Primary drought ends as American Eagle, Gulfport price in firmer market; NII slide continues

By Paul Deckelman and Paul A. Harris

New York, Aug. 13 – A two-session drought in the high-yield primary market came to an end on Wednesday, as syndicate sources reported that two new deals totaling $491 million had priced during the session.

Both came out of the oil and natural gas sector.

The larger of the two was an upsized and quickly shopped add-on to Gulfport Energy Corp.’s existing 2020 notes.

Meanwhile, American Eagle Energy Corp. did a regularly scheduled deal off the forward calendar for $175 million of five-year secured notes.

Traders did not see either of the new issues in the aftermarket.

Away from the new deals, NII Holdings Inc.’s bonds were in retreat for a second straight session following Tuesday’s announcement by the provider of wireless service to several Latin American countries indicating that it will likely have to file for Chapter 11.

On the earnings front, Pinnacle Foods, Inc.’s bonds were better after the maker of many well-known branded consumer foods reported better second-quarter numbers versus a year ago, as well as a big debt paydown using the break-up fee from its failed merger transaction with Hillshire Brands Co.

Traders saw a generally firmer tone to the overall market, with more gainers than decliners.

Statistical indicators of junk market performance were higher across the board for the second time in three sessions on Wednesday after having turned mixed on Tuesday.

Gulfport prices at rich end

The Wednesday primary market session saw the week's first deals clear the market.

Two issuers priced single-tranche deals, raising a combined total of $491 million.

For Gulfport Energy, the execution appeared to be a bullseye. The deal came as a drive-by, was upsized and priced at the rich end of price talk.

The Oklahoma City-based oil and gas exploration and production company priced an upsized $300 million tack-on to its 7¾% senior notes due Nov. 1, 2020 (B3/B-) at 106 to yield 6.106%.

The deal was upsized from $250 million.

The reoffer price came at the rich end of the 105.75 to 106 price talk, and rich to earlier guidance in the 105.5 area, a trader said.

Credit Suisse is the sole bookrunner.

The company plans to use the proceeds to pre-fund its drilling program and to repay its revolver.

American Eagle Energy 11% notes

American Eagle Energy priced a $175 million issue of 11% five-year senior secured notes (Caa1/CCC) at 99.059 to yield 11¼%.

The yield printed 12.5 basis points beyond the wide end of yield talk in the 11% area.

The order book was well oversubscribed, the source added.

GMP Securities was the bookrunner.

The Denver-based independent oil and gas acquisition, exploration and development company plans to use the proceeds to repay borrowings under its existing credit facility, with any remaining proceeds for general corporate purposes.

XPO talks 7 7/8% to 8 1/8%

There was news on a deal rolled out at the beginning of the week.

XPO Logistics, Inc. talked its $500 million offering of five-year senior notes (B1/B-) to yield 7 7/8% to 8 1/8%.

Books close at 10 a.m. ET on Thursday, and the deal is set to price on Thursday afternoon.

Credit Suisse, Morgan Stanley, Citigroup and Deutsche Bank are the joint bookrunners.

Net inflows

Meanwhile on the fund-flows front, net flows for Tuesday, the most recent day for which numbers were available, were positive, according to a trader.

Although actively managed funds saw about $110 million of outflows, exchange-traded funds saw roughly $183 million of inflows, the trader said, adding that net flows were about plus-$72 million.

The Wednesday session saw a lot of buyers step forward, said the trader, who added that a lot of things were up one-quarter of a point to one-half of a point.

Little new-deal activity seen

Traders did not see any immediate aftermarket activity in either the Gulfport Energy add-on or in the American Eagle Energy offering.

Among the most recent previous offerings, a trader said that Intrepid Aviation Group Holdings LLC’s $250 million add-on to its existing 6 7/8% notes due 2019 were unchanged at 101 7/8 bid, 102 3/8 offered.

The Stamford, Conn.-based commercial aircraft leasing company priced $215 million of the notes on Friday at 102 to yield 6.356% after upsizing the transaction from an originally announced $150 million.

Activity continued in QVC Inc.’s 5.45% bonds due 2034, with about $10 million having changed hands.

A market source pegged that paper at just under 99 15/32 bid, up around ¼ point.

QVC, a West Chester, Pa.-based cable, satellite and broadcast television network specializing in televised home shopping, and a wholly-owned subsidiary of Liberty Interactive Corp., priced a quickly shopped $400 million of those split-rated (Ba2/BBB-/BBB-) notes on Thursday at 99.784 to yield 5.468%.

The other half of that $1 billion offering – the 4.45% notes due 2025 – were seen having gained ¼ point on Wednesday to end at 99 26/32 bid, but the $4 million of volume was a fraction of the $28 to $29 million racked up both on Monday and Tuesday, topping the Most Actives list.

The company had priced $600 million of the latter notes on Thursday at 99.86 to yield 4.467%.

Its established 4.85% notes due 2024 were seen about unchanged on the day at 102¾ bid on volume of over $10 million.

A high-yield trader said that most of the activity in the new and established QVC bonds came from crossover investors rather than traditional junk-bond buyers.

Pinnacle pops on numbers

Away from the new and recent deals, Pinnacle Foods Finance LLC’s 4 7/8% notes due 2021 were seen by a market source to have gained 3/8 point on the day, ending at 100 3/8 bid, with over $8 million of the notes having changed hands.

The bonds gained after parent company Pinnacle Foods, Inc. reported financial results for the 2014 fiscal second quarter ended June 29.

The Parsippany, N.J.-based manufacturer of a wide variety of well-known consumer food brands such as Birds Eye frozen vegetables, Mrs. Paul’s fish sticks, Vlasic pickles, Wish-Bone salad dressing and Celeste frozen pizza, reported that net sales increased $617.8 million, up 8.6% from $569 million a year ago, helped by increased sales from last fall’s $580 million acquisition of Wish-Bone from Unilever plc.

Adjusted EBITDA on a pro-forma basis, accounting for the Wish-Bone transaction, advanced by 17.5% to $105.9 million from $90.1 million a year ago.

Net earnings for the latest quarter rose to $35.6 million, or 30 cents per diluted share, versus year-ago red ink of $31.8 million, or minus 28 cents. Excluding one-off items affecting comparability, pro-forma net earnings rose by 23% to $38.3 million from $31.2 million in the year-ago period.

During the conference call following the release of the results, company executives outlined how the failed merger attempt earlier this year between Pinnacle and Hillshire Brands, Inc. – which ended up cancelling its acquisition of Pinnacle and then being bought itself by Tyson Foods, Inc. – turned out to be a big net positive for Pinnacle, which used most of the $163 million break-up fee it got from Hillshire when the deal collapsed plus cash on hand to cut its debt by $200 million, leading to expected interest savings and leverage ratio reductions going forward (see related story elsewhere in this issue).

NII’s slide continues

NII Holdings’ debt was once again traded fairly actively amid indications the Reston, Va.-based provider of Nextel mobile services in Mexico and Latin America is headed for bankruptcy.

A trader said that the paper began trading flat, or without accrued interest, given the high likelihood that a Chapter 11 filing is imminent.

In fact, creditor Aurelius Capital Management is claiming the company is already in default, as it will likely not make a $119 million coupon payment on Friday.

The trader saw the 7 7/8% notes due 2019 falling just over half a point to 67 1/8, but the 7 5/8% notes due 2021 declined 6½ points to 13.

Both were among the most actively traded names in Junkbondland on Wednesday, with over $26 million of the 7 7/8s having changed hands, and on turnover of more than $11 million of the 7 5/8s.

The 10% notes due 2016 ended off 3 points at 17½ on volume of over $10 million.

The trader said that its 11 3/8% notes due 2019 managed to end slightly higher at 67½, though he noted that just a couple trades occurred during the session.

A market source at another desk, however, called the bonds down a deuce, at 65¼ bid, with over $10 million having traded.

The company noted in its earnings release Monday that its declining financial performance combined with the likelihood that it will not be able to meet its debt obligations make a bankruptcy filing foreseeable in the near future. In a 10-Q filed with the Securities and Exchange Commission, the company said that it has been speaking with interested parties in regards to acquiring some or all of its assets.

The company has also engaged in talks with bondholders.

As of June 30, NII Holdings was not in compliance with several of its indentures, including on Nextel Brazil’s local bank loans.

On Wednesday, Standard & Poor’s dropped its credit rating on the company to CC from CCC. That followed a downgrade from Moody’s Investors Service on Tuesday.

‘No rhyme or reason’

Overall, a trader said that Wednesday’s session was literally “a yawn.”

He said it was “mostly buyers again today.”

Trace, he said, was full of nominally junk-rated subordinated or hybrid bonds issued by investment-grade financial institutions, “so you have to back out all of the bank paper” to get a true picture of what was going on.

“Once you do that, you get names like Chesapeake [Energy Corp.], Sprint [Corp.], Clear Channel [Communications Inc.] and Caesars [Entertainment Corp.] – but there wasn’t any rhyme or reason for what was trading.”

Oklahoma City-based oil and gas exploration and production company Chesapeake’s 4 7/8% notes due 2022 were seen up ¾ point at 105 bid on over $15 million of volume.

Overland Park, Kans.-based wireless provider Sprint’s 6% notes due 2022 gained ½ point to 100½ bid, while its 8¾% bonds due 2032 rose by ¾ point to 112 ¾ bid on volume of over $15 million and $14 million, respectively.

San Antonio-based diversified media company Clear Channel’s10% notes due 2018 were seen little changed at 92 bid but with over $17 million traded.

Las Vegas-based gaming giant Caesars’ 9% notes due 2020 dropped more than 2 points on the session, slipping to just over 81 bid, with over 417 million of the notes having moved around.

Market indicators improve

Statistical indicators of junk market performance turned higher across the board on Wednesday after having been mixed on Tuesday.

It was the second session in three that the indicators were showing strength all around; on Monday they had recorded their first universally higher session since July 23. Before that, they had been lower for six straight sessions and then mixed for five consecutive sessions.

The KDP High Yield Daily index notched its seventh consecutive gain on Wednesday, jumping by 20 bps to end at 73.58. That advance followed gains of 23 bps on Tuesday and 16 bps on Monday.

Its yield meanwhile tightened by 7 bps to 5.31% – its seventh consecutive narrowing. It had come down by 5 bps on both Monday and Tuesday.

The Markit CDX Series 22 index rose by 13/32 point on Wednesday, ending at 107 9/16 bid, 107 11/16 offered. It had eased by 1/32 point on Tuesday after improving by 5/32 point on Monday and 19/32 point on Friday.

And the widely followed Merrill Lynch High Yield Master II index posted its third straight gain on Wednesday, advancing by 0.262% on top of Tuesday’s 0.144% rise and Monday’s 0.317%.

Wednesday’s upturn lifted the index’s year-to-date return to 4.885% from 4.611% on Tuesday, although it still remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

Stephanie N. Rotondo contributed to this review.

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