Molycorp, Kaiser, Mastro's deals cap $4.7 billion week, Intelsat up; funds show big loss

By Paul Deckelman and Paul A. Harris

New York, May 18 - The high-yield primary market finished the week Friday by pricing a trio of deals, while losing another prospective offering from the forward calendar.

Molycorp Inc. priced $650 million of eight-year notes, while Kaiser Aluminum Corp. also did an eight-year deal with an upsized $225 million.

Besides those scheduled forward-calendar deals, Mastro's Restaurants LLC cooked up a quick-to-market $102 million offering of five-year hybrid cash-pay/PIK notes.

All three offerings priced at par, but were not seen trading around afterward.

The day's nearly $1 billion of new paper put the cap on a moderately busy week in which new issuance was estimated at $4.7 billion in 11 tranches, according to data compiled by Prospect News. That was well short of the $8.4 billion that came to market in 17 tranches the previous week ended May 11.

The coming week's new-deal pipeline lost a name, high-yield syndicate sources said, with Harland Clark Holding Corp. reportedly deciding to postpone a planned $295 million offering.

Traders saw some upside in the new deals from Frontier Communications Corp. and Momentive Performance Materials Corp., which priced Thursday.

The traders described the overall secondary market away from the new deals as largely featureless; even the busy Chesapeake Energy Corp. calmed substantially.

Its place was taken by Intelsat Global SA, whose bonds firmed on the news of the satellite communications company's upcoming initial public stock offering.

Statistical market performance measures were seen down both on the session, and on the week as a whole.

Junk players noted a steep revision in the high-yield mutual fund-flow numbers that circulated in the market Thursday. What was originally considered a modest inflow was revised to show a sizable outflow.

Inflow becomes an outflow

On Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics compiled by Thomson Reuters' Lipper/FMI division originally reported that the widely followed number - seen as a reliable gauge of overall junk-market liquidity trends - showed a fifth consecutive inflow of $182 million in the week ended Wednesday.

But on Friday, market sources heard that Arcata, Cal.-based AMG radically revised that, turning the inflow into a $689 million outflow.

The company said that its initial number did not take into consideration a huge outflow that took place Thursday, May 10, from an exchange-traded fund run by State Street Corp., the SPDR Barclays Capital High Yield Bond ETF.

Lipper estimated the size of that redemption at $870 million; other news accounts estimated it to be at least $780 million.

Despite the size, whether that transaction actually constitutes a fund outflow in the traditional sense remains to be determined.

According to news reports, an unidentified institutional investor who built a position in the SPDR fund over a period of weeks redeemed those accumulated ETF shares. The investor did not take cash, but did so in an exchange for the underlying bonds making up the Barclays index that the fund mimics.

According to the reports, analysts and other experts were regarding this not a run-of-the-mill redemption, but as an unusual strategy by the anonymous investor to obtain a large holding of bonds without actually going into the junk market and buying them outright, thus causing price levels to change.

On Thursday, a Lipper/AMG competitor, Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from Lipper, reported a $433 million outflow from the junk funds for the week. But in an advisory to its clients, it cautioned that given the known circumstances of the big SPDR redemption, this outflow from this ETF was not a true outflow from the high-yield asset class, but a shift from owning the bonds via the ETF to owning the bonds directly.

With AMG/Lipper now counting the past week as an outflow, that would be the second such cash loss from the junk bonds this year, against 18 weeks of inflows since the start of the year.

The new outflow accordingly brings the cumulative net inflow for the year down to an estimated $17.71 billion, according to a Prospect News analysis for the figures, down from the previous week's $18.46 billion, the peak level so far in 2012.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper 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 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. That also continued to be the driver behind 2011's near-record issuance.

Those fund flows also are 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.

Molycorp prices $650 million

The high-yield market remained choppy Friday, sources said.

In the primary, that choppiness manifested itself in executions that saw wide pricings and at least one deal postponed.

All told, three issuers priced single-tranche dollar-denominated deals raising a combined total of $977 million.

Molycorp priced a $650 million issue of eight-year senior secured notes (B2/B) at par to yield 10%.

The yield printed 25 basis points beyond the wide end of the 9 ½% to 9 ¾% yield talk.

Morgan Stanley and Credit Suisse were the joint bookrunners for the acquisition deal.

Kaiser prices at wide end

Kaiser Aluminum priced an upsized $225 million issue of eight-year senior notes (Ba3/BB-) at par to yield 8¼%, at the wide end of the 8% to 8¼% yield talk.

J.P. Morgan Securities LLC ran the books for the general corporate purposes deal.

Mastro's does drive-by deal

The day's only deal to price in line with price talk came in the form of a drive-by from Mastro's Restaurant, which priced a $102 million issue of five-year senior secured notes (expected ratings Caa1/B-) at par to yield 12%.

The notes pay a 12% cash coupon. In addition, the notes will pay a 3% PIK coupon until the first interest payment date as of which the adjusted last 12 months consolidated cash flow for the two most recently completed consecutive fiscal quarters is at least $20.4 million.

Jefferies & Co. Inc. ran the books for the debt-refinancing deal.

Allied sells seven-year notes

In the Canadian high-yield market, Allied Nevada Gold sold C$400 million of 8¾% seven-year senior notes (B3/B/) at 98.716 to yield 9%.

The yield printed at the wide end of the 8¾% to 9% yield talk.

The notes were sold on a bought deal basis with the coupon set at 8¾% on Wednesday and the bonds were allocated Friday.

Scotia Capital Inc. and GMP Securities LP were the underwriters.

The proceeds will be used to fund the company's expansion of its Hycroft Mine in Nevada and for general corporate purposes.

Harland Clarke postpones

The market buzzed with reports of deal postponements Friday.

However, in most cases the bookrunners and issuers remained tight-lipped.

When the dust cleared, only one official deal postponement surfaced.

Harland Clarke Holdings postponed its $295 million offering of seven-year senior secured notes due to market conditions, according to a document that the company filed Friday with the Securities and Exchange Commission.

Credit Suisse, Citigroup, Bank of America Merrill Lynch, Deutsche Bank, Jefferies, UBS and Natixis were the joint bookrunners.

The proceeds were earmarked to repay debt.

Apart from Harland Clarke, there were no announcements on deals that were expected to price before Friday's close.

The list includes HudBay Minerals Inc., Generac Power Systems Inc., Consolidated Communications and QR Energy, LP.

Late Friday, primary-market watchers were pushing these deals into the week ahead when the dealers will be sizing up the market, looking for signs that the volatility is subsiding.

One deal tip, a rather dubious one, came from a buyside source who said the $325 million LBO financing deal from Wolverine Healthcare Analytics was expected to hit the market Monday.

J.P. Morgan, Bank of America Merrill Lynch, Morgan Stanley and UBS are leading the deal, which is comprised of eight-year senior notes (Caa1/CCC+).

But given the continued turbulence Friday, plans to bring that deal Monday are no doubt under review, the buysider said.

A syndicate banker agreed.

"You don't expect anybody to bring a deal on Monday when things are like this," the official said.

Friday deals a no show

Traders saw no aftermarket dealings Friday in any of the three deals priced during the session.

While Molycorp's $650 million of 10% notes due 2020 was certainly liquid enough, it came too late in the session for any kind of meaningful secondary action.

A trader dismissed the Mastro's Restaurants five-year deal, at $102 million, as the kind of smallish deal that probably would not see much trading. He said that while Kaiser Aluminum's upsized $225 million offering might trade around, there was nothing happening Friday.

Frontier firms in heavy trades

Among the deals that priced Thursday, a trader said Frontier Communications 9¼% notes due 2021 were hugely busy, estimating that at least $66 million of the Stamford, Conn.-based telecommunications company's new paper changed hands Friday, making it the busiest credit in Junkbondland.

He saw those bonds trading at bid levels between 100½ and 101, up from the par level at which the $500 million issue priced Thursday.

"They traded busily all day," a second trader said, figuring over 70 trades in the new bonds.

He said the bonds, which on Thursday were quoted late in the session at 101 bid, got as good as 101½ bid, 101 5/8 offered. "But then they faded later on a little," the trader said, going home around 100¾ offered.

At another desk, a trader called them "a little better" than their issue price, at 100¾ bid, 100 7/8 offered.

Momentive moves up

Traders also saw better levels for Momentive Performance Materials' new 10% senior secured notes due 2020.

The Columbus, Ohio-based manufacturer of specialty chemicals and materials used in electronics and other industries, priced $250 million of those bonds at par on Thursday, after downsizing the deal from the originally planned $450 million and from the $500 million to which it was enlarged on Wednesday.

The bonds were seen holding at levels below their issue price during initial aftermarket dealings, circulating north of 99 bid. But by Friday, they were doing a little better, a trader said, pegging the new issue at 100 1/8 bid, 100¼ offered.

"They traded up, got a little boost," another trader said, locating the bonds around a par- to 100 3/8-context.

No altitude for AerCap

Thursday's third deal, the Netherlands-based AerCap Aviation BV's $300 million of 6 3/8% notes due 2017, did not fare as well in the secondary.

While the aircraft leasing company's bonds traded near their par issue price Thursday, market participants saw them slightly easier on Friday, with one calling them 99½ bid, 99¾ offered.

A second saw the bonds at 99¼ bid, par offered.

A featureless day

Away from the new deals, a trader said, "Nothing much was going on."

"People were all just sitting around waiting for Facebook," a trader said, referring to the first day of trading for the stock from the social networking giant's IPO, which priced Thursday.

"The market tried to get better in the morning, but then it faded," one trader said.

A second called the latter part of the session "an ugly afternoon."

Junk followed the downside lead of stocks. The new Facebook shares especially gave up their hefty early gains and ended up just a little better from their opening price. It certainly was nothing like the triumphant march higher that Wall Street was expecting from the long-anticipated deal.

Indicators off on day, week

Statistical indicators of market performance closed lower for a sixth consecutive session on Friday and were below their week-earlier levels for a second straight time.

The Markit Group CDX North American Series 18 High Yield Index fell by 3/16 point on Friday to close at 91 5/8 bid, 91 7/8 offered, after having dropped by 9/16 point for each of the two previous days. It was the sixth consecutive loss and the 11th loss in the last 12 sessions for the index.

The index also was well down from its week-earlier level at 94¾ bid, 95 1/8 offered.

The KDP High Yield Daily Index meanwhile plunged by 25 basis points Friday to end at 72.66, after having nosedived by 56 bps Thursday. It was its sixth straight loss. Its yield rose 6 bps to 6.98%, after having ballooned upward by 23 bps on Thursday.

Those levels compare unfavorably with the previous Friday's late level at 74.06, with a 3.67% yield.

And the widely followed Merrill Lynch U.S. High Yield Master II Index fell by 0.32% on Friday, its fifth straight loss, coming on the heels of Thursday's 0.645% retreat.

The latest downturn left its year-to-date return at 5.108%, down from 5.445% on Thursday and well down from the peak level for 2012 of 6.80% so far, which was set May 7.

Friday's finish was the lowest since April 16, when it went home at 5.004%.

For the week, the index lost 1.55%, its second consecutive week-by-week drop.

In the week ended May 11, the index lost 0019% to finish at 6.762%.

Intelsat up on IPO

Among specific names, traders said that Intelsat, the Luxembourg-based satellite communications company, was flying high on Friday, given a boost by news that it will soon be pursing an initial public offering.

"There was a lot of trading" in the company's Intelsat Bermuda Ltd.'s 11¼% notes due 2017, a trader said; in fact, it was one of the most heavily traded junk bonds of the day with more than $33 million changing hands.

A trader said the bonds traded around par earlier in the week, then traded as low at 98 on Thursday.

"They faded with the market - but then they bounced back on the IPO," he said, seeing the issue going out about 100¾ bid. "That's reason enough for them to go up."

The company's 11½% notes due 2017 followed a similar trajectory; its notes were seen rebounding from recent lows to close at 101 bid Friday, on volume of $22 million.

Chesapeake calms down

For the first time in any number of days, Chesapeake Energy's bonds were not among the junk market's volume leaders, barely even making the Top 20, let alone the Top Five, a trader said.

"They kind of settled down," he declared. He said the Oklahoma City-based natural gas company's 6 5/8% notes due 2020 saw about $12 million of the notes changing hands.

He also saw the bonds up ¾ point, at 90¼ bid.

A second trader saw the bonds trading in a 90¾ bid, 91 offered range.

Chesapeake's secured 7 5/89% notes due 2013 traded at 100¾ bid, on volume of $123 million.

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