Affinia, Global Aviation deals price, Affinia trades up, other newbies also firm; funds see $689 million inflow

By Paul Deckelman

New York, Aug. 6 - Affinia Group Inc. and Global Aviation Holdings Inc. were heard by high yield syndicate sources to have each successfully priced a bond offering on Thursday, the latter transaction - which priced at a steep discount to par - slightly upsized to generate the originally planned net proceeds.. Both of those deals were senior secured - which some market participants note is an increasingly popular mode for issuers looking to get the best possible borrowing terms.

The new Affinia bonds were reported by traders to have firmed smartly to well above par, when they were freed for secondary dealings, while the Global Aviation deal was an aftermarket no-show. Several other of the week's new deals, such as those for Iron Mountain Inc. and Novelis Inc., were also seen to have firmed, albeit more modestly. Ford Motor Credit Co.'s gigantic new deal from last week meantime continued to move up.

Among the more established issues, CIT Group Inc.'s bonds were seen better, as was the paper of such diverse issuers as Chesapeake Energy Corp. and Cott Corp.

American Axle & Manufacturing Holdings Inc.'s bonds had particularly substantial gains on the day.

Junk funds up $689 million, sixth straight gain

As trading was winding down for the session, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday some $688.6 million more came into weekly-reporting funds than left them.

It was the sixth straight inflow, continuing the trend seen in the previous week, ended Wednesday July 29, when there was a $613 million net inflow to the funds. A net of $2.836 billion has come into the funds over those past six weeks. Including the latest week's total, inflows have now been seen in 20 weeks out of the last 21, according to a Prospect News analysis of the AMG numbers, totaling $11.826 billion during that long stretch. Before the most recent six weeks, the funds had seen a rare outflow of $110.1 million in the week ended June 24 - and before that, an incredible 14-week stretch of consecutive inflows, dating back to mid-March, during which time the funds grew by a record $9.1 billion.

With the year's second half now well underway, inflows have been seen in 27 of the 31 weeks since the beginning of the year, versus just four weeks of outflows - the one seen in the June 24 week, plus three weeks of fund losses in late February and early March that totaled $996 million, according to the analysis. Counting the latest week's inflow number, the year-to-date net inflow for the weekly-reporting funds rose to $14.39 billion - a new peak level for the year so far, up from the old zenith of $13.701 billion seen in the previous week.

A market source also said that in the latest week, flows into and out of the funds which report on a monthly basis rather than doing so weekly rose by $250.1 million, in contrast to the previous week's unchanged reading. That cash infusion lifted the year-to-date cumulative inflow for such funds to $9.964 billion from the previous week's $9.714 billion total.

The source further said that on an aggregate basis, consolidating the inflows for the weekly and the monthly reporting funds, a total of $224.354 billion more has come into the funds so far this year than has left them, well up from $23.416 billion the week before.

Those sustained inflows have helped the junk market bounce back nicely from last year's staggering 25%-plus loss and sharply reduced primary activity totals. Total returns so far this year continue to grow - they were at an astounding 39% level as of the close Wednesday - handily beating virtually every other major asset class. Meanwhile, the $76.755 billion of new high yield debt issued so far this year globally, as of Wednesday's close -- $62 billion of it domestic - is running almost 28% ahead of the anemic pace of last year's primary tally. Domestic new issuance is 31% ahead of its year-ago levels.

EPFR sees inflows continuing

At another fund-tracking service, Cambridge, Mass.-based EPFR Global, analysts also noted that the junk funds had racked up their 20th week of inflows in the last 21, with the $830 million cash infusion they calculated bringing the total year-to-date inflow to $15.65 billion, a new peak level for the year so far. In the previous week, it said the funds had seen an inflow of $1.14 billion - matching the year's-best level of $1.14 billion reported for the week ended May 13 - with a year-to-date inflow total of $14.82 billion.

While the EPFR junk figures usually point essentially in the same direction as AMG's, the precise weekly and year-to-date numbers almost always differ somewhat due to EPFR's inclusion of some non-U.S. funds in its universe. All cumulative totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they used to - because there is no similar reporting mechanism to accurately track the movements of cash coming into the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

Inflows buoy the market

A trader - commenting on the headline about the latest mutual fund inflow - declared "the money just keeps on flowing in," investors attracted by the super-sized year-to-date return numbers and continued spread tightening; yields, and spreads over comparable Treasuries, have now narrowed to the kind of levels not seen since before last fall's Lehman Brothers debacle plunged Junkbondland into a tailspin from which it took many, many months to recover.

He noted that the new-deal calendar "hasn't been that big, so there's a lot of money chasing stuff."

Indeed, a portfolio manager at another shop noted that outside of the kind of recent mega-deals for Ford Credit and, the day before that, for Nashville-based hospital operator HCA Inc., "most of the deals that have been done have been smaller in scale - you had a lot of $250, $300 million or so," although of course, there are a few notable exceptions to the rule. "Most of the other deals have been rather small."

Take, for instance, the two new deals which came to market on Thursday, for Global Aviation Holdings and Affinia Group. Affinia's was the larger of the two at $225 million, while Global Aviation upsized a little to $175 million from the $165 million originally announced to enable the company to still reap that same amount of proceeds with the bonds pricing at a steep discount to par.

Global Aviation bonds arrive, finally

Global Aviation Holdings priced its offering of 14% four-year senior secured first-lien notes (Ba3/BB-) at 94.245 to yield 16%. That was at the wide end of price talk envisioning a range of between 15% and 16%. There had been no pre-deal talk on the size of the anticipated original issue discount.

The Rule 144A/Regulation S deal, which was sold with registration rights, was brought to market by bookrunner Jefferies & Co., Inc.

It was first announced way back on July 20, and was pitched to potential investors via a lengthy roadshow process, which was originally to have concluded last Friday but which was extended through the middle of this week, according to market sources.

The company, - a Peachtree City, Ga.-based provider of worldwide commercial global passenger charter and cargo air transportation services, particularly to the U.S. military, under the North American Airlines and World Airways brands - plans to use the proceeds of the bond offering, along with those of its $64.1 million five-year senior secured second-lien loan being concurrently marketed to bank debt investors by Jefferies, to refinance its outstanding bank debt.

Affinia prices at tight end of talk

Earlier in the session Affinia Group priced its $225 million issue of 10¾% senior secured notes due 2016 (B1/B+) at 98.799 to yield 11% That yield came at the tight end of price talk envisioning a range of between 11% and 11¼%, while the price came somewhat rich to market expectations of an original issue discount of approximately 2 points.

The Rule 144A/Regulation S for life notes were brought to market via joint bookrunners J.P. Morgan Chase & Co., Bank of America Merrill Lynch, Barclays Capital, Inc. and Deutsche Bank Securities, Inc., with JPMorgan on the left.

The new paper will be secured by a first lien on everything except for Affinia's current assets, which will be security on a second-lien basis. Those current assets will meantime secure on a first-lien basis a $315 million asset-backed revolving credit facility which the company is expected to launch on Monday. That revolver will also be secured by a second lien against all of the company's other assets.

The Ann Arbor, Mich.-based manufacturer and distributor of automotive aftermarket components like brakes, filtration and chassis products plans to use the deal proceeds, together with funds from unspecified other sources (i.e. the planned new revolver) to repay its existing term loan, its existing revolving credit facility, and its accounts receivable securitization facility.

Secured deals gaining popularity

Besides Global Aviation and Affinia, the new-deal market can expect to see several more secured deals pricing soon - for Clean Harbors, Inc. and American Casino & Entertainment Properties LLC, both of which are currently on the road and are expected to price sometime next week.

Norwell, Mass.-based environmental and hazardous waste management services provider Clean Harbors is offering $250 million senior secured notes due 2016 via joint bookrunners Goldman Sachs & Co. and Bank of America Merrill Lynch, while Las Vegas-based gaming operator American Casino & Entertainment Properties will do $375 million of five-year secured paper via bookrunner Goldman. Both companies will use the expected proceeds for debt payment.

This week's secured deals - and next week's - hardly mark the start of a new trend. A portfolio manager told Prospect News that "what's striking to me is to see the number of secured deals that have come. I think it reflects the fact that the loan market is probably choked up - it doesn't have new money flowing in the way that the high yield market does. So I think that for companies that have the ability to issue secured paper, it's a good deal for them, because they get to raise money at a cheap level and not under such limited terms as the banks [would give the issuer], and they get to sell their bonds at a time when, I would say, the dollars in the loan market are probably constrained, if not shrinking."

The manager noted the fact that in the past, secured debt borrowers were "usually the poorest, low-quality [issuers], and that's why they had to come secured by assets."

That seems to have now turned around, since "you've had some deals come to the market that are of reasonable quality, that would have been able to access the market [anyway] without secured debt, but maybe they chose to bring such deals because the terms are so much better. So for people who are flexible enough that they have assets that they can use for a secured bond deal, it's good terms, and it's a good investment for the buyer, because they are higher quality assets."

That source noted that, for instance, the Clean Harbors deal, which is expected to be rated Ba2/BB - quite strong for a junk name - is one such borrower opting to do a secured deal not because it has to, but because it chooses to. "I think it's a case that they can get so much better terms doing a secured bond deal, if they have that flexibility, it's a good deal for them and a good deal for the buyer."

On the other hand, last month's Basic Energy Services Inc. deal " is an example of a deal that really had to come senior secured" - or not get done at all, the portfolio manager said, "so I think that's kind of interesting."

Probably also falling into that category were several other recent deals which withered and died on the vine once they got to secondary, even though they were senior secured. Last month's $130 million offering of 14% secured notes due 2013 for RealMex Restaurants Inc. priced at 90 - and was most recently seen trading several points below that, a source said. Likewise, Western Refining Inc.'s two-part offering in early June, both parts of which were senior secured, was recently being quoted with both tranches down about 3 or 4 points from their respective issue prices in the lower 90s.

An affinity for Affinia

Back among the more recently priced issues, a trader said that Global Aviation's new bonds were not seen in the aftermarket - but Affinia's definitely were, having advanced handsomely to 102 bid, 103 offered from their 98.799 pricing, "a really big move," another trader said with no small amount of understatement. Several other traders also quoted similar levels.

Among other new deals that have made it into the secondary, a trader saw Boston-based document and information storage company Iron Mountain's new 8 3/8% senior subordinated notes due 2021 at par bid, 100½ offered, up modestly from the 99.625 level at which the company's $550 million of bonds - upsized from the originally planned $450 million -- had priced on Wednesday to yield 8.425%.

Atlanta-based rolled aluminum producer and beverage can recycler Novelis' new 11½% senior notes due 2015 were seen at 99¾ bid, 100¼ offered - well up from the 98.022 level at which that $185 million offering of bonds priced on Wednesday to yield 12%.

Inverness Medical Innovations Inc.'s $150 million of 7 7/8% senior notes due 2016 were seen by a trader "right around" 98-981/2, with some trades at 981/4. That's not too far removed from the 98.144 level at which the Waltham, Mass.-based provider of medical diagnostic products and services priced its $150 million of bonds on Wednesday to yield 8¼%.

Ford firming continues

Ford Motor Credit Co.'s new 7½% notes due 2012 gained another 1 5/8 points on Thursday, with a market source quoting them at 94 7/8, on busy volume of almost $25 million at mid-afternoon.

The auto-loan financing arm of Dearborn, Mich.-based carmaker Ford Motor Co. had its $1.75 billion of new notes a week ago at 91.589 to yield 10 7/8%, and have been moving up ever since then.

A trader meantime saw parent Ford's 7.45% bonds due 2031 up a point at 77 bid, 79 offered.

Market indicators stay firm

Back among the more established issues, the CDX Series 12 High Yield index was unchanged for a second straight session on Thursday, a trader said, still seeing the market measure at 90½ bid, 91 offered.

However, the KDP High Yield Daily Index, which gained 9 basis points on Wednesday, tacked on another 16 bps on Thursday to end at 67.02, while its yield tightened by 4 bps to 9.02%.

In the broader market, advancing issues - which had led declining issues for a 14th straight session on Wednesday - continued to lead on Thursday, by a better-than seven-to-five ratio.

Overall market activity, measured by dollar-volume totals, rose by nearly 8% from Wednesday's level.

CIT strength continues

A trader said that CIT Group Inc.'s bonds were "moved up a little bit" and were "up a point or two" pretty much across the board, with its 7 5/8% notes due 2012 trading at 60 bid, "so that's feeling better, a point or two higher."

He said that the New York-based commercial lender's floating-rate notes coming due in less than two weeks on Aug. 17 - which the company is in the midst of tendering for - "sort of slowed up," and were about unchanged in the mid-90s. He said there was "not as much volume" in that issue as there had been previously. Earlier in the week, "they adjusted the deal [on the tender offer], so that's where that is."

At another shop, the company's 5.95% notes due 2017 were seen up more than 6 points to the 46 bid mark.

Cott climb continues

Another gainer, a trader said, was Cott Corp.'s 8% subordinated notes due 2011. A trader had seen those bonds up about a point or two on Wednesday, trading in a 97-99 context, "on speculation, not confirmed," that the Toronto-based soft-drink bottler will use about $50 million raised in an equity offering to buy back those 8% bonds.

At another desk, Cott was seen Thursday having gotten as high as 99 bid, 99¼ offered, although he said it was "just a couple of trades, with not much change."

The company said in a statement Tuesday that it might use those stock-sale proceeds for to buy back those bonds, subject to market conditions - or it might use the money to repay a portion of its asset-based lending facility, again subject to market conditions.

Chesapeake chips in

A trader saw Chesapeake Energy's 7½% notes due 2013 "kinda grinding higher" at 100¾ bid, 101 offered, -- versus levels around par a day or two earlier. That was the most active Chesapeake issue traded, with over $10 million changing hands by late afternoon.

Its 6¼% notes due 2018 were at 91½ bid, up from 89-90 earlier in the week.

The Oklahoma City-based independent energy exploration and production company announced a modification of its joint venture terms with partner Plains Exploration and Production Co.; the two are working together to develop a natural gas field, and Plains has agreed to make an early payment of $1.1 billion to Chesapeake for its part of the drilling costs - in return for getting a reduction in the overall price that it would have had to pay anyway.

American Axle improves

A trader saw American Axle & Manufacturing Holdings Inc.'s bonds up for yet another session, with its 5¼% notes due 2014 at 48½ bid, 50 offered, up from levels in a 42-44 context on Wednesday, and well up from the lower 30s, where the bonds had been last week. He saw its 7 7/8% notes due 2017 also up 6 to 7 points on the day around 49-50.

The Detroit-based automotive components maker is operating under a debt-covenant waiver from its lenders that runs through Aug. 20 as it attempts to restructure its debt outside of court. On Wednesday, it reported a lower quarterly loss versus a year ago, although its loss ex-items was wider than expected.

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