Unisys, ServiceMaster, International Lease drive by; Unisys trades up; funds gain $378 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 16 - The high-yield market calmed down a little on Thursday from Wednesday's hyperactive new-deal pace, but it remained on track to rack up one of its busiest weeks of 2012 for a second straight week.

Three issuers each came to market with a single quickly shopped tranche of bonds. The day's deals totaled $1.71 billion, although that was off from the $2.97 billion of new paper that came clattering down the chute in seven deals on Wednesday.

There were a pair of $750 million deals, one from split-rated aircraft leasing company International Lease Finance Corp. and the other from residential cleaning and lawn care provider ServiceMaster Co. The latter company did its deal just a little more than a week after having priced a $1 billion issue of bonds that was not terribly well received by market participants and was ultimately terminated.

Information technology firm Unisys Corp. had the smallest deal of the day at $210 million. However, it did the best of the three when all of the deals were freed for aftermarket action.

With four days down and one still to go, and the possibility of yet more opportunistically timed "drive-by" deals appearing if borrowers believe market conditions are right to meet their financing needs, the primary sphere has already priced more than $11 billion this week, according to data compiled by Prospect News, making it one of the busiest so far this year. It may be hard-pressed, though, to match the $13.7 billion of new junk that came to market last week, which was the second-heaviest pricing week of 2012.

One of the factors helping the borrowing binge has been the continued condition of easy liquidity, with the junk market awash in fresh cash. That continued for a 10th straight week, as more money came into high-yield mutual funds - a useful barometer of overall junk market liquidity trends - than left them.

AMG gains $378 million

As Thursday's session was winding down, participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $378 million more came into those funds than left them.

It was the 10th consecutive week of such inflows by the junk mutual and exchange-traded funds - a winning streak that dates back to the week ended June 13, although the latest number was less than half of the $809 million gain reported last week by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division.

Still, the 10 weeks of inflows have totaled about $9.4 billion, according to a Prospect News analysis of the figures, representing a continued 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 $28.4 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. Excluding those ETFs and just tallying the mutual funds, the year-to-date net inflow stood at around $21.4 billion.

Inflows have now been seen in 28 out of the 33 weeks since the start of the year against just five outflows.

Cumulative fund-flow estimates 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 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, with issuance volume running about even with last year's year-to-date totals.

ServiceMaster returns

After shredding the issuance record for the first half of August, the primary market slowed on Thursday.

Two issuers, each one bringing a single trance, raised $960 million.

After terminating its 6 1/8% senior notes due Aug. 15, 2020, which were priced on Aug. 8 in a $1 billion issue, ServiceMaster returned on Thursday with a $750 million offering of notes with the same structure and maturity.

In a quick-to-market deal, the company priced the new notes (B3/B-) at par to yield 7%.

The yield printed at the wide end of the 6¾% to 7% yield talk.

J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, Barclays, Deutsche Bank Securities Inc., Goldman Sachs & Co., Citigroup Global Markets Inc. and Natixis Securities America LLC were the joint bookrunners for the debt refinancing.

The ServiceMaster buzz

As to why ServiceMaster took the unusual move of terminating the already priced 6 1/8% notes, market sources said the company is reducing full-year internal guidance on its TruGreen segment and may potentially take a $600 million goodwill charge in the third quarter of 2012 for the segment.

That disclosure was material to the issuance of those now-terminated notes and would likely cause them to trade lower, sources added.

The $1 billion size of the terminated issue no doubt caused considerable consternation in the market, buyside and sellside sources said.

Accounts likely sold existing paper to clear the way for the ServiceMaster 6 1/8% notes, only to subsequently be taken out of those notes in a technically rallying market where staying invested is a consistent challenge, a sellside source commented.

Also, institutions made money shorting the 6 1/8% notes in trades that will now be unwound, the source added.

As to the company, the slip-up reduced the amount of cash ServiceMaster ultimately raised in the high-yield market and jacked up its cost of capital by 87.5 basis points.

Rare, but not unheard of

Although the termination of priced deals is rare, it's not totally unheard of, as an examination of the Prospect News archives demonstrates.

In October 2005, School Specialty, Inc. terminated a $350 million issue of senior notes.

In December 2005, Cablevision Systems Corp. terminated a $1 billion issue of senior notes.

In May 2007, OSI Restaurant Partners, LLC terminated a $550 million issue of senior notes.

And most recently, Legends Gaming LLC (DiamondJacks Casinos) terminated a $220 million two-tranche deal in December 2007.

Unisys drives by

Returning to Thursday's primary market action, Unisys priced a $210 million issue of five-year senior notes (B2/BB-) at par to yield 6¼%, on top of yield talk.

Citigroup was the bookrunner for the quick-to-market issue.

The debt-refinancing deal went well, market sources said.

One investor spotted the new Unisys 6¼% notes due 2017 at 102½ bid, 103 offered.

ILFC split-rated deal

In the crossover space, International Lease Finance Corp. priced a $750 million issue of split-rated non-callable 10-year senior notes (Ba3/BBB-) at par to yield 5 7/8%, on top of price talk.

The deal was announced to the market at benchmark size.

Active bookrunner Citigroup will bill and deliver. Morgan Stanley, RBC Capital Markets and UBS Securities Inc. were also active bookrunners.

Barclays, Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan and Macquarie Capital were passive bookrunners.

The deal "limped out" at 99¾ bid, par offered, according to an investor who played and who chalked up that initial weak performance to the surging yield of the 10-year Treasury, which yielded as much as 1.84% on Thursday.

"It's up 40 basis points from mid-July," the investor remarked, adding that although 1.84% is still a remarkably low yield for 10-year government paper, the 40 bps move in a month is nevertheless a big one.

People may be positioning themselves for higher Treasuries, the investor added, noting that low-coupon bonds that have traded off are likely doing so more because of higher Treasury yields rather than credit concerns.

An syndicate banker agreed, characterizing higher Treasury yields as an emerging theme in the market.

Quiet Friday ahead

The Friday session ought to be a quiet one, syndicate officials said. Only one deal is on deck to price.

American Gilsonite Co. met with investors on Thursday, presenting its $260 million offering of five-year senior secured notes (confirmed B3/expected B) via Bank of America Merrill Lynch and KeyBanc Capital Markets.

No price talk was heard on Thursday.

No other announcements are expected, a syndicate banker said, adding that in the run up to the three-day Labor Day holiday in the United States, which gets underway on Aug. 31, the primary market is expected to remain generally quiet.

"There could be one or two drive-by deals next week," the banker said, but added that this business might just as easily be pushed into the post-Labor Day market because players are expected to begin leaving for vacations en masse at the end of the present week.

As for the post-Labor Day deal pipeline, it's big and growing, sources say.

Unisys deal dominates

When the new Unisys 6¼% notes due 2017 were freed for secondary dealings, traders said that the Blue Bell, Pa.-based information-technology company's quick-to-market $210 million deal firmed smartly from its par pricing level.

One of the traders saw the new bonds going out at 102 bid, 102½ offered.

International Lease lags

But while Unisys sizzled, one of the day's other deals, International Lease Finance, fizzled.

A trader saw the Los Angeles-based aircraft leasing company's quickly shopped $750 million of 5 7/8% notes due 2022 trading a little below their par issue price at 99½ bid, 99 7/8 offered.

A market source meantime saw some of the company's other bonds moving actively around, such as its 8¼% notes due 2020. That piece of paper fell by 13/16 point on the day to 118¼ bid on lively round-lot volume of more than $19 million, making it one of the day's most active Junkbondland issues.

ILFC's 8¾% notes due 2017 lost half a point to end at 116¼ bid.

ServiceMaster back

A trader saw ServiceMaster's new 7% notes due 2020 being offered at 1011/4, but he saw no bid side.

The notes came on the heels of the Memphis-based company's radically upsized $1 billion offering of 6 1/8% notes due 2020, which priced at par on Aug. 8 after being increased from an originally shopped $300 million.

That deal did badly in the aftermarket and ended up being terminated. It initially traded around 99½ bid, par offered to end off last week and was even being quoted having gotten as good as 100¾ bid, 101½ offered on Monday - only to slide as low as 98 3/8 bid, 98 7/8 offered in Wednesday's trading.

Wednesday deals not much moved

There was some activity Thursday in the bond deals that priced on Wednesday but had not traded in the aftermarket at that time because they came just too late in the day.

However, unlike Thursday's well-received offering from Unisys or some of the paper that came earlier in the week, such as the mega-deal from health-care provider DaVita Inc., the Wednesday deals mostly did not stray too far from the par level at which nearly all of them, save a smallish add-on offering from Taylor Morrison Communities, Inc., had priced.

"For most of them," a trader said, "if it traded up, it settled back down in."

For instance, he saw Caesars Entertainment Corp.'s new 9% senior secured notes due 2020 trading during the day at bid levels between 99 5/8 and par, with "a bunch of them trading right at par."

He finally saw the Las Vegas-based gaming giant's quick-to-market $750 million deal - restructured into a standalone issue rather than the originally announced add-on tranche to its existing 8½% 2020 secured bonds - going out in a tight 99 7/8-to-par context.

Other Wednesday deals were likewise anchored around the par area.

Scientific Games International Inc.'s 6¼% senior subordinated notes due 2020 were heard offered at par in morning dealings, with not much other activity, according to one market source.

The New York-based company - which supplies gaming technology to Caesars and to rival casino operators as well as to state lottery systems around the country - priced its $300 million drive-by offering at par on Wednesday after upsizing it from $250 million.

A trader saw Univision Communications Inc.'s $625 million offering of 6¾% senior secured notes due 2022 trading at 99 7/8 bid "a couple of times today." The New York-based Spanish-language broadcaster's rapidly marketed deal priced at par Wednesday after upsizing from $500 million.

Live Nation Entertainment Inc.'s $225 million of 7% notes due 2020 traded between par and 100 5/8; the Beverly Hills, Calif.-based concert promoter and music venue operator had come to market at par.

That's also where Stamford, Conn.-based chemical pigments maker Tronox Finance LLC's upsized $900 million offering of 6 3/8% notes due 2020 had priced after having been increased from an original $650 million. On Thursday, the bonds were quoted at 100½ bid, 100 7/8 offered.

DaVita still doing well

Denver-based kidney-treatment company DaVita's new $1.25 billion of 5¾% notes due 2022 continued to rise, adding on to Wednesday's solid gains.

A trader saw those bonds push up by another three-quarters of a point on Thursday to 101¾ bid.

That deal - rumored to be in the offing for literally months but quickly pricing at par on Tuesday just hours after having been announced - had moved quickly up to the 101 range later that same session and stayed there on Wednesday before gaining on Thursday also.

Trading in the new DaVita bonds was fairly busy on Thursday, approaching the $10 million mark at mid-afternoon, which a market source said was sufficient to put it among the day's more active issues, although it paled in comparison with the more than $70 million of the bonds that had traded on Wednesday.

Bon-Ton bonds gyrate

Away from the new issues, there was some down-and-up trading in the 10¼% notes due 2014 of Bon-Ton Stores, Inc. after the York, Pa.-based retailer released fiscal second-quarter numbers showing sales continuing to struggle and losses continuing to mount up.

The bonds, which had finished trading Wednesday at 87½ bid, fell as low as 86½ before moving back up to actually end up a point on the day at 88½ bid. However, there were only about $4 million or $6 million of the bonds traded.

On its conference call following the release of the results, the company's chief financial officer touted the progress that Bon-Ton had made in reducing near-term maturities and said that the company had ample excess borrowing capacity under its credit facility to deal with those remaining 2014 bonds when the time was right. He also mentioned open-market purchases and redemptions as options for taking out the bonds. (See related story elsewhere in this issue.)

Bon-Ton's New York Stock Exchange-traded shares initially dropped as much as 7% before coming back later in the day to only end down 8 cents, or 1.09%, at $7.28. Volume of 373,000 shares was about 40% greater than usual.

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