Inergy prices, forward calendar grows; SuperValu falls as talks stall; funds add $264 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 29 - Inergy Midstream LP and Inergy Midstream Finance Corp. came to market on Thursday with an upsized $500 million offering of eight-year notes, high-yield syndicate sources said. The natural gas storage and transportation company's new deal firmed smartly when it was freed for trading.

It was the only dollar-denominated, fully junk-rated issue seen to have priced during the session. U.S Airways, Inc. did an upsized $546 million two-part split-rated issue of pass-through certificates, which was quoted higher in the aftermarkets.

Back among the purely junk names, the forward calendar grew, as syndicate sources heard of deals being shopped around by Hamilton Sundstrand Industrial, Hellerman Tyton, U.S. Foodservice Inc. and Unitymedia Hessen GmbH & Co. KG. The latter deal includes both a dollar-denominated tranche of 10-year secured notes and a tranche of euro-denominated paper. The U.S. Foodservice and Unitymedia deals are expected to price on Friday, as is a euro-denominated two-part offering from TMF Group Holding BV.

Several other deals that surfaced earlier in the week were heard on Thursday to have begun roadshows, with pricing expected next week - McClatchy Co. and Armstrong Energy, Inc.

Newspaper publisher McClatchy's existing six-year notes were among the most active issues in Junkbondland on Thursday, though they were up only slightly. Existing bonds of another new-deal name, healthcare company Alere, Inc., were also busy, but they were trading lower. But the most notable decliner on the day was supermarket operator SuperValu Inc., whose bonds retreated on reports that the company's talks with potential buyer Cerberus Capital Management had stalled.

But Alere and SuperValu were exceptions to the rule, with traders seeing the junk market generally firmer across the board - observations borne out by gains in the various statistical market measures.

And the flow of fresh cash into or out of high yield mutual and exchange traded funds - seen as a key barometer of overall junk market liquidity trends - showed a gain after two consecutive weeks before that of major losses.

AMG: funds gain $264 million

As things were winding down for the day on Thursday, market sources familiar with the weekly AMG high-yield mutual fund-flow statistics said that in the week ended Wednesday $264 million more came into those funds than left them.

It was the first inflow seen in three weeks by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division; last week, the funds showed a $1.1 billion outflow, although that was not widely reported due to the Thanksgiving holiday and Friday's half-session. The week before, ended Nov. 14, $1.3 billion more left those funds than came into them.

The fund-flow numbers have recently been choppy; going back a little further, the week ended Nov. 7 had seen an $82 million inflow, which in turn had followed a $618.6 million outflow in the week ended Oct. 31. The week before that, ended Oct. 24, things had been almost unchanged, with a tiny $9.5 million inflow. But earlier in the year, an amazing string of 15 straight inflows occurred, according to a Prospect News analysis of the figures.

On a year-to-date basis, the estimated cumulative net inflow figure rose to about $28.5 billion - although that remains well down from the estimated $32.4 billion total seen in the week ended Sept. 19 - the peak net inflow level for the year so far, according to the analysis.

That year-to-date figure counts monthly-reporting funds as well as the weekly reporters, Lipper said, and includes exchange traded funds, which have emerged as a popular investment vehicle alongside more traditional mutual funds.

Inflows have now been seen in 37 out of the 48 weeks since the start of the year, against 11 outflows, according to the analysis.

EPFR sees $1.14 billion inflow

Another major fund-tracking service that uses a different methodology - Cambridge, Mass.-based EPFR Global - also reported its first inflow after two weeks on the downside totaling $2.4 billion. EPFR said that in the week ended Wednesday, $1.14 billion more came into the funds than left them. That had followed outflows of $1.45 billion in the week ended Nov. 21, on top of a $957 million cash loss in the week ended Nov. 14.

As was the case with the AMG/Lipper figures, the weeks before that had been choppy, with gains and losses pretty much alternating over the past two months.

On a year-to-date basis, cumulative net inflows have now totaled more than $70 billion - the peak level for the year according to a Prospect News analysis of the figures. The agency has seen inflows in 39 weeks so far this year, against nine outflows, the analysis indicated.

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 recently when Lipper reported net outflows 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 and ETFs represent but a small, though very 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 this year versus other fixed-income asset classes, and its active new-deal pace, which surged past 2011's year-to-date totals some weeks ago.

Inergy oversubscribed

News flow remained brisk on Thursday, although dollar-denominated issuance fell below $1 billion, as two issuers, each bringing a single tranche, raised a total of $628 million.

Inergy Midstream, LP and Inergy Midstream Finance Corp. priced an upsized $500 million issue of eight-year senior notes (B1/BB) at par to yield 6%, at the tight end of the 6% to 6¼% yield talk. The deal was increased from $400 million.

The deal was multiple-times oversubscribed and went very well, an informed source said.

Citigroup was the left bookrunner for the deal. J.P. Morgan, Bank of America Merrill Lynch, Credit Suisse, SunTrust and Wells Fargo were the joint bookrunners.

Proceeds will be used to partially fund the acquisition of COLT Hub and to repay borrowings under the company's senior credit facility. Additional proceeds resulting from the upsizing will be used to repay revolver debt.

Elsewhere U.S. Airways priced an upsized $128.071 million tranche of class B pass-through certificates due 2021 (B1/B+/BB-) at par to yield 6¾%.

The tranche was part of an overall $546.184 million transaction which also included $418 million of 4 5/8% Class A certificates due 2025 (Ba1/BBB/A-). The class B piece was increased from $112 million.

Citigroup, Goldman Sachs and Morgan Stanley were the bookrunners.

Paramount Resources upsizes

In the Canadian market, Paramount Resources Ltd. priced an upsized C$300 million issuer of seven-year senior notes (Caa1/B/) at par to yield 7 5/8%, in line with guidance.

The deal was increased from C$250 million.

RBC, Scotia and BMO were the lead managers for the debt refinancing, capital expenditures and general corporate purposes deal.

Unitymedia plans benchmark

Primary market news flow out of Europe has been robust throughout the week, and Thursday was no exception.

German cable operator Unitymedia Hessen GmbH & Co. KG in conjunction with Unitymedia NRW GmbH set price talk for the dollar-denominated tranche of its benchmark two-part offering of 10-year senior secured notes (existing ratings Ba3/BB-).

The $845 million tranche is talked to yield 5½% to 5¾%.

The dollar-denominated notes are being led by underwriters J.P. Morgan, Credit Suisse, Goldman Sachs, BNP, Merrill Lynch and Morgan Stanley.

The company is also offering a benchmark-sized amount of euro-denominated notes via Deutsche Bank, Barclays, Credit Agricole, ING and RBS.

J.P. Morgan will bill and deliver for the dollar-denominated notes. Deutsche Bank will bill and deliver for the euro-denominated notes.

The debt refinancing deal is set to price on Friday.

U.S. Food talks $350 million

U.S. Foodservice talked a $350 million add-on to its 8½% senior notes due June 30, 2019 at the 101 area.

The debt refinancing deal is set to price on Friday.

Deutsche Bank is leading the deal in a syndicate of banks which includes Citigroup, BMO, Goldman Sachs, KKR, J.P. Morgan, Morgan Stanley, Natixis and Wells Fargo.

TMF talks two-part deal

Price talk surfaced Thursday on TMF Group's €580 million two-part offering of high-yield notes.

A €380 million tranche of senior secured floating-rate notes due 2018 (B1), which comes with one year of call protection, is talked at a 550 basis points to 575 bps spread to Euribor, to price at 99. Earlier whisper on the floating-rate notes was 500 bps.

Meanwhile a €200 million tranche of senior unsecured fixed-rate notes due 2019 (Caa1), which comes with three years of call protection, is talked to price at par with a yield in the 10% area. Earlier whisper was in a high 9% yield context.

The deal is set to price Friday.

Global coordinator Goldman Sachs will bill and deliver. HSBC, ING and UniCredit are the joint bookrunners.

Hamilton Sundstrand roadshow

The Thursday session also brought news of roadshow starts.

Hamilton Sundstrand Industrial began a roadshow for a $775 million offering of eight-year senior notes (Caa1/CCC+).

The deal, which is in the market via special purpose vehicles Silver II Borrower SCA and Silver II US Holdings, LLC, is set to price in the week ahead.

Credit Suisse, Citigroup, Deutsche Bank, Morgan Stanley, RBC, Goldman Sachs and UBS are the joint bookrunners for the LBO financing.

McClatchy to sell $750 million

McClatchy started a roadshow on Wednesday for a $750 million offering of 10-year senior secured notes (B1/B), which is expected to price on Tuesday next week.

J.P. Morgan, Merrill Lynch and Credit Suisse are the joint bookrunners for the debt refinancing.

Armstrong via Stifel

Armstrong Energy began a roadshow for a $200 million offering of seven-year senior secured notes (/B-/), via Stifel Nicolaus.

Proceeds will be used to repay the company's senior secured credit facility and for general corporate purposes, including capital expenditures and potential reserve acquisitions.

HellermanTyton starts Friday

HellermannTyton Finance plc plans to start a roadshow on Friday in London for a €215 million offering of five-year senior secured floating-rate notes, which is also set to price during the week ahead.

Goldman Sachs is the global coordinator for the debt refinancing. Commerzbank and Mizuho are co-managers.

Inergy offering improves

In the secondary arena, a trader said that Inergy's new 6% notes had firmed to 100¾ bid, up from the par level at which the Kansas City, Mo.-based natural gas storage and transportation company had priced its deal.

A second trader later saw the new bonds doing even better, quoting them at 101¾ bid, 102¾ offered.

Earlier deals hold their own

There was a generally firm tone seen in other recent new deals, traders said,.

For instance, one saw Clean Harbors Inc.'s 5 1/8% notes due 2021 trading at 103 bid, up from the par level at which the Norwell, Mass.-based environmental services company had priced its $600 million issue on Wednesday, after upsizing it from an originally announced $550 million. It was also up from the 100½ to 101 3/8 bid context where the bonds had traded late Wednesday after having been freed.

"They're trading up," A second trader agreed, adding that "everybody I know was bidding up for them, because it's a go-go position and everybody needs to have it."

Among Wednesday's other deals, a trader said that Ally Financial Inc.'s new 3 1/8% notes due 2015 were trading in a 100¼ to 100½ bid context. "We've seen that one trade a couple of times," he said.

Those levels were about where the Detroit-based automotive and residential lender and online banking company's quickly-shopped $500 million issue had traded late Wednesday after pricing earlier that session at 99.445 to yield 3.3125%.

Alere's new 7¼% notes due 2018 were trading Thursday in a par to 100½ bid range, a trader said, versus quotes as high as 100½ bid, 101½ offered that were heard in the aftermarket on Wednesday. Earlier that session, the Waltham, Mass.-based healthcare services provider had priced its $450 million issue at par.

A market source said that Alere's established 8 5/8% notes due 2018 were trading sharply lower on Thursday in apparent reaction to the new-deal news; after having stayed around Wednesday's 103 close, those bonds dipped to 101¼ bid later Thursday, on volume of over $9 million.

A trader saw Aircastle Ltd.'s upsized $500 million of new 6¼% notes due 2019 at 101 7/8 bid, 102 1/8 offered.

That was well up from Wednesday's trading levels around 101 bid, 101½ offered.

The Stamford, Conn.-based commercial aircraft leasing company had priced its quickly-shopped deal at par on Tuesday, after having upsized it from the originally announced $400 million.

In Tuesday's aftermarket, they had firmed smartly to as high as a 101 to 101¾ bid context, although later on that session they traded in a 100¾ to 101¼ range, moving back up on Wednesday and again on Thursday.

Indicators stay strong

Away from the new issues, statistical junk market performance indicators were higher across the board for a second straight session on Thursday.

The Markit Series 19 CDX North American High Yield index gained 3/8 point on Thursday to end at 99 14/32 bid, 100 offered, its second consecutive gain. On Wednesday, the index had risen ¼ point.

The KDP High Yield Daily Index rose by 15 basis points to end at a 74.15, its eighth consecutive gain. On Wednesday, the index had gained 1 bp. Its yield came in by 5 bps Thursday, to 6.13%, its eighth straight narrowing, after having declined Wednesday by 1 bp.

And the widely followed Merrill Lynch High Yield Master II index rose by 0.264% on Thursday, its ninth consecutive advance. That followed Wednesday's 0.054% rise. The latest gain lifted its year-to-date return to 13.602%, up from Wednesday's 13.303%. Thursday's reading set a new peak level for 2012, surpassing the old mark of 13.455%, set back on Oct. 18.

Junk shows strength

"The market had a better tone to it all day long," a trader said. "It was definitely firm."

He saw junk open up between ¼ and ½ point pretty much across the board, then "it kind of sustained the rally this afternoon, though granted, volume did dry up a little but, probably because we're going into month's end."

Among specific names, he said that J.C. Penney Co. Inc.'s bonds were up "another quarter-point or so."

One of the busiest bonds in the junk world on Thursday was McClatchy's 11½% notes due 2017, with a market source seeing more than $33 million of the Sacramento, Calif.-based newspaper publisher's paper changing hands, activity likely spurred by the news that McClatchy is doing a $750 million bond deal; proceeds will be used to fund the company's separately announced tender offer for those 11½% notes.

A trader saw the bonds moving around a 110½ context, right around the anticipated takeout level, and declared that the day's movement was essentially "sideways."

Another market source who saw the bonds finish at 110 called that up ½ point on a round-lot basis.

SuperValu falls as Cerberus talks stall

The big loser on the day in the junk realm was SuperValu's 8% notes due 2016, which were taking hits late in the day on the back of news regarding possible problems with a potential buyout offer from private equity firm Cerberus Capital Management LP.

"They were up earlier in the day because everything was flying," a trader said. "That news knocked them down 4 to 5 points."

The trader said the 8% notes had hit highs around 94½ during the session, but the news that Cerberus was having trouble lining up financing for the leveraged buyout caused the debt to decline to 89½ bid, 90 offered.

Another trader said "somebody hit a 90 bid," after the paper had traded as high as a 93-94 context. Even the 7½% notes due 2014 were down a deuce at 931/2, though only in odd-lot trading.

"It can be a volatile name as we've seen in the past," the trader said.

A third trader said the name was on the tips of everyone's tongues. Speculation is that the late-day declines could turn into massive losses come Friday.

A market source at another desk pegged the 8% notes down 3 points on the day, going home at 90½ bid, on volume of over $13 million. He saw the 71/2s ending down 4 points at 93 bid, though round-lot volume was only $3 million.

The company's New York Stock Exchange-traded shares meantime nosedived 52 cents, or 18.57%, to end at $2.28. Volume of 18.2 million shares was more than triple the norm.

Cerberus has been speaking with lenders about getting financing to buy Eden Prairie, Minn.-based SuperValu, which has struggled amid increased competition from value outlets such as Wal-Mart. But the lenders are reportedly not all that interested in putting money into the company, given its increased debt leverage and declining revenues.

Cerberus is also said to be uneasy with putting up more of its own money for the purchase.

No other potential buyers have emerged for SuperValu, at least not any who want the company as a whole, which management has said it is aiming for. But if a deal cannot be inked with Cerberus, the company will likely be forced to start selling itself piece by piece. That also has its problems, as such sales could result in huge tax charges.

In apparent response to the market movements, SuperValu issued a statement late Thursday, saying it was "in active discussion with several parties."

Stephanie N. Rotondo contributed to this report

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