American Media details surface, new bonds trade up; recent issues quiet; funds gain $162 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 25 – The recent mid-summer drought in the high-yield primary sphere pretty much continued on Thursday – although details surfaced on one transaction that took place way under the radar.

Market sources said that American Media Inc. – best known as the publisher of supermarket tabloids like the National Enquirer and The Globe, as well as various health- and fitness-oriented magazines – issued $670 million of notes in two tranches in a Rule 144A private placement, consisting of $136 million of secured five-year notes and $534 million of unsecured 5.5-year zero-coupon paper.

Those new bonds racked up a fair amount of aftermarket activity in what was otherwise a mostly sleepy day in Junkbondland, with both tranches firming smartly when they were freed to trade. There was also some upside action in one of the existing American Media bond issues expected to be refinanced from the proceeds of the new deal.

Elsewhere, traders saw only quiet activity in some of the recently busy bonds that had priced last week, with just a couple of million seen traded in such names as Diamond Resorts International, Inc., Novelis Corp. and NRG Yield, Inc.

There was some activity for a second straight session in Canadian aircraft manufacturer Bombardier, Inc.’s bonds, with one of its issues rebounding from lower levels seen on Wednesday.

Statistical market performance measures were mixed for a second consecutive session on Thursday after improving across the board on Tuesday and then turning mixed on Wednesday. Thursday marked their fourth mixed session in the last five trading days.

Another numerical indicator – flows of investor cash into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – was on the upside for a third consecutive week, continuing to bounce back after two straight weeks of net outflows.

Some $162 million more came into those weekly-reporting-only domestic funds than left them in the form of investor redemptions during the week ended Wednesday, which followed inflows of $889 million last week and $1.655 billion during the week ended Aug. 10. Those three inflows, totaling $2.706 billion, represented a more-than-complete rebound from the $2.464 billion outflow recorded during the week ended Aug. 3, which was the biggest weekly outflow seen so far this year (see related story elsewhere in this issue).

American Media places notes

Although the primary market remains largely dormant, it is not completely dead in the water.

Earlier in the week, in what a trader described as “an under-the-radar deal,” American Media placed $670 million of notes in two tranches.

The deal, which was characterized as a private placement but came with a Rule 144A format, featured $136 million of 5½% secured notes due Sept. 1, 2021, which priced at 73, and $534 million of zero-coupon notes due March 1, 2022, which priced at 42.75.

JP Morgan managed the sale, a sellside source said on Thursday.

Although the deal has the look of a distressed exchange, JP Morgan will claim league table credit, the source added.

Proceeds will be used to refinance AMO Escrow Corp./American Media Operations Inc.’s 11½% first-lien senior secured notes due Dec. 15, 2017, and American Media, Inc.’s 7% second-lien senior secured notes due July 15, 2020.

In a Wednesday press release, American Media announced that it successfully completed the refinancing of its capital structure, achieving a $20 million reduction in its interest expense and extending the maturity on its debt through 2022.

A company spokesman who returned a call from Prospect News acknowledged that American Media had undertaken “a private placement,” but declined to furnish terms.

A big September

Given what appears to be a supportive backdrop in the financial markets, September is shaping up to be a big month in the high-yield primary market, sources say.

Provided the new deal machine doesn’t hit any major speed bumps, September could see $25 billion of issuance, a syndicate banker said on Thursday.

Should that come to pass, September would rank near – but not at – the top of the list of 2016 months to date. April generated $30.5 billion of issuance and is the biggest month year to date, according to Prospect News data. May is the second biggest month, year to date, at $27.8 billion.

The next anticipated speed bump swimming into view is a possible hike in the Fed Funds rate, although that is not expected to materialize before the U.S. presidential election on Nov. 8, the syndicate source said.

That is why September could be a big month, as issuers and dealers are focused on getting deals done ahead of a possible Fed move, the banker added.

American Media moves up

In the secondary market, traders noted gains in the first new paper seen in the market in a week, the bonds from American Media.

A market source quoted the company’s 5½% secured notes due 2021 opening at 75½ bid and moving up from there to 76½ at the close, with over $9 million changing hands.

Those notes priced at 73 and there were several initial round-lot trades at that level late in the day on Wednesday.

The market source also saw the new zero-coupon notes due in March 2022 moving up when they hit the secondary, going out at 46½ bid, up from their 42.75 issue price, with $6 million traded.

Among the Boca Raton, Fla.-based newspaper and magazine publishing company’s existing bonds, its 11½% first-lien senior secured notes due 2017 – which are expected to be refinanced using a portion of the new-deal proceeds – opened at 103 3/8 bid and moved up to 103 9/16 by the close on more than $6 million traded; before news of the debt refinancing they had most recently traded on a round-lot basis earlier in the week at 101¾ bid.

But there was no immediate activity seen in the other issue expected to be taken out, the 7% second-lien notes due 2020, which had been seen earlier this month trading above the 114 mark.

Recent deals go quiet

Away from American Media, there was not much activity seen in the new offerings that had priced in the junk market last week, when there had been some active aftermarket volume in those names.

A trader said that “perhaps the busiest of the bunch” may have been Diamond Resorts International’s 10¾% notes due 2024; $3 million of these traded on a round-lot basis.

Those notes lost ½ point on the day, finishing at 97 bid,

That left them even further down from the 98.691 level at which the Las Vegas-based hospitality and vacation ownership company had priced those $600 million notes to yield 11% last Wednesday via its Dakota Merger Sub Inc. subsidiary. The notes have been trading below their issue price almost from the get-go.

There meantime was no sign of activity on Thursday in the other half of that $1.1 billion two-part, regularly scheduled forward calendar deal – Dakota Merger Sub’s $500 million of 7¾% senior secured notes due 2023. That tranche had priced at par after having been upsized from an originally announced $400 million.

The secured notes were last seen trading on Tuesday around the 101¼ bid level.

Among other recent deals, the Novelis 6¼% notes due 2024 were seen 3/8 point higher on the day Thursday at 103 3/8 bid, on volume of around $3 million.

The Atlanta-based producer of rolled-aluminum products and recycler had priced $1.15 billion of the bonds at par last Monday in a quick-to-market transaction that was sharply upsized from an originally announced $525 million.

NRG Yield’s 5% notes due 2026 were little changed on the day, trading around 99¾ bid on volume of around $2 million.

The Princeton, N.J.-based owner and operator of power production facilities – a unit of NRG Energy, Inc. – had priced a quickly shopped $350 million of those notes at par, also last Monday.

Bombardier stays busy

Away from recently priced new deals, Bombardier’s bonds were busy for a second straight session.

A market source saw the Montreal-based aircraft and railroad equipment maker’s 7½% notes due 2025 ending unchanged on the day at 93¾ bid on volume of over $7 million, on top of the $14 million that traded on Wednesday around those same levels.

Its 7½% notes due 2018 were going home at 105 3/8 bid, with over $4 million traded.

Those notes had mostly traded in the 105 area on Wednesday but had dipped to 101 on what the source called “an outlier” trade late in the session on Wednesday, then moved back up on Thursday from that low level.

Quiet market awaits Fed signals

Overall, a trader said that Thursday’s market was “very quiet.

“Everyone is kind of just waiting until after the speeches tomorrow” when Federal Reserve chairwoman Janet Yellen and other officials are scheduled to speak at the Fed’s annual symposium at Jackson Hole, Wyo. – market-watchers will carefully parse her remarks and those of other participants for clues as to when the next round of interest rate hikes, now on hold, might resume.

The trader said that in the meantime, there were just “very light flows.”

Things were “pretty much unchanged, but on very little volume.”

Indicators remain mixed

Statistical market performance measures were mixed for a second consecutive session on Thursday, after improving across the board on Tuesday and then turning mixed on Wednesday. Thursday marked their fourth mixed session in the last five trading days.

The KDP High Yield Index lost 1 basis point on Thursday to end at 70.43, its first loss after two straight gains, including on Wednesday when it had moved up by 6 bps to establish new year-to-date and 52-week highs at 70.44, eclipsing the old mark of 70.38 that had been set on Tuesday.

Its yield rose by 1 bp to 5.24%, after having come in by 3 bps on Wednesday, with two unchanged sessions before that.

But the Markit Series 26 CDX Index edged higher on Thursday, firming marginally to close at 104 25/32 bid, 104 27/32 offered, after easing by almost 3/16 point on Wednesday. Thursday was its second gain in the past three sessions.

However, the Merrill Lynch High Yield Index’s long winning streak finally came to an end on Thursday after 16 straight advances.

It retreated by 0.024% – its first setback since Aug. 2. The loss stood in contrast to Wednesday’s 0.036% upturn.

The streak-prone index’s gains of the previous 16 sessions followed a six-session slump before that.

Thursday’s downturn brought the index’s year-to-date return back down to 14.401% versus Wednesday’s 14.429% close, which had been the index’s 14th straight new peak level for the year so far.

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