Upsized Kodiak, downsized Entercom price, Kodiak climbs; Clearwire clobbered on coupon fear

By Paul Deckelman and Paul A. Harris

New York, Nov. 18 - Kodiak Oil & Gas Corp. priced an upsized $650 million of eight-year notes on Monday, helping to close out the high-yield market's fourth consecutive fairly busy week, syndicate sources said.

Traders said the new bonds firmed smartly when they were freed for trading - one of the relatively rare new issues this week to move appreciably from their pricing level.

They noted that the Denver-based energy operator's deal was the latest in a slew of debt sales this week to come out of the resurgent energy sector, including a $1 billion offering by Plains Exploration and Production Co., as well as a number of smaller deals.

Broadcaster Entercom Radio LLC also came to market Friday with a downsized $220 million offering of eight-year paper, although it priced too late for an aftermarket.

The Kodiak and Entercom deals, which were both originally announced on Monday, each priced after a short roadshow, rather than coming to market as drive-by deals, as most of the recent new issues have been.

Apart from Kodiak, the new deals which came earlier in the week were mostly seen continuing to trade in relatively narrow ranges around their respective issue prices.

Away from the new-deal realm, traders said that Clearwire Corp.'s bonds and shares slid after the broadband company's chief executive officer reportedly said company was considering skipping a $237 million interest payment due on Dec. 1

Secondary performance indicators remained lower across the board.

High-yield mutual funds either showed a relatively small net inflow in the latest week or an actual small net outflow, depending on which tracking agency you consulted.

AMG posts $153 million inflow

During the morning part of Friday's session, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $153.24 million more came into those weekly reporting funds than left them.

The fund flow numbers customarily circulate in the market late in the day on Thursday, but there was no explanation why that did not happen this week.

The inflow was the sixth consecutive cash infusion, including a $1.1 billion inflow in the week ended Nov. 9, as well as the spectacular $4.25 billion cash transfusion seen in the week ended Oct. 26, which was the biggest single weekly inflow recorded since Arcata, Calif.-based AMG began tracking fund flows in 1992.

During that six-week stretch, net inflows have totaled $10.313 billion, according to a Prospect News analysis of the numbers.

The inflow was also the 10th such injection of liquidity into the market in the past 11 weeks, according to the analysis. That surge was broken only by a $363.14 million outflow in the week ended Oct. 5.

During that stretch, which dates back to the week ended Sept. 7, net inflows have amounted to roughly $11.58 billion - an indicator that investors spooked by the severe market downturn seen in August had regained a considerable measure of their trust in junk.

For the year as a whole, inflows were seen in 31 weeks versus 15 outflows, according to the analysis.

Powered by recently huge inflows - over $1 billion in each of the four straight weeks ended Nov. 9 - year-to-date net inflows reached their strongest level, according to the analysis, with an estimated net of $11.059 billion more coming into the funds since the beginning of the year than leaving them. That eclipsed the old high-water mark of $10.906 billion set the week before.

While fund-flow patterns began the year on a roll with cash infusions totaling more than $8 billion in the 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 with four straight inflows recorded, August was a complete wipeout with the five downturns, followed by the revival since then.

EPFR: $29 million outflow

However, another fund-tracking service, EPFR Global, reported a small net outflow from the junk funds - $29 million - breaking a five-week winning streak, dating back to the week ended Oct.12, during which time some $11.95 billion of net inflows came into the funds. That included the $1.07 billion recorded the previous week, ended Nov. 9, and the eye-popping $4.76 billion cash infusion in the Oct. 26 week, which also was most that EPFR ever recorded.

On a year-to-date basis, flow totals eased to an estimated $6.861 billion from the previous week's $6.89 billion level.

The week represented a relatively rare divergence between EPFR's figures and those of AMG. The two sets of numbers generally point in the same direction, although their actual numbers usually differ, sometimes markedly, since the Cambridge, Mass.-based company's methodology differs from AMG.

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 numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk fueled the record new-deal borrowing binges seen in both 2009 and 2010, as well as the robust secondary market seen both years.

Mutual funds represent but a small, though observable and quantifiable, percentage of the total amount of money coming in.

Those trends had 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.

However, 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.

Kodiak prices at mid-talk

Two issuers, each bringing a single tranche of bonds, raised $867 million on Friday.

Kodiak Oil & Gas priced an upsized $650 million issue of eight-year senior notes (Caa1/B-) at par to yield 8 1/8%, in the middle of the 8% to 8¼% price talk. The amount was increased from $550 million.

Credit Suisse, KeyBanc, RBC and Wells Fargo were joint bookrunners.

The Denver-based energy exploration and development company plans to use the proceeds to fund acquisitions, to pay down debt and for general corporate purposes. The additional proceeds from the upsizing will also be used for general corporate purposes.

Concurrently with this issue, Kodiak Oil & Gas priced a public offering of 42 million shares at $7.75 each plus a possible 6.3 million share greenshoe.

Kodiak actively traded

A trader from a high-yield mutual fund, who reported seeing blocks of up to $50 million of the newly minted Kodiak 8 1/8% notes move in active trading, said that the deal appeared to have gone well, with the bonds trading at 102 bid.

The trader remarked that the Caa1/B- rated Kodiak notes were significantly outperforming the higher-rated Community Health Systems, Inc. (CHS) 8% notes due 2019 (B3/B), which priced at par earlier in the week in a $1 billion issue.

The CHS paper was trading at 98¼ on Friday, the trader said.

Entercom comes wide of talk

Also on Friday, Entercom Radio priced a downsized $220 million issue of 10½% senior notes (Caa1/B-) at 98.672 to yield 10¾%.

The yield printed 50 basis points beyond the wide end of the 10% to 10¼% price talk. The amount was cut from $250 million, with $30 million being shifted to the company's term loan.

Bank of America Merrill Lynch was the left bookrunner. Credit Suisse and Morgan Stanley were the joint bookrunners.

With the downsizing of the bonds, Entercom increased the size of its term loan B to $375 million from $345 million.

Proceeds, together with funds from the term loan and a $50 million five-year revolver, will be used to repay the company's existing credit facilities and for general corporate purposes.

Optima announces secured deal

One roadshow announcement surfaced on Friday.

Optima Specialty Steel, Inc. will conduct an investor roadshow for a $200 million offering of six-year senior secured notes until Nov. 30.

Jefferies & Co. has the books.

Proceeds, together with $34.9 million of sponsor equity from Optima Acquisitions, LLC, will be used to fund the acquisition of Buffalo, N.Y.-based steel bar producer Niagara Lasalle Corp.

Optima Specialty Steel is an Akron, N.Y.-based steel products manufacturer.

$6.54 billion week

With Friday's two deals in the tally, the week of Nov. 18 saw a total of $6.54 billion of junk-rated dollar-denominated issuance.

It extends 2011 year-to-date issuance to $251 billion in 536 tranches.

Hence 2011 issuance is lagging that of the record-setting year of 2010, which had seen $265.2 billion in 595 tranches priced by the Nov. 18 close.

Uncertainty clouds week ahead

As to the three sessions left to play out prior to the four-day Thanksgiving holiday weekend in the United States, which begins on Thursday, forecasts were tenuous.

If the global capital markets stabilize - a big "if," sources say - there is a significant pipeline of deals that could get done.

One syndicate banker had visibility on five sizable deals with a combined total of $2.4 billion - all of it drive-by business.

However right now the market is putting up formidable headwinds, according to a high-yield portfolio manager.

Foremost among them are the widening sovereign credit spreads hitting countries in the euro zone, and the looming Nov. 23 deadline for a plan to surface from the United States Congress Joint Select Committee on Deficit Reduction, or the so-called Supercommittee.

The market wants to see the committee, comprised of both political parties, emerge with a deficit reduction plan, and avoid the kind of deadlock which seized deficit ceiling talks earlier in the year, the investor said.

"You are starting to hear talk that if they don't come forward with a plan, Moody's might downgrade the U.S. debt rating," said the buy-sider.

"I think that the impact of that on the markets would be very negative."

New Kodiak climbs

When Kodiak Oil & Gas' new issue of eight-year bonds was freed for secondary dealings, a trader observed that the exploration and production company's$650 million issue - upsized from an originally announced $550 million - "did pretty well," trading above the 102 level for a while.

'That was well up from the par pricing level seen earlier.

After the initial post-pricing flurry in the credits, "activity died down a little," leaving the bonds late in the session at 102 bid, 102¼ offered.

"It was a good deal, did very well," said another trader, who pegged the bonds at 102 1/8 bid, 102¼ offered.

Traders meantime saw no aftermarket dealings in Entercom's downsized $220 million offering, since the Bala Cynwyd, Pa.-based radio station ownership company's transaction took place late in the session on Friday, when many people were already gone for the day.

Energy deals trade around

The Kodiak deal was not only the strongest secondary performer among the week's new issues - it was the last in a group of a half-dozen deals that came out of a resurgent energy sector.

The biggest one of the lot came from Houston-based oil and gas operator Plains Exploration and Production Co., which priced $1 billion of 6¾% notes due 2022 in a drive-by deal on Wednesday. The transaction was sharply upsized - in fact, doubled in size from an originally announced $500 million - but the big new deal did not set the world on fire, only trading a little below their par issue piece late Wednesday and on Thursday. But in Friday's dealings, one of the traders saw those bonds having gotten as good as 100½ bid "for a little while," before the notes closed out around 100¼ bid.

A market source, who also pegged the bonds at 100½ bid on Friday, called them one of the busiest issues in Junkbondland, with over $20 million having traded.

Another deal out of that sector was fort Houston-based Swift Energy Co., an exploration and production operator, which did $250 million of 7 7/8% notes due 2022, pricing the bonds on Tuesday at 99.156 to yield 8%. After initially trading around the 99 level, the new deal retreated to a 98-99 context, and went home on Friday at 98¾ bid, 99¾ offered, on what one trader called "not much dealings."

Traders did not see any activity Friday in the $150 million of 8¾% notes due 2018 from Atlas Pipeline Partners, LP, which had priced on Wednesday as an add-on to the company's original $250 million tranche from June 2008. The Moon Township, Pa.-based natural gas processing and transportation company's issue, which was upsized from the originally announced $125 million, had priced at 103.5 to yield 7.821%. On Thursday, a trader said, the bonds had traded up from their issue level to around 104 1/8 bid.

Traders also did not see any activity on Friday from Houston-based exploration and production company Carrizo Oil & Gas, Inc., which priced $200 million of 8 5/8% notes due 2018, on Monday as a quick-to-market add-on to its existing $400 million of those bonds; or from San Antonio, Tex.-based energy contract driller Pioneer Drilling Co., which priced a $175 million add-on to its 9 7/8% notes due 2018 on Tuesday.

Secondary signs still struggle

Away from the new deals, a trader said that secondary dealings were fairly light, as things were "all new-issue-oriented on Friday."

Another trader said that the market was already winding down ahead of next week's Thanksgiving holiday break, with some desks already understaffed, in a portent of things to come.

The first trader agreed that "if anything is going to get done, it'll be on Monday or Tuesday."

Statistical secondary market performance indicators were off for a fourth consecutive session on Friday, and finished lower on the week as well.

A trader said the CDX North American series 17 High Yield index was pretty much unchanged on Friday to close at 89 13/16 bid, 90 1/8 offered, after having been down ¾ of a point on Thursday.

The index also fell from the 90 7/8 bid, 91 1/8 offered level it held at the end of last week.

The KDP High Yield Daily index dropped by 12 basis points on Friday to end at 7.66%, after it lost 22 bps Thursday.

Its yield rose 5 bps for a second consecutive session on Friday, ending at to 7.66%.

A week ago, the index had a reading of 72.28, and a yield of 7.50%

And the widely followed Merrill Lynch High Yield Master II Index lost 0.212% on Friday, on top of the 0.195% retreat seen Thursday. It was the fourth consecutive downturn for the index.

That loss left the index's year-to-date return at 2.422% on Friday, versus Thursday's 2.639% level.

For the week, the index was down 0.705% from the 3.149% at which it had finished the previous Friday, the straight weekly loss.

The cumulative return remains below its high-water market for the year of 6.362%, which was set on July 26 but is still well up from its 2011 low-point, a 3.998% deficit recorded Oct. 4.

Clearwire declines

Among specific issues, Clearwire's paper took a hit during end-of-week trading after news outlets reported that the company might not make an upcoming interest payment.

A trader said the 12% first-lien notes due 2015 fell to 76 bid, 78 offered from previous levels in the low 80s. The 12% second-lien notes due 2017 meantime dipped into the low to mid 40s from the low 50s.

"So they were down more," he said of the subordinated issue.

Another trader said he heard the bonds were down 8 or 9 points, though he did not have any markets.

The struggling Kirkland, Wash.-based wholesale wireless carrier has a $237 million payment coming due Dec. 1. The Wall Street Journal, citing the company's top executive, reported that the company was debating making the payment as it would be a "significant drain" on its cash.

The company also said it needs about $1 billion to fund operations and to upgrade its network. As of Sept. 30, Clearwire had just under $700 million in cash and equivalents.

Canadian junk trades around

Traders in the Canadian high-yield market said Friday that Connacher Oil & Gas Ltd.'s bonds traded up 3 to 5 points on the week, while new debt sold earlier in the moth from Newalta Corp. and Ford Credit Canada Ltd. also traded higher.

Capital Power Income LP's bonds ended the week lower after the company was downgraded to high-yield status on Wednesday.

Connacher Oil better

Connacher Oil's 8.75% notes due 2018 are trading better with the Canadian and U.S. bonds up 3 to 5 points on the week, a source said.

The Canadian-dollar notes were quoted Friday at 74.5 bid.

Connacher Oil sold the C$350 million tranche of notes due Aug. 1, 2018 at par on May 20.

The integrated oil company is based in Calgary, Alta.

Newalta holds

In other trading, Newalta's 7.75% senior debentures due Nov. 14, 2019 were seen Friday at 101 bid, a source said.

The company sold C$125 million of the debentures (B1/DBRS: BB) at par on Nov. 8.

Newalta is a Calgary, Alta.-based industrial waste management and environmental services company.

Ford Credit Canada edges up

The bonds that Ford Credit Canada sold earlier in the month also traded better. The 4.2% senior notes due Nov. 14, 2013 were quoted at 101.15 on Friday, a trader said.

Ford Credit Canada (Ba1/BB+/DBRS: BB) priced C$450 million of the two-year senior notes at 99.949 to yield 4.227% on Nov. 8.

The company is a financing arm of the Ford Motor Co.

Capital Power lower

Capital Power Income's 5.276% notes due November 2020 were quoted Friday at 60 bid, 62 offered in the secondary market, a trader said.

The bonds were seen on Wednesday at 61 bid, 63 offered.

DBRS announced on Wednesday that it downgraded Capital Power Income's senior debt and medium-term notes to BB from BBB after the Canadian power company's takeover by Boston-based Atlantic Power Corp. closed the previous week.

Capital Power Income sold C$300 million of the 10-year notes at par on Nov. 9, 2010.

Stephanie N. Rotondo and Cristal Cody contributed to this report

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