Four deals price in $1 billion session; new bonds up; Ford busy; funds lose $2.46 billion

By Paul Deckelman and Paul A. Harris

New York, May 24 - The high-yield primary got back to work on Thursday after having pretty much sat out Wednesday's session.

Four deals totaling slightly more than $1 billion were heard by high-yield syndicate sources to have come to market. All priced at or close to par.

Global Brass & Copper Holdings, Inc., a producer of specialized metal products, got the ball rolling with a $375 million offering of seven-year senior secured notes.

Carrols Restaurant Group, Inc. slightly upsized its deal to $150 million while restructuring it as a six-year deal rather than the originally announced eight-year transaction.

Roofing Supply Group LLC came to market with a $200 million eight-year note offering.

Late in the day, Wolverine Healthcare Analytics, Inc., a provider of data analytic services to the medical industry, priced $327 million of eight-year notes.

Traders saw the new Carrols Restaurants bonds and those of Roofing Supply Group trading well above their respective par issue prices. They didn't see the Global Brass & Copper bonds in the aftermarket, and Wolverine priced too late in the session to trade around.

Away from the new deals, there was once again heavy activity in Ford Motor Co.'s paper and that of its Ford Motor Credit Co. LLC unit in the wake of the carmaker's promotion to investment grade by Moody's Investors Service earlier in the week.

Statistical indicators of market performance were seen better after having retreated on Wednesday.

However, another indicator - high-yield mutual fund flows, which are seen as a reliable barometer of overall junk market liquidity trends - was sharply lower for a second consecutive week, with both major tracking services seeing outflows of several billion dollars, reflecting investor unease with the junk market.

AMG posts $2.46 billion outflow

As activity was winding down on Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $2.46 billion more left those weekly reporting funds than came into them.

It was the second consecutive large outflow, dwarfing the already substantial $689 million cash loss seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - the week before, which ended May 16. That outflow had originally been reported by the agency as a $182 million inflow, but it put out a revised figure last Friday, explaining that the initial number did not take into account a very large outflow from a particular exchange-traded fund arising from just one transaction, which skewed the whole number southward.

In contrast, the latest week's outflow was broad-based and not attributable to any one transaction or fund.

It was one of the largest outflows ever reported by AMG; only a $3.43 billion cash bleed seen in the week ended June 22, 2011 and a nearly identical $3.42 billion hemorrhage in the week ended Aug. 10, 2011 were larger.

The outflow pulled the year-to-date net inflow figure down to around the $21 billion mark, which counts monthly reporting funds as well as the weekly reporters, according to AMG.

That puts it well below its peak level for 2012 of an estimated $24.15 billion seen in the week ended May 9, according to a Prospect News analysis of the figures.

The latest outflow, despite its great size, was only the third such outflow seen this year. Besides the outflows the past two weeks, there was also a $1.29 billion outflow recorded in the week ended April 11. That outflow had snapped an amazing string of 18 straight weeks of inflows totaling $18.64 billion, which dated back to the week ended Dec. 7, 2011, according to the Prospect News analysis.

Inflows have now been seen in 18 out of the 21 weeks since the start of the year, the analysis said.

EPFR sees $3.05 billion loss

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG's, saw an even bigger outflow in the latest week - $3.05 billion.

That came on the heels of last week's $433 million outflow.

EPFR last week cautioned its clients that the negative number should be looked at with an asterisk, as it were, due to the highly unusual circumstances behind that outflow. A single transaction involving State Street Corp.'s SPDR Barclays Capital High Yield Bond ETF was estimated to have been as large as $870 million. But this week's figure required no asterisk, EPFR said, in view of the broad-based loss of cash by a variety of ETFs and mutual funds.

The latest week's outflow - only the third recorded by EPFR so far this year - left the year-to-date cumulative net inflow figure around $32 billion, down from last week's $35 billion.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from some non-U.S. domiciled funds that are excluded from the more narrowly focused AMG tally of domestic junk mutual funds and ETFs.

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.

Those fund flows are also seen as the key element behind the high-yield secondary market's strong performance so far this year and its active new-deal pace, with issuance volume remaining near last year's totals.

No big surprise

The big outflows reported by AMG and EPFR surprised exactly nobody in Junkbondland given the market's sorry performance over the previous several sessions, which had traders and others speculating that investors, suddenly spooked by the rising market volatility, were pulling money out of the funds.

At a Thursday morning briefing for the financial press, an official of Credit Suisse declared that "we think there will be a massive outflow this week, and it will probably be ETF-driven."

A trader cited news reports of the big outflows at the State Street fund and other such ETFs.

Two other market participants told Prospect News that the outflow would likely come in somewhere around $2.6 billion, which proved to be not too far off the mark.

Investor 'relieved'

News of the $2.46 billion of outflows for the week brought relief to one high-yield mutual fund manager.

"I hear it's the fourth-biggest outflow on record, and I'm relieved to see it," the buysider said, referring to the number that surfaced in a weekly report from fund flow-tracker Lipper-AMG.

"It explains why the market has been selling off - not because it's mispriced or because there is anything fundamentally wrong, but because people are seeing redemptions and they need to raise cash.

"If we just get a little relief from the negative headlines coming out of Europe, things should stabilize."

Global Brass prices wide

A busy Thursday session in the primary market cleared the deck heading into the three-day Memorial Day weekend.

Four issuers, each one bringing a single tranche, raised a combined total of $1.05 billion. In doing so, they emptied the calendar of pre-holiday deals.

Global Brass & Copper Holdings priced a $375 million issue of seven-year senior secured notes (B3/B) at par to yield 9½%.

The yield printed 12.5 basis points beyond the wide end of the 9¼% area yield talk.

Goldman Sachs & Co. and Morgan Stanley & Co. LLC were the joint bookrunners for the debt-refinancing and dividend-funding deal.

Wolverine prints at 10¾%

Wolverine Healthcare Analytics priced a $327.15 million issue of 10 5/8% eight-year senior notes (Caa1/CCC+) at 99.345 to yield 10¾%, on top of the yield talk.

The deal must have gone well, said an investor whose allocation was "severely" cut back even though this buysider was a bridge participant.

J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Morgan Stanley and UBS Investment Bank were the joint bookrunners for the leveraged buyout deal.

Roofing Supply eight-year deal

Roofing Supply Group priced a $200 million issue of eight-year senior notes (B3/CCC+) at par to yield 10%.

The yield printed on top of yield talk.

Goldman Sachs, Deutsche Bank Securities Inc., UBS, Credit Suisse Securities (USA) LLC and Citigroup Global Markets Inc. were the joint bookrunners for the acquisition financing.

The bonds were going out Thursday at 101½ bid, 102 offered, according to a fund manager who played the deal.

Most of the deals that have priced in the past couple of weeks since the market began to sell off are trading well, said the buysider, who added that dealers have been required to bring forth terms with which to entice high-yield investors to participate against a backdrop of ongoing capital markets volatility.

"If the market stabilizes, over the next couple of weeks, you could see these deals trade up 4 points," the investor added.

Carrols Restaurant upsizes

Carrols Restaurant Group priced an upsized, restructured $150 million issue of six-year senior secured second-lien notes (B3/B-) at par to yield 11¼%.

The yield printed 37.5 bps beyond the wide end of yield talk that had been set in the 10¾% area.

The issue was upsized from $140 million.

The maturity of the notes was decreased to six years from eight years.

Call protection was decreased to three years from four years.

Wells Fargo Securities LLC was the left bookrunner. Jefferies & Co. was the joint bookrunner.

The Syracuse, N.Y.-based company plans to use the proceeds to repay borrowings under its senior credit facility and for general corporate purposes.

Misys talks term loan

Elsewhere, in a bank deal that has attracted the attention of the high-yield buyside, Misys plc came out with pricing on its $615 million seven-year second-lien term loan (Caa1) at 12% with an original issue discount of 953/4, resulting in a yield of 13%, according to a market source.

The loan had most recently been talked in the 12% area yield, and prior to that it was talked in the context of 10%.

Bank of America Merrill Lynch is the left lead bookrunner. Credit Suisse, Jefferies and Deutsche Bank are joint bookrunners.

In addition, when pricing changed for the first time, the loan was revised from unsecured to second-lien debt and the maturity was shortened from 7½ years.

Proceeds will be used to help fund the buyout of the company by Vista Equity Partners for 350p per share, or about £1.27 billion, and to refinance some debt.

New bonds trade higher

When the new Carrols Restaurant Group 11¼% senior secured second-lien notes due 2018 were freed for secondary market dealings, a trader saw those bonds having firmed to a tasteful 101½ bid, 102¼ offered.

The Syracuse, N.Y.-based restaurant chain operator's new deal priced at par after being upsized from an originally announced $140 million and restructured into a six-year piece of paper from the original eight years.

The trader also saw Roofing Supply Group's new 10% notes due 2020 having moved up to 101 bid, 101¾ offered.

The Dallas-based building materials company's $200 million deal priced at par.

Global Brass a no-show

A trader said that he "didn't even see a single run" in Global Brass & Copper's new 9½% senior secured notes due 2019.

A second trader, who also did not see the Schaumburg, Ill.-based industrial manufacturer's deal trading in the secondary market, thought that to be "weird" given the fact that at $375 million, it actually was the largest and theoretically most liquid of the four bond deals priced on Thursday.

Wolverine Healthcare Analytics' $327 million of 10 5/8% notes came to market too late in the session for any kind of an aftermarket.

Week's deals come in a little

Among the other deals that priced earlier in the week, a trader said that NGPL PipeCo LLC's new 9 5/8% senior secured notes due 2019 were trading Thursday at 101¾ bid, 102¾ offered.

That was down a little from the levels as high as 102¼ bid, 103 offered seen on Wednesday.

The Houston-based natural gas transportation and storage company priced $550 million of those bonds at par on Tuesday, and they moved up to the 102 area and beyond when freed for aftermarket dealings.

A trader meanwhile said that Consolidated Communications Holdings, Inc.'s $300 million of 10 7/8% notes due 2020 traded at 99¼ bid, 100 1/8 offered.

That was down from Wednesday's levels at par bid, 100 7/8 offered, which in turn were down a little from the 100½ bid, 101½ offered level at which those bonds went home on Tuesday.

Consolidated, a Mattoon, Ill.-based provider of business and residential telecommunications services, priced that deal on Tuesday via its Consolidated Communications Finance Co. subsidiary to yield 11%.

The deal was downsized from an originally announced $350 million.

Heading for the holiday

A trader that he wasn't seeing any markets in a lot of names and suggested that "a lot of people have checked out for the holiday already."

The Securities Industry and Financial Markets Association has recommended a 2 p.m. ET close Friday for the junk bond market and other U.S. debt markets ahead of the Memorial Day holiday weekend, which will include a full market shutdown on Monday.

Desks are expected to be lightly staffed, and activity will likely wind down well before the official early closing time.

Ford is the focus

A trader at another desk did see a fair amount of volume on Thursday, which he called "a fairly decent volume day," but he noted that much of the day's activity was in a name that couldn't be classified as regular junk - Ford.

Ford, he said, was the busiest name on the board, but he noted that much of that trading may now be coming from high-grade accounts since two out of the three major rating agencies now rate the Dearborn, Mich.-based No. Two U.S. carmaker as investment grade.

The most active credit in the Ford constellation was its Ford Motor Credit 5% notes due 2018, of which $82 million changed hands.

He saw the bonds trading most of the day in a 109 to 109 3/8 context before finally going home at 109 1/8 bid, 109¼ offered, which he said was about the same as Wednesday's levels.

That and various other Ford credit issues, such as the financing arm's 6 5/8% notes due 2017, dominated the most-actives lists. The latter bonds traded at 116½ bid, up about a half point, on volume of more than $30 million.

Market indicators improve

Statistical indicators of market performance were seen a little better on Thursday, in contrast to Wednesday, when those market signposts all seemed to have turned southward.

The Markit Group CDX North American Series 18 High Yield index rose by ¼ point on Thursday to end at 93¼ bid, 93¾ offered. It had eased by 1/8 point on Wednesday.

The KDP High Yield Daily index meanwhile was up by 7 bps on Thursday to end at 72.39 after having lost 19 bps on Wednesday. Its yield narrowed by 1 bp on Thursday to 7.08% after having risen by 4 bps on Wednesday.

And the widely followed Merrill Lynch U.S. High Yield Master II index edged up on Thursday by 0.006%, versus Wednesday's 0.209% loss.

The gain lifted its year-to-date return to 4.803% from Wednesday's 4.797%.

However, even with Thursday's small gain, the year-to-date reading remains well down from the peak level for 2012 so far, 6.80%, which was set on May 7.

Sara Rosenberg 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.