Oasis, Acadia price deals; junk jumps on Europe debt news; funds see record huge inflows

By Paul Deckelman and Paul A. Harris

New York, Oct. 27 - A junk trader called Thursday's session "a wild day" - and he wasn't kidding.

High-yield bonds firmed smartly across the board, in tandem with a stock-market surge powered by the news that European financial and political leaders had agreed - finally - on a debt rescue plan for beleaguered Greece.

Traders said that familiar high-beta names, like Caesars Entertainment Corp., Intelsat (Bermuda) Ltd. and ATP Oil & Gas Corp., led the way with multiple-point gains in heavy trading.

Another big mover was the troubled financial firm, MF Global Ltd., whose bonds gyrated crazily after the company's nominally investment-grade rating was cut to junk by the Fitch Ratings service.

In the primary arena, Oasis Petroleum Inc. priced an opportunistically timed, quickly-shopped 10-year bond offering, which then moved solidly higher in the aftermarket.

Also pricing was a seven-year forward calendar offering from Acadia Healthcare Co. Inc., which moved up modestly when the issue was freed to trade.

Market participants also saw upward movement for recently priced deals like Atlantic Power Corp., which priced late Wednesday, along with the slew of deals that made their debut on Tuesday, including the Kinetic Concepts Inc. and FMG Resources Pty Ltd. mega-deals.

Statistical market performance indicators were up across the board.

A key barometer, high-yield mutual fund flows, which are considered a good measure of overall junk market liquidity trends, were seen by both major tracking agencies as having posted record cash infusions in the week ended Wednesday, a sign of renewed investor confidence in the high-yield space.

Record inflow for AMG

As Thursday's session was finishing up, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $4.25 billion more came into those weekly reporting funds than left them.

It was the biggest inflow recorded since Arcata, Calif.-based AMG began tracking fund flows in 1992.

It also was the third consecutive cash infusion into Junkbondland, including the already mammoth $2.275 billion inflow seen the previous week, ended Oct. 19.

During that three-week stretch, net inflows have totaled some $7.16 billion, according to a Prospect News analysis of the numbers.

The inflow also was the seventh such injection of liquidity into the market seen in the past eight weeks, according to the analysis - a surge broken only by a $363.14 million outflow in the week that ended Oct. 5.

During that stretch, dating to the week that ended Sept. 7, net inflows have amounted to $8.427 billion - an indicator that investors spooked by the severe market downturn in August had regained some trust in junk.

For the year as a whole, inflows have been seen in 28 weeks versus 15 outflows, according to the analysis.

Powered by the huge inflow in the latest week, year-to-date net inflows reached their strongest level, according to the analysis, with an estimated net of $7.906 billion more having come into the funds since the beginning of the year than having left them.

That eclipsed the old high-water mark of $7.82 billion, which was recorded in the week that ended May 25.

While fund-flow patterns began the 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, they turned choppy for several months after that with a couple of weeks of declines.

This was followed by several weeks of inflows, going back and forth. After a seeming break to the upside in July, when four straight inflows were recorded, August was a complete wipeout with the five downturns, followed by the revival since then.

EPFR: $4.76 billion inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported the largest inflow it has ever seen: $4.76 billion in the latest week.

That broke the old inflow record of $3.16 billion, which had been seen the previous week.

It also caused a big swing in the year-to-date flow totals, which had been in the red over the past several weeks, to a $3.04 billion inflow to the funds in the latest week.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ markedly since they calculate their respective fund-flow totals very differently.

EPFR, for instance, includes results from non-U.S. domiciled funds, as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG funds from Lipper/FMI or those from 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 2010, as well as the robust secondary market for both years.

Those trends pretty much continued into 2011 as well, although the market hit something of a dry patch in June. Then it seemed to recover in July, only to run into a brick wall for all of August.

Although judging by the patterns recently seen in the fund flows, the junk market seems to be in the process of righting itself and coming back.

The inflows reported by AMG and EPFR came as no real surprise to traders, who had noted a pattern of large daily inflows to the funds reported by EPFR, which tracks those money movements day-by-day as well as on the week.

Even without seeing those numbers, several said they knew instinctually that there would be big inflow numbers this week, just based on the junk market's recent strong performance.

However, the sheer size of the inflows did come as something of a surprise.

One trader informed of the magnitude of the flows exclaimed, "Wow!" and laughed.

Com Hem's SEK 3.5 billion

There was activity in Europe on Thursday.

Swedish telecommunications firm Com Hem priced a SEK 3.5 billion issue of 9¼% seven-year senior secured notes (B1/B) at 96.938 to yield 9 7/8%.

The yield came in line with guidance that was set in the high 9% range.

Goldman Sachs, the global coordinator, was joined by Nordea to lead the deal.

The joint bookrunners were Bank of America Merrill Lynch, Deutsche Bank, Morgan Stanley, Nordea and UBS.

The proceeds will be used to help fund BC Partners' acquisition of Com Hem from Carlyle Group.

The company is expected to show up next week with an offering of subordinated notes, according to a high-yield syndicate banker in London.

A pipeline of European deals is expected to shape soon, but so far nothing concrete has been heard, the banker said.

The Canadian crowd

The Canadian dollar-denominated sector of the forward calendar is notably active, a sellside source observed on Thursday.

It currently features a combined C$550 million amount coming from three separate issuers.

The biggest is Sherritt International Corp.'s C$300 million offering of seven-year senior notes (DBRS: BB) via joint bookrunners, GMP Securities and National Bank Financial.

The Toronto-based miner and refiner's debt refinancing deal is big in terms of the Canadian market, according to the banker who keeps an eye on high-yield primary activity taking place north of the 49th Parallel.

Sherritt could price on Friday, but may need another day or two to get the book completely built, the source added.

Also, GreenField Ethanol Inc. is in the market with a C$175 million offering of five-year senior second-lien notes (/B+//DBRS: B) and Cara Operations Ltd. is marketing C$75 million of five-year senior second-lien guaranteed notes (/BB-/).

Both are being led by Scotia Capital and are likely to come in the week ahead, the banker said.

The last Canadian dollar-denominated deal to price was from Westport Innovations Inc., which priced C$36 million of 9% unsecured subordinated debentures due in 2014. That deal priced on Sept. 23.

MannKind making progress

California biopharmaceutical firm MannKind Corp. remains in the market with a bond deal, according to an informed source.

The company roadshowed a $370 million-proceeds offering of six-year senior discount notes via Global Hunter Securities and Knight Capital earlier in the month.

Investors are zeroing in on the collateral, the source said, adding that a group of high-yield buyers is set to tour MannKind's Danbury Conn.-based packaging facility early in the week ahead.

The source declined to discuss price talk, saying that the deal is still taking shape.

However the buzz overheard in the market had the MannKind deal downsized and coming with a yield of 12%, with warrants for 3% of the company.

But the warrants portion of the deal is believed to have grown a lot, a buyside source said.

The Valencia, Calif.-based company plans to use the proceeds for development and operating capital.

This includes completion of the phase 3 clinical trials and commercialization of MannKind's lead product candidate, Afrezza, as well as the continuing work on its Danbury manufacturing facility and ongoing research and development. Other proceeds will be used for general corporate purposes.

Primary set to become busier

With the high-yield funds having seen two consecutive weeks of record-setting inflows and credit news from the euro zone having significantly improved, the primary market is likely to see an uptick, sources said on Thursday.

The wait may be over for some opportunistic issuers who have been sitting on the sidelines with deals designed to come quick-to-market.

"Friday should be a light day," said a debt capital markets banker, who added that the above-mentioned Sherritt deal is possible for Friday, although not probable.

"Next week we should see a lot more drive-bys," the banker added.

Oasis up in aftermarket

When the new Oasis Petroleum 10-year bonds were freed for secondary dealings, traders saw the Houston-based energy exploration and production company's new paper having firmed solidly from their par issue price.

One pegged the bonds at 101½ bid, 101¾ offered, while a second saw them trading in "a very tight" pattern at 101½ bid, 101 5/8 offered. He later saw the bonds locked at 101 5/8.

Later on, another saw the bonds going out at 101¼ bid, 101¾ offered.

Acadia edges up

Several traders said that they had not seen any transactions in the seven-year bonds of Acadia Healthcare, which had priced earlier in the session at 98.323.

However, one trader late in the day said the bonds had improved modestly to 98¾ bid, 99¼ offered.

Atlantic powers up

A trader said that Atlantic Power's new 9% notes due 2018 were trading at par bid, 101 offered.

That was well up from the 97.471 level at which the Boston-based power generating company's $460 million issue had priced late in the session on Wednesday, yielding 9½%.

The trader said that although the issue had come to market pretty late that day, there was a little bit of an aftermarket initially, with the bonds having moved up in those thin dealings to 98½ bid, 99½ offered.

Tuesday issues improve

Traders also saw the new deals that came to market during Tuesday's nearly $5 billion borrowing binge continue to move up during Thursday's session, adding to the gains they notched on Wednesday.

A trader said that the biggest deal to come out of that rollicking session was Kinetic Concepts' 10½% second-lien senior secured notes due 2018, which "did really well" in Thursday's dealings, locating the bonds at 101 1/8 bid, 101 5/8 offered.

A second trader also saw them having pushed above the 101 level, at 101 bid, 101½ offered.

On Wednesday, those bonds rose about three-quarters of a point on the day to about 99 5/8 bid, par offered.

The San Antonio-based medical technology company's deal priced on Tuesday at 98.198 to yield 10 7/8%.

The deal was originally structured as a three-part offering of dollar- and euro-denominated secured paper and unsecured dollar paper, but eventually cut down to just one big tranche of secured dollar notes.

The bonds traded as high as 9½ bid in initial aftermarket dealings before falling back to close on Tuesday at 991/4.

The issue was originally supposed to be $2.55 billion, but it was carved down to $1.65 billion when the $900 million tranche of unsecured dollar notes was dropped.

But, it was eventually upsized a little back to $1.75 billion, making it the first mega-deal sized junk offering since power generator AES Corp.'s $1.25 billion two-part deal that priced on Sept. 26.

It was the largest junk offering since hospital heavyweight HCA Inc.'s massively upsized $5 billion two-part leviathan came to market on July 26.

A trader said that MarkWest Energy Partners, LP's new 6¼% notes due 2022 had pushed up to 102 bid in Thursday's dealings, while a second saw them get as good as 103 bid, 104 offered before finalizing at about 103 1/8 bid.

Yet another trader saw them later in the day having come in a little from those peak levels, pegging the bonds at 102 5/8 bid, 103 1/8 offered.

The Denver-based natural gas and oil company's quickly-marketed $700 million deal - upsized from the originally announced $500 million - had priced on Tuesday at par. But then, in the words of one trader "couldn't get out of its own way" in that day's aftermarket.

However by Wednesday, the bonds had firmed to 101¼ bid, 101½ offered and continued to rise on Thursday.

Also in the energy patch, Chesapeake Oilfield Operating LLC's 6 5/8% notes due 2019 were quoted by a trader on Thursday as moving up to 102½ bid, 103½ offered, while a second trader saw the notes as good as 103 bid, 103 ¾ offered.

The Oklahoma City-based subsidiary of Chesapeake Energy Corp. had priced $650 million of the notes - up from the original $500 million - at par on Tuesday. Those new bonds moved up to the 101 bid level in Tuesday's aftermarket dealings and then continued to improve on Wednesday to end at 101¼ bid, 101½ offered.

Finally, a trader saw East Perth, Australia-based iron ore producer FMG Resources' 8¼% notes due 2019 ending Thursday at 102½ bid, 102¾ offered.

That was an improvement from Wednesday, when the bonds ended at 101 bid. This was up from the par level that the quickly-shopped deal - upsized to $1.5 billion from an originally planned $1 billion - had priced on Tuesday.

Huber is higher

Going back a little further, a trader saw J.M. Huber Corp.'s 9 7/8% notes due 2019 at a wide 101½ bid, 103½ offered quote.

The Edison, N.J.-based supplier of engineered materials had priced its $225 million issue last Friday at 99.323 to yield 10%.

Those bonds moved up to 101 bid, 101½ in initial aftermarket dealings and then stayed there throughout the week before firming slightly on Thursday, in line with the overall junk-market jump.

Junk juggernaut rolls on

Away from the new-deal arena, traders said the junk market was higher across the board, helped by the positive news out of Europe and the soaring stock market, which saw the bellwether Dow Jones Industrial Average zoom by 339.51 points, or 2.86%, to end at 12,208.55. The S&P 500 and Nasdaq indexes each were up more than 3% on the day.

"Everything is up," a trader exclaimed, "Stocks, [junk] bonds - everyone is happy."

"Everything was up 3 or 4 points, almost across the board," a second trader said.

But a third trader said that "it was the higher-beta stuff" that was up 4 points or so, with the lower-beta names up by maybe a point.

For instance, the trader said he saw the Caesars Entertainment 10% notes due 2018 climbing by about 4 points on the day to end about at the 80-81 mark.

Another trader saw the bonds of the Las Vegas-based gaming giant, formerly known as Harrah's Entertainment, get as good as 82 bid, before coming in a little to end in an 80-81 context, still up 4 points. More than $60 million changed hands.

Other volatile bonds doing well included Houston-based energy operator ATP Oil & Gas, whose 11 7/8% notes due 2015 were seen up nearly 5 points on the day at 87¼ bid, on volume of nearly $40 million.

And Bermuda-based communications satellite operator Intelsat's 11½% notes due 2017 gained altitude to the tune of more than 4 points on Thursday, ending at 101 bid, with more than $32 million traded.

MF Global gyrations continue

However, not everyone was ending on the upside.

A trader said MF Global's 6¼% notes due 2016 traded up "right off the bat" Thursday, getting as high as 70 bid, 75 offered. But then the upswing stopped and the bonds traded down around 60 bid, 61 offered.

"They were up 15 points or so and came back down to almost unchanged to down a few," the trader said.

Another trader also saw the debt hit a high around 75, only to close at 58 bid, 59 offered.

"The downgrade [from Fitch] was the catalyst," he said. "They started out strong."

He added that news reports also were out regarding a potential sale of the company's futures business. The New York-based firm run by former New Jersey Gov. John Corzine was said to be talking to various big banks about taking over the business.

Fitch cut its rating on MF Global to BB+, its highest junk rating, citing the challenges of earning profits from interest in the current "low interest-rate environment."

On Tuesday, MF Global reported a net loss of $191.6 million, or $1.16 per share, for the third quarter. That compared to a loss of $94.3 million, or 59 cents per share, the year before.

The poor results followed a rating downgrade from Moody's Investors Service on Monday. Moody's dropped its long-term rating to Baa3 from Baa2, alleging that the firm was not properly managing risk.

Standard & Poor's placed the firm on CreditWatch with negative implications on Wednesday.

The company is reported to have about $6 billion in European exposure. That compares to the $12 million of revenues earned from its principal trading unit in the last quarter.

Stephanie N. Rotondo contributed to this report

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