Sirius XM megadeal, LifePoint, Genel price; Gymboree jinx continues; funds lose $631 million

By Paul Deckelman

New York, May 1 - Fresh off a busy April that saw more than $40 billion of new junk bonds priced - the most of any month so far this year - the high-yield primary arena maintained its momentum on Thursday, opening May with an active session in which $2.4 billion of new dollar-denominated, fully junk-rated paper priced in three deals.

Satellite radio broadcaster Sirius XM Holdings Inc. had the big deal of the day, an upsized $1.5 billion drive-by offering of 10-year notes that priced via a subsidiary.

LifePoint Hospitals, Inc. also did a quick-to-market transaction, pricing a $400 million add-on to the existing 2021 bonds that the health-care company had sold late last year.

Although much of Europe was closed for the traditional May 1 labor holiday, there was still news coming out of Britain and the Continent.

Genel Energy plc, a London-based oil and gas exploration and production company, came to market with an upsized $500 million offering of seven-year notes.

And Public Power Corp. SA, the largest electricity supplier in Greece, paid its first visit to the bond market since 2000 with an upsized €700 million two-part deal.

In the secondary realm, traders said the new Sirius megadeal was actively quoted. Both Sirius and LifePoint were a little above their respective issue prices.

But the major focus, more so than any of the new or recently priced issues, remained Gymboree Corp. The specialty retailer's bonds - which had already dropped by around 6 points in active trading on Wednesday after poor quarterly numbers - went into an absolute freefall, more than doubling that loss while dominating the Most Actives list.

But apart from such outliers, traders said the overall market seemed listless. One or two suggested that investors were sideline-sitting ahead of the April non-farm payroll job creation and unemployment numbers due out of Washington on Friday morning.

Statistical market performance indicators remained mixed for a third consecutive session after having begun the week on a stronger note.

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 lower in the latest week, its second time in negative territory in the past three weeks.

Junk funds lose $631 million

As Thursday's activity was wrapping up, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $631 million more had left those funds than came into them in the week ended Wednesday.

That loss more than offset the $250 million inflow 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 April 23, which in turn had bounced back from the $223 million outflow recorded the week before that, ended April 16.

Net outflows over the past three weeks have thus totaled an estimated $604 million, according to an analysis of the data by Prospect News.

That recent weakness and suddenly choppy pattern have been something of a departure from the norm that's held for most of the year so far, which has been dominated by inflows, usually coming in groups of two or three or even more, including one five-week winning streak.

Counting the latest week's results, there have now been five outflows seen in the 17 weeks since the start of the year, according to the analysis, against 12 inflows.

The latest week's outflow dropped the year-to-date cumulative net inflow number to an estimated $3.34 billion, according to the analysis, down from the previous week's figure of an estimated $3.97 billion, the peak level for the year so far.

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, the Cambridge, Mass.-based EPFR Global, meantime saw an inflow "a little north" of $500 million 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, and the two services' weekly numbers are also generally quite different.

It was EPFR's 15th such gain recorded in the 17 weeks since the start of the year, versus just two outflows, which occurred in the weeks ended Jan. 29 and Feb. 5.

Analysts said that the sustained flows 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 or leaving the more than $1 trillion junk market - has been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past two years and which has mostly continued on into this year as well.

Primary market gets Sirius

In the new-deal market on Thursday, Sirius XM Radio, Inc. priced the day's largest offering, an upsized $1.5 billion of 10-year senior notes (B1/BB).

High-yield syndicate sources said that quick-to-market offering was doubled in size from the $750 million that its corporate parent, New York-based satellite radio broadcaster Sirius XM Holdings, had originally announced just hours earlier.

They said that the notes priced at par to yield 6%, coming at the wide end of pre-deal market price talk of 5 7/8% to 6%.

The offering was brought to market via joint bookrunners J.P. Morgan Securities LLC, Deutsche Bank Securities Inc., Citigroup Global Markets Inc., BofA Merrill Lynch, Morgan Stanley & Co. LLC and SunTrust Robinson Humphrey Inc.

Co-managers on the deal were BMO Capital Markets Corp., BNP Paribas Securities Corp., Credit Agricole Securities (USA) Inc., RBC Capital Markets, LLC, RBS Securities Inc., U.S. Bancorp Investments, Inc. and Wells Fargo Securities, LLC.

The deal was marketed to potential investors via a morning conference call, followed by the afternoon pricing.

The company plans to use the net proceeds from the debt sale for general corporate purposes, which could include the repayment or repurchase of its senior or subordinated debt and revolving credit debt, as well as for funding dividends to corporate parent Holdings to fund share repurchases of its common stock.

Pending any such use of the deal proceeds, Sirius plans to hold the money as cash on its balance sheet.

LifePoint brings add-on

There was a quickly shopped add-on transaction from LifePoint Hospitals, a Brentwood, Tenn.-based acute-care hospital operator, which priced a $400 million tap of its existing 5½% senior unsecured notes due Dec. 1, 2021 (Ba2/BB-/BB).

That deal priced at 103, right at pre-deal market price talk, to yield 4.876%.

It was brought to market via joint bookrunners Barclays, Citigroup, BofA Merrill Lynch, Goldman Sachs & Co. and UBS Securities LLC, along with senior co-managers Fifth Third Securities Inc., JPMorgan, Mitsubishi UFJ Securities (USA), Inc. and SunTrust.

Credit Agricole, Regions Securities LLC and SMBC Nikko Securities America, Inc. were co-managers on the transaction.

The deal was shopped to potential investors via a late-morning conference call, followed by the afternoon pricing.

The new bonds will be immediately fungible with the existing $700 million of the notes that LifePoint sold late last year. Those earlier notes priced at par in a quick-to-market deal on Nov. 21, 2013, after upsizing from an originally planned $500 million. They priced at a spread of 313 basis points over comparable Treasuries, versus the 303 bps spread at which the add-on priced.

The company plans to use the net proceeds from the deal to partially fund the payment of its outstanding $575 million of 3.5% convertible senior subordinated notes when they come due on May 15 and the cash-settled portion of the conversion of the convertible notes.

Genel Energy upsizes

Out of Europe came word that Britain's Genel Energy had priced an upsized $500 million issue of five-year senior notes.

The notes were priced to yield 7½%, after the offering was increased from the originally announced $400 million.

That deal, which was first announced last Friday, came to market after an investor roadshow process and is expected to settle on or around May 14.

DNB Markets and Pareto Securities were joint lead managers and bookrunners for the offering.

The London-based oil and natural gas exploration and production company - which operates in the Middle East and Africa, claiming to be the largest independent oil producer in the Kurdistan Region of Iraq - plans to apply the net proceeds of the offering toward a combination of field development costs as well as general corporate purposes.

Public Power returns to market

In the euro-denominated segment of the junk market, Greece's Public Power was heard to have priced an upsized €700 million offering of senior notes in two parts (/B/).

It marked the largest Greek electricity supplier's return to the bond market for the first time since 2000.

The deal was enlarged from the originally announced €500 million. The notes were sold through the company's wholly owned Public Power Corp. Finance plc subsidiary.

It consisted of €200 million 4¾% senior notes due May 1, 2017 and €500 5½% senior notes due May 1, 2019. Both tranches priced at par.

Price talk on the three-year issue had been 4¾% to 5%, while the five-year notes were talked between 5½% and 5¾%, syndicate sources said.

The company said that the deal was oversubscribed.

The joint global coordinators were Credit Suisse, which will bill and deliver, along with Deutsche Bank.

Alpha Bank, Citigroup, Eurobank, HSBC, NBG and Piraeus Bank were the joint bookrunners.

The deal was first announced on April 24 and was marketed to investors via a roadshow process.

The Athens-based electricity supplier plans to use the proceeds to partially prepay existing loans, to finance capital expenditures and for general corporate expenses.

Sirius stronger in secondary

In the secondary arena, traders saw the new Sirius XM issue firm from its par issue price when the megadeal was freed for aftermarket activity.

One saw the bonds offered as high as 101¼ on the break, although he had not seen any bids at that point.

"It will be interesting to see where they finally fall out," he opined.

Noting the radically upsized deal - doubled in size to $1.5 billion from the originally announced $750 million - he jokingly said that it appeared that the company would take advantage of the favorable issuing environment and "take the money and run."

A second trader did see a two-sided market, pegging the bonds at a wide 100¼ bid, 101 offered, while a third saw a somewhat more moderate 100 3/8 bid, 100¾ offered level.

Yet another trader saw Sirius going out at 100½ bid, 100¾ offered.

LifePoint a little better

A trader saw the new LifePoint Hospitals add-on deal at 103½ bid, 104 offered, up from the 103 level at which that tap of the 5½% 2021 notes had priced.

However, two other traders had not seen any activity in the health-care company's new deal.

Traders likewise saw no markets in the Genel Energy five-year deal.

Light flows stymie activity

A trader said that things were "a little on the quiet side." He theorized that flows were "a little light" ahead of Friday morning's scheduled release of April's unemployment rate and job-creation numbers by the Labor Department.

Economists on average are expecting that in excess of 200,000 non-farm jobs were created last month, the fastest pace in some months and a sign that recovery may - finally - be taking hold.

He said that he did not see much trading in recent deals such as in Dutch aluminum products manufacturer Constellium NV's 5¾% notes due 2024, $400 million of which priced on Wednesday as part of a larger two-part dollar- and euro-denominated deal.

Nor did he see any activity in Wednesday's other offering, Greenwood Village, Colo.-based homebuilder Century Communities Inc.'s $200 million of 6 7/8% notes due 2022.

However, he did say that Numericable Group AG's huge recent deal "continues to creep up. That's done well."

He saw the French cable, broadband and telecommunications company's 4 7/8% senior secured first-lien notes due 2019 at 101½ bid, 101¾ offered, quoted its 6% senior secured first-lien notes due 2022 at 102½ bid and its 6¼% first-lien paper due 2024 at 102 3/8 bid, 102 5/8 offered, so "that continues to improve."

All of those bonds had priced at par last Wednesday as Numericable and its Luxembourg-based parent, Altice Group, brought in a gigantic $16.6 billion equivalent seven-tranche dollar- and euro-denominated offering.

Gymboree gets slammed

Away from the new deals, there was no relief in sight for Gymboree debt on Thursday as investors pushed the company's bonds down as much as 12½ points following a disappointing earnings release on Wednesday.

Early in the session, the 9 1/8% notes due 2018 were seen in a 67 to 69 context, which compared with Wednesday's closing levels in the mid-70s. But the pressure continued throughout the day and, after the close, another trader said the notes "continued to slide," deeming them off 12½ points at 63.

He added that over $30 million of the bonds changed hands, easily the busiest issue in Junkbondland.

Another trader said the paper was "down another 10 points" at 64 bid, 65 offered.

As for the company's bank debt, it was pegged around 85 early in the day. At the close, the term loan was seen at 80½ bid, 81 offered, down from 85½ bid, 86½ offered previously.

The earnings came out just before the close on Wednesday, and by the bell, the bonds had dropped 6 to 7 points.

"They were down a bunch," he said.

For the fourth quarter ended Feb. 2, the San Francisco-based children's clothing retailer reported net sales of $351 million, compared with sales of $397.6 million for the same quarter of fiscal 2012. However, the previous quarter was positively impacted by an additional week, which resulted in an added $19 million.

Same-store sales fell 9%, including online sales.

Gross profit came to $124.5 million from $144.8 million the year before. Net loss was $169.8 million and included a $157.2 million non-cash goodwill and intangible asset impairment charge.

Net loss for the same quarter of fiscal 2012 was $5.4 million.

Adjusted EBITDA was $25 million, versus $47.7 million previously.

For the fiscal year, net sales were $1.24 billion, down from $1.28 billion in fiscal 2012. Same-store sales dropped 6%.

Gross profit was $476 million, down from $481.4 million previously. The company reported a wider net loss of $206.4 million, compared with $10.4 million in fiscal 2012.

Adjusted EBITDA narrowed to $119.7 million from $161.8 million.

In other kid-related retailers, Toys 'R' Us Corp.'s bonds were also weaker on the day.

A trader called the 7 3/8% notes due 2018 off more than 2 points at 713/4.

Another market source placed the issue at 73¼ bid, down almost a point.

Its 10 3/8% notes due 2017 lost 1¾ points to end at 80½ bid, with over $9 million traded.

Indicators stay mixed

Statistical junk performance indicators were mixed for a third straight session on Thursday after having begun the week on Monday by firming across the board.

The Markit Series 22 CDX North American High Yield index was down by 3/32 on Thursday, finishing at 106 7/8 bid, 107 offered. On Wednesday, it had risen by 1/8 point.

And the KDP High Yield Daily index suffered a third consecutive loss, easing by 1 bp to end at 74.89 after having dropped by 4 bps on Wednesday.

Atypically, though, its yield - which normally moves inversely to the index readings - was also down, by 2 bps, to close at 5.19%, after having risen by 1 bp on Wednesday.

While those indexes struggled, the widely followed Merrill Lynch High Yield Master II index rolled to its fourth gain in a row, rising by 0.046%, on top of Wednesday's 0.084% advance.

That raised the index's year-to-date return to 3.757% - its fourth consecutive new peak level for the year, surpassing the previous high of 3.71% seen on Wednesday.

Stephanie N. Rotondo contributed to this review

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