Memorial Production, Athlon lead $1.5 billion primary, trade up; more signs funds lose cash

By Paul Deckelman and Paul A. Harris

New York, April 12 - The high-yield primary sphere finished out the week on Friday with another fairly active session, as four deals totaling nearly $1.5 billion came to market, according to syndicate sources.

The most notable feature was a pair of pricings out of the energy sector, as Memorial Production Partners LP did a $300 million offering of eight-year notes and Athlon Holdings LP priced an upsized $500 million of eight-year paper. Traders said that both of those deals moved up when they hit the aftermarket.

Also bringing deals during the session were construction equipment provider NES Rental Holdings Inc., with an upsized $300 million of five-year secured notes, and Macau gaming operator New Cotai LLC, with an upsized $380 million of six-year PIK notes, sold with equity interests. No immediate aftermarket was seen in the latter two deals.

The day's activity capped off a week which saw $7.6 billion of new U.S. dollar-denominated, junk-rated paper from domestic or industrialized country issuers price in 19 tranches, according to data compiled by Prospect News.

That was up from the $5.9 billion that priced in eight tranches in the previous week, ended Friday, April 5, the data indicated.

On a year-to-date basis, $102.48 billion had priced in 217 tranches by Friday's close - running almost exactly at the same pace seen at this time a year ago.

Traders said that deals which had priced earlier in the week were mostly hanging onto the gains they had notched, including Wednesday's bid two-part deal from natural gas company Sabine Pass Liquefaction, LLC. That deal was seen by some to be emblematic of a strong energy sector.

Statistical indicators of Junkbondland's secondary performance were better across the board for a third straight session on Friday - and were up all the way around versus week-earlier levels.

However, one of the major services that tracks the behavior of high-yield mutual funds and exchange-traded funds saw sizable outflows from those funds in the most recent week, confirming the previously reported assessment of another such service on Thursday. The flows of cash into and out of those funds are seen as a reliable barometer for overall junk market liquidity trends.

EPFR sees $149 million outflow

During the session, Cambridge, Mass.-based EPFR Global said that during the week ended Wednesday some $149 million more left the high-yield mutual funds and ETFs that it tracks than came into them during that time.

It was the first such outflow seen after seven straight weeks of inflows to those funds, including the $997 million cash addition which EPFR had reported the previous week, ended April 3. Net inflows during that stretch had mounted up to about $6.4 billion, according to a Prospect News analysis of the EPFR figures.

On a year-to-date basis, there have been 12 weeks since the beginning of 2013 in which EPFR has seen inflows, against three weeks in which it saw outflows. The year-to-date cumulative net inflow fell to $9.03 billion, according to the analysis.

EPFR's methodology differs from the widely followed rival fund-tracking service AMG Data Services in that it includes some non-U.S.-domiciled funds along with domestic funds, while Arcata, Calif.-based AMG, a unit of the Lipper analytics division of ThomsonReuters Corp., tracks only the latter category. Despite the different methods, the two services' figures generally point in the same direction.

During Thursday's session, AMG/Lipper had reported net outflows from the funds it tracks of $78.6 million, the first outflow seen after three consecutive inflows totaling about $267 million, according to a Prospect News analysis of the Lipper data. On a year-to-date basis, Lipper had seen nine weeks of inflows against six weeks of outflows, with the year-to-date net inflow total falling to about $804 million.

EPFR meanwhile also said that in the latest week, the strictly domestic funds it tracks - a category more closely comparable to the Lipper fund universe - had seen outflows of $365 million, breaking a string of six consecutive inflows totaling around $3.2 billion.

On a year-to-date basis, the cumulative net inflow figure for those U.S.-only funds had fallen to about $2.4 billion, with inflows having been seen in eight weeks so far this year and outflows in seven, according to the Prospect News analysis .

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.

The continued flow of fresh cash into junk - and the mutual funds and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of investor money coming into or leaving the junk market - has been seen by analysts as a key element behind the high yield secondary sphere's strong performance last year versus other fixed-income asset classes, and its record active new-deal pace, which easily topped the $350 billion mark - patterns of primary activity and secondary strength which have mostly continued into the new year, so far.

Athlon upsizes, prices inside talk

Despite the slippage in stock prices on Friday, the demand for new high-yield issues remained absolutely firm, sources said.

"Right now deals are pricing rich and trading to slight premiums," a portfolio manager said.

So it seemed to be during the busy Friday session which saw four issuers bring single-tranche deals, raising a combined total of $1.48 billion.

Athlon Holdings LP and Athlon Finance Corp. priced an upsized $500 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 7 3/8%.

The deal was upsized from $400 million.

The yield printed 12.5 basis points inside of the 7½% to 7¾% yield talk.

Shortly after final terms were announced, the deal was at 101 5/8 bid, according to a trader.

"Everything is doing well, whether it's up a quarter of a point or two points," the source remarked, adding that demand for new issues remains extremely strong.

The trader added that Thursday's news, that high-yield mutual funds saw $78.6 million of outflows according to a weekly report from Lipper-AMG, seems inconsequential in that cash continues to flow in from sources other than mutual funds and exchange-traded funds. These sources range from coupon payments and redemptions, to market participation by investors not covered by the fund flow trackers.

As to Friday's Athlon deal, joint physical bookrunner BofA Merrill Lynch will bill and deliver. Wells Fargo was also a joint physical bookrunner.

Credit Agricole, Credit Suisse, RBC and UBS were the joint bookrunners.

The Fort Worth, Texas-based independent exploration and production company plans to use the proceeds to repay a portion of its outstanding debt, fund a return of capital to shareholders and for general partnership purposes.

Cotai prices PIK notes

Elsewhere on Friday, New Cotai, LLC and New Cotai Capital Corp. priced an upsized $380 million issue of non-rated 10 5/8% six-year senior PIK notes with attached equity interests at par.

The coupon printed on top of coupon talk.

The equity interests come to a total of 1,520 class B shares of New Cotai Participation Corp., representing a membership interest of 7.4%, an amount that was upsized from 7%.

Credit Suisse was the bookrunner.

As reported, affiliates of the company will purchase $140 million of the securities.

The gaming company, which operates in Macau, plans to use the proceeds to partially fund equity commitments to the Macau Studio City project.

NES Rentals upsizes

NES Rentals Holdings priced an upsized $300 million issue of five-year senior secured second-lien notes (Caa2/CCC+) at par to yield 7 7/8%.

The yield printed at the tight end of yield talk set in the 8% area. The amount was increased from $275 million.

Deutsche Bank Securities Inc. and Wells Fargo Securities LLC were joint bookrunners.

The Chicago-based construction equipment rental company plans to use the proceeds to refinance its 12¼% second-lien senior secured notes due April 2015.

Memorial at a discount

Memorial Production Partners LP and Memorial Production Finance Corp. priced a $300 million issue of 7 5/8% eight-year senior notes (Caa1/B-) at 98.521 to yield 7 7/8%.

The yield came at the tight end of yield talk set in the 8% area. The reoffer price came in line with discount talk of approximately 1.5 points.

Wells Fargo was the left bookrunner. J.P. Morgan, Barclays, BofA Merrill Lynch, Citigroup and RBC were the joint bookrunners.

The Houston-based energy partnership plans to use the proceeds to repay revolver debt.

Slim calendar

Heading into the weekend the active forward calendar was thin.

However new issue activity is expected to remain vigorous, sources say.

Heading into the April 15 week, Japan's SoftBank Corp. is expected to continue roadshowing its $2 billion equivalent offering of split-rated non-callable seven-year senior notes (Baa3/BB+).

The deal includes a dollar-denominated tranche and a euro-denominated tranche.

Deutsche Bank is the left bookrunner for both tranches.

Right bookrunners for the dollar denominated tranche include BofA Merrill Lynch, Barclays, Credit Agricole, Mizuho, Morgan Stanley and Nomura.

Right bookrunners for the euro-denominated notes include Barclays, Credit Agricole, Mizuho and Nomura.

Proceeds will be used to help fund the acquisition of Sprint Nextel Corp. and for general corporate purposes, as well as to refinance existing debt.

Energy deals trade higher

In the secondary market, a trader said that Memorial Production Partners' new 7 5/8% notes "took a nice little jump" when they began trading around. He quoted the paper at 101½ bid, 101¾ offered - a respectable enough gain had it started from a par issue price, but even better since the Houston-based energy partnership's transaction had come to market well below par, at 98.521.

The day's other energy-related deal, from Fort Worth, Texas-based exploration and production operator Athlon Holdings, was also seen better, at 101 bid, although the trader said that he had not seen any offerings. Those notes priced at par.

"They came, and they shot right out of the gate at par, and minutes later, they were already 101 bid, the trader said. He added that although he had not seen an actual right-side level, it was reasonable to estimate that it might be around the 102 Mark.

Cotai, NES trading no-shows

A trader said that he had not seen any immediate aftermarket dealings in New Cotai LLC's 10 5/8% senior PIK notes. The Macau-based gaming company had priced that paper at par.

He also did not see any immediate aftermarket levels in NES Rental Holdings' 7 7/8% senior secured notes.

Earlier deals hold gains

Among deals which had priced earlier in the week, a trader saw VeriSign Inc.'s 4 5/8% notes due 2023 at 101 bid, 101 3/8 offered. A second trader pegged those bonds at 101 bid, 101½ offered.

That was around where the Reston, Va.-based internet infrastructure company's $750 million issue had traded up to on Thursday. It had priced earlier that session at par after having been upsized from an originally announced $600 million.

A trader said that Taylor Morrison Communities Inc.'s 5¼% notes due 2021 was at 101 bid, although he didn't see a right side there. However, a second traded did see the Scottsdale, Ariz.-based homebuilder's $550 million drive-by offering at 101½ bid, 102 offered, which he called up ½ point on the session. Those bonds had priced at par on Thursday after having been upsized from $500 million originally.

The week's star secondary performer - Wednesday's $1.5 billion two-part transaction from Houston-based liquid natural gas company Sabine Pass Liquefaction - was seen holding on to most of the solid gains it had initially notched in the aftermarket when it began trading on Thursday.

A trader saw a Friday level on its $500 million add-on to its 5 1/8% senior secured notes due 2021 at 103¼ bid, 104 offered. That was down from Thursday's quoted levels as high as 104 1/8 bid, 104½ offered, but still up from the 102.5 level where that tranche had priced to yield 5.229%

The other half of that big, quickly shopped deal - the $1 billion of new 5 5/8% notes due 2023 - traded Friday at 102 bid, 102½ offered, pretty much around where the bonds had gone home on Thursday. They had priced on Wednesday at par.

As had been the case on Thursday, a trader said that Friday saw "very good volume" in the Sabine issue.

"It was very active. There were pages and pages of broker runs."

Market indicators stay strong

Overall, statistical junk performance indicators were higher all around for a third consecutive session on Friday, and were also up across the board from their closing levels a week earlier, on Friday, April 5.

The Markit Series 20 CDX North American High Yield Index was up by 1/32 point on Friday to end at 104½ bid, 104 9/26 offered. It was its seventh straight gain, having risen by 7/32 point on Thursday.

The index also topped the 103 9/32 bid, 103 13/32 offered level at which it had finished the previous Friday.

The KDP High Yield Daily Index, meanwhile rose by 3 basis points to end at 75.79, its third consecutive gain. On Thursday, it had been up by 6 bps.

And its yield came in by 2 bps on Friday for a second consecutive session, ending at 5.40%. It was the third straight day the yield has fallen.

Those levels compared favorably with a week-earlier index reading of 75.61 and a yield of 5.49%.

The widely followed Merrill Lynch High Yield Master II index posted its fifth consecutive advance on Friday, rising by 0.072%, on top of Thursday's 0.218% gain.

That lifted its year-to-date return to 3.71%, its fifth consecutive new peak level for 2013. The old 3.636% mark had just been set on Thursday.

The index was up by 0.676% on the week, its ninth straight weekly gain.

Last week, it had a one-week gain of 0.158% and ended the week with a year-to-date return of 3.014%.

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