AerCap, Ortho lead $6.29 billion day; Ortho, First Quantum climb; funds see $368 million gain

By Paul Deckelman and Paul A. Harris

New York, May 8 - The high-yield market's pricing machine was firing on all cylinders on Thursday, churning out $6.29 billion of new dollar-denominated, junk-rated paper in eight tranches.

It was the second-heaviest volume of such paper seen in Junkbondland so far this year, according to data compiled by Prospect News, exceeded only by the record $11.25 billion that priced on April 23, when affiliated European broadband, cable and telecommunications operators Altice SA and Numericable Group AG combined for $10.65 billion of new dollar paper in four tranches and energy concern Antero Resources Corp. capped the big day off with a $600 million single-tranche issue.

Thursday's bond barrage was not dominated by any one transaction such as Altice/Numericable, but there were two very large deals that helped boost the day's total. Dutch aircraft leasing company AerCap Holdings NV priced $2.6 billion in three tranches via a pair of financing subsidiaries, and Ortho-Clinical Diagnostics Inc., a medical products manufacturer, kicked in an upsized $1.3 billion of eight-year notes.

Apart from those two megadeals, Canadian copper miner First Quantum Minerals Ltd. struck it rich with an upsized $850 million issue of eight-year bonds, and German ball-bearing manufacturer Schaeffler Group rolled out $700 million of seven-year secured notes via a financing subsidiary as part of a €2 billion equivalent four-part transaction mostly denominated in euros.

Domestic issuers Rayonier A.M. Products Inc. and Legacy Reserves LP also brought upsized single-tranche deals to market - wood pulp manufacturer Rayonier's $550 million of 10-year notes and energy operator Legacy's $300 million add-on to its existing 2021 notes. The latter deal was the day's sole quick-to-market drive-by offering, with all of the others having been marketed to potential investors via roadshows.

When the day's new deals hit the aftermarket, traders saw First Quantum's bonds having firmed smartly and Ortho-Clinical's issue doing well. The new Legacy Reserves offering notched modest secondary gains.

Traders saw very active trading in Wednesday's deal from mortgage insurer Radian Group Inc., whose bonds were seen doing well, and continued busy activity in Monday's issue from packaging materials manufacturer Berry Plastics Group, Inc., whose bonds enjoyed no such success.

Away from new or recent offerings, traders said that Forest Oil Corp.'s 2019 bonds continued to trade actively for a third straight session, though there was reduced activity in its formerly busy 2020 notes. They were seen having eased a little, or at least having plateaued, after the strong gains in both posted on Tuesday on news that the underachieving energy company will be acquired.

Statistical market performance indicators turned mixed on Thursday after having improved across the board on Wednesday to break a six-session mixed streak.

Meanwhile, another indicator - the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends - was higher in the latest week, its second time in positive territory the past four weeks and third time there in the last five.

Junk funds gain $368 million

As Thursday's activity was closing down, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $368 million more came into those funds than left them in the week ended Wednesday.

That represents at least a partial rebound from the $631 million outflow 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 April 30.

After a strong start to the year, the past few weeks have seen the emergence of a choppy, back-and-forth pattern of essentially alternating weeks of inflows and outflows, according to a Prospect News analysis of the figures.

Inflows had dominated the early part of the year. In its first 11 weeks, ended March 19, inflows had been recorded in nine of those weeks, against just two outflows in the weeks ended Jan. 29 and Feb. 5. At one point, there were six consecutive weeks of inflows totaling an estimated $4.40 billion, according to the analysis.

The week ended March 26, which saw a $196 million outflow, broke that six-week streak and signaled a change in that pattern, with the flows shifting to a more choppy mode.

There were inflows of $493 million and $640 million recorded in the weeks ended April 2 and April 9, respectively, but they were followed by a $223 million outflow in the week ended April 16. That, in turn, led to a $250 million inflow in the week ended April 23, followed by the outflow in the April 30th week and this week's inflow.

Counting the latest week's results, there have now been 13 inflows seen in the 18 weeks since the start of the year, according to the analysis, against five outflows.

The latest week's inflow raised the year-to-date cumulative net inflow number to an estimated $3.71 billion, according to the analysis, up from the previous week's figure of an estimated $3.34 billion, although the latest week's total remains below the $3.97 billion seen in the week ended April 23, the peak level for the year so far, according to the analysis.

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, 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, according to the analysis.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime saw an inflow of "three times [the AMG/Lipper] amount" in the latest week, a market source said.

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 strictly domestic orientation. Accordingly, the two services' weekly numbers usually are also generally quite different. While their 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.

The latest weekly inflow was EPFR's 16th such gain recorded in the 18 weeks since the start of the year, versus just two outflows in the weeks ended Jan. 29 and Feb. 5.

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 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 has mostly continued on into this year as well.

AerCap brings $2.6 billion

The torrid Thursday session saw $6.29 billion of issuance in eight dollar-denominated tranches.

Half those tranches were upsized.

Only one came as a drive-by deal.

Five of the eight tranches priced at the tight or rich end of price talk. Two priced on the wide end, and one came on top of talk.

AerCap Ireland Capital Ltd. and AerCap Global Aviation Trust priced a $2.6 billion three-part offering of non-callable senior notes (Ba2/BB+/BB+) on Thursday, according to a syndicate source.

The deal included a $400 million tranche of three-year notes that priced at par to yield 2¾%, at the tight end of the 2¾% to 3% yield talk.

AerCap priced a $1.1 billion tranche of five-year notes at par to yield 3¾%, at the tight end of the 3¾% to 4% yield talk.

The longest duration bond came in a $1.1 billion tranche of seven-year notes that priced at par to yield 4½%, at the tight end of the 4½% to 4¾% yield talk.

Joint physical bookrunner UBS Securities LLC will bill and deliver. Citigroup Global Markets Inc. was also a joint physical bookrunner.

The issuers are subsidiaries of Amsterdam-based aircraft leasing company AerCap Holdings. Proceeds will be used to help fund the acquisition of 100% of the common stock of International Lease Finance Corp. from American International Group Inc.

Ortho-Clinical upsizes

Ortho-Clinical Diagnostics launched and priced an upsized $1.3 billion issue of eight-year senior notes (Caa1/CCC+) at par to yield 6 5/8%, according to a market source.

The deal was upsized from $1.15 billion.

The yield printed at the wide end of yield talk in the 6½% area.

Goldman Sachs & Co. was the left bookrunner. Barclays, Credit Suisse Securities (USA) LLC, UBS Investment Bank and Nomura were the joint bookrunners.

Proceeds will be used to help fund the buyout of the Raritan, N.J.-based in-vitro diagnostics products maker by Carlyle Group LP.

First Quantum upsizes

First Quantum Minerals priced an upsized $850 million offering of eight-year senior notes (B1//BB) to yield 7% to 7¼%, a syndicate source said.

The deal was upsized from $650 million.

The yield printed at the wide end of the 7% to 7¼% yield talk.

Global coordinator Credit Suisse will bill and deliver. BNP Paribas and Jefferies LLC were also global coordinators.

The Vancouver, B.C.-based copper producer plans to use the proceeds to repay bank debt.

Schaeffler euro, dollar notes

Schaeffler Finance BV priced €2 billion equivalent of high-yield notes on Thursday, according to a market source.

All four tranches came at the tight end of talk.

A €500 million tranche of five-year 2¾% senior secured notes (Ba2/BB-) priced at 99.421 to yield 2 7/8%. The yield printed at the tight end of yield talk in the 3% area.

A $700 million tranche of 4¼% seven-year senior secured notes (Ba2/BB-) priced 99.253 to yield 4 3/8%, at the tight end of yield talk in the 4½% area.

A €500 million tranche of eight-year senior secured notes (Ba2/BB-) priced at par to yield 3½%, at the tight end of yield talk in the 3 5/8% area.

And a €500 million tranche of 3¼% five-year senior unsecured notes (B1/B) priced at 99.429 to yield 3 3/8%, at the tight end of yield talk in the 3½% area.

Physical bookrunner JPMorgan will bill and deliver for both the dollar- and euro-denominated notes. Physical bookrunner UniCredit will also bill and deliver for the euro-denominated notes.

The Herzogenaurach, Germany-based ball bearing manufacturer plans to use the proceeds, together with a new term loan E, to repay debt, to pay an antitrust fine and for general corporate purposes.

Rayonier upsizes

Rayonier A.M. Products priced an upsized $550 million issue of 10-year senior notes (Ba3/BB+) at par to yield 5½% on Thursday, according to a syndicate source.

The deal was upsized from $500 million.

The yield printed on top of yield talk.

Initial yield guidance was in the high 5% context, sources say.

BofA Merrill Lynch was the left bookrunner. Credit Suisse and J.P. Morgan Securities LLC were the joint bookrunners.

Proceeds will be used to fund the spin-off of Rayonier Advanced Materials Inc., a Jacksonville, Fla.-based manufacturer of specialty wood pulp, from Rayonier, Inc.

Legacy drives by with add-on

Legacy Reserves and Legacy Reserves Finance Corp. priced an upsized $300 million add-on to their 6 5/8% senior notes due Dec. 1, 2021 (Caa1/B) at 99 to yield 6.796% in a quick-to-market Thursday transaction, according to a syndicate source.

The deal was upsized from $250 million.

The reoffer price came at the rich end of the 98.75 to 99 price talk.

Wells Fargo Securities LLC was the left bookrunner. BofA Merrill Lynch, RBC Capital Markets, UBS Investment Bank, Barclays, Citigroup and JPMorgan were the joint bookrunners.

The Texas-based independent oil and natural gas limited partnership plans to use the proceeds to fund a portion of the consideration of the pending Piceance Basin acquisition and for general partnership purposes.

Kratos talks

Kratos Defense & Security Solutions, Inc. talked its $625 million offering of five-year first-lien senior secured notes (expected ratings B3/B) to price at a slight discount and to yield in the 7¼% area, according to an informed source.

The books close at 1 p.m. ET on Friday, and the deal is set to price shortly thereafter.

SunTrust Robinson Humphrey Inc. is the lead bookrunner for the Rule 144A with registration rights offer.

The notes become callable after two years at par plus 75% of the coupon.

A special call provision allows the issuer to redeem 10% of the notes at 103 once during the non-call period. A change in the special call reduced the number of times that the issuer may execute it to one from two.

The San Diego-based high-tech defense contractor plans to use the proceeds to redeem its 10% secured notes due 2017.

Contour moves up timing

ContourGlobal Power Holdings SA talked its $400 million offering of five-year senior secured notes (B3/BB-) to yield 7¼% to 7½%, according to an informed source.

The deal is set to price on Friday. Timing was moved ahead. The offer was previously scheduled to be in the market through the weekend.

Goldman Sachs & Co. is the bookrunner for the Rule 144A and Regulation S offering.

The notes become callable after two years at par plus 50% of the coupon.

The New York-based operator of power generating stations plans to use the proceeds to repay debt, to fund acquisitions and development projects and for general corporate purposes.

R&R Ice Cream comes tight

In the sterling-denominated market, R&R Ice Cream plc priced a £315 million issue of six-year senior secured notes (B1/B) at par to yield 5½% on Thursday, according to a market source.

The yield printed at the tight end of the 5½% to 5¾% yield talk.

Joint physical bookrunner Credit Suisse will bill and deliver. Barclays is also a joint physical bookrunner. JPMorgan is a joint bookrunner.

The Leeming Bar, England-based ice cream manufacturer plans to use the proceeds to redeem its senior secured notes due 2017.

Paroc reveals tranching, talk

Finland-based Paroc Group OY set tranche sizes and price talk in its €430 million two-part offering of six-year senior secured notes (B2/B), a market source said on Thursday.

A €230 million tranche of six-year fixed-rate notes, callable after two years at par plus 50% of the coupon, is talked to yield 6¼% to 6½%.

A €200 million tranche of floating-rate notes, callable in one year at 101, is talked with a spread to Euribor of 525 basis points to 550 bps.

The deal is expected to price on Friday.

Goldman Sachs International, ING and JPMorgan are joint physical bookrunners. Danske Bank and Nordea are joint bookrunners.

Proceeds will be used to redeem existing senior notes and partially redeem existing junior notes.

Paroc is a Helsinki, Finland-based manufacturer of wool insulation. The company operates chiefly in the Baltic Sea region.

Hellenic Petroleum talks

Greece-based oil refiner Hellenic Petroleum Finance plc set initial yield talk for a to-be-determined amount of dollar-denominated two-year senior notes in the 4¾% area, a market source said on Thursday.

The non-rated deal is set to price before the end of the week.

BNP Paribas, Credit Suisse, Eurobank and HSBC are the joint bookrunners for the Regulation S only offer.

Proceeds will be used to refinance debt and for general corporate purposes.

First Quantum firms

In the secondary market, traders said that First Quantum Minerals' new 7¼% notes due 2022 were a standout performer once they were freed for aftermarket activity.

"First Quantum did very well," one of the traders opined, seeing the bonds going home at 102¼ bid, 102½ offered, versus their par pricing level.

A second trader saw the bonds at 102 bid, 102 3/8 offered, while yet a third pegged them at 102 bid, 102½ offered.

Ortho-Clinical climbs

A trader saw Ortho-Clinical Diagnostics' 6 5/8% notes trading in a 101 1/8 to 101¾ context before seeing the bonds going out around 101¼ bid, well up from their par issue price.

A second trader located the bonds at 101½ bid, 102 offered.

Legacy up a little

A trader said that Legacy Reserves' add-on to its existing 6 5/8% notes due 2021 had moved up to 100 5/8 bid, 101 1/8 offered by the end of the day.

The energy producer's transaction had priced earlier in the day at 99 to yield 6.796%.

Radian runs up volume

Among the bonds that came to market on Wednesday, Radian Group's 5½% notes due 2019 were easily the most active, with a market source seeing more than $67 million of those bonds having changed hands by the day's end, topping the high-yield Most Actives list.

He saw the notes going out at 101¾ bid, a gain of about a point from the levels they had hit in aftermarket trading late in Wednesday's session, after the Philadelphia-based mortgage insurer had priced its $300 million issue, upsized from $250 million originally, at par.

A second trader quoted the bonds at 101¾ bid, 102¼ offered.

Forestar stays firm

Forestar Group Inc.'s new 8½% senior secured notes due 2022 were seen about unchanged on the day on Thursday - holding on to the strong gains that the Austin, Texas-based real estate and oil and natural gas company's $250 million deal had reached in the aftermarket on Wednesday after pricing at par.

One trader called the bonds "little changed" around 103¾ bid, 104½ offered.

Strong gain for steelmaker

A market source saw Essar Steel Minnesota LLC's new 11½% senior secured notes due 2020 having moved up to 102¼ bid, 102½ on Thursday.

That was up by about 1 point from the highs around 101¼ bid, 101¾ that the iron ore producer's $450 million of notes had hit on Wednesday, when they moved up solidly after the issue had priced at 97.901 to yield 12%.

Ocwen issue improves

A trader said that Ocwen Financial Corp.'s 6 5/8% notes due 2019 were trading on Thursday at 100½ bid, 100 7/8 offered.

The Atlanta-based provider of mortgage services had priced its $350 million offering at par in a drive-by deal on Wednesday, too late for any kind of aftermarket at that point.

Berry below issue

A trader said that Berry Plastics' 5½% second-priority senior secured notes due 2022 "were still struggling to stay above par."

He quoted the issue on Thursday at 99 7/8 bid, 100 1/8 offered.

A second trader also saw the bonds there and called them unchanged on the day.

A market source at another desk saw the bonds having firmed slightly, to the par level, on volume of more than $21 million, making the credit one of the most active junk names of the day.

Berry, an Evansville, Ind.-based manufacturer of plastic packaging materials, had priced $500 million of the notes at par in a quick-to-market offering on Monday via its Berry Plastics Corp. subsidiary. They had initially traded about ¼ point better than their issue price before easing from that peak level.

Activity in the new issue has been brisk, with more than $37 million of the bonds seen having changed hands on Monday, another $36 million on Tuesday and more than $13 million on Wednesday in addition to Thursday's activity.

Forest falters a little

Away from the new deals, a trader said that Forest Oil's 7¼% notes due 2019 "have still been pretty active," with more than $32 million of that paper having traded on Thursday.

The Denver-based independent oil and gas exploration and production company's bonds had jumped by more than 12 points on Tuesday, to above par, on volume of more than $154 million on the announcement that the underachieving company will merge with the financially better-situated Sabine Oil & Gas LLC.

More than $36 million of the notes had traded on Wednesday.

The trader said that the bonds "were creeping down yesterday" (i.e., Wednesday) from the highs they had hit on Tuesday to around 100 7/8 bid; he saw them finish Wednesday around 100 1/8 bid, 100 5/8 offered and then come down a little further on Thursday, to par bid, 100¼ offered.

Meanwhile, its 7½% notes due 2020 - which had zoomed by better than 16 points on Tuesday on volume of more than $106 million, getting as high as 104 bid - "were also drifting back in," the trader said.

He saw the notes having eased off their highs on Wednesday, coming down to around the 102½ bid level on volume of about $16 million.

On Thursday, he said, "they continued to come in," losing ½ point to 1 point on the day to finish around 101½ bid, 101¾ offered.

But volume withered to only around $2.5 million "as people took a break."

The bonds had been mercilessly hammered down from around par into the high 80s over a number of sessions in late February and early March after the company reported unexpectedly poor fourth-quarter numbers before jumping back above par this week on the Sabine merger news.

Indicators turn mixed

Statistical junk performance indicators turned mixed on Thursday after having been higher across the board on Wednesday, which had broken a string of six consecutive sessions before that during which they had been mixed.

The Markit Series 22 CDX North American High Yield index edged up by 1/32 point to end at 106 15/16 bid, 107 1/16 offered, its second straight gain. On Wednesday, it had risen by 3/16.

The KDP High Yield Daily index, however, retreated by 4 bps to close at 74.98 after having jumped by 10 bps on Wednesday.

However, its yield - which usually moves inversely to the change in the index reading - was also lower on the day. It came in by 1 bp for a third consecutive session, closing at 5.15%

The widely followed Merrill Lynch High Yield Master II index continued its upward path for a ninth consecutive session on Thursday, adding 0.095% on top of the 0.049% rise recoded on Wednesday.

Thursday's gain raised the index's year-to-date return to 4.067%, its ninth straight new peak level for 2014 so far and first time this year above the psychologically significant 4% mark.

The prior high point had been Wednesday's 3.968% reading.

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