Alcatel-Lucent prices; BevMo!, Rosetta drive by; Affinion Group jumps; funds lose $879 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 7 - High-yield pricing activity picked up on Thursday as syndicate sources saw a trio of issuers price more than $1.5 billion of new dollar-denominated, fully junk-rated paper - well up from Wednesday's lone $350 million offering.

The big deal of the day came from a unit of Franco-American telecommunications networking equipment manufacturer Alcatel-Lucent SA, which did $750 million of new seven-year notes as a scheduled forward calendar deal.

There was also a pair of opportunistically timed, quickly marketed drive-by deals.

Energy operator Rosetta Resources Inc. upsized its tranche of 8.5-year notes to $600 million, while BevMo!, the alcoholic drinks retailer Beverages & More, Inc., popped the top on a $180 million five-year offering.

The latter deal was quoted solidly higher by traders when it hit the aftermarket. They meantime saw smaller secondary gains in the new Alcatel-Lucent and Rosetta deals.

The syndicate sources meantime heard price talk on a trio of deals expected to come to market on Friday: WellCare Healthplans, Inc., Rialto Holdings, LLC and Brazil's CBC Ammo LLC.

Away from the new deals, traders said activity was mostly light, with people hugging the sidelines as equities careened wildly downward on improved GDP numbers.

But there was busy upside activity in Affinion Group Inc.'s bonds as the provider of marketing services and loyalty programs announced exchange offers for several pieces of its debt.

Statistical indicators of secondary market performance were mixed for a second consecutive session.

But another indicator - flows of funds into and out of high-yield mutual funds and exchange-traded funds, thought to be a reliable gauge of overall Junkbondland liquidity trends - turned decidedly negative, snapping an eight-week-long winning streak.

Lipper funds lose $879 million

As Thursday's proceedings were wrapping up, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, about $879 million more left those funds than came into them.

It was the first outflow seen in the junk precincts in two months. The last outflow was during the week ended Sept. 4, when there had been a $416 million net outflow.

The downturn snapped a string of eight consecutive weekly gains in the junk funds reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., going back to the week ended Sept. 11.

During that eight-week stretch - which included the $753 million inflow reported last week, ended Oct. 30, as well as several weeks in which the cash additions topped $1 billion - those net inflows totaled about $9.25 billion, according to a Prospect News analysis of the fund-flow numbers.

For the year so far, inflows have now been seen in 28 weeks, against 17 weeks of outflows, according to the analysis. For a number of weeks, cumulative fund flows for the year as a whole were negative due to a sizable losing streak seen during May and June that included several multi-billion-dollar outflow numbers, which was prompted by investor worries over whether the Federal Reserve would end its accommodative monetary policy. At one point in late June, the red ink topped the $9 billion mark, according to the analysis.

However, encouraged by recent indications that the central bank would not be trimming its bond-buying policies as quickly as feared due to a still-shaky economy, inflows began to mount up. The negative number for the year was gradually whittled down week by week and eventually swung the year-to-date fund-flow number back into the black, according to the analysis.

But the latest week's cash exodus lowered the year-to-date cumulative net inflow to around $741 million from $1.62 billion the week before.

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

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 - were seen by analysts as a key catalyst behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which ultimately produced $327 billion of new dollar-denominated, junk-rated paper from domestic or industrialized-country issuers, according to data compiled by Prospect News.

It was also seen as one of the major drivers behind the robust patterns of primary activity and secondary strength that had continued for much of this year's first half before turning choppy over the past several months.

The recent run of consecutive net inflows coincided with the explosive expansion of junk primary activity seen last month, when over $47 billion of new paper priced, according to the Prospect News new-issuance data - the biggest September ever - and the continued healthy pace of scheduled and, particularly, opportunistically timed new deals during October and now continuing into this month.

At one desk, a trader - before the numbers came out - presciently predicted that the funds-flow number would likely come in on the negative side somewhere in the $700 million to $800 million area.

He said that "the bulk of it will be from the ETFs. The real money guys got money in this week."

Alcatel-Lucent comes tight

A busy Thursday session in the U.S. and European primary market saw three issuers price dollar-denominated high-yield bonds in single-tranche transactions that raised a combined total of $1.53 billion.

Alcatel-Lucent USA Inc. priced a $750 million issue of seven-year senior notes (B3/CCC+) at par to yield 6¾%, at the tight end of yield talk set in the 6 7/8% area.

Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC were the joint global coordinators for the debt refinancing deal.

Goldman Sachs International, HSBC Securities (USA) Inc., Morgan Stanley & Co. LLC, Natixis Securities Americas LLC, UniCredit Bank AG, BofA Merrill Lynch International, Credit Agricole Securities (USA) Inc. and Deutsche Bank Securities Inc. were the joint bookrunners.

Rosetta Resources upsizes

Rosetta Resources priced an upsized $600 million issue of 8.5-year senior notes (B2/B+) at par to yield 5 7/8%.

The issue was upsized from $450 million.

The yield printed at the wide end of the 5¾% to 5 7/8% yield talk.

Wells Fargo Securities LLC, Citigroup, J.P. Morgan Securities LLC and Morgan Stanley were the joint bookrunners.

The Houston-based energy exploration and production company plans to use the proceeds to pay off its revolver in full and for general corporate purposes.

BevMo! at a discount

Beverages & More (BevMo!) priced a $180 million issue of five-year senior secured notes (Caa2/CCC+/) at 98 to yield 10.524%, on top of talk.

Jefferies LLC was the bookrunner for the debt refinancing deal.

Talking the deals

Dealers set the stage for a busy Friday session.

WellCare Healthplans talked its $600 million offering of seven-year senior notes (existing ratings Ba2/BB) with a yield in the 5 7/8% area.

Goldman Sachs, JPMorgan and SunTrust are the joint bookrunners.

Rialto Holdings and Rialto Corp. talked their $250 million offering of senior notes due 2018 (B2/B) to yield 6¾% to 7%.

Wells Fargo is the left bookrunner. JPMorgan and Deutsche Bank are the joint bookrunners.

Brazil-based CBC Ammo talked its $250 million offering of eight-year senior notes (B1/BB-) to yield 7% to 7¼%.

Deutsche Bank is the bookrunner for the deal, which is pricing on the high-yield desk.

Unitymedia 15-year deal

The European high-yield primary market also generated news on Thursday.

In what market sources were calling the longest-maturity euro-denominated junk bond in recent memory, German cable operator Unitymedia priced a €475 million issue of 15-year senior secured notes (Ba3/B+) at par to yield 6¼%.

The yield printed at the tight end of the 6¼% to 6½% yield talk.

Joint bookrunner JPMorgan will bill and deliver for the quick-to-market debt refinancing deal. BofA Merrill Lynch and Credit Suisse were also joint bookrunners.

Marcolin at the tight end

Italy's Marcolin SpA priced a €200 million issue of six-year senior secured notes (B2/B-) at par to yield 8½%, at the tight end of the 8½% to 8¾% yield talk.

Joint bookrunner Goldman Sachs will bill and deliver. Banca IMI, Natixis, UniCredit and IKB were also joint bookrunners.

The Milan, Italy, eyewear company plans to use the proceeds to fund the acquisition of VIVA International from HVHC and to refinance debt.

Elsewhere Serbia-based SBB/Telemach Group priced a €475 million issue of seven-year senior secured notes (B2/B) at par to yield 7 7/8%.

The yield printed in the middle of the 7¾% to 8% yield talk.

Global coordinator Credit Suisse will bill and deliver. BNP Paribas and Citigroup were also global coordinators. ING and KKR are joint bookrunners.

Proceeds will be used to help fund the acquisition of the company by Kohlberg Kravis Roberts.

And Univeg Holding BV talked its €265 million offering of seven-year senior secured notes with a yield in the 8% area.

Books close at noon U.K. on Friday, and the deal is set to price shortly thereafter.

Jefferies, Petercam and KBC are the joint bookrunners.

BevMo! gets a boost

In the secondary market, a trader saw the new 10% senior secured notes due 2016 from Beverages & More having pushed as high as 101 bid, 102 offered - well up from the 98 level at which the Concord, Calif.-based beer, wine and spirits retailer had priced its deal earlier in the day.

A second trader had not actually seen the bonds, but he allowed that such a level "might make sense" for the smallish deal.

At another shop, a market source pegged the bonds at 100½ bid, 101½ offered.

Rosetta, Lucent rise modestly

The day's other two deals were seen having firmed mildly after they were freed for aftermarket activity.

A trader saw Alcatel-Lucent's 6¾% notes due 2020 trading at 100¼ bid, 100¾ offered after the Paris-based telecommunications networking equipment and software provider priced its $750 million offering at par.

A second trader located the bonds at 100¼ bid, 100½ offered, while a third saw them in a 100 1/8 to 100½ bid range.

Rosetta Resources' 5 7/8% senior notes due 2022 were seen "pretty much wrapped around" their issue price of par at 99¾ bid, 100¼ offered.

Donnelley deal stays active

The Rosetta Resources deal generated a fair amount of volume, a market source said, seeing more than $12 million of the new notes changing hands, enough to earn a spot on the Most Actives list.

Another new deal generating considerable volume for a second consecutive session Thursday was R.R. Donnelley & Sons Co.'s 6½% notes due 2023.

A trader saw them up ¼ point at 100¾ offered, on volume of over $28 million.

On Wednesday, over $60 million of those notes had traded - easily the busiest junk credit on the session. They got up to 100½ bid, 101 offered.

The Chicago-based commercial printer and communication solutions company had priced its $350 million drive-by deal at par.

Affinion boosted by exchange

Away from the new deals, a trader said that "nothing much was going on today. It was really difficult to get involved in the secondary."

He said the market "was up earlier, but then stocks sold off, and that took junk down with it."

A second trader opined that "volumes were light. People really don't seem to want to do a lot."

But one name that seemed to buck the trend was Affinion Group, whose debt popped in heavy trading after the company posted earnings and announced an exchange offer.

A trader said the 7 7/8% notes due 2018 rose over 7 points to close around 90 1/8. A market source said that over $46 million had changed hands, making it the busiest junk credit of the session.

Its 11½% notes due 2015 were being quoted up 9 points at 1001/2, on volume of over $35 million.

And Affinion's 11 5/8% notes due 2015 meantime surged a whopping 25 points to end at 801/2, with over $10 million having been traded.

The trader noted that the issue had traded as high as 82 during the session.

The massive gain in the 2015 paper came as the Stamford, Conn.-based marketing company said it was privately exchanging both the 11 5/8% and the 11½% notes.

The company said the exchange offer was aimed at extending maturities and eliminating "the requirement to pay cash interest" on the existing notes.

Those who participate in the exchange will receive new 13¾%/14½% PIK notes due 2018 and warrants good for shares of class B common stock.

The exchange expires on Dec. 9 at 5 p.m. ET.

Also on Thursday, Affinion reported its third-quarter results.

During the quarter, revenues fell 8.4% to $339.4 million due to declines in its North American membership. The company had previously said that it was reducing the amount of new campaigns it engaged in with its North American financial institution partners.

Adjusted EBITDA was also weaker, falling 10.8% to $83.4 million.

Market signs stay mixed

Overall, statistical junk-market performance indicators were mixed for a second consecutive session Thursday - its sixth mixed session out of the last seven.

The Markit Series 21 CDX North American High Yield index continued its recent up-and-down choppiness, losing 11/32 point Thursday to end at 106 3/8 bid, 106 5/16 offered. On Wednesday, it had gained 7/16 point.

The KDP High Yield Daily index suffered its sixth straight loss Thursday, easing by 1 basis point to finish at 74.45. On Wednesday, it had slid by 7 bps.

But its yield, which would normally move inversely to the index reading, also showed a decline, of 3 bps, to end at 5.65%. It had been unchanged the session before.

The widely followed Merrill Lynch High Yield Master II index meantime posted its second straight advance on Thursday, gaining 0.081%, on top of the 0.022% rise seen on Wednesday.

On Tuesday, it had fallen by 0.096%, snapping an amazing 18-session winning streak dating back almost a full month to Oct. 10.

The latest gain raised its year-to-date return to 6.367%, up from 6.281% on Wednesday. It was also a new peak level for 2013, passing the old mark of 6.36% set on Monday.

Stephanie N. Rotondo contributed to this review

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