Schaeffler megadeal, Harbinger, Chemtura price; bonds trade up; funds jump by $2.67 billion

By Paul Deckelman and Paul A. Harris

New York, July 18 - High-yield primary activity remained brisk on Thursday, syndicate sources said, with $1.7 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers having priced in three tranches on the heels of Wednesday's $1.2 billion of new issuance.

The day's big deal came from German automotive and industrial bearing manufacturer Schaeffler AG, which did a $1 billion issue of five-year secured PIK toggle notes via a financing subsidiary, part of a larger transaction that also included a sizable euro-denominated tranche of similar notes. Both of those tranches were seen having firmed smartly in the aftermarket from their respective discounted issue prices.

Domestic issuers meantime contributed a pair of upsized, same-day drive-by pricings: $450 million of eight-year notes from specialty chemical manufacturer Chemtura Corp. and $225 million of secured six-year paper from diversified holding company Harbinger Group, Inc.; the latter bonds firmed solidly when they were freed to trade.

Primaryside players also heard that pork powerhouse Smithfield Foods, Inc. had upsized its two-part bond offering to $900 million, with the deal seen as a possible Friday pricing.

And they said prospective bond issues had surfaced and were being marketed to potential investors by tobacco merchant Alliance One International, Inc., musical instrument maker Gibson Brands, Inc. and LSB Industries, Inc., a diversified industrial company.

Statistical measures of junk market performance were higher across the board for a second consecutive session.

And high-yield mutual funds and exchange-traded funds - which have recently been improving after a number of weeks in which investors had pulled out billions of dollars - saw a giant-sized inflow in the latest week, the first such huge cash addition in many months. Flows of cash into and out of the funds are considered a reliable barometer of overall market liquidity trends.

AMG funds jump $2.67 billion

As Thursday's activity was coming to a close, junk market participants familiar with the fund-flow statistics generated by AMG Data Services said that during the week ended Wednesday, about $2.67 billion more came into those funds than left them.

It was not only by far the largest inflow seen this year, dwarfing the $1.11 billion seen in the week ended Jan. 9, it was in fact the biggest cash injection those junk bonds have seen since the record $4.25 billion inflow recorded in the week ended Oct. 26, 2011.

The week's mega-inflow was the third consecutive weekly gain reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., following a relatively tiny $12 million blip seen last week and before that, the $448.81 million cash infusion recorded the week that ended July 3.

That earlier inflow had snapped a string of five consecutive weekly outflows, several of which were in the billions of dollars, totaling around $12.2 billion, according to a Prospect News analysis of the AMG/Lipper figures. Those outflows were driven by investor fears of an end to accommodative Fed monetary stimulus policies.

For the year so far, inflows have now been seen in 17 weeks, against 12 weeks of outflows, and the giant-sized improvement dropped the cumulative net outflows since the start of the year to about $5.97 billion from the previous week's figure of $8.64 billion, according to the analysis.

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 roughly $1 trillion junk market - have been seen by analysts as a key element 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 easily topped the $350 billion mark.

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. That strength then faded in recent weeks on Federal Reserve-related investor worries before the now three-week comeback.

Schaeffler's dual-currency deal

Three issuers raised $1.7 billion in three dollar-denominated tranches of junk on Thursday.

Executions were notable. Two of the three tranches came at the tight end of talk while the other came on top of talk. Two of the three were upsized, and two of the three came as a.m.-to-p.m. drive-bys.

Schaeffler Holding Finance BV priced €1.6 billion equivalent of five-year senior secured PIK toggle notes (B2/B-).

The debt refinancing deal included a $1 billion tranche that priced at 99.468 to yield 7%, at the tight end of the 7% to 7¼% yield talk.

In addition, Schaeffler priced an €800 million tranche of notes at 98.428 to yield 7¼%, at the tight end of the 7¼% to 7½% yield talk.

Both the dollar-denominated notes and the euro-denominated notes pay a cash coupon of 6 7/8% and a PIK coupon of 7 5/8%.

J.P. Morgan Securities LLC will bill and deliver for the dollar tranche and was a joint bookrunner, while Deutsche Bank Securities Inc. will bill and deliver for the euro tranche and was also a joint bookrunner.

BNP Paribas Securities Corp., Citigroup Global Markets Inc., Commerzbank, HSBC Securities and UniCredit were additional joint bookrunners.

Chemtura at the tight end

In drive-by action, Chemtura priced an upsized $450 million issue of eight-year senior notes (B1/BB-) at par to yield 5¾%.

The deal was upsized from $400 million.

The yield printed at the tight end of the 5¾% to 6% yield talk.

Citigroup, BofA Merrill Lynch, Wells Fargo Securities LLC, Barclays and Goldman Sachs & Co. were the joint bookrunners for the debt refinancing deal.

Harbinger taps 7 7/8% notes

Harbinger Group priced an upsized $225 million tack-on to its 7 7/8% senior secured notes due July 15, 2019 (current ratings B3/B) at 101.5 to yield 7.474%.

The quick-to-market deal was upsized from $150 million.

The reoffer price came on top of price talk.

Credit Suisse Securities (USA) LLC was the bookrunner for the general corporate purposes deal.

Marlin prices £150 million

London-based Marlin Financial Group priced a £150 million issue of seven-year senior secured notes (B2/B) at par to yield 10½%.

The yield printed on top of yield talk.

Joint bookrunner JPMorgan will bill and deliver. Investec was also a joint bookrunner.

Proceeds will be used to repay debt and for general corporate purposes.

Smithfield for Friday

The Friday session will get underway with just one deal expected to clear the market before the weekend.

Smithfield Foods upsized its two-part offering of senior notes (B2/BB-) to $900 million from $800 million.

Price talk on the deal, which is part of the financing for the purchase of the Smithfield, Va.-based food company by Shuanghui International Holdings Ltd., also surfaced on Thursday.

A tranche of five-year notes, which come with two years of call protection, is talked to yield in the 5 3/8% area.

A tranche of eight-year notes, which come with three years of call protection, is talked to yield in the 6% area.

Tranche sizes remain to be determined.

Morgan Stanley is the bookrunner.

Alliance One roadshow

Alliance One International plans to start a roadshow on Friday for its $790 million offering of eight-year senior secured second-lien notes, which are expected to price late in the week ahead.

Deutsche Bank, Credit Suisse, ICBC, ING, Natixis and Standard Chartered are managing the sale.

The Morrisville, N.C.-based leaf tobacco merchant plans to use the proceeds to fund the redemption of $635 million of its 10% senior notes due 2016 and any and all of its $115 million 5½% convertible senior subordinated notes due 2014.

LSB plans $400 million sale

LSB Industries plans to price a $400 million offering of eight-year senior notes (Ba3/B+) late in the July 22 week.

Wells Fargo is the left bookrunner. BofA Merrill Lynch and JPMorgan are the joint bookrunners.

Proceeds will be used to repay the Oklahoma City-based diversified industrial company's secured term loan and for general corporate purposes.

Gibson five-year secured paper

Guitar maker Gibson Brands plans to conduct a roadshow for its $200 million offering of five-year senior secured notes until the end of the week ahead.

Jefferies and Wells Fargo are the joint bookrunners for the debt refinancing.

Day's deals trade higher

In the secondary sphere, a trader said that Schaeffler Holding's dollar-denominated 6 7/8% secured PIK notes had gotten as good as 103¼ bid - well up from the 99.468 level at which that $1 billion offering had priced.

He also saw the euro-denominated 2018 notes having moved up to 102¼ bid - again, a sizable jump from their issue price of 98.428.

At another desk, a trader quoted the Schaeffler dollar bonds at 102½ bid, 103½ offered.

That trader also saw Harbinger Group's upsized six-year deal having firmed to 102½ bid, 103 offered, versus their par issue price.

No immediate aftermarket dealings were seen in Chemtura's 5¾% notes due 2021, which priced late in the session, although one market source said that given the robust tone seen in Junkbondland over the past few sessions, it would not be surprising if the Middlebury, Conn.-based chemical manufacturer's new issue were to move up upon being freed to trade.

Among the deals that came to market on Wednesday, a trader said that the new TitleMax Finance Corp. 8½% senior secured notes due 2018 were trading around 103 bid, roughly around the mid-point of the 102½ to 103½ bid range seen after the Savannah, Ga.-based auto title company's upsized $525 million deal had priced at par.

New deals rule the roost

One of the traders said, "In all honesty, it was a new-issue kind of a day. If you weren't involved in new issues, it was hard to put two and two together."

Things weren't completely dead in the non-new-deal secondary arena. "People were trading around some paper - but it was all one-off trades. If you tried to buy anything, you probably weren't able to buy it," the trader said.

As has lately been the case, five-B credits and other such issues mostly of interest to crossover high-grade buyers looking to pick up a little yield dominated the Trace most-actives list, including American Tower Corp. and SLM Corp. American Tower's 3½% notes due 2023 were the busiest issue, with over $54 million having changed hands. The bonds were up about 5/8 on the day, going out at 91 7/8 bid.

Nokia better after numbers

With earnings season well under way, Nokia Corp.'s bonds firmed, though in relatively light trading, after the Finland-based wireless phone manufacturer reported more positive second-quarter numbers versus a year ago.

Its 5¾% notes due 2019 gained ¾ point to go home at 99 3/8 bid, on volume of about $3 million, while its 6 5/8% notes due 2039 ended the day at 90 bid, up only marginally, on volume of $2 million.

Nokia's company-wide net sales for the quarter slid by 24% from year-ago levels, to €5.70 billion from €7.54 billion, but its operating profit showed a considerably smaller loss, shrinking to negative €115 million from negative €824 million a year earlier. Its per-share loss narrowed to €0.06 from €0.38, and its underlying profit swung into the black for a fourth consecutive quarter, at €303 million, versus a year-earlier loss of €325 million.

On their conference call, Nokia executives also touted the expected impact of the company's recently announced agreement to buy out joint-venture partner Siemens AG and take full control of its Nokia Siemens Networks unit. (See related story elsewhere in this issue.)

Market indicators improve

Statistical junk market performance indicators were better across the board on Thursday for a second consecutive session and for the seventh session out of the last eight.

The Markit Series 20 CDX North American High Yield index was up by 5/16 point to finish Thursday's session at 106 1/16 bid, 106 3/16 offered. It was the index's second straight rise, having also gained a half-point on Wednesday.

The KDP High Yield Daily index gained 21 basis points on Thursday, its eight consecutive rise. It had risen by 15 bps on Wednesday.

Its yield meantime came in by 9 bps, to 5.84%, also its eighth straight narrowing. On Wednesday, it had closed 7 bps lower.

And the widely followed Merrill Lynch High Yield Master II index also saw its eighth straight gain on Thursday, as it rose by 0.342%. That followed Wednesday's 0.266% advance.

The latest gain raised the index's year-to-date return to 3.892% from Wednesday's 3.537%. Thursday's finish was the highest in over a month, since May 31, when it stood at 4.249%.

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