Ally, Calumet bring drive-by deals; WOW! launches; Engility drops out; funds jump $1.2 billion

By Paul Deckelman

New York, June 21 - The high-yield market remained a pretty busy place on Thursday, market participants said.

Nearly $1.8 billion of new junk-rated paper came to market during the session in three tranches brought by two issuers.

Ally Financial Inc. priced a quickly shopped two-part mega-deal, consisting of $1 billion of three-year senior guaranteed notes, plus a $500 million add-on to the automotive and residential lender and online banking company's $1 billion of 2017 notes that it priced back in February.

Chemicals manufacturer Calumet Specialty Products Partners, LP drove by with an upsized $275 million of eight-year notes.

Traders did not see the new Ally bonds really going anywhere, and Calumet's deal firmed marginally when it hit the aftermarket.

Also on the new-deal scene, WOW! Internet Phone & Cable was heard by junk market sources to have begun a roadshow for its $1.2 billion offering of eight-year notes, which the company is selling as part of the financing for its acquisition of Knology Inc.

Meanwhile, P.F. Chang's China Bistro Inc.'s upcoming issue of eight-year notes was heard to have been downsized by $25 million, while the amount of its concurrent bank loan financing was raised by that same amount.

And the market sources said that Engility Corp.'s planned $250 million bond issue had disappeared completely from the forward calendar, and the bank debt financing going along with the company's planned spinoff from big defense contractor L-3 Communications Holdings, Inc. was increased.

Away from the new-deal market, Junkbondland was seen to have retreated during the afternoon, following along as the stock market sagged badly.

Statistical measures of market performance were mixed on the day versus the clear across-the-board gains seen on Wednesday.

However, high-yield mutual fund flows - seen as a reliable barometer of junk market liquidity trends - were reported by both major tracking agencies to have had a tremendous week, with each seeing more than $1 billion of fresh cash during the week ended Wednesday.

AMG jumps by $1.2 billion

As things were winding down in the junk world on Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, about $1.2 billion more came into those funds than left them.

It was the second strong showing by the junk mutual and exchange-traded funds in as many weeks, coming on the heels of the $568 million cash addition seen the previous week, which ended June 13.

Those two inflows, collectively worth $1.77 billion, represented a considerable improvement over the debacle seen the week before that, which ended June 6, when they saw the funds having suffered a whopping $2.9 billion outflow - the third largest on record since Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, began tracking fund flows some years ago.

The two inflows in the last two weeks snapped a four-week string of outflows dating back to the week ended May 16. During that stretch, which also included another mammoth outflow, the $2.46 billion cash drop seen in the week ended May 23, the junk funds had seen an estimated $6.43 billion of outflows, according to a Prospect News analysis of the figures.

On a year-to-date basis, the latest inflow pulled the cumulative net inflow figure up to around the $19.4 billion mark from the $18.2 billion the week before, according to the analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters, according to AMG.

However, it remains well below its peak level for 2012 of an estimated $24 billion seen in the week ended May 9, according to the analysis.

Including an outflow seen earlier in the year - the $1.29 billion recorded in the week ended April 11 - there have now been just five outflows seen so far this year, while inflows have now been seen in 20 out of the 25 weeks since the start of the year.

Market observers said that it remains to be seen whether the momentum has really turned back to the positive side after having been negative for much of May going into June.

EPFR: Funds up $1.58 billion

The recent turnaround in the fund-flow trajectories was confirmed by a rival fund-tracking service, Cambridge, Mass.-based EPFR Global, which reported that in the week ended Wednesday, about $1.58 billion more came into the funds it follows than left them.

As was the case with the AMG Lipper numbers, EPFR - which uses a different methodology, but whose numbers usually point in the same direction as AMG - reported that this was the second consecutive large inflow number, following the previous week's $391 million cash addition.

Those two inflows followed four straight weeks of sizable outflows, including the $3.6 billion that had left the funds in the week ended June 6.

The latest inflow lifted EPFR's year-to-date total return to about $30.2 billion, the company said.

Cumulative fund-flow estimates, whether from AMG/Lipper or EPFR, 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 observable and 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, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's relatively strong performance during the first few months of this year versus other fixed-income asset classes and its relatively active new-deal pace, with issuance volume remaining not too far behind last year's totals.

Ally brings a mega-deal

The high-yield primary market's pace began picking up on Wednesday with Sappi Papier Holding GmbH's $700 million issue, and it continued to percolate on Thursday with another $1.78 billion principal amount of new junk priced in three tranches by two issuers.

The biggest deal of the day was from Ally Financial, which priced a quickly shopped, $1.5 billion two-part bond offering (B1/B+/BB-) on Thursday, high-yield syndicate sources said.

It came to market with a $1 billion offering of 4 5/8% senior guaranteed notes due 2015. Those bonds priced at 99.31 to yield 4 7/8%.

The company also did a $500 million add-on tranche to its existing 5½% senior guaranteed notes due Feb. 15, 2017. Those bonds priced at 101.5, in line with pre-deal market price talk, to yield 5.131%.

The add-on notes will have the same terms as the company's existing $1 billion of 5½% notes due 2017, will be fully fungible with them and will form a single series with them. Those existing notes priced at 98.926 to yield 5¾% in a quick-to-market deal on Feb. 9.

The notes were brought to market via joint book-running managers Barclays Capital Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. and J.P. Morgan Securities LLC.

There was a lengthy list of co-managers on the deal, including Credit Agricole Securities (USA) Inc., Deutsche Bank Securities Inc., Lloyds Securities Inc., RBC Capital Markets, LLC, RBS Securities Inc., Scotia Capital (USA) Inc., U.S. Bancorp Investments, Inc., Loop Capital Markets LLC, Mischler Financial Group, Inc. and Samuel A. Ramirez & Co., Inc.

Ally, a Detroit-based automotive and residential lender and online banking company, plans to use the proceeds from the add-on for general corporate purposes, which could include retirement of outstanding debt. Pending allocation of the proceeds, the company may invest them in short-term securities.

Calumet comes by

The day's other pricing came from Indianapolis-based chemicals maker Calumet Specialty Products Partners.

Along with its wholly owned subsidiary Calumet Finance Corp., it priced a quick-to-market, upsized $275 million offering of eight-year senior notes (B3/B).

The bonds came to market just a few hours after the company announced plans for its new deal. It was done via joint book-running managers Bank of America Merrill Lynch, Barclays, JPMorgan and Wells Fargo Securities, LLC, along with co-managers Deutsche Bank and Goldman Sachs.

The 9 5/8% notes due 2020 priced at 98.25 to yield 9.941%, about in line with pre-deal market price talk of a yield in the 10% area with around 2 points of original issue discount.

The deal was upsized from the originally announced $250 million.

Calumet, a producer of high-quality specialty hydrocarbon products, will use the proceeds from the bond sale to fund a portion of the purchase price in its previously announced $335 million acquisition of Royal Purple, Inc., a producer of high-performance synthetic lubricants.

That closing is expected to take place sometime next month. But should the closing not have occurred by Sept. 15, or if the purchase agreement is terminated at any time before then, the escrowed funds will be applied to the mandatory redemption of the notes at a price equal to 100% of their initial offering price plus accrued interest up to the redemption date.

Ally little moved

A trader said that the new Ally bonds "went nowhere. Both were trading right around issue," which was 99.31 on the three-year notes and 101.5 on the five-year add-on notes.

He did see Calumet's new bonds push up to around the 99 level from 98.25 at their pricing.

A second trader saw the Ally three-year bonds at 99 1/8 bid, 99½ offered, while its add-on five-year notes were at 101 bid, 102 offered, "so the market is not exactly running away with them."

Another market source saw the three-year notes at 99¼ bid, par offered.

A trader saw the new Calumet paper at 99 bid, 99¾ offered, "so they were up a little."

WOW! deal hits the road

Away from the deals that actually priced on Thursday, syndicate sources said that WOW! Internet, Cable & Phone began a roadshow to shop its $1.02 billion offering of eight-year senior notes around to prospective investors.

There was no immediate word on how long the roadshow would last or when the giant-sized offering might be priced.

The deal will come to market via book-running managers Credit Suisse Securities (USA) LLC, Morgan Stanley Senior Funding Inc., RBC Capital Markets LLC, SunTrust Robinson Humphrey, Inc. and Bank of Tokyo - Mitsubishi-UFJ Ltd.

WOW!, a Denver-based provider of residential and commercial high-speed internet, cable television and telephone services, is selling the bonds through its WideOpenWest Finance LLC entity as part of the funding for its pending acquisition of Knology, a West Point, Ga.-based provider of interactive communications and entertainment services.

Under the agreement, WOW! will buy Knology for $19.75 per share in cash. The total transaction value is around $1.5 billion.

Besides the bond deal, financing for the acquisition includes a $2.12 billion credit facility and a $200 million equity contribution.

Engility is out

But no sooner had WOW! climbed aboard the forward calendar than market denizens heard that another prospective offering had fallen off the wagon.

They said that Engility, currently in the process of being spun off by major high-tech defense contractor L-3 Communications, had spiked plans to sell $250 million of seven-year senior notes as part of the funding for that process.

Instead, they said, the Chantilly, Va.-based company chose to upsize the bank-debt financing that it has been simultaneously pursuing.

The bond issue launched last week with an investor call and presentations to investors in New York and Boston. It was to have been brought to market by joint book-running managers Bank of America Merrill Lynch, Barclays, Credit Agricole Securities (USA) Inc. and SunTrust Robinson Humphrey, with Stifel, Nicolaus & Co. Inc. as a co-manager.

It was to have been sold to qualified investors under Rule 144A with registration rights - but by Thursday morning, several junk market sources said that the effort had run aground. One said that the yield that would-be investors were demanding "had backed up to a level that wasn't attractive [to the company] anymore."

Instead of doing the bond deal along with a planned $300 million credit facility to fund a special cash dividend to parent L-3 as part of the spinoff process, one of the market sources said that the bank loan portion of the financing had been upsized to $385 million. The bank debt was originally to have consisted of a $200 million term loan tranche and a $100 million revolving credit line, but the market source said the revolver had been lowered to $50 million and the term loan portion increased to account for all of the rest.

Downsized Chang still coming

The sources meanwhile also heard Thursday that P.F. Chang's planned offering of eight-year senior notes (Caa1/CCC+) was downsized by $25 million to $275 million.

However, that deal remains alive and is still expected to price Friday afternoon.

They said that price talk surfaced envisioning a yield between 10¼% and 10½%.

The bonds will be brought to market by book-running managers Deutsche Bank, Wells Fargo and Barclays.

Besides the downsizing, the sources also reported a change to the liens covenant in the bonds' indenture, reducing it to 2.25 times from 2.75 times originally. The covenant limits the ratio of secured debt that the issuer may incur in the future without equally and ratably securing the bonds being sold.

According to the sources, a $355 million senior credit facility the company has been concurrently shopping around the bank debt market has been upsized by $25 million - the same amount by which the bond deal was reduced - to a new size of $380 million.

The bonds and the bank debt are part of the financing for the estimated $1.1 billion pending acquisition of the Scottsdale, Ariz.-based operator of Asian-themed restaurants by Centerbridge Partners LP. Other funds for the transaction include up to $580 million of equity.

Market measurers turn mixed

Away from the new-deal realm, a trader said that "we started the day firmly," coming off the gains seen on Wednesday, "but the market definitely faded in the afternoon."

He said, "Net-net, we closed off a tiny bit. But we were pretty close to where we went out [Wednesday] night."

A second trader said, "We just followed stocks. When stocks gave up the ghost" in the afternoon, junk followed suit and gave back its early gains.

A trader saw the Markit Group CDX North American Series 18 High Yield index drop by ¾ point on Thursday to end at 94 11/16 bid, 94 15/16 offered after having been up by 7/16 point on Wednesday, its second straight gain.

The KDP High Yield Daily index ended about unchanged Thursday at 72.98. It had jumped 30 basis points on Wednesday, its fifth straight gain. Its yield was unchanged at 6.82% on Thursday after having fallen by 9 bps on Wednesday.

But the widely followed Merrill Lynch U.S. High Yield Master II index was up for a seventh straight session Thursday as it rose by 0.143% on top of Wednesday's 0.289% rise.

The latest gain lifted its year-to-date return to 6.483% from 6.331% on Wednesday, although it still remains somewhat below its peak level for 2012 so far, 6.80%, set on May 7.

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