Host Hotels prices, rises; EarthLink slates; Albaugh, Heckler & Koch await; funds up

By Paul Deckelman and Paul A. Harris

New York, May 5 - Host Hotels & Resorts, LP checked in at the Junkbondland Inn on Thursday with an upsized $425 million offering of eight-year notes, which priced at a discount to par. When the new bonds were freed for secondary dealings, traders saw them rise modestly.

It was the only pricing of the day in the domestic junk market, although traders noted that Chinese energy operator MEI Holdings Corp. brought a $400 million five-year deal to market, although they did not see any aftermarket in it.

Investor expectations that U.S. Foodservice, Inc. might price its $400 million eight-year deal came to naught, even though price talk on the prospective issue had circulated on Wednesday and books were scheduled to close early Thursday afternoon. As of press time Thursday night, it still had not appeared and was being regarded as Friday business.

Also expected to price on Friday were agricultural chemicals company Albaugh Netherlands BV with $300 million of seven-year notes and German gunsmith Heckler & Koch GmbH, bringing a €290 million two-tranche offering of dollar- and euro-denominated seven-year secured notes.

The forward calendar, meantime, grew as internet service provider EarthLink Inc. began shopping around a $400 million issue of eight-year notes.

High-yield mutual fund flow numbers, thought of as a good proxy for overall junk market liquidity trends, recorded their first gain in three weeks.

Funds gain $315 million

As the session was winding down, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $315.2 million more came into those weekly reporting funds than left them.

It was the first gain after two straight weeks of losses totaling some $190 million - the $186.3 million outflow recorded in the week ended April 20, followed by a $4 million easing in the week ended April 27. Those two downturns had, in turn, broken a three-week winning streak dating to late March, during which time net inflows had totaled $1.78 billion, according to a Prospect News analysis of the figures.

The latest inflow raised the year-to-date cumulative inflow total to $6.995 billion, a new peak level for 2011 so far. It was up from the previous week's $6.68 billion figure and up as well from the previous peak of $6.87 billion seen in the week ended April 13, the analysis said.

With 18 weeks gone in the year, there have now been 14 inflows recorded against just four outflows.

Fund-flow patterns began the new year on a roll - cash infusions totaling more than $8 billion were 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. Since then, however, fund-flow patterns have been choppy: two weeks of declines in March totaling $1.146 billion, followed by the three weeks of inflows and then two weeks of outflows, as noted, and then the latest week's inflow.

EPFR sees $754 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG, meantime reported a $754 million inflow in the latest week, the sixth straight gain by the agency's calculations.

That followed a cash addition of $606 million in the week ended April 27.

The latest week's cash infusion lifted the year-to-date net inflow number over the $20 billion mark from the previous week's $19.39 billion, EPFR said.

The latest week marked a return to the usual pattern of AMG/Lipper's numbers and EPFR's figures pointing in the same direction, although their figures differ since they calculate their respective fund-flow totals differently. EPFR includes results from some non-U.S. domiciled funds as well as the domestic funds. Over the two previous weeks, there was a relatively rare divergence between the two services, with AMG reporting outflows in both of those weeks and EPFR recording inflows.

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. Both of those trends have been pretty much continuing in 2011 as well.

Host Hotels upsizes

Issuance remained south of the $1 billion mark for the second consecutive session on Thursday as two junk issuers, each bringing a single tranche, raised $822 million.

In Thursday drive-by action, Host Hotels priced an upsized $425 million issue of 5 7/8% eight-year series W senior notes (Ba1/BB+) at 99.198 to yield 6%.

The yield printed at the tight end of price talk, which had been set in the 6 1/8% area.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc., Goldman, Sachs & Co. and J.P. Morgan Securities LLC were the joint bookrunners for the deal, which was upsized from $350 million.

Proceeds will be used to redeem all $250 million of the company's 7 1/8% series K senior notes due 2013, as well as to repay $50 million of bank debt and for general corporate purposes.

MIE prices on top of talk

Meanwhile, in a deal market via an investor roadshow, China's MIE Holdings priced a $400 million issue of five-year notes (/B+/) at par to yield 9¾%, on top of price talk.

Bank of America Merrill Lynch and Deutsche Bank were the bookrunners.

Talking the deals

Looking ahead to the Friday session, Albaugh Netherlands firmed up the size of its deal at $300 million and talked the offering of seven-year senior notes (B3//BB-) with a 9 5/8% to 9¾% yield.

The deal, which has been presented to both high-yield and emerging markets accounts, is expected to price on Thursday.

J.P. Morgan Securities LLC is the global coordinator. Citigroup Global Markets and Wells Fargo Securities LLC are the joint bookrunners.

Elsewhere Germany's Heckler & Koch talked both the dollar- and euro-denominated tranches of its €290 million-equivalent offering seven-year senior secured notes (Caa1/CCC+) with a yield in the 9¾% area.

That deal is also set to price on Friday.

Citigroup Global Markets has the books.

EarthLink brings $400 million

EarthLink will begin a roadshow on Friday for its $400 million offering of eight-year senior notes.

Deutsche Bank Securities Inc., Bank of America Merrill Lynch and Credit Suisse Securities (USA) LLC are the joint bookrunners.

The Atlanta-based Internet service provider plans to use the proceeds to redeem its 3.25% convertible notes and for general corporate purposes.

Host a little higher

When Host Hotels & Resorts' upsized new eight-year drive-by deal was freed for secondary dealings, a trader saw the bonds opening on the break offered at 993/4, with no left side.

A second trader saw early two-sided markets in the deal at 99¼ bid, 100¼ offered, "but then they tightened up a little bit" to 99 5/8 bid, 99 7/7 offered.

By the day's end, the new Host bonds had "moved up a little bit," another trader said, pegging them at 99¾ bid, 100¼ offered.

Host was the day's only domestic junk deal to price and the only new deal of any kind seen in the junk market. Several traders commented on how the MEI Holdings $400 million issue of 9¾% notes due 2016 had priced at par, but none saw any domestic aftermarket trading in the Chinese oiler's new bonds.

Seagate seen higher

Traders noted that Seagate HDD Cayman's $600 million issue of 7% notes due 2021 had moved up from levels they held on Wednesday after pricing at par earlier that day.

One declared that the Scotts Valley, Calif.-based computer hard-drive manufacturer's new deal "did well, up very nicely from [Wednesday] night." He saw the bonds at 101 1/8 bid, 101 3/8 offered.

During Wednesday's initial dealings in the quickly shopped issue, the bonds had broken at 100¼ bid and moved up to around 100 3/8 bid, 100 5/8 offered by day's end.

A second trader saw the bonds trading around 101 1/8 bid, 101¼ offered earlier in the day on Thursday and saw them go home at 101 bid.

"There was a lot of trading this morning" in the new Seagates, said yet another trader, who saw them finishing Thursday at 101¼ bid, 101 ½ offered.

No miracle for Milagro

A trader proclaimed that Milagro Oil & Gas, Inc.'s 10½% senior secured notes due 2016 "didn't do spectacular."

He saw the Houston-based energy production company's $250 million deal right around the 97¼ bid level, not far from the 97.182 at which the bonds had priced on Wednesday to yield 11½%.

In Wednesday's aftermarket, the bonds had traded around 97½ bid, 98½ offered. Then on Thursday morning, the trader saw the bonds trading around 98 3/8 bid. "A couple guys hit that 7 3/8 bid - I'm assuming it's the manager covering a short."

A second trader said that the new Milagro bonds "never got much further out of the range" at which they had traded on Wednesday. He saw them finishing Thursday at 97¼ bid, 97½ offered and theorized that "it will be interesting to see where this one goes, with what's happened to the price of oil."

On Thursday, crude oil futures plunged by $9.44 per barrel, or 8.6%, to end under $100 on the New York Mercantile Exchange for the first time since March, with investors spooked by fears of slowing fuel demand in a U.S. beset by a still-sluggish economy.

West Texas Intermediate crude for June settled at $99.80 per barrel - the lowest settlement since March 16.

The latest drop brought the week's loss for oil to $14.13, or 12.4%.

Charter churns around

A trader said he saw "a lot" of Charter Communications Inc.'s new 6½% notes due 2021 trading on Trace during Thursday's session.

He saw the bonds trading in the 993/4-99 7/8 area, which he called "off a tad" from previous levels with "a lot of bonds trading.

"We were seeing the market generically off a quarter, so this thing being kind of a bellwether issue, being down one-quarter to one-eighth of a point sounds reasonable."

Charter, a St. Louis-based cable and broadband operator, priced $1.5 billion of the bonds - massively upsized from the originally announced $1 billion size - on Monday. The bonds priced at par, but in the words of one trader, "never were able to get out of their own way," trading all week no better than par and usually a little below that issue price.

On Thursday, a second trader was quoting them at 99 5.8 bid, 99 7.8 offered.

Secondary indicators lower

Away from the new issue realm, a trader saw the CDX North American Series 16 HY index fall back by three-sixteenths of a point on Thursday to end at 102 5/8 bid, 102 7/8 offered, after having retreated by one-quarter of a point on Wednesday.

The KDP High Yield Daily Index meantime dropped by 5 basis points Thursday to finish at 76.20, after having rallied by 10 bps on Wednesday. Its yield rose by 2 bps to 6.42% on Thursday, after having declined by 4 bps Wednesday.

However, the Merrill Lynch High Yield Master II Index notched its 12th consecutive upturn on Thursday - albeit a very small one - gaining 0.002% on top of Wednesday's 0.063% rise. That bumped its year-to-date return up to 5.701%, a new peak level for the year, from Wednesday's 5.7%, the previous zenith.

Advancing issues and decliners were virtually even on Thursday after six straight sessions during which the advancers had led, though sometimes by only a handful of issues out of the more than 1,300 traded. Overall market activity, as measured by dollar-volume levels, rose for a third straight day from the previous session's totals.

Despite that nominal rise in activity levels, a trader opined that he felt "almost like we're on a summer vacation."

Market participants, he said, "seemed to have their heads elsewhere. They were watching oil, watching silver, or watching whatever other ceremonies there were."

The excitement, he said, ironically "is simply overwhelming," adding that he had taken to "drinking coffee in the afternoon" just to stay awake.

"Other than keeping an eye on the new deals," a second trader said, "people were searching around for interesting ideas." But he said they weren't finding too many of them.

Another trader said: "For the most part, things are lower," calling them down anywhere from one-half of a point to a full point and characterizing the market as "blah" and "boring."

Harrah's gives up gains

Among specific names, after gaining ground in the previous session on the back of news regarding an amend and extend, Caesars Entertainment Corp's bonds - the Las Vegas-based casino giant formerly and better known as Harrah's - gave back a little Thursday.

A trader called the 10% notes due 2018 down "maybe half a point" at 94½ bid, 95 offered.

Another trader said the 10s were unchanged at 94 bid, 95 offered, though he saw "a lot of volume today as well" on top of its busy activity earlier in the week.

The 11¼% notes due 2017 were pegged around 114 bid, which he called "modest trading, not much."

At another desk, a trader also saw the latter bonds at 114, calling that down one-quarter point, on about $5 million of volume.

He saw the 10s down three-eights of a point at 94½ on heavy volume of some $30 million.

As for the rest of the bonds in the capital structure, he said that, collectively, they were just "a couple million" with no change in trading levels.

The company's bonds had risen Wednesday after it said that it was seeking to amend its credit agreement to extend the maturities.

Stephanie N. Rotondo contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.