Virgin, Tervita pace $2.6 billion session, new Virgins up sharply; funds tumble $1.3 billion

By Paul Deckelman and Paul A. Harris

New York, Feb. 7 - Virgin Media stormed the high-yield market on Thursday, syndicate sources said, pricing a speeded-up, £2.3 billion equivalent, four-part drive-by deal that included two dollar-denominated tranches totaling $1.53 billion. The issue is part of the financing for the company's coming acquisition by Liberty Global, Inc.

Traders said that the two new Virgin tranches each firmed smartly when they were freed for aftermarket dealings.

And the phone, cable and broadband provider's existing bonds remained among the most active Junkbondland credits for a third consecutive session.

Away from Virgin Media, Canadian environmental services company Tervita Corp. priced $650 million of five-year senior secured notes as part of a two-part, dual-currency deal, although that transaction came too late in the session for any secondary dealings.

That was also the story with Cantor Commercial Real Estate Co., LP's $250 million five-year deal.

But medical equipment provider Universal Hospital Services Inc.'s $220 million secured add-on deal did price in enough time to see some secondary dealings.

Away from the transactions that have actually come to market, price talk was heard on Millennium Offshore Services Superholdings LLC's $225 million five-year secured deal, which is expected to price on Friday.

Friday could also see pricings from telecom operator Fairpoint Communications Inc. and fish farmer Cooke Aquaculture Inc.

Secondary activity away from the new-deal realm was seen as bland and unexciting. Statistical performance measures were on the slide for a fourth straight session.

And flows of cash into and out of high-yield mutual funds and exchange-traded funds, considered a key barometer of overall junk market liquidity trends, tumbled by more than $1 billion in the latest week, according to two major fund-tracking services.

AMG sees $1.38 billion outflow

On Thursday evening, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, a whopping $1.38 billion more left those funds than came into them - the biggest cash loss the funds have seen since last June.

That broke a string of four consecutive inflows that had been reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., including the modest $92.29 million addition seen in the previous week, ended Jan. 30. During that four-week stretch, inflows had totaled nearly $2.3 billion, according to a Prospect News analysis of the figures.

Six weeks into the new year, Lipper-reported 2013 net inflows so far have amounted to about $420 million, according to the analysis.

Besides the four recent inflows, Lipper had also seen a $473 million cash loss recorded in the first reporting week of the year, ended Jan.2.

Inflows have thus now been reported by Lipper in four weeks so far this year against two outflows.

In 2012, when cumulative net inflows for the year totaled an estimated $32 billion, according to the analysis, inflows to the funds were recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

EPFR sees $1.33 billion outflow

The big outflow reported by Lipper was mirrored in the results reported Thursday by the other major fund-tracking service, Cambridge, Mass.-based EPFR Global. That agency said that in the latest reporting week, also ended Wednesday, $1.33 billion more left the funds than came into them - the biggest outflow it had seen in 11 weeks, since the $1.45 billion cash hemorrhage posted in the week ended Nov. 21.

The latest outflow broke a six-week winning streak seen by the service, including the $631 million that came into the funds last week. Inflows during that time, which also includes the final reporting week of 2012, had totaled some $4.4 billion, according to a Prospect News analysis of the figures.

It was also the first outflow recorded this year by EPFR, against five previous inflows totaling about $4.2 billion, according to the analysis, and thus drops the year-to-date net inflow total down to about $2.9 billion.

EPFR and Lipper calculate their respective fund-flow statistics using different methodologies; EPFR includes some non-U.S. domiciled mutual funds and ETFs in its tabulations, while the Lipper number is purely domestic funds. Despite the differences in the actual numbers, the two services' weekly results usually point in the same direction.

Reporting only the U.S. funds that it tracks - a category usually more closely aligned with the Lipper totals - EPFR saw a $1.19 billion outflow in the latest week, its third straight cash loss, following outflows of $125 million last week and $442 million the week before that, ended Jan. 23. It has actually now seen four weekly net outflows from the U.S.-only funds since the start of the year, against just two weekly inflows. That swings the 2013 cumulative total so far into the red by around $600 million, versus around a $500 million inflow total the week before, according to the analysis.

In 2012, EPFR's overall figure showed a cumulative net inflow of some $72.3 billion. According to the Prospect News analysis of the data, EPFR recorded 42 weeks of inflows last year, against just 10 weeks of outflows.

Cumulative fund-flow estimates, whether from EPFR or from AMG/Lipper, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

The continued flow 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 the junk market - has been seen by analysts as a key element behind the high-yield secondary market's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $300 billion mark - patterns of primary activity and secondary strength that have continued into the new year so far.

Virgin Media prices megadeal

The dollar-denominated primary market saw four issuers bring a combined five tranches to raise a total of $2.6 billion on Thursday.

After cutting back marketing time due to intense demand, Virgin Media priced £2.3 billion equivalent of high-yield bonds in four tranches.

Lynx I Corp. priced dollar- and sterling-denominated tranches of senior secured notes due April 15, 2021 (Ba3/BB-).

A $1 billion tranche of the secured notes priced at par to yield 5 3/8%, in the middle of the 5¼% to 5½% yield talk.

A £1.1 billion tranche priced at par to yield 6%, on top of yield talk.

The secured notes come with four years of call protection. However, a special call provision allows the issuer to redeem 10% of the secured notes annually at 103 during the non-call period.

Meanwhile, Lynx II Corp. priced dollar- and sterling denominated tranches of senior unsecured notes due April 15, 2023 (B2/B).

The execution on the unsecured tranches saw the dollar-denominated tranche grow, with respect to its target size, while the sterling-denominated tranche shrank.

A $530 million tranche of the unsecured notes priced at par to yield 6 3/8%.

The yield printed in the middle of the 6¼% to 6½% yield talk. The final tranche size came in higher than the $450 million target size.

A £250 million tranche of the unsecured notes priced at par to yield 7%, on top of price talk. The final tranche size came in lower than the £300 million target size.

Global coordinator Credit Suisse will bill and deliver.

Barclays, BNP Paribas, BofA Merrill Lynch and Deutsche Bank were the joint bookrunners.

Proceeds will be used to finance the acquisition of Virgin Media by Liberty Global Inc.

A blowout

American accounts scurried after the dollar-denominated notes, according to a fund manager who played and whose allocation came in at well less than 20% of the order.

"Everything has been pricing too tight, and lately we have seen some of it trade down," the manager said.

"Virgin Media is the exception," the manager allowed, spotting the par-pricing 6 3/8% unsecured notes due 2023 at 103 3/8 bid.

"It roared out the door," the manager remarked, stating that the official line on the overall £2.3 billion four-part deal was that it was six-times oversubscribed.

The high-yield market has been widening, and cash is lately moving away from the asset class, the investor said, adding that the JPMorgan high yield index composite yield was near its all-time tightest at 5.71% on Jan. 25 and has been wider every day since.

Tervita prices two-part deal

Tervita priced $850 million equivalent of senior secured notes due Nov. 15, 2018 (B2/B-) in two tranches on Thursday.

A $650 million tranche priced at par to yield 8%, on top of the yield talk.

In addition, Tervita priced a C$200 million tranche at par to yield 9%. The Canadian dollar-denominated notes priced 12.5 basis points beyond the wide end of talk, which had them coming to yield 75 bps to 87.5 bps behind the dollar-denominated notes.

The deal was downsized from $1.1 billion as the company shifted proceeds to its concurrent bank loan deal.

RBC Dominion Securities Inc. and Goldman Sachs & Co. were the joint global coordinators and joint bookrunners. TD Securities Inc. and Deutsche Bank Securities Inc. were also joint bookrunners.

Proceeds, along with the new bank debt, will be used to repay all outstanding debt under the company's existing senior secured credit facility.

Elsewhere in the Canadian market, Alliance Grain Traders Inc. priced C$125 million of 9% five-year senior secured second-lien notes (/B/DBRS: B) at 99½ to yield 9.127%, well wide of yield talk set in the 8¾% area.

Scotia Capital Inc., CIBC World Markets Inc. and GMP Securities LP were the lead managers for the debt refinancing deal.

Cantor prints at 7¾%

Cantor Commercial Real Estate and CCRE Finance Corp. priced a $250 million issue of 7¾% five-year senior notes (B1/B) at 98.984 to yield 8%.

The yield printed 12.5 bps beyond the wide end of yield talk that had been set in the 7¾% area.

Deutsche Bank was the left bookrunner. BofA Merrill Lynch and Cantor Fitzgerald & Co. were the joint bookrunners.

The New York-based commercial real estate finance company plans to use the proceeds to put cash on its balance sheet and for general corporate purposes.

Universal Hospital adds on

Universal Hospital Services priced a $220 million add-on to its 7 5/8% second-lien senior secured notes due April 15, 2020 (B3/B+) at 106.375.

The reoffer price, which came in the middle of the 106¼ to 106½ price talk, rendered a 6.239% yield to worst.

Barclays, BofA Merrill Lynch and RBC were the joint bookrunners for the quick-to-market debt refinancing deal.

Hornbach-Baumarkt

In the European market, Germany-based do-it-yourself retailer Hornbach-Baumarkt AG priced a €250 million issue of 3 7/8% seven-year senior notes (expected ratings Ba2/BB+) at 99¼ to yield 4%.

The deal played to an order book of €800 million, allowing the issuer to print the notes at the tight end of the 4% to 4¼% yield talk, according to a market source in Europe.

Earlier guidance had the deal yielding in the 4½% area.

Joint bookrunner UniCredit will bill and deliver. Commerzbank and HSBC were also joint bookrunners for the debt refinancing deal.

Millennium Offshore sets talk

With another round of extreme weather bearing down on New York, Friday activity was uncertain heading into the Thursday close.

United Arab Emirates-based Millennium Offshore Services talked its $225 million offering of five-year senior secured notes (B2) with a yield in the 9½% area.

The deal, which has garnered interest among high-yield accounts in the United States, is expected to price on Friday.

As reported, initial guidance had the deal coming with a yield in the low-to-mid 9% context.

Goldman Sachs is the lead for the dividend deal.

Among the deals that may be sidelined by the weather is the NII International Telecom SCA's $400 million offering of 6.5-year senior notes being done via J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, Goldman Sachs and Morgan Stanley & Co. LLC.

Although no official price talk has circulated, the deal is seeing $2 billion of demand at a yield of 11%, a buyside source said.

New Virgin bonds get a boost

In the secondary market, traders saw strong gains for the new Virgin Media dollar-denominated bonds that priced during the session.

"They did very well," said one trader, who quoted the company's 5 3/8% senior secured notes due 2021 at 102 bid, 102½ offered - well up from the par level at which New York-based provider of cable, phone and broadband service in the United Kingdom had priced that $1 billion tranche earlier in the session.

He also saw the $530 million of 6 3/8% unsecured notes due 2023 get up to 103 bid, 103½ offered - again well up from their par issue price.

A second trader pegged the secured bonds at 102 bid, 102¼ offered, while seeing the unsecured paper get as good as 103 3/8 bid, 103¾ offered.

Virgin Media "did much better than I would have thought," said yet another trader who had not had any dealings in the new bonds and who had not seen any levels.

"I was really surprised that they traded that high." He suggested that "they still have a lot of wood to chop - not all of their businesses are going that great."

However, he added, "I suppose that [Liberty Global chairman John] Malone knows what he's doing."

Existing Virgin bonds busy

For a third straight session, Virgin Media's existing issue were among the busiest seen in the junk precincts.

A market source said that the company's 4 7/8% notes due 2022 gained 1/16 point to end at 101¼ bid, on volume of $29 million, while its 5¼% notes due 2022 also ended at that same 101¼ bid price, calling them up 1/8 point on the session. More than $14 million of those bonds traded.

On Tuesday, the company's bonds had gyrated around in very active dealings as investors theorized that a deal for Liberty Global to buy Virgin Media was in the works - speculation that was vindicated Tuesday night when the $16 billion cash-and-stock deal was formally announced, long after the market had closed. The 4 7/8s had racked up over $68 million in round-lot trading, edging up ¼ point to close at par bid, although the 5¼% notes actually fell badly. One market source had them down as much as 4½ points, to 101¼ bid, on $21 million of volume.

On Wednesday, with the deal now official and announced, the Virgin bonds again traded busily. More than $58 million of the 4 7/8% notes were seen having traded by mid-afternoon, moving up to 101 1/8 bid, 101¼ offered. That was also around the level where the 5¼% notes traded Wednesday, though on considerably less volume.

Universal holds near issue

Away from Virgin Media, a trader said that the new Universal Hospital Services 7 5/8% senior secured second-lien notes due 2020 were trading around 106½ bid, 107 offered.

He said that was probably about where the Minneapolis-based medical equipment provider's existing bonds had been trading before it did its quick-to-market $220 million add-on deal, which priced at 106 3/8.

The day's two other dollar-denominated deals - from Tervita and from Cantor Commercial Real Estate - appeared too late in the session for any kind of an aftermarket at that time.

Martin Midstream moves up

A trader said that Martin Midstream Partners LP's 7¼% notes due 2021 had moved up to 101 bid, 101½ offered, although he said that he "didn't see much" going on in the new credit.

The Kilgore, Texas-based midstream petroleum and byproducts company, along with its Martin Midstream Finance Corp. subsidiary, had priced the quick-to-market $250 million deal at par on Wednesday, and the new bonds had initially traded not far from that level.

However, a second trader was still quoting them on Thursday at 100¼ bid, 100¾ offered.

Recent deals quiet

The first trader said that there was "nothing major that I am aware of" going on in any of the other recently priced deals. "Nothing stood out as trading actively today from the last couple of days."

A second trader said that there was "a flurry of activity this morning, but then it went dead quiet" after that.

Market measures fall further

Statistical junk market performance indicators were seen on the slide for a fourth consecutive session Thursday and for the seventh session in the last eight, with only last Friday's sharp advance breaking the pattern.

The Markit Series 19 CDX North American High Yield index eased by 1/32 point on Thursday to end at 102 bid, after it fell by 3/16 point on Wednesday.

The KDP High Yield Daily index suffered its fourth straight loss, retreating by 19 bps Thursday to end at 75.11, after dropping 6 bps on Wednesday.

Its yield rose for a fourth straight session, widening by 5 bps to 5.73%, after edging up by 1 bp on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index lost 0.109% on Thursday, its fourth straight downturn, after having dropped by 0.011% on Wednesday.

Thursday's loss dropped its year-to-date return to 1.078%, from 1.188% on Wednesday. It was also well down from its peak level for 2013 so far of 1.991%, set last Monday, Jan. 28.

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