Amerigroup prices to close busy holiday week; ATP Oil slide deepens; funds see fifth gain

By Paul Deckelman and Paul A. Harris

New York, Nov. 10 - The high-yield market called it a week a day early on Thursday, heading home for the three-day Veterans Day holiday break with the U.S. bond markets shuttered on Friday.

But before hitting the exits, primaryside players had one last bit of business to take care of: clearing the forward calendar by pricing Amerigroup Corp.'s eight-year offering, which came to market after being downsized to $400 million.

The deal closed out a busy though abbreviated week in the Junkbondland primary sphere with nearly $7.7 billion having come to market - the third straight week of strong junk issuance after a lengthy relative drought.

The new Amerigroup bonds firmed smartly when the paper was freed to trade. Strong trading levels were also seen in another new health care-sector deal, the 8.25-year notes that Health Management Associates, Inc. priced on Tuesday.

Away from the new issues, traders said the junk market, which had recently been aligned with stock market movements, failed to follow Wall Street higher on Thursday; statistical performance measures were lower on the day as well as on the week.

Among individual issues, ATP Oil & Gas Corp. got drilled for a second straight day on Thursday after it released its third-quarter results and an analyst cautioned that it might struggle to meet its debt obligations.

On a more positive note, high-yield mutual funds posted their fifth consecutive net inflow.

AMG posts $1.1 billion inflow

As Thursday's session was coming to a close, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $1.1 billion more came into those weekly reporting funds than left them.

It was the fifth consecutive cash infusion, including a $1.9 billion inflow seen in the previous week ended Nov. 2, as well as the spectacular $4.25 billion cash transfusion seen the week before, which ended Oct. 26. That was the biggest single weekly inflow recorded since Arcata, Calif.-based AMG began tracking fund flows in 1992.

During that five-week stretch, net inflows have totaled some $10.16 billion, according to a Prospect News analysis of the numbers.

The inflow was also the ninth such injection of liquidity into the market in the past 10 weeks, according to the analysis. The surge was broken only by a $363.14 million outflow in the week ended Oct. 5.

During that stretch, which dates to the week ended Sept. 7, net inflows amounted to $11.427 billion - an indicator that investors spooked by the severe market downturn seen in August had regained a considerable measure of their trust in junk.

For the year as a whole, inflows were seen in 30 weeks versus 15 outflows, according to the analysis.

Powered by the recently huge inflows - over $1 billion in each of the last four weeks - year-to-date net inflows reached their strongest level, according to the analysis, with an estimated net of $10.906 billion more coming into the funds since the beginning of the year than leaving them. That eclipsed the old high-water mark of $9.806 billion set the week before.

While fund-flow patterns began the year on a roll with cash infusions totaling more than $8 billion in the 14-week stretch from early December through mid-March, including the more than $6 billion taken in during the first 10 weeks of this year, they turned choppy for several months after that with a couple of weeks of declines. This was followed by several weeks of inflows, going back and forth.

After a seeming break to the upside in July with four straight inflows recorded, August was a complete wipeout with the five downturns, followed by the revival since then.

EPFR: $1.07 billion inflow

Another fund-tracking service, EPFR Global, also reported a fifth consecutive net addition to the funds, pegging it at $1.07 billion.

The Cambridge, Mass.-based company's methodology differs from AMG.

That followed the previous week's $2.78 billion and the eye-popping $4.76 billion cash infusion in the Oct. 26 week, which also was most that EPFR ever recorded.

Over the past five weeks, EPFR's figures indicate that inflows totaled some $11.915 billion.

On a year-to-date basis, flow totals rose to an estimated $6.89 billion from the previous week's $5.82 billion level.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ markedly since they calculate their respective fund-flow totals very differently.

EPFR, for instance, includes results from non-U.S. domiciled funds, as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk fueled the record new-deal borrowing binges seen in both 2009 and 2010, as well as the robust secondary market seen both years.

Mutual funds represent but a small, though observable and quantifiable, percentage of the total amount of money coming in.

Those trends had pretty much continued into 2011 as well, although the market hit something of a dry patch in June. Then it seemed to recover in July, only to run into a brick wall for all of August.

Although judging by the patterns recently seen in the fund flows, the junk market seems to be in the process of righting itself and coming back.

Amerigroup downsizes

The high-yield primary market saw a single transaction cross the finish line on Thursday, ahead of the three-day Veterans Day holiday in the United States.

Amerigroup priced a downsized $400 million issue of eight-year senior notes (Ba3/BB+) at par to yield 7½%.

The yield printed 37.5 basis points beyond the wide end of price talk, which had been set in the 7% area.

Goldman Sachs & Co. was the bookrunner for the issue, which was downsized from $450 million.

The Virginia Beach, Va.-based managed health care company plans to use the proceeds to prefund its existing convertible notes and for general corporate purposes.

Trinseo starts Monday

News also surfaced about a roadshow set for the post-Veterans Day week.

Trinseo Materials Operating SCA. will begin a roadshow on Monday in New Jersey for a $450 million offering of seven-year senior notes with expected ratings of B3/B.

The roadshow wraps up on Friday in San Francisco.

Barclays Capital Inc. is the left lead bookrunner. Deutsche Bank Securities Inc., BMO Securities, Citigroup Global Markets and Goldman Sachs & Co. are the joint bookrunners.

The proceeds will be used to repay bank debt and for general corporate purposes.

Trinseo, formerly known as Styron, is a diversified chemical company operating in the emulsion polymers and plastics sectors.

Amerigroup up in aftermarket

A trader said that after pricing, the new Amerigroup eight-year notes moved up to 100 7/8 bid, 101 3/8 offered.

He said that it seemed to him "that everybody pretty much got the allocation they were looking for" as a possible explanation as to why the company downsized the offering to $400 million from the originally announced $450 million.

"A lot of times, when you talk to accounts, [they tell you] they didn't get what they wanted. And when they say they got what they wanted and the deal is downsized, it's probably a case of them getting to the $400 million [of allocations] and then saying 'Let's call it a weekend.' "

The trader noted that the bonds firmed solidly in the secondary, up a point, but without much trading.

"If there had been huge demand, they would have done $450 million," the trader said.

However, a second trader thought that the new deal was trading a lot. He saw the bonds get as good as 100¾ bid. That was well up from their par issue price, before settling in about 1011/2.

"They did pretty well," yet another trader observed, locating the new bonds in the 101¼ to 102 range.

Health Management is robust

The week's other deal from the health care sector - Naples, Fla.-based Health Management Associates' $875 million of 7 3/8% notes due 2020 - also was seen exhibiting a fair amount of vim and vigor in aftermarket action.

That deal - downsized from the originally announced $1 billion market - priced late in Tuesday's session at par and then actually traded up on Wednesday to about the 100½ bid, 100¾ offered level, against a backdrop of junk prices heading lower, including for recent new deals.

On Thursday, a trader saw the bonds trading "most of the day" around the 100 7/8 bid mark.

A second trader was quoting them Thursday at 100¾ bid, 101¼ offered, declaring that "they did okay today."

Petro Geo pop continues

One of the traders said that Wednesday's offering from Petroleum Geo-Services ASA got up to a par bid around midday on Thursday. But after that, he said he "didn't see a whole lot in that."

The Lysaker, Norway-based provider of geophysical and seismic services to the energy industry priced $300 million of 7 3/8% notes due 2018 Wednesday at 98.638 to yield 7 5/8%.

The bonds were initially as good as 99¼ bid, par offered, before dropping back to end Wednesday up modestly from issue, at 98 7/8 bid, 99 3/8 offered.

Indicators under pressure

Away from the new-deal arena, statistical secondary market performance indicators remained on the downside Thursday after falling on Wednesday. The indicators were mixed in the several sessions just before that.

A trader said the CDX North American series 17 High Yield index fell by 3/16 of a point on Thursday, ending at 90 7/8 bid, 91 1/8 offered, after having dropped by 2½ points on Wednesday.

It also closed out the trading week well down from the 93 1/16 bid, 93 5/16 offered level at which the index had finished the previous week on Friday, Nov. 4.

The KDP High Yield Daily index eased by 4 basis points Thursday to 72.28, after having positively swooned by 72 bps on Wednesday.

Its yield rose by 3 bps to 7.50% after having ballooned out by 20 bps on Wednesday.

In contrast, the KDP index had ended the week before with a reading of 73.08 and a yield of 7.24%.

And the Merrill Lynch U.S. High Yield Master II index lost 0.116% on Thursday - its fourth consecutive loss, including Wednesday's 0.621% retreat.

The latest loss moved the index's year-to-date return down to 3.126% from Wednesday's 3.249%.

It also finished down from the 3.917% reading seen at the end of the prior week, marking its second straight full-week loss.

The cumulative return remains below its high-water market for the year of 6.362%, which was set on July 26, but is still well up from its 2011 low point, a 3.998% deficit recorded Oct. 4.

After having followed stocks downward on Wednesday - when Wall Street had one of its worst days in a long time on renewed investor worries about the European debt situation - junk seemed to diverge on Thursday.

While it struggled, stocks regained some lost ground on more hopeful signs coming out of beleaguered Italy and Greece, as well as unexpectedly better-than-expected U.S. jobless claims numbers.

The bellwether Dow Jones industrial average, which fell by 389.24 points on Wednesday, rose by 112.85 points, or 0.96% on Thursday, to finish at 11,893.79.

The Standard & Poor's 500 index rose by 0.86% on the day, while the Nada Composite index gained 0.13%.

"Our market behaved a little disappointing" versus stocks, a trader said. "A lot of stuff was kind of unchanged off [Wednesday's] lows."

For instance, the trader saw Las Vegas-based gaming giant Caesar's Entertainment Corp.'s 10% notes due 2018 largely unchanged on Thursday, most trades having a 69-handle.

Nashville-based hospital operator HCA Inc.'s 6½% notes due 2020 were unchanged to a little softer on Thursday, he said, at 102¼ bid, 102¾ offered, which is about the same as on Wednesday.

"So we didn't seem to rally with the stock market today," the trader said.

ATP again lower

Among specific issues, a trader said that ATP Oil's 11 7/8% senior secured second-lien notes due 2015 "went on a ride today," falling sharply for a second straight session following the Houston-based energy exploration and production company's release Wednesday of its latest quarterly results.

He saw the bonds down 5 or 6 points on the day - on top of the estimated 6- to 8-point losses seen on Wednesday.

"A huge amount traded," he said, with the bonds ending in a 69-71 context.

"It was ugly," he said of the two-day slide. "It's like [investors] abandoned ship for some reason."

Another trader said that ATP was "by far the biggest" volume mover on Thursday, with an astounding more than $120 million having traded on Trace by day's end, which estimated at about 10% of all the activity in the junk market.

"They got killed again today and then bounced off the bottom," he said.

The trader saw the bonds fall as low as 66 bid, before going out at 68¾ bid. He said the bonds, which fell to about 76 on Wednesday from prior levels in the 80s, opened the day on Thursday at 77, trying to edge their way back up.

"But then they dropped like a rock," to the lows before bouncing a little off that bottom, he said. "So it was quite a fall" over the last two days, the trader said.

"I didn't think the numbers were that bad," the trader said about the company's earnings. "But since the end of the quarter, production has dropped and people must not like their explanation."

One who certainly was dismayed by the fall-off in production to an average of 24,500 barrels of oil a day during the third quarter from prior levels above 31,000 was analyst Vivek Pal of Knight Capital Group in Greenwich, Conn.

In a note to investors on Thursday, he warned that if production doesn't pick up, the company might not have the liquidity to make the scheduled interest payment on its bonds next May, or to continue to finance major offshore oil developments in the Gulf and the North Sea.

He also said that management "didn't instill confidence" among investors and analysts during Wednesday's conference call when they refused to disclose the company's current cash and cash equivalents.

Yet another trader who saw the ATP bonds fall said, "In this market, if there's any kind of bad news, it's not like a pimple; it's more like brain cancer and you become deathly ill."

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