Quiet primary in short session caps off $4.46 billion week; Verso up; funds gain $90 million

By Paul Deckelman and Paul A. Harris

New York, July 3 – Junkbondland saw a quiet, abbreviated pre-holiday session on Thursday, with no dollar-denominated, junk-rated deals seen to have priced.

High-yield syndicate sources said that what primaryside activity there was all took place in the euro- and sterling-denominated segments of the market, with deals pricing from European issuers such as Britain’s Iglo Group, IMO Car Wash and Care UK, France’s IKKS Group SAS, Greece’s Titan Cement Co. SA and – unusually – one American company, Rye, N.Y.-based consumer products concern Jarden Corp.

The lack of any new dollar deals during Thursday’s shortened session – and with a market close scheduled for Friday in observance of Independence Day – left new issuance for the week at a relatively sedate $4.46 billion in six tranches, according to data compiled by Prospect News. That is down from the $8.01 billion that came to market in 17 tranches during the preceding week, which ended June 27.

The week’s issuance, in turn, lifted the year-to-date total of new paper to $180.4 billion in 342 tranches, running 6.37% ahead of the pace seen last year – a near-record year for junk bond issuance. According to the data, $169.59 billion of bonds had priced in 379 tranches by this point on the calendar last year.

Traders said that with many market participants having taken the whole day off to extend their holiday weekends from three days to four, and with others having made an early exit, there wasn’t very much going on in the way of actual transactions. However, they did see the recently priced new deals such as RJS Power Holdings LLC, AmSurg Corp., Jaguar Holding Co. I, Hub International Ltd. and Puma Energy all holding at solidly firmer levels versus their respective issue prices.

Away from the new deals, secondary activity was limited. But Verso Paper Corp.’s various bonds were seen trading multiple points higher, on brisk volume, in the wake of the new and improved exchange offer the Memphis-based maker of specialty coated papers announced on Wednesday – a key step towards getting its long-delayed merger with sector peer NewPage Holdings Inc. approved. The company is hoping the new debt-swap proposal attracts more support than an earlier plan that was withdrawn back in February due to a lack of investor support.

Statistical market-performance indicators were seen mixed for a second consecutive session on Thursday and were ending the week mixed versus where they had been at the end of the previous week for a fifth consecutive time.

Another indicator – the flow of cash into or out of high-yield mutual funds and exchange-traded funds, considered a good barometer of overall junk market liquidity trends – was higher for a second consecutive week, bouncing back from a relatively rare recent negative reading.

Junk funds gain $90 million

Market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said late Thursday that $90 million more came into those funds than left them in the week ended Wednesday.

It was the second consecutive inflow seen by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., which last week reported a $619.2 million cash injection for the seven-day period ended June 25.

Those gains follow a relatively rare outflow of $239 million that took place the week before that, ended June 18. That cash loss had been the first net outflow from the funds seen since the week ended April 30, when they had collectively lost $631 million, and it broke a subsequent string of six consecutive weeks of net inflows totaling $2.32 billion, according to a Prospect News analysis of the figures.

That six-week winning streak had established a definite positive trend, breaking out of the choppy pattern of a week or two of inflows alternating with a week or so of outflows that had been in effect since around mid-March, which in turn had followed a strongly positive start to the year, with inflows seen most weeks.

With the latest week’s upturn, inflows to the weekly-only reporting funds have now been seen in 20 of the 26 weeks since the start of the year, according to the analysis, against just six outflows.

The inflow in the latest week raised the year-to-date cumulative net inflow number to $6.58 billion, according to a market source – a new peak inflow level for the year. That total is up from the previous week’s estimated $6.49 billion total, the previous peak level.

Cumulative fund-flow estimates may be revised upward or downward or may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

In 2013 – which had 53 reporting weeks due to a statistical quirk – inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, according to the analysis.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable, more so than those of other, larger cash sources, and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years and which has mostly continued on into this year as well.

Iglo FRN prices tight

As expected, the dollar-denominated primary market remained dormant on Thursday ahead of the three-day Independence Day holiday weekend in the United States.

However, the euro-denominated primary market had an active session that saw five issuers price notes in single tranches to raise an overall total of €1.66 billion.

There were no drive-bys, as all of the deals came at the conclusion of brief roadshows.

No deal was upsized.

Three came at the tight end of talk, and the remaining two came in line with talk.

Iglo Group priced a €500 million issue of six-year senior secured floating-rate notes (expected B2/confirmed B+) at par to yield three-month Euribor plus 450 basis points.

The spread came at the tight end of the 450 bps to 475 bps spread talk.

A proposed €150 million tranche of fixed-rate notes, which had been talked to yield in the 5¼% area, was abandoned, and the proceeds shifted to the floating-rate tranche.

Joint bookrunner Credit Suisse will bill and deliver. Deutsche Bank and Nomura were also joint bookrunners for the debt refinancing deal.

IKKS prices secured notes

French clothing retailer IKKS Group priced a €320 million issue of seven-year senior secured notes (/B+/B+) at par to yield 6¾%.

The yield printed on top of yield talk.

Joint global coordinator Goldman Sachs International will bill and deliver. UBS was also a joint global coordinator. Natixis and SG CIB were the joint bookrunners.

Upon release from escrow, the proceeds, along with an equity contribution, will be used to help fund a buyout of the company.

Jarden prices 3¾% notes

Jarden priced a €300 million issue of 3¾% non-callable seven-year senior notes (Ba3/BB) at 98.5 to yield 3.99%.

The yield printed in line with the 4% yield talk.

Joint bookrunner Barclays will bill and deliver. J.P. Morgan Securities LLC, Credit Agricole CIB, Credit Suisse Securities (USA) LLC and Wells Fargo Securities LLC were also joint bookrunners.

The Rye, N.Y.-based consumer products provider plans to use the proceeds for general corporate purposes.

Titan Cement prices bullet

Titan Cement priced a €300 million issue of non-callable five-year senior notes (/expected BB/) at par to yield 4¼%.

The yield printed at the tight end of the 4¼% to 4½% yield talk.

Global coordinator and joint bookrunner HSBC will bill and deliver. JPMorgan and SG CIB were also joint bookrunners and global coordinators. Alpha Bank, Eurobank and NBG Securities were also joint bookrunners.

The Athens-based building materials company plans to use the proceeds to refinance debt and for general corporate purposes.

IMO Car Wash comes tight

IMO Car Wash priced a €240 million issue of five-year senior secured notes (B2/B) at par to yield 6 5/8%.

The yield printed at the tight end of yield talk in the 6¾% area and in line with initial guidance in the high 6% range.

Joint bookrunner JPMorgan will bill and deliver. Lloyds TSB was also a joint bookrunner.

Proceeds will be used to refinance debt as well as to help fund a leveraged buyout of the High Wycombe, England-based car wash company by TDR Capital.

Care UK two-part deal

In the sterling-denominated market, Care UK priced £400 million of senior secured floating-rate notes in two tranches.

The debt refinancing deal included an upsized £325 million tranche of five-year first-lien notes (B3//), which priced at par to yield Libor plus 500 bps.

In addition, Care UK priced a downsized £75 million tranche of 5.5-year second-lien notes (Caa2//), which priced at par to yield Libor plus 750 bps.

The transaction saw £25 million of proceeds shifted to the first-lien tranche from the second-lien tranches, lifting the former from £300 million and decreasing the latter from £100 million.

Both tranches came on top of spread talk.

Credit Suisse and Citigroup were the joint physical bookrunners. HSBC, ING and Royal Bank of Scotland were the joint bookrunners.

Little activity seen

The few traders who were still around by mid-day were pretty much unanimous in the contention that Thursday was a non-event.

One quipped that “the biggest order of the day is deciding what we’ll have for lunch –and then leaving.”

“Not a thing came across” in terms of communications about potential transactions, another said. “There was zero going on.”

“Anybody who could be out was out,” he declared.

He said “there’s always an excuse” for nothing happening, but he held out the hope that “next week may be a busy week” now that the usual end-of-quarter slowdown is past and the U.S. team has been eliminated, probably resulting in substantially less interest in the televised World Cup soccer matches, always a potent distraction.

At another desk, a trader said that “the market pretty much shut down after the jobs number,” which was released by the U.S. Labor Department at 8:30 a.m. ET.

He said that while “Treasuries sold off a little, I don’t think anyone was around [in the junk market] to react to it.”

The government reported that 288,000 non-farm jobs were created during the month of June, well up from the roughly 215,000 that analysts had been expecting. It also said that the May jobs figures were sharply revised upward to 304,000 from the 224,000 new jobs originally reported.

The official unemployment rate dropped to 6.1% from 6.3% in May, although skeptics pointed out the narrow jobless-rate stat does not take into account the many people who have dropped out of the workforce due to an inability to find a job and are thus no longer counted in tabulating that rate.

Recent deals hold levels

Among recently priced high-yield deals, traders quoted them Thursday as holding on to the gains they’ve notched since pricing, even if there was no real trading in them going on during the quiet pre-holiday session.

A trader saw RJS Power’s 5 1/8% notes due 2019 about ¼ point easier at 100 7/8 bid, 101 1/8 offered.

The Maryland-based power-generation company priced $1.25 billion of the notes at par on Wednesday; they quickly moved up to a 101-to-101¼ bid context when they were freed for trading.

The week’s other megadeal, the $1.1 billion of new 5 5/8% notes due 2022 from AmSurg, were seen by a trader at 101¾ bid, 102 1/8 offered.

The Nashville-based ambulatory surgery center operator priced the notes at par on Tuesday after upsizing the issue from an originally announced $880 million. The bonds quickly moved above the 101 bid level when they went into the aftermarket and stayed there.

Jaguar Holding’s 9 3/8%/10 1/8% PIK toggle notes due 2017 were being quoted on Thursday at 103 bid, 103 5/8 offered, up ½ point on the day. The company – parent of Wilmington, N.C.-based drug and biotech manufacturer Pharmaceutical Product Development LLC – priced its quickly shopped $600 million add-on to the existing notes on Tuesday at 101.5 to yield 8.621%. The bonds traded up to 102½ bid, 103½ offered when they were freed and continued to firm after that.

Singapore-based oil and natural gas midstream and downstream operator Puma Energy’s 6¾% notes due 2021 were seen little changed on Thursday at 103¾ bid, 104¾ offered.

The bonds reached that level in the aftermarket after the company priced its $250 million add-on to its existing bonds on Tuesday at 103.125 to yield 6.16%

Chicago-based insurer Hub International’s 8 1/8%/8 7/8% senior contingent cash-pay notes due 2019 continued to hover around 101 bid. It had priced its $380 million quick-to-market issue on Tuesday at 99.75 to yield 8.156% via its Hub Holdings LLC and Hub Holdings Finance, Inc. subsidiaries.

Going back a little further, a trader said that his shop had traded some of Altegrity, Inc.’s 9¼% senior secured first-lien notes due 2019 at 99 5/8 to 99 7/8, “so they were trading below issue.”

The Falls Church, Va.-based risk-management and information services company priced its $825 million issue at par on Monday after first upsizing it from the original $550 million.

The trader saw Ardagh Group’s 6% notes due 2021 “right around par,” where the Dublin-based glass and metal container manufacturing company had priced the $440 million of bonds back on June 20 as part of a three-part dual-currency deal that included a $1.11 billion tranche of floating-rate notes due 2019 and a €1.55 billion offering of 7.5-year senior secured notes.

Verso very strong

Away from the new and recently priced deals, with only limited activity in the pre-holiday market – many participants took the whole day off to extend their holiday weekends from three days to four, while others made an early exit well before the official 2 p.m. ET early close recommended by the Securities Industry and Financial Markets Association – traders said that the movement in Verso’s bonds stood out dramatically.

The biggest winner on the day was Verso’s 8¾% second-priority senior secured notes due 2019.

One trader pegged the bonds in a 61 to 62½ range, with a last print at 61½ bid, and more than $10 million of the notes traded in round-lot transactions.

The bonds were up 14½ points from Wednesday’s close around 47, though the gain when compared to Wednesday’s final round-lot trade was closer to 10½ points, according to another market source. He saw volume of more than $11 million in the credit, putting it high on the list of the most active names in the junk and distressed-debt markets.

Verso’s $417 million of 11¾% senior secured notes due 2019 pushed up by 1 1/8% to end at 107¾ bid, on volume of over $6 million.

Verso’s separate $271 million tranche of 11¾% secured notes due 2019 – which are junior in the capital structure to the other 11¾% paper but senior to the second-priority bonds – gained 7 points on the session to go home at 95 bid, on over $5 million traded.

Its 11 3/8% senior subordinated notes due 2016 closed above 56 on Thursday, up from 50 bid late Wednesday and well up from the most recent round-lot close at 41½, but there were only a handful of small-sized trades in that credit.

The Verso paper zoomed in the wake of the company’s announcement on Wednesday of a new exchange offer for the 8¾% notes and the 11 3/8% notes connected with its efforts to acquire Miamisburg, Ohio-based sector peer NewPage.

Verso tried to exchange the existing notes for new paper earlier in the year, but the effort fell flat as few noteholders went along with its terms and Verso rejected the noteholders’ counterproposal. Verso withdrew that earlier offer in late February.

The new offer has considerably sweetened terms, including a greater adjusted principal amount of the new bonds per $1,000 principal amount of the old bonds tendered, once the merger is completed, than the original exchange offer gave and giving the noteholders warrants convertible into Verso’s equity, a provision that could give the 11 3/8% noteholders almost 5% of the equity and the 8¾% noteholders 15%.

Each exchange offer also has a lower participation threshold for consummation – 75% versus 85% in the earlier offer.

The company said that as of July 2, holders of $213 million of the outstanding $396 million 8¾% notes had agreed to tender their securities under the revised offer. In contrast, holders of only $8.1 million of those note had agreed to go along with the earlier offer before it was terminated.

The company did not give any details on whether holders of the $142.5 million of 11 3/8% notes had agreed yet to the swap, which is scheduled to expire at midnight ET on July 30. The early tender deadline is midnight ET on July 16.

Holders of only $2.8 million of the 11 3/8% notes had tendered them before the prior offer was canceled.

Besides Verso bonds, the company’s New York Stock Exchange-traded shares zoomed on the news of the new debt-swap offer and the prospect that it could bring the NewPage merger closer. The shares rose by 46 cents on Thursday, or 20.09%, to close at $2.75, on volume of 1.2 million shares, more than 10 times the daily average.

Market indicators stay mixed

Statistical indicators of junk market performance meanwhile remained mixed on Thursday. They had turned mixed on Wednesday after having been higher on Tuesday, which in turn had followed a mixed session on Monday.

The KDP High Yield Daily index dropped by 5 bps Thursday, its second loss in a row. On Wednesday it had eased by 3 bps.

Its yield widened out to 4.97% after having been unchanged on Wednesday.

The Markit CDX Series 22 index was up by 7/32 point on Thursday after having been off by 1/32 point on Wednesday.

The widely followed Merrill Lynch High Yield Master II index posted its fourth straight gain Thursday, edging up by 0.003% on top of Wednesday’s 0.002% advance.

Thursday’s rise lifted the index’s year-to-date return to 5.678% from 5.675% on Wednesday, although it remains below its peak level for the year, 5.727%, recorded on June 24.

© 2015 Prospect News.
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