Primary quiet but for Stolt-Nielsen NOK deal; ATP off once again; funds see $583 million gain

By Paul Deckelman and Paul A. Harris

New York, Aug. 23 - Thursday was another quiet day in the high-yield primary arena. Just one new deal surfaced, and that was denominated in Norway's kroner. Maritime transportation company Stolt-Nielsen Ltd. brought a quickly shopped NOK 1 billion ($171 million equivalent) three-part offering to market. After pricing, the three issues were swapped into dollar-denominated paper.

The dollar-bond primary was otherwise dead to the world, traders said.

The traders didn't see too much standing out in the secondary, either. The volume leader on the day was once again the beleaguered bonds of the newly bankrupt ATP Oil & Gas Corp. As was the case on Wednesday, those bonds headed lower.

There was still some dealings in recent new issues like VWR Funding Inc. and DaVita Inc. Both credits were seen a little better on the session, although activity was limited.

Statistical market-performance indicators were mixed on the session.

Traders chalked the overall lack of activity up to the early onset of the traditional end-of-August lull, even with more than a week to go before Junkbondland officially shuts down for the three-day Labor Day holiday in the United States.

But there was no shortage of investors pouring money into the junk market. The two major tracking services each reported strong net inflows into high-yield mutual funds and exchange-traded funds, which are considered a good barometer of overall junk market liquidity trends.

AMG gains $583 million

As things were grinding to a halt on Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $583 million more came into those funds than left them.

A secondary market trader opined that the inflow was "kind of expected. We've seen a little bit of money come in every day."

It was the 11th consecutive week of such inflows by the junk mutual funds and ETFs, a winning streak that dates back to the week ended June 13.

The number was up from the $378 million gain reported last week by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division.

In those 11 weeks, net inflows have totaled about $10 billion, according to a Prospect News analysis of the figures, representing a continuing solid turnaround from the pattern of weakness that had been prevalent in late May and early June, when the funds lost about $6.43 billion over the space of four weeks, including two huge cash hemorrhages each in excess of $2 billion, according to the analysis.

On a year-to-date basis, that latest inflow pulled the cumulative net inflow figure up to about $28.7 billion, including the ETFs, according to the Prospect News analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters, the company said. Excluding those ETFs and just tallying the mutual funds, the year-to-date net inflow stood at around $21.7 billion.

Inflows have now been seen in 29 out of the 34 weeks since the start of the year against just five outflows.

EPFR sees $1.82 billion inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from Lipper, reported that in the week ended Wednesday, about $1.82 billion more came into those funds than left them.

It was the 11th consecutive week in which the funds showed a net inflow. Those cash infusions total up to about $17.69 billion, according to a Prospect News analysis of that data.

The week before, which ended Aug. 15, EPFR reported a $990.2 million cash infusion.

On a year-to-date basis, the service has seen inflows in 29 weeks and just five weeks of outflows, most of them recorded during a stretch from mid-May through early June.

Total 2012 inflows in the latest week come to $52.2 billion, EPFR said. Those figures include the monthly reporting funds as well as strictly weekly reporters and also include the ETFs.

EPFR and Lipper use different methodologies to track fund flows, resulting in significantly different numbers - but the basic direction for the two services is generally the same.

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.

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 successive 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 strong performance so far this year versus other fixed-income asset classes and its active new-deal pace, running about neck-and-neck with 2011.

Stolt-Nielsen three-part deal

On a quiet August Thursday, primary market deal news surfaced from Scandinavia.

Norway's Stolt-Nielsen priced the day's only deal: NOK 1 billion of senior notes in three tranches.

It included NOK 500 million of new seven-year notes that were priced at par to yield Nibor plus 500 basis points. The notes were swapped into dollar-denominated 6.84% seven-year fixed-rate notes.

In addition, the company priced a NOK 300 million add-on to its existing Nibor plus 375 bps notes due March 19, 2015 at par. The notes were swapped into dollar-denominated 4.76% fixed-rate notes.

Stolt-Nielsen also priced a NOK 200 million add-on to its existing Nibor plus 475 bps notes due March 19, 2018 at 100.5. These notes were swapped into dollar-denominated 6.28% fixed-rate notes.

DNB Bank ASA, Nordea Markets and Swedbank First Securities were the joint lead managers.

Inflow 'sets the right tone'

High-yield syndicate ranks continued to thin on Thursday, with people either already on vacation or preparing to leave.

As has generally been true throughout the week, sources professed no visibility on specific post-Labor Day business, only that the September deal pipeline is formidable.

News that the high-yield funds saw $583 million of inflows for the week to Wednesday, $110 million of which came into high-yield ETFs, "sets the right tone" for the anticipated September calendar, one syndicate banker commented late in the Thursday session.

Quiet activity in recent deals

With the primary market essentially shut down, traders saw limited activity in recently priced deals.

For instance, one saw VWR Funding's new 7¼% notes due 2017 up about ¼ point on the session at 101 bid, 101 3/8 offered but on not much trading.

The Radnor, Pa.-based laboratory supply and distribution company's quick-to-market $750 million deal priced at par late on Monday, too late for any trading at that time.

Traders saw the bonds on Tuesday trading in a 1001/2-to-101 context on what one described as "a decent amount" of activity.

Volume trailed off after that, although the bonds gradually firmed to around current levels.

Denver-based kidney health company DaVita's 5¾% notes due 2022 were quoted by a market source as having firmed a little to the 103 1/8 bid level on volume of under $5 million. More than $14 million of those bonds traded on Wednesday, when they were seen up about ¼ point to finish at 103 bid.

Those $1.25 billion of bonds priced Aug. 14 at par in a same-day transaction. The company had been rumored for several months to be coming to market with a big bond deal as part of the funding for its acquisition of Health Care Partners Inc. The deal was upsized from the originally announced $1 billion.

When they hit the aftermarket later that same session, they quickly climbed to 101 bid and beyond and have continued moving up since then.

Also out of the health-care sector, Community Health Systems Inc.'s new 5 1/8% senior secured notes due 2018 were being quoted Thursday around the 102¾ bid level, about unchanged on the day. A market source estimated that about $4.5 million of the bonds had changed hands by mid-afternoon, down from the more than $10 million seen trading at similar levels on Wednesday.

The Franklin, Tenn.-based hospital operator's $1.6 billion offering priced at par on Aug. 8 after that quick-to-market deal had been upsized from an originally announced $1.2 billion. After pricing, they immediately pushed up above the 102 bid mark and have been there ever since.

Ally Financial Inc.'s 4 5/8% notes due 2015 were seen trading at 102½ bid on Thursday, with nearly $5 million of the bonds traded.

On Aug. 7, the Detroit-based automotive and residential lender and online banking concern priced $600 million of those bonds as a fungible add-on to its existing $1 billion of those bonds that had priced back in June. The quickly shopped deal was upsized from an original $500 million size. The new issue priced at 102.875 to yield 3.564%, and the bonds have held in a high 102 to low 103 context since then.

A slow session

Away from those names, "it was kinda quiet," a trader said. "It looks like everybody said 'It's the end of the month'" and decided to not do anything - even though we're still a little more than a week away from the actual end of the month next Friday, which will be the lead-in to the three-day Labor Day holiday weekend in the United States that marks the unofficial end of summer for another year.

"I think a lot of customers were also off," he said, further slowing the market's already leisurely pace.

"It was still on the slow side," a second trader said, calling Thursday's session "almost a repeat of Wednesday's but with somewhat lower volume.

"There's not a lot going on," he added. "It's August."

Indicators stay mixed

Statistical indicators of junk market performance were mixed for a third straight session Thursday.

The Markit Group CDX North American Series 18 High Yield index saw its third consecutive loss, dropping by ½ point to finish up at 97 7/8 bid, 98 offered after having fallen by 1/8 point on Wednesday.

The KDP High Yield Daily index, meanwhile, was lower for a second straight session, easing by 6 bps to end at 73.82 on top of Wednesday's 2 bps retreat.

Its yield rose by 1 bp to 6.23% after having moved up by 2 bps on Wednesday.

But the widely followed Merrill Lynch U.S. High Yield Master II index stayed positive for a fifth consecutive session Thursday, moving up by 0.066% after Wednesday's 0.092% rise.

That lifted its year-to-date return to 10.128% from Wednesday's 10.055%, which had been the first time this year the index had moved above the psychologically potent 10% mark. Thursday's close marked a third consecutive new high for the year, eclipsing the old peak level, which had just been set on Wednesday. The index is now at its highest level since the last session of 2010, when it closed that year with a 15.19% return.

Its yield to worst meanwhile tightened to 6.47%, a new low for the year, coming in from the previous low point, the 6.758% seen on Wednesday.

ATP off again

The most notable name for a fourth consecutive session was ATP Oil & Gas, whose 11 7/8% second-lien senior secured notes due 2015 were seen by a trader moving around in a 271/4-to-27¾ context, which he called down ¾ point in the middle of that market.

He saw more than $41 million of the bonds having traded on the session - by far the busiest purely junk-rated credit in the high-yield market.

A second trader acknowledged that "there was a little heaviness in the bonds," also pegging them around 27½ bid, 28 offered.

The Houston-based offshore energy company's bonds shot up by several points, to around 31½ bid, on Monday, the first trading session after its late-Friday Chapter 11 filing in that Texas city.

On Tuesday, the bonds mostly held to those levels before edging up later in the session to end above 32 bid.

However, on Wednesday, having had their big burst of upside movement in immediate response to the bankruptcy filing, the bonds slid by around 4 points to about the 28½ level and continued retreating on Thursday.

Traders were calling those levels below 30 bid the worst that the bonds had seen since 2010, when they swooned over a period of many months after the federal government shut down all new deepwater oil drilling in the Gulf of Mexico - ATP's bread and butter - in the wake of the disastrous Deepwater Horizon drilling rig fire and explosion at a BP plc undersea well in the gulf.

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