American Gilsonite prices to close out $10 billion week; new ServiceMaster posts solid gains

By Paul Deckelman and Paul A. Harris

New York, Aug. 17 - Friday brought a relatively quiet end to a busy week, with one deal - from mining concern American Gilsonite Co. - as the day's sole pricing. After that $260 million five-year secured deal priced, it was not seen around in the aftermarket.

That deal put the cap on a week which saw $10.36 billion of dollar-denominated, purely junk-rated paper price in 18 tranches, according to data compiled by Prospect News - busy, but down somewhat from the $13.23 billion of new bonds that come to market in 22 tranches the week before, the second-busiest week so far this year in terms of volume, according to the data.

On a year-to-date basis, $208.46 billion of new junk paper in 435 tranches had priced by the week's end - less than 1% behind the year-earlier pace of $210.48 billion that had priced in 468 tranches by this point on the calendar. At the end of last week, new-issuance was running about 5% behind a year earlier.

Traders said there was not much going on in the market, save for trading in the new ServiceMaster Co. eight-year notes which priced on Thursday, replacing the same company's earlier issue which had priced just last week, but which was terminated. While that earlier issue had done poorly in the secondary market, the new deals was seen to have firmed smartly both Thursday and again on Friday.

Other new deals were seen to have stayed around the levels at which they had traded on Thursday, such as the new five-year notes from Unisys Corp., which had risen sharply in initial aftermarket dealings and then stayed up there on Friday.

Statistical measures of junk market performance were mixed for a second consecutive session, and were also mixed versus year-earlier levels.

But there was continued evidence of favorable liquidity conditions in the market.

EPFR sees $990 million inflow

EPFR Global, a Cambridge, Mass.-based service that tracks the flows of money into and out of high-yield mutual and exchange-traded funds, reported that in the week ended Wednesday $990.2 million more came into those funds than left them.

It was the 10th consecutive week in which the funds - which are considered a reliable barometer of overall junk bond liquidity trends - had showed a net inflow. The week before, ended Aug. 8, EPFR reported a $1.8 billion cash infusion.

On a year-to-date basis, the service has seen inflows in 28 weeks, with just five weeks of outflows, most of them recorded during a stretch from mid-May through early June.

Counting just the weekly-reporting funds, the inflows since the start of the year have totaled $34.5 billion. Including in those funds which report on a monthly basis, rather than weekly, total 2012 inflows in the latest week come to $50.5 billion, EPFR said.

The EPFR figures confirm a trend of continued cash coming into the junk market place that was also reflected in statistics compiled by the other major fund-tracking service, Arcata, Calif.-based AMG Data Services, a unit of Thomson Reuters' Lipper analytics division. On Thursday, market participants familiar with those numbers said that in the week ended Wednesday, $378 million more came into the high-yield mutual funds and ETFs that Lipper tracks, also a 10th consecutive week of inflows, although it was down from the $809 million inflow seen the week before.

On a year-to-date basis, Lipper has seen an estimated $28.1 billion of net inflows, according to a Prospect News analysis of those figures.

EPFR and Lipper use different methodologies to track fund flows, resulting in significantly different numbers - but the basic direction for the two services is generally the same.

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.

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 successive record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's strong performance so far this year versus other fixed-income asset classes, and its active new-deal pace.

American Gilsonite at 11½%

Friday passed in typical late-summer fashion in the primary market, with just a single deal pricing.

On the heels of its investor roadshow, American Gilsonite priced a $260 million issue of five-year senior secured notes (B3/B) at par to yield 11½%.

The yield printed on top of yield talk.

Bank of America Merrill Lynch and KeyBanc were the joint bookrunners.

The notes come with two years of call protection.

In a give-back to the market, a special call provision which would have allowed the issuer to redeem 10% of the notes annually at 103 during the non-call period was withdrawn, according to an informed source.

Proceeds from the sale of the notes issue will be used to repay all of the company's existing debt, and to fund a special dividend to shareholders.

Spotted Hawk marketing deal

Spotted Hawk Development LLC is marketing a $100 million offering of five-year senior secured notes.

Global Hunter Securities is the bookrunner. Knight Capital is the co-manager.

Proceeds will be used to fund oil production in the Bakken Field Play.

Global Hunter has also been in the market with Petaquilla Minerals Ltd.'s $210 million of five-year senior secured notes.

Petaquilla has been around to visit a few accounts and is presently waiting for quarterly numbers, which are due in two weeks, according to an informed source, who added that the deal is now likely September business.

A breather

Trailing the astonishing $54.5 billion of issuance in 104 tranches that has cleared since the July 4 holiday, the primary market may be poised to take a breather, sellside sources say.

With two weeks left to go until Labor Day, the 2012 primary market has already far exceeded any previous July 4 to Labor Day totals, both in terms of dollar amount and deal volume.

The next biggest July 4 to Labor Day totals are those of 2010, which saw $43.6 billion in 59 tranches.

For perspective, between 2001 and 2011 average July 4 to Labor Day issuance was $16 billion, and average deal volume was 45 tranches, according to data in the Prospect News archives.

However the two weeks left in the run up to Labor Day 2012 will likely be quiet ones, and could be very quiet, syndicate officials warn.

Vacations are one reason, a syndicate banker said Friday.

Fatigue is also a factor, the source added, noting the intense recent volume.

Also pricings on recent deals have tended to be very tight, and in some instances bonds have not performed notably well in the secondary market, which is serving to amplify the buyside's fatigue, the source added.

Another banker from a different syndicate said that the two weeks left before Labor Day won't necessarily be totally devoid of new issue business.

This source professed visibility on three potential quick-to-market transactions totaling about $1.5 billion.

"If futures are strong when we come in in the morning, they might come before Labor Day," the sellsider said.

"But these are opportunistic deals, and it won't surprise anyone if they get pushed into September."

'It was dead'

In the secondary market, a trader opined that "honestly, [Friday] was dead - there was nothing going on here."

He noted that "the last few days, everyone was focusing on the new issues that came to market, trading in that stuff, but today, it was dead."

He estimated that the market was "probably flat to firmer among some of the bellwether names."

A second trader characterized Friday as "a quiet day."

New Gilsonite deal unseen

A trader said that American Gilsonite's new 11½% senior secured notes due 2017 did not show up in the secondary market on Friday after pricing at par.

"It's only a $260 million issue. From what I'm hearing it's a clubby kind of a deal that's probably going to be put away.

"We didn't see any levels" in the Bonanza, Utah-based mining concern's new paper, which came to market after a very short roadshow.

He said that he heard that the lead underwriter on the deal, Bank of America, was bidding around 102 for the bonds, but added that he didn't know "if that was real or not - I haven't seen anything in the street."

He held out the possibility that the deal might trade on Monday - but it was his opinion that the relatively small issue wasn't going to be traded.

ServiceMaster seen stronger

The best performer of the session, traders said, was ServiceMaster's new 7% notes due 2020, which "had a nice day," in the view of one trader, who pegged the bonds at the 102 bid level, calling them up a point.

A second trader quoted those bonds in a 102 to 102¼ context.

ServiceMaster, a Memphis-based provider of residential cleaning, extermination and lawn care services, had priced a sharply upsized $1 billion offering of 6 1/8% notes due 2020 at par back on Aug. 8; the new bonds struggled mightily in the aftermarket after that, falling to levels around 98 bid in subsequent days.

On Thursday, syndicate sources heard that the company had taken the unusual step, though not entirely unprecedented, of terminating that already-priced deal - meaning the unwinding of all trades in it - and bringing a whole new issue, as it priced $750 million of those new 7% notes due 2020 at par.

In explaining that switch, market sources said the company reduced full-year internal guidance on its TruGreen lawn care segment and may potentially take a $600 million goodwill charge in the third quarter of 2012 for that operation.

That disclosure was material to the issuance of those now-terminated notes and would likely cause them to trade lower, sources added.

While the previous issue fizzled, its replacement sizzled, as the quick-to-market deal shot up more than a point in Thursday's trading after pricing, and was seen continuing to gain on Friday.

ServiceMaster's existing 8% notes due 2020, meantime, were also seen doing better, quoted by a market source up 1 point at 107 bid.

Unisys holds gains

Traders saw the new Unisys 6¼% notes due 2017 hanging onto the strong gains that the Blue Bell, Pa.-based information technology company's quickly shopped $210 million deal had notched on Thursday after it priced at par.

One saw the bonds in a 102½ to 103 context, which he called unchanged on the session - however, he declared that "they're not really trading much today. That was a small deal."

He said generally that recently priced deals "held their levels - it's not like they're giving back gains or anything like that, but nothing's really changed much today, except for ServiceMaster."

"Most of the new issues that have been priced the last couple of days seemed to be trading pretty well," a second trader concurred, defining "well" as holding to levels at or above their respective issue levels.

ILFC deal struggles

One exception to that rule was the new $750 million split-rated (Ba3/BBB-) deal from International Lease Finance Corp.

"That one was not doing well," one trader declared.

A second saw the Los Angeles-based aircraft leasing company's quick-to-market deal as having lost altitude after pricing at par on Thursday.

"That was trading below par," he said. "It seemed like there were a lot of sellers [Thursday]," when the bonds were quoted going home at 99½ bid, 99 7/8 offered.

He saw them at 99 3/8 bid, 99 5/8 offered in morning dealings on Friday.

Energy Future bonds better

There was not much happening away from the new deal arena, with traders noting that most of what was going on in the secondary involved dealings in the new or recently priced issues.

However, one trader said that "TXU legacy bonds were doing good," seeing them having firmed to around the 55 bid level.

At another desk, a market source said that those 6.55% bonds due 2034 issued by the Dallas-based utility operator's Energy Future Holdings Corp. were up by 1 point in the day at 56¼ bid.

Indicators mixed on day, week

Statistical indicators of junk market performance, were mixed for a second consecutive session, and were also mixed on a week-to-week basis.

The Markit Group CDX North American Series 18 High Yield Index was up by 3/16 point on Friday to close at 98 3/16 bid, 98 7/16 offered, its second gain in a row. On Thursday, it had risen by ½ point.

The index was up from the 97 7/8 bid, 98 1/8 offered at which it had finished the previous Friday, Aug. 10.

The KDP High Yield Daily Index, however, was seen unchanged Friday at 73.74, although that did break a string of five straight losses, including Thursday's 2 basis point drop.

Its yield, meantime, was likewise unchanged at 6.27%, following two sessions in which it had widened out, including a 4 bps rise on Thursday.

However, that compared unfavorably with the 73.97 index reading and 6.14% yield at the close the previous Friday.

The widely followed Merrill Lynch U.S. High Yield Master II Index posted its first gain after three consecutive losses, moving up by 0.052% on Friday, in contrast with Thursday's 0.039% loss.

That lifted its year-to-date return to 9.666%, up from Thursday's 9.609%, although it was still off its 2012 peak level of 9.838%, set on Aug. 8.

But the index lost 0.061% on the week - the first weekly loss after 10 straight weeks of gains, including the 0.259% rise in the week ended Aug. 10, when the year-to-date return stood at 9.733%.

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