Kodiak, Rockies Express drive by; new Bombardier up; SuperValu jumps; funds up $1.11 billion

By Paul Deckelman and Paul A. Harris

New York, Jan. 10 - Energy issues were front and center in Junkbondland on Thursday, as Kodiak Oil & Gas Corp. and Rockies Express Pipeline LLC priced new quick-to-market deals.

Oil and gas operator Kodiak did an upsized $350 million of eight-year notes, while gas pipeline operator Rockies Express priced $525 million of six-year paper. The new Kodiak bonds were heard by traders to have firmed smartly when they moved into the aftermarket.

Also on the energy front, exploration and production company Atlas Energy Holdings Operating Co. LLC and Atlas Resource Finance Corp. was heard by syndicate sources to have begun shopping a $250 million offering of eight-year notes around.

Away from the energy sphere, price talk emerged on information and analytics provider NeuStar Inc.'s $300 million offering, which is expected to come to market on Friday morning.

Traders saw the new Bombardier Inc. bonds that priced on Wednesday having moved up when they began trading on Thursday and saw Wednesday's deal from HD Supply Inc. also up from its pricing level.

Away from the new deals, SuperValu Inc.'s bonds rose on the news that the supermarket operator will sell several of its chains to a Cerberus-led investment group, which will also take a big chunk of the company's debt.

The overall market was seen firmer on the day.

And flows of money into and out of high-yield mutual and exchange-traded funds, a key liquidity indicator, were seen strongly positive.

AMG sees $1.11 billion inflow

As Thursday's session was winding down, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, $1.11 billion more came into those funds than left them.

It was the first inflow seen in the new year by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. It followed three consecutive weeks of outflows totaling about $1.17 billion, according to a Prospect News analysis of the figures, including the $473 million cash loss recorded the previous week, which ended Jan. 2.

For the year so far, net inflows have amounted to about $639 million, according to the analysis.

The return to a positive funds-flow figure is in line with the pattern of strength seen over most of last year, when cumulative net inflows for the year totaled an estimated $28 billion, according to the analysis, with inflows to the funds recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

EPFR sees $1.66 billion inflow

The Lipper inflow was also in line with a similar cash injection recorded by the other major fund-tracking service, Cambridge, Mass.-based EPFR Global. That agency said that in the latest reporting week, also ended Wednesday, $1.66 billion more came into the funds that it tracks than left them.

It was the third consecutive inflow seen by the service, including the $265 million that came into the funds the week before. During that three-week stretch, inflows have totaled $2.08 billion, according to a Prospect News analysis of the figures.

It was also the second consecutive inflow seen so far in the new year, against no outflows; that inflow total was about $1.93 billion, according to the analysis.

EPFR and Lipper calculate their respective fund-flow statistics using different methodologies; EPFR includes some non-U.S. domiciled mutual funds and ETFs in its tabulations, while the Lipper number is purely domestic funds. Despite the differences in the actual numbers, the two services' weekly results usually point in the same direction, as was the case this week, although for the two previous weeks, EPFR was seeing net inflows while Lipper was recording net outflows.

Reporting only U.S. funds that it tracks - a category more closely aligned with the Lipper totals - EPFR saw a $978 million inflow in the latest week, versus a $151 million outflow seen in the Jan. 2 week.

In 2012, EPFR's overall figure showed a cumulative net inflow of $72.3 billion. According to a Prospect News analysis of the data, EPFR recorded 42 weeks of inflows last year, against just 10 weeks of outflows.

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

The continued flow 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 the junk market - has been seen by analysts as a key element behind the high-yield secondary market's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $300 billion mark.

A high-yield trader, speaking before the latest week's fund-flow numbers were reported, accurately predicted that they would be on the upside across the board this week.

Rockies Express oversubscribed

Two North American high-yield corporate issuers raised $875 million on Thursday; each one completed a single-tranche deal.

Rockies Express Pipeline priced a $525 million issue of non-callable six-year senior notes (Ba2/BB) at par to yield 6%.

The yield printed at the tight end of the 6% to 6½% yield talk.

The deal was well oversubscribed before price talk went out, an informed source said.

Bank of America Merrill Lynch, Barclays and Credit Suisse Securities (USA) LLC were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Kodiak upsizes

In drive-by action, Kodiak Oil & Gas priced an upsized $350 million issue of eight-year senior notes (B3/B-) at par to yield 5½%, at the tight end of the 5½% to 5¾% yield talk.

Wells Fargo Securities LLC was the left bookrunner for the debt refinancing deal, which was upsized from $300 million.

Fresenius, a 2-handle

German dialysis services provider Fresenius Finance BV joined a very exclusive subset of high-yield issuers on Thursday as it priced a €500 million issue of 7.5-year senior notes (Ba1/BB+) at par to yield 2 7/8%.

The yield printed at the tight end of the 3% price talk, which had been revised from earlier talk of 3% to 3¼%.

In bringing the deal at 2 7/8%, Fresenius became just the third high-yield issuer ever to complete a "two-handle" deal, i.e. an issue with a yield greater than 1.99% but lower than 3%, according to Prospect News data.

The other two are Ford Motor Credit Co. LLC, which sold 2¾% senior notes due in May 2015, and CMS Energy Corp., which printed 2¾% senior notes due May 2014.

A high-yield investor who follows euro-denominated junk corporates chuckled as he confided that he passed on Fresenius at 2 7/8%.

Fresenius bonds have a tendency to find their way into the hands of German retail investors, the buysider said, adding that those retail investors like the name, and it probably makes sense for them, even at 2 7/8%.

Joint bookrunner Deutsche Bank will bill and deliver for the Fresenius deal. JPMorgan, SG CIB, Credit Suisse and UniCredit were also joint bookrunners.

Atalian upsizes

Elsewhere in the euro-denominated market, France's La Financiere Atalian SA priced an upsized €250 million issue of seven-year senior notes (B3/B) at par to yield 7¼%, at the tight end of the 7¼% to 7½% yield talk.

An investor who got in the deal saw the par-pricing bonds trading in the secondary at 101 7/8 bid, 102 offered.

Credit Suisse will bill and deliver.

Credit Suisse, Credit Agricole and Societe Generale managed the deal.

Gildemeister sees big demand

The search for yield led some U.S. high-yield investors to look toward South America on Thursday, a portfolio manager said.

Chile's Automotores Gildemeister SA priced a $300 million issue of 10-year senior notes (Ba2//BB) at par to yield 6¾%.

The yield printed 12.5 basis points inside the low end of the 6 7/8% to 7% yield talk.

Despite the fact that there was no New York roadshow - the issuer opted instead to do one-on-ones with accounts - the order book contained $3.5 billion for the $300 million deal, the manager said.

The deal shot up in the secondary, said the source, spotting the new notes at 102 1/8% bid just before the New York close.

J.P. Morgan Securities LLC ran the books for the Rule 144A and Regulation S deal.

NeuStar sets talk

The Friday session will get underway with just one announced deal on deck.

On Thursday NeuStar talked its $300 million offering of 10-year senior notes (Ba3/BB-) with a yield in the 4¾% area.

JPMorgan, Morgan Stanley & Co. LLC and RBC Capital Markets are the joint bookrunners.

Atlas Resource starts roadshow

Atlas Energy Holdings Operating and Atlas Resource Finance began a roadshow on Thursday for their $250 million offering of eight-year senior notes (/B-/).

The deal is expected to price on Wednesday.

JPMorgan, Citigroup Global Markets Corp., Wells Fargo, Deutsche Bank Securities Inc. and Bank of America Merrill Lynch are the joint bookrunners for the debt refinancing deal.

New Kodiak climbs

When Kodiak Oil & Gas' new 5½% notes due 2021 were freed for secondary dealings, a trader saw the independent exploration and production company's upsized issue having moved up "about 2½ points or so" from their par pricing level.

A second trader said that Kodiak "was up quite a bit," pegging the new bonds at 102¼ bid, 102¾ offered, while yet another trader located the bonds at 102½ bid, 102¾ offered.

Gildemeister motors up

A trader said that although Rockies Express Pipeline's offering had priced, he saw no immediate aftermarket trading.

Another trader, meantime, saw Gildemeister's new 6¾% notes due 2023 having cruised to a closing high of 102 bid, 102¼ offered, up from the par level at which the quickly shopped $300 million issue had priced.

Wednesday deals move up

One of the traders saw the overall junk market firmer by around a half-point across the board but said that "everybody's theme was new issues, new issues, new issues," seeing most activity in the new and recently priced deals.

For instance, he saw gains in both tranches of the $2 billion deal that Canadian transportation equipment manufacturer Bombardier brought to market on Wednesday, quoting its $750 million of 4¼% notes due 2016 at 103 bid, 103½ offered.

He also saw its $1.25 billion of 6 1/8% notes due 2023 at 102¾ bid, 103 offered.

Both of those drive-by tranches priced at par on Wednesday - too late for any aftermarket at that time - as Bombardier revived a bond deal that it had shopped around the marketplace back in late November, only to pull it off the table at that time and put it in cold storage, owing to what it considered to be unfavorable market conditions.

But now, he said, "if you're a company and you have a pulse, you can bring a new deal."

Among the other names that priced on Wednesday, the trader saw Halcon Resources Corp.'s $600 million 8 7/8% notes due 2021 at 106½ bid, 106¾ offered.

The Houston-based energy exploration and production company priced those bonds as a fungible add-on to its existing $750 million issue that had priced back in October. The quickly shopped add-on priced after having been upsized to $600 million from $400 million originally, but it came too late in Wednesday's session to trade.

A trader saw HD Supply's 10½% senior subordinated notes due 2021 having firmed smartly to 103½ bid, 104 offered.

The Atlanta-based distributor of tools and building products priced its $950 million issue at par on Wednesday - like the day's other deals, too late to trade at that time. The quick-to-market deal was upsized from an original $650 million.

A second trader said that HD Supply "definitely moved up," although he allowed that at his shop, "we didn't really see 'em."

SuperValu soars

Although the overall market was seen about a half-point to 1 point firmer, a trader said there actually was not too much activity among the purely junk names; he reported that most of the credits topping the Trace most-actives list of ostensibly junk issues were really crossover credits, many of them split-rated, that were more likely to appeal to higher-grade accounts reaching for yield, such as Ford Motor Co., Century Link Inc., SLM Corp. and ArcelorMittal.

One exception to the rule, though, was SuperValu, whose bonds were ringing up solid gains in busy trading as investors reacted to the news that the underperforming supermarket operator agreed to sell some of its best-known banners, or store chains, in exchange for a modest cash payment and the shedding of a sizable portion of the company's debt.

SuperValu's most widely traded issue, its 8% notes due 2016, jumped as high as 101 bid in morning deals before going home at 99½ bid, still up 2¼ points on the day. Volume of more than $47 million was tops in the junk sector.

Its 7½% notes due 2014 had pushed up to 100¼ bid, up 1 3/8 points on the day, with more than $17 million changing hands.

The company's New York Stock Exchange-traded shares meantime zoomed by 43 cents, or 14.14%, to close at $3.47. Volume of 60 million shares was more than eight times the norm.

Eden Prairie, Minn.-based SuperValu agreed to sell five of its well-known chains - Albertsons, Acme, Jewel-Osco, Shaw's and Star Market - a total of 877 stores out of its more than 2,300 nationwide outlets, plus the related Osco and Sav-on in-store pharmacies - to a consortium led by private equity giant Cerberus Capital Management LP.

The syndicate also includes Kimco Realty Corp., Klaff Realty LP, Lubert-Adler Partners and Schottenstein Real Estate Group.

The buyers will pay SuperValu $100 million in cash - but they will also assume $3.2 billion of the company's roughly $6.3 billion of total debt lease obligations. The company also announced plans to refinance much of its remaining debt. (See related story elsewhere in this issue.)

As part of the deal, a Cerberus-led group will also launch a tender offer for up to 30% of SuperValu's common stock at $4.00 per share - a 50% premium to the 30-day average closing share price.

SuperValu also reported that it swung to a profit of $16 million, or 8 cents per share, for the fiscal third quarter ended Dec. 1, versus its year-earlier loss of $750 million, or $3.54 per share.

Indicators still mostly up

Statistical junk market performance indicators were mostly better for a third straight session on Thursday.

The Markit Series 19 CDX North American High Yield index turned higher for the first time in three sessions, gaining 3/8 point on Thursday to close at 102 5/8 bid, 102¾ offered; that followed it having lost 1/16 point on Wednesday, its second straight decline.

But the KDP High Yield Daily index was unchanged on Thursday at 75.88 after having risen for seven consecutive sessions, including Wednesday's, when it was up by 5 bps. Its yield was also unchanged on Thursday after having come in over the previous six sessions, including Wednesday, when it declined by 3 bps.

The widely followed Merrill Lynch U.S. High Yield Master II index posted its eighth straight gain on Thursday, rising by 0.105% on top of Wednesday's 0.155% advance.

That lifted its year-to-date return to 1.225%, a new peak level for the year so far, from Wednesday's 1.119%, the prior peak level.

The index's yield to worst meantime continued to decline on Thursday, coming in to 5.768% from 5.799% on Wednesday, while its spread to worst versus the comparable Treasury issues tightened to 485 bps from 493 bps on Wednesday. Both Thursday levels represented the tightest levels of the nascent year so far.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.