Hearthside, Centene, two add-ons price; new Hearthside bonds move up; funds gain $250 million

By Paul Deckelman and Paul A. Harris

New York, April 24 - The high-yield primary sphere experienced a more normal session on Thursday after Wednesday's extraordinary session that saw the biggest junk pricing of all time take place.

Syndicate sources said that four issuers doing single-tranche deals brought a total of nearly $800 million to market - a far cry from Wednesday, when affiliated European broadband, cable and telecom providers Altice SA and Numericable Group AG combined for €12.05 billion equivalent, or about $16.6 billion, of dollar- and euro-denominated paper in seven tranches, a Junkbondland record. The four tranches of dollar notes totaling more than $10.6 billion were seen having firmed smartly in brisk aftermarket dealings.

Nothing quite so dramatic was going on during Thursday's session. The most notable deal of the day was just $300 million, coming from bakery company Hearthside Food Solutions LLC. That eight-year deal, a regularly scheduled forward calendar offering, priced after upsizing and was seen by traders to have shot up by several points in busy aftermarket dealings "right out of the chute," in the words of one.

The day also saw a quick-to-market $300 million eight-year issue from health-care provider Centene Corp., which was quoted modestly higher afterward.

And there was a pair of quickly shopped add-on transactions. Armed guard company Garda World Security Corp. brought a $140 million addition to it its existing 2021 bonds, and builder Woodside Homes Co. LLC increased the size of its own 2021 note issue by $50 million.

Traders meantime said that the huge new Altice and Numericable deals hung onto the gains they had notched when they were first freed for the secondary market after pricing on Wednesday, but they added that the real bond-price action had pretty much run its course.

Not too much activity was seen in the non-new-deal secondary except for Biomet Inc., whose bonds traded actively on the news that the medical devices manufacturer is going to be acquired by a sector peer in a $13 billion transaction, including debt assumption.

Overall, statistical junk performance indicators were mixed for a fourth straight session - and the seventh day out of the last eight.

Meanwhile, another indicator - the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends - was higher in the latest week, bouncing back from a rare downturn the week before.

Junk funds gain $250 million

After Thursday's activity had pretty much wound down, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $250 million more came into those funds than left them during the week ended Wednesday.

The funds thus bounced back from the $223 million net outflow reported last week by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended April 16. That downturn had snapped a two-week winning streak before that which saw about $1.13 billion of inflows, according to an analysis of the data by Prospect News. That figure included the $493 million cash infusion reported for the week ended April 2 and the $640 million net inflow for the week ended April 9.

The latest week's inflow was the 12th such gain seen in the 16 weeks since the start of this year, versus just four outflows; besides last week's downturn, the funds had lost liquidity during the week ended March 26, when $196 million more had left the funds than came into them, snapping a six-week positive stretch dating back to mid-February, during which time the funds grew by $4.40 billion. There were also back-to-back cash bleeds in the weeks ended Jan. 29 and Feb. 5, totaling an estimated $1.88 billion.

The latest week's inflow raised the year-to-date net inflow number to an estimated $3.97 billion, according to the analysis, a new peak level for the year, versus the previous week's figure of an estimated $3.73 billion and the $3.95 billion seen in the week ended April 9, its previous peak level for the year.

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, 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.

Another fund-tracking service, the Cambridge, Mass.-based EPFR Global, meantime saw "solid" inflow in the latest week, a market source said.

EPFR's methodology differs from AMG/Lipper's as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper's strictly domestic orientation, and the two services' weekly numbers are also generally quite different. It was EPFR's 14th such gain recorded in the 16 weeks since the start of the year, versus just two outflows in the weeks ended Jan. 29 and Feb. 5.

Analysts said that 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 more than $1 trillion junk market - has been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past two years and which has mostly continued on into this year as well.

Centene drives through

After Wednesday's record-setting issuance by way of Numericable Group and Altice, the primary market seemed somewhat like a backwater on Thursday, although there was plenty of activity.

The dollar market saw four issuers bring single-tranche deals to raise a combined total of $797 million.

Executions were crisp.

Three of the four deals came at the tight, or rich, end of price talk. The other came on top of talk.

Three of the four came as drive-by deals.

Two of the four were upsized.

Centene priced a $300 million issue of eight-year senior notes (Ba2/BB) at par to yield 4¾%.

The yield printed at the tight end of the 4¾% to 4 7/8% yield talk.

Barclays was the left lead bookrunner for the debt refinancing and general corporate purposes deal. SunTrust Robinson Humphrey Inc. and Wells Fargo Securities LLC were the joint bookrunners.

Hearthside Food upsizes

Hearthside Food Solutions priced an upsized $300 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 6½%.

The deal was upsized from $270 million.

The yield printed at the tight end of the 6½% to 6¾% yield talk.

Goldman Sachs & Co., Barclays, Deutsche Bank Securities Inc., Fifth Third and KeyBanc Capital Markets were the joint bookrunners for the buyout deal and ran an investor roadshow.

Garda at the rich end

Garda World Security priced a $140 million add-on to its 7¼% senior notes due 2021 (Caa1//B-) at 105.25.

The yield to worst is 6.118%, and the yield to maturity is 6.362%.

The reoffer price came at the rich end of the 105 to 105.25 price talk.

BofA Merrill Lynch was the left bookrunner for the dividend-funding deal. RBC Capital Markets LLC, TD Securities (USA) LLC, Mizuho Securities USA Inc. and Deutsche Bank were the joint bookrunners.

Woodside Homes upsizes

Woodside Homes and Woodside Homes Finance Inc. priced an upsized $50 million tack-on to their 6¾% senior notes due Dec. 15, 2021 (B3/B) at 100.25 to yield 6.694%.

The deal was upsized from $40 million.

The reoffer price came on top of price talk.

Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC and Deutsche Bank were the joint bookrunners for the general corporate purposes deal.

Cerba taps 7% notes

In the European market, France's Cerba European Lab SAS priced an €80 million add-on to its 7% senior secured notes due Feb. 1, 2020 (B2/B+/BB-) at 108.5 to yield 5.276%.

The drive-by deal was upsized from €60 million.

The reoffer price came on top of price talk.

Goldman Sachs ran the books.

The clinical pathology laboratories operator plans to use the proceeds to fund the acquisition of JS Bio SELAS and related entities (JS Bio) and refinance JS Bio's debt.

PPC plans roadshow

Greece's Public Power Corp. (PPC) plans to start a European roadshow on Friday for its €500 million two-part offering of senior notes (/expected B/).

The roadshow wraps up on Tuesday.

The Rule 144A and Regulation S deal comes in tranches of non-callable three-year notes and five-year notes that come with two years of call protection.

Joint global coordinator Credit Suisse will bill and deliver. Deutsche Bank is also a joint global coordinator.

Alpha Bank, Citigroup, Eurobank, HSBC, NBG and Piraeus Bank are joint bookrunners.

The Athens-based electricity supplier plans to use the proceeds to partially prepay existing loans, for finance capital and for general corporate expenses.

Sweeping up the confetti

Naturally, the market continued to buzz about the massive Numericable and Altice deals on Thursday.

The Wednesday transactions went very well indeed, market sources continued to say on Thursday.

The Altice dollar-denominated 7¾% notes due 2022 (B3/B), which priced at par in a $2.9 billion tranche, were 104 1/8 bid on Thursday, according to a portfolio manager.

Of the Numericable dollar-denominated senior secured first-lien notes (Ba3/B+), the 4 7/8% notes due 2019, which came at par in a $2.4 billion tranche, were up a point at Thursday's close, the buysider said.

The 6% notes due 2022 and the 6¼% notes due 2024, which both came at par in tranches sized at $4 billion and $1,375,000,000 respectively, were up about two points at Thursday's close, the source added.

Such premiums are sometimes interpreted to mean that the dealers were generous in pricing the bonds.

And indeed there were market sources who read it that way, especially in light of the 104 plus bid levels on the Altice paper.

"You could read it that way," the portfolio manager said.

"But these were very large transactions. And these deals were squeezed pretty hard compared with levels they were initially discussing when the roadshows started.

"I don't think that the dealers were necessarily generous. I just think that they wanted to leave a good taste in investors' mouths."

One comment heard roundabout the market: the high-yield sphere had no difficulty taking down Wednesday's massive amount of issuance from the combined Numericable and Altice dollar-denominated and euro-denominated deals, a whopping total of €12.05 billion equivalent of bonds in seven tranches.

More is apt to follow, sources say, although no one was prepared to venture any names.

Friday calendar light

Heading into the Friday session, the calendar is light, with no deals teed up to price during the session, although drive-bys are of course possible.

And so far the calendar for the April-May crossover week is light.

A lot of issuers got their transactions done before the Easter/Passover week, the investor said late Thursday.

Also we're coming into a time-frame where financial numbers will need to be updated.

"But the market feels good," the investor asserted.

"We have a way to go before the market does anything idiotic, although there have been some aggressive high-yield deals and a few ludicrous bank loan transactions."

One name that did generate a little chatter on Thursday was Safeway Inc.

The California-based supermarket chain is being bought out by AB Acquisition, which is controlled by a Cerberus Capital Management LP-led investor group that also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners LP and Schottenstein Stores Corp.

The debt financing is expected to include $1,625,000,000 of senior secured notes and is being led by BofA Merrill Lynch, Citigroup, Credit Suisse, Morgan Stanley, Barclays, Deutsche Bank, PNC, US Bank and SunTrust.

Safeway bonds had been traded on the investment-grade desk up until about a month ago, according to a trader based on the East Coast of the United States.

However, more recently trading in Safeway bonds has migrated to the crossover desk.

Hearthside heads higher

In the secondary market, the new 6½% notes due 2022 from Hearthside Food Solutions was the clear star of the day.

A trader said that at his shop, "we traded a boatload" of the Downers Grove, Ill.-based baking concern and contract food manufacturer's new bonds, seeing them in a 103 to 103½ context before they went home "draped around" 103 3/8.

Another trader declared that the Hearthside bonds "traded very well. It was trading up around 103 right out of the chute," well up from the par level at which the bonds priced after having been upsized.

He said they were "pretty well bid" around a 103 to 103¼ context.

He called Hearthside "a pretty good deal."

Most of the bonds, he said, "went to the guys who were in the bridge loan" for the company's acquisition by Goldman Sachs and Vestar Capital Partners that is being repaid with the new-deal proceeds.

However, he said that "there were a few new guys, I think some significant add-on buyers after the fact."

Other deals little seen

Several traders said that secondary market attention was focused on the Hearthside issue, and not much attention was paid to the day's other three deals - drive-by offerings from Centene, Woodside Homes and Garda World Security, the latter two being add-on transactions.

A trader said that he had not seen any activity in St. Louis-based managed care and specialty health-care services provider Centene's new 4¾% notes due 2022. He noted that "it priced awfully tight" for an ostensible junk bond, at 226 basis points over comparable Treasuries.

A second trader quoted the bonds at 100½ bid, 100¾ offered going out, versus their par issue price.

A market source saw North Salt Lake, Utah-based builder Woodside Homes' add-on to its 6¾% notes due 2021 at 101½ bid, 102½ offered, up from its 100.25 pricing level.

No trader saw any immediate aftermarket dealings in Montreal-based security services provider Garda World's add-on to its 7¼% notes due 2021, which priced at 105.25.

Wednesday issues hold their gains

Traders saw dollar-denominated bonds from Wednesday's big deal from European telecom and cable providers Altice and Numericable hanging on to the hefty gains they notched in initial aftermarket dealings, or maybe even moving up a little.

But one said that while the bonds "traded up a little bit today, the price action was very muted."

He saw Numericable's 6¼% notes due 2024 trading around 102¼ bid, with its 6% notes due 2022 at 102 and its 4 7/8% notes at 101½ bid, 101¾ offered.

Another trader did see some gains in Altice's 7¾% notes due 2022, pushing those bonds above the 104 bid mark.

Biomet bonds busy

Away from the new deals, a trader said that overall volume levels were low, with mostly "a lot of one-off credits" trading.

He opined that apart from a few specific names, "it was just a whole bunch of cats and dogs. Not a lot was going on. Everybody is just exhausted" after Wednesday's big day.

One name that did generate some volume though was Biomet, a Warsaw, Ind.-based manufacturer of musculoskeletal biomedical devices. It is being acquired by Zimmer Holdings Inc., a maker of orthopedic reconstructive, spinal and trauma devices, dental implants and related surgical products - oddly enough, Zimmer is also based in Warsaw, a town that boasts of being "the Orthopedic Capital of the World."

Zimmer will acquire its crosstown rival for $10.35 billion in cash and $3 billion in Zimmer shares. The terms of the transaction also call for Zimmer to assume or to refinance Biomet's debt, which stood at $5.83 billion as of Feb. 28.

Biomet's 6½% notes due Aug. 1, 2020 firmed to 109 5/8 bid, on volume of over $40 million, putting it high up on the Most Actives list. The bonds had traded around 108 at the beginning of the week.

Its 6½% notes due Oct. 1, 2020 traded at 109 3/8, up from 107½ as the week opened; volume was over $15 million.

Indicators stay mixed

Statistical junk performance indicators were mixed for a fourth straight session on Thursday, their seventh such session out of the last eighth.

The Markit Series 22 CDX North American High Yield index eased by 1/32 point to finish at 107 1/16 bid, 107 1/8 offered - its second consecutive loss. On Wednesday, it notched a 3/16 point downturn.

The KDP High Yield Daily index was unchanged at 74.96 after having lost ground over the previous three sessions, including Wednesday's 1 bp retreat. It had also edged downward by 1 bp on Monday and Tuesday.

Its yield came in by 1 bp to 5.19% on Thursday after having risen by 1 bp on Wednesday.

However, the widely followed Merrill Lynch High Yield Master II index was showing clear signs of strength, posting its fourth consecutive advance. The index rose by 0.057% on Thursday, on top of Wednesday's 0.045% advance.

Thursday's improvement raised the index's year-to-date return to 3.554%, its fourth straight new peak level for 2014. That was up from Wednesday's 3.495%, the index's previous zenith.

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