Fiesta, Tempel, Kruger price; new Ford Motor Credit actively traded; funds gain $304 million

By Paul Deckelman

New York, July 27 - The high-yield primary pricing parade rolled on Thursday, though volume levels were considerably reduced from Tuesday's nearly $8 billion of new paper and Wednesday's not-too-shabby nearly $2 billion.

For the first time in three days, there were no megadeals to match HCA Inc.'s quickly shopped and gigantically upsized $5 billion two-part offering and Reynolds Group Holdings, Ltd.'s more modestly enlarged $2.5 billion two-tranche forward calendar deal, both on Tuesday, and Wednesday's $1 billion drive-by transaction from Ford Motor Credit Co. LLC.

Thursday's market saw Fiesta Restaurant Group, Inc. serve up a $200 million issue of five-year senior secured notes, while industrial manufacturer Tempel Steel Co. added a $130 million issue, also five-year secured paper.

Canadian pulp and paper manufacturer Kruger Products LP priced an upsized C$175 tranche of seven-year notes.

When the day's new deals hit the aftermarket, both Fiesta and Tempel were seen by traders to have firmed solidly from their respective issue prices.

They likewise saw improved levels in HCA and Reynolds and some of the smaller deals that had priced earlier, such as Thursday's issue from Antero Resources Finance Corp.

Ford Credit's new bonds did not move up, but they were the most heavily traded issue of the day in Junkbondland.

Away from the new deals, while Dunkin Brands Group, Inc. has been the darling of Wall Street this week with its hot IPO, in the junk market, traders were yawning like they could use a few 24-ounce cups of the Canton, Mass.-based coffee-and-donuts chain's famous brew.

And high-yield mutual funds, considered a good proxy for overall junk market liquidity trends, notched their fourth consecutive weekly inflow in the week ended Wednesday with a $304 million gain.

Funds rise once again

As Thursday's session was wrapping up, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $303.8 million more came into those weekly reporting funds than left them.

That followed the $287 million inflow seen the week ended July 20 and was the fourth consecutive cash injection, including the stupendous $1.3 billion addition seen in the week ended July 13, which, according to data compiled by Prospect News, was the biggest inflow seen so far this year - and in more than a year.

Those three injections, plus the $884 million recorded in the week ended July 6, total $2.775 billion, according to the Prospect News figures, as the junk market continues to come back from five positively deadly weeks before that dating to June 1. During that time, a net total of some $6.259 billion left the funds over that time, according to the Prospect News data, as nervous investors pulled money out of a previously hot junk market suddenly gone cold.

For the year as a whole, inflows have now been seen in 21 weeks versus nine weeks of outflows, for a net cumulative inflow total of $4.28 billion, according to the data. That's still down from the estimated peak year-to-date level of $7.82 billion recorded in the week ended May 25.

Fund flow patterns began the new year on a roll with cash infusions totaling more than $8 billion seen over a 14-week stretch from early December through mid-March, including the more than $6 billion taken in during the first 10 weeks of this year. Then, fund flow patterns turned choppy: two weeks of declines in March totaling $1.146 billion, followed by three weeks of inflows totaling $1.78 billion and then two more weeks of outflows in late April, adding up to $190 million.

That was then followed by inflows seen over the next four weeks, totaling $1.14 billion. Those gains were then far overshadowed by the most recent string of cash losses, which was snapped by the inflows seen the past four Thursdays.

EPFR $754 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, reported a $754 million inflow to the funds in the latest week.

That gain followed a $503 million outflow the week before, which the service said was the fifth time in seven weeks that the funds it tracked had seen net redemptions.

That previous week's outflow was a rare instance of EPFR and AMG divergence - the two companies' figures generally point in the same direction, although their actual numbers typically differ markedly since they calculate their respective fund-flow totals quite differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds.

The latest week's cash gain raised the EPFR year-to-date net inflow number to around the $14.7 billion mark.

EPFR's calculations show 23 weeks of inflows so far this year, against seven outflows.

Cumulative fund flow estimates, whether from Lipper/FMI or 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. Those trends had pretty much continued into 2011, although the market hit something of a dry patch last month, from which it is now recovering.

Fiesta joins pricing party

While new issuance on Tuesday hit an amazing $7.9 billion, chiefly powered by the HCA and Reynolds' megadeals, and on Wednesday recorded a still respectable $1.85 billion, largely driven by Ford Credit, Thursday's total in the domestic dollar market was a considerably less glamorous $330 million, consisting of two tranches.

The larger of the two came from Fiesta Restaurant Group, which priced a $200 million offering of five-year senior secured second-lien notes (B2/B).

High-yield primary market sources said that the bonds priced at par to yield 8 7/8%, in the middle of pre-deal market price talk envisioning a yield between 8¾% and 9%.

The deal came to market through joint bookrunning managers Wells Fargo Securities, LLC and Jefferies & Co., Inc. and had been pitched to potential investors via a roadshow, which began last Friday and included an investor call on Monday.

Before the deal priced, a little surgery was done on the proposed indenture to remove a company option to redeem up to 10% of the notes at 103 during the 2.5-year call-protection period, the sources said.

Fiesta, which operates Hispanic-themed restaurant chains Pollo Tropical and Taco Cabana, is an indirect, wholly owned subsidiary of Carrols Restaurant Group, Inc., a Syracuse, N.Y.-based restaurant chain operator, which plans to spin Fiesta off to its shareholders before the end of the year, thus creating two stand-alone public companies.

As part of the run-up to that separation, Carrols intends to refinance its existing debt.

Proceeds from the Fiesta bond sale and a concurrent $85 million senior credit facility for another Carrols subsidiary, Carrols LLC, will be used to repurchase the parent company's $165 million of 9% senior subordinated notes due 2013 via a tender offer announced this past Friday, which will run through Aug. 18.

A portion of the proceeds will be used to repay outstanding borrowings under Carrols' existing senior credit facility.

Tempel prices at talk

The day's other deal came from Tempel Steel Co., which priced $135 million of five-year senior secured notes (B3/B).

High-yield primaryside sources said that the issue was slightly upsized from the originally planned $130 million, so that the deal - priced at a considerable discount to par - would still generate $130 million of proceeds.

The bonds priced at 97 with a 12% coupon to yield 12.829%, right at pre-deal market price talk.

The deal came to market via bookrunning manager Jefferies, following a roadshow that began on July 20.

As was the case with the Fiesta offering, covenant changes were heard to have been made while the Tempel deal was being shopped around, notably the addition of a new excess cash-flow offer provision obligating the company to make an offer to repurchase bonds at a price of 103 plus accrued interest should Tempel and its restricted subsidiaries generate excess cash flow.

That requirement would be effective only if certain other conditions were met.

Chicago-based Tempel, a privately held manufacturer of magnetic steel laminations used in the production of motors and transformers, plans to use the new-deal proceeds, plus a $30 million equity contribution from its shareholders, to refinance its existing credit facility.

Kruger upsizes Canadian deal

An informed source said that Kruger Products LP, a subsidiary of Montreal-based pulp and paper producer Kruger Inc., sold an upsized C$175 million of 8% senior notes due Aug. 9, 2018 (/B/DBRS: BB) at par on Thursday.

The deal was upsized from C$150 million and priced at a spread of 553.3 basis points over the Canadian bond curve, in line with guidance.

Scotia Capital Inc. was the bookrunner, while the co-managers were National Bank Financial Inc., RBC Capital Markets Corp., TD Securities Inc., Bank of America Merrill Lynch, CIBC World Markets Inc., Desjardins Securities Inc., HSBC Capital (Canada) Inc. and Laurentian Bank Securities, Inc.

Kruger - Canada's leading tissue products producer, with brands that include Cashmere, Purex and Scotties - will use the proceeds from the deal to refinance the company's syndicated credit facility and for general corporate purposes.

New bonds firm up

When they were freed for trading, the new Fiesta Restaurant bonds at first were not seen by traders. One did say that he heard the $200 million issue quoted as high as 102 3/8 bid, 102 7/8 offered, but said he was wary of such numbers.

However, at another desk a little later, a trader saw the issue going home at 102 bid, 102½ offered, well up from the par bid.

The trader also saw Tempel Steel's five-year senior secured notes having improved solidly from their deeply discounted 97 issue price, pegging the slightly upsized $135 million issue at 99¼ bid, 99¾ offered.

Ford is the focus

A trader said that "it looked like most of the volume" in the junk world on Thursday was in the new 5 7/8% notes due 2021, which Ford Motor Credit brought to market as a drive-by offering on Wednesday.

He saw over $70 million of the $1 billion issue trading, with the bonds having edged up by around one-quarter point to a tight 1001/4-100 3/8 context, "depending on what time of the day it is."

A second trader saw the bonds at par bid, 100¼ offered, on "pretty decent-sized trading."

The Dearborn, Mich.-based financial arm of No. 2 domestic carmaker Ford Motor Co. priced $1 billion of the notes at par on Wednesday.

Ford Credit's existing 7.8% notes due 2012 were seen up slightly, but in very brisk trading.

HCA levels healthy

As for HCA, the new bonds were the stars of the secondary market due to both the volume of their dealings as well as their higher levels.

He saw over $65 million of the Nashville-based hospital giant's 6½% senior secured first-lien notes due 2020 up by 1½ points at 101¾ bid, while its 7½% senior unsecured notes due 2022 rose by 1 3/8 points, also to the 101¾ level. Over $40 million of those bonds had traded.

HCA had priced the $3 billion tranche of 6½% notes and the $2 billion of 7½% notes both at par on Tuesday, too late for any kind of an aftermarket. On Wednesday, the bonds had firmed slightly, with a trader seeing both tranches at 100 3/8 bid, 100 5/8 offered.

HCA existing debt was again busily trading on Thursday, with its 9¼% notes due 2016 - the same notes that are to be taken out using the bond deal proceeds - up a half-point at 106¾ bid.

Reynolds rally resumes

Reynolds Group Holdings' new deal was also seen trading at better levels than the $2.5 billion issue had held on Wednesday.

A trader saw its 7 7/8% senior secured notes due 2018 at 101¼ bid, 101 5/8 offered. The New Zealand-based maker of consumer packaging products like Reynolds Wrap had priced $1.5 billion of those bonds on Tuesday at 99.268 to yield 8%, and the issue had initially shot up to 102 bid, 102½ offered, only to come down to 100¾ bid, 101½ offered on Wednesday.

The other half of that huge deal - the upsized $1 billion of 9 7/8% senior notes due 2019 - followed the same trajectory.

The company priced the deal on Tuesday at 99.318 to yield 10%, and in the aftermarket, the notes firmed to 101 7/8 bid, 102 3/8 offered. Then on Wednesday, the securities came down to 100½ bid, 101¼ offered. But the tranche was back on the upside on Thursday, seen having moved back up to 101¼ bid, 102 offered.

Antero shows improvement

A trader said that Antero Resources Finance's 7¼% notes due 2019 had moved up to 101½ bid, 101¾ offered.

The Denver-based energy exploration and production company's upsized $400 million offering priced on Wednesday at par and then firmed in the immediate aftermarket to 100¾ bid, 101¼ offered.

Market indicators stay easier

Away from the new deal arena, traders said that statistical indicators, which had weakened on Wednesday, remained easier on Thursday, once again reflecting the negative tone in equities amid the continued debt ceiling political standoff.

A trader saw the CDX North American Series 16 HY Index off marginally to end at 100 7/16 bid, 100 11/16 offered, after having fallen 9 1/16 of a point on Wednesday.

The KDP High Yield Daily Index dipped by 5 basis points on Thursday to 75.52, after it had given up 7 bps on Wednesday. Its yield rose by 2 bps for a second straight session to close at 6.66%.

And the Merrill Lynch High Yield Master II Index showed its second consecutive loss, after six sessions on the upside before that. It dropped by 0.029% on Thursday on top of Wednesday's retreat of 0.077%.

That left its year-to-date return at 6.249%, down from 6.279% on Wednesday and down also from Tuesday's 6.362%, the peak level for 2011.

A trader said that away from the trading in the new deals, at his shop, it was "dead here, very dead."

"Everyone is waiting to see what happens with the debt situation" as a key factor keeping people on the sidelines, he added.

A second trader quipped during the later afternoon: "I was off the desk for three hours and I just got back - and I don't think I missed anything."

There certainly was no excitement to be found in Dunkin Brands' 9 5/8% notes due 2018, even though the franchisor of the iconic coffee and donut shops is currently Wall Street's golden child, following the company's extremely well-received initial public offering of its shares, which soared when it began trading.

The trader said that the last trade he saw in the credit was last week around 101 bid.

"I'm seeing a couple of hundred bonds offered at 1011/2, so it doesn't look like they've jumped up or anything," he said.

Ironically, after Dunkin priced its $625 million issue of the 9 5/8% notes at 98.5 to yield 9.9% on Nov. 15, that new deal sparked a stock-like frenzy of interest among junk accounts in the days that followed, which took those bonds north of the 102 level, well above their issue price.

Cristal Cody contributed to this report

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