Chesapeake a champ on debt-cut plans; primary quiet as calendar builds; funds up $743 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 6 - Chesapeake Energy Corp.'s bonds moved solidly higher Thursday, some issues on active volume, after the big natural gas exploration and production company announced plans to curtail spending and sell assets as a means of cutting its more than $11 billion of long-term debt by 25% over the next two years.

Elsewhere, traders said that nothing was really jumping out at them, although they did see a broad spectrum of names well-bid and grinding higher.

There were no pricings seen in the new deal market, unlike Tuesday and Wednesday, but the forward calendar continued to build.

Well after the financial markets had closed, New York-based cosmetics company Elizabeth Arden Inc. announced plans for a $225 million offering of 10-year bonds to fund a tender offer for its existing bonds.

Telecom and utility infrastructure builder Dycom Industries, Inc. announced plans for a $175 million 10-year subordinated bond deal to fund a tender offer for its bonds. High-yield syndicate sources saw the deal likely to price in the upcoming week.

They also heard that Polymer Group Inc. - a name kicking around on the primaryside grapevine as a possible bond issuer as far back as early November - is finally getting off the dime and preparing to launch an offering of secured bonds, probably also during the upcoming week.

Among overseas-based issuers, Brazil's Banco Cruziero was seen outlining Friday plans for a prospective offering of dollar-denominated notes.

Charter Communications Inc.'s recently priced megadeal was seen continuing to trade briskly, though little changed from Wednesday's levels.

High-yield mutual funds - considered a reliable proxy for overall market liquidity trends - posted yet another in a series of recent inflows, as some $743.4 million more came into those funds than left them in the week ended Wednesday.

Junk funds gain

And as activity was winding down for the session, participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI marked the $743.4 million of inflows, which were widely expected by market participants given the surge seen in Junkbondland's performance since the start of the new year.

It was the fifth consecutive cash infusion, following on the heels of the $195.7 million injection seen the week ended Dec. 30.

In those five weeks dating back to Dec. 8, $2.808 billion of net inflows have come into the junk market, according to a Prospect News analysis of the figures.

The inflow this week continues the strong inflow trend seen in 2010, when some $10.67 billion more came into the funds than left them, and inflows were seen in 37 weeks, against just 15 weeks experiencing outflows.

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

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though quantifiable, percentage of the total amount of money coming in - fueled the record new deal borrowing binges seen in both 2009 and then in 2010. This was on top of the robust secondary market seen both years - and continuing on in 2011 as well so far.

Dycom brings 10-year deal

The high-yield primary market put up a zero on Thursday, with no issues pricing.

Dycom Industries began marketing a $175 million offering of 10-year senior subordinated notes (confirmed Ba3/expected BB-).

The notes, which will be issued via wholly owned subsidiary Dycom Investments, Inc., are expected to price during the week ahead.

Goldman Sachs & Co. is the left lead bookrunner. Bank of America Merrill Lynch is the joint bookrunner.

Proceeds will be used to repurchase any and all of the company's $135.35 million of 8 1/8% senior subordinated notes due 2015 via a concurrent tender offer and consent solicitation. Any additional proceeds will be used for working capital and general corporate purposes.

Big pipeline for week ahead

Thursday's goose egg in the new issue market notwithstanding, syndicate bankers continue to insist that January will see high-yield issuance north of $25 billion.

The first week of January has been slow, one official conceded.

In addition to players regaining their legs following the holidays, there has been some general weakness in the equity markets over the past couple of days, which has caused the drive-by issuers to hold off, the official said.

In terms of deals going on the road, the preference right now would be to get a deal done on a Monday-through-Friday timeframe without carrying over the weekend.

In any case, the week ahead is expected to be an entirely different story on the new issue front.

"There are a bunch of deals in the pipeline that are expected to come next week," said the syndicate official, adding that some energy exploration and production companies - issuers quite familiar to the high-yield universe - are expected to show up in the week ahead.

In addition, Polymer Group's $545 million offering of secured notes is expected to launch.

Citigroup, Morgan Stanley, Barclays Capital and RBC Capital Markets will be the joint bookrunners.

Proceeds, in part, will be used to help fund the acquisition of the company by Blackstone Group.

Buyside needs to invest

Part of the reason January is expected to put up big numbers in the primary market is knowledge on the part of the underwriters and the issuers they represent that the buyside has cash, which it needs to put to work.

In part, that knowledge is based upon news of continued inflows to the high-yield mutual funds.

Late Thursday, there was news of the substantial inflow while bank loan funds saw $569 million of inflows.

New AmeriGas holds gains

In the secondary market, a trader said that the new AmeriGas Partners, LP/AmeriGas Finance Corp. 6½% notes due 2021 "were still trading around the same level" at which they had gone home on Wednesday, after pricing earlier that session at par.

He quoted the Valley Forge, Pa.-based retail propane marketer's $470 million drive-by issue trading between 100¼ bid, 100 5/8 offered.

A second trader saw the bonds at 100¼ bid, 100½ offered.

Charter keeps busy

A trader saw "a lot" of the new Charter Communications 7% notes due 2019, which had priced late in the day on Tuesday and then had moved somewhat higher in very active dealings on Wednesday.

He saw the St. Louis-based cable operator's $1.1 billion quickly shopped deal - upsized from an originally announced $750 million - trading at 99 7/8 bid, 100¼ offered versus their Tuesday pricing level of 99.246, which yielded 7 1/8%.

New Cemex bonds busy

A trader in said that he saw "a [significant amount]" of Cemex SAB de CV's new 9% notes due 2018 trading on Thursday, adding that he didn't know why there was that much activity.

He said almost all of the trades were in the same 100.75-101 range, in line with the higher aftermarket levels seen on Wednesday.

The Mexican building products maker's quickly shopped $1 billion offering priced on Tuesday at par, attracting interest from both emerging market and traditional domestic high-yield investors.

The trader meantime said that he had seen no domestic junk market activity in STATS Chip PAC Ltd.'s new 5.375% notes due 2016.

The Singapore-based provider of packaging design, assembly, testing and distribution services to the semiconductor industry priced $200 million of the notes in a quick-to-market deal on Wednesday at par.

Secondary mostly strong

Away from the new deal arena, a trader saw the CDX North American Series 15 HY index down by ½ a point on Thursday to close at 102 7/8 bid, 103 1/8 offered, after having eased by 1/8 point on Wednesday.

However, the KDP High Yield Daily index meantime rose by 9 basis points on Thursday to finish at 74.80, after having gained 4 bps on Wednesday. Its yield came in by 5 bps to 7.18%, after having after having tightened by 1 bp on Wednesday.

The Merrill Lynch High Yield Master II index rose by 0.178% on Thursday after having gained 0.85% on Wednesday. That lifted the index's year-to-date cumulative return to 0.802% from 0.622% on Wednesday. The index had finished 2010 with a total return of 15.19%.

Advancing names topped decliners for an eighth straight session on Thursday and held a seven-to-five edge over them for a second day in a row.

Overall activity, represented by dollar-volume levels, fell by 8% on Thursday after having jumped by 23% on Wednesday from the previous day's level.

A trader exclaimed that there was "a lot of inactivity today."

He said that one could take one's pick at how to describe what was going on: Things were "well bid-for" or the market was "nibbling higher" or "grinding higher."

A second trader called Thursday's market "deader than dead. It's all new issue, and that's it, unfortunately."

The junk market, he continued, "keeps rippin'. With bonds moving higher, it's just unbelievable."

But, in contrast to some of the periods of wilder excess seen last year, he stressed, "People aren't just blindly throwing cash at stuff these days. They're being very picky about what they buy and they sell.

"Everybody's being very picky, everybody's on the sidelines and everybody's trying to figure out what the next hot deal is," he added.

Against that backdrop, he said, "I don't know what keeps making this market go as high as it is. The market just keeps trading higher."

At another desk, a trader characterized the market as "still pretty firm," though he added that "nothing that jumps out at me was too exciting."

Investors chase debt-chopping Chesapeake

But that trader did say that one of the few issues that stood out was Chesapeake Energy, its surge fueled by news that the Oklahoma City-based natural gas E&P operator plans to change its strategy, which over the past several years had focused on acquiring as much acreage as possible for its development efforts.

But now its chief executive officer, Aubrey McClendon, said in a statement, Chesapeake will embark upon "a fundamental shift from our aggressive asset accumulation of the past few years to a multiyear period of asset harvest, characterized by a clear focus on capital discipline and maximizing returns."

Company executives said in a webcast that they plan to chop Chesapeake's debt of more than $11 billion by more than 25% over the next two years, using the proceeds from the sale of some of the assets, which it has accumulated during its previous buying spree.

A trader said that helped push up the company's 6 7/8% notes due 2020 to around the 103½ bid. 103¾ level versus pre-news levels around 1011/4, "so they were up quite a bit."

A market source at another desk saw more than $6 million of that paper changing hands, and while the bonds finished at 103 bid - actually down on the session from the nearly 104 level at which they had closed on Wednesday - they showed a gain of nearly 2 points if all of the smaller odd-lot trades were sifted out and only round-lot transactions of at least $1 million counted.

The source also saw over $12 million of Chesapeake's other 2020 bonds, its 6 5/8s, having traded with the bonds up more than 3 points on the day at 102 bid.

But the busiest Chesapeake issue of them all was its 9½% notes due 2015, which saw activity of more than $26 million, making it easily among the busiest junk credits, a market source said.

The big, liquid issue - more than $1.4 billion outstanding - shot up to nearly 117 bid before ending at 116, a 21/2-point gain on the session.

Clear Channel climb continues

Elsewhere, a trader said that Clear Channel Communications Inc. was "one of the big producers" on Thursday.

He saw the San Antonio, Tex.-based media company's 10¾% notes due 2016 up a point on the day at 92 bid, 92½ offered, with "good volume in that name today."

He said that the bonds "are holding up at the higher level on decent size," though "not as much as earlier" in the week.

A market source said that at one point, the 103/4s had spiked up to the 95 bid area, but then backed down to finish around 92¾ bid. He said that turnover was more than $5 million.

There was no fresh news out on the company, and as December was ending, it was reported planning to explore a series of financing options that could include new debt offerings and credit facilities as well as possible debt-for-debt exchanges with existing holders.

Realogy rallies after exchange

A trader saw some quotes in Realogy Corp., "and they were moving up."

He saw "higher bids" for the Parsippany, N.J.-based real estate company's 10½% notes due 2014, pegging them up about 1 point at the 98-99 level.

However, he said that while there were quotes around, there was "not a lot of activity."

That follows the announcement of the results of the company's big exchange offer a day earlier, which saw most of the outstanding 101/4s and several other issues of "old" debt maturing in 2014 or 2015 tendered by holders in exchange for newer bonds with longer maturities.

Auto bonds drive higher

A trader saw Motors Liquidation Co.'s benchmark 8 3/8% bonds due 2033 at 36 ¾ bid, 37¼ offered. He said that the bonds of the company formerly known as General Motors Corp., before the Detroit-based carmaker's Chapter 11 restructuring, "inched up a little" about ¼ to ½ of a point on "really good volume."

Another trader pegged the benchmarks at that same 36¾ bid, 37¼ offered level, calling it a ¼ of a point rise, while seeing GM domestic archrival Ford Motor Co.'s 7.45% bonds due 2031 some ¾ of a point better at 108¼ bid, 109¼ offered.

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