SandRidge mega-deal; Constellation, AMD and MarkWest drive by in $3 billion session

By Paul Deckelman

New York, Aug. 6 - A combination of generous junk-market liquidity conditions, improved investor sentiment and a ticking clock ahead of the traditional mid-summer shutdown combined Monday to produce a sort of reverse "perfect storm" in Junkbondland.

All conditions were right and the result was a hurricane of new issuance totaling some $3 billion, all of it in quickly shopped, opportunistically timed deals, market sources said.

Among the borrowers were some familiar names, such as Constellation Brands, Inc., which priced a $650 million offering of 10.5-year notes at a very un-junk-like coupon well below the 5% mark.

However, that did not stop investors from toasting the alcoholic beverage company's new issue and taking those bonds smartly higher when they were freed for secondary dealings.

Junk players also seemed to like MarkWest Energy Partners LP's upsized $750 million issue of 10.5-year notes; those bonds also moved up after they hit the aftermarket, even with a relatively low coupon.

A MarkWest sector peer - oil and gas operator SandRidge Energy, Inc. - brought the big deal of the day, upsizing its two-part offering to $1.1 billion, including an add-on to an existing tranche of bonds. However, that deal hit the market too late in the day for any kind of secondary dealings.

That also was the case with high-tech manufacturer Advanced Micro Devices, Inc., which did an upsized $500 million of 10-year bonds.

Syndicate sources also heard that two borrowers, Nuance Communications, Inc., and H&E Services, Inc., were starting short marketing campaigns Tuesday for deals expected to price later this week.

Traders said most of the market players were sitting around, waiting for the new deals, which finally came fairly late in the session.

But they said that overall, the market had a firm tone, even away from the new issues and statistical performance measures seemed to bear that out, rising across the board.

No big surprise

The cloudburst of new paper Monday was no real surprise to many junk-market participants; they were talking even last week about how there might be a barrage of new deals coming to market this week.

Traders saw improved market sentiment as risk-markets in general, such as equities and junk, seemed to be encouraged by last week's U.S. July job-creating number, which was a stronger-than-expected 165,000. That touched off a major Wall Street rally, with junk rising along on the stock market's coattails.

Another factor cited was the continued flow of money into the junk market, meaning investors have plenty of cash with which to buy new deals.

That was borne out last week with the release of fund-flow statistics for high-yield mutual funds and exchange-traded funds. Although these constitute only a relatively small amount of all of the cash that's been sloshing around the junk market, they are more observable and quantifiable than other sources of cash, making them a good barometer for overall junk market liquidity trends.

The two main companies that watch the behavior of cash moving into or out of the junk funds both saw an eighth consecutive week of net inflows to those funds.

AMG Data Services, an Arcata, Calif.-based unit of ThomsonReuters' Lipper analytics division, reported that in the week ended Wednesday, $401 million more came into those funds than left them, while Cambridge, Mass.-based EPFR Global - whose methodology differs considerably from AMG's and yields different numbers - estimated the net inflow at $1.43 billion.

AMG estimates year-to-date net inflows topping $27 billion, and EPFR - which samples a broader universe of funds including some domiciled outside of the United States - pegs the number north of $40 billion.

And some players pointed to the calendar - the junk market historically goes into a mid-summer swoon sometime around the middle of August, as things slow down until after Labor Day. When technical conditions are right and market sentiment is favorable, issuers looking to do deals usually rush to get them done before everybody hangs out the "gone fishing" sign.

Constellation a star

One of the most impressive performances in Monday's market came from Constellation Brands, which priced $650 million of 10.5-year notes (Ba1/BB+) at par to yield 4 5/8%. Execution was crisp, with the deal pricing at the tight end of talk, seeing a yield in the 4¾% area.

That same-day drive-by deal was brought to market by joint book-running managers Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Rabo Securities USA, Inc., Barclays Capital Inc. and Wells Fargo Securities, LLC.

Co-managers on the deal were HSBC Securities (USA) Inc. and Mitsubishi UFJ Securities (USA) Inc.

The Victor, N.Y.-based manufacturer, importer and distributor of various brands of alcoholic beverages, plans to use the deal's net proceeds, along with additional borrowings under its senior credit facility and cash on hand, to finance its pending acquisition of the 50% membership interest in Crown Imports LLC it does not already own.

In its new-deal announcement, it also outlined an alternate Crown acquisition transaction, should it be unable to finance the entire Crown acquisition, under which it would acquire at least half of the 50% membership interest it does not already own.

However, should that transaction fall apart or just fail to get done by the end of December 2013, the company would be obligated to redeem the bonds in full.

When the new Constellation deal was freed for secondary market activity, a trader quoted the bonds as quickly moving up to 101¾ bid, 102¼ offered - and noted that that appreciation took place "even with that 4 5/8% coupon," considered small by traditional junk-market standards, but still attractive enough to investors to push the bonds up.

A second trader quoted Constellation at around the 102 bid level.

Constellation's outstanding 7¼% notes due 2017 gained about a half-point or so, ending at 115½ bid.

MarkWest makes a move

MarkWest Energy Partners LP and its MarkWest Energy Finance unit came to market Monday with an $750 million of 10.5-year notes (Ba3/BB). The quickly-shopped issue priced at 99.015 with a 5½% coupon to yield 5 5/8%, at the narrow end of price talk of 5 5/8% to 5¾%.

Market sources said it was upsized from an originally announced $500 million.

A long roster of investment banks played a role in bringing the Denver-based energy operator's deal to market, including joint bookrunners Wells Fargo, Bank of America, Barclays, Citigroup Global Markets Inc., Goldman Sachs & Co., J.P. Morgan, RBC Capital Markets, LLC, UBS Securities LLC and U.S. Bancorp Investments, Inc.

Co-managers on the deal were Capital One Southcoast Inc., Comerica Securities Inc., Morgan Stanley & Co. LLC and Natixis Securities Americas LLC.

MarkWest said it plans to use the estimated net proceeds of $731 million that it expects to get to repay borrowings under its revolving credit facility and for general partnership purposes, including, but not limited to, funding capital expenditures and general working capital.

The MarkWest deal managed to price relatively early enough to see some aftermarket action, traders said.

One quoted the bonds trading at 100¼ bid, 100½ offered, while another saw them a little better than that at 100½ bid, 100¾ offered.

He also noted that the bonds priced at a discount, meaning they were up more than a point from their issue price.

The company's outstanding 6¾% notes due 2020 were seen firming a little to around the 107 mark.

SandRidge sharply upsizes

The day's other two deals priced too late in the session for any kind of aftermarket activity, traders said.

Oklahoma City-based SandRidge Energy priced an upsized $1.1 billion two-part bond deal (B2/B) - the big deal of the day in the junk arena.

Syndicate sources said the quick-to-market issue consisted of an $825 million tranche of 7½% notes due Feb. 15, 2023, upsized from an originally announced $500 million, and a $275 million add-on to the company's existing $900 million of 7½% notes due March 15, 2021, which priced at par in March 2011. The latter tranche was upsized from an original $250 million.

The sources said the 2023 notes priced at 99.5 to yield 7.57%, versus pre-deal market price talk in the 7 5/8% area.

The 2021 add-on notes priced at 101.625 to yield 7.241%, right in the middle of the 101.5 to 101.75 price talk.

The big two-part transaction came to market via bookrunners Barclays, Citigroup, Deutsche Bank Securities Inc., J.P. Morgan and RBC.

Co-managers on the deal included Capital One, Mitsubishi-UFJ Securities (USA) Inc., Morgan Stanley, UBS, BOSC, Inc., Comerica, Lloyds Securities Inc. and Scotia Capital (USA) Inc.

SandRidge plans to use the new-deal proceeds to refinance its $350 million of senior floating-rate notes due 2014 and for general corporate purposes.

AMD upsizes deal

Another late-breaking deal came from Sunnyvale, Calif.-based semiconductor company Advanced Micro Devices.

The high-tech firm priced an upsized $500 million offering (Ba3/BB-) of 10-year notes, after upsizing that drive-by deal from an originally announced $300 million.

The bonds priced at par to yield 7½%, at the tight end of pre-deal market price talk in the 7½%- to 7¾%-range.

That transaction came to market via bookrunners J.P. Morgan and Bank of America.

AMD said it plans to use the estimated $491 million of net proceeds it expects to garner from the bond deal for general corporate purposes and working capital.

The company said that could include the repayment or repurchase of some or all of its outstanding 5¾% convertible senior notes that are scheduled to come due a little more than a week from now, on Aug. 15, or the repayment or repurchase of some or all of its outstanding 6% convertible senior notes due 2015.

It also said that it could also use some of the proceeds for cash payments to GlobalFoundries Inc. - formerly AMD's manufacturing arm, until it divested the unit in stages over the past several years, selling its final ownership stake earlier this year.

Those cash payments would be related to the limited waiver of exclusivity of the company's 28nm computer-ship product.

AMD also said it could use some of the proceeds for potential strategic transactions.

H& E hits the road

Away from the deals that actually priced during the session, market sources heard that H&E Equipment Services was getting ready to start marketing a $480 million offering of 10-year senior notes to potential investors via a short roadshow.

They said the roadshow would begin Tuesday and run through Thursday, with pricing expected sometime after that.

Deutsche Bank, Bank of America and Credit Suisse Securities (USA) LLC will be the joint book-running managers for the offering.

The Baton Rouge, La.-based company, which leases and sells construction and industrial equipment, plans to use the proceeds from the deal, together with borrowings under its credit facility, to repurchase or redeem its $250 million of outstanding 8 3/8% senior notes due 2014 and to fund a special one-time cash dividend to company stockholders totaling about $246 million, or roughly $7 per share.

A new deal for Nuance

Junk-market sources also said Monday that Nuance Communications will hit the road this week to market a $600 million bond deal via presentations and investor luncheons in several U.S. cities.

First up on the menu for the Burlington, Mass.-based provider of voice and language solutions is a lunch meeting Tuesday in New York.

It will then take its eight-year deal to investors at a lunch in Boston and a presentation in Baltimore on Wednesday, then a lunch Thursday with investors in Los Angeles and a final presentation Friday in San Francisco, with pricing anticipated after that.

Barclays and Morgan Stanley will be the joint bookrunners on the deal.

The company plans to use the proceeds for general corporate purposes, including possible near-term acquisitions, working capital and capital expenditures.

Firm tone all around

A trader said that waiting for the day's new deals was the main activity for junk investors Monday; he didn't see all that much activity away from it, but said the market firmed its overall tone.

That included the new deals from last week, including such names as First Data Corp., Steel Dynamics, Inc., Peninsula Gaming LLC, Host Hotels & Resorts LP and Ashland, Inc., all of which priced Thursday and then moved up solidly in trading at the end of last week after they were freed.

"The market was firm," he said. "Any gains that you had, you held."

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