Media General launches, Friday pricing seen; new Charter bonds higher; funds up $1.57 billion

By Paul Deckelman

New York, Oct. 30 – High-yield pricing activity slackened off Thursday after the primary’s big day on Wednesday, one of the biggest-volume sessions seen this year.

Syndicate sources said that no dollar-denominated and fully junk-rated deals from domestic or industrialized-country issuers were priced on Thursday, in contrast to the $3.9 billion of new paper that came out of the chute in three tranches on Wednesday – most of which came from just one borrower, Charter Communications, Inc.

But the lack of any actual pricing did not mean that nothing was going on.

Quite the contrary.

Media General Inc., a television station group owner and digital media company, launched a $300 million offering of eight-year notes, whose proceeds will be part of the financing for its planned merger with sector peer LIN Media LLC. That issue had been expected to price later Thursday as a quick-to-market transaction, but that didn’t happen, despite apparent investor interest, and primaryside sources said the pricing had been pushed off till Friday morning.

Another no-show on Thursday was Essar Steel Algoma Inc., a Canadian metals manufacturer that has been shopping a $625 million two-part secured offering around for more than a week. Order books on that deal were originally supposed to have closed on Wednesday, but sources heard that the deal was still being marketed on Thursday, with possible covenant changes also being bandied about. There was no definitive information on when that deal might actually price.

Another Canadian company, oil and natural gas exploration and production operator Canbriam Energy Inc., was heard by the market sources to have begun a roadshow for its planned $250 million offering of seven-year notes, which are expected to price late next week.

Behavioral health and substance-abuse services provider Acadia Healthcare Co. Inc. said that it plans on using a combination of senior bank debt and additional notes to help fund its acquisition of CRC Health Group Inc.

In the secondary realm, the new Charter Communications and Huntsman Corp. bonds that priced in quickly shopped offerings on Wednesday were heard by high-yield traders to have moved modestly above their respective par issue prices in active trading on Thursday.

Cable and broadband provider Charter’s existing notes, meantime, which had been pushed lower on Wednesday on the news the company was doing its massively upsized two-part bond deal, steadied on Thursday and even began regaining some lost ground.

Statistical indicators of market performance turned lower across the board on Thursday after having been mixed over the two previous sessions.

But another statistical gauge – the flows of cash into and out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall junk market liquidity trends – were seen up sharply for a second consecutive reporting week. Some $1.56 billion more came into those funds during the week ended Wednesday than left them, following the previous week’s $1.7 billion cash addition. However, the funds are still showing a year-to-date cumulative outflow of more than $2.2 billion.

Media General launches deal

While no dollar-denominated, junk-rated deals were heard by syndicate sources to have priced, they noted the launch of what had been expected to be a quick-to-market Thursday transaction from Media General, which announced plans to sell $300 million of eight-year senior notes (B3/B+).

The deal was pitched to potential investors via a mid-morning (ET) conference call, and the order books closed at mid-afternoon and Thursday, but as of the end of the trading day, it had not priced, and several sources later said that it had been pushed back to Friday morning. They did not offer any possible explanations for the delay.

Price talk envisioning a yield in the 6%-to-6¼% region surfaced on Thursday afternoon. A high-yield trader said that he had heard there was “good demand” on the part of investors for the deal, and a second said that “it should be fine.”

The Rule 144A/Regulation S offering, which is being sold with registration rights, is being brought to market via left bookrunning manager RBC Capital Markets Corp., along with joint bookrunners Capital One Securities, Deutsche Bank Securities Inc., SunTrust Robinson Humphrey Inc. and U.S. Bancorp Investments.

Co-managers on the deal are Barclays, BofA Merrill Lynch, Mitsubishi UFJ Securities International plc and Mizuho Securities USA Inc.

Media General, a Richmond, Va.-based television broadcasting and digital media company, is selling the notes as part of the financing for its pending merger with sector peer LIN Media.

That funding will also include a new $1.02 billion credit facility.

Essar Steel extends marketing

Another deal that was expected to possibly price on Thursday but did not was Essar Steel Algoma’s planned $625 million two-part offering of secured notes.

That deal was announced last week and was shopped around to investors via a roadshow. While the books on the deal were originally scheduled to close on Wednesday afternoon, sources Thursday cited a reported extension of the marketing campaign for the issue, giving prospective investors another day to consider whether to buy the deal.

A junk trader said he heard the marketing was still going on Thursday, while a second said that “they’re tweaking the covenants” in hopes of getting enough investor support for the deal.

As of press time on Thursday evening, there had been no public announcement or other indication that the deal had yet priced.

The Rule 144A/Regulation S deal is being brought to market via left bookrunning manager Deutsche Bank, joint bookrunners Goldman Sachs & Co. and Jefferies LLC, plus co-managers Imperial Capital and Canaccord Genuity Corp.

The offering consists of $350 million five-year senior secured notes and $275 million seven-year junior secured notes.

Market sources said that the five-year tranche was being talked at a discount to yield in the 8% area, while the seven-year tranche was being talked at a discount to yield around 10½%.

The company – a Sault Ste. Marie, Ont.-based maker of hot- and cold-rolled steel products – was also in the process of doing a $350 million bank loan deal, with the proceeds from the bonds and loan transactions to be used to refinance debt and for general corporate purposes.

Canbriam shops seven-years

Elsewhere in the primary realm, the syndicate sources said that Canbriam Energy, a Calgary, Alta-based, privately held oil and natural gas exploration and production company focused in the Montney play in western Canada, began a roadshow Thursday for a proposed $250 million offering of seven-year senior notes, with the deal expected to price late next week.

The Rule 144A/Regulation S for life issue is being brought to market via joint bookrunners Credit Suisse Securities (USA) LLC, BMO Capital Markets Corp., RBC Capital Markets Corp. and Barclays.

Canbriam plans to use the proceeds from the bond offering to fund capital expenditures, to repay revolving credit facility borrowings and for general corporate purposes.

Acadia to sell notes

Acadia Healthcare said that it plans on using a combination of senior bank debt and additional notes to help fund its pending acquisition of CRC Health Group Inc.

Company executives said on the conference call following the release of Acadia’s third-quarter results that if the financing were done today, the blended interest rate would probably be around 6%.

BofA Merrill Lynch and Jefferies are leading the bank debt offering.

According to an 8-K filed with the Securities and Exchange Commission, the debt commitment is for an up to $580 million senior secured term loan B and $250 million of senior unsecured increasing-rate bridge loans.

In addition, the filing said that Acadia will seek to amend its existing credit facility to reflect the terms of the new debt commitment.

Under the agreement, Acadia, a Franklin, Tenn.-based provider of inpatient behavioral health-care and substance-abuse services, will purchase CRC, a Cupertino, Calif.-based operator of addiction-recovery centers, in a transaction valued at $1.18 billion, consisting of about 6.3 million of Acadia’s common shares (worth around $333 million based on Wednesday’s closing price just under $53) and Acadia’s assumption of the privately held CRC’s debt.

Post-closing, leverage will be 5.1 times, officials added in the call.

Closing is expected in the first quarter of 2015, subject to regulatory review and customary closing conditions.

New Charter dominates action

In the secondary sphere, “Charter was the name of the day,” a trader said, referring to the Stamford, Conn.-based cable and broadband service provider’s massively upsized $3.5 billion two-part offering, which had priced at par on both tranches late in the day on Wednesday after having been upsized from an originally announced $1.5 billion.

“They should be the volume leaders,” he said, noting that “it was a pretty good deal size.”

And indeed, the tranches were the most heavily traded issues in Junkbondland on Thursday.

The company’s $2 billion of new 5¾% notes due 2024 easily dominated the Most Actives list with over $209 million seen having changed hands. A market source pegged those bonds at 101 bid, well up from their par issue price.

The next-busiest issue was a full $27 million behind the 5¾% notes – and it was the other half of Wednesday’s massively upsized deal, Charter’s 5½% notes due 2022, which saw more than $182 million of the $1.5 billion traded. They ended at 100 7/8 bid, up nearly a full point after pricing at par.

It was the bond’s first day in the aftermarket – they had priced too late in the day for any kind of initial aftermarket activity at that time.

A second trader saw both Charter tranches having moved as high as 101 bid during the session before coming off that peak level, retreating back to around 100¾ bid.

Yet another trader said that the day’s trading in that megadeal was “kind of weird.” When both tranches were freed for secondary dealings on Thursday morning, they initially traded in a 100¼-to-100½ context, “and then they got hit,” retreating a little from those early levels.

But later in the day, he said, “they started to come back” and finally bounced back to go home trading between 100¾ and 101 bid.

Existing Charters rebound

The company’s existing bonds, meanwhile – which had been pushed lower on Wednesday on negative investor reaction to the news that Charter subsidiary CCOH Safari, LLC would be bringing such a big deal to market, were seen to have bounced back from those doldrums.

“They were off 1 point, or maybe 1½ points, yesterday [Wednesday] on the news that they were coming with that big new two-part deal,” a trader source said.

Charter’s existing 5¾% notes due Jan. 15, 2024 – not to be confused with Wednesday’s new 5¾% notes, which mature on Dec. 1 of that year – gained 3/8 point on the session, ending at 102 5/8, on busy volume of $26 million. On Wednesday, those bonds had lost 3/8 point, on volume of more than $32 billion.

The company’s 7% notes due 2019 gained 3/16 point to close at 104 5/16, on turnover of some $10 million.

Its 5¼% notes due 2022 gained ½ point to finish at 101¼ bid.

New Huntsman firms

The new Huntsman bonds that priced in a quick-to-market offering on Wednesday were heard by high-yield traders to also have moved modestly above their issue price in active trading.

A trader quoted the Huntsman issue between 100¼ and 100½, saying “they did OK.”

A second trader located them at 100¼ bid, calling that up 1/16 point on the day, with over $38 million having changed hands, putting them behind only the massively traded new Charter paper.

Huntsman, a Salt Lake City-based specialty chemicals manufacturer, priced $400 million of new 5 1/8% senior notes due 2022 at par on Wednesday via its Huntsman International LLC unit after upsizing the issue from an original $300 million. The bonds had traded very actively in the aftermarket Wednesday, with over $44 million changing hands, ending around 100 1/8 to 100¼ bid.

Indicators head south

Statistical indicators of junk market performance were lower across the board on Thursday after having been mixed for two straight sessions before that.

The KDP High Yield Daily index was off by 3 basis points to end at 72.43 after having been unchanged on Wednesday. It was the third downturn in the last four sessions.

However, its yield, which would normally move inversely to the index reading and rise as the index falls, saw its third straight narrowing on Thursday, coming in by 2 bps to end at 5.29%. It had been down by 1 bp in each of the two previous sessions.

But the Markit CDX North American High Yield Series 23 index retreated by 1/16 point Thursday to go out at 106 9/16 bid, 106 5/8 offered after having dropped by 3/8 point on Wednesday.

The Merrill Lynch High Yield Master II index was also on the downside, easing by 0.039%, in contrast to Wednesday’s 0.019% gain, its second straight advance.

Thursday’s setback left its year-to-date return at 4.672%, down from Wednesday’s 4.712% and well down from its peak level of the year so far, 5.847%, set on Sept. 1, when the index was published even though the junk market was essentially closed that day due to the Labor Day holiday break.

According to the Finra-Bloomberg Active US High Yield Bond index, Thursday’s junk market volume fell to $3.01 billion from $3.13 billion on Wednesday.

Sara Rosenberg contributed to this review

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