Sirius megadeal, Ineos, LKQ lead $3.6 billion session; Ineos gains; funds up by $474 million

By Paul Deckelman and Paul A. Harris

New York, May 2 - The high-yield primary market saw its biggest new-issue session in a month on Thursday. Syndicate sources reported that more than $3.6 billion of new dollar-denominated, junk-rated paper from domestic or industrialized-country issuers came to market.

The big deal of the day was satellite broadcaster Sirius XM Radio Inc.'s upsized $1 billion two-tranche offering, consisting of seven- and 10-year bonds. That quick-to-market deal priced too late in the session, though, for any kind of immediate aftermarket activity.

That proved to be the case for most of the day's other deals, including airline operator United Continental Holdings Inc.'s $300 million "fly-by" offering of five-year notes; automotive components maker LKQ Corp.'s upsized $600 million of 10-year notes; information technology company CompuCom Systems, Inc.'s upsized $225 million eight-year issue; Scotch energy services provider KCA Deutag Finance plc's $500 million of five-year secured paper; and Spanish industrial concern Gestamp Funding Luxembourg SA's $350 million of seven-year secured paper, part of a larger dual-currency deal.

The only dollar tranche that did see some trading was also part of a dual-currency deal: Swiss chemical manufacturer Ineos Group Holdings SA's $678 million of five-year notes. Those new bonds firmed solidly in the aftermarket.

All told, according to data compiled by Prospect News, it was the busiest purely junk session since exactly one month earlier - April 2 - when about $3.8 billion priced, paced by big deals from DISH DBS Corp. and Continental Resources Inc.

While the dollar-bond market was hopping, the euro- and sterling-denominated markets were also popping, including the euro-denominated portions of the Gestamp and Ineos deals as well as offerings from England's R&R Ice Cream plc, Germany's WEPA Hygieneprodukte GmbH and Finland's Sanitec Oyj. British issuers BrightHouse Group plc and Bond Mission Critical Services plc brought deals denominated in that nation's home currency.

Traders saw Tuesday's big new deal from Constellation Brands, Inc. continuing to star in secondary dealings. The overall secondary market was firm, as evidenced by the across-the-board rise in key performance indicators.

And flows of funds into or out of high-yield mutual funds and exchange-traded funds, considered a key gauge of Junkbondland liquidity trends, were strongly positive in the latest week, according to the two major tracking services - the funds' third straight weekly gain.

AMG sees $474.2 million inflow

As Thursday afternoon's activity was winding down for the day, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, $474.2 million more had come into those funds than had left them.

It was the third consecutive weekly inflow seen by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. It followed the $520.8 million cash addition recorded in the previous week, ended April 24. During that three-week stretch, inflows have added up to about $1.23 billion, according to a Prospect News analysis of the Lipper figures.

Eighteen weeks into the year, 2013 net inflows as reported by Lipper so far have amounted to about $2.04 billion, according to the analysis.

There have now been 12 inflows and six outflows reported by Lipper so far this year.

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

EPFR sees $2.2 billion inflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile said that during the week ended Wednesday, $2.2 billion more came into the funds it follows than left them.

As was the case with the AMG/Lipper number, this week's EPFR figure was the third inflow in as many weeks, coming on the heels of last week's $1.53 billion cash addition. In that three-week span, EPFR has seen some $4.52 billion of inflows, according to a Prospect News analysis of its figures.

On a year-to-date basis, there have now been 15 weeks since the beginning of 2013 in which EPFR has seen inflows against three weeks in which it saw outflows. The year-to-date cumulative net inflow rose to $13.56 billion, according to the analysis.

EPFR's methodology differs from that of AMG/Lipper in that it includes some non-U.S.-domiciled funds along with domestic funds, while the Lipper unit tracks only the latter category. Despite the different methods, the two services' figures generally point in the same direction.

EPFR meanwhile also said that in the latest week, the strictly domestic funds it tracks - a category more closely comparable to the Lipper fund universe - had seen an inflow of $1.15 billion. That followed the previous week's $702 million gain and was the third consecutive rise for those domestic funds. During that time, the funds have taken in $2.28 billion of fresh cash, according to the Prospect News analysis.

On a year-to-date basis, the cumulative net inflow figure for those U.S.-only funds rose to about $4.68 billion, with inflows having been seen in 11 weeks so far this year and outflows in seven, according to the analysis.

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 or leaving the junk market - has been seen by analysts as a key element behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $350 billion mark - patterns of primary activity and secondary strength that have mostly continued into 2013 so far.

Sirius XM doubles to $1 billion

Thursday's session was crammed with deals pricing in the United States and Europe.

The dollar market saw more than $3.6 billion price in eight tranches.

Executions were notable, with one deal pricing inside of talk, three pricing at the tight end of talk, three pricing on top of downwardly revised talk and one pricing on top of talk.

Sirius XM Radio priced a massively upsized $1 billion two-part senior notes transaction (B1/BB).

The deal included a $500 million tranche of seven-year notes that priced at par to yield 4¼%. The yield printed at the tight end of the 4¼% to 4½% yield talk.

In addition, Sirius XM priced a $500 million tranche of 10-year notes at par to yield 4 5/8%, on top of yield talk.

The 10-year notes tranche was added subsequent to the deal being announced as a single $500 million offering of seven-year notes. Hence the transaction doubled in size while in the market.

J.P. Morgan Securities LLC, BofA Merrill Lynch, Morgan Stanley & Co. LLC, Barclays, Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. were the joint bookrunners.

The satellite radio broadcaster plans to use the proceeds for general corporate purposes, which may include share repurchases and potential debt refinancing.

Ineos' dual-currency deal

Swiss chemical producer Ineos Group Holdings priced a dual-currency offering of 5.25-year senior notes (Caa1/B-).

The deal included a $678 million tranche of notes that priced at par to yield 6 1/8%. The yield printed on top of yield talk that was revised from earlier talk in the 6 3/8% area.

In addition, Ineos priced an upsized €500 million tranche of notes at par to yield 6½%. The euro-denominated tranche, which was added subsequent to the deal's launch, was upsized from €350 million after having been originally announced at a size of €250 million. The euro notes priced on top of yield talk that was revised from earlier talk that had been set in the 6¾% area.

Joint global coordinator Citigroup will bill and deliver for the dollar-denominated notes.

Joint global coordinator Goldman Sachs will bill and deliver for the euro-denominated notes.

Additional syndicate members for all tranches of the Rule 144A and Regulation S for life deal included joint global coordinator UBS and joint bookrunners BofA Merrill Lynch, Barclays, ING and Lloyds TSB.

Ineos plans to use the proceeds to take out its dollar-denominated 8½% notes due 2016. Additional proceeds expected to result from the added €250 million tranche of 5.25-year notes will be used to take out a portion of the euro-denominated 8½% notes due 2016.

LKQ upsizes

LKQ priced an upsized $600 million issue of 10-year senior notes (Ba3/BB-) at par to yield 4¾%.

The yield printed 12.5 basis points inside of price talk that was set in the 5% area.

The deal was upsized from $500 million.

BofA Merrill Lynch, Wells Fargo Securities LLC, RBS Securities Inc. and Mitsubishi UFJ Securities (USA) Inc. were the joint bookrunners.

Proceeds, together with a proposed term loan, will be used to repay a portion of the company's revolver and an existing term loan.

KCA Deutag sells secured notes

KCA Deutag Finance priced a $500 million issue of 9 5/8% senior secured notes (B3/B) at 96 to yield 10.681%.

The coupon came 12.5 bps below the 9¾% coupon talk. The reoffer price came on top of price talk.

The notes feature a 50 bps coupon step-up after 12 months and an additional 100 bps step-up after 24 months if the sum of the company's outstanding term loans is $500 million or greater.

JPMorgan, BofA Merrill Lynch, HSBC, Lloyds TSB and Morgan Stanley were the joint bookrunners. Natixis was the co-manager.

The notes, which are being issued by the Aberdeen, Scotland-based oil and gas services company's Globe Luxembourg SCA entity, come pari passu with existing bank debt.

Earlier this year, KCA Deutag ran a March 18 to March 22 roadshow for an $860 million offering of seven-year senior secured notes.

The deal was sidelined because the company and bond investors were unable to come to agreement on the interest rate, according to market sources.

As with the prior deal, the company plans to use the proceeds from the proposed first-lien notes to repay debt.

United Airlines drives by

United Airlines, Inc. priced a $300 million issue of non-callable five-year senior notes (B2/B) at par to yield 6 3/8%.

The yield printed on top of yield talk that was revised from earlier talk of 6½% to 6¾%.

JPMorgan, Morgan Stanley, Barclays, Deutsche Bank Securities Inc. and BofA Merrill Lynch were the joint bookrunners.

The air carrier plans to use the proceeds for general corporate purposes.

CompuCom atop revised talk

CompuCom Systems priced a downsized $225 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 7%.

The issue was downsized from $250 million when the company shifted $25 million to its bank loan.

The yield printed on top of yield talk that was revised from earlier talk in the 7¼% area.

JPMorgan, Citigroup, BMO Securities, Jefferies & Co. and SMBC Nikko Capital Markets Ltd. are the joint bookrunners.

The Dallas-based IT services and solutions specialist plans to use the proceeds to fund the acquisition of CompuCom by Thomas H. Lee Partners LP from Court Square Capital Partners.

Gestamp, in dollars and euros

It was also a massive day in Europe.

In the euro-denominated market, €1.7 billion priced.

Again, executions were notable, with three tranches pricing atop downwardly revised talk and two coming at the tight end of talk.

Spanish engineering firm Gestamp Automacion SL priced a slightly upsized €770 million equivalent amount of seven-year senior secured notes (B1/BB) in two tranches.

The deal, which was upsized from €750 million equivalent, included a $350 million tranche of notes that priced at par to yield 5 5/8%, at the tight end of price talk set in the 5¾% area, and a €500 million tranche of notes that priced at par to yield 5 7/8%, at the tight end of price talk set in the 6% area.

Joint bookrunner Deutsche Bank will bill and deliver. BofA Merrill Lynch, Bankia, Barclays, BBVA, Caxia, Commerzbank, Itau, Santander and SG CIB were also joint bookrunners.

The Abadino, Spain-based company plans to use the proceeds to refinance debt.

WEPA upsizes

Germany's WEPA Hygieneprodukte priced an upsized €275 million issue of seven-year senior secured notes (B1//) at par to yield 6½%.

The deal was upsized from €250 million.

The yield printed on top of yield talk that was revised from earlier talk which had the notes coming in the 6¾% area.

Deutsche Bank and HSBC managed the sale.

The Arnsberg, Germany-based manufacturer of toilet paper, napkins, kitchen towels, handkerchiefs and facial tissues plans to use the proceeds to refinance debt and to help fund the acquisition of Marsberger Kraftwerksgesellschaft.

R&R Ice Cream PIK toggle

England's R&R Ice Cream priced a €253 million issue of five-year senior PIK toggle notes (Caa1/CCC+) at par.

The notes pay a cash coupon of 9¼% and yield 9¼%. They pay a PIK coupon of 10% and have a 9.85% PIK yield.

The cash yield came at the tight end of the 9¼% to 9½% yield talk. The reoffer price came on top of price talk.

Joint physical bookrunner Barclays will bill and deliver. Credit Suisse is also a joint physical bookrunner.

Proceeds will be used to help fund the acquisition of the Leeming Bar, England-based ice cream manufacturer by PAI Partners SAS.

Sanitec atop revised talk

Finnish bathroom fixtures manufacturer Sanitec priced a €250 million issue of five-year floating-rate notes (B1/B+) at par to yield three-month Euribor plus 475 bps.

The Euribor spread priced on top of spread talk that was tightened from earlier talk of 500 bps.

UBS and Deutsche Bank managed the sale.

Proceeds will be used to refinance existing debt and to fund a distribution to Sanitec's owner, EQT IV Fund, which acquired the company in 2005.

New Look for Friday

New Look Retail Group Ltd. set tranche sizes and price talk for its £800 million equivalent three-part offering of five-year senior secured notes (B1/B-/B).

In the sterling- and dollar-denominated fixed-rate tranches, both of which come with two years of call protection, New Look talked £500 million to yield in the 9% area and $250 million to yield in the 8 5/8% area.

The deal also includes a floating-rate tranche of five-year notes that are talked to price at par with the coupon anticipated to come at a 650 bps spread to Euribor. The floating-rate notes come with one year of call protection.

Books closed at 5 p.m. ET Thursday for accounts in the United States and are set to close at 9:30 a.m. London time for European accounts.

The deal is set to price Friday morning, New York time.

Goldman Sachs & Co. and JPMorgan are the joint global coordinators and joint bookrunners.

Deutsche Bank, HSBC Securities (USA) Inc., Lloyds Bank and RBS Securities Inc. are also joint bookrunners for the Rule 144A and Regulation S deal.

Proceeds will be used to repay senior and mezzanine debt and PIK loans.

Sisal starts roadshow

Italy's Sisal Holding Istituto di Pagamento SpA began a roadshow on Thursday for its €275 million offering of senior secured notes due in September 2017.

The deal is set to price during the week ahead.

Joint bookrunner Deutsche Bank will bill and deliver. Banca IMI, Credit Agricole CIB, Mizuho, Royal Bank of Scotland and UniCredit are also joint bookrunners.

The Milan, Italy-based gaming and convenience payment services company plans to use the proceeds to refinance debt.

Ineos issue improves

With headlines about price talk, restructurings and ultimately pricings of both the dollar-denominated deals and the euro- and sterling-denominated issues flashing across the screens almost non-stop, a secondary trader characterized Thursday's market as "a crazy day."

But out of all of those deals, the only one to really make it to the aftermarket was Ineos Group's 6 1/8% notes due 2018.

The trader said that after having priced at par, the bonds initially rose to a 102½ to 103 bid context.

After that, he said, "you had sellers come in at the 21/2-2 5/8 level," driving the bonds slightly down from their day's peak.

He saw the Swiss chemical producer's $678 million tranche going home somewhere between 102¼ and 102¾ bid.

Apart from the one pricing, he had not seen any kind of aftermarket dealings in any of the other issues that had come to market by Thursday afternoon.

"I haven't even seen a quote," he said of the KCA Deutag 9 5/8% senior secured notes due 2018.

While CompuCom Systems had by that time priced its 7% notes due 2021, he declared, "People still haven't gotten their allocations."

Constellation keeps shining

Among deals that have priced in recent days, the trader said that Constellation Brands' two-part megadeal "was active," though off, volume-wise, from the very heavy trading levels seen on Wednesday.

He pegged the company's 4¼% notes due 2023 at 103¼ bid and its 3¾% notes due 2021at 1021/4.

That was well up from the levels seen on Wednesday, when the deal, which had priced too late in Tuesday's session for any trading, went into the aftermarket - and took it by storm. As many as $139 million of the new 4¼% notes and more than $60 million of the 3¾% paper had traded on Wednesday, making them easily the busiest junk world names.

On Thursday, a market source at another desk said the 4¼% notes remained near the top of the most-actives list, with over $23 million having changed hands. He saw the bonds going out at 103¼ bid, which he called up by 7/8 point over the Wednesday close

He said that over $22 million of the 3¾% paper traded on Thursday, seeing that as a half-point gain.

Victor, N.Y.-based Constellation - a major producer and importer of brand-name beers, wines and liquors - priced $1.05 billion of the 4¼% notes at par in a quick-to-market transaction on Tuesday, too late for any trading at that time.

It priced $500 million of the 3¾% notes, also at par.

In Wednesday's dealings, the 4¼% notes had gotten as good as 102½ bid, 102 7/8 offered, while the 3¾% notes had risen to 101½ bid, 101¾ offered, and they continued to climb on Thursday.

AES, Erickson up

Among other recent deals, a trader said that AES Corp.'s 4 7/8% notes due 2023 continued to climb, locating those bonds late in the day at 103½ bid, 104 offered. He called that a ¾ point gain on the session.

The bonds have been climbing all week, he said, noting that the issue had moved up by ¼ point on Monday, followed by half-point gains on both Tuesday and Wednesday.

The Arlington, Va.-based global power producer had priced $500 million of the notes at par in a drive-by offering last Thursday. By Friday, the bonds had jumped up to the 101½ bid level and have continued to firm since then.

Another deal from that same week-ago session - Erickson Air-Crane Inc.'s 8¼% second-priority senior secured notes due 2020 - were trading around 104 bid.

The Portland, Ore.-based provider of helicopter lift services priced $400 million of those notes at par on April 25.

The bonds immediately went into the aftermarket, getting up above the 102½ bid level.

However, they had backed off a little from those peaks, ending last week anchored in a 1011/2-plus context before beginning to move back up this week.

Indicators get better

A trader said that "everything felt like it was up in price," even though overall volume - despite heavy trading in one or two names - was light.

Reflecting that somewhat firmer feeling, statistical junk performance indicators improved on Thursday. They were mixed on Wednesday after six consecutive stronger sessions.

The Markit Series 20 CDX North American High Yield index rose by 23/32 point on Thursday to go home at 106 5/16 bid, 106 3/8 offered. On Wednesday, it had tumbled by 9/32 point - the first loss for the index after six straight sessions of gains before that.

The KDP High Yield Daily index, meanwhile, continued to climb on Thursday for an eighth consecutive session, as it jumped by 15 bps to a close of 76.50, on top of the 20-bps rise seen on Wednesday.

Its yield came in by 7 bps on Thursday to finish at 5.01% after having narrowed by 5 bps two straight sessions before that.

And the widely followed Merrill Lynch High Yield Master II index notched its 11th consecutive advance on Thursday, rising by 0.15%. That followed Wednesday's 0.234% gain.

The advance lifted its year-to-date return to 5.209%, its ninth straight new peak level for the year. The previous peak level had been Wednesday's 5.176%, which was also the index's first time above the psychologically significant 5% mark in 2013.

The index's yield to worst also dropped to a new all-time low at 5.122% Thursday, eclipsing the prior nadir of 5.176% set on Wednesday. Its spread to worst tightened to 447 bps over Treasuries, a new tight level for the year, versus the prior tight point of 452 bps, also recorded on Wednesday.

© 2015 Prospect News.
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