Solera two-parter, upsized Calpine drive by; new Neiman Marcus gains; funds add $626 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 17 - The high-yield primary sphere continued to churn out new deals on Thursday, with $1.6 billion of new U.S. dollar-denominated, fully junk-rated paper seen having come to market via a pair of opportunistically timed and quickly shopped deals totaling three tranches.

Syndicate sources said that familiar junk issuer Calpine Corp. did an upsized $750 million of secured 8.25-year notes. The power generation company's new bonds were seen by traders right around their discounted issue price.

But the big deal of the day came from Solera Holdings, Inc., which provides software and services to the automobile insurance claims-processing industry. It priced $850 million of junk paper in a two-part transaction that included a tranche of new 10-year bonds as well as an add-on to its existing 2021 notes.

Away from the U.S. dollar market, Canada's Wajax Corp., a distributor of industrial parts, sold C$125 million of seven-year notes.

And Befesa Media Ambiente SA, a Spanish company that manages industrial-waste plants, priced a €150 million issue of five-year PIK toggle notes.

Back on the domestic scene, traders reported continued firming in the new bonds from Neiman Marcus Group Ltd., the luxury retailer that did a $1.56 billion two-part deal on Wednesday.

Statistical measures of market performance were seen cruising higher for a sixth straight session.

And high-yield mutual funds and exchange-traded funds - considered a barometer of overall Junkbondland liquidity trends - saw yet another week of inflows.

Lipper funds gain $626 million

As Thursday's market activity was finishing up, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, $626 million more came into those funds than left them.

It was the sixth consecutive weekly gain in the junk funds reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. The latest inflow followed the $489 million gain seen the week before, ended Oct. 9.

During that six-week stretch - which also included giant-sized inflows of $3.1 billion during the week ended Sept. 25 and $1.4 billion in the week ended Sept. 18 - net inflows have totaled $6.48 billion, according to a Prospect News analysis of the fund-flow numbers.

For the year so far, inflows have now been seen in 26 weeks, against 16 weeks of outflows, according to the analysis, but cumulative flows for the year as a whole remain negative due to a sizable losing streak seen during May and June, which was prompted by investor worries over whether the Federal Reserve would end its accommodative monetary policy.

However, that year-to-date net outflow figure, which topped the $9 billion mark in late June, according to the analysis, has been steadily whittled down since then, with the latest inflow bringing it down further still to about $1.15 billion, according to the estimate.

Meanwhile, another fund-tracking service, the Cambridge, Mass.-based EPFR Global - which uses a considerably different calculation method than Lipper - reported that by its count, year-to-date inflows to the high-yield funds it follows have totaled $5.02 billion. Unlike Lipper, which strictly tracks domestic funds, the EPFR fund universe includes many funds domiciled outside of the United States; the company said that "European high-yield funds have been enjoying a good run."

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.

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 roughly $1 trillion junk market - have been seen by analysts as a key catalyst behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which ultimately produced about $327 billion of new dollar-denominated, junk-rated paper from domestic or industrialized-country issuers, according to data compiled by Prospect News.

It was also seen as one of the major drivers behind the robust patterns of primary activity and secondary strength that had continued for much of this year's first half before turning choppy over the past several months.

The recent run of consecutive net inflows coincided with the explosive expansion of junk primary activity seen last month, when over $47 billion of new paper priced, according to the Prospect News new-issuance data - the biggest September ever.

Solera two-part drive-by

Although the news flow was by no means heavy, the high-yield tumblers rolled in Europe and North America on Thursday.

Two U.S. issuers raised a combined $1.6 billion in an overall total of three tranches.

Audatex North America, Inc., an indirect wholly owned subsidiary of Solera Holdings, priced a $850 million two-part senior notes transaction (Ba2/BB-).

The deal included a $510 million add-on to the company's 6% senior notes due June 15, 2021 that priced at 101.75 to yield 5.631%. The reoffer price came rich to the 101.5 price talk.

There was also a $340 million tranche of new 10-year notes that priced at par to yield 6 1/8%. The yield printed at the tight end of yield talk set in the 6¼% area.

Goldman Sachs & Co. ran the books for the debt refinancing.

Calpine upsizes

Calpine launched and priced an upsized $750 million issue of 6% senior secured notes due Jan. 15, 2022 (B1/BB-) at 99.193 to yield 6 1/8%.

The deal was upsized from $570 million.

The yield printed at the tight end of yield talk set in the 6¼% area.

Citigroup Global Markets Inc., Barclays, Morgan Stanley & Co. LLC, RBC Capital Markets LLC, UBS Investment Bank, Mitsubishi UFJ Securities (USA) Inc. and RBS Securities Inc. were the joint bookrunners for the debt refinancing.

Befesa tightens talk, prices

In Europe, Spain's Befesa Media Ambiente priced a €150 million issue of PIK toggle notes due Dec. 1, 2018 (Caa2/CCC+) at par with a cash yield of 10½%.

The notes pay a 10½% cash coupon, which steps up by 75 basis points to 11¼% for PIK coupon payments.

The cash yield printed at the tight end of the revised 10½% to 10¾% yield talk. Earlier yield talk was 10¾% to 11%.

Joint bookrunner Citigroup will bill and deliver. Barclays was also a joint bookrunner.

Wajax at the tight end

Wajax sold C$125 million of seven-year senior notes (/BB/DBRS: BB) at par to yield 6 1/8%, compared with guidance in the 6¼% area.

BMO Capital Markets Corp. and Scotia Capital Inc. were the bookrunners.

Proceeds will be used to finance the repayment of a portion of the company's senior secured credit facilities, which may be redrawn for general corporate purposes.

Calpine trades near issue

In the secondary market, a trader saw Calpine's new 6% senior secured notes due 2022 at 99 bid, 99¾ offered.

That compares with the 99.19 level at which the Houston-based power generation company's quick-to-market offering was priced.

Another trader, though, said that he had not seen any activity after that late-day pricing and suggested that trading in Calpine "will probably be tomorrow's [i.e., Friday's] business."

The day's other deal, from Solera Holdings, priced too late in the day for any kind of aftermarket activity, traders said.

Neiman Marcus still strong

Among recently priced deals, a trader saw the new Neiman Marcus Group bonds continuing to show strength.

He noted that the Dallas-based luxury retailer's two issues - its $960 million of 8% cash-pay notes due 2021 and $600 million of 8¾%/9½% PIK toggle notes due 2023 - "traded up right off the break" after the two tranches each priced at par on Wednesday, and they were "still up" on Thursday as well.

He quoted the cash-pay bonds at 102½ bid, 103 offered around noon ET, while the PIK notes were trading between 103 and 1031/2.

A second trader said, "I couldn't believe those deals hit 103 so fast. My head spun."

He did say that the bonds "backed off a little from there, especially in the morning, when stocks were a little weak."

He saw both tranches going out around 102 5/8 bid, 102 7/8 offered, "trading dollar-for-dollar."

Yet another trader pegged the 8% notes Thursday at 102¾ bid, 103¼ offered, calling them up by ¾ point on the day, while the PIK notes were at 103 bid, 103½ offered, also up ¾ point on the day.

CenturyLink trades around

Away from the new deals, a trader said that CenturyLink, Inc. "is trading a lot and moving up across the board."

While the Monroe, La.-based telecommunications company's bonds have recently attracted a lot of crossover interest from high-grade players because of what the trader called their "quasi-investment grade" ratings right at the top of the high-yield tier (Ba2/BB/BB+), "it's still traded by junkers as well. All of the junk guys are playing in it."

CenturyLink - the corporate successor to the old Qwest Communications International, Inc. - generates "huge activity every day," he said.

CenturyLink's 7.65% notes due 2042 were fairly actively traded on the session, a market source at another shop said, quoting the bonds as having pushed up by more than 5 points to go home at the 96 bid level.

However, he noted that all of the busy dealings involved odd lots, with no larger round-lot transactions recorded on Thursday.

Market indicators gain

A trader said that "the market is obviously up significantly today." Junk followed the lead of stocks, which rallied on the news that the two sides in Washington had finally bridged their differences and had come up with legislation raising the federal debt ceiling and ending the long-running government shutdown.

Statistical junk-market performance indicators were meantime seen higher across the board on Thursday - their sixth straight day on the upside.

The Markit Series 21 CDX North American High Yield index gained 7/16 point on Thursday to finish at 106 15/16 bid, 107 offered, its second straight advance. On Wednesday, it rose by ¾ point, after having been unchanged on Tuesday.

The KDP High Yield Daily index notched its fifth consecutive improvement, rising by 10 bps to end at 73.83. On Wednesday, it was up by 2 bps.

Its yield came in by 4 bps for a third straight session on Thursday to close at 5.93%% - its fifth consecutive decline.

And the widely followed Merrill Lynch High Yield Master II index posted its sixth win in a row, improving by 0.321%, on top of Wednesday's 0.154% advance.

The latest gain lifted its year-to-date return to 5.23% from Wednesday's 4.893% reading. It was the first time the cumulative return figure had moved above the psychologically significant 5% mark since May 28, when it stood at 5.02%, and marked the index's highest return since May 22, when it closed up by 5.485% on the year to date.

© 2015 Prospect News.
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