Freedom Group prices, pops in secondary; Intelsat launches add-on; funds plunge $1.3 billion

By Paul Deckelman and Paul A. Harris

New York, April 12 - Freedom Group Inc. was heard by high-yield syndicate sources to have priced a $250 million issue of eight-year senior secured notes on Thursday. Investors felt the firearms manufacturer's new deal was right on target; they quickly took it up by several points when the issue was freed for secondary dealings.

The primaryside also saw a gigantic add-on issue from a unit of satellite communications company Intelsat SA. Those 2020 bonds, upsized from $800 million to $1.2 billion, came to market too late in the session for any trading. But the company's existing notes were seen lower.

In the Canadian bond market, Russel Metals Inc. was heard to have brought an upsized C$300 million offering of 10-year notes.

The new-deal arena also saw movie theater operator Carmike Cinemas, Inc. getting ready to hit the road next week with a $210 million tranche of seven-year secured notes.

Among recently priced issues, Constellation Brands Inc. and EP Energy Corp.'s new deals were seen holding on to the solid gains they notched in the aftermarket after pricing on Tuesday.

Away from the new deals, traders noted the not-unexpected Chapter 11 filing by Reddy Ice Corp.

Overall, the market seemed to have a firmer tone, and this was borne out by a rise in the various statistical indexes of market performance.

But another kind of indicator was seen heading south for the first time in more than four months. High-yield mutual funds - considered a good barometer of overall junk market liquidity trends - registered their first weekly outflow since early December. Both major fund-tracking services saw them having lost more than $1 billion in the most recent week.

AMG posts $1.3 billion outflow

As things were wrapping up on Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.29 billion more left those weekly reporting funds than came into them.

It was the first such outflow this year and followed 14 consecutive gains since the start of the year. Those gains totaled about $16.53 billion according to a Prospect News analysis of the numbers, including the $286.1 million inflow seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - in the previous week, which ended April 4.

The outflow in the latest week cut the year-to-date net inflow figure to $15.24 billion.

It also broke a string of 18 straight weeks of inflows dating back to the week ended Dec. 7, according to the Prospect News analysis.

In that time, $18.64 billion more came into those funds than left them, the analysis said.

EPFR sees $1.17 billion

Things looked no better in the data compiled by another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG.

That company also reported a gigantic outflow - $1.17 billion - from the junk funds in the week ended Wednesday, breaking an 18-week winning streak.

That big outflow stands in stark contrast to the previous week's $597 million inflow.

On a year-to-date basis, with the outflow balanced out against the prior 14 weeks of inflows, the cumulative inflow figure was estimated to have dipped to about $29.93 billion from $31.1 billion previously, the Prospect News analysis indicated.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ 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.

Intelsat massively upsizes

The Thursday dollar-denominated primary market saw two issuers raise a combined total of $1.47 billion. Each priced a single tranche of notes.

Intelsat Jackson Holdings, SA priced a upsized $1.2 billion add-on to its 7¼% senior notes due Oct. 15, 2020 (B3/B) at 101.75.

The reoffer price came within guidance of 101.25 to 102.25.

Goldman Sachs & Co. and Morgan Stanley & Co. LLC were the joint bookrunners for the quick-to-market add-on, which was upsized from $800 million.

The company plans to use the proceeds to purchase any and all of its $701.91 million of 9½% senior notes due 2016 and up to $470 million of its $1.05 billion of 11¼% senior notes due 2016.

The deal represented a roughly 40 basis points concession to the existing notes, according to an informed source who reckoned that, given recent volatility in the capital markets, the execution represented a good value for the issuer.

Intelsat Jackson is a Pembroke, Bermuda-based provider of fixed satellite services. It is a subsidiary of Luxembourg-based Intelsat.

Freedom Group, at tight end

Freedom Group priced a $250 million issue of eight-year senior secured notes (B3/B-) at par to yield 7 7/8%.

The yield printed at the tight end of price talk that had been set in the 8% area.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and RBC Capital Markets were the joint bookrunners.

Proceeds, along a new term loan, will be used to fund the tender for and/or redeem the company's 10¼% senior secured notes due 2015 and its 11¼%/11¾% senior PIK notes due 2015 and for general corporate purposes.

The issuing entities are FGI Operating Co., LLC and FGI Finance, Inc., financing units of the Madison, N.C.-based designer, manufacturer and marketer of firearms and ammunition.

Russel Metals upsizes

In the Canadian dollar-denominated high-yield market, Russel Metals priced an upsized C$300 million issue of 10-year senior notes (Ba1//) at par to yield 6%.

The notes due April 19, 2022 had more than C$600 million of demand, a source said. About 60 institutional real money accounts in Europe, Canada and the United States participated in the deal.

The deal was upsized from C$250 million.

GMP Securities LP and RBC Capital Markets were the lead managers. The co-managers were Laurentian Bank Securities, Inc. and Raymond James Ltd.

Proceeds will be used to repay debt, including to redeem all of the company's $138.9 million of outstanding 6 3/8% senior notes due March 1, 2014, and for working capital, potential acquisitions and general corporate purposes.

The Mississauga, Ont.-based company is one of the largest metal distribution and processing companies in North America.

Mixed issuance forecasts

Heading into Friday, there are no deals expected to price before the weekend, although surprises cannot be ruled out, sources said.

Forecasts varied among dealers who were polled on Thursday regarding likely primary market activity for the week ahead.

New issue activity in the week ahead is likely to remain somewhat muted and is unlikely to exceed that of the present week, a source said.

Through Thursday's close, the present week has seen $5.6 billion of issuance in nine junk-rated, dollar-denominated tranches, according to Prospect News data.

However, another syndicate banker said that things could pick up.

The month of April is unlikely to match the $34 billion that priced in March, the banker said.

"But there are plenty of deals to be done if things firm up," the source remarked, adding that $30 billion of issuance for April is not out of the question.

April has seen $12.2 billion sold in 23 tranches through Thursday's close.

Carmike to start Monday

The Thursday session saw one new deal announcement.

Carmike Cinemas plans to start a roadshow on Monday for its $210 million offering of seven-year senior secured notes (B2/B).

The deal is set to price late in the week ahead.

Macquarie Capital is the bookrunner.

The Columbus, Ga.-based cinema operator plans to use the proceeds to retire Carmike's existing term loan. Any remaining proceeds will be used for working capital and other general corporate purposes.

Freedom Group flies

When Freedom Group's new eight-year senior secured notes were freed for secondary dealings, traders saw them going great guns. One saw the $250 million issue trading at 101½ bid, 102½ offered, well up from the par level where the firearms and ammunition maker's deal had priced.

"Maybe they were even a little higher than that," he added.

A second trader, echoing investor sentiment, opined that "we love that deal," seeing the Madison, N.C.-based gunsmith as a solid credit.

"GUN traded well," a third trader said, referring to the company's appropriately chosen ticker symbol.

He quoted the bonds as having shot up to 102 bid when they began trading around.

"It moved up nicely," a fourth trader agreed, seeing the bonds going home having gotten as good as 102¼ bid, 103¼ offered.

Intelsat issues impacted

The new Intelsat Jackson 7¼% notes due 2020 came to market too late for any kind of aftermarket, traders said.

However, one noted that before the deal priced, "their outstandings were down a point or so" - at least, the outstanding issue that was being added on to. Those bonds ended the session around 103½ bid on volume of over $15 million, making the issue one of Junkbondland's most active credits.

He noted, though, that "some of the other bonds in the structure were up."

The 11¼% notes due 2017 were up nearly 2½ points, also ending at 103½ bid.

Parker pop continues

Among recently priced deals, a trader quoted Parker Drilling Co.'s 9 1/8% notes due 2018 in a 105-to-106 bid context on Thursday.

"That one was a gift," he said.

The Houston-based contract energy driller's quickly shopped $125 million add-on to its existing $300 million of those bonds done in March 2010 came to market Wednesday at 104 bid for a yield to worst of 7.919%.

In the immediate aftermarket, they had traded as high as 105 3/8 bid, 105 7/8 offered.

Constellation a shooting star

A trader said that the new 10-year notes from Constellation Brands "were on fire."

He quoted the Victor, N.Y.-based wine and spirits maker's upsized $600 million of 6% notes due 2022 at 103¼ bid, 103½ offered.

That was up from the 102 7/8 bid, 103 3/8 offered at which the bonds had traded on Wednesday and well up from the par level at which the quick-to-market issue - increased in size from the originally shopped $400 million - priced on Tuesday.

"This is just a great credit," a trader mused. "We can't figure out why it's not investment grade."

He said the market "certainly treats this credit as thought it already was investment grade."

The bonds are rated at Ba1 by Moody's Investors Service and BB+ by Standard & Poor's.

EP improved again

Traders said the big new two-part deal from EP Energy continued to gain in Thursday's trading. Both tranches priced at par on Tuesday and moved up only slightly in the aftermarket at that time, but then they rose by a point or more in Wednesday dealings.

A trader said that the Houston-based energy exploration and production operator's deal "continues to grow," seeing its $750 million of 6 7/8% senior secured notes due 2019 - upsized from $500 million originally - having finished at 103 bid.

He meantime saw the $2 billion tranche of 9 3/8% senior unsecured notes due 2020 around 101. They priced at par on Tuesday after having been downsized from an original $2.5 billion.

Reddy Ice better bid

Away from the new deals, traders noted that Reddy Ice announced Thursday that it had voluntarily filed a pre-packaged bankruptcy filing. It made the move "to complete its previously announced plan to strengthen its balance sheet and ensure strong financial footing for the future," the company said in a press release.

But the news did little to move the bonds, at least in terms of actual trades.

A trader said he saw 94 and 95 bids for the 11¼% notes due 2015 and 12 bids for the 13¼% notes due 2015.

"But it didn't really trade," he said, adding that it was "very weird."

"It just may be that they have all potentially traded bonds locked up," he said, noting that the plan had received about 94% of creditor approval.

The trader further noted that the plan calls for the senior paper to be reinstated, while the subordinated issues will be equitized.

Another trader saw the senior notes trading at 91½ bid, 93½ offered, trading flat, "which isn't bad."

He saw the subordinated piece at 13 bid, 15 offered, also flat, and the 10½% notes due 2012 - only $11 million of those bonds are still outstanding - at 19 bid, 20 offered.

He said that "the company is doing the right thing" by reorganizing but added that "nobody knows" if they still have a viable business model.

The Dallas-based ice maker has secured a $70 million debtor-in-possession facility from Macquarie Bank Ltd. The bank will also provide $50 million of exit financing.

The company expects to emerge from bankruptcy in 45 days or less.

Following news of the filing, S&P downgraded the company's credit rating to D from CC.

Market measures move up

Statistical measures of junk market performance meanwhile were higher across the board Thursday after having been mixed on Wednesday and on the downside the first two days of the week.

A trader saw the Markit Group CDX North American Series 18 High Yield index "up pretty strongly" on Thursday, quoting it at 96 bid, 96¼ offered, up 1 5/16 on the day. It had been up 3/16 point on Wednesday.

The KDP High Yield Daily index rose by 6 bps Thursday to end at 73.37. On Wednesday, the index had broken out of a four-session slump, adding 3 bps. Its yield came in by 2 bps on Thursday to 6.81% after having shed 1 bp on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index broke a five-session losing streak on Thursday, gaining 0.185%. That was in contrast to its fifth consecutive loss on Wednesday, when it fell by 0.065%.

Thursday's gain lifted the index's year-to-date return to 4.858% from 4.665% on Wednesday, although it remained down from its peak 2012 level of 5.361% recorded on March 2.

Stephanie N. Rotondo contributed to this report

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