Upsized Jones prices as primary takes breather; Caesars among busiest; funds lose $196 million

By Paul Deckelman and Paul A. Harris

New York, March 27 - After a breathlessly busy and exciting Wednesday, the high-yield new-deal market was mostly resting on its laurels on Thursday, market participants observed.

Just one new dollar-denominated, junk-rated deal was heard to have come to market during the session - Jones Energy, Inc.'s upsized $500 million of eight-year notes. The regularly scheduled forward calendar deal priced fairly late in the day and was not seen trading around afterward.

That relatively sparse new-deal activity stood in stark contrast to Wednesday, when the primary side saw its busiest session of 2014 so far as nearly $5 billion of new junk bonds priced in 11 tranches, a number of them opportunistically timed and quickly shopped same-day drive-by deals.

But despite the abundance of new paper, traders did not see very much of it in the aftermarket. Most of what trading did take place in Wednesday's new deals, such as Calumet Specialty Products Partners, LP's seven-year notes, did so right around the bonds' issue prices, with nothing either running away, like last week's new deal from Lee Enterprises, Inc., or getting beat up, like last week's PIK toggle note issue from Walter Energy, Inc.

Among the non-new-deal names, Caesars Entertainment Corp.'s bonds were higher in busy dealings amid several news items out about the underperforming Las Vegas-based gaming giant.

Statistical measures of junk market performance turned lower after three consecutive sessions of having been mixed.

And reflecting that softer tone, another indicator - the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends - was heard to have turned mildly lower in the latest week, breaking a streak of six straight weeks that had seen robust inflows of investor cash to those funds.

Junk funds lose $196 million

As Thursday's activity was winding down, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $196 million more left those funds than came into them in the week ended Wednesday.

However, given the relatively small size of the outflow, a trader opined that "it didn't matter."

It was the first outflow that the funds had seen in seven weeks, snapping a six-week winning streak dating back to the week ended Feb. 12, during which time an estimated $4.44 billion of cumulative inflows to the funds was recorded, according to an analysis of the figures by Prospect News.

Those inflows seen by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., included the $455 million cash addition reported last week, ended March 19, as well as a massive $1.45 billion liquidity injection recorded during the week ended Feb. 12 - the biggest inflow the funds had seen since the week of Oct. 23 last year, when a $2.02 billion net inflow was recorded, according to the analysis.

The latest week's outflow was only the third such cash loss seen since the beginning of the year. Including the latest week's results, there have now been nine inflows in that time, versus the three outflows, resulting in a year-to-date net inflow of an estimated $2.81 billion, according to the analysis.

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

In 2013, inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, according to the analysis.

Another fund-tracking service, the Cambridge, Mass.-based EPFR Global, meantime reported "more inflows - solid ones - towards U.S.-focused funds."

While EPFR's methodology differs from AMG/Lipper's as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper's strictly domestic orientation, the two services' weekly results usually point in the same direction, making this past week a rare instance of divergence between the two. EPFR has now seen 10 inflows and two outflows in the 12 weeks since the start of the year.

Analysts said that 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 - has been a key catalyst behind relatively the strong performance seen by both the junk primary and secondary markets over the past two years and which has mostly continued on into this year as well.

Jones, upsized and tight

Trailing Wednesday's massive torrent of issuance, the dollar-denominated primary market took a breather on Thursday, with just one deal pricing.

Jones Energy priced an upsized $500 million issue of eight-year senior notes (B3/B-/) through Jones Energy Holdings, LLC and Jones Energy Finance Corp. at par to yield 6¾%.

The issue was upsized from $300 million.

The yield printed at the tight end of the 6¾% to 7% yield talk.

Citigroup Global Markets Inc., Wells Fargo Securities LLC, Barclays, Capital One, Credit Agricole CIB, J.P. Morgan Securities LLC, SunTrust Robinson Humphrey Inc., TD Securities and Mitsubishi UFJ Securities were the joint bookrunners.

The Austin, Texas-based independent oil and gas company plans to use the proceeds to repay its second-lien credit facility in full and to pay down its revolver. The additional $200 million of proceeds that resulted from the upsizing of the deal will also be applied to repaying the revolver.

Dürr prices inside guidance

There was some news in the euro-denominated primary.

Germany's Dürr AG priced a €300 million issue of non-rated 2 7/8% unsubordinated unsecured bearer bonds at 99.221 to yield 3%.

The yield printed 12.5 basis points inside of the tight end of the initial yield talk of 3 1/8% to 3¼%.

Bookrunner Deutsche Bank will bill and deliver. HSBC was also a bookrunner.

Aldesa at the tight end

Spain's Aldesa Financial Services SA priced a €250 million issue of seven-year senior secured notes (B2//B) at par to yield 7¼%.

The yield printed at the tight end of the 7¼% to 7½% yield talk.

Joint global coordinator JPMorgan will bill and deliver. Santander was also a joint global coordinator. Banco Sabadell, Bankia and CaixaBank were bookrunners.

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

SSAB mandate

Swedish Steel AB (SSAB) mandated Citigroup, Credit Agricole and Nordea to act as joint active bookrunners and to arrange a series of meetings with fixed-income investors beginning on Monday ahead of an expected euro-denominated offering of Regulation S senior notes.

Stockholm-based SSAB specializes in processing raw material to steel.

Jones Energy unseen

The new Jones Energy issue of 6¾% notes due 2022 came to market too late in the day for any kind of secondary dealings, a trader said.

Wednesday bonds little seen

There also was not too much excitement seen among the deals that priced during Wednesday's nearly non-stop barrage of new issues.

One trader said that he had seen nothing happening in any of Wednesday's staggering 11 new deals, although he did see some activity in Tuesday's issue of 6% notes due 2022 from Entegris, Inc., a Billerica, Mass.-based supplier of products and services to the semiconductor industry. He quoted those bonds at 102¼ bid, 102¾ offered, up about ½ point on the day and well up from the par bid level at which $360 million deal had priced off the forward calendar.

Another trader, while seeing some quotes here and there in Wednesday's deals, said that he had not seen much in the re-trading of those bonds.

He saw Calumet Specialty Products Partners' 6½% notes due 2021 trading for much of the day in a 99¾ to 100¼ bid range before finally going out at par bid, 100¼ offered.

The Indianapolis-based producer of specialty fuels and other hydrocarbon products, along with its Calumet Finance Corp. subsidiary, had priced its quickly shopped $900 million of the notes at par after upsizing the deal from an originally announced $850 million.

He said that Guitar Center Inc.'s 6½% senior secured notes due 2019 "traded down this morning, right out of the box."

However, those bonds later recovered going out at 99½ bid, par offered - up from the 98.943 level at which the Los Angeles-based musical instrument and accessories retailer had priced that $615 million of notes to yield 6¾%. Those bonds, in turn, were part of a still-larger $940 million two-part forward calendar deal that also included $325 million of 9 5/8% senior unsecured notes due 2020.

He meantime saw no real trading in SunGard Availability Services Capital Inc., a Wayne, Pa.-based information technology company that priced $425 million of 8¾% notes due 2022 at par, or in New York-based recording and music publishing company Warner Music Group, which sold a quick-to-market $935 million two-part deal.

"None of those deals were on fire out of the box" to excite investors and encourage them to buy, he said.

"These deals haven't exactly been the cream of the crop."

With most of the new issues trading around their respective issue prices, the new bonds were for the most part not firming smartly, the way Davenport, Iowa-based newspaper publisher Lee Enterprises' 9½% first-lien senior secured notes due 2022 did after its $400 million offering priced at par off the forward calendar last Friday. They initially got as good as 103 bid but were still at 102¼ bid, 102¾ offered by Thursday.

The trader noted that at the same time, "nobody was getting beat up," like the way Birmingham, Ala.-based metallurgical coal producer Walter Energy's 11%/12% second-lien senior secured PIK toggle notes due 2020 were; the $350 million issue had priced at par last Wednesday and had immediately fallen to around the 95-96 level when they began trading last Thursday. The deterioration continued, with the notes quoted Thursday trading as low as 91 bid.

Retailers in focus

With not much happening among the new deals, a trader said that at his shop, "most of the activity was in yield-to-call paper and some of the retailers. I saw money coming back into the retailers, some guys trying to put a fair amount of money to work."

Among the retail names, Hoffman Estates, Ill.-based department store operator Sears Holdings Corp.'s 6 7/8% notes due 2017 gained nearly 2¾ points on the session to finish at 84 11/16 bid - although there was not too much volume and all of it was in smallish odd-lot transactions.

He separately saw "interest in long-maturity paper - 2030 and out."

Caesars trades solidly

A market source said that Caesars Entertainment's 10% notes due 2018 were one of the most active issues on the day, with over $22 million having changed hands. Those bonds were seen up 1¼ points, ending at 44¼ bid.

Its 9% notes due 2020 gained ¼ point, ending at 89¾ bid with over $9 million of the bonds having changed hands.

The activity follows the company announcements that it plans to sell $7 million shares of its common stock, which could generate about $145 million to $150 million for the company at current prices.

It also announced plans to close its underachieving Harrah's hotel and casino in the gaming center of Tunica, Miss. - considered a potential credit positive, once it no longer acts as a drag on the company's finances.

Market indicators ease

Statistical junk performance indicators were generally lower on Thursday after having been mixed for the previous three sessions.

The Markit Series 22 CDX North American High Yield index ended at 107 1/16 bid, 107 1/8 offered.

Thursday was the first day that the Series 22 index was trading after its semiannual roll into the new series.

On Wednesday, the old Series 21 index had lost 1/8 point to close at 107 5/8 bid, 107 11/16 offered after having gained 7/32 point on Tuesday.

The KDP High Yield Daily index eased by 1 bp to end at 74.89 after jumping by 10 bps on Wednesday.

Its yield was unchanged at 5.24% after having tightened by 2 bps on Wednesday, its second straight decline.

The widely followed Merrill Lynch High Yield Master II index also came up a loser Thursday, breaking a string of four consecutive advances. It was off by 0.012%, versus Wednesday's robust 0.82% improvement.

Thursday's loss dropped its year-to-date return to 2.854%, down from Wednesday's 2.867%, which was also the new peak level for 2014 so far.

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