) to yield 5½% to 5¾%.

JPMorgan has the books.

EMS dividend deal

CDRT Holding Corp. (Caa1/B-), the indirect parent of Emergency Medical Services Corp., intends to price $450 million of senior PIK toggle notes due 2017 on Friday.

Bank of America Merrill Lynch, Morgan Stanley, Barclays and Deutsche Bank are the joint bookrunners for the dividend deal.

Air Lease's unrated notes

Air Lease has scheduled an investor call for 10:30 a.m. ET on Friday for its $300 million offering of unrated, non-callable 3.25-year senior notes.

The deal is set to price on Friday.

JPMorgan, BMO Securities, Citigroup, Deutsche Bank, Goldman Sachs, RBC and Wells Fargo are the joint bookrunners for the general corporate purposes deal.

Finally, Calpine announced a $615 million offering 10-year senior secured notes (B1/expected BB-) on Thursday.

The deal was expected to price on Thursday; however, no terms were available at press time, a market source said.

Morgan Stanley, Barclays, Deutsche Bank and RBC are joint bookrunners for the debt refinancing.

New bonds move up

When the new issues that came to market early enough to trade around began to do so, most firmed solidly, traders said.

For instance, one said that CNO Financial Group's 6 3/8% senior secured notes due 2020 "were bid up right off the bat," with the Carmel, Ind.-based insurance company's $275 million issue rising to 102 1/8 bid, 102½ offered. A second trader also saw the bonds move up to that level from par, where they priced after being upsized from an originally planned $250 million.

The first trader also saw General Cable's new deal and Rockwood's offering "up right off the bat."

General Cable's 5¾% notes due 2022 moved up to 101 3/8 bid, 101 7/8 offered when they hit the aftermarket; the Highland Heights, Ky.-based manufacturer of electric and fiber-optic wire and cable priced its $600 million issue at par after upsizing it from an originally announced $550 million.

Rockwood's 4 5/8% notes due 2020 were at 101 bid, 101 1/8 offered, the trader said - up from the par price at which the Princeton, N.J.-based maker of specialty chemicals and advanced materials' massively upsized $1.25 billion offering came to market.

A second trader saw those bonds - which had been increased from an originally announced $750 million - "wrapped around 101" going out.

Valeant Pharmaceuticals' big two-part offering was seen by a trader having moved up modestly from the par level at which the $2.25 billion giant priced both tranches of its 6 3/8% notes due 2020.

While he saw the Mississauga, Ont.-based specialty drug manufacturer's new bonds initially firm to 100 5/8 bid, 100 7/8 offered, later on he saw them come off their highs to get to 100 3/8 bid, 100 5/8 offered.

Other deals a no-show

While those deals seemed to be doing well, the day's other new deals - Baker & Taylor, Michaels Stores, Sabre and SBA Communications - came too late in the session to make it into the aftermarket.

Jones Group's offering of 6 7/8% notes due 2019 actually was one of the earliest deals to price, but at only $100 million, several traders said it was just too small to really be seen trading around.

Hovnanian heads higher

One of Wednesday's issues that was in the same boat as those other Thursday bonds - it priced too late in the day for any kind of aftermarket dealings - was freed to trade on Thursday and moved up smartly.

A trader saw K. Hovnanian Enterprises, Inc.'s 7¼% senior secured first-lien notes due 2020 at 101¾ bid, 102¼ offered, while its 9 1/8% senior secured second-lien notes due 2020 jumped to 102 bid, 102½ offered.

The Red Bank, N.J.-based homebuilder's quick to market offering of $797 million of new bonds priced at par for both tranches.

Mattress bonds soften up

AOT Bedding Super Holdings' 8 1/8% notes due 2020 came well down on Thursday from the peak levels that they hit after the Atlanta-based maker of the well-known Simmons and Serta mattresses priced them at par on Wednesday.

That $650 million issue - downsized from the original $725 million - had gotten as good as 101 3/8 bid, 101½ offered on Wednesday.

But on Thursday, a trader saw the bonds "offered all day at 101 and then as cheaply as 1003/4," before quoting them going out at 100½ bid, 100¾ offered.

A second trader saw them quoted at 100 7/8 bid, with no offerings seen, during the morning. Later on, he pegged the new issue at 100 3/8 bid, 100 7/8 offered.

Indicators down on the day

Statistical indicators of junk market performance were meantime lower across the board Thursday, in contrast with Wednesday's strong session.

The Markit Group CDX North American Series 18 High Yield index lost ¼ point on Thursday to end at 101¾ bid, 101 7/8 offered after having risen by 3/32 of a point Wednesday.

The KDP High Yield Daily index eased by 10 basis points on Thursday to finish at 75.14 after rising by 7 bps on Wednesday, its second consecutive gain.

Its yield climbed by 3 bps to 5.73% after having fallen by 4 bps on Wednesday.

And even the widely followed Merrill Lynch U.S. High Yield Master II index - which had put together an incredible string of 24 straight gains going all the way back to Aug. 17 - meanwhile saw its winning streak abruptly snapped on Thursday as it fell by 0.102%, versus Wednesday's 0.027% rise.

The loss left its year-to-date return at 12.70%, down from Wednesday's 12.814%, its peak level for the year so far.

Its yield to worst rose to 6.248% versus Wednesday's 6.207% and Tuesday's 6.199%, the latter its low point for the year.

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