American Axle, Burlington Coat Factory deals drive by; RSI on tap; funds lose $165 million

By Paul Deckelman and Paul A. Harris

New York, Feb. 14 - High-yield borrowers picked up the pace a little on Thursday as three new dollar-denominated, purely junk-rated deals from domestic or developed-country issuers came to market, according to syndicate sources.

Automotive components maker American Axle & Manufacturing Inc. drove by with $400 million of eight-year notes, which traded a little higher once they moved into the aftermarket.

Apparel and home furnishings retailer Burlington Holdings, LLC brought a quickly shopped, upsized $350 million issue of five-year PIK toggle notes to market, while Neovia Logistics Intermediate Holdings, LLC also did an opportunistic $125 million PIK toggle note transaction. Neither deal was seen trading in the secondary realm.

Price talk emerged on RSI Home Products, Inc.'s $525 million of six-year secured notes, which are expected to price on Friday.

Apart from that, the primary market - which had been seeing a steady reduction in new-deal volume each session this week - remained quiet. Traders said that it would likely stay that way during Friday's session, with many market participants expected to make an early exit ahead of the three-day Presidents Day holiday weekend, even though officially, it will be a full session.

Away from the new deals, traders noted dull dealings, on reduced volume, in purely junk-rated names, with much of the listed activity taking place in split-rated crossover credits such as Ford Motor Co. or CenturyLink Inc.

There was some activity in AMR Corp.'s paper, particularly its convertible notes, on the news that the bankrupt airline giant will merge with smaller, but more financially solvent, sector peer U.S. Airways Group, Inc.

Statistical indicators of secondary market performance were seen unchanged to slightly higher.

Meanwhile, flows of money into or out of high-yield mutual funds and exchange-traded funds - considered a reliable gauge of overall Junkbondland liquidity trends - recorded a second straight week of outflows, according to the major fund-tracking agencies. However, those cash losses were relatively modest compared to the huge cash hemorrhages the funds suffered last week.

AMG sees $166 million outflow

On Thursday evening, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, $165.5 million more left those funds than came into them.

It was the second consecutive weekly outflow and followed the massive $1.38 billion cash loss seen in the week ended Feb. 6 - the biggest the funds have seen since last June.

The two outflows, totaling $1.55 billion, broke a string of four consecutive inflows before that that had been reported by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp. During that four-week stretch, inflows had totaled nearly $2.3 billion, according to a Prospect News analysis of the figures.

Seven weeks into the new year, 2013 net inflows as reported by Lipper so far have amounted to about $269 million, according to the analysis.

Besides the four recent inflows, Lipper had also seen a $473 million cash loss recorded in the first reporting week of the year, ended Jan.2.

Inflows have thus now been reported by Lipper in four weeks so far this year against three outflows.

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

EPFR sees $207 million outflow

The relatively smaller outflow reported by Lipper was mirrored in the results reported Thursday by the other major fund-tracking service, Cambridge, Mass.-based EPFR Global. That agency said that in the latest reporting week, also ended Wednesday, $207 million more left the funds than came into them - well below the $1.33 billion cash hemorrhage seen last week, which was the biggest outflow it had seen in 11 weeks, since the week ended Nov. 21, when a net of $1.45 billion cash bled from the funds.

The latest outflows, totaling $1.54 billion, in turn broke a six-week winning streak seen by the service. Inflows during that time, which also includes the final reporting week of 2012, had totaled about $4.4 billion, according to a Prospect News analysis of the figures.

The latest week's outflow was the second so far this year recorded by EPFR, against five previous inflows totaling about $4.2 billion, according to the analysis, and thus drops the year-to-date net inflow total down to about $2.7 billion.

EPFR and Lipper calculate their respective fund-flow statistics using different methodologies; EPFR includes some non-U.S. domiciled mutual funds and ETFs in its tabulations, while the Lipper number is purely domestic funds. Despite the differences in the actual numbers, the two services' weekly results usually point in the same direction.

Reporting only the U.S. funds that it tracks - a category usually more closely aligned with the Lipper totals - EPFR saw a $29 million outflow in the latest week - its fourth straight cash loss, following the previous week's $1.19 billion plunge. It has actually now seen five weekly net outflows from the U.S.-only funds since the start of the year, against just two weekly inflows. That pushed the 2013 net outflow for those domestic funds up to $713 million, according to the analysis.

In 2012, EPFR's overall figure showed a cumulative net inflow of about $72.3 billion. According to the Prospect News analysis of the data, EPFR recorded 42 weeks of inflows last year, against just 10 weeks of outflows.

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 the junk market - has been seen by analysts as a key element behind the high-yield secondary market's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $300 billion mark - patterns of primary activity and secondary strength that have mostly continued into the new year so far.

American Axle drives by

Three issuers came with single-tranche drive-by deals during Thursday's primary market session. They raised a combined total of $868 million.

American Axle & Manufacturing priced a $400 million issue of eight-year senior notes (B2/B-) at par to yield 6¼%, on top of yield talk.

BofA Merrill Lynch, J.P. Morgan Securities LLC, Barclays, Citigroup Global Markets Inc. and RBC Capital Markets LLC were joint bookrunners.

Proceeds will be used to tender for all of the company's existing 7 7/8% notes and for general corporate purposes.

Burlington Coat Factory prices

Burlington Holdings and Burlington Holdings Financial Inc. priced one of the session's two PIK toggle dividend-funding transactions.

The Burlington, N.J.-based retailer priced an upsized $350 million issue of five-year senior PIK toggle notes at 98 to yield 9.514%.

The notes came with a 9% cash coupon that toggles to 9¾% should the issuer elect to make an in-kind coupon payment.

The cash coupon came at the tight end of the 9% to 9¼% coupon talk. The reoffer price came on top of price talk.

When the notes cleared for trading, they were 99 bid, 99½ offered at the bookrunner and 98¾ bid, 99¼ offered away from the bookrunner.

Goldman Sachs & Co., JPMorgan, Wells Fargo Securities LLC, Morgan Stanley & Co. LLC and BofA Merrill Lynch were joint bookrunners for the deal, which was upsized from $300 million.

Neovia prices at par

The second of Thursday's two PIK toggle dividend deals came from Neovia Logistics Intermediate Holdings and Neovia Logistics Intermediate Finance Corp. which priced a $125 million issue of five-year senior PIK toggle notes at par to yield 10%, on top of yield talk.

The notes pay a 10% cash coupon that toggles to 10¾% should the issuer elect to make an in-kind coupon payment.

UBS Securities LLC was the left lead bookrunner. Macquarie Capital and Deutsche Bank Securities Inc. were joint bookrunners.

Noting that two of Thursday's three dollar deals came for purposes other than debt refinancing, a senior high-yield syndicate official said that the refinancing calendar may have slowed a bit because potential issuers are in a blackout period during which they must file fresh financial numbers.

Expect that to change in early March, the official advised.

Another inhibiting factor may be the buy side's growing reluctance to accept paper yielding less than 5%, against a backdrop of higher Treasury yields, the source added.

"Issuers keen on getting a four-handle yield are having to step back and consider whether they want to go forward with a deal which comes with a yield in the fives," the official remarked.

Italcementi prints at 6¼%

In the euro-denominated high-yield space, Italy's Italcementi Finance SA priced a €350 million issue of 6 1/8% five-year senior notes (Ba2/BB+) at 99.477 to yield 6¼%.

The yield printed at the tight end of yield talk that had been set in the 6 3/8% area. Initial yield conversations, however, took place in the high 6% range, market sources said.

The deal played to a €1.8 billion order book, according to a London-based sell-side source.

Banca IMI, BNP Paribas, Credit Agricole CIB, Natixis and UniCredit were the bookrunners.

UniCredit will bill and deliver for the debt refinancing deal.

RSI Home sets price talk

The Friday session gets underway with just one deal expected to clear before the three-day holiday weekend begins.

On Thursday, RSI Home Products set talk for a $525 million offering of senior secured second-lien notes due 2018 (B1/B+) in the 7% area.

Books are closed, and the deal is set to price early Friday.

BofA Merrill Lynch, Wells Fargo and Barclays are the joint bookrunners.

Axle up a little

In the secondary arena, when the new American Axle 6¼% notes due 2021 moved into the aftermarket, "they didn't really go anywhere," a trader said, pegging those bonds between 100¼ and 100½ bid.

A second trader located them at 100½ bid, 101 offered, while a third saw them going out at 100½ bid, 100¾ offered.

Those levels were up a little from the par level at which the Detroit-based manufacturer of wheel axles and other automotive drive-train components had priced its $400 million drive-by offering.

Others aftermarket no-shows

The first trader meantime said that he had not seen any trading in the Neovia Logistics 10% senior PIK toggle notes due 2018, which had actually priced before American Axle.

"Never saw it at all," he said of the Downers Grove, Ill.-based logistics services provider's smallish ($125 million), quickly shopped deal.

The day's other deal, apparel retailer Burlington Holdings' 9¼% PIK senior PIK toggle notes due 2018, appeared too late in the session for any kind of aftermarket activity.

Recent deals hang in there

As for other recently priced junk issues, a trader said, "They all kind of held their gains," staying largely where they had been on Wednesday.

For instance, another trader noted that NII International Telecom SCA's new 11 3/8% notes due 2019 "have settled in" around the 105 bid mark, which the company's new bonds had gradually moved up to after pricing on Monday.

The Reston, Va.-based company, which markets Nextel-branded wireless service in Latin America, had priced $750 million of those bonds at par after upsizing the deal from an earlier-announced $600 million. They immediately zoomed above the 102 bid market in the initial aftermarket dealing, and just continued to go higher.

He saw Speedy Cash Intermediate Holdings Corp.'s 10¾% notes due 2018 having firmed to 107½ bid, 108½ offered. he Wichita, Kan.-based provider of payday loans and other alternative financial services had priced its $100 million add-on to its existing bonds last Tuesday (Feb. 5) at 106.5 to yield 8.948%.

Meanwhile he said that the company's standalone $125 million of 12% senior cash-pay notes due 2017 were "gone - all put away."

Speedy priced those notes at par on Monday. They had last been seen trading on Tuesday in a 1011/2-to-102½ bid context.

Smurfit unchanged

Smurfit Kappa Acquisitions' 4 1/8% senior secured notes due 2020 went out unchanged on the day in the 98½ area, a trader in London said.

"Pretty flat," the trader said.

The Dublin-based paper-based packaging manufacturer sold €400 million of the notes at par on Jan. 23.

Ardagh edges up

The 5% senior secured notes due 2022 that Ardagh Packaging Finance plc and Ardagh Holdings USA Inc. brought edged up to 99 on Thursday, a London-based trader said.

The notes were quoted at 98¾ on Tuesday.

The companies sold €250 million of the notes at par on Jan. 16.

Ardagh is a Dublin-based supplier of glass and metal packaging.

AMR active on merger news

Away from the new deals, the news that AMR and U.S. Airways Group will merge to form what is believed to be the world's largest airline operator created some interest in Fort Worth-based AMR's paper on Thursday.

"There wasn't much that stood out" in the non-new-deal secondary market, a trader said, "with the obvious exception of AMR. Beyond AMR, there wasn't much to talk about."

"The converts were the most active ones, the 61/4s," he said, seeing that paper "trading as high as 107 out of the box this morning" on the merger news, before coming off that peak level to end at 104-105, "which is still up pretty substantially on the day."

He said the convertibles were the big mover "because there's not a whole lot of other stuff [in the AMR constellation] that you can trade. Most of the other stuff is smallish EETCs [equipment trust certificates] and small unsecured deals. The converts are clearly the biggest and most liquid piece of paper you can trade.

"The entire complex was up, but the converts clearly traded more than anything else."

He meantime saw U.S Airways' bonds better by ¼ point to ½ point on the day.

Indicators unchanged to better

Statistical junk market performance indicators were mostly unchanged to a little bit higher on the day.

The Markit Series 19 CDX North American High Yield index was about unchanged on Thursday, after having risen by 3/16 point on Wednesday - its fourth straight gain - to end at 102 5/8 bid, 102¾ offered.

The KDP High Yield Daily index was up by 1 basis point for a second straight session, ending at 75.19.

Its yield was off by 2 bps, to 5.74%, after having been unchanged on Wednesday.

The widely followed Merrill Lynch High Yield Master II index meanwhile posted its fourth straight gain on Thursday, as it rose by 0.052%, adding onto Wednesday's 0.152% gain.

That raised its year-to-date return to 1.315% on Thursday from Wednesday's 1.263%, although it still remained well down from its peak level for 2013 so far of 1.991%, set on Jan. 28.

Cristal Cody contributed to this review

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