Rosetta, sharply upsized SoftBank price, trade up; Cogeco comes also; funds gain $242 million

By Paul Deckelman and Paul A. Harris

New York, April 18 - The high-yield primary market had one of its biggest-volume days of the year on Thursday, even though the overall activity pace was not particularly intense.

Syndicate sources said that nearly $3.6 billion of new dollar-denominated, purely junk-rated paper from domestic or industrialized country issuers came to market, although almost all of that came from just one deal.

Japanese telecommunications operator SoftBank Corp. priced nearly $2.5 billion of new seven-year notes as part of a sharply upsized $3.3 billion equivalent offering of dollar- and euro-denominated bonds. The brisk demand for that paper seemed to signal that investors are not necessarily convinced that SoftBank is the underdog in what has suddenly become an dogfight to see whether SoftBank or satellite TV broadcaster DISH DBS Corp. will be able to acquire wireless provider Sprint Nextel Corp.

SoftBank's new bonds were seen trading solidly higher in the aftermarket.

That was also the case with Rosetta Resources, Inc., whose new eight-year bonds firmed smartly after the energy company priced $700 million of them earlier in the session.

And the dollar market saw a $400 million pricing of seven-year paper from Canadian communications company Cogeco Cable Inc., although that deal priced too late in the session for any aftermarket activity.

There were euro-denominated pricings from Luxembourg-based software provider TeamSystem SpA and from French food services operator Elior. Italian phone firm WIND Telecomunicazioni SpA was heard to have begun shopping around a two-part deal that includes a $400 million tranche plus a euro-denominated piece.

Away from the new deals, Sprint Nextel's bonds continued to actively trade, with investors jockeying for positions as they try to predict the outcome of the aforementioned takeover battle for Sprint between SoftBank and DISH.

Also in the communications sphere, Nokia Corp.'s bonds were knocked lower after the Finnish phone producer reported weak first-quarter earnings.

Statistical indicators of junk market performance turned mixed on Thursday after having been lower the session before.

And high-yield mutual funds and exchange-traded funds showed an infusion of fresh cash from investors in the latest week, according to both of the major services that track such fund flows, which are considered to be a reliable barometer of overall junk market liquidity trends.

AMG sees $242 million inflow

As Thursday's activity was winding down, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, $241.76 million more had come into those funds than had left them.

It was a solid comeback from the loss seen the previous week, ended April 10, when Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., reported an outflow that week of $78.6 million.

That had been the first outflow seen in four weeks, and it broke a string of three consecutive weekly inflows totaling about $267 million seen before that.

This week's inflow was also the first fairly substantial change in the funds seen in four weeks; during the prior three weeks, fund flows in either direction had been relatively minimal, coming in each of those weeks under $100 million.

Sixteen weeks into the new year, 2013 net inflows as reported by Lipper so far have amounted to about $1.05 billion, according to a Prospect News analysis of the figures.

There have now been 10 inflows and six outflows reported by Lipper so far this year.

In 2012, when cumulative net inflows for the year totaled an estimated $32 billion, according to the analysis, inflows to the funds had been recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

EPFR sees $797 million inflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, said that during the week ended Wednesday, $797 million more came into those funds than left them.

As was the case with the AMG/Lipper number, this week's EPFR figure represented a bounce from the previous week's $149 million outflow from the junk mutual funds and ETFs that it tracks, which had been the first such outflow seen after seven straight weeks of inflows to those funds. Net inflows during that stretch had amounted to about $6.4 billion, according to a Prospect News analysis of the EPFR figures.

On a year-to-date basis, there have now been 13 weeks since the beginning of 2013 in which EPFR has seen inflows against three weeks in which it saw outflows. The year-to-date cumulative net inflow rose to $9.84 billion, according to the analysis.

EPFR's methodology differs from that of AMG/Lipper in that it includes some non-U.S.-domiciled funds along with domestic funds. The Lipper unit tracks only the latter category. Despite the different methods, the two services' figures generally point in the same direction.

EPFR also said that in the latest week, the strictly domestic funds it tracks - a category more closely comparable to the Lipper fund universe - had seen an inflow of $428 million. That represented a comeback from the previous week's $365 million outflow, which in turn had broken a string of six consecutive inflows totaling around $3.2 billion.

On a year-to-date basis, the cumulative net inflow figure for those U.S.-only funds rose to about $2.83 billion, with inflows having been seen in nine weeks so far this year and outflows in seven, according to the Prospect News analysis.

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

The continued flow 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 junk market - has 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 - patterns of primary activity and secondary strength that have mostly continued into 2013.

SoftBank massively upsizes

New issue flow in the European and North American high-yield primary markets remained on the heavy side Thursday.

In the dollar market, three issuers brought dollar-denominated tranches, raising a combined total of $3.59 billion.

Executions were notable: All three tranches came at the tight end of yield talk. Two of the three were upsized.

All priced at the completion of roadshows.

SoftBank priced a massively upsized $3.3 billion equivalent two-part issuance of non-callable seven-year senior notes (Baa3/BBB).

The deal was upsized from $2 billion equivalent and priced on the high-yield desk. It included a $2,485,000,000 tranche of notes that priced at par to yield 4½%.

The bookrunners for the dollar-denominated notes were Deutsche Bank Securities Inc., BofA Merrill Lynch, Credit Agricole CIB, Mizuho Securities, Morgan Stanley & Co. LLC and Nomura.

In addition, SoftBank priced a €625 million tranche of notes at par to yield 4 5/8%.

Deutsche Bank, Credit Agricole, Mizuho and Nomura were the bookrunners for the euro-denominated notes.

Deutsche Bank acted as the global coordinator.

Yield talk for both tranches was set at 4½% to 4¾%, so the dollar-denominated notes came at the tight end of talk, and the euro-denominated notes came in the middle of talk.

Overall, the two-part deal played to $7 billion of orders, according to a trader.

Shortly after terms circulated, another trader saw the dollar tranche trading at 101 1/8% bid, 101½ offered in the street.

Proceeds will be used to potentially acquire Sprint Nextel Corp. and for general corporate purposes as well as to refinance existing debt.

Rosetta at the tight end

Rosetta Resources priced a $700 million issue of eight-year senior notes (B2/B+) at par to yield 5 5/8%.

The yield printed at the tight end of price talk set in the 5¾% area.

The deal saw strong demand, and levels in the secondary market rocketed up two points, according to a trader who saw the deal at 102½ bid, 103 offered.

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

The Houston-based independent producer and developer of oil and gas properties plans to use the proceeds, together with proceeds from a concurrent equity offering, to fund a portion of the acquisition of the Permian Basin assets from Comstock Resources.

Cogeco Cable seven-year deal

Cogeco Cable priced a $400 million issue of seven-year senior notes (/BB-/BB+/DBRS BB) at par to yield 4 7/8% on Thursday, according to a syndicate source.

The yield printed at the tight end of price talk that was set in the 5% area.

BofA Merrill Lynch and Scotia Capital (USA) Inc. were the joint bookrunners.

The Montreal-based cable operator plans to use the proceeds to repay a portion of the bank debt incurred in making the acquisition of web hosting services provider Peer 1 Network Enterprises, Inc.

Elior comes inside of talk

The European market also generated a full portion of high-yield primary news on Thursday. Three issuers priced single euro-denominated tranches to raise a combined total of €1.28 billion.

Again, executions were notable.

In addition to the above-mentioned SoftBank euro tranche, France's Elior Finance & Co. SCA priced an upsized €350 million issue of seven-year senior secured notes (confirmed B3/expected BB-) at par to yield 6½%.

The yield printed 12.5 basis points inside of price talk that was set in the 6¾% area.

Joint bookrunner JPMorgan will bill and deliver. Credit Agricole, HSBC and Nomura were also joint bookrunners for the deal, which was upsized from €300 million.

The Paris-based contracted food and support services company plans to use the proceeds to repay debt. The additional proceeds resulting from the upsizing of the bond deal will be used to repay bank debt.

TeamSystem at the tight end

Titan Luxco 2 Sarl, which will be transformed into TeamSystem, priced a €300 million issue of seven-year senior secured notes (B2/B) at par to yield 7 3/8%.

The yield printed at the tight end of yield talk set in the 7½% area.

Joint global coordinator and joint bookrunner JPMorgan will bill and deliver. SG CIB, UniCredit and HSBC are also joint global coordinators and joint bookrunners. Natixis, IKB and Banca IMI are also joint bookrunners.

Proceeds will be used to repay debt.

WIND deal for Friday

Italy's WIND Telecomunicazioni came into Thursday's high-yield primary with a €500 million equivalent two-part senior secured notes offer (Ba3/BB-/BB).

Offered is a $400 million tranche of seven-year fixed-rate notes, non-callable for three years and talked with a yield in the 6 5/8% area.

In addition, WIND is offering €150 million of six-year floating-rate notes, non-callable for one year and talked at a Euribor spread of 525 bps to 550 bps.

Pricing is set for Friday.

BNP Paribas, Banca IMI, Societe Generale, UBS and UniCredit are managing the sale.

The telecommunications company plans to use the proceeds to repay bank debt.

SoftBank strong in secondary

When SoftBank's new dollar-denominated 4½% notes due 2020 were freed for secondary market activity, traders saw the Tokyo-based telecommunications company's behemoth of a deal trade up from the get-go.

According to data compiled by Prospect News, the dollar-denominated portion of that upsized $3.3 billion dual-currency deal was the second-largest individual junk tranche to come to market so far this year. Weighing in at $2.485 billion, it trailed only the $3.1 billion tranche of 4¼% senior secured notes due 2020 that Pittsburgh-based packaged foods-giant H.J. Heinz Co. priced on March 22.

One market source said that the new SoftBank bonds moved up to 101¼ bid on the break, after pricing at par, and then they continued on upward.

"I wouldn't say they were super active," a trader at another desk said, "but they did perform well." He pegged the bonds as having risen to the 102 level by the end of the day.

Another trader also saw the bonds having racked up a 2-point gain going home, up from trading levels around 1011/2-to-101 5/8 bid earlier in the day after they had first priced.

Yet another trader, though, while also agreeing that the bonds had strengthened to 102 bid, said that it looked to him like most of the interest in the new SoftBank deal "seemed to come mostly from the high-grade guys."

Rosetta rises

That trader also saw the new Rosetta Resources 5 5/8% notes due 2021 as "a little more high yield than SoftBank," although he added that "a lot of people passed on it."

A second trader saw the Houston-based independent oil and gas company's new deal starting out as high as 102¼ bid, 102¾ offered in initial dealings, although that deal later dropped back to around the 102 bid level, he said.

Yet another trader also saw the bonds going out around 102 bid.

A slow kind of day

Away from the trading in the new Rosetta Resources and SoftBank bonds, a trader lamented that "the rest of the day was a waste of time."

He said that "secondary-wise, it was just a grind to try and get anybody to step up and do anything."

Junk market volume, he said, "was way down" - around just a half-billion dollars as of 1 p.m. ET, according to the Trace system. It had improved a little by day's end, for a total handle of about $1.2 billion. But the trader noted that much of the activity came from split-rated names mostly of interest to crossover players rather than traditional junk bond accounts, including names like GAP Inc., Ford Motor Co. and SLM Corp.

Sprint firming continues

One purely junk name that was among the volume leaders was Sprint; its bonds remained among the most active issues. Subsidiary Sprint Capital Corp.'s 6 7/8% notes due 2028 knocked down more than $21 million of big-block trades during the day, putting it high up on everyone's most-actives list.

He saw those bonds trading around 1001/2-to-100¾ bid.

He meantime saw Sprint Capital's 8¾% bonds due 2032 start easier, around 115 bid, but then they "crept up all day" to go out around 116 bid, up a point on the day, on volume of $17 million.

Sprint's bonds got clobbered early in the week as investors reacted badly to the news that satellite TV broadcaster DISH DBS offered to buy the Overland Park, Kan.-based No. 3 U.S. wireless carrier in a $25 billion cash-and-stock deal, with about $9 billion of that to be paid for by new debt. Sprint management, which had previously agreed to sell a majority stake in the company to SoftBank for about $20 billion, said they would consider the DISH offer.

The bonds began bouncing back on Tuesday and Wednesday and continued firming on Thursday, but they remained well below the levels they held before all of the takeover talk began; the 2032 bonds, for instance, had been trading around 123 bid, while the 2028s had topped the 102 bid mark back then.

Nokia knocked lower

In that same telecommunications sector, a trader said that Nokia's 5 3/8% notes due 2019 were "maybe down a point" on disappointing first-quarter numbers from the Finnish maker of wireless handsets and other telephone gear.

He said that those bonds, which on Wednesday had traded between 95 and 96 bid, fell to a 941/2-95½ context on Thursday.

At another shop, a market source pronounced Nokia's 6 5/8% bonds due 2039 down as much as 2¾ points on the day, ending at 88 bid.

"There wasn't a ton trading," yet another market source said, "but they were lower" after the results.

He saw the 2019 bonds at 94½ bid, down 1½ points, while the 2039s were "a couple of points lower" at 88½ bid.

Nokia's New York Stock Exchange-traded shares meantime tumbled by 41 cents, or 11.45%, to end at $3.17. Volume of 135 million shares was triple the norm.

While sales of its new high-end Lumia phones improved solidly - Lumia competes with Apple's popular iPhones - Nokia lost market share in the cheaper phones category, hurt by a proliferation of lower-end phones using Google's Android operating system. As a result, its overall revenue numbers for the quarter fell to $7.64 billion, well under the $8.65 billion that analysts on average were expecting.

Nokia cut its quarterly net loss to 7 cents per share, but that was still larger than the roughly 5 cents per share of red ink Wall Streeters had predicted.

Coal sector holds up

A trader said, "I don't think coals were much lower, maybe a little."

He said that "I thought those coals would be getting beat up," especially after Peabody Energy posted first-quarter results that were sharply worse than year-ago data.

But a market source at another desk saw the St. Louis-based coal producer's 6% notes due 2018 gaining 3/8 point to finish at 106¼ bid, on volume of $14 million, making it one of the busiest junk issues of the day.

Peabody's 6½% notes due 2020 gained 1 point on the day to end at 107½ bid. Cross-town rival Arch Coal's 7% notes due 2019 were likewise up by 1 point, ending at 89½ bid.

The gains in the coal bonds came even though Peabody reported that due to what its executives termed "challenging" conditions in the coal industry, revenues in the quarter ended March 31 tumbled to $1.75 billion from $2.02 billion a year ago. The latest quarterly figure was a little below the $1.78 billion that Wall Street was expecting.

On the earnings front, the company slid into the red, with a net loss of $19.4 million, or 9 cents per diluted share, versus a year-earlier profit of $178.3 million, or 63 cents per share, although the latest quarter's loss was actually less than the roughly 15 cents per share of red-ink that analysts on average were expecting. Adjusted EBITDA fell to $280.1 million from $511.5 million a year ago.

Despite its lackluster earnings and revenue performance, Peabody also reported progress in its debt-cutting efforts, with $100 million of debt repayments during the quarter and another $100 million anticipated by the end of May. The latter repayments would bring to $600 million the amount of debt that the company will have repaid over the past year. (See related story elsewhere in this issue.)

Market indicators turn mixed

Overall, statistical junk performance indicators turned mixed on Thursday after having been mostly lower on Wednesday.

The Markit Series 20 CDX North American High Yield index lost 5/32 point on Thursday - its second consecutive loss - to end at 103 15/16 bid, 104 offered. On Wednesday, the index had lost 13/32 point.

But the KDP High Yield Daily index firmed by 1 bp to close at 75.64 after having eased by 4 bps on Wednesday.

Its yield was unchanged on the day at 5.45%.

The widely followed Merrill Lynch High Yield Master II index rose by 0.017% on Thursday after having eased by 0.057% on Wednesday.

That latest gain lifted its year-to-date return to 3.575%, up from 3.558% on Wednesday. Those levels were meantime down from the peak level for the year so far of 3.71%, which was recorded last Friday.

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