Consolidated Energy two-parter, Halyard price; Zebra gain continues; funds lose $2.28 billion

By Paul Deckelman and Paul A. Harris

New York, Oct. 2 – High-yield primary activity picked up on Thursday. The session saw $1.49 billion of new dollar-denominated, fully junk-rated paper come to market in three tranches, versus the previous session’s lone $150 million offering.

However, almost all of the day’s total came from just one deal. Consolidated Energy Ltd., a Miami-based holding company active in the alternative waste management and energy production sphere, did a $1.25 billion two-part offering via a financing subsidiary. This included $1.05 billion of fixed-rate five-year notes and $200 million of five-year floating-rate paper.

The deal came to market too late in the day for any kind of secondary dealings.

Earlier, Halyard Health, Inc., an Alpharetta, Ga.-based producer of surgical and infection prevention products and medical devices being spun off from health and hygiene consumer products company Kimberley-Clark Corp., priced $250 million of eight year notes, which were seen to have firmed when they hit the aftermarket.

Wednesday’s small add-on issue from Sabra Health Care REIT, Inc. meantime was also quoted higher when it began trading around, but on very limited volume.

The week’s only other new deal, Tuesday’s downsized megadeal from Zebra Technologies Corp., was again among the most actively traded Junkbondland names on Thursday – although its volume was a far cry from the more than $100 million of the printing technologies company’s new eight-year notes that had moved around when they were freed for trading on Wednesday. The notes continued to add to their already hefty initial aftermarket gains.

Going back a little further, there was continued brisk activity in recently priced deals from Burger King Worldwide, Inc., AerCap Holdings NV and Alcoa, Inc.

Away from the new-deal world, traders saw a big drop in DFC Finance Corp.’s six-year notes, although there was no fresh news out on the provider of alternative financial services to the unbanked.

McClatchy Co.’s bonds rose in busy dealings for a second straight session, strengthened by news that the media company completed a big asset sale.

Statistical indicators of junk market performance turned mixed on Thursday after having been higher for two straight sessions and lower over the previous three sessions before that.

Another statistical measure – the flow of cash into and out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of over junk market liquidity trends – showed a large outflow this week that more than offset the inflow reported last week, which in turn had followed three consecutive weeks on the downside before that.

Junk funds lost $2.28 billion

As things were winding down on Thursday, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $2.28 billion more left those funds than came into them in the week ended Wednesday.

That outflow follows a $528.2 million inflow 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 Sept. 24.

Last week’s inflow had followed three consecutive outflows before that: $1.19 billion during the week ended Sept. 17, a $766 million downturn during the week ended Sept. 10 and a $198 million outflow in the week ended Sept. 3. The three outflows amounted to $2.15 billion.

They, in turn, had followed three consecutive weeks of inflows before that totaling $3.58 billion. That included the $2.22 billion cash injection in the seven-day period ended Aug. 20, which is the biggest such improvement seen so far this year, according to a Prospect News analysis of the figures.

On a longer-term basis, although inflows to the weekly-only reporting funds have been seen in 25 of the 39 weeks since the start of the year, according to the analysis, against 14 outflows, the year-to-date balance still lists well into the red, with $6.25 billion more leaving the funds than coming into them during that time.

A key factor in the overall negative number was four straight weeks of massive outflows between the week ended July 16 and the week ended Aug. 6 – the latter a record $7.07 billion money hemorrhage – that more than wiped out what had been a positive year-to-date fund flow pattern up to that point.

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, which had 53 reporting weeks due to a statistical quirk, 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, the analysis indicated.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime, saw $3.5 billion of net outflows in the latest week, according to a market source.

It was the fifth consecutive outflow seen by EPFR and came on the heels of the previous week’s $179 million outflow. Before that were outflows of $3.16 billion during the week ended Sept. 17, a nearly $2 billion cash bleed in the Sept. 10 week and a smallish downturn in the Sept. 3 week. And before that losing streak started, the service had seen two straight inflows in late August, following five straight weeks of massive outflows dating back to mid-July.

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 solely domestic orientation.

While the two services’ 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, or vice versa. EPFR thus has recorded inflows in 26 out of the 39 weeks since the start of the year, against 13 weekly outflows during that time.

The big outflows reported by the two services in the latest week came as no real surprise to market participants, who had been expecting sizable outflow numbers in the wake of reported massive outflows from bond funds managed by Pacific Investment Management Co., Pimco, following last Friday’s unexpected announcement that the company’s co-founder and long-time chief investment officer, Bill Gross, had resigned amid persistent large outflows from the company’s funds over a period of many months.

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 $1.5 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 had mostly continued on into the first half of this year as well. Secondary performance was erratic during the just-ended third quarter, although new issuance continues to run slightly ahead of last year’s near-record pace.

A market source meantime said that leveraged-loan funds saw outflows of $1.44 billion in the latest week, following the prior week’s $381.7 million downturn. It was the 12th consecutive weekly outflow from those funds, which have seen $6.25 billion of cumulative red ink for the year so far. Those funds have been struggling mightily since April, when an incredible winning streak of nearly two consecutive years of weekly inflows abruptly came to an end.

Investment-grade bond funds saw a net inflow this week of $3.13 billion, versus the previous week’s $1.68 billion net inflow. Year-to-date inflows to those high-grade funds swelled to $58.32 billion.

Consolidated Energy prices

Thursday saw two issuers price a combined three tranches of junk to raise $1.49 billion.

Both transactions priced following roadshows.

Consolidated Energy priced $1.25 billion of senior notes due Oct. 15, 2019 (B2/BB-) in two tranches.

A $1.05 billion tranche of 6¾% fixed-rate notes priced at 99 to yield 6.989%. The tranche priced in line with talk of 7% area including one point of original issue discount.

In addition, the company priced a $200 million tranche of floating-rate notes at par to yield Libor plus 350 basis points. The floating-rate tranche came without formal price talk.

Morgan Stanley & Co. LLC was the bookrunner for the fixed-rate tranche.

Morgan Stanley and Commerzbank were joint bookrunners for the floating-rate tranche.

Proceeds will be used to fund the acquisition of the remaining 56.53% equity stake of Methanol Holdings (Trinidad) Ltd. not already owned by Consolidated Energy.

A chunky book

The Consolidated Energy deal played to a chunky book, according to a sellside source who tracked down color.

The entire floating-rate tranche was said to have been taken down by a single account.

Throughout the course of the Thursday session, this source saw better buyers in high yield and saw cash bonds a little higher on the day.

It could bode well for the primary market, the sellsider said.

Sabra Health Care LP’s $150 million add-on to its 5½% senior notes due Feb. 1, 2021 (Ba3/BB-) was put away pretty easily, the source recounted. The deal priced Wednesday at 99.5 to yield 5.593%.

Even in the chop that has lately roiled the junk market, there is the ability to get things done as long as the calendar doesn't get overcrowded, the sellsider remarked.

This source looks for a familiar high-yield issuer to show up with a benchmark-sized deal on Tuesday.

It won't be Charter Communications, the source said when quizzed, although this sellsider and other market sources are watching for that familiar issuer to show up sooner than later.

Halyard comes atop talk

Halyard Health priced a $250 million issue of eight-year senior notes (B2/B+) at par to yield 6¼%.

The yield printed on top of yield talk.

Early guidance was 6% to 6 1/8%, according to a bond trader.

Morgan Stanley, Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and RBC Capital Markets were the joint bookrunners for the deal to help fund Kimberly-Clark Corp.’s spinoff of its Halyard Health subsidiary.

Albertsons starts Friday

The Thursday session did see one expected issuer step from behind the curtain.

Albertsons Holdings LLC plans to start a roadshow on Friday for a $1,625,000,000 offering of eight-year second-lien senior secured notes (B2/CCC+).

The roadshow is scheduled to wrap up on Tuesday.

BofA Merrill Lynch, Citigroup, Credit Suisse, Morgan Stanley, Barclays and Deutsche Bank are joint bookrunners for the deal, which will help fund the acquisition of food and drug retailer Safeway, Inc.

Halyard seen higher

In the secondary market, a trader quoted the new Halyard Health 6¼% notes due 2022 having moved up to 101¼ bid, 101¾ offered.

The $250 million issue had priced at par earlier in the day.

The session’s other deal, Consolidated Energy’s five-year fixed- and floating-rate notes, appeared too late in the day for any kind of aftermarket dealings.

Sabra bonds better but quiet

A trader saw Sabra Health Care’s 5½% notes due 2021 at 101 bid – but he said volume was extremely light in the issue, with just two odd-lot trades seen at that level, one for 250 of the [$1,000 par-value] bonds, the other for 500 bonds.

The Irvine, Calif.-based health-care facilities real estate investment trust priced $150 million of the notes on Wednesday as an add-on to its existing issue. They came at 99.5 to yield 5.593%.

The existing bonds had been trading as high as 102¼ on Wednesday morning before that drive-by offering got done.

Zebra bonds gain

There was continued activity in Tuesday’s megadeal from Zebra Technologies.

However, a trader noted that while more than $120 million of the notes had traded on Wednesday, when the new issue was freed for secondary market dealings, that volume figure had dwindled to $16 million on Thursday – just a fraction of its initial activity, but still substantial enough to put the name fairly high on the junk bond Most Actives list.

“There was a flurry the first day, but then it kind of died down,” the trader said.

The bonds had firmed smartly to around the 102 bid level when they started trading, well up from the par level at which the Lincolnshire, Ill.-based printing technologies company had priced $1.05 billion of the notes. The deal was downsized from $1.25 billion originally.

On Thursday, the trader quoted them having moved up further to around 102¼ bid, 102 3/8 offered.

At another shop, a market source saw the bonds at 102 5/8 bid, calling that a 5/8 point gain on the day.

Recent names stay busy

Among other recently priced issues, Miami-based fast-food giant Burger King Worldwide’s 6% senior secured second-lien notes due 2022 rose by ½ point on Thursday, a trader said, ending at 99 7/8 bid. More than $35 million of the notes traded, the most of any purely junk issue on the day.

Burger King had priced $2.25 billion of those notes at par last Wednesday.

Amsterdam-based commercial aircraft leasing company AerCap Holdings’ new 5% notes due 2021 continued to hang in around the 100¼ bid level to which they had risen on Wednesday in active dealings.

The company’s existing 7 1/8% notes due 2018 meanwhile gained ¼ point to end at 112¾ bid.

Alcoa’s new 5 1/8% notes due 2024 were up by 1/8 point, at 101 3/8 bid, on top of Wednesday’s 7/8 point gain and Tuesday’s 3/16 point advance.

For a second straight day, more than $14 million of the notes traded on Thursday. That followed Tuesday’s more than $25 million of turnover.

The Pittsburgh-based aluminum products manufacturer had come to market with a split-rated (Ba1/BBB-/BB+) $1.25 billion offering on Sept. 17, pricing those bonds at par.

DFC debt down

Away from the new deal segment, a trader said that DFC Finance’s 10½% notes due 2020 were down 2¼ points on more than $17 million of turnover.

He saw the bonds going home in a 94½-to-94 7/8 range.

A second trader also saw the notes off by 2¼ points, at 94 7/8, in busy trading.

There was no fresh negative news out on the Berwyn, Pa.-based provider of alternative financial services, such as check-cashing services, money orders, unsecured personal loans and secured pawn loans, to people who do not use the services of traditional banks.

The company, then known as DFC Global Corp., had sold $800 million of the notes in June, pricing them at par after the deal was upsized from an originally announced $500 million. The bond issue was part of the financing for its buyout by private equity company

McClatchy gains continue

On the upside, McClatchy’s 9% notes due 2022 were seen by a market source up another 1½ points on the session, ending at 110½ bid, with over $10 million traded.

On Wednesday, those bonds had firmed by around 1 point to the 109 level, with more than $18 million having traded.

The Sacramento, Calif.-based newspaper publisher and online web page operator’s bonds rose following Wednesday’s announcement that it had closed on its sale of its 25.6% stake in Classified Ventures LLC, which operates the online automotive shopping website Cars.com, to Gannett Co. for $631.8 million. McClatchy’s net proceeds from the sale will come to about $408 million. Classified Ventures’ several other owners also sold their stakes in the company to Gannett.

Market seen improving

Overall, a trader said that “we were seeing a little reversal” after last week and earlier this week, when, he said, “the market was very heavy,” taking its cue from stock market declines.

However, he said, “today, stocks took off, and we got better. Things firmed up.”

Indicators turn mixed – barely

But statistical indicators of junk market performance edged into mixed territory on Thursday after having been higher across the board over the previous two sessions. That strength, in turn, had followed three straight sessions before that on the downside and five sessions out of the previous six.

The KDP High Yield Daily index eased by 1 basis point to end at 71.96 after having posted gains over the previous two sessions, including Wednesday’s 14 bps improvement and Tuesday’s 20 bps rise, which had been its first after six consecutive sessions before that on the downside.

However, its yield – which would normally head upward as the index reading goes down – instead came in for a third session in a row, declining by 2 bps to 5.70%. It had narrowed by 4 bps on Wednesday and by 7 bps on Tuesday after having widened out for five successive sessions before that.

The Markit CDX Series 22 index rose for a third straight session, tacking on 5/16 point to close at 106¼ bid, 106 3/8 offered. It had also been up by 1/32 point on Wednesday and by 9/16 point on Tuesday, breaking a three-session losing streak before that.

The widely followed Merrill Lynch High Yield Master II index also made it three straight days on the upside, advancing by 0.031%, which followed gains of 0.159% on Wednesday and 0.377% on Tuesday. It had fallen for six sessions in a row before that.

The latest gain lifted its year-to-date return to 3.804% from Wednesday’s 3.772%, but the cumulative return remained well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed due to the Labor Day holiday break.

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