Quiksilver, Post lead return of dollar-deal market; overall junk firmer; funds up $12 million

By Paul Deckelman and Paul A. Harris

New York, July 11 - The high-yield primary sphere's long-lost dollar-denominated segment returned on Thursday, with new deals pricing for the first time since June 28.

Syndicate sources said that a total of $1.2 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-nation issuers came to market during the session.

The biggest deal of the day was surfing, beach and outdoor sports apparel and accessory maker Quiksilver Inc.'s $505 million two-part issue, consisting of five- and seven-year notes.

There was also a trio of quickly shopped add-on offerings to existing bond issues: $350 million from breakfast cereal maker Post Holdings, Inc., $175 million from security alarm company Monitronics International, Inc. and $100 million from British oilfield services provider Expro International Group plc via a financing subsidiary. The Post Holdings and Monitronics transactions were upsized.

Those deals all appeared late in the session and did not see any initial aftermarket dealings.

However, traders reported that there was some activity in a split-rated offering from electronics retailer Best Buy Co., Inc., which did an upsized, quick-to-market $500 million of five-year notes. They were quoted slightly below their issue price when freed for secondary dealings.

Away from the primary, traders said that the junk market continued its recent firming trend, helped by Thursday's stock market surge following conciliatory statements from Federal Reserve chairman Ben Bernanke, who indicated that the central bank would maintain a "highly accommodative monetary policy for the foreseeable future." Among the issues trading higher were recently priced bonds from Hercules Offshore, Inc. and Valeant Pharmaceuticals International, Inc. - the last junk deals to price before the recent dollar-bond drought.

Statistical market performance measures continued their higher trajectory.

However, RadioShack Corp.'s bonds gyrated around wildly on news that the underperforming electronics chain retailer was hiring financial advisers, which forced the company to issue a statement explaining its actions and assuring investors of ample near-term liquidity.

Flows of money into and out of high-yield mutual funds and exchange-traded funds - considered a reliable barometer of overall junk market liquidity trends - had their second consecutive positive week after having been clobbered over the five weeks before that, when investors had pulled billions of dollars from those funds.

AMG sees $12 million inflow

As Thursday's activity was coming to a close, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, $12 million more came into those funds than left them.

It was the second consecutive weekly gain reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., although it was far smaller than the $448.81 million cash infusion recorded the week before, which ended July 3.

That earlier inflow had snapped a string of five consecutive weekly outflows, several of which were in the billions of dollars. Those outflows totaled around $12.2 billion, according to a Prospect News analysis of the AMG/Lipper figures.

For the year so far, inflows have now been seen in 16 weeks against 12 weeks of outflows - but the huge outflows seen in June, on investor fears of an end to accommodative Fed monetary stimulus policies, tipped the year-to-date cumulative balance over to the negative side. Including the latest inflow figure, those funds have seen about $8.64 billion of net outflows since the start of the year, according to the analysis.

EPFR sees $759 million inflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime reported a $759 million net inflow number among the funds in its universe.

This too was the second straight weekly inflow that it had seen. The previous week saw a $384 million net cash injection, which had also snapped a five-week skid during which the funds EPFR tracks had hemorrhaged a total of more than $22.3 billion, according to a Prospect News analysis of the EPFR data.

On a year-to-date basis, EPFR has now recorded 20 weeks of inflows versus eight weeks of outflows, but as is the case with the AMG/Lipper numbers, the recent huge outflows completely erased what up till then had been a robust net inflow figure for the year. Including the latest inflow, EPFR's cumulative net outflow for the year to date stood at $4.46 billion, according to the Prospect News analysis.

EPFR's methodology differs from AMG/Lipper's in that its high-yield universe includes a number of non-U.S.-domiciled funds, while AMG/Lipper focuses strictly on the domestic funds. Although the two services' numbers therefore usually vary widely, their weekly results point in the same direction more often than not.

Just considering the domestic funds - a subset closer to AMG/Lipper's fund universe - EPFR saw a $498 million inflow this past week, on top of a $485 million gain last week, which had followed five straight weeks on the downside for that category as well, the analysis indicated.

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 sustained flows 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 roughly $1 trillion junk market - have 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.

It was also seen as one of the major drivers behind the robust patterns of primary activity and secondary strength that had continued for much of this year's first half. That strength faded in recent weeks on Federal Reserve-related investor worries before the nascent comeback seen in the past two weeks.

Quiksilver's dual-tranche deal

The dollar-denominated primary market saw four issuers bring a total of five tranches to raise a combined total of $1.2 billion on Thursday.

The action included a burst of drive-by deals. Three of the issuers brought quick-to-market add-ons.

Quiksilver, and QS Wholesale, Inc. priced $505 million of high-yield notes in two tranches.

The transaction included a $280 million tranche of 7 7/8% senior secured notes due Aug. 1, 2018 (B2/CCC+) that priced at 99.483 to yield 8%.

The yield printed at the tight end of the 8% to 8¼% yield talk.

In addition, the company priced a $225 million tranche of 10% senior unsecured notes due Aug. 1, 2020 (Caa2/CCC) at 98.757 to yield 10¼%.

The yield printed at the tight end of the 10¼% to 10½% yield talk.

BofA Merrill Lynch, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC were the joint bookrunners for the debt refinancing deal.

Post taps 7 3/8% notes

Post Holdings priced an upsized $350 million tack-on to its 7 3/8% senior notes due Feb. 15, 2022 (B1/B+) at 105.75.

The reoffer price, which came at the rich end of price talk that was set in the 105.5 area, rendered a 6.292% yield to worst.

Credit Suisse Securities (USA) LLC, Barclays, J.P. Morgan Securities LLC, BMO Capital Markets Corp., Goldman Sachs & Co., Nomura Securities Co. Ltd., SunTrust Robinson Humphrey Inc. and Wells Fargo were the joint bookrunners.

The St. Louis-based ready-to-eat cereal-maker plans to use the proceeds for general corporate purposes, which could include acquisitions.

Monitronics upsizes add-on

Monitronics priced an upsized $175 million add-on to its 9 1/8% senior notes due April 1, 2020 (Caa1/CCC+) at par to yield 9.118%.

The reoffer price came on top of price talk.

BofA Merrill Lynch was the left bookrunner for the quick-to-market add-on that was upsized from $150 million. Credit Suisse and Citigroup Global Markets Inc. were the joint bookrunners.

The Dallas-based alarm monitoring company plans to use the proceeds to partially fund the acquisition of Securities Networks.

Expro adds on to 8½% notes

Expro Finance Luxembourg SCA priced a $100 million add-on to its 8½% senior secured notes due Dec. 15, 2016 (B1/B) at 104.5 to yield 6.99%.

The reoffer price came on top of price talk that had richened from earlier talk of 104 to 104.25.

Goldman Sachs & Co. ran the books.

The Reading, England-based oilfield services provider plans to use the proceeds for general corporate purposes.

VUE dual-currency deal

The session also saw activity in the European primary market.

England's VUE Entertainment priced £550 million equivalent of seven-year senior secured notes (B2/B) in two tranches.

The deal included a £300 million tranche of fixed-rate notes that priced at par to yield 7 7/8%.

The yield printed on top of yield talk that was revised tighter from earlier talk of 8% to 8¼%.

In addition, the company priced a €290 million tranche of Euribor plus 525 basis points floating-rate notes at 99.5.

The spread and reoffer price came on top of revised talk. Earlier talk was Euribor plus 525 bps to 550 bps at 99.25 to 99.5.

Joint global coordinator and joint bookrunner Goldman Sachs International will bill and deliver. Morgan Stanley was also a joint global coordinator and joint bookrunner. Lloyds TSB was also a joint bookrunner.

Proceeds will be used to fund the buyout of the London-based chain of cinema operators by Alberta Investment Management Corp. and the Ontario Municipal Employees Retirement System.

Findus sets talk

Also in Europe, Sweden-based frozen food producer Findus set price talk for its restructured £410 million equivalent two-part offering of five-year senior secured notes (expected ratings B3/B-/B+).

A euro-denominated tranche targeted at €270 million to €300 million is talked to price with a yield in the 9¼% area.

A sterling-denominated tranche targeted at £150 million to £170 million is talked to yield in the 9½% area.

A proposed Swedish kroner-denominated tranche has been withdrawn.

The deal is expected to price on Friday.

Joint bookrunner JPMorgan will bill and deliver. Goldman Sachs, Nordea and SG CIB are also joint bookrunners.

American Equity returns

American Equity Investment Life Holding Co. returned to the primary market on Thursday with an upsized $400 million offering of eight-year senior notes (/BB+/BB).

An investor call is set for 9 a.m. ET on Friday, and the deal is expected to price at mid-day on the same day.

The company postponed a similarly structured $250 million offer on June 21 due to market conditions.

As before, JPMorgan has the books.

The West Des Moines, Iowa-based underwriter of annuities and life insurance products plans to use the proceeds to repay debt and for general corporate purposes.

Best Buy split-rated deal

The Thursday session also saw action in the crossover market.

Best Buy priced an upsized $500 million issue of 5% senior notes due Aug. 1, 2018 (Baa2/BB/BB-) at 99.997 to yield 5%.

The deal was upsized from $350 million.

The yield printed at the tight end of yield talk set in the 5 1/8% area.

JPMorgan, Barclays and Citigroup were the active bookrunners. RBS Securities was the passive bookrunner.

Proceeds will be used for general corporate purposes including replacing the liquidity provided by the company's $500 million of 6¾% notes due July 15, 2013, as well as for refunding, repurchasing, retiring upon maturity or redeeming other existing debt. Proceeds will also be used to provide working capital, fund capital expenditures, repurchase capital stock and make strategic investments and acquisitions.

Best Buy trades around

In the secondary market, traders said that they had not seen any immediate aftermarket dealings in the Post Holdings add-on to its 7 3/8% notes due 2022 nor any in the day's other two add-on deals from Monitronics and from Expro - and those deals were heard to have priced before the Quiksilver two-parter got done.

However, despite its split rating, there was some junk market investor interest in the new Best Buy 5% notes due 2018.

A trader declared that he "didn't see Post trade, but there was a fair amount of trading in Best Buy. In the other two add-ons, I did not see any trading."

He saw the Richfield, Minn.-based electronics retailer's new bonds at 99¼ bid, par offered, while a second junk market participant pegged the upsized $500 million issue at 99½ bid, par offered.

The quickly shopped notes had priced at 99.997 to yield 5%.

Relatively quiet secondary

"The secondary was pretty quiet," one of the traders said. About $1.5 billion total of trades had shown up on Trace by late in the afternoon, and much of that was "heavily weighted to the crossover space," the trader said.

"It was almost all [split-rated] five-Bs, with the exception of some Leap [Wireless International Inc.] paper and RadioShack."

Leap's Cricket Communications Inc. 7¾% notes due 2020 were seen having gained nearly 2 points on the day to go home at 101 bid on volume of over $19 million, making the San Diego-based pre-paid wireless service provider's notes among the day's most actively traded. There was a fair amount of smaller odd-lot trades to go along with the round-lot transactions.

Leap's notes and its shares have recently been stronger, given a boost by takeover speculation in the wake of wireless industry consolidation, including SoftBank Corp.'s deal to take control of one of Leap's larger rivals, Sprint Nextel Corp.

RadioShack roiled

While Cricket was trading up, RadioShack's paper was "getting beat up," a trader said, on news reports that the underperforming Fort Worth, Texas-based electronics retailer was seeking an adviser to help it fix its finances.

That news caused an early sell-off in its stock and also pushed its bonds lower, at which point the company said that it was in talks with investment banks "to help us evaluate ways to further strengthen our balance sheet and manage it efficiently."

It also sought to assure investors that it has ample funds on hand to meet its needs, with about $820 million on its balance sheet at the end of the first quarter.

Its 6¾% notes due 2019 - after falling as low as 66 bid, down 7 points on the session - bounced back to end off just ¼ point on the day at 73 bid, with round-lot dealings of over $14 million and considerable off-lot trading as well.

"There was considerable volatility in the bonds," the trader said.

He meantime saw RadioShack's 2½% convertible notes that are scheduled to come due just weeks from now, on Aug. 1, trading down to a 90 to 93 bid context from the mid-90s.

Recent deals firmer

A trader indicated that in line with the overall better tone seen in junk as part of both the recently improving trend and whatever help Fed boss Bernanke's soothing words may have had, some of the recently priced deals were trading up solidly on Thursday.

For instance, he saw both halves of Valeant Pharmaceuticals International's giant-sized new offering having firmed. Its 7½% notes due 2021 were up by 1 3/8 points on the day at 106¼ bid, 106¾ offered, while its 6¾% notes due 2018 jumped by 2 1/8 points to 105 5/8 bid, 106 1/8 offered.

Valeant, a Canadian specialty drug manufacturer, came to market on June 27 with a $3,225,000,000 two-part offering, which was both the first megadeal seen in the junk market in over a month and the biggest since late March.

It priced $1,625,000,000 of the 7½% notes and $1.6 billion of the 6¾% notes, both at par.

Houston-based Hercules Offshore's 8¾% notes due 2021 gained ¼ point on the session to end at 103½ bid, 104 offered.

The provider of shallow-water drilling and marine services to the oil and natural gas exploration and production industry had priced $400 million of those notes June 28 at par.

Market indicators better

Statistical junk market performance indicators were mostly higher for a third straight session on Thursday.

The Markit Series 20 CDX North American High Yield index was up by 29/32 point, to end at 105 1/32 bid, 105 3/32 offered, after having been unchanged on Wednesday.

The KDP High Yield Daily index zoomed by 43 bps Thursday to finish at 73.43 after having risen by 10 bps on Wednesday.

Its yield was meantime 14 bps lower, at 6.23%, its third straight narrowing. On Wednesday, it had declined by 3 bps.

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