Activision, Diamondback, DuPont Fabros price in $3.3 billion session; funds gain $632 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 12 - The high-yield primary sphere picked up the pace on Thursday, pricing $3.3 billion of new fully junk-rated, dollar-denominated paper during the session - almost 10 times the amount that came to market from domestic or industrialized-country issuers on Wednesday, although most of the day's new bonds priced in one deal, that of Activision Blizzard Inc. The interactive entertainment publishing company priced $2.25 billion of bonds in two parts after having downsized its offering and restructuring it.

Both tranches of those new notes were seen having firmed when they hit the aftermarket.

Diamondback Energy, Inc. was heard by junk syndicate sources to have come to market with a $450 million offering of eight-year notes, which also firmed smartly when they were freed for secondary dealings.

High-tech real estate investment trust DuPont Fabros Technology, Inc. did a $600 million offering of eight-year notes, which came too late in the day for any real secondary trading.

Participants meantime awaited Tenet Healthcare Corp.'s $4.6 billion two-part whale of an offering, which is expected to price on Friday.

Traders said that once again, the new issues were the focus of Junkbondland secondary market activity.

Statistical market-performance measures turned mixed after two sessions of having been higher across the board.

But the key indicator of junk market liquidity trends - the flows of money into and out of high-yield mutual funds and exchange-traded funds - turned positive in the latest week after recording an outflow last week.

Lipper funds gain $632 million

As Thursday's market activity was winding down, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, $632 million more came into those funds than left them.

That more than made up for the $416 million outflow that Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., saw in the previous week, which ended Sept. 4.

It was the largest inflow the junk market had seen since the week ended July 24, when inflows had totaled an astounding $3.73 billion, the second-highest on record since the company began tracking junk fund flows back in the early 1990s.

However, in the interim, most of the weekly flows had been negative.

For the year so far, inflows have now been seen in 21 weeks, against 16 weeks of outflows, according to a Prospect News analysis of the fund-flow numbers. But cumulative flows for the year as a whole remain negative due to a sizable losing streak seen during May and June, which was prompted by investor worries over whether the Federal Reserve would end its accommodative monetary policy.

The latest inflow cut that year-to-date net outflow figure to about $7 billion, according to the analysis.

Cumulative fund-flow estimates 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 catalyst 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 ultimately produced $327 billion of new dollar-denominated, junk-rated paper from domestic or industrialized-country issuers, according to data compiled by Prospect News.

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 before turning choppy over the past several months.

Activision blows through talk

A busy Thursday session in the primary market saw three dollar-denominated issuers price a combined four tranches of notes, raising a combined total of $3.3 billion.

Activision Blizzard priced a downsized, restructured $2.25 billion of senior notes (Ba2/BB+) in two tranches.

An upsized $1.5 billion tranche of eight-year notes priced at par to yield 5 5/8%.

The tranche was upsized from $1 billion. The yield printed 12.5 basis points inside of the 5¾% to 6% yield talk.

In addition, the company priced an upsized $750 million tranche of 10-year notes at par to yield 6 1/8%.

The tranche was upsized from $500 million. The yield printed 12.5 bps inside of the 6¼% to 6½% yield talk.

The restructured two-part deal was earlier downsized to $2.25 billion from $2.5 billion, with $250 million of the proceeds shifted to the company's term loan, and a $1 billion tranche of investment-grade senior secured notes was withdrawn.

There were also covenant changes.

J.P. Morgan Securities LLC and BofA Merrill Lynch were the joint bookrunners for the acquisition financing.

DuPont Fabros at tight end

DuPont Fabros Technology priced a $600 million issue of eight-year senior notes (Ba1/BB) at par to yield 5 7/8%, at the tight end of yield talk in the 6% area.

Goldman Sachs & Co., RBC Capital Markets, SunTrust Robinson Humphrey Inc., Credit Suisse Securities (USA) LLC and KeyBanc Capital Markets were the joint bookrunners for the debt refinancing deal.

Diamondback eight-year deal

Diamondback Energy priced a $450 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 7 5/8%.

The yield printed in the middle of the 7½% to 7¾% yield talk.

Credit Suisse and Wells Fargo Securities LLC were the joint bookrunners.

The Midland, Texas-based independent oil and natural gas company plans to use the proceeds to fund the acquisition of mineral interests under about 15,000 acres in Midland County, Texas.

Talk on Friday's deals

Dealers set the stage for a big finish for the week.

Tenet Healthcare set price talk in its $4.6 billion two-part offering of non-callable high-yield notes.

A $1.8 billion trance of seven-year senior secured notes (Ba3/B+/BB) is talked to yield 6% to 6¼%.

A $2.8 billion tranche of 8.5-year senior unsecured notes (B3/CCC+/B-) is talked to yield 8% to 8¼%.

BofA Merrill Lynch is the left bookrunner. Barclays, Citigroup Global Markets Inc. and Wells Fargo are the joint bookrunners.

JBS USA restructured its $400 million offering of notes into an add-on to its 7¼% senior notes due June 1, 2021 on Thursday and talked the deal at 99 to par.

Previously, the company had been marketing a $400 million offering of new eight-year non-call-three-year senior notes.

JPMorgan, BofA Merrill Lynch, Wells Fargo, RBC and Credit Suisse are the joint bookrunners.

Natural Resource Partners LP set yield talk for a restructured $300 million offering of five-year senior notes (B3/B) in the 9½% area.

The maturity of the notes was decreased to five years from eight years.

Call protection was decreased to 2.5 years from three years; in 2.5 years the notes will become callable at par plus 75% of the coupon.

There were also covenant changes.

Citigroup and Wells Fargo are the joint bookrunners.

Pinnacle Agricultural talked a $300 million offering of seven-year second-lien senior secured notes (Caa1/CCC+) to yield 9% to 9¼%.

Credit Suisse, BMO, Citigroup and Apollo are the joint bookrunners.

Building Materials Holding Corp. talked its $250 million offering of five-year senior secured notes (Caa1/B-) to yield in the 9% area.

JPMorgan and Moelis are the joint bookrunners.

And Sanchez Energy Corp. talked a $150 million add-on to its 7¾% senior notes due June 15, 2021 (existing ratings Caa1/CCC+) at 96.0 to 96.5.

RBC is the left bookrunner. Credit Suisse is the joint bookrunner.

Continental prints at 2 5/8%

The European new issue market also remained busy on Thursday.

Germany automotive equipment supplier Continental AG priced a €750 million issue of 2½% 3.5-year notes (Ba1/BB/BBB) at 99.595 to yield 2 5/8%.

The yield came on top of yield talk.

The deal hit the market sized at €500 million minimum.

JPMorgan, Credit Suisse, HSBC, Landesbank Baden-Wurttemberg, Morgan Stanley and SEB were the joint bookrunners for the debt refinancing.

Fiat upsizes

Italian car-maker Fiat priced an upsized €400 million add-on to its 6¾% senior notes due Oct. 14, 2019 (B1/BB-/BB-) at 101.231 to yield 6½%.

The yield printed on top of yield talk.

BNP, Citigroup, Commerzbank, Goldman Sachs, Natixis and SG were the joint bookrunners for the general corporate purposes deal.

Study Group at tight end

Study Group UK Ltd. priced a £205 million minimum issue of five-year senior secured notes (B3/B-) at par to yield 8 7/8%.

The yield printed at the tight end of yield talk in the 9% area.

Joint global coordinator Goldman Sachs International will bill and deliver. Barclays was also a joint global coordinator. Mizuho and National Australia Bank were co-managers.

Proceeds will be used to repay outstanding debt and partially repay preferred equity certificates.

New bonds move up

In the secondary market, a trader saw both tranches of Activision Blizzard's restructured and downsized two-part offering having moved up when they were freed to trade.

He saw the Santa Monica, Calif.-based interactive entertainment publishing company's 5 5/8% notes due 2021 having moved up to 100¾ bid, 101 offered from their par issue price earlier in the session.

He also saw the other half of that deal, the 6 1/8% notes due 2023, going home at 101¼ bid, 101¾ offered, also up from a par issue price. The trader said that both of those tranches had "been pretty active."

The new issue from Diamondback Energy - whose Nasdaq-traded shares, interestingly, trade under the ticker symbol "FANG" - was also seen higher in Thursday's aftermarket.

A trader saw those 7 5/8% notes due 2021 finishing up in a 101¼ to 101½ bid context, versus their par issue price.

He said that he had not seen any immediate aftermarket dealings in DuPont Fabros Technology's 5 7/8% notes due 2021. The Washington D.C.-based wholesale data centers REIT's new issue priced at par.

Ancestry around issue price

Among some of the deals that came to market earlier in the week, a trader pegged Ancestry.com Holdings LLC's $300 million of 9 5/8%/10 3/8% senior PIK toggle notes due 2018 as being "right around issue" at bid levels between 99 and 991/2.

The Provo, Utah-based online genealogical information provider's deal priced at 99 on Wednesday after having been upsized from an originally announced $250 million, yielding 9 7/8%. The notes had initially been quoted as high as par bid, 100½ offered when they began trading around later on Wednesday.

Oasis Petroleum pop continues

Oasis Petroleum, Inc.'s 6 7/8% notes due 2022 were seen having moved up to around 102¾ to 103¼ - well up from the par level at which the Houston-based oil and natural gas exploration and production company's quickly shopped $1 billion issue had priced on Tuesday after having been massively upsized from an originally announced $600 million.

The bonds were better from the get-go, quoted later Tuesday as having moved up to 101¼ bid when they were first freed for trading, and they were seen on Wednesday having made further gains to 101¾ bid, 102¼ offered.

Whiting keeps busy

Whiting Petroleum Corp.'s two tranches of bonds remained among the busiest junk issues for a third consecutive session on Thursday.

A trader saw both tranches of the Denver-based independent oil and gas producer's bonds trading around 100½ bid, 101 offered.

Whiting had priced $1.1 billion of 5% notes due 2019 and $800 million of 5¾% notes due 2021 at par on Monday after having upsized the overall deal to $1.9 billion from the originally announced $1.8 billion

A market source said that over $21 million of the 5% paper had traded Thursday, continuing the week's heavy volume trend. He saw them up 3/8 point at 100 5/8 bid, while the 5¾% notes gained ½ point to close at 100¾ bid, on volume of over $19 million.

Market indicators turn mixed

Statistical junk market performance indicators turned mixed on Thursday after having been higher for the two sessions before that.

The Markit Series 20 CDX North American High Yield index lost 5/16 point on Thursday to end at 105 1/8 bid, 105¼ offered. It was the first loss after four consecutive gains, including Wednesday's 11/32 point rise.

But the KDP High Yield Daily index rose by 11 bps to finish at 73.36, its third consecutive gain. The index had gained 3 bps on Wednesday.

Its yield meanwhile came in by 4 bps on Thursday to end at 6.28%, its first narrowing after having been unchanged at 6.32% the previous day.

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