Omnicare in drive-by add-on, new bonds firm; Sealed Air sets Friday call; funds up $210 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 15 - Omnicare, Inc. came to Junkbondland on Thursday with an opportunistically timed $150 million add-on to its existing 2020 bonds. After the upsized issue had priced, traders saw it firm solidly in the aftermarket.

And as new-deal arena activity began to heat up after a long hiatus, syndicate sources heard that Sealed Air Corp. plans to pitch its $1.5 billion two-part issue to potential investors via a conference call on Friday.

The recently priced Fresenius Medical Group AG notes remained in a 101-102 context.

Away from the news deals, secondary market measures were solidly higher across the board, and many issues, such as Ford Motor Co.'s benchmark bonds, were seen up by multiple points.

But others were little moved, including bellwether health care issuer HCA Inc., even though the hospital operator's stock jumped on news it will buy back a big chunk of stock held by Bank of America.

On the downside, traders were analyzing the huge plunge on Wednesday and the partial recovery on Thursday of the price of fiberglass yarn maker AGY Holding Inc.'s 2014 bonds, with no news out to explain such gyrations.

High-yield mutual fund flows - considered a reliable barometer of overall junk market liquidity trends - were seen having posted a second straight week of gains, rising $209.8 million for the week ended Wednesday.

AMG sees funds gain

As Thursday's session was drawing to a close, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, more came into those weekly reporting funds than left them.

It was the second consecutive weekly inflow, following the $576.48 million cash infusion seen the week ended Sept. 7.

That upturn broke a five-week losing streak dating to the week ended Aug. 3, during which the funds had tallied a net loss of some $4.854 billion, according to a Prospect News analysis of the numbers.

For the year as a whole, although inflows have still been seen in 23 weeks versus 14 outflows, the momentum of late has clearly shifted in the other direction when it comes to year-to-date net totals. While at one point, year-to-date net inflows had totaled as much as $7.82 billion, which was recorded in the week ended May 25, according to the analysis, the recent string of sizable outflows eventually erased that bulge and drove that year-to-date total into the red for a time.

Last week's inflow, though, had essentially erased that year-to-date deficit. With the latest weekly gain, the 2011 cumulative inflow total moved up to around $211 million, according to the analysis, although a market source elsewhere estimated the rise at closer to $800 million.

Fund flow patterns began the new year on a roll with cash infusions totaling more than $8 billion seen over a 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. Then, fund-flow patterns turned choppy with two or three weeks of declines, followed by several weeks of inflows, going back and forth since then. But after an apparent break to the upside in July, when four straight inflows were recorded, August was a complete wipeout, while September has so far started on the positive side.

EPFR sees funds outflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, reported a $580 million outflow to the funds in the latest week, more than offsetting the $515 million inflow recorded last week, which - as was the case with the AMG figures - had been the first inflow seen after five straight weeks in the red.

After the strong start to the year, outflows have now been seen in 11 weeks out of the last 15, including the mammoth $6.71 billion outflow recorded in the Aug. 10th week - the single largest loss of cash from those funds since EPFR began tracking fund flows some years ago. EPFR's calculations now show 24 weeks of inflows so far this year against 13 outflows.

The latest week's cash loss widened the estimated year-to-date net outflow to $1.523 billion from the previous week's $943 million deficit.

The latest outflow represented a relatively rare divergence between EPFR's figures and those of AMG, which generally point in the same direction, although their actual numbers usually differ markedly 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.

EPFR noted that this week's outflow was largely driven by European-domiciled funds, which have struggled more than their U.S. counterparts, given the backdrop of the ongoing euro zone debt crisis. EPFR's count of strictly domestic funds this week, on the other hand, did show them having "eked out" an inflow - however small - of $9 million, which followed the previous week's inflow of $883 million for the U.S. funds.

Cumulative fund-flow estimates, whether of the AMG funds 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. Those trends had pretty much continued into 2011 as well, although the market hit something of a dry patch in June, then seemed to recover in July - only to run into a brick wall for all of August, from which the junk market is only now just starting to recover.

Omnicare upsizes add-on

On that back of rallying equities, the primary market generated news on Thursday, sources said.

Omnicare priced the session's sole junk-rated deal, an upsized $150 million add-on to its 7¾% senior subordinated notes due June 1, 2020 (Ba3/BB).

The tap priced at 100.25 to yield 7.698%, at the rich end of the 100 to 100¼ price talk.

J.P. Morgan, Barclays, Bank of America Merrill Lynch, Goldman Sachs and SunTrust were the joint bookrunners for the quick-to-market add-on which was upsized from $100 million.

The Covington, Ky.-based pharmaceutical services company plans to use the proceeds to redeem its $100 million of outstanding 6 7/8% senior subordinated notes due 2015 and for general corporate purposes.

The original $400 million issue priced at par on May 13, 2010.

The deal was too rich for one mutual fund manager, who said that the high-yield index is yielding 8½%, so Omnicare, yielding 80 basis points lower than the index, offers a meager return.

El Paso, high-grade style

El Paso Pipeline Partners Operating LLC priced a $500 million issue of 5% 10-year notes (Ba1/BB/BBB-) at a 300 basis points spread to Treasuries.

The spread came on top of spread talk, which had been reduced from initial guidance of 300 to 312.5 bps.

The reoffer price was 99.337, and the notes yield 5.085%.

J.P. Morgan and Deutsche Bank were active bookrunners for the quick-to-market deal, which was priced on the investment grade desk.

El Paso Pipeline was also too rich for the high-yield fund manager's appetite.

However, plenty of people obviously did find their way into the deal, said the investor, who saw the new El Paso Pipeline 5% notes trading as tight as Treasuries plus 282 bps bid in the secondary market.

"Demand for this kind of deal is no doubt through the roof," the buysider said, noting that the issuer emanates from a defensive sector, has quality credit ratings and is a familiar name to high-yield investors.

Sealed Air for Friday

Solid news turned up Thursday on the late summer's most talked about deal.

Sealed Air will host an investor call at noon ET on Friday for a $1.5 billion two-part notes offering.

The deal also is expected to price on Friday, according to a high-yield mutual fund manager who is involved.

The two-part offer includes a tranche of eight-year notes. Citigroup, Bank of America Merrill Lynch, BNP Paribas and RBS are the joint bookrunners for this tranche.

In addition, Sealed Air plans to sell 10-year notes via bookrunners Citigroup, Bank of America Merrill Lynch, BNP Paribas, Credit Agricole and Rabobank.

Tranche sizes remain to be determined.

Proceeds will be used to help fund Sealed Air's acquisition of Diversey Holdings Inc. from the Johnson family and Clayton, Dubilier & Rice LLC and to refinance Diversey debt.

Anticipating a food fight

The Sealed Air deal should be a blowout, according to a high-yield mutual fund manager.

Accounts participating in the fully syndicated bridge loan - this investor among them - are going to put in big orders and hope for good allocations, the buysider said.

Often accounts pad their orders, expecting to be cut back when the bonds are allocated.

Not this time, the manager said.

"We'll be glad to take everything we put in for," said the investor, adding that this sentiment is no doubt prevalent throughout the market.

Pricing discussions have taken place within a wide range, the buysider added.

"All Citigroup would tell us is that the deal is expected to come between 8% and 9%. Naturally people are hoping that things shape up toward the higher part of that range, but I don't think that will happen.

"If the eight-year tranche comes at 8 3/8%, and the 10-year tranche comes at 8½%, I think people will be more or less satisfied, and the deal should go very well," the source added.

Omnicare up in aftermarket

When the new Omnicare add-on deal was freed for secondary dealings, a trader noted that he "couldn't find anyone involved in it," although he heard a quote of 101¾ bid, well up from the bonds' 100¼ issue price.

"It had a nice little pop," he said, but at $150 million - even though it was upsized - "it's such a small issue that we probably won't see much trading in it."

A second trader said that the new bonds were "kind of grinding right back up" after their pricing.

He said that he heard there was "over $1 billion in orders, but allocations to four or five guys who did the reverse [inquiries] on it, the entire thing, so I'm not sure whether that really counts in the new-issue sandbox."

He estimated that at the time of the pricing, the existing bonds were around a 102¼ bid, 103¼ offered, then "they priced it down [at 1001/4]. It rallied a couple [of points], but it just puts you right back to where you were."

Yet another trader saw the new bonds at 101½ bid, 102½ offered.

Fresenius holds gains

Among recently priced issues, a trader said that the new 6½% dollar-denominated and euro-denominated notes due 2018 from Fresenius Medical Group remained in a 101-102 context. That was well up from the 98.263 level at which the two mirror tranches - $400 million of dollar-denominated bonds, upsized from the original $300 million, and €400 million, upsized from €300 million - had priced last Thursday to yield 6¾%.

Each of those tranches from the Bad Homburg, Germany-based global provider of kidney dialysis products and services quickly moved up by several points from their shared issue price and stayed up there in the week that followed.

Health benchmarks unchanged

In that same health care sector, traders saw the big benchmark issues of such sector players as HCA Inc. and Community Health Systems Inc. essentially unchanged on the day, despite the generally more bullish tone in the market.

A trader saw the latter company's 8 7/8% senior secured notes due 2015 unchanged on the day, pegging the Franklin, Tenn.-based hospital operator's notes at 100¾ bid, 101¼ offered.

It sector peer in neighboring Nashville, HCA had big news out that boosted its stock, but it did little or nothing for its bonds.

A trader said that it's "probably worth talking about HCA, given the equity buyback" announced by the company, "though unfortunately, the bonds didn't move much."

Following the announcement that HCA will buy back more than 80 million of its shares from affiliates of Bank of America, or 15.6% of the float, for $1.5 billion - "obviously a pretty large slug of money for these guys to be spending" - he saw the recently priced 6½% first-lien senior secured notes due 2020 and the 7½% senior unsecured notes due 2022 "fairly active, as they usually are, but unchanged."

He saw the 6½% notes at 99½ bid, par offered, while the 7½% notes were finishing at 97 bid, 98 offered.

He said that this was on "decent volume - not extraordinary volume. But it's always a decent-volume name, so it's about average in that respect."

A market source at another desk saw over $8 million of each HCA bond trading on Thursday.

Ford continues to firm

Away from the health care names, another big benchmark seen trading actively around was Ford Motor Co.'s 7.45% bonds due 2031. A market source saw almost $11 million of that paper trading, making it one of the busiest junk issues for a second day running, and quoted the bonds as having pushed as high as 115 during the session.

Another trader saw the bonds going out at 113½ bid, 114½ offered, calling that a 2-point gain.

The Dearborn, Mich.-based No. 2 U.S. carmaker's bonds had also jumped on Wednesday, helped by the news that Ford plans further debt cuts.

Its chief financial officer, Lewis Booth, said on Wednesday at the Frankfurt Auto Show that the carmaker will pay off $1.8 billion of automotive debt by the end of this week, using some of its considerable cash on hand and expects to lower its total of outstanding automotive debt to $10 billion by mid-decade.

Market indicators up again

Overall, statistical measures of market performance posted a second session of strong gains, after having been down on both Friday and Monday and then mixed on Tuesday.

A trader said the CDX North American Series 16 HY Index gained 1 1/16 points on Thursday to finish at 93 11/16 bid, 93 15/16 offered, after having risen by a half-point on Wednesday.

The KDP High Yield Daily Index rose by 21 basis points to end at 72.06 versus having gained 11 bps on Wednesday. Its yield narrowed by 7 bps to 7.85%, after having come in by 2 bps on Wednesday.

And the Merrill Lynch U.S. High Yield Master II Index gained 0.097% on Thursday - its second straight advance following Wednesday's 0.128% upturn, the first after three days before that in the red.

The gain lifted its year-to-date return to 1.472% from Wednesday's 1.373%, although it remains well below the peak level for the year of 6.362% set on July 26.

AGY gyrations a puzzle

On the downside, a trader noted the sharp drop in AGY Holding Corp.'s 11% senior secured notes due 2014, which had recently been seen anchored around the 91 bid level. On Wednesday, he said, the bonds suffered "a massive, massive drop," down to the 25 level, which "got everybody's attention."

He saw the bonds move back to around 50 bid on Thursday.

He said: "There were rumors around about what happened, so the bonds traded down at 25 - a single print, round lots, and it kind of woke everybody up."

He said that he saw no trading at 50 bid on Thursday, "but obviously the bid is much better than where they were trading [Wednesday]."

He was skeptical of the notion that the drop may have been caused by a mistake or a bad print. "There's a lot of stories going around, but from what I know, it was a real trade. But beyond that, everything is kind of rumor and speculation."

A market source at another desk said that a check of the Trace system found that there had been no fewer than six round-lot trades of over $1 million of the bonds down at 25, all at around the same time on Wednesday afternoon, along with one trade sandwiched in there at 51 bid, but nothing at all after that.

And very late in the day on Thursday, the source said, there were two more trades at 51, considered fairly good-sized but not quite round-lot caliber.

There was no fresh news seen out Thursday on the company, an Aiken, S.C.-based maker of fiberglass yarns and specialty glass materials formerly known as Advanced Glassfiber Yarns - the name some in the market still use for it - until its 2004 reorganization. There were also no new regulatory filings seen.

Several traders queried by Prospect News said they had not heard anything about the company that might explain the very unusual activity in its bonds, and calls to the company late in the afternoon on Thursday had not been returned by press time.

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