Regal drive-by, Venoco, Provident lead $1.5 billion primary; OPTI gyrates wildly; funds jump

By Paul Deckelman and Paul A. Harris

New York, Feb. 10 - Just like it did on Wednesday, the high-yield primary sphere relied on a string of small- to-medium sized deals on Thursday, rather than one or two huge offerings, to rack up the pricing of another nearly $1.5 billion of new junk paper.

Regal Entertainment Group's opportunistically timed, quickly shopped $100 million add-on to the cinema and broadcasting company's existing bonds was the smallest deal of the day, but also the one which did the best when the bonds were freed for trading, moving up between 2 and 3 points from the issue price.

Also notching impressive post-pricing gains was mortgage lender Provident Funding, LP's $200 million issue of eight-year paper.

The largest deal of the day came from Venoco, Inc., which brought $500 million of eight-year bonds to market. The energy exploration and production company's offering priced too late in the session to trade around.

This was one of a trio of deals to price out of the oil and gas sector, including Energy XXI Gulf Coast Inc., which came with $250 million of eight-year notes just a day after that deal was announced, and Canada's Baytex Energy Corp., weighing in with a $150 million tranche of 10-year notes. Baytex wasn't seen in the aftermarket, while traders said that, for all intents and purposes, Energy XXI wasn't really there either, staying pretty much anchored to its par issue price.

Rounding out the primary session, American Commercial Lines, Inc. floated in with an upsized $250 million offering of PIK toggle notes - the third such deal within the past week following similarly structured offerings from Yankee Candle Co. last Friday and Florida East Coast Holdings Corp. on Wednesday.

High-yield syndicate sources meantime heard Burlington Coat Factory Warehouse Corp. coming back to the market with an eight-year note offering, three months after the retailer chose not to proceed with a similar offering due to unsettled market conditions.

In the secondary market, OPTI Canada Inc.'s bonds were on a roller-coaster ride, first plunging and then climbing much of the way back up to end with limited losses after the troubled Canadian energy company reported fourth-quarter and full-year losses.

Secondary market indicators were mixed, with an easier feel. But flows of new investor money into junk bond funds - a good barometer for overall junk market liquidity trends - showed their biggest weekly gain since last June, indicating that investors remain tolerant of risk.

Junk funds gain $1.3 billion

After the session's activity had wound down, participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, some $1.299 billion million more came into those funds than left them.

As has been the case since the start of the year, the inflow was generally expected by market participants, given the strength seen in junk's performance since the start of the year.

According to a Prospect News analysis of the figures, it was the first inflow of $1 billion or more seen since the week ended Dec. 8, when $1.03 billion more came into the funds than left them, and was the largest such cash infusion seen since the $1.391 billion inflow reported in the week ended last June 23.

It was the 10th consecutive cash injection on top of the $420.9 million inflow seen the week ended Feb. 2.

In those 10 weeks dating back to Dec. 8, $6.716 billion of net inflows have come into the junk market, according to the Prospect News analysis.

On a year-to-date basis, 2011 net inflows have totaled some $4.663 billion, according to the analysis, with cash infusions seen in each of the year's six weeks so far, against no outflows yet.

That extends the strong inflow trend seen in 2010, when some $10.67 billion more came into the funds than left them, and inflows were seen in 37 weeks, against just 15 weeks experiencing outflows.

EPFR $1.44 billion inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG, meantime reported a $1.44 billion inflow in the latest week, which followed the previous week's $995 million gain.

EPFR called that figure a record weekly gain since it began tracking the junk funds some years ago.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals, although the two services' numbers generally point toward the same trends, EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds. Its year-to-date net inflow total now stands at some $6.12 billion.

Cumulative fund-flow estimates, whether from Lipper/FMI 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 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. Both of those trends continuing on in 2011 as well.

Venoco's $500 million

Venoco priced a $500 million issue of eight-year senior notes (Caa1/B/) at par to yield 8 7/8%.

The yield printed in the middle of the 8¾% to 9% price talk.

Bank of America Merrill Lynch and BMO Nesbitt Burns were the joint bookrunners.

The Denver-based energy company plans to use the proceeds to repay its second-lien term loan and costs associated with settling related interest rate swap contracts.

American Commercial PIK

Elsewhere, ACL I Corp., the parent of American Commercial Lines, priced an upsized $250 million issue of five-year PIK toggle notes (Caa1/CCC+).

The issue came at a reoffer price of 98.25, in line with discount talk of 1 to 2 points.

When interest payments are made in cash, the coupon is 10 5/8% and the yield is 11.09%. That yield is slightly inside of price talk that was set in the 11¼% area.

With respect to PIK interest payments, the coupon is 11 3/8% and the PIK yield is 11.749%.

Bank of America Merrill Lynch, UBS Investment Bank and Wells Fargo Securities were the joint bookrunners for the issue, which was upsized from $225 million.

The Jeffersonville, Ind.-based shipping and transportation services provider will use the proceeds to fund a special dividend to redeem equity advanced in connection with the acquisition of American Commercial Lines by certain affiliates of Platinum Equity.

Energy XXI at the tight end

Energy XXI Gulf Coast priced a $250 million issue of 8.25-year senior notes (Caa1/B) at par to yield 7¾%, at the tight end of the 7¾% to 8% price talk.

RBS Securities ran the books for the quick-to-market deal, which kicked off on Wednesday.

The Hamilton, Bermuda-based oil and natural gas exploration and production company plans to use the proceeds to repurchase or redeem its 10% senior notes due 2013 and repay revolver debt.

Provident's $200 million

Provident Funding Associates priced a $200 million issue of eight-year senior notes (B2/B) at par to yield 10 1/8%.

The yield printed in the middle of the 10% to 10¼% price talk.

J.P. Morgan Securities ran the books.

Proceeds will be used to retain mortgage servicing rights on newly originated loans and to acquire mortgage servicing rights from third parties as well as for general corporate purposes.

Baytex at the tight end

Canada's Baytex priced a $150 million issue of 10-year senior notes (B3/B+) at par to yield 6¾%, at the tight end of price talk that was set in the 6 7/8% area.

RBC Capital Markets and Credit Suisse were the joint bookrunners.

The Calgary, Alta.-based oil and gas company plans to use the proceeds to repay existing debt under its revolving credit facilities and for general corporate purposes.

Regal tap 9 1/8% notes

Regal Entertainment priced a $100 million add-on to its 9 1/8% senior notes due Aug. 15, 2018 (B3/B-/) at 104.5 on Thursday, resulting in an 8.095% yield to worst.

There was no official price talk.

Credit Suisse ran the books for the quick-to-market deal.

The company intends to use the proceeds to pay down a portion of its senior credit facility and for general corporate purposes, which may include the redemption, repayment or repurchase of debt.

Thursday's deal represents the second time in 2011 that Regal has tapped its 9 1/8% notes.

The Knoxville, Tenn.-based motion picture exhibition company priced a $150 million add-on to the issue at 104.5 to yield 8.107% on Jan. 4.

The original $275 million issue priced at par on Aug. 10, 2010.

Thursday's add-on leaves the total issue size at $525 million.

The deal was driven to market on reverse inquiry, according to an informed source, who added that it was launched and priced quickly on Thursday.

Burlington Coat returns

After postponing a bond deal last November because it was unable to complete the transaction at an acceptable rate, Burlington Coat Factory is returning to the market, sources said on Thursday.

At the time it was withdrawn, the former offering had been talked to yield in the 10% area.

The new deal features $400 million of eight-year senior notes - $100 million less than the $500 million offering that the discount retailer pulled last November.

The syndicate of bookrunners is unchanged.

Goldman Sachs & Co. is the left lead bookrunner. J.P. Morgan Securities LLC, Bank of America Merrill Lynch and Wells Fargo Securities are joint bookrunners.

A syndicate source declined to comment on the timing of the new offer. However, a buyside source expects the deal to be priced as soon as possible.

No terms were available at press time on Thursday.

The Burlington, N.J.-based company will use the proceeds to redeem its 11 1/8% senior notes due 2014 and its 14½% senior discount notes due 2014 and to make a distribution to the equity.

Regal rolls in aftermarket

When Regal Entertainment's new add-on to its 2018 bonds was freed for secondary dealings, a trader said that the Knoxville, Tenn.-based movie theater owner's paper "did really well," trading as high as 107 1/8 bid, after having priced at 104.5.

Traders noted that although the drive-by add-on itself was relatively small at $100 million - and such deals rarely trade much - the new bonds are fungible with the $425 million already outstanding, priced in two deals back in August and again last month. They said that those bonds moved up solidly.

A second trader saw Regal going out at 106½ bid, 107½ offered.

Provident proves popular

Also seen doing well in Thursday's aftermarket action was Provident Funding's new eight-year bonds. One noted that the issue "did well," as it moved up to 102 bid, 102½ offered from the par level at which the Burlingame, Cal.-based mortgage lender's deal had priced earlier in the session.

Energy XXI, ACL near issue

The two other deals, which came to market early enough on Thursday to see some aftermarket trading, were seen staying around their respective issue prices.

Houston-based oil and gas operator Energy XXI's issue of eight-year notes - quickly marketed to investors after the deal was announced on Wednesday - priced at par but then only traded up around 100 1/8 bid, 100½ offered, a trader said.

American Commercial Lines' five-year issue of PIK toggle notes were seen as good as 98¾ bid, 99¾ offered - up modestly from the 98.25 level at which the issue had priced.

Venoco's $500 million offering of eight-year notes and Baytex Energy's $150 million of 10-year bonds, were not seen in the secondary on Thursday.

Midwest moves up

Among the issues priced on Wednesday, a trader said that Midwest Vanadium Pty. Ltd.'s 11½% senior secured notes due 2018 was " a really good one," seeing the Australian mining company's $335 million deal as having firmed smartly to 103½ bid, 104½ offered - well up from the par level at which those bonds had priced on Wednesday.

Ply Gem Industries Inc., which priced $800 million of 8¼% senior secured notes due 2018, was still trading around the 101½ bid 102 offered, after having priced its deal at par.

Secondary indicators mixed

Away from the new-deal realm, a trader saw the CDX North American Series 15 HY index down 1/8 of a point on Thursday to end at 104 3/8 bid, 104 5/8 offered, after having eased by ¼ of a point on Wednesday.

The KDP High Yield Daily index meantime edged upward by 1 basis point on Thursday to a close at 75.93, after having fallen by 10 bps on Wednesday. Its yield came down by 1 bp to 6.69% Thursday, after having risen by 5 bps on Wednesday.

But the Merrill Lynch High Yield Master II index suffered its first daily downturn since Jan. 20 on Thursday after 14 straight sessions of heading higher. It retreated by 0.066% after having risen by 0.026% on Wednesday.

That setback left the index's year-to-date return at 2.842% - down from Wednesday's finish at 2.909%, which had set the latest in a lengthy string of new peak levels for the year so far.

Advancing issues also saw their 14-session winning streak over decliners come to an end on Thursday; the losers overtook gainers by a margin of several dozen issues out of the more than 1,400 traded, a bigger advantage than the mere literal handful of issues by which advancers had led decliners on Wednesday.

Overall activity, represented by dollar-volume levels, fell by 10% on Thursday on top of a 4% decline seen on Wednesday from the previous session's level.

Secondary all about OPTI

A trader said that activity in OPTI Canada's bonds "monopolized a lot of time" on what otherwise was a "very uneventful day" in the high-yield secondary apart from trading in new issues, following the release of the troubled Calgary, Alta.-based oil-sands energy company's results for the 2010 fiscal fourth quarter and full year.

He said that OPTI's 7 7/8% notes and 8¼% notes, both due 2014, "closed off their lows [...] for sure," around 48 bid, 49 offered.

A market source at another desk saw OPTI's 7 7/8s plunge as low as 41½ bid from Wednesday's closing levels in the lower 50s, before pulling out of that nosedive to come back up to 48 3/8s, while the 81/4s bottomed at 42 before partially rebounding to 48½ bid.

The source said the OPTI bonds were clearly the busiest junk credits of the day, seeing over $160 million of the 7 7/8s and nearly $140 million of the 81/4s having changed hands by around an hour before the close.

OPTI "was the big story of the day, away from new issues," another trader said, noting that activity in the bonds accounted for something like half of all activity during the morning, when the bonds were in freefall immediately after the release of the earnings data and the company's conference call.

"I guess the market didn't like it too much," he said with some understatement. "There were tons of trades in the 7 7/8s," which he saw hit a low of 411/2. "Holy smokes!" he exclaimed when he saw how low the bonds went.

"It must have been pretty early in the morning" before market participants got a change to thoroughly digest the numbers and decide that while they were certainly not good, he said, noting that they weren't catastrophic either.

He said the bonds "went out actually in pretty good shape here," quoting the bonds going home at 48¾ bid, 49 offered, well up from their nadir.

"They went out at the highs [for the day]," he said, but were still down from 52½ bid, 53 offered pre-news late Wednesday.

Yet another trader saw the bonds drop to around 43½ bid "around the beginning of the day," but quoted them finishing at 48½ bid, 49½ offered versus 53 bid, 54 offered late Wednesday.

"I got a zillion messages on this," he mused, illustrating the fierce drumbeat of activity in the name.

Among OPTI's first-lien secured bonds, which rank considerably higher in the capital structure than the 7 7/8% second-liens and the unsecured 81/4s, the trader saw the 9% notes due 2012 open post-news on Thursday at 97½ bid, 98½ offered versus 99¾ bid, 100¾ offered late Wednesday, but then bounce back to close essentially unchanged at 99½ bid, 100½ offered.

He saw the OPTI 9¾% notes due 2013 likewise dip from Wednesday's late level at 98 bid, 99 offered down to 95 bid, 96 offered at the open on Thursday, but then come all the way back and then some later in the day, ending at 99 bid, par offered.

OPTI loss narrows

OPTI Canada reported C$81 million of revenues for the fourth quarter, compared to C$43 million in the same quarter of 2009. Net loss narrowed to C$26 million, or 9 cents per share, from $212 million, or 75 cents per share, the year before.

For the fiscal year, net loss was C$274 million versus C$306 million in 2009. Revenues were C$250 million, up from C$143 million the previous year.

As of Dec. 31, OPTI had C$363 million of cash and equivalents, including a C$190 million revolving credit facility. The company withdrew C$90 million from that facility in January.

After the release of the numbers, OPTI held a conference call, but management did not discuss the quarterly results, instead talking about operational issues at the big Long Lake, Alta. joint venture oil-sands facility owned 35% by OPTI and 65% by partner Nexen Inc.

OPTI and Nexen are working on extracting bitumen - a thick, gooey grade of crude - from the ground near the facility and then using a proprietary process to transform it into the much more desirable and commercially viable light, sweet crude oil.

Chris Slubicki, OPTI's president and chief executive officer, declared on the call that the company had started 2010 positively, as production ramp-up was "on track," but that momentum ceased in August, resulting in less-than-anticipated production.

Back in November, OPTI had forecast production would be around 38,000 to 45,000 barrels of bitumen per day in 2011. However, operational problems have resulted in much less output.

"With the delays we have faced, achieving this forecast is a risk, unless operations improve in the near term," Slubicki said.

Slubicki added that the company remained committed to reviewing its strategic options alongside its advisors, Scotia Waterous Inc. and TD Securities Inc. as well as the recently hired Lazard Frères & Co. LLC.

Analysts have said that the hiring of Lazard is an indication that although Scotia Waterous and TD have been hunting for a possible strategic investor in the company, or a buyer for some of its assets or even for all of OPTI itself since 2009, such a deal is not anywhere close to being imminent.

Auto bonds seen mixed

Elsewhere, a trader said that the 8 3/8% benchmark bonds due 2033 of Motors Liquidation Co. - the "old" General Motors Corp. before its 2009 bankruptcy reorganization and name change to Motors Liquidation - were down 1¼ of a point on Thursday, going home at 35 bid, 36 offered.

He also saw GM domestic arch-rival Ford Motor Co. Inc.'s 7.45% bonds due 2031 unchanged on the day at 108¾ bid, 109¾ offered.

Stephanie N. Rotondo contributed to this report

© 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.