Upsized Baytex, Precision price, firm up; Cedar Fair drives by; funds see $600 million gain

By Paul Deckelman and Paul A. Harris

New York, May 29 - The high-yield primary sphere saw its first respectably busy post-Memorial Day session on Thursday as a trio of deals collectively worth $1.65 billion was heard by syndicate sources to have come to market in four tranches.

That was well up from the $150 million of new dollar-denominated, fully junk-rated paper that had priced in one deal on Wednesday and the single tranche worth $115 million that got done on Tuesday.

Thursday saw a pair of regularly scheduled forward calendar deals from the Canadian energy sector price. Oil and natural gas exploration and production operator Baytex Energy Corp. brought an upsized $800 million issue of seven- and 10-year notes, and oilfield services provider Precision Drilling Corp. priced a $400 million offering of 10.5-year notes.

Traders saw both of those deals from those neighbors - the companies are based just a couple of blocks apart in Calgary, Alta. - having firmed smartly when they hit the aftermarket.

The day's only other dollar-denominated pricing came from the sole non-Canadian issuer of the trio, Sandusky, Ohio-based amusement park operator Cedar Fair LP, which came to market with a quickly shopped $450 million of 10-year paper, the day's only drive-by deal. Those bonds were also seen higher when they began trading around.

Traders said that as has been the case so far throughout the whole of this holiday-shortened week, volume was light. Many of the top names on the junk Most Actives list, in fact, were hybrids or subordinated debt issued by high-grade financial institutions, primary of interest to investment-grade participants crossing over to pick up a little yield rather than traditional junk accounts.

Away from the new issues, coal sector name Alpha Natural Resources, Inc. continued to take its lumps.

Statistical market performance indicators were higher for a third consecutive session on Thursday.

Meanwhile, another indicator - the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends - was higher for a fourth straight week.

Junk funds gain $600 million

As activity was finishing up on Thursday, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $600 million more came into those funds than left them in the week ended Wednesday.

This week's addition of funds was the fourth consecutive inflow and came on the heels of the $301 million cash injection 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 May 21.

And those two inflows followed liquidity injections of $472 million in the week ended May 14 and $368 million in the week ended May 7.

Inflows over the last four weeks have now totaled $1.74 billion - a seemingly definitive start of a new strengthening trend as the junk market distances itself from the recent stretch of choppiness seen over some weeks before that. After a strong start to the year, the previous few weeks before the latest winning streak had seen a back-and-forth pattern of essentially alternating weeks of inflows and outflows, according to a Prospect News analysis of the figures.

Inflows had clearly dominated the early part of the year. In 2014's first 11 weeks, ended March 19, inflows had been recorded in nine of those weeks, against just two outflows in the weeks ended Jan. 29 and Feb. 5. At one point, there were six consecutive weeks of inflows totaling an estimated $4.40 billion, according to the analysis.

The week ended March 26, which saw a $196 million outflow, broke that six-week streak and signaled a change in that pattern, with the flows shifting to a more choppy mode.

There were inflows of $493 million and $640 million recorded in the weeks ended April 2 and April 9, respectively, but they were followed by a $223 million outflow in the week ended April 16. That, in turn, led to a $250 million inflow in the week ended April 23, followed by a $631 million outflow in the week ended April 30 and then the inflows seen over the past four weeks.

Counting the latest week's results, there have now been 16 inflows seen to the weekly-only reporting funds in the 21 weeks since the start of the year, according to the analysis, against five outflows.

The latest week's inflow raised the year-to-date cumulative net inflow number to an estimated $5.08 billion, according to the analysis - a new peak level for the year so far. That was up from the previous week's figure of an estimated $4.48 billion, the previous peak level for the year so far.

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, 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 saw a similarly sized inflow as AMG/Lipper's in the latest week, a market source said.

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. In this case, however, the source said that "European high-yield funds saw an outflow again," thus bringing the EPFR-reported figure more closely into line with AMG/Lipper's.

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.

The latest weekly inflow thus was EPFR's 19th such gain recorded in the 21 weeks since the start of the year, versus just two outflows in the weeks ended Jan. 29 and Feb. 5.

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 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.

Baytex upsizes

In the dollar-denominated primary market, Thursday's session saw three issuers bring a combined four tranches to raise a total of $1.65 billion.

Executions remained noteworthy.

Three of the four tranches came at the tight end of talk.

Only one came as an a.m.-to-p.m. drive-by.

Baytex Energy priced an upsized $800 million amount of senior notes (Ba3/BB) in two $400 million tranches.

The deal included $400 million of seven-year notes that priced at par to yield 5 1/8%, at the tight end of yield talk in the 5¼% area.

In addition, Baytex priced $400 million of 10-year notes at par to yield 5 5/8%, at the tight end of yield talk in the 5¾% area.

The overall transaction size was increased from $780 million.

Barclays was the left bookrunner for the debt refinancing and general corporate purposes deal. BofA Merrill Lynch and RBC Capital Markets LLC were the joint bookrunners.

Cedar Fair drives through

Cedar Fair priced a $450 million issue of 10-year senior notes (B1/BB-) at par to yield 5 3/8%.

The yield printed tight to the 5½% yield talk.

J.P. Morgan Securities LLC, UBS Investment Bank and Wells Fargo Securities LLC were the joint bookrunners for the drive-by debt refinancing and general corporate purposes deal.

Precision Drilling atop talk

Precision Drilling priced a $400 million issue of 10.5-year senior notes (Ba1/BB) at par to yield 5 ¼%.

The yield came on top of yield talk.

Credit Suisse Securities (USA) LLC, RBC and Morgan Stanley & Co. LLC were joint bookrunners for the general corporate purposes deal.

JBS temporarily withdraws

JBS USA, LLC temporarily postponed its $750 million offering of 10-year senior notes (Ba3/BB) on Thursday as it seeks to replace Morgan Stanley, which it had designated as the deal's lead bookrunner, market sources say.

The reason for the pullback is the Morgan Stanley-led bridge financing backing Tyson Foods, Inc.'s $50 per-share bid for Hillshire Brands Co. in a $6.8 billion transaction announced on Thursday.

Tyson's bid trumps JBS' unsolicited $45-per-share bid that surfaced earlier in the week.

Although the JBS bond deal was a debt refinancing, with no mention of the Hillshire bid in the uses of proceeds, JBS nonetheless has apparently taken umbrage at Morgan Stanley having provided bridge financing for the competing bid from Tyson, sources say.

Pipeline developing

No dollar-denominated deals are on the calendar as expected Friday business.

The four-session post-Memorial Day week has been somewhat on the slow side, although not quite as slow as some sources anticipated.

Some expected drive-by business failed to materialize, sources say.

Look for the first week of June to be busier, sellside sources said on Friday.

Officine Maccaferri prices

In the euro-denominated primary market, Italy's Officine Maccaferri SpA priced a €200 million issue of seven-year senior notes (B2//B) at par to yield 5¾%.

The yield printed at the tight end of the 5¾% to 6% yield talk. Initial guidance had the deal coming in a high 5% to low 6% yield context.

Joint bookrunner Credit Suisse will bill and deliver. Banca IMI, BNP Paribas and UniCredit were also joint bookrunners.

The Bologna, Italy-based building products company plans to use the proceeds to refinance debt, to acquire the real estate of the company's headquarters, to pay a special dividend and for general corporate purposes.

One deal more euro-denominated deal remains in the market as possible Friday business.

Germany's CABB Group is expected to wrap up a roadshow for a €585 million three-part offering of notes on Friday.

The €410 million senior portion of the deal comes in the form of two tranches of fixed-rate and floating-rate seven-year senior secured notes. Tranche sizes remain to be determined.

The junior portion is a €175 million tranche of eight-year senior unsecured fixed-rate notes.

Joint bookrunner Deutsche Bank will bill and deliver for the LBO deal. BNP Paribas, Credit Suisse, IKB Deutsche Industriebank are also joint bookrunners.

Canadian energy deals improve

In the secondary arena, traders saw the day's two new energy-oriented deals coming out of the Canadian oil patch both doing well when they hit the aftermarket.

A trader saw Baytex Energy's 5 1/8% notes due 2021 having moved up to 101 1/8 bid, 101½ offered, while its 5 5/8% notes due 2024 had firmed to 100¾ bid, 101¼ offered. Both tranches had priced at par earlier in the session.

At another desk, a market source pegged both halves of exploration and production operator Baytex Energy's new deal in a 101 to 101½ bid context.

He also saw Precision Drilling's 5¼% notes due November f 2024 at 101 5/8 bid, 102 offered, up from their par issue price.

However, a second trader saw a more conservative improvement to a 100½ to 101 bid context.

Cedar Fair firms

The day's other new deal, Cedar Fair's 5 3/8% notes due 2024, was seen by market-watchers as having moved up modestly from those bonds' par issue price.

One quoted the Ohio-based amusement park company's new deal at 100¾ bid, 101 offered, while a second saw the bonds at 100¾ bid, 101 offered.

The quick-to-market deal had priced fairly late in the session at par.

A quiet session

A trader said that Thursday's session was "pretty quiet, again," as has been the case all week so far in Junkbondland since the high-yield market reopened after the three-day Memorial Day holiday weekend.

"New issues were the story," he said.

He saw some continued downside trading in coal-sector names like Alpha Natural Resources and Arch Coal, Inc. "They got beat up, as a few dealers were leaning on them," he said, but he added that "we really didn't see a tremendous amount of retail selling in them."

St. Louis-based Arch's 7¼% notes due 2021 were seen having lost nearly 2¾ points to close at 71½ bid, while Bristol, Va.-based Alpha Natural Resources' 6¼% notes due 2021 were down by 1 point at 71½ bid.

Birmingham, Ala.-based sector peer Walter Energy, Inc.'s 9 7/8% notes due 2020 were down more than a deuce on the day, going home at just under 60 bid.

The trader said, in fact, that "there doesn't appear to be a lot of retail sellers of anything in high yield."

He further noted that the ranks of the most active issues were largely dominated on Thursday by "the IG guys" - unrated or nominally junk-bond rated subordinated issues of clearly high-grade financial institutions like Goldman Sachs, whose 6.345% paper due 2034 topped the volume leaders with over $43 million traded. Other, similar credits from Citigroup and Morgan Stanley were also high on the actives list and mostly attracted high-grade buyers looking to pick up a little extra yield by venturing into the junk market for crossover plays.

Goodyear quietly gains

A market source quoted Goodyear Tire & Rubber Co.'s 8¼% notes due 2020 up ¼ point at 111 bid.

However, at another shop, a trader said that he had seen absolutely no dealings in the Akron, Ohio-based tiremaking giant's bonds despite the company's announcement that it was revising its previously announced plans for discretionary capital allocations in the current fiscal year and in 2015 and 2016 to include more debt paydown than previously planned.

The company's chief financial officer, appearing at an investor conference on Thursday, said that bringing down leverage levels to those of an investment grade-type balance sheet remains a key priority for Goodyear. (See related story elsewhere in this issue.)

Indicators stay firm

Statistical junk performance indicators were seen by market sources stronger across the board for a third consecutive session on Thursday after having been mixed over the previous seven sessions.

The Markit Series 22 index gained 5/32 point on Thursday to end at 108 7/32 bid, 108 9/32 offered after having been essentially unchanged on Wednesday and firming on Tuesday.

The KDP High Yield Daily index improved by 4 basis points to close at 74.94, its third consecutive gain; on Wednesday, it had edged up by 1 bp.

Its yield meanwhile came in by 2 bps to 5.09%, its second straight narrowing; on Wednesday it had eased by 1 bp after having risen by 1 bp on Tuesday.

And the widely followed Merrill Lynch High Yield Master II index made it four gains in a row on Thursday, advancing by 0.071% on top of the 0.065% by which it had firmed on Wednesday.

Thursday's rise lifted the index's year-to-date return to 4.642%, a third straight new peak level for 2014 so far. That was up from 4.568% on Wednesday, the previous year-to-date peak return.

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