CIT, Limited mega-deals lead $6 billion day; new Schaefflers surge; funds post more big gains

By Paul Deckelman and Paul A. Harris

New York, Feb. 2 - The high-yield primary market saw its biggest session since last summer. More than $6 billion of new junk priced Thursday, according to syndicate sources.

These included several mega-deal sized offerings. The market saw quickly-marketed same-day deals of $3.25 billion and $1 billion from commercial lender CIT Group Inc. and apparel and personal-care products retailer Limited Brands, Inc., respectively, as well as the dollar-denominated portion of a big four-part dual-currency offering from German automotive engineering company Schaeffler Finance BV, a forward calendar transaction.

Another deal off the calendar came from lawn care and pest-control concern ServiceMaster Co., which did an upsized $500 million eight-year deal.

Technology products and services provider CDW Corp. and natural gas midstream operator Copano Energy LLC drove by with small add-on offerings to existing bond tranches.

Price talk meantime emerged on Ineos Finance plc's two-part dollar- and euro-denominated secured paper deal. The British chemical company's subsidiary is expected to price that deal on Friday.

In the secondary arena, traders noted the strong performance of the new Schaeffler dollar bonds, with both tranches seen up around 4 points.

Away from the new deals, there was busy upside activity in names such as ATP Oil & Gas Corp. and Caesars Entertainment Corp. But Springleaf Finance Inc.'s bonds, also among the most-actives, tumbled on the appointment of restructuring advisers.

Statistical market performance measures had another strong day.

And high-yield mutual funds, a barometer of overall Junkbondland liquidity trends, recorded yet another week of strong cash inflows by investors.

AMG posts $1.6 billion inflow

As Thursday's session was winding down, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $1.6 billion more came into those weekly reporting funds than left them.

It was the fifth consecutive gain so far in the new year. It came on the heels of the $1.9 billion cash infusion seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - in the week ended Jan. 25. There have been no outflows so far in 2012, while net inflows have totaled about $7.41 billion, according to a Prospect News analysis of the numbers, up from $5.81 billion the week before.

It was also the ninth consecutive inflow, a streak that dates back to early December. Over that nine-week stretch, net inflows have totaled $10.52 billion, according to the Prospect News analysis.

Another big EPFR inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a ninth straight week of inflows to start the new year off on the same kind of positive note that the old year ended upon.

Two market sources said that they saw a $1.8 billion inflow in the week ended Wednesday, while a source at another desk heard the inflow was as large as $2.45 billion, counting non-U.S. funds.

EPFR had reported a $2.53 billion cash injection the previous week.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ 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 numbers 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 then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's fairly strong performance so far this year and the recent pickup in new-deal activity.

CIT brings $3.25 billion

Six issuers brought a combined seven tranches of junk on Thursday, raising $6.09 billion.

That renders the Thursday session the biggest in the primary market, in terms of dollar amount of issuance, since July 26, which saw $7.9 billion raised in five tranches. On that day, HCA Inc. priced $5 billion and Reynolds Group priced $2.5 billion.

Thursday's biggest issuer was CIT Group, which priced $3.25 billion of its series C second-priority secured notes (B2/B+) in a quick-to-market two-part transaction.

The deal included $1.5 billion of three-year notes that priced at par to yield 4¾%, on top of price talk.

CIT also priced $1.75 billion of seven-year notes at par to yield 5½%, at the tight end of price talk that had been set in the 5 5/8% area.

J.P. Morgan Securities LLC, Barclays Capital Inc., Goldman Sachs & Co. and Bank of America Merrill Lynch were the joint bookrunners.

The New York-based bank holding company plans to use the proceeds to refinance debt and for general corporate purposes.

Schaeffler wraps four-parter

German engineering firm Schaeffler Finance priced €2.04 billion equivalent of senior secured notes in four tranches (B1/B).

The deal included a $600 million 7¾% five-year bullet tranche that priced at 98.981 to yield 8%.

The tranche amount came within the $500 million to $800 million marketed range. The yield printed at the tight end of the 8% to 8¼% price talk.

The long dollar tranche was a $500 million issue of seven-year notes that priced at par to yield 8½%. The tranche amount came at the low end of the $500 million to $800 million marketed range.

In addition, the deal featured two euro-denominated tranches.

An €800 million issue of non-callable 7¾% five-year notes priced at 98.981 to yield 8%.

The tranche amount grew €50 million beyond the marketed range of €500 million to €750 million. The yield came 12.5 basis points inside of the 8¼% area yield talk.

The long euro tranche was a €400 million issue of seven-year notes that priced at par to yield 8¾%.

The tranche size came within the marketed range of €250 million to €500 million. The yield printed at the tight end of the 8¾% to 9% yield talk.

JPMorgan will bill and deliver for the dollar-denominated tranche.

Deutsche Bank AG will bill and deliver for the euro-denominated tranche.

JPMorgan, Deutsche Bank, BNP Paribas and HSBC were the global coordinators and joint managing bookrunners.

Call protection for the seven-year notes in both the dollar- and euro-denominated tranches was decreased to three years from four years.

Proceeds will be used to repay debt.

ServiceMaster upsizes

ServiceMaster priced an upsized $400 million issue of eight-year notes (B3/B-) at par to yield 8%.

The yield printed on top of price talk that had been revised downward from earlier talk of the 8¼% area.

JPMorgan, Credit Suisse Securities (USA) LLC, Morgan Stanley & Co. LLC, Barclays Capital, Deutsche Bank Securities Inc., Goldman Sachs, Citigroup Global Markets Inc. and Natixis managed the deal, which was upsized from $400 million.

The Memphis-based lawn care and pest control company plans to use the proceeds to redeem a portion of its 10¾% senior notes due 2015.

Timing was moved up slightly. When the deal was announced, the roadshow was scheduled to wrap up on Friday.

Copano taps 7 1/8% notes

Copano Energy and Copano Energy Finance Corp. priced a $150 million fungible add-on to their 7 1/8% senior notes due April 1, 2021 at 102.25, resulting in a 6.721% yield to worst.

The reoffer price came on top of the price talk.

Wells Fargo Securities, LLC was the left bookrunner for the quick-to-market add-on.

Bank of America Merrill Lynch, Citigroup, JPMorgan and RBC Capital Markets, LLC were the joint bookrunners.

The Houston-based midstream natural gas company plans to use the proceeds to pay down its revolver.

The original $360 million priced at par on March 22, 2011.

CDW adds on to 8½% notes

CDW LLC and CDW Finance Corp. priced a $130 million fungible add-on to their 8½% senior notes due April 1, 2019 (Caa1/CCC+) at 104.375 to yield 7.453%.

Yield talk was the 7½% area

Barclays Capital was the bookrunner.

The Vernon Hills, Ill.-based company plans to use the proceeds to refinance its existing senior notes due 2015

The original $725 million issue priced at par on March 29, 2011. A previous $450 million add-on priced at par on April 20, 2011.

Ineos sets talk

Looking ahead to what promises to be a busy Friday session, Ineos Finance set price talk for its $850 million two-part offering of seven-year senior secured notes (expected Ba3/confirmed B).

A €250 million minimum tranche of floating-rate notes, callable in three years at 102, are talked with a 600 bps to 625 bps spread to Euribor with a 1.25% Euribor floor.

A dollar-denominated tranche of fixed-rate notes, callable in three years at par plus ¾ coupon, is talked to yield 8½% to 8¾%. The size of the dollar-denominated tranche remains to be determined.

Pricing is set for Friday.

Barclays Capital, which will bill and deliver the euro-denominated tranche, is a global coordinator and joint bookrunner. JPMorgan, which will bill and deliver the dollar-denominated tranche, is also a global coordinator and joint bookrunner.

In addition, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs, HSBC, Lloyds TSB, Morgan Stanley and UBS Investment Bank are the joint bookrunners.

The Lyndhurst, England-based chemical company plans to use the proceeds from the Rule 144A and Regulation S for life deal to refinance debt.

Orange restructures, talks

Orange Switzerland upsized and restructured its multi-currency, multi-tranche high-yield bond deal.

Dealers also set price talk and moved ahead the timing on the deal, which had originally been introduced into the market as a CHF 550 million equivalent two-part offering.

Matterhorn Mobile SA, a special-purpose vehicle, now plans to issue an upsized CHF 425 million tranche of senior secured notes due May 2019. Those notes, which come with three years of call protection, are talked at 7% to 7¼%. The tranche was upsized from CHF 325 million.

Matterhorn Mobile Holdings SA, another special-purpose vehicle, plans to issue €225 million of senior unsecured notes due February 2020. Those notes, which come with four years of call protection, are talked at 8½% to 8¾%. The sizing of the tranche represents a CHF 50 million increase from the original CHF 225 equivalent size.

Also, a tranche was added to the deal, €150 million of senior secured floating-rate notes, which are talked at three-month Euribor plus 525 to 550 basis points.

The books now close at 6 a.m. ET on Friday. Initially, the roadshow had been expected to continue into the week ahead.

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

Citigroup, JPMorgan, Morgan Stanley and UBS are also joint bookrunners.

Proceeds from the Rule 144A and Regulation S for life notes will be used to help fund the €1.6 billion leveraged buyout of Orange Switzerland by Apax Partners from France Telecom and to repay bank debt.

Schaeffler is a star

When Schaeffler Finance's new senior secured bonds were freed for secondary trading, traders saw the German automotive components manufacturer's two tranches of dollar-denominated paper accelerate rapidly higher.

"They did very, very well," one trader declared, seeing the $500 million of seven-year notes pushing up to 104 bid, versus their par issue price earlier in the session.

He also saw the $600 million of five-year notes get as good as 103 bid, well up from the 98.98 level at which that tranche had priced.

A second trader said the bonds appeared to be "up quite significantly." But when he was appraised of just how sharp the gains in those bonds were, he used a well-known scatological term to express his great surprise.

He said it sounded like "people were buying them and holding them."

Another trader saw the five-year notes get as good as 104, while the seven-years were trading between 103½ and 103¾ bid. He said he heard that the allocations of both the euro- and the dollar-denominated portions of the Schaeffler deal "were abysmal. People were really upset about that."

He said that he heard from one of the accounts buying the deal that there were some 200 accounts in the order book, "so on a $1.1 billion issue, you do the math." It works out to an average of a little more than $5 million per investor, assuming all allocations were equal.

He said that "the bonds didn't really start to trade until they got up into the 1021/2-103½ area. And even then, I don't think a lot traded. What's a lot? $20 million or $30 million bonds?"

"People," he said, "wanted to hang onto them," with more money chasing fewer bonds, thus bidding up the price.

CIT edges up

A trader said that CIT Group's new two-part issue of series C second-priority notes edged up a little from their par issue price, with both the three-year and the seven-year pieces going out around 100¼ bid, 100 3/8 offered after pricing late in the session.

Another trader said that owing to the lateness of the hour at which that $3.25 billion offering came to market, "I didn't see a lot of trading. Most people had gone for the day."

He speculated that when the bonds do begin to really trade around, a lot of them will end up in the hands of high-grade rather than high-yield players.

"When you look at it on spread, with the potential for an upgrade at some point, as a high-grade guy, you're probably buying it," even though the New York-based commercial lender and bank holding company's ratings at a solidly junky B2/B+. The three-year piece priced at a spread over Treasuries of 445 basis points, while the seven-year bonds were 425 bps over, well inside the average junk-bond spread of around 670 bps over.

He said that the relatively meager coupon, by the standards of the junk world - 4¾% for a three-year piece of paper - would likely turn off a lot of high yield investors.

"I don't know. Maybe some short-duration buyers would take a swing at it, just to get cash invested. But again, you don't wind up in the high yield portfolio manager 'hall of fame' buying bonds with such sparse coupons and yields," he said.

"It serves a purpose if you're awash with cash and you have no other alternative and you can get a decent slug of bonds."

He predicted that CIT "isn't going to trade down dramatically. It will trade based on interest rates and demand." In other words, he said, the new issue will not wind up as another Welltec A/S, whose $325 million of 8% senior secured notes due 2019 priced on Jan. 25 and have been struggling ever since. The Danish oilfield services provider's deal came at an already discounted 97.402 to yield 8½% and began trading down almost immediately. The bonds were being quoted as low as a 91-92 context earlier this week, "as the underwriters stepped back and let whoever wanted to sell it, sell it into a void," he said.

New deals little moved

Among other newly issued bonds, a trader said that Copano Energy's 7 1/8% add-on notes due 2021 were trading around 103 bid. That was up about a half-point from the 102.5 level where the Houston-based natural gas company priced its quickly shopped $150 million deal.

The day's other drive-by add-on, from Vernon Hills, Ill.-based technology provider CDW, was "up a tiny bit," a trader said, pegging the 8½% notes due 2019 at 104½ bid, 105 offered, versus the $130 million offering's pricing level of 104.375.

The big Limited Brands 10-year offering and ServiceMaster's $500 million deal came to market too late for any kind of Thursday trading.

Among the deals that priced Wednesday, a trader said that KB Homes' 8% notes due 2020 "kind of moved back down around issue." He noted that the Los Angeles-based homebuilder's quick-to-market $350 million deal - upsized from $250 million originally - had traded late Wednesday in a 991/2-par bid context after pricing at 98.523 to yield 8¼%, but on Thursday they were at 981/2-983/4, "so they were back down around issue."

He said that Energy Future Intermediate Holding Co. LLC's 11¾% senior secured second-lien notes due 2022 "held their gains," going home at the 100-100½ area. The Dallas-based subsidiary of utility operator Energy Future Holdings Corp. priced its opportunistically timed $800 million deal, upsized from $400 million originally, at 98.535 to yield 12%. It then moved up to the par level in the aftermarket.

Market indicators up

Away from the new deals, a trader said that Thursday's session was "a good day today," with market strength, fueled by the flood of new cash, borne out by the rise in statistical measures of junk market performance, which notched their second straight strong session.

A trader saw the CDX North American Series 17 High Yield index up by 5/16 point on Thursday to end at 97 7/8 bid, 98 1/8 offered after having been up by ¼ point in each of the previous two sessions.

The KDP High Yield Daily index edged up by 2 bps Thursday to close at 73.93 after having gained 16 bps on Wednesday, while its yield came in by 1 bp to 6.79%. On Wednesday, it had declined by 7 bps.

And the widely followed Merrill Lynch High Yield Master II index gained 0.071% on Thursday, its third straight advance, following the 0.17% gain on Wednesday.

The latest gain lifted its year-to-date return to 3.054% - a new peak level for 2012 so far. It was up from the previous peak level of 3.078% on Wednesday, the first time the year-to-date return had moved above 3% this year.

ATP Oil & Gas active

Among specific names, a trader said that ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 "always seems to be at the top of the charts or close to it," volume-wise. He said the Houston-based offshore energy exploration and production company's bonds - which on Wednesday were seen down as much as 3 or 4 points on the session to around the 61 bid level, though on no news - had come back up Thursday to 62-62½ bid on "pretty big volume," calling that up 1½ points.

The bonds had "real good volume," he emphasized, with over $38 million having changed hands, tops among high-yield issues.

Caesars trades active, firmer

Elsewhere, Caesars Entertainment's bonds were surging in terms of volume on Thursday after the Las Vegas-based casino operator said it was seeking to extend the maturity of its term loans.

The company also announced that it had commenced proceedings for an initial public offering. Caesars had planned to launch an IPO in 2010 but decided against it when market conditions deteriorated.

A trader said "nearly" $40 million of the 10% notes due 2018 changed hands, gaining half a point to 78 bid, 781/2. He noted that paper traded as high as 80 before easing back.

He also saw the 10¾% notes due 2016 improving 4 points to 851/2.

Another market source pegged the 10% notes at 78½ bid, up half a point.

Caesars' Caesars Entertainment Operating Co. unit hopes to get lender approval to extend the maturity of almost $4 billion of term loans to January 2018 from January 2015. The proposed amendments also include an increased interest rate.

The unit also intends to launch a new issue, the proceeds of which will be used to pay down existing debt.

In the IPO, the company intends to sell 1.81 million common shares at a price between $8 and $10 per share.

Springleaf taking a hit

On the downside, Evansville, Ind.-based Springleaf Finance - formerly known as American General Finance - saw its bonds taking a hefty hit on Thursday after the company announced branch closures and the hiring of advisers.

The bonds were "all hit across the board," a trader said. He noted that the debt had previously been slowly creeping higher.

The 5 3/8% notes slated to come due this Oct. 1 fell 2 to 2½ points to 943/4, while the 6.9% notes due 2017 dipped 3 points to 751/2.

"They all opened real lower," the trader said. On the open, issues were immediately trading down 5 to 7 points, he said.

"Even euro-denominated issues were quoted down 4 to 5 points," he said, though there wasn't much activity in those issues.

Another trader said Springleaf "got dragged down on their news," seeing the 6.9% notes fall to 74½ bid, 75 offered.

"That's definitely down a few [points]," he said.

A market source saw over $30 million of the Oct. 1 notes having changed hands and over $14 million of its 4 7/8% notes coming due on July 15, which were also down about 3 points at 97.

The financial services provider has been undergoing a strategic review of its operations. Based on its findings, it has decided to shutter about 60 branches in "14 states we do not have a significant presence and in southern Florida," the company said in an 8-K filed with the Securities and Exchange Commission.

The branch closings are expected to result in a pre-tax charge of $6 million in the first quarter of 2012. Up to 210 employees would be laid off immediately and another 190 jobs remain in limbo.

"The closings are the result of our efforts to return to profitability," Springleaf said in the regulatory filing. "We continue to review our branch footprint with the objective of improving the efficiency of our operations."

The company also noted that it had hired Alvarez & Marsal North America, LLC and Houlihan Lokey Capital, Inc. - firms known for their expertise in restructuring and bankruptcy situations - "to assist us with identifying ways to streamline our operations and reduce costs, and to provide financial advisory services."

Stephanie N. Rotondo contributed to this report

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