SunGard, TXU, Lennar drive-bys lead $2 billion session; SuperValu gains; funds up $52 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 18 - High-yield primary activity picked up on Thursday as $2.4 billion of U.S. dollar-denominated, purely junk rated new paper from domestic or developed-country issuers came to market, more than double the roughly $1 billion that made its debut on Wednesday.

The day's big deal was a quickly shopped and sharply upsized $1 billion senior subordinated note offering from software and technology services provider SunGard Data Systems Inc., which firmed moderately when it was freed to trade around.

There were two other quick-to-market deals in the U.S. market, coming from Texas utility operator and merchant power company widely known as TXU, and from homebuilder Lennar Corp. The former company's Energy Future Intermediate Holdings Co. LLC unit priced a $253 million fungible add-on to its existing 2017 secured notes, while the latter - like TXU a very familiar high-yield name - did $350 million of 10-year notes. Both deals stayed pretty much near their respective pricing levels.

Two other deals came to market, from energy exploration and production operator EPL Oil & Gas Inc., which priced an upsized $300 add-on to its existing 2018 notes, and from metals producer Aleris International, Inc., which brought an upsized $500 million eight-year offering. Both of those new issues were seen by traders to have done well in the aftermarket.

European issuers - Grohe Holding GmbH, a German plumbing fixtures company, and a French cable provider, Numericable - each priced euro-denominated bonds.

Apart from the deals that actually priced on Thursday, syndicate sources heard that price talk emerged on Tervita Corp.'s $290 million seven-year deal and on Dufry Finance SCA's 10-year offering, which are both expected to price on Friday. Caribbean Financial Group Holdings, LP began shopping a $175 million seven-year offering, with pricing likely within the upcoming week.

In the secondary market, SuperValu Inc.'s bonds were seen by a trader to have firmed smartly after the troubled supermarket operator announced quarterly earnings and offered guidance on cash flow and debt reduction and said that it was continuing its previously announced review of its strategic options.

Statistical junk market performance measures turned mixed after several straight sessions on the upside. And high-yield fund flows - a good barometer of overall junk market liquidity trends - turned positive after three straight weeks of outflows from those funds.

AMG: funds up $52 million

As Thursday's session was wrapping up, market sources familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday $52 million more came into those funds than left them.

It was the first time in four weeks that an inflow was reported by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division; the previous three weeks had all seen outflows totaling $1.31 billion, including the $114 million cash loss recorded in the week ended last Wednesday.

Those outflows had brought an abrupt end to the amazing 15 straight weeks of inflows - dating all the way back to the week ended June 13 - which had dominated the market for the previous few months. Those inflows had totaled $13.69 billion, according to a Prospect News analysis of the figures.

On a year-to-date basis, this week's inflow raised the cumulative net inflow figure to $31.2 billion, including exchange-traded funds.

That remains well down from, the $32.46 billion total seen in the week ended Sept. 19 - the peak net inflow level for the year so far, according to the Prospect News analysis.

That year-to-date figure counts monthly-reporting funds as well as the weekly reporters, Lipper said.

Inflows have now been seen in 34 out of the 42 weeks since the start of the year, against eight outflows.

EPFR sees $1.29 billion inflow

Another major fund-tracking service that uses a different methodology - Cambridge, Mass.-based EPFR Global - reported a $1.29 billion inflow in the latest week. That was the second straight inflow, on top of the $952 million cash injection seen the week before.

The two inflows, totaling $2.24 billion, represented a solid comeback from the week ended Oct. 3, when EPFR said $420 million more left the funds than came into them - the first outflow recorded by the company after 16 straight weeks of inflows, dating back to the week ended June 13. During that time, net inflows to those funds had totaled $28.07 billion, according to a Prospect News analysis of the data.

On a year-to-date basis, EPFR said that including September data from monthly issuers, cumulative net inflows have now totaled $67.1 billion, a new peak level for 2012 so far.

EPFR's calculation method differs from Lipper's, since the former includes non-U.S. domiciled mutual funds and ETFs in its tally, while Lipper is focused on domestic funds. The two services' numbers generally point in the same direction, although they diverge sometimes, including several times over the last few weeks when Lipper reported a net outflow from the funds while EPFR saw net inflows.

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 represent but a small, though observable and quantifiable percentage of the total amount of money coming in - has been seen by analysts as a 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.

SunGard doubles deal size

The primary market continued to operate at a feverish pace on Thursday, with five issuers, each one bringing a single dollar-denominated tranche, raising $2.41 billion.

SunGard doubled the size of its notes offer to $1 billion from $500 million, and priced its new issue of seven-year senior subordinated notes (Caa1/B-) at par to yield 6 5/8%.

The yield printed at the tight end of yield talk set in the 6¾% area.

Citigroup was the left bookrunner for the quick-to-market deal. Deutsche Bank, Morgan Stanley, Bank of America Merrill Lynch, J.P. Morgan, Goldman Sachs, Barclays, Credit Suisse and RBC were the joint bookrunners for the debt refinancing.

Aleris upsizes

Aleris priced an upsized $500 million issue of eight-year senior notes (B2/B) at par to yield 7 7/8%, at the tight end of yield talk that was set in the 8% area.

J.P. Morgan, Barclays, Deutsche Bank, Credit Suisse, Goldman Sachs and Bank of America Merrill Lynch were the joint bookrunners for the issue which was upsized from $400 million.

Proceeds will be used for general corporate purposes, including working capital, capital expenditures and/or funding the completion of construction of an aluminum rolling mill in China. In addition proceeds will be used to fund potential acquisition opportunities. Also, after March 31, 2013, proceeds could be used to fund one or more cash dividends to Aleris Corp.

Lennar brings 10-year deal

Lennar priced a $350 million issue of 10-year notes (B2/B+/BB+) at par to yield 4¾%.

Citigroup was the left bookrunner. UBS, JPMorgan, BMO and Deutsche Bank were the joint bookrunners.

The Miami-based homebuilder plans to use the proceeds from the offering for working capital and general corporate purposes, which may include acquisitions or repurchases of outstanding senior notes.

EPL upsizes tack-on

EPL Oil & Gas priced an upsized $300 million tack-on to its 8¼% senior notes due Feb. 15, 2018 (Caa1/B-) at 99, with an 8.483% yield to worst.

The reoffer price and yield to worst came on top of price talk. The amount was increased from $250 million.

Credit Suisse and BMO were the joint physical bookrunners. Jefferies was the joint bookrunner.

Upon release from escrow, proceeds will be used to finance the acquisition of 100% of the issued and outstanding member interests of Hilcorp Energy GOM, LLC, which owns shallow-water Gulf of Mexico shelf oil and natural gas interests.

Additional proceeds will be used to reduce the company's draw on its revolver.

Energy Future taps 6 7/8s

Energy Future Intermediate Holding Co. LLC and EFIH Finance Inc. priced an upsized $252,714,000 add-on to their 6 7/8% senior secured first lien notes due Aug. 15, 2017 (Caa3/B-) at 103.375, with a 5.972% yield to worst.

The reoffer price came 12.5 basis points rich to price talk set in the 103.25 area.

Citigroup was left bookrunner for the quick-to-market deal. Goldman Sachs, Credit Suisse, J.P. Morgan and Morgan Stanley were joint bookrunners.

The Dallas-based regulated utility and power generation company, formerly TXU Corp., will use proceeds for general corporate purposes, which may include the payment of dividends to EFH Corp.

Grohe prices floater

The European high-yield market was active.

German plumbing fixtures manufacturer Grohe Holding priced a €260 million issue of second-lien floating-rate notes due Dec. 15, 2017 at par.

The notes bear interest at a 750 basis points spread to Euribor, with a 1.25% Euribor floor.

Credit Suisse and Deutsche Bank were the bookrunners. Credit Suisse will bill and deliver.

Proceeds will be used to repay debt.

Numericable upsizes two-parter

France's Numericable priced an upsized €500 million two-part senior secured notes transaction (B2/B).

It included an upsized €225 million tranche of 6.25-year fixed-rate notes which priced at par to yield 8¾%.

The tranche was increased from €210 million, and the yield printed at the tight end of the 8¾% to 9% yield talk.

Numericable also priced an upsized €275 million tranche of floating-rate notes at par to yield three-month Euribor plus 787.5 basis points.

The tranche was upsized from €200 million. The spread came at the tight end of the Euribor plus 800 bps spread talk. A contemplated one-point original issue discount was eliminated.

J.P. Morgan, BNP, Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, HSBC and Morgan Stanley were the bookrunners for the transaction, the overall size of which was increased from €410 million.

The Lille, France-based cable operator will use the proceeds to refinance debt.

Talking the deals

Dealers set the stage for a busy Friday.

Following roadshows in Europe and the United States, Dufry Finance talked its $500 million issue of eight-year senior notes (Ba3/BB+/BB) to yield 5½% to 5¾%.

The books close at 10 a.m. ET on Friday, and the deal is set to price after that.

Credit Suisse and Bank of America Merrill Lynch are the joint global coordinators.

RBS, BBVA, Credit Agricole, Goldman Sachs, ING, Morgan Stanley, Raiffeisen, Santander, UBS and UniCredit are the joint bookrunners.

Tervita talked its $290 million offering of seven-year senior notes (Caa2/CCC+) to yield 9¾% to 10%.

Deutsche Bank is the left bookrunner. Goldman Sachs, RBC and TD are the joint bookrunners.

New Aleris, EPL firm smartly

Several high yield traders said that the secondary-market star of the day among the new deals was Aleris' 7 7/8% notes due 2020.

A trader saw the Beechwood, Ohio-based aluminum products producer's new bonds at 101½ bid, 102 offered on the break, after the $500 million deal priced at par. It had been upsized from an originally announced $400 million.

A second trader saw the bonds get as good as 101¾ bid, 102¼ offered, while yet another saw them going out at 101¾ bid, 102¾ offered.

Also doing well in the secondary was EPL Oil & Gas' add-on to its existing 8¼% notes due 2018.

The New Orleans-based energy exploration and production company's deal priced at 99 and the bonds were seen in the early aftermarket phase at 100 bid, 100¼ offered.

A second trader later pegged the bonds at 100¾ bid, 101 offered, while a third still later on had them going home quoted at 102 bid, 103 offered.

Other deals up modestly

The traders said that the day's other issues were all up, but more conservatively.

Energy Future's $253 million add-on to its existing 6 7/8% senior secured first-lien notes due 2017, for instance was initially seen at the 104 bid level, then was quoted at 103¾ bid, and finally at 103¼ bid - actually a little below the 103.375 level where the Dallas-based electric utility operator and merchant power company's quick-to-market issue had priced earlier in the day.

A trader saw Lennar's 4¾% notes due 2022 trading at par bid, 100¼ offered - little changed from the par level where the Miami-based homebuilder's suddenly appearing deal had priced.

A trader saw the day's biggest deal - from Wayne, Pa.-based software and technical services company SunGard - trading at 100 5/8 bid, 101 1/8 offered. That was up from the par level at which the $1 billion drive-by deal had priced.

Vantage struggles in secondary

Going back to deals which priced earlier in the week, a trader declared that Vantage Drilling Co.'s 7½% senior secured first-lien notes due 2019 "was under significant pressure today."

A second trader saw the Houston-based offshore contract energy driller's bonds initially trading at 99¾ bid, down from the par level at which that $1.15 billion transaction had priced on Tuesday. But then, he said, "sellers came in later on looking for bids to hit."

And a third trader later on saw the paper going out well below its issue price, quoting the notes at 98½ bid, 99½ offered.

Albea backs off

A trader saw Albea Beauty Holdings SA's $385 million 8 3/8% senior secured notes due 2019 having eased to 101¾ bid, 102¾ offered.

That was down from the 102 bid, 102½ level at which the bonds had gone home on Wednesday. The French company, a maker of plastic packaging for the cosmetics industry, had priced the bonds at par on Wednesday, as part of a $647 million equivalent two-part offering that also included a euro-denominated seven-year senior secured tranche.

Boise gets better

However, another Wednesday deal - Boise Cascade LLC/Boise Cascade Finance Corp.'s 6 3/8% notes due 2020 - was seen having improved solidly when it was finally freed for trading on Thursday.

The Idaho-based lumber and wood-products company's $250 million issue was trading at 102 bid, 102½ offered, a market source said.

The bonds had priced at par on Wednesday but came too late for any aftermarket at that time.

SuperValu soars post-earnings

Away from the new deals, a trader said that "SuperValu was pretty active," following the Eden Prairie, Minn.-based supermarket operator's release of its fiscal second quarter numbers - and they were up, even though those results were nothing to write home about.

"They had some pretty good volume," another trader said, estimating turnover for its 8% notes due 2016 at $29 million, topping the Junkbondland most-actives list.

He saw the bonds going home at 88 bid, up 3¾ points on the day.

Another trader had them at 87¼ bid, 88 offered - well up from Wednesday's close at 84¼ bid.

The company's New York Stock Exchange shares likewise jumped, rising as much as 9.3% during the session before finally ending up 10 cents, or 4.90%, at $2.14. Volume of 15.6 million was more than three times the usual level.

The bonds and shares rose despite the company having posted a net loss of $111 million, or 52 cents per share, on net sales of $8.04 billion, in the fiscal second quarter ended Sept. 8, versus a year-ago profit of $60 million, or 26 cents per share, on sales of $8.4 billion.

Adjusted earnings, excluding one-time charges, were flat, at zero - down from the 13 cents per share that Wall Street had expected.

On the conference call, company executives predicted strong cash flow and said they would stick to their plan to cut at least $400 million from the company's more than $6 billion of debt. They also said that their previously announced review of strategic options was continuing, and there had been expressions of interest from several unidentified parties (see related story elsewhere in this issue).

Market indicators turn mixed

Statistical indicators of junk market performance were seen mixed after three straight sessions of across-the-board gains.

The Markit Group CDX North American Series 19 High Yield Index fell after three straight winning sessions, ending Thursday down ½ point at 101 1/8 bid, 101 3/8 offered. It had risen by 11/16 point on Wednesday.

However, the KDP High Yield Daily Index pushed higher for a fourth consecutive session, to 74.75, up 6 basis points. On Wednesday, it had gained 16 bps.

Its yield declined for a third straight session Thursday, down 2 bps to 5.94%. That followed Wednesday's 5 bps decline.

And the widely followed Merrill Lynch U.S. High Yield Master II Index put up its sixth consecutive winning session Thursday, as it rose by 0.092%, which followed Wednesday's 0.208% gain.

The latest advance lifted its year-to-date return to 13.455% - a new peak level for the year so far - from Wednesday's 13.351%, the previous high point for 2012.

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