AmeriGas mega-deal prices, moves up; Rite Aid rises; Sears steady on sales data; funds see inflows

By Paul Deckelman and Paul A. Harris

New York, Jan. 5 - AmeriGas Partners, LP fired up the high-yield primary market on Thursday as two units of the propane distributor priced a $1.55 billion issue of eight- and 10-year notes - essentially, the first authentic junk bond transaction of the year. Both tranches of the issue were seen to have firmed when they hit the aftermarket, but the company's existing paper was seen by traders to have come down in line with the new issue's pricing.

There was also some activity in the new Ford Motor Credit Co. LLC deal that priced on Wednesday, although traders remained skeptical over just how much of that was coming from junk accounts given the very un-junk like low coupons - 3 7/8% for one tranche and 5% for the other - and how much of the buying was being done by high-grade investors looking for a little crossover action.

Away from the new issues, there was some brisk activity in bonds of retailing companies; Rite Aid Corp.'s paper firmed across the board after the No. 3 U.S. drugstore chain operator reported favorable sales numbers for December.

There was little movement, though lots of volume, in department store proprietor Sears Holdings Corp.'s bonds, continuing their recently heavily traded activity.

Bon-Ton Stores Inc.'s bonds fell on disappointing sales numbers.

Overall, the junk market "kind of churned" with no definite direction, as trader said, quite a difference from the previous two sessions, which were solidly positive. Statistical indicators of secondary behavior were seen mixed on the day, although the Merrill Lynch junk index continued its amazing winning streak.

Another indicator that's recently been riding a wave, flows of money into or out of junk bond mutual funds, also continued its impressive upside ride.

AMG posts $774 million inflow

The high-yield market is rallying hard and is continuing to attract conspicuous amounts of cash, according to a fund manager whose portfolio includes junk bonds and leveraged loans.

"Inflows have been phenomenal, especially over the past three days," the investor said.

As Thursday's session was closing out, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $774.22 million more came into those weekly reporting funds than left them.

It was the first inflow of the new year and the fifth straight cash infusion for those funds. It followed on the heels of the $455 million inflow seen in the previous week, which ended Dec. 28.

Those five inflows - including a massive $1.94 billion gain seen in the week ended Dec. 7 - have totaled $3.89 billion, according to a Prospect News analysis of the numbers. That helped to close out 2011 on a high note, with inflows seen in 35 weeks of last year, versus 17 weeks of outflows. That produced a net cash injection on the year of nearly $11 billion, according to the analysis, just slightly below the peak cumulative figure of $11.06 billion, which was recorded in the week ended Nov. 16.

Among those inflows was the spectacular $4.25 billion cash transfusion seen in the week ended Oct. 26 - the biggest single weekly inflow ever recorded since Arcata, Cal.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, began tracking fund flows in 1992.

While inflows were pretty consistent in the first half of 2011, they turned choppy after that, with several weeks of inflows alternating with several weeks of outflows for much of the rest of the year.

EPFR sees $1.14 billion gain

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a fifth straight week of inflows to start the new year off on the same kind of positive note that the old year ended on.

And the first inflow of 2012 was a big one - $1.14 billion. That followed the $474 million cash addition seen in the week ended Dec. 28.

EPFR said that during 2011, net inflows to the funds it tracks totaled $7.84 billion, including its biggest inflow ever, the $4.76 billion addition seen in the week ended Oct. 26 - the same week that AMG reported its own biggest-ever inflow.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ markedly because they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from 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.

On hearing the news of the AMG fund-flows number, a junk trader exclaimed, "Great! That's very good."

Apart from the mutual funds, the iShares iBoxx High Yield Corporate Bond exchange-traded fund (HYG) is attracting cash, according to a buyside source. The source said the word in the market is that the ETF is in the process of adding about 100 names to its bond portfolio, 60 of which are new.

AmeriGas prices $1.55 billion

The primary market saw its third and fourth tranches of the year cross the finish line as AmeriGas Finance LLC and AmeriGas Finance Corp. priced $1.55 billion of senior notes (Ba2//BB+) in two tranches on Thursday.

The deal included $550 million of eight-year notes, which priced at par to yield 6¾%, and $1 billion of 10-year notes, which priced at par to yield 7%.

The notes of both tranches priced on top of the price talk. The 10-year notes were talked with a yield in the 7% area, and the eight-year notes were talked to yield 25 basis points less than the 10-year notes.

Credit Suisse Securities (USA) LLC, Citigroup Global Markets Inc., J.P. Morgan Securities LLC and Wells Fargo Securities LLC were the joint bookrunners for the quick-to-market deal, which will be used to finance an acquisition.

Books five-times covered

The orders books for the AmeriGas deal were five-times covered, according to a buyside source, who added that about $300 million of the bonds are believed to have been taken by one big account that helped drive the transaction by way of reverse inquiry.

The source saw the new AmeriGas 6¾% notes due 2020 at 100½ bid, 101 offered and the 10-year notes at 100¾ bid, 101¼ offered.

Meanwhile, a portfolio manager who played both tranches was generally satisfied with allocations, which amounted to about 50% of the orders.

Polkomtel deal resurfaces

Polkomtel SA's €900 million offering of high-yield bonds is heating up once again, according to a buyside account in the United States.

The company plans to do conference calls with U.S. accounts in the week ahead.

Timing for the execution remains to be determined, but the deal could price before the end of the Jan. 9 week because European accounts are up to speed on the credit, the source added.

The deal was originally slated for early- to mid-December but was sidelined when volatility related to the credit crisis in the euro zone adversely impacted the Warsaw-based wireless services provider's yield discussions.

Deutsche Bank AG and Credit Agricole CIB will lead.

Polkomtel, Poland's second-largest mobile telephone company, was acquired by investor Zygmunt Solorz-Zak in July for the equivalent of $5.5 billion.

New AmeriGas moves up

In the secondary market, a trader said he heard before the AmeriGas pricing that the new deal would "do well in terms of allocations."

A second trader opined that "there will probably be a lot of flippers in it."

But he chose not to predict how well the bonds would do in the aftermarket, saying, "I don't know where they go. If there's big investment-grade participation, then they'll probably go up. But if it's all high yield, you'll get a quarter of a point or a half-point maybe."

He said that "it would have been nicer if they had done 6 7/8%, 7 1/8%, something like that," rather than the yields of 6¾% and 7% that eventually emerged.

He added that this was especially true "since they're on Negative Watch by Fitch." The agency placed the parent company's ratings and those of its financing subsidiaries under critical scrutiny at the time of the announcement last year of AmeriGas' pending acquisition of Heritage Propane. Fitch cited its expectations that the deal would result in an increase in leverage at AmeriGas as well as concerns about the execution risk associated both with the integration of Heritage into AmeriGas and the financing plan.

"Granted that they're Ba3/BB+" the trader said, "but the ratings action is going the wrong way."

At another desk, a trader late in the day saw both tranches of the bonds having firmed to 101 bid, 101½ offered from their respective par issue levels.

A trader meantime said that the Valley Forge, Pa.-based retail propane distributor's existing bonds traded lower "just because of where the pricing levels are on the new guys. It wasn't because they had any news but just because of the pricing levels on the new deal kind of pushed them back a little bit."

AmeriGas' 6¼% notes due 2019 were seen by a market participant to have dropped 2¼ points to 97¾ bid, with almost $11 million having changed hands, while the company's 6½% notes due 2021 fell by as much as 2½ points to the 98 level before getting back some of that lost ground to close at 99, still down 1½ points on the day.

Ford doesn't travel far

Wednesday's $1 billion add-on offering of three- and six-year bonds from Ford Motor Credit was seen pretty much trading around the two tranches' respective issue prices.

A junk trader said that he had not seen any activity in the credits, saying they were being traded off the crossover desk at his shop rather than the junk desk.

Another trader suggested that Ford Motor Credit "is still a crossover, high-grade story now." He estimated that the bonds "probably traded up one-eighth of a point or a quarter of a point maybe, but there wasn't a lot of trading," at least not from junk participants, although there were enough dealings to put the new Fords among the most active issues.

A market source saw the Dearborn, Mich.-based auto-finance arm of Ford Motor Co.'s $300 million of 3 7/8% notes due 2015 down by one-eighth point at 100 1/8 bid; on Wednesday, the issue priced at 99.672 to yield 4%.

He also saw Ford Motor Credit's $700 million add-on to its 5% notes due 2018 unchanged at 100 5/8, though on very busy round-lot dealings of over $17 million. The bonds priced Wednesday at 100.744 to yield 5%.

However, the second junk trader said that from where he sat, "it really wasn't something that everyone was calling on, and a lot of people just weren't involved in it."

Indicators turn mixed

Away from the new or recently priced issues, a trader said that the junk market "kind of churned" aimlessly.

A second trader said that he did see "pretty decent volume" in a lot of names.

Statistical measures of junk market performance - which had kicked off the new trading year with solid advances on both Tuesday and Wednesday - turned mixed on Thursday.

A trader saw the CDX North American Series 17 High Yield index off by ¼ point on Thursday to end at 93 5/8 bid, 93 7/8 offered after having moved up by 5/16 point on Wednesday.

The KDP High Yield Daily index declined by 4 bps on Thursday to finish at 72.65, giving back the exactly same-sized 4 bps gain seen on Wednesday.

Its yield rose by 1 bp on Thursday to 7.30% after having tightened by 7 bps on Wednesday.

However, the widely followed Merrill Lynch High Yield Master II index kept rolling along robustly, posting its 15th consecutive winning turn on Thursday - a streak that dates back to the middle of December.

It rose by 0.047%, which was on top of Wednesday's 0.144% advance.

The gain lifted the index's year-to-date return to 0.616% from 0.569% on Wednesday.

The index closed out 2011 with a return of 4.383% - well below the index's high-water mark for the year of 6.362%, which was set on July 26, but well up from its 2011 low point, a 3.998% deficit recorded Oct. 4.

Retail names are busy

Among specific issues, Bon-Ton Stores' bonds were down on the day after the company reported a 1.1% decline in total sales for the month of December.

One trader called the 10¼% notes due 2014 down 3½ points to levels around 60. Another trader said the debt hit a low of 58 before coming back to end around 60.

He said that was "still down a couple points."

More than $10 million of the bonds changed hands.

For the month of December, the York, Pa.-based retailer saw same-store sales fall 0.7%. Total sales dropped to $505.2 million from $510.8 million the year before.

For the year, same-store sales - the key retailing industry performance metric - were down 2.8%, with total sales slipping 3.2% to $2.71 billion.

The company attributed the lighter sales to milder temperatures.

Bon-Ton also revised its guidance, reducing EBITDA expectations to $170 million to $175 million from $190 million to $210 million.

Loss per share was also revised to a range of $1.00 to $1.30.

Also in the retailing space, Rite Aid's bonds were going in the other direction after it released same-store sales numbers, which showed a 3.6% increase for December.

A trader called Rite Aid's 7.7% notes due 2027 up 1½ points at 751/2.

Another trader pegged the 9½% notes due 2017 at 94 bid, 94½ offered and the 8 5/8% notes due 2015 around 97.

He said both issues were firmer on the day.

Another market source, however, called the 8 5/8% notes down half a point at 97½ bid.

A market source saw the 8 5/8s as the busiest of Rite Aid's issues, with over $28 million traded and the bonds up one-eighth of a point. He said more than $23 million of the 9½% notes traded, with a gain of 1 5/8 points, while there was over $11 million of turnover in the 7.7% notes, which he saw up 1 3/16 points.

For the five weeks ended Dec. 31, Camp Hill, Pa.-based Rite Aid reported total sales of $2.64 billion, a 3.3% increase year over year.

For the year, same-store sales gained 1.8% and total sales improved by 1.4%, coming in at $21.55 billion.

Among other retailers, Sears Holding Corp.'s 6 5/8% notes due 2018 remained actively traded but steady around the 76 mark, according to several traders.

A market source said the Hoffman Estates, Ill.-based operator of the iconic Sears and Kmart department store chains was the most active name, with over $50 million traded.

Gymboree Corp.'s 9 1/8% notes due 2018 meanwhile fell "almost 3 [points]," a trader said, to finish around 86.

At another shop, a trader said Gap Inc.'s 5.95% notes due 2021 dropped half a point to a full point to 94 bid, 94½ offered.

Stephanie N. Rotondo contributed to this report

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