Carlson, Conn’s, Popular, APX price; Iron Mountain up on REIT plan; funds gain $619 million

By Paul Deckelman and Paul A. Harris

New York, June 26 – High-yield issuers continued their active new-deal pace on Thursday, rushing to get their financing done before the looming end of the month, second quarter and first half.

Syndicate sources said that four borrowers came to market during the session with a total of $1.16 billion of new bonds, a pricing parade led by regularly scheduled offerings off the forward calendar by Carlson Wagonlit Travel, which did a $360 million tranche of five-year PIK toggle notes via a subsidiary, and by specialty retailer Conn’s Inc., ringing up $250 million of eight-year notes.

There was also a pair of opportunistically timed and quickly marketed drive-by deals from issuers darting into the market to take advantage of a favorable pricing environment.

Puerto Rico-based lender Popular, Inc. did an upsized $450 million issue of five-year holding-company paper, while home security firm APX Group, Inc. dropped in with a $100 million add-on to its existing 2020 notes.

U.S.-based companies are generally more at home in the dollar-denominated junk bond arena, but packaging concern Crown Holdings Inc. meanwhile deviated a little from the norm and tapped the European debt market with an upsized offering of eight-year euro-denominated paper via a subsidiary.

Away from the new-deal sphere, traders said that Iron Mountain Inc.’s bonds and shares both rose in active dealings as the document-storage company took an important step in its ongoing effort to restructure itself as a real estate investment trust.

Statistical market-performance indicators turned mostly lower on Thursday after having been mixed over the previous two sessions and higher for three consecutive sessions before that.

But another indicator – the flows of cash into and out of high-yield mutual funds and exchange-traded funds, considered a good barometer of overall junk market liquidity trends – turned higher in the latest week, bouncing back from a relatively rare negative reading last week.

Junk funds gain $619 million

Market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said late Thursday that $619.2 million more came into those funds than left them in the week ended Wednesday.

That was a solid rebound, more than offsetting the $239 million outflow reported last week by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended June 18.

That cash loss had been the first net outflow from the funds seen since the week ended April 30, when they had collectively lost $631 million, and it broke a subsequent string of six consecutive weeks of net inflows totaling $2.32 billion, according to a Prospect News analysis of the figures.

That six-week winning streak had established a definite positive trend, breaking out of the choppy pattern of a week or two of inflows alternating with a week or so of outflows that had been in effect since around mid-March, which in turn had followed a strongly positive start to the year.

With the latest week’s upturn, inflows to the weekly-only reporting funds have now been seen in 19 of the 25 weeks since the start of the year, according to the analysis, against just six outflows.

The inflow in the latest week raised the year-to-date cumulative net inflow number to $6.49 billion, according to a market source – a new peak inflow level for the year. That total is up from the previous week’s estimated $5.87 billion total and up as well from the previous peak level of $6.11 billion, which was recorded in the week ended June 11.

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, according to the analysis.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime also saw an inflow in the latest week, a market source said, calling that cash addition around a “similar size” to the number reported by AMG/Lipper.

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. Accordingly, the two services’ weekly numbers are also generally quite different. While their 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. It thus has recorded inflows in 22 out of the 25 weeks since the start of the year, against only three 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 has mostly continued on into this year as well.

According to a market source, inflows were also seen this week to investment-grade mutual funds and ETFs, which collectively were up by $1.5 billion. However, loan-participation funds were seen down by nearly $424 million on the week – the latest in a string of weekly outflows from the loan funds dating back to mid-April, which followed an incredible stretch of nearly two full years of consecutive weekly inflows, the market sources said.

Popular upsizes

The primary market – at least the dollar-denominated primary – was expected to take a breather on Thursday in order to view the World Cup soccer match between Germany and the United States.

Although things got quiet toward mid-day, according to sources, the news volume remained high.

Four issuers combined to raise $1.16 billion with four tranches of high-yield notes.

In drive-by action, Popular priced an upsized $450 million issue of non-callable five-year senior holdco notes (expected ratings B2/B+/BB-) at par to yield 7% on Thursday.

The deal was upsized from $400 million.

The yield printed at the tight end of the 7% to 7¼% yield talk.

J.P. Morgan Securities LLC ran the books.

The San Juan, Puerto Rico-based banking institution plans to use the proceeds to redeem its junior subordinated debentures held by Popular Capital Trust III at par plus accrued interest.

Carlson Wagonlit inside of talk

Carlson Wagonlit Travel priced a $360 million issue of five-year senior PIK toggle notes (Caa1) at par to yield 7½%.

The yield printed inside of yield talk in the 7¾% area.

The notes pay a cash coupon of 7½%, which steps up to 8¼% for PIK payments.

Morgan Stanley & Co. LLC and JPMorgan were the joint bookrunners.

The issuing entity will be Carlson Travel Holdings, Inc.

The Minneapolis-based travel management company plans to use the proceeds to partially finance the acquisition from JPMorgan Chase & Co. of the 45% equity interest it holds in Carlson Wagonlit Travel. As a result of this acquisition, Carlson Group will own 100% of Carlson Wagonlit Travel.

Conn's at the wide end

Conn’s, Inc. priced a $250 million issue of eight-year senior notes (B2/B-) at par to yield 7¼% on Thursday, according to a syndicate source.

The yield came at the wide end of the 7% to 7¼% yield talk.

BofA Merrill Lynch was the left bookrunner. JPMorgan was the joint bookrunner.

The Woodlands, Texas-based specialty retailer of furniture, mattresses, home appliances, consumer electronics and provider of consumer credit plans to use the proceeds to repay a portion of its current asset-based revolver.

Vivint taps 8¾ notes

APX Group, the parent of Vivint, Inc., priced a $100 million add-on to its 8¾% senior notes due Dec. 1, 2020 at 102 on Thursday, according to a market source.

The reoffer price came on top of price talk.

BofA Merrill Lynch, Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Macquarie Capital, Morgan Stanley & Co. LLC, Credit Suisse Securities (USA) LLC and HSBC were the joint bookrunners.

Vivint is a Provo, Utah-based home security services provider.

Elsewhere, C&S Group Enterprises talked its $400 million offering of eight-year notes (B1/BB) to yield 5¼% to 5½%.

Official talk came in line with earlier guidance in the low-to-mid 5% yield context, a trader said.

Books close at 9:30 a.m. ET on Friday, and the deal is set to price thereafter.

JPMorgan, BofA Merrill Lynch, Wells Fargo Securities LLC and BMO Securities are the joint bookrunners.

Crown upsizes

In the European market, Crown European Holdings SA, a subsidiary of Crown Holdings, priced an upsized €650 million issue of non-callable eight-year senior notes (Ba1/BB-) at par to yield 4% on Thursday.

The deal was upsized from €500 million.

The yield printed on top of yield talk.

Joint physical bookrunner BNP Paribas will bill and deliver for the Rule 144A and Regulation S for life offering. Royal Bank of Scotland was also a joint physical bookrunner.

BofA Merrill Lynch, Barclays, Credit Agricole CIB, Deutsche Bank, Santander and Wells Fargo were the joint bookrunners.

Proceeds, together with other available funds, will be used to retire all of Crown European Holdings’ outstanding €500 million 7 1/8% senior notes due 2018.

Crown is a Philadelphia-based consumer products packaging producer.

Grupo Isolux taps 6 5/8% notes

Grupo Isolux Corsan Finance BV priced an upsized €250 million add-on to its 6 5/8% senior notes due April 15, 2021 (/B/B+) at 102.25 to yield 6.072% in a quick-to-market transaction.

The deal was upsized from €200 million.

The reoffer price came on top of price talk.

Joint bookrunner Morgan Stanley will bill and deliver. SG CIB and Santander were also joint bookrunners.

The Madrid-based construction and engineering company plans to use the proceeds to repay bank debt and put cash on its balance sheet.

Talking the deals

Hellenic Petroleum set initial yield talk for its €300 million offering of five-year senior notes in the 5¾ area.

The deal is expected to price by the end of the week.

Global coordinator Credit Suisse will bill and deliver. Barclays is also a global coordinator. Alpha Bank, Citigroup, Deutsche Bank, Eurobank and NBG Securities are the joint lead managers.

The notes come with three years of call protection.

The Athens-based petroleum refiner plans to use the proceeds to refinance debt.

Elsewhere, Pfleiderer AG talked its €320 million offering of five-year senior secured notes (Caa1/CCC+) to yield 7¾ to 8%.

Deutsche Bank will bill and deliver and is leading a syndicate of banks that includes Commerzbank, Goldman Sachs and BNP Paribas.

Secondary seen softer

Traders said that activity in the secondary market was generally quiet. One said that the much-anticipated televised World Cup matchup between the United States and Germany certainly threw something of a damper on activity during the mid-afternoon, with lots of participants “taking early lunches or just being glued to their screens from noon [ET] to 2 p.m.”

Overall, a trader said, there was an easier tone.

“The market definitely got softer as the day wore on,” he said.

He suggested that it might be because of the looming end of the quarter on Monday, with “a lot of people just closing their books up and not a lot of bids out there to hit right now.”

He said that “no one name seemed to get beat up too badly,” but “some of the stuff that we’ve been active in recently traded off a little bit,” estimating the erosion at anywhere from 1/8 point to 3/8 point or even ½ point in some cases.

He said that there was “not a lot of volume” in such dealings.

Day’s deals unseen

Several traders indicated that they had not seen any initial aftermarket dealings on Thursday in the new issues that had priced during the session.

As to other recently priced issues, the tone was generally about unchanged to a little softer, in line with the overall somewhat easier market.

For instance, a trader quoted Endo International plc’s new 5 3/8% notes due in January 2023 down ¼ point on the day at par bid, 100¼ offered.

A second market source saw the bonds at 100 1/8 bid, 100¼ offered, which he said was “not too much different than where they were.”

The pharmaceutical company – based in Dublin, though with its U.S. operations based in Malvern, Pa. – priced $750 million of the notes on Wednesday via its Endo Finance LLC and Endo Finco Inc. subsidiaries. The quick-to-market offering priced at par after having been upsized from an originally announced $500 million and had been seen trading in a 100¼ to 100½ context in initial aftermarket dealings later Wednesday.

A trader saw SAExploration Holdings, Inc.’s new 10% senior secured notes due 2019 at par bid, 101 offered on Thursday.

That was down by as much as ¾ point from the levels at which those bonds had traded on Wednesday after the Houston-based oilfield services company priced its $150 million deal at par as a regularly scheduled forward calendar offering.

Out of that same energy sector, a trader said that Memorial Resource Development Corp.’s 5 7/8% notes due 2022 were trading during the morning around 100 7/8 to 101, “about where they went out last night, wrapped around 101.”

At another desk, though a trader pegged the bonds at 100 5/8 bid, 101 1/8 offered, calling them down ½ point on the day.

The Houston-based upstream master limited partnership priced a quickly shopped $600 million of those notes at par on Wednesday after having doubled the deal in size from the originally announced $300 million amount, and the bonds were seen to have gotten as good as a 101 1/8 to 101 5/8 context in their initial secondary dealings later in that session.

A trader opined that the new CNH Industrial NV 3 3/8% notes due 2019 “didn’t do too well.” He said the only market he had seen was a “really wide” 99 1/8 to 99 7/8 context, but he noted that even after they had priced at a discount on Wednesday, they had traded into a 99½ bid, around their pricing level.

The Basildon, U.K.-based manufacturer of agriculture and construction equipment had brought a quickly shopped $500 million of the notes to market Wednesday via its Racine, Wis.-based U.S. financing unit, CNH Industrial Capital LLC, pricing the bonds at 99.426 to yield 3.5%.

Iron Mountain moves up

Away from the new-deal realm, traders saw Iron Mountain’s bonds bucking the generally softer trend, helped by positive news from the Boston-based document storage and records-management company.

A market source said that its 5¾% notes due 2024 had moved up to 103½ bid, a gain of nearly 2 points on the day, with over $14 million having changed hands – relatively strong volume on a mostly quiet day in Junkbondland.

The company’s New York Stock Exchange-traded shares, meanwhile, jumped by $5.97, or 20.05%, to end at $35.74. Volume of 15.2 million shares was more than nine times the average daily turnover.

The bonds and shares moved up after the company – which is in the process of converting itself into a real estate investment trust – received a long-awaited favorable private letter ruling from the Internal Revenue Service, a key step in the process.

That IRS decision allows Iron Mountain to move forward with its conversion plans. The company says that such a conversion will lower its taxes and increase stockholder returns.

If and when the process is completed, Iron Mountain’s REIT status would take effect retroactive to Jan. 1 of this year.

Senior analyst Evan Mann of the Gimme Credit independent advisory service said in a research note Thursday that a successful REIT conversion, “the most likely outcome, will likely lead to lower leverage and stronger credit ratios over the longer term.”

However, he cautioned that should the company for some reason not be able to carry out its strategy and change itself into a REIT, a structure that in theory returns much of the cash flow it generates to its shareholders in the form of distributions, that would likely mean “higher levels of free cash flow over the longer term, but could also result in the more aggressive pursuit of acquisitions and use of balance sheet leverage.”

Mann also called Iron Mountain’s liquidity “strong.”

Market indicators turn lower

Statistical indicators of junk market performance turned mostly lower on Thursday after having been mixed on Tuesday and Wednesday and having been higher across the board for the three sessions before that.

The KDP High Yield Daily index was unchanged for a third straight session at 75.05 after having been up for the previous three sessions including Monday, when it rose by 5 bps.

Its yield was also unchanged, at 4.93%, its third straight day at that level. It had declined by 1 bp on Monday.

However, the Markit CDX Series 22 index lost 3/32 point on Thursday to end at 108 13/16 bid, 108 7/8 offered after having risen by ¼ point on Wednesday. It had lost ¼ point on Tuesday.

The widely followed Merrill Lynch High Yield Master II index posted its second consecutive loss on Thursday after 15 straight upside sessions before that, a winning streak that dated back to May 26.

It was down by 0.006% after having retreated by 0.075% on Wednesday. The index had edged up by 0.01% on Tuesday.

The second loss dropped its year-to-date return to 5.641% from Wednesday’s 5.648% and from Tuesday’s 5.727%, which had been its 14th straight new peak level for 2014.

Its yield to worst rose to 4.902% from Wednesday’s 4.897% – up from Tuesday’s 4.847%, which had been its fourth consecutive new low for the year as well as an all-time low level.

Its average issue price declined to 105.8258 on Thursday from 105.852 on Wednesday. Those levels were meantime below its high price for the year, the 105.9617 level recorded on Monday.

And its spread to worst over comparable Treasury issues widened to 365 bps from 362 bps on Wednesday. Those spreads remain above Monday’s 353 bps, which had been the third successive new tight level for 2014.

Although junk bond yields are currently at their all-time lows, spreads remain up by more than 100 bps from their historical tight levels around 250 bps over comparable Treasuries, first set back in 1997 and then matched in 2007.

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