Chrysler, split-rated ILFC megadeals price late; new Alpha bonds gain; funds up $373 million

By Paul Deckelman and Paul A. Harris

New York, May 19 - After first massively upsizing its planned two-part offering of eight-year and 10-year secured bonds, Chrysler Group LLC finally priced a modestly downsized offering on Thursday, but even clocking in at $3.2 billion instead of $3.5 billion, it was still one of the biggest deals ever seen in Junkbondland.

The Auburn Hills, Mich.-based auto manufacturer's bond sale wasn't the only megadeal-sized offering for the day, counting a split-rated (B1/BBB-/BB) and quickly shopped $2.25 billion two-part deal from International Lease Finance Corp., the commercial aircraft-leasing arm of troubled insurance giant American International Group, Inc.

But owing to the lateness of the hour at which the deal came to market, none of those bonds was seen trading around in the secondary arena.

Earlier in the day, gaming operator Eldorado Resorts LLC priced a $180 million offering of eight-year senior secured notes. While the bonds were initially quoted up a point from their par issue price, by day's end they had come back in and were only up slightly.

Host Hotels & Resorts, Inc. priced an upsized $75 million quick-to-market add-on to the $425 million issue the Bethesda, Md.-based lodging company priced exactly two weeks ago. The notes were not seen trading around.

Price talk emerged on pending deals from meatpacker JBS USA, LLC - a $1 billion, two-part transaction - as well as Kindred Healthcare, Inc., Xerium Technologies, Inc. and Canadian energy operator Connacher Oil & Gas, Ltd., the latter bringing a $900 million two-tranche secured bond deal denominated in U.S. and Canadian dollars. All of those deals are expected to price during Friday's session.

Talk was also out on British gaming concern Gala Coral Group Ltd.'s two-part sterling-denominated deal, which is seen pricing on Monday.

The junk forward calendar grew with the addition of upcoming deals from energy industry service companies Oil States International, Inc. and Vantage Drilling Co., as well as German automotive parts producer International Automotive Components Group, with the latter, somewhat unusually for a European issuer, denominating its deal in dollars.

Alpha Natural Resources, Inc.'s big two-part bond deal and Concho Resources, Inc.'s solidly upsized single-tranche offering, which both priced too late in the day Wednesday for any aftermarket, were freed for trading Thursday morning, and both names moved higher, particularly Alpha's new 10-year notes, seen up almost 2 points from issue.

High-yield mutual funds - considered a good barometer of overall junk market liquidity trends - saw their third consecutive weekly gain $373 million, establishing a new peak level for the year to date.

Funds see inflow

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, $373 million more came into those weekly reporting funds than left them.

It was the third consecutive weekly inflow to the funds following the $357.7 million cash injection seen in the week ended May 11. During that three-week period, net inflows have totaled just under $1.046 billion, according to a Prospect News analysis of the figures. Those inflows, in turn, followed two straight weeks of losses totaling some $190 million.

The latest inflow raised the year-to-date cumulative inflow total to an estimated $7.726 billion, a new peak level for 2011 so far, according to the Prospect News analysis. That was up from the previous week's $7.353 billion estimate, which was also the previous 2011 peak level, the analysis said.

With 20 weeks gone in the year, there have now been 16 inflows recorded against just four outflows.

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. Since then, however, fund-flow patterns have been 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, as noted, and the latest three weeks' inflows.

EPFR sees $505 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, reported a $505 million inflow in the latest week, the eighth straight gain by that agency's calculations.

That followed a cash addition of $491 million in the week ended May 11.

The latest week's cash infusion lifted the year-to-date net inflow number to $22.1 billion, EPFR said.

AMG/Lipper's numbers and EPFR's figures generally point in the same direction, although their actual figures differ since the two services calculate their respective fund-flow totals differently. EPFR includes results from some non-U.S. domiciled funds as well as the domestic funds.

During the two weeks ended April 20 and April 27, there had been a relatively rare divergence between the two services, with AMG reporting outflows in both of those weeks and EPFR recording inflows.

EPFR said its calculations show 18 weeks of inflows so far this year, against just two 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 have been pretty much continuing in 2011 as well.

Chrysler completes deals

The primary market throttle remained wide open on Thursday, as three issuers raised $3.5 billion in a combined four tranches.

And the fuel mixture isn't getting any leaner.

Cash continues to pour into the leverage markets, sources say.

Meanwhile, the bank loan funds saw inflows of $721 million during the same period.

In the new issue market, Chrysler Group, along with CG Co-Issuer Inc., priced a downsized $3.2 billion two-part secured senior notes transaction (B2/B) on Thursday.

The automaker priced a $1.5 billion tranche of eight-year notes at par to yield 8%. The yield printed at the wide end of the 7¾% to 8% price talk.

In addition, Chrysler priced a $1.7 billion tranche of 10-year notes at par to yield 8¼%, on top of price talk, which had the notes coming 25 basis points behind the eight-year notes.

The overall deal was downsized from $3.5 billion after having earlier been upsized from $2.5 billion. The term loan, meanwhile, was upsized to $3 billion after having been downsized earlier to $2.5 billion from $3.5 billion. The revolver was downsized to $1.3 billion from $1.5 billion.

The overall size of the bond and bank loan issuance remained unchanged.

Bank of America Merrill Lynch, Goldman, Sachs & Co., Citigroup Global Markets, Inc. and Morgan Stanley & Co. Inc. were the joint bookrunners.

Proceeds, together with $1.3 billion of proceeds from the recently announced exercise by Fiat of an option to acquire an incremental 16% ownership interest in Chrysler Group, will be used to repay its loans from the U.S. and Canadian governments in full.

Chrysler - a good execution

A debt capital markets banker watching the Chrysler deal from the sidelines pointed out that both bond tranches priced within price talk and proclaimed that the company received a good execution.

"It came a little wider than they originally thought," said the banker, "but that's a huge amount of capital to raise."

"At the end of the day, they came up with the cash they need to repay the government," he added.

Eldorado prices secured deal

Elsewhere in Thursday's primary market, Eldorado priced a $180 million issue of eight-year senior secured notes (B2/B+) at par to yield 8 5/8%.

The yield printed in the middle of the 8½% to 8¾% price talk.

Bank of America Merrill Lynch ran the books.

Proceeds, together with a new credit facility and cash on hand, will be used to purchase any or all of the outstanding first-mortgage notes due 2012 (the Shreveport notes), as well as to purchase any or all of the 9% senior notes due 2014 (the Eldorado notes) and to retire the outstanding preferred interest in the Louisiana Partnership.

Host taps 5 7/8% notes

Host Hotels priced an upsized $75 million fungible add-on to its 5 7/8% series W senior notes due June 15, 2019 (Ba1/BB+) at 99.375 to yield 5.972%.

The reoffer price came on top of the price talk.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc., Goldman, Sachs & Co. and J.P. Morgan Securities LLC were the joint bookrunners for the quick-to-market add-on, which was upsized from $50 million.

Proceeds will be used for general corporate purposes.

The original $425 million issue priced at 99.198 to yield 6% on May 5, 2011.

Savanna prices C$125 million

In the Canadian market, Savanna Energy Services Corp. priced a C$125 million issue of seven-year senior notes (/B+/DBRS: B) at par to yield 7%, on top of price talk.

TD Securities Inc. and RBC Capital Markets Corp. were the managers of the debt refinancing transaction.

ILFC prices $2.25 billion

In the crossover market, International Lease Finance priced a massively upsized $2.25 billion split-rated two-part senior notes deal (B1/BBB-/BB).

It included $1 billion of five-year notes, which priced at par to yield 5¾%, at the tight end of price talk that had been set in the 5 7/8% area.

The deal also included $1.25 billion of eight-year notes, which priced at par to yield 6¼%. The eight-year tranche also priced at the tight end of price talk, which had been set in the 6 3/8% area.

Barclays Capital Inc., J.P. Morgan Securities LLC, RBC Capital Markets LLC and UBS Securities LLC were active bookrunners for the deal, which was upsized from $1 billion.

JBS leads off big Friday

Fridays in the high-yield primary market are no longer set aside for sharpening pencils.

The May 16 week figures to end with a bang.

JBS USA and JBS USA Finance set price talk for their $1 billion two-part offering of senior notes (B1/BB/BB-).

A tranche of eight-year notes, which come with three years of call protection, is talked to yield 6 7/8% to 7%.

Meanwhile, a tranche of 10-year notes, which come with four years of call protection, is talked to yield 25 basis points behind the eight-year notes.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Banco do Brasil, Barclays Capital Inc. and Morgan Stanley & Co. are the joint bookrunners.

Elsewhere, Connacher Oil and Gas set price talk for its $900 million-equivalent two-part offering of senior secured notes.

A tranche of dollar-denominated eight-year notes is talked with a yield in the 8¼% area. The Rule 144A and Regulation S for life tranche is being led by left bookrunner Credit Suisse Securities (USA) LLC.

In addition, the Calgary, Alta.-based integrated oil company is privately placing a Canadian dollar-denominated tranche of seven-year notes, which are talked with a yield in the 8½% area. RBC Capital Markets is the left lead bookrunner for that tranche.

Kindred Healthcare talked its $550 million offering of eight-year senior notes (confirmed B3/expected B-) with a yield in the 8½% area.

J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Morgan Stanley & Co. Inc. are the joint bookrunners.

And Xerium Technologies talked its $240 million offering of seven-year senior notes (B3/B) with a yield in the 8¾% area.

Citigroup Global Markets Inc. is the left lead bookrunner. Jefferies & Co. is the joint bookrunner.

The Offshore Group Investment Ltd. (Vantage Drilling) $225 million add-on to the 11½% senior secured first-lien notes due Aug. 1, 2015 is also possible Friday business, according to a market source.

Jefferies & Co. has the books.

Gala Coral resizes deal

Looking to the week ahead, Gala Coral Group resized its debt financing, shifting £25 million to its bank loan from its two-part bond offering.

The Nottingham, England-based gaming and off-track betting company downsized its two-part bond deal to £625 million notes from £650 million and upsized its term loan B to £825 million from £800 million.

The company also re-sized the bond tranches and set price talk.

An upsized £350 million tranche of seven-year senior secured notes (B2/B+/BB), which come with three years of call protection, is talked with a yield in the 8¾% area. The secured tranche was upsized from £250 million.

Meanwhile, a downsized £275 million tranche of eight-year senior unsecured notes (Caa2/CCC+/CCC), which come with four years of call protection, is talked with a yield in the 11½% area. The unsecured tranche was downsized from £400 million.

Credit Suisse AG and Barclays plc are the global coordinators among a syndicate of banks that includes Deutsche Bank AG, Goldman Sachs International, Morgan Stanley and HSBC.

The deal is set to price on Monday.

Oils States starts roadshow

Once again the active forward calendar took aboard passengers on Thursday.

Oil States International began a roadshow for its $600 million offering of eight-year senior notes.

That deal is also set to price during the week ahead.

Credit Suisse Securities (USA) LLC, RBC Capital Markets and Wells Fargo Securities LLC are the joint bookrunners for the debt refinancing and general corporate purposes deal.

IAC starts Friday

Also Germany's International Automotive Components will start a roadshow on Friday for its $300 million offering of seven-year senior secured notes.

Deutsche Bank Securities Inc., Bank of America Merrill Lynch and J.P. Morgan Securities LLC are leading the offer.

The Krefeld, Germany-based automotive components company plans to use the proceeds to repay debt and fund a distribution to its shareholders.

Chrysler, ILFC no-shows

The long-awaited signature deal of the day, Chrysler Group's slightly downsized $3.2 billion two-part behemoth, priced too late in the day to be seen in the aftermarket, traders said.

That was also the case with the day's other supersized offering, International Lease Finance's quickly shopped, split-rated two-part deal.

A junk trader who was watching out for ILFC characterized Thursday's session late in the day as "a pretty crazy day."

"Not really much happened. When all is said and done, they just priced this ILFC deal - but it's taken forever. It launched at 2 o'clock [ET]," the trader said.

While the new bonds from the Los Angeles-based commercial jet leasing arm of the troubled insurance giant AIG were not seen trading around on Thursday, there was some activity seen in its existing paper.

A market source said that ILFC's 6 3/8% notes due 2013 gained 1½ points on the session to end at 105¾ bid.

At another desk, the bonds were pegged up 1¾ points, going out at 106 bid. There was also brisk trading in the company's 4¾% notes due 2012, which rose to 102½ bid. Late-afternoon volume in the latter issue was around $8 million, putting it on the list of the day's most-active junk issues

Eldorado deal gyrates

A trader said Eldorado Resorts' new eight-year senior secured notes "kind of ran up" to around the 101 area after they were freed for secondary activity, "but then they kind of faded a little bit," going home around the 100½ bid area.

At another desk, a trader saw the Reno, Nev.-based gaming operator's bonds having given back virtually all of their early gains, going home at 100 1/8 bid, 100 5/8 offered, after the $180 million deal priced at par.

New Host bonds a no-show

Another aftermarket no-show - though for a different reason than Chrysler and ILFC - was Host Hotel's add-on to its 5 3/8% notes due 2019, which had priced only two weeks earlier on May 5.

While the Chrysler and ILFC deals simply hit the market too late for any dealings, Host's deal, which priced fairly early in the day, being just an add-on - and a small one at that - traders said that there was no aftermarket for the $75 million of bonds. They also did not see any dealings in the original $425 million issue, which is fungible with the new deal.

Sound of Crickets chirping

Another add-on deal not seen trading around very much on Thursday, despite being considerably larger than the Host offering, was Cricket Communications Inc.'s $400 million issue of 7¾% senior secured notes due 2020.

The San Diego-based operating unit of Leap Wireless International, Inc. had priced its quickly shopped deal on Wednesday at 99.193 to yield 7 7/8%, and Leap's new bonds had actually jumped as high as 101 on the break during that session before coming well off that peak level to close at about 100¼ bid, 100½ offered.

In Thursday's dealings, several traders said that they had not seen any activity in Cricket, owing to its status as an add-on.

However, one of them did see the bonds having come in a little more - though still remaining above the issue price - as they ended at 99 7/8 bid, 100¼ offered.

Alpha Resources on a roll

Another Wednesday deal - Alpha Natural Resources' $1.5 billion two-part offering - was seen having done quite well when the Abingdon, Va.-based coal producer's paper finally began trading around on Thursday.

That deal had come to market too late in the day for any kind of an aftermarket after its $800 million of 6% notes due 2019 and its $700 million of 6¼% notes due 2021 both priced at par.

In Thursday's activity, traders saw the 10-year bonds particularly strong; one of them quoted the 10s at 101 5/8 bid, 101 7/8 offered, while seeing the eight-year piece 100¾ bid, 101 offered.

"There was a pretty decent amount of trading" in the new Alpha issue, another trader said, seeing the 10-years going out at 101½ bid, 102 offered, while the eight-years ended at 100½ bid, 101 offered.

Yet another trader also saw "a couple of trades" in the 10-years up at the 102 bid level.

Concho climbs in aftermarket

Concho Resources' new 6½% notes due 2022 also priced too late on Wednesday for any kind of secondary activity during that session and waited until Thursday to trade around.

But one trader said that he "didn't see a ton [of activity] in that one, not a lot of trading." He pegged the Midland, Texas-based midstream natural gas company's issue at 100½ bid, 101 offered, while a second trader located the bonds at 100 5/8 bid, 100 7/8 offered, up from their par issue price.

EchoStar still shines

Going back a little further, a trader said that EchoStar Corp.'s 's big two-part $2 billion deal from Tuesday continued to trade at a handsome premium to the two tranches' par issue levels, after having moved up solidly on Wednesday when they were freed to trade.

He said the Englewood, Colo.-based communications satellite operator and set-top satellite TV receiver company's $900 million issue of 7 5/8% notes due 2021 was going out on Thursday at around the same 102¾ bid, 103 offered level to which the notes had risen on Wednesday.

He saw the other half of that big deal - the $1.1 billion of 6½% notes due 2019 - at 101 bid, 102 offered, off slightly from Wednesday's levels around 101 3/8 bid, 101 7/8 offered.

However, a trader at another desk said that he did not seen any activity in the EchoStar bonds on Thursday.

Market indicators stay mixed

A trader said that "the secondary was very quiet, and not a lot of things moved around in terms of changes in their price levels."

A second trader exclaimed that "it's all new issues and IPOs" and described the market away from the new deals as "sort of blah."

Statistical measures of market performance, meantime, stayed mixed on Thursday.

A trader saw the CDX North American Series 16 HY index up one-eighth of a point for a second consecutive session on Thursday, going out at 102 9/16 bid, 102 11/16 offered.

But the KDP High Yield Daily Index was down by 4 basis points on Thursday to close at 76.14, after having been unchanged on Wednesday. Its yield rose by 2 bps to 6.45%, after having held steady on Wednesday.

However, the Merrill Lynch High Yield Master II Index rebounded, after having fallen for two straight sessions on Tuesday and Wednesday. The index gained 0.048% on Thursday after having lost 0.029% on Wednesday.

That lifted its year-to-date return to 6.058%, a new peak level for 2011 so far. That was up from 6.007% on Wednesday, as well as from 6.048% on Monday, its previous high point for the year so far.

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