Steel Dynamics, Linn lead in second straight huge primary session; funds lose $198 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 4 – There was just no stopping the resurgent high-yield primary market on Thursday. Syndicate sources reported that $4.98 billion face amount of new dollar-denominated, fully junk-rated paper had priced, on top of Wednesday’s $5.84 billion of junk transactions that got done.

All told, Thursday’s issuance came to market in nine deals totaling 11 tranches, tying the mark for both deals and tranches set back on March 26 – when, oddly enough, face-amount volume had also totaled $4.98 billion, according to data compiled by Prospect News.

All of the day’s activity came in same-day, quickly marketed drive-by deals except for an upsized $850 million offering from energy operator Ultra Petroleum Corp., which had been announced earlier in the week.

As had been the case on Wednesday, much of the day’s volume came from a couple of two-part megadeals.

Metals producer Steel Dynamics, Inc. had the biggest deal of the day, a $1.2 billion offering of seven-year and 10-year notes.

Oil and natural gas exploration and production company Linn Energy LLC did a $1.1 billion two-parter split into five-year and seven-year notes.

The rest of the deals, including Ultra Petroleum’s, were single-tranche affairs, including a pair of $500 million deals from Cequel Communications Holdings I, LLC and Antero Resources Corp., a $250 million issue from Amsted Industries, Inc., a pair of $200 million transactions from Consolidated Communications Finance II Co. and Group 1 Automotive, Inc. and, bringing up the rear, a $175 million add-on to HealthSouth Corp.’s existing 2024 notes.

Traders meanwhile said that there was heavy volume in several of the deals that priced on Wednesday, notably including the two-part offerings from T-Mobile US, Inc., Frontier Communications Corp. and Gannett Co., Inc. and WPX Energy, Inc.’s one-tranche deal.

They said that most of the new issues from both sessions were trading at or just a little above their respective issue prices. Activity in the new bonds, or in existing bonds of the same companies, completely dominated the secondary realm.

Statistical market performance indicators were lower across the board for a second straight session on Thursday after having been mixed for six consecutive sessions before that.

And flows of cash in to or out of high-yield mutual funds and exchange-traded funds, considered a reliable gauge of overall market liquidity trends, were seen having suffered a moderate outflow in the latest week after having been on the upside for three straight weeks before that.

Junk funds lose $198 million

As Thursday’s session was wrapping up, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $198 million left those funds than came into them in the week ended Wednesday.

It was the first such outflow seen after three consecutive weeks of inflows totaling $3.58 billion, including the $672 million cash addition reported in the week ended Aug. 27 by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., and before that, inflows of $680 million in the week ended Aug. 13 and then the $2.22 billion improvement in the seven-day period ended Aug. 20, the biggest such improvement seen so far this year, according to a Prospect News analysis of the figures.

Those three inflows had seemed to represent a rebound from the toxic pattern of huge outflows seen over the four-week stretch before that beginning July 16 and running through Aug. 6. During that time, outflows topped $12.6 billion, according to the analysis – including the massive $7.07 billion cash hemorrhage recorded during the week ended Aug. 6, the largest such outflow on record since the company began tracking fund flows back in 1992.

On a longer-term basis, although inflows to the weekly-only reporting funds have still now been seen in 24 of the 35 weeks since the start of the year, according to the analysis, against just 11 outflows, the recent four-week nosedive tipped the year-to-date balance far into the red. The latest three weeks of inflows brought that year-to-date cumulative net outflow down somewhat.

Counting the latest week’s downturn, cumulative net outflows so far this year have risen to $6.37 billion from $6.17 billion last week, but that’s down from the $9.75 billion 2014 cash outflow market sources saw in the Aug. 6 week.

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 – which had 53 reporting weeks due to a statistical quirk – 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, the analysis indicated.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime, also saw “a small outflow,” according to a market source. Before that, the service had seen two straight inflows following five straight weeks of massive outflows.

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.

While the two services’ respective weekly results usually point pretty much in the same direction, that has not always been the case; in some weeks in which AMG/Lipper showed outflows, EPFR saw overall inflows, or vice versa. EPFR thus has recorded inflows in 26 out of the 35 weeks since the start of the year, against nine weekly outflows during that time.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable – more so than those of other, larger cash sources – and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years and which had mostly continued on into this year as well.

Investment-grade bond funds saw a net inflow this week of $409 million, versus the previous week’s $922 million.

Linn Energy upsizes

A roaring high-yield primary market saw $4.98 billion of fully junk-rated issuance in 11 tranches on Thursday.

Most of the deals priced on top of or in the middle of talk. Two came at either the tight or rich end of talk, while one came at the wide end.

Ten of the 11 came as drive-bys.

Linn Energy, LLC and Linn Energy Finance Corp. priced an upsized $1.1 billion two-part senior notes deal (B1/B+) on Thursday, according to a syndicate source.

The deal included a $450 million add-on to the 6½% senior notes due May 15, 2019 that priced at 102 to yield 6.001%. The reoffer price came on top of price talk.

In addition, the company priced $650 million of new 6½% seven-year senior notes at 98.619 to yield 6¾%. The yield printed at the wide end of yield talk in the 6 5/8% area.

The overall transaction was increased from $1 billion.

Barclays was the lead left bookrunner.

Scotia Capital, RBC Capital Markets, Wells Fargo Securities LLC, Citigroup Global Markets, Credit Agricole CIB, Goldman Sachs & Co., RBS Securities, UBS Investment Bank were the joint bookrunners.

The Houston-based oil and gas company plans to use the proceeds to repay debt under the co-issuers' bridge loans.

Steel Dynamics drives by

Steel Dynamics priced an upsized $1.2 billion two-part senior notes deal (Ba2/BB+) on Thursday, according to a market source.

An upsized $700 million tranche of seven-year notes priced at par to yield 5 1/8%. The yield printed in the middle of the 5% to 5¼% yield talk.

Also, a tranche of 10-year notes priced at par to yield 5½%. The yield printed in the middle of the 5 3/8% to 5 5/8% yield talk.

The overall size of the transaction was increased from $1 billion.

Goldman Sachs, BofA Merrill Lynch, Morgan Stanley & Co. LLC, J.P. Morgan Securities LLC and Deutsche Bank Securities Inc. were the bookrunners.

The Fort Wayne, Ind.-based steel company plans to use the proceeds, along with cash on hand and credit available under its existing senior secured credit facility, to finance the planned acquisition of Severstal Columbus, LLC.

Ultra Petroleum upsizes

In the only Thursday deal to be marketed by roadshow, Ultra Petroleum priced an upsized $850 million issue of 10-year senior notes (B2/BB) at par to yield 6 1/8% on Thursday, according to a syndicate source.

The deal was upsized from $700 million.

The yield printed in the middle of the 6% to 6¼% yield talk.

Goldman Sachs, Citigroup, Wells Fargo and CIBC World Markets were the joint bookrunners.

The Houston-based independent oil exploration and production company plans to use the proceeds, along with a $225 million draw on its revolver; to fund the cash portion of the acquisition of the Pinedale field properties from Royal Dutch Shell.

Antero at the rich end

Antero Resources priced an upsized $500 million add-on to its 5 1/8% senior notes due Dec. 1, 2022 (B1/BB) at 100.5 to yield 5.021% on Thursday, according to a market source.

The deal was upsized from $400 million.

The reoffer price came at the rich end of the 100 to 100.5 price talk.

JPMorgan, Wells Fargo, Barclays, Capital One Securities Inc. and Credit Agricole Securities (USA) Inc. were the joint bookrunners for the quick-to-market deal.

The Denver-based independent oil and natural gas company plans to use the proceeds to repay a portion of the outstanding borrowings under its credit facility.

Cequel taps 5 1/8% notes

Cequel Communications Holdings I and Cequel Capital Corp. priced a $500 million tack-on to their 5 1/8% senior notes due Dec. 15, 2021 (B3/B-) at 97.25 to yield 5.589% in a quick-to-market Thursday transaction, according to a syndicate source.

The reoffer price came at the cheap end of the 97.25 to 98.26 price talk.

Credit Suisse Securities (USA) LLC, JPMorgan, Goldman Sachs, RBC Capital Markets and SunTrust Robinson Humphrey were the joint bookrunners.

The St. Louis-based cable operator plans to use the proceeds to fund a dividend to its shareholders.

Amsted at the tight end

Amsted Industries priced a $250 million issue of 10-year senior notes (Ba3/BB) at par to yield 5 3/8% on Thursday, according to a syndicate source.

The yield printed at the tight end of yield talk in the 5½% area.

Wells Fargo was the left bookrunner. BofA Merrill Lynch and Morgan Stanley were the joint bookrunners.

Proceeds will be used for general corporate purposes.

Amsted is a Chicago-based manufacturer of products for the railroad, construction and building industries.

Consolidated Communications drives by

Consolidated Communications, Inc. priced a $200 million issue of eight-year senior notes (B3/B-) at par to yield 6½% on Thursday, according to a syndicate source.

The yield printed on top of yield talk.

Morgan Stanley, Wells Fargo and RBS Securities are the joint bookrunners.

Proceeds will be used to pay a portion of fees and expenses incurred in connection with the proposed acquisition of Enventis, to finance the repayment of Enventis debt and to repay a portion of the existing Consolidated Communications 10 7/8% notes.

The issuing entity is Consolidated Communications Finance II, which is to be assumed by Consolidated Communications, Inc., a Mattoon, Ill.-based provider of advanced communications services.

Group 1 Automotive taps notes

Group 1 Automotive priced a $200 million add-on to its 5% senior notes due June 1, 2022 (existing B1/confirmed BB) at 98.5 to yield 5.237% in a Thursday drive-by deal, according to a market source.

The reoffer price came on top of price talk.

JPMorgan, Wells Fargo and BofA Merrill Lynch were the joint bookrunners.

The Houston-based auto dealership and collision services center chain plans to use the proceeds to repay debt under the acquisition line of its revolver and to make a contribution to its floor plan offset account, which is the amount of excess cash that is used to pay down the floor plan line of its revolver but can be immediately redrawn, according to a Thursday press release from the company.

About $175 million of outstanding debt under the acquisition line was used to finance the conversion and redemption of the company's 2¼% convertible senior notes due 2036.

HealthSouth taps 5¾% notes

HealthSouth priced a $175 million add-on to its 5¾% senior notes due Nov. 1, 2024 (Ba3/BB-) at 103.625 to yield 5.053% on Thursday, according to a syndicate source.

The reoffer price came in the middle of the 103.5 to 103.875 price talk.

Barclays was the lead left bookrunner for the public offer.

BofA Merrill Lynch, Citigroup, Goldman Sachs, JPMorgan, Morgan Stanley, RBC, SunTrust Robinson Humphrey and Wells Fargo were the joint bookrunners.

The Birmingham, Ala.-based owner and operator of hospitals plans to use the proceeds to repay its existing 7¼% notes due 2018.

California Resources to bring $5 billion

California Resources Corp. is on the road with $5 billion of non-callable senior notes (Ba1/expected BB) in three tranches, according to market sources.

The Rule 144A and Regulation S with registration rights deal, which was announced on Wednesday, is set to price in the week ahead.

It includes a tranche of 5.5-year notes that will have a par call one month prior to maturity. It also includes a tranche of seven-year notes that will have a par call two months prior to maturity. The long piece of the deal features 10-year notes that will have a par call one month prior to maturity.

Tranche sizes remain to be determined.

BofA Merrill Lynch, JPMorgan, Citigroup, Wells Fargo, Goldman Sachs, HSBC, Morgan Stanley, MUFG and US Bancorp are the joint bookrunners.

BB&T, BBVA, DNB Markets, Mizuho, PNC Capital Markets, Scotia Capital and SG CIB are the senior co-managers.

IMI, BNY Mellon, KeyBanc Capital Markets and SMBC Nikko are the co-managers.

Proceeds, along with a $1 billion term loan, will be used to fund a $6 billion distribution to Occidental Petroleum Corp. as part of the spinoff of California Resources, which is a wholly owned subsidiary of Occidental Petroleum.

The notes will feature a special call on or before Jan. 31, 2015 at par plus accrued interest if the spinoff has not been completed.

California Resources is a Los Angeles-based oil and gas exploitation and production company.

Dynagas talk is 6¼%

Athens-based Dynagas LNG Partners LP talked a $250 million offering of five-year senior notes to yield in the 6¼% area, market sources said on Thursday.

Books close at noon ET on Friday, and the deal is expected to price thereafter.

Sterne, Agee & Leach, Inc. and DNB Markets, Inc. are the joint bookrunners.

Proceeds, along with cash on hand, will be used to finance the majority of the purchase price of one of three recently built vessels that the partnership has the option to acquire from Dynagas Holding Ltd., the partnership's sponsor, together with its respective charter contract.

Dynagas operates liquefied natural gas carriers.

Fiat’s €500 million tap

Fiat Finance & Trade Ltd. SA priced a €500 million add-on to its 4¾% senior notes due July 15, 2022 (B2/BB-/BB-) at 103.265 to yield 4¼% on Thursday, according to a market source.

The yield printed on top of yield talk.

Joint bookrunner BNP Paribas will bill and deliver. Citigroup, SG CIB and UBS were also joint bookrunners.

The Turin, Italy-based auto manufacturer plans to use the proceeds for general corporate purposes.

Antero up slightly

In the secondary market, although Steel Dynamics and Linn Energy dominated the day’s new-issuance tally with their two-part megadeals, both came to market too late in the day for any real aftermarket activity.

Looking among the day’s smaller deals that priced earlier in the session, a trader saw Antero Resources’ 5 1/8% notes due 2022 in a 100½ to 100 5/8 context, versus the add-on tranche’s 100.5 pricing level, on brisk volume of over $44 million.

A second trader pegged the bonds between 100 5/8 and 100¾.

Cequel holds steady

A trader said that Cequel Communications’ 5 1/8% add-on notes due 2021 were at 97½ bid, “holding right above their issue price” of 97.25.

Another trader saw those bonds trading between 97¼ and 97½.

Ultra Petroleum loses ground

Ultra Petroleum’s 6 1/8% notes due 2024, on the other hand, were seen fighting to reach their issue price.

A trader saw “north of $70 million” of the new bonds trading in a 99¾ to par range, with “a lot of trading taking place under par,” where the issue had priced.

At another desk, a trader saw the bonds in a 99¾ to 99 7/8 context.

And yet another market source said that “everything was trading reasonably strong except for Ultra Petroleum and WPX Energy.”

WPX off its highs

Tulsa, Okla.-based WPX, an oil and natural gas exploration and production company, had priced a quickly shopped $500 million of 5¼% notes due 2024 at par on Wednesday. The new notes had moved up to a 100½ to 101 context by Wednesday’s close.

On Thursday, the new bonds were among the most actively traded high-yield credits, with over $64 million seen having changed hands. A market source quoted them going home at an even par bid, calling that down ½ point on the session.

A second trader located the bonds at par bid, 100½ offered, calling them down 3/8 bid.

T-Mobile trades tremendously

But by far the volume champ was Bellevue, Wash.-based communications provider T-Mobile, which had sold $3 billion of new paper in a two-part quick-to-market transaction on Wednesday – $1.3 billion of 6% notes due 2023 and $1.7 billion of 6 3/8% notes due 2025.

A trader saw $215 million of the former bonds having traded, seeing them around the par to 100 1/8 level.

And he saw even more active dealings of over $237 million in the latter bonds, seeing them at the 100¼ level.

Wednesday’s other megadeal – from Stamford, Conn.-based telecom operator Frontier Communications – also traded heavily, with its 6¼% notes due 2021 seen at 100 5/8 bid, on volume of over $144 million, versus the par level where that $775 million tranche had priced.

Its 6 7/8% notes due 2025 saw more than $128 million change hands, with the trader seeing them in a par to 100 1/8 context, right near the par level where the $775 million of bonds had priced.

Another market source saw the 6¼% notes down nearly a point from their highs, trading at 100 3/16 bid.

The 6 7/8% notes had dipped 1 3/8 points to 99 7/8 going home.

McLean, Va.-based newspaper and digital website published Gannett was also way up among the volume leaders.

A trader saw its 5½% notes due 2024 ending down 1/8 point at 100 1/8 bid, with over $20 million traded. It had priced $350 million of the paper at 98.351 to yield 5 1/8%.

Its 4 5/8% notes due 2021 lost 3/8 point to end at 99, with over $30 million of turnover.

All told, one of the traders said, the recently priced issues “are trading really tight, up maybe 1/16 to 1/8 point.”

“There’s not a lot of spread in this new-issue trading,” he said.

Indicators stay lower

Statistical indicators of junk market performance were seen lower across the board for a second straight day on Thursday after having been mixed for six consecutive sessions before that.

The KDP High Yield Daily index lost 9 basis points to close at 73.80, its fifth straight downturn. On Wednesday, it had been down by 6 bps.

Its yield rose by 3 bps to 5.10%, its sixth consecutive widening. That followed Wednesday’s rise of 2 bps for a second straight day.

The Markit CDX Series 22 index retreated by 7/32 point to 107¾ bid, 107 25/32 offered, its second straight loss. On Wednesday it had moved down by 1/8 point after firming by 1/16 point Tuesday. Losses have now been seen in seven out of the last eight sessions.

And the widely followed Merrill Lynch High Yield Master II index was in the loss column for a third straight day, falling by 0.144%, after having lost 0.08% on Wednesday and 0.038% on Tuesday, which had been the first such setback after 16 consecutive sessions before that on the upside.

The latest downturn dropped the index’s year-to-date return to 5.569%, down from Wednesday’s 5.722% and down as well from 5.847% on Monday, its new peak level for the year so far.

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