Steel Dynamics prices upsized 'blowout'; new Ryerson 12s shoot up 4; funds see $221 million inflow

By Paul A. Harris

St. Louis, Oct. 4 - The broad high yield market was very firm on Thursday, a trader said, adding that existing issues in the housing and equipment rental sectors were up 2 points or more.

The primary market saw another upsized drive-by deal.

Steel Dynamics, Inc. placed a $700 million issue of five-year bullets on top of the 7 3/8% price talk. An informed source said that the deal, which was upsized from $500 million, was a blowout.

Meanwhile Allison Transmission Inc., as expected, launched the cash-pay portion of its $1.1 billion bond financing. The roadshow for the $550 million eight-year notes offer starts Tuesday.

Steel Dynamics a blowout

Steel Dynamics became the seventh U.S.-based issuer since mid-September to complete an upsized drive-by deal when it placed $700 million of paper on Thursday.

The Fort Wayne, Ind.-based owner and operator of steel mills priced $700 million of five-year senior bullet notes (Ba2/BB+) at par to yield 7 3/8%, on top of the price talk.

Banc of America Securities LLC, Goldman Sachs & Co. and Morgan Stanley were joint bookrunners.

An informed source said that the deal was a blowout.

Late Thursday a trader saw the paper par-pricing paper at 100 3/8 bid, 100 5/8 offered.

Ryerson: a lot of coupon

Meanwhile the market was buzzing on Thursday about metals distributor Ryerson Inc., which priced a $575 million two-part issue of senior secured notes (B2/B+) on Wednesday, via Banc of America Securities.

Two sources saw the bonds 4 points up from the issue price, on the bid side.

To recap, the Chicago-based company priced a $425 million tranche of eight-year fixed-rate notes at par to yield 12%, on top of the price talk, and a $150 million tranche of seven-year floating-rate notes at three-month Libor plus 737.5 basis points, at the wide end of the Libor plus 725 basis points price talk.

A trader spotted the par-pricing 12% paper going out at 104 bid, 104½ offered on Thursday.

Meanwhile a portfolio manager, who earlier in the day saw the 12% bonds at exactly the same level, explained "people wanted to go long Ryerson and short AK Steel, to hedge out the steel market risk and take the bigger coupon.

"These things have to be priced to move," the portfolio manager added.

"It's a very cyclical business. For anyone who might be worried about the economy a vaguely normal coupon would not have worked."

Low-supply junk market

Elsewhere among the recent issues, a trader saw the new par-pricing R.H. Donnelley Corp. 8 7/8% notes due 2017 at 101½ bid, 102 offered late Thursday.

The notes (B3/B) were priced at par in a $500 million add-on which was completed on Tuesday, less than two weeks after the company placed the original upsized $1 billion issue.

When Prospect News questioned a money manager about the robustness of some of the recent issues, including most of the seven deals that have been priced in upsized drive-by transactions since mid-September, the buy-sider said there is relatively little issuance in the high yield market, and there are plenty of coupon payments that need to be put to work.

"Some of it is being put to work in bank loans. But the demand for high yield bonds is likely to be relatively steady, because people are putting cash to work in a low-supply market."

Housing gets a bounce

A trader, commenting that the Thursday junk market was "very firm," said that the housing sector bounced off its lows by a couple of points, after having been beaten up on Wednesday.

The source added that the bonds seemed to hold in despite a report from UBS asserting that the worst may be yet to come for the beleaguered sector.

Asked for a spot on a benchmark name, the trader offered the Technical Olympic 9% senior notes due 2010, and had them 2 points higher at 62 bid, 63 offered.

This source added that the equipment rentals sector made a healthy advance, with some names, such as RSC Equipment Rental Inc., up 2½ points.

Allison to roadshow cash-pays

Allison Transmission will begin a two-day roadshow on Tuesday for $550 million of the overall $1.1 billion of bond financing backing the acquisition of the company.

The deal, launched Thursday by joint bookrunners Citigroup, Lehman Brothers and Merrill Lynch & Co., is comprised of a single tranche of eight-year cash-pay senior notes (expected ratings Caa1/B-), and is expected to price on Oct. 11.

The financing, which is being used to help fund the acquisition of the company by Carlyle Group and Onex Corp. from General Motors Corp., also includes toggle notes, which are not in the market at the present time.

The overall bond portion of the financing is $1.1 billion.

One informed source said that the book for the cash-pay notes "is pretty much wrapped up."

$221 million inflow

For the second consecutive week, high yield mutual funds saw notable inflows of cash.

That according to a market source, who told Prospect News that AMG Data Services reported a $221 million inflow for the week to Oct. 3.

It follows the previous week's $465.8 million inflow, which was the biggest weekly inflow since the week to June 1, 2005 when the junk funds saw an inflow of nearly $974 million.

Despite the most recent cash infusion, the funds which report to AMG on a weekly basis continue to show red ink year to date. Thus far in 2007 the weekly reporting funds are negative $1.409 billion.

Meanwhile the funds that report on a monthly basis reported inflows of slightly more than $509 million for the most recent period, sending their year-to-date positive flows to just below the $5 billion mark.

Hence the year-to-date aggregate flows, which combine both the weekly and monthly reporting funds, remain squarely in the black at $3.582 billion.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.