Upsized Hexion, Ford Credit, Jarden deals price; new Brocade better; funds gain $734 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 14 - The high yield primary market continued to mechanically bat out new deals on Thursday, pricing over $2.6 billion and €150 million of new paper during a busy session which saw several offerings well upsized.

The biggest was Hexion U.S. Finance Corp.'s $1 billion offering of eight-year senior secured notes, which was upsized from the $700 million originally announced. Although the Columbus, Ohio-based chemical company's mega-deal priced fairly late in the session, it was nonetheless seen having firmed modestly in limited aftermarket dealings.

Earlier in the session, Ford Motor Credit Co. came to market with an upsized add-on to the 8 1/8% notes due 2020 which the financing arm of Ford Motor Co. had sold in early December. Unlike that earlier tranche of Ford Credit bonds, however, the new deal - doubled in size to $500 million - managed to trade at, or even above, its par issue price.

Consumer products maker Jarden Corp. upsized its two-part offering of dollar-and-euro denominated senior subordinated notes to $494 million equivalent from its originally announced $400 million equivalent; the dollar bonds were being quoted having firmed solidly to levels above 101 after having priced somewhat below par.

The biggest non-upsized deal of the day came from Sorenson Communications, Inc., which brought a $735 million secured notes deal to market, while the smallest was DJO Finance LLC's $100 million add-on to an existing series of bonds.

Price talk was heard on petroleum tanker fleet operator Teekay Corp.'s 10-year deal, seen likely to price Friday. Syndicate sources meantime saw new deals slating from Vanguard Health Systems Inc. - a $1 billion offering - and from Greek yogurt producer Fage Dairy Industry SA.

Secondary activity was once again seen taking a backseat to the busy primary sphere. However, the new Brocade Communications Systems Inc. two-part deal which priced on Wednesday was seen by traders having firmed smartly when the new bonds were freed for aftermarket dealings.

Junk funds up $734 million

As trading was wrapping up for the day, market participants familiar with the high yield mutual fund-flow statistics generated by AMG Data Services of Arcata, Calif. - a key barometer of overall market liquidity trends - said that in the week ended Wednesday $734 million more came into the weekly-reporting funds than left them, following the $288 million cash infusion which had seen in the previous week, ended Wednesday, Jan. 6 -- a sign of continued investor confidence in Junkbondland.

That brought the year-to-date to $1.022 billion, according to a Prospect News analysis of the AMG figures. On an annualized basis, were they able to manage to hold to such a pace, inflows to those funds would top $26 billion, far outpacing the record $20.56 billion set last year.

The figure was the biggest weekly inflow since the week to June 2, 2009, a syndicate banker noted.

Inflows have now been seen in both weeks of the new year so far, against no outflows. In 2009, 47 weekly inflows were recorded, against just five isolated outflows, according to the Prospect News analysis.

The latest week's inflow was the 21st consecutive weekly advance, a winning streak that dates all the way back to mid-August, after the last outflow of 2009 had been seen - a lonely $89.9 million outflow recorded in the week ended Aug. 19. Since then, inflows have totaled $7.569 billion, according to the analysis.

Those kind of sustained inflows - which also included the over $12 billion which came into a separate category of funds that report on a monthly basis, rather than weekly, swelling 2009's aggregate mutual fund inflow to a record $32 billion plus - made it possible for the junk market to come roaring back last year from 2008's staggering 25%-plus loss and sharply reduced primary activity totals, and the surge so far shows no sign of stopping, even though the calendar page has turned. As of the close on Wednesday, the authoritative Merrill Lynch High Yield Master II index showed a year-to-date return of 2.228% so far - off slightly from the 2010 peak level to that point of 2.243%, seen on Tuesday.

The heavy inflows have also fueled the primary market's revival from the anemic levels seen in 2008, a rebound which is continuing unimpeded. As of the close on Wednesday, there had been $6.564 billion of new dollar-denominated high yield debt issued in the U.S. market -- $4.891 billion of it from domestic issuers - running some 775% ahead of the feeble pace of early 2009, while the domestic issuance represented a 552% gain over the 2009 year-to-date levels. Industrialized-country global issuance in all major currencies of $10.070 billion equivalent was a blistering 1,299% ahead of 2009's pace.

In 2009, with ample incoming liquidity fueling its resurrection, the junk bond market by the Dec. 31 year-end close had seen $160.028 billion of new dollar-denominated high yield debt issued in the U.S. market, as of Dec. 31 -- $129.202 billion of it from domestic issuers - running some 120.87% ahead of the feeble pace of 2008, while the domestic issuance represented a 115.82% gain over the 2008 levels. 2009 industrialized-country global issuance in all major currencies of $174.902 billion equivalent was 171.05% ahead of 2008's pace.

EPFR sees flows continuing

Another fund-tracking service, EPFR Global of Cambridge, Mass., which uses a different methodology from AMG, saw inflows of some $773 million on the week, on top of the $452 million seen in the first week of the new year. Its analysts said that the latest week's inflow number was the highest seen in 22 weeks, dating back to last August.

EPFR said the inflow for the week ended Wednesday brought the year-to-date inflow total up to $1.22 billion. In 2009, it said that $22.9 billion of inflows had been seen, a record.

While the EPFR numbers generally point in the same direction as AMG's - with an exception to the rule here and there - the exact magnitude of those figures differs since EPFR includes in its calculations some funds domiciled outside the United States.

All cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe.

Hexion massively upsizes

In Thursday's primary market, Hexion Finance Escrow LLC and Hexion Escrow Corp. priced a massively upsized $1 billion issue of 8 7/8% eight-year senior secured notes (B3/CCC+) at 99.296 to yield 9%.

The yield printed on top of yield talk. The issue price came in line with discount talk of up to 1 point. The amount was increased from $700 million.

Credit Suisse, JP Morgan, Citigroup, Morgan Stanley, Bank of America Merrill Lynch and UBS Investment Bank were joint bookrunners.

Proceeds will be used to repay bank debt and provide incremental liquidity.

Sorenson prices at talk

Elsewhere, Sorenson Communications, Inc. priced a $735 million issue of 10½% five-year senior secured notes (/CCC+/) at 98.101 to yield 11%.

The yield printed on top of the price talk.

Goldman Sachs & Co. was the left lead bookrunner, and Morgan Stanley & Co. was the joint bookrunner.

Proceeds will be used to repay the company's second-lien term loan, as well as its payment-in-kind holdco loan, and to fund an equity distribution.

Ford Credit brings drive-by

Ford Motor Credit Co. LLC priced an upsized $500 million add-on to its 8 1/8% notes due Jan. 15, 2020 at par to yield 8.121%.

That deal also came on top of the price talk.

Banc of America Securities LLC, Deutsche Bank Securities Inc., Goldman, Sachs & Co. and Morgan Stanley & Co. Inc. managed the sale, which was executed off the investment grade syndicate desks.

The add-on was upsized from $250 million.

Proceeds will be used for general corporate purposes.

Jarden upsizes two-parter

Jarden Corp. upsized its 7½% 10-year senior subordinated notes offer (B3/B) to $494 million equivalent, and priced the deal in tranches of dollar-denominated and euro-denominated notes, each with the same coupon and maturity.

An upsized $275 million tranche priced at 99.139 to yield 7 5/8%. The yield printed at the tight end of the 7¾% area yield talk. The issue price came rich to discount talk of 1 to 2 points.

The originally size of the dollar-denominated tranche was $225 million minimum.

In the euro-denominated tranche, Jarden priced €150 million of the notes at 98.286 to yield 7¾%.

Again, the yield printed at the tight end of the 7 7/8% area yield talk. The issue price came in line with discount talk of 1 to 2 points.

Deutsche Bank Securities Inc. and Barclays Capital Inc. were joint physical bookrunners. Proceeds will be used for general corporate purposes, including debt repayment, capital expenditures and potential acquisition financing.

DJO taps 10 7/8% notes

Finally, DJO Finance LLC priced a $100 million add-on to its 10 7/8% senior notes due Nov. 15, 2014 (B3) at 105.0 to yield 9.281%.

Credit Suisse ran the books for the quick to market deal.

Proceeds will be used to prepay bank debt.

Teekay sets talk on $300 million

Teekay Corp. set price talk for its $300 million offering of 10-year non-callable senior notes (B1/BB) at 8¾% to 9%, on Thursday.

The deal is scheduled to price on Friday.

JPMorgan, Citigroup and Deutsche Bank Securities are joint bookrunners for the Bermuda-based tanker company's debt refinancing deal.

Vanguard Health to bring $1 billion

Vanguard Health Holding Co. II, LLC and Vanguard Holding Co. II, Inc. will begin a roadshow next week for their $1 billion offering of eight-year senior notes.

Bank of America Merrill Lynch, Barclays Capital, Citigroup, Deutsche Bank Securities, Goldman Sachs & Co. and Morgan Stanley will be joint bookrunners.

Proceeds will be used to the fund tender for the company's 9% senior subordinated notes due 2014 and 11¼% senior discount notes due 2015, and, together with cash on hand, to fund a dividend to Vanguard's existing stockholders.

Fage Dairy $150 million

Finally, Athens, Greece-based Fage USA Dairy Industry, Inc. and Fage Dairy Industry SA plan to price a $150 million offering of 10-year senior notes next week, via Citigroup.

Proceeds will be used to refinance €20 million of the Athens, Greece-based dairy company's outstanding 7½% notes due 2015, for capital expenditures and for general corporate purposes.

Hexion bonds seen higher

A trader late in the session saw Hexion U.S. Finance's 8 7/8% senior secured notes due 2018 having gotten as good as 100¾ bid, from the 99.296 level at which the issue had priced a little while earlier.

However, he saw the bonds as having come down from their peak levels, to close at 99½ bid, 100½ offered.

Ford holds above issue

A trader said that he was "still scratching his head," wondering what to make of the new Ford Credit add-on tranche of 8 1/8% notes due 2020. "They were all over the lot," he said.

The $500 million issue - dramatically upsized from the originally planned $250 million - priced at par to yield 8 1/8%, and after that, he said, "they were all over the place," trading between 100¼ and 101. They were "all over the lot."

Another trader saw the bonds hit a high of 101, with most of the day's trading between par and 101.

The traders acknowledged that the issue was certainly doing better in the secondary market than the Dearborn, Mich.-based automotive financing company's original $750 million tranche of 8 1/8% 2020 notes. The latter bonds had priced at 98.304 on Dec. 7 to yield 8 3/8% -- but then fell to levels around 97 and stayed at those lower levels over several sessions before finally breaking out of their rut.

Jarden deal does well

A trader saw Jarden's new 7½% dollar-denominated senior subordinated notes due 2020 having pushed up to 101 bid, 101¼ offered -- this after the upsized $275 million tranche priced at 99.139 to yield 7 5/8%, "so that one did well."

Another trader saw the Rye, N.Y.-based consumer product manufacturer 's new bonds at 101¼ bid, 100¾ offered .

Sorenson stays put

While the new Jarden issue was seen having done well, a trader said that Sorensen Communications' $735 million of 10½% senior secured notes due 2015 "didn't do as well."

He said that the new bonds of the Salt Lake City, Utah-based provider of communication solutions to the hearing impaired were bid around 981/4, and then around 98 1/8, after having priced at 98.101.

"A bunch of them traded around issue," he commented.

Brocade deal firms smartly

Clearly the star of the day in the secondary was Brocade Communications Systems' new split-rated (Ba2/BBB-) bonds, which had priced late Wednesday. A trader said that they traded solidly higher, quoting the San Jose, Calif.-based based high-tech networking technologies company's new 6 5/8% senior secured notes due 2018 as having gotten as good as 102¼ bid, "then they faded" a little later in the day.

He said that the $300 million of bonds - which on Wednesday had priced at 99.239 to yield 6¾% -- moved as high as 102¼ bid, 102½ offered. "They lost a little steam after that," and were seen going home at 101 5/8 bid, 101 7/8 offered.

He said the company's $300 million of 6 7/8% senior secured notes due 2020 "seems to be doing a little bit better" than its companion tranche, with the bonds getting as good as 102¾ bid, before going out at 102½ bid, 102¾ offered, versus the 99.114 level at which they had priced Wednesday to yield 7%.

"They both did very well," he declared, though "the '18s ran out of steam before the 10-years did."

He said he thought it was "a combination" of junk bond investors and investment-grade accounts," given its split-rated status, noting that the levels he had seen "came from the junk world."

A second trader saw the Brocade 10-years as good as 102¼ bid, 102 7/8 offered, before the bonds "softened a little toward the end of the day" to end around 102 bid, 103 offered

Meanwhile, he said the eight-year bonds firmed to 101¾ bid, 102¾ offered from Wednesday's issue price, before these too "lightened up a little" to close around 101-102.

Both tranches "kind of backed off their highs, but they were still very nice performers."

Icahn bonds gain, but slowly

A trader said that Tuesday's split-rated (Ba3/BBB-) mega-deal from Icahn Enterprises LP/Icahn Enterprises Finance Corp. "was up slightly today, but it still hasn't popped its head out of the water yet."

He said that the New York-based holding company's new $1.5 billion of 8% notes due 2018 got as good as 98¾ bid, 99 offered - still trading below the 99.275 level at which the bonds priced to yield 8 1/8%, while its $850 million of 7¾% notes due 2016 were in a 99 bid, 99¾ offered context, versus a 99.411 issue price to yield 7 7/8%.

After pricing on Tuesday, both tranches of bonds had tumbled down to 98-handle levels, before firming slightly off those lows on Wednesday and again on Thursday.

The trader added that "they're slowly swimming to the surface - so maybe [Friday] will be the day" they get back above their respective issue prices.

Market indicators retreat marginally

Among statistical measures of market performance, a trader saw the CDX Series 13 index down 3/8 point on Thursday at 100¼ bid, 100¾ offered, after having eased slightly on Wednesday.

The KDP High Yield Daily Index meanwhile lost 2 basis points on Thursday to 77.19, after having eased by 4 bps on Wednesday. Its yield edged up to 7.79%, 1 bp higher than the previous session.

Advancing issues led decliners for a second straight session on Thursday, by about a seven-to-six margin.

Overall market activity, as measured by dollar volume levels, sell nearly 112% from Wednesday's pace.

A trader characterized Thursday's session by saying new deals again dominated, "so it was quiet on the secondary side."

"There was a fair amount of things trading," another trader said, "but the focus was clearly on the primary."

CIT active, but unchanged

A trader said that he would call CIT Group Inc.'s five series of notes maturing between 2013 and 2017 unchanged on the day. He saw the New York-based commercial lender's 7% notes due 2013 trading between 93-94, and its 2017 notes around 88-89, with the in-between bonds quoted around 90-91. Those levels were "just about where they've been" of late.

Another trader meantime saw the 13s in a 931/2-94ish context and the 17s around 88.

He also saw the company's 10¼% notes - which trade at a slight premium to par - "pretty much in line with where they have been trading. He saw the 10¼% notes due 2013 at the 103 level, on "pretty good-sized trades," around the same 103-103½ level at which the bonds have been trading for the past week. He quoted its 101/4s due 2017 as trading between 102 and 1021/4, also in line with recent levels.

Noting the difference between the 7s, which trade across a roughly 5 point range between the highest and lowest priced, and the 101/4s, all of which are within a point of one another, he suggested that "the lower coupon on the 7s might explain the huge difference."

Autos stay parked

A trader saw Cooper-Standard Automotive's 8 3/8% notes due 2014 at around 38 bid, which he said was "about where they were" previously.

He saw Visteon Corp.'s 7% notes due 2014 "down a couple of points" at 46½ bid, on "decent volume trading." He said the bonds had changed hands around a 48-48½ context previously, such as on Wednesday, and on Thursday, they spent "most of the day hanging around 48, but then at the end of the day, they just tailed off to 46.5."

Smurfit-Stone is steady

A trader saw Smurfit-Stone Container Corp.'s paper, like its 8 3/8% notes due 2012 "pretty much unchanged" at around 88-89, on "some trading, not a whole lot" in the wake of the news that a bankruptcy court judge had extended the exclusuivity period.

He also saw the 8% notes due 2017 around at same area, likewise unchanged. "They were holding at their levels - high 80s."

Tronox ignores good news

A trader said Tronox Worldwide LLC's 9½% notes due 2012 did not trade on Thursday - even as a judge gave the company final approval to tap into $425 million of Goldman Sachs- led financing while it restructures. He quoted them around 98-99, adding that the bonds had not traded in "a couple of days. I don't know why they haven't traded for a couple of days - but they haven't."

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