First Data, Cablevision, Tesoro lead $4 billion day; market up on Fed; funds up $951 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 13 - The already robust junk bond juggernaut shifted into high gear on Thursday as a spate of big same-day "drive-by" transactions helped set the pace. When the dust had settled, nearly $4 billion of new dollar-denominated, purely junk-rated paper from domestic or developed-country issuers had come to market.

Among the borrowers were such very familiar high-yield names as First Data Corp., Cablevision Systems Corp. and Tesoro Corp.

Electronic transaction processor First Data priced an $850 million add-on issue - twice upsized - to its existing eight-year secured notes sold just last month. The new bonds firmed modestly in the aftermarket.

Cable TV powerhouse Cablevision did an upsized $750 million of 10-year notes, which came too late in the day to trade around.

Petroleum refiner Tesoro did a $925 million two-part deal, consisting of five- and 10-year tranches, which firmed smartly after pricing.

Besides Tesoro, the energy sector produced pricings of two scheduled forward calendar deals: exploration and production operator Midstates Petroleum Co. Inc./Midstates Petroleum Co. LLC's upsized $600 million of eight year notes, which jumped several points in the aftermarket, and drilling contractor Drill Rig Holdings, Inc., whose upsized five-year secured piece was not seen trading afterward.

Price talk meantime emerged on deals expected to come to market Friday from metals miner Iamgold Corp., medical device maker DJO Global, Inc. and lender Ladder Capital Finance Holdings, LLLP.

Traders said that the whole junk market generally was up anywhere from a quarter to a half point, following the lead of stocks, which zoomed following the Federal Reserve's announcement of a new round of quantitative easing. However, they said no individual junk names were really screaming upwards.

Statistical measures of junk market performance were higher across the board for a third consecutive session.

And a key indicator of junk market liquidity trends - flows of money into and out of high-yield mutual funds and exchange-traded funds - showed gains, and big ones, for a 14th consecutive week.

AMG gains $951 million

Near the end of the day on Thursday, market sources familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $951 million more came into those funds than left them.

The number was well up from the only $201 million gain - the smallest in many months - that was reported last week by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division.

This week marked the 14th consecutive week of such inflows by the junk mutual funds and exchange-traded funds - a winning streak that dates back to the week ended June 13.

In those 14 weeks, net inflows have totaled about $12.33 billion, according to a Prospect News analysis of the figures. The gains represent a continuing solid turnaround from the pattern of weakness that had been prevalent in late May and early June, when the funds lost $6.43 billion over the space of four weeks, including two huge cash hemorrhages each in excess of $2 billion, according to the analysis.

On a year-to-date basis, that latest inflow pulled the cumulative net inflow figure up to about $31.1 billion, including the ETFs, according to the Prospect News analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters.

Inflows have now been seen in 32 out of the 37 weeks since the start of the year, against just five outflows.

EPFR sees $1.95 billion inflow

The robust trend of inflows was confirmed by another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from Lipper's. It said that in the week ended Wednesday, $1.95 billion more came into those funds than left them, up from two straight weeks of $1.6 billion cash gains.

As was the case with the Lipper numbers, it was the 14th consecutive week in which the funds showed a net injection of cash. Those cash infusions total about $22.8 billion, according to a Prospect News analysis of that data.

On a year-to-date basis, the service has seen inflows in 32 weeks, with just five weeks of outflows, most of those recorded during the stretch from mid-May through early June.

EPFR said that total 2012 inflows through the latest week were just shy of the $56 billion mark. Those figures include the monthly reporting funds as well as strictly weekly reporters and also include the ETFs.

EPFR and Lipper use different methodologies to track fund flows, resulting in significantly different numbers - but the basic direction for the two services is generally the same.

Cumulative fund-flow estimates, whether from EPFR or from AMG/Lipper, 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 successive 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 versus other fixed-income asset classes and its active new-deal pace, which has recently surged past 2011's year-to-date totals.

Tesoro two-parter comes tight

The torrid high-yield primary saw five issuers bring a combined six tranches of bonds to raise $3.93 billion on Thursday.

Four of the six tranches came upsized. Also, four of the six came quick-to-market.

Tesoro priced $925 million of senior notes (Ba1/BB+/) in a two-part Thursday transaction.

The deal included a $450 million tranche of non-callable five-year notes that priced at par to yield 4¼%. The yield printed at the tight end of yield talk that was set in the 4 3/8% area.

Tesoro also priced a $475 million tranche of 10-year notes at par to yield 5 3/8%, the tight end of yield talk that was set in the 5½% area.

RBS Securities Inc., J.P. Morgan Securities LLC, Mizuho Securities USA Inc. and Natixis Securities Americas LLC were the joint bookrunners for the quick-to-market debt refinancing and general corporate purposes deal.

First Data massively upsizes

First Data priced a massively upsized $850 million add-on to its 6¾% senior secured notes due Nov. 1, 2020 (B1/B+) at 100.75 to yield 6.591%.

The reoffer price came on top of price talk.

The deal was ultimately upsized from $250 million; a $500 million minimum amount was announced when price talk was circulated late Thursday morning.

Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. were the joint physical bookrunners. Credit Suisse Securities (USA) LLC, HSBC Securities and Bank of America Merrill Lynch were bookrunners.

The original $1.3 billion issue priced at 99.193 to yield 6 7/8% on Aug. 2.

Drill Rig atop revised talk

Drill Rig Holdings priced an upsized $800 million issue of 6½% five-year notes (B2/B) at 99.469 to yield 6 5/8%.

The coupon and yield both came on top of talk that was revised tighter from earlier talk in the 6 7/8% area.

Deutsche Bank, Morgan Stanley & Co. LLC and DNB Markets were the joint bookrunners for the debt refinancing and capital expenditures deal, which was upsized from $750 million.

Drill Rig is a wholly owned subsidiary of Ocean Rig UDW Inc., a Nicosia, Cyprus-based deepwater drilling services provider. Ocean Rig is a subsidiary of Athens-based DryShips Inc.

Cablevision 10-year bullet

Cablevision Systems priced an upsized $750 million issue of non-callable 10-year notes (B1/B+) at par to yield 5 7/8%.

The quick-to-market deal was upsized from $500 million.

The yield printed on top of yield talk.

The joint bookrunners for the debt refinancing and general corporate purposes deal were Bank of America Merrill Lynch, Barclays, BNP Paribas Securities Corp., Credit Agricole Securities (USA) Inc., Deutsche Bank, Goldman Sachs & Co., JPMorgan, Natixis Securities Americas LLC, Nomura Securities International Inc., RBC Capital Markets LLC, SunTrust Robinson Humphrey Inc., UBS Securities LLC, U.S. Bancorp Investments Inc. and Guggenheim Securities LLC.

Midstates Petroleum upsizes

Midstates Petroleum priced an upsized $600 million issue of eight-year senior notes (Caa1/B-) at par to yield 10¾%.

The yield printed at the wide end of the 10½% to 10¾% yield talk.

Bank of America Merrill Lynch, SunTrust, Goldman Sachs, Morgan Stanley, RBC, Citigroup, Natixis, RBS and SG CIB were the joint bookrunners for the debt refinancing and general corporate purposes deal, which was upsized from $550 million.

Cabot at the tight end

In sterling-denominated high yield, Cabot Financial (Luxembourg) SA priced a £265 million issue of seven-year senior secured notes (B1/BB) at par to yield 10 3/8%, the tight end of yield talk set in the 10½% area.

Lead left bookrunner JPMorgan will bill and deliver for the debt refinancing deal. Citigroup, Lloyds and RBS were the joint bookrunners.

No quiet Friday ahead

While Friday may not put up numbers as substantial as those seen Thursday, the primary market promises to be active.

DJO Global's DJO Finance LLC and DJO Finance Corp. set price talk for $540 million face amount of new notes in two tranches on Thursday.

Price talk is 106 to 106.5 for a $100 million add-on to the company's 8¾% second-lien notes due March 15, 2018 (B3/B-). A $440 million tranche of new senior notes due April 15, 2018, which will come with three years of call protection, are talked in the 10% area.

Credit Suisse, Goldman Sachs, UBS, Wells Fargo, RBC and Macquarie are joint bookrunners.

Iamgold talked its $500 million of eight-year senior notes (B1/BB-) to yield 6½% to 6¾%.

The deal, which is the Toronto-based gold mining company's debut in the high-yield market, is set to price late Friday morning or early Friday afternoon via lead left bookrunner Citigroup and joint bookrunner Scotia Capital (USA) Inc.

Meanwhile, Ladder Capital Finance Holdings and Ladder Capital Finance Corp. set an investor conference call for 11 a.m. ET on Friday for their $300 million offering of non-callable five-year senior notes (expected ratings Ba3/B+/BB), which are also set to price on Friday.

JPMorgan, Deutsche Bank and Wells Fargo are the joint bookrunners for the debt refinancing deal.

In addition to those three announced deals, look for at least two Friday drive-bys, a syndicate banker said.

People want to take advantage of the conditions in the financial markets, the banker added.

CNO starts roadshow

CNO Financial Group, Inc. began a roadshow on Thursday for its $250 million offering of eight-year senior secured notes (Ba3/B+).

The debt refinancing deal is expected to price on Wednesday via Goldman Sachs and JPMorgan.

Iberian Minerals dollar deal

Iberian Minerals SA began a roadshow on Thursday in London for its $200 million offering of five-year senior secured notes (expected ratings B2/B+/B).

The roadshow, which includes a Friday presentation in New York, carries into the week ahead and is set to wrap up on Wednesday.

Joint bookrunner Citigroup will bill and deliver. BNP and Standard Chartered Bank are also joint bookrunners.

Proceeds will be used to fund capital expenditures and investment plans.

The prospective issuer, which has its registered office in Luxembourg, is a base metals company with mining operations in Spain and Peru.

Midstates moves up

When the new 10¾% notes due 2020 from Midstates Petroleum were freed for secondary dealings, a trader said that the Houston-based energy exploration and production company's new deal "ran like mad," seeing those bonds shooting up to 103 bid, 103½ offered. That was well above the par level where the $600 million forward-calendar deal - upsized from an originally announced $550 million - priced.

Another trader saw the Midstates bonds get as good as 103 1/8 bid, 103 3/8 offered.

Tesoro trades up

The energy sector was really cooking on Thursday. San Antonio-based refiner Tesoro successfully priced a big, quickly shopped two-part offering, and both tranches were seen having moved solidly higher in the aftermarket.

Tesoro's $450 million of new 4¼% notes due 2017 were initially seen trading at 100¾ bid, 101¼ offered, while its $475 million of 5 3/8% notes due 2022 were at 100½ bid, 101½ offered. Both tranches were thus up from their respective par pricing levels.

However, later in the day, another trader said that those bonds had continued to rise, pegging both parts of the $925 million deal going home at 102½ bid.

The third deal coming out of the energy sector - Cyprus-based offshore drilling contractor Ocean Rig UDW via its Drill Rig Holdings unit - was not seen in the aftermarket on Thursday.

The $800 million issue of 6½% senior secured notes due 2017 priced at 99.469.

Cablevision comes too late

Another aftermarket no-show Thursday was Cablevision's 5 7/8% notes due 2022, owing to the late hour at which the upsized, quick-to-market $750 million issue priced.

A market source said news that the Bethpage, N.Y.-based cable service provider was doing a big bond deal helped to push its existing paper lower.

Its 7¾% notes due 2018 lost 5/8 point to end at 109 7/8 bid.

Its busiest issue, the 8% notes due 2020, were down 1¼ point at 112½ bid on volume of about $10 million.

Its 8 5/8% notes due 2017 eased to 116 bid on volume of about $7 million.

First Data firms up

While Cablevision came too late to trade around, the same was not true of the day's other big, suddenly appearing bond deal, the issue from Atlanta-based electronic transaction processor First Data.

Its $850 million add-on to the 6¾% senior secured notes due 2020 that had been sold only last month was quoted by a trader late in the day at 101½ bid, 101¾ offered - up from the 100¾ level at which the bonds priced earlier in the session.

Recent deals post gains

Among the deals that priced earlier in the week, traders saw continued strength in the new NCR Corp. 5% notes due 2022, $600 million of which priced at par on Wednesday after being upsized from $500 million and then firmed solidly to around 102½ bid, 103 offered.

One trader said that the Duluth, Ga.-based cash register, ATM and retail checkout systems manufacturer's offering ended around that same level on Thursday.

However, a second said that the bonds had moved up to around the 103 bid level.

Another Wednesday deal, Continental Rubber of America Corp., began trading around on Thursday after having come too late in the previous session to do so.

A trader saw the tire and automotive components manufacturer's 4½% senior secured notes due 2019 around 101 bid, 101¼ offered, and a second also saw the issue at 101. It priced at par after being upsized - twice - to $900 million.

Wednesday's issue of 7½% notes due 2020 from Forest Oil Corp. was seen continuing to trade around the same 1001/2-to-100¾ offered context at which those bonds went home after initial aftermarket dealings. The Denver-based exploration and production company brought $500 million of the notes to market, upsized from the original $300 million, at par.

Forest Oil's 7½% notes due 2019 were up ¼ point at 100½ bid on volume of more than $12 million, making it one of the busiest issues of the day.

And a trader said that Chicago-based financial firm Nuveen Investments, Inc.'s new bonds "went nowhere" when they began to trade on Thursday. He saw both its upsized $500 million of 9 1/8% notes due 2017 and its downsized $645 million of 9½% senior notes due 2020 trading around par, unchanged from their respective Wednesday issue prices.

Tuesday's Hiland Partners, LP/Hiland Partners Finance Corp. "continued to move up," said a trader, who saw its 7¼% notes due 2020 pushing above the 105 bid level on Thursday. The Enid, Okla.-based provider of natural gas gathering and processing services priced its $400 million deal at par after upsizing from $350 million originally. The bonds had been seen jumping to around 104 to 104½ on Wednesday and then continuing to firm in Thursday's dealings.

Quietly firmer after Fed

Away from the new deals, traders saw the junk market broadly better after the Federal Reserve announced plans to boost the economy through yet another round of quantitative easing, although there was no huge upside explosion comparable to that seen in the equity markets on the same news.

A trader said that after the announcement, "everything was quoted ¼ to ½ point higher - not necessarily trading higher, but quoted."

Another trader opined that "nothing really jumped," also quoting the overall junk market up ¼ to ½ point, adding "but people are going to continue to pour money into anything with a coupon on it."

The first trader, alluding to the famous line from a classic movie, quipped that "with everyone sitting on so much cash, it's like the Yield of Dreams. If you price it, they will buy it."

The U.S. central bank announced that it will upsize its current holdings of mortgage-backed securities by as much as $40 billion - with at least $23 billion of purchases this month - and will then potentially undertake other new policies next month and beyond.

One of the traders said that while reaction in Junkbondland was muted, "equities seemed to love it." The bellwether Dow Jones industrial average jumped by 206.51 points, or 1.55%, to end the session at 13,539.86. Similar big gains were also seen in the broader S&P 500 and Nasdaq Composite indexes.

He noted that the longer end of the Treasury curve was weaker in the wake of the announcement by the Fed. He said "that could mean further spread-tightening" for junk and other corporate bonds.

However, on the downside, he suggested that "a big danger is money flowing out" from bonds into the suddenly strengthened equity market.

Fortescue flails around

While most junk bonds were higher, Fortescue Metals Group Ltd.'s bonds were seen lower on the news that the Australian mining group has asked its lenders for debt covenant relief in view of the fall in iron ore prices.

A trader said that the company's FMG Resources (August 2006) Pty. Ltd. 6% notes due 2017 were "off a couple of points" at around the 93 bid level versus Wednesday's levels around 96.

"They've been bouncing around between 93 and 96 the past couple of days," he said, adding "but I am not seeing anything dramatically off on big volume."

He noted that Fortescue reached out to the lenders "even though they're in full compliance with all of the covenants. They're being proactive. If steel prices and iron ore prices remain weak, they're trying to get some relief on some of the debt they have outstanding."

Indicators continue firming

Statistical indicators of junk market performance were meantime solidly higher across the board for a third consecutive session on Thursday.

The Markit Group CDX North American Series 18 High Yield index chalked up a hat trick as it zoomed by 1 1/16 points on Thursday to end at 101¾ bid, 101 7/8 offered. On Wednesday, it had risen by ½ point.

The KDP High Yield Daily index scored its 7th consecutive gain on Thursday as it was up by 13 basis points to close at 74.87 - a new high for the year, eclipsing the old mark of 74.74 just set on Wednesday, when it had soared by a sizzling 23 bps.

Its yield fell by 6 bps to 5.85% after having declined by 8 bps on Wednesday. Thursday's yield marked a new low for the year, bypassing the former low point, which had been set the day before.

And the widely followed Merrill Lynch U.S. High Yield Master II index meanwhile put up its 20th consecutive gain on Thursday, rising by 0.139%, following Wednesday's 0.322% advance. That winning streak dates all the way back to Aug. 17.

The latest gain lifted its year-to-date return to 12.165% - a new 2012 peak, bypassing the old mark of 12.01% that had just been set on Wednesday. The index is now at its highest level since the last session of 2010, when it closed out that year with a 15.19% return.

Its yield to worst meanwhile stood at 6.342%, down from the 6.386% mark seen Wednesday. Thursday's yield was also the new low yield for the year, versus the old mark set the previous session.

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