Momentive mega-deal, Cequel, BI-LO price; Sprint up on Softbank news; funds lose $114 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 11 - Momentive Performance Materials Inc. came to market on Thursday with a quickly shopped $1.1 billion offering of eight-year secured notes, high-yield syndicate sources said.

The chemical company's new bonds arrived too late in the session for aftermarket dealings, but its existing bonds jumped around on news of the new deal.

The primaryside also saw deals from telecommunication services provider Cequel Communications Holdings LLC, which priced $500 million of eight-year notes that firmed smartly in the secondary market, and from supermarket operator BI-LO, LLC.

Deals which priced on Wednesday, such those from as aircraft components maker TransDigm Inc. and pharmaceutical manufacturer Jaguar Holding Co. I (PPDI), were seen hanging onto their initial aftermarket gains.

The overall secondary market was seen better, as reflected in the performance of statistical market measures.

The major mover in that arena was the bonds of Sprint Nextel Corp. and Sprint Capital Corp., both of which were up solidly on the news that the third-largest U.S. wireless carrier is in talks with Softbank Corp. about having the Japanese wireless company make a sizable investment in Sprint.

But for a third straight week, a major service that tracks the flow of money into and out of high yield mutual funds and exchange-traded funds - considered a key barometer of overall junk market liquidity trends - reported an outflow from those funds.

AMG: funds lose $114 million

As Thursday's session was wrapping up, market sources familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $114 million more left those funds than came into them.

It was the third consecutive week in which an outflow was reported by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, following the $891.8 million cash loss reported last week and the $310 million downturn seen the week before that, ended Sept. 26.

Those outflows, totaling $1.31 billion, had brought an abrupt end to the amazing 15 straight weeks of inflows - dating all the way back to the week ended June 13 - which had dominated the market for the previous few months. Those inflows had totaled $13.686 billion, according to a Prospect News analysis of the figures.

On a year-to-date basis, this week's outflow pulled the cumulative net inflow figure down to approximately $31.14 billion, including the ETFs.

That was down from last week's estimated $31.26 billion cumulative total, and down as well from the estimated $32.46 billion total seen in the week ended Sept. 19 - the peak net inflow level for the year so far, according to the Prospect News analysis.

That year-to-date figure counts monthly-reporting funds as well as the weekly reporters, Lipper said.

Inflows have now been seen in 33 out of the 41 weeks since the start of the year, against eight outflows.

EPFR sees $952 million inflow

However, another fund-tracking service that uses a different methodology - Cambridge, Mass.-based EPFR Global - reported a $952 million inflow in the latest week.

It was the second time in three weeks that its numbers have moved in the opposite direction from Lipper's - a relatively uncommon event. Although the two agencies' procedures are quite different - EPFR includes a number of non-U.S.-domiciled funds in its survey, in contrast to the strictly domestic roster that Lipper has compiled - their numbers at least point in the same direction most weeks.

The inflow represented a solid comeback from last week, when EPFR said $420 million more left the funds than came into them - the first such outflow recorded by EPFR after 16 straight weeks of inflows, dating back to the week ended June 13. During that time, net inflows to those funds had totaled some $28.071 billion, according to a Prospect News analysis of the data.

On a year-to-date basis, EPFR said that cumulative net inflows have now totaled $64.6 billion, up from last week's total of $63.67 billion, with inflows seen in 35 weeks out of the 40 weeks since the start of the year, against six outflows, four of them coming during a consecutive stretch from mid-May through early June.

The new cumulative net inflow for the year is the peak level for 2012 so far.

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 represent but a small, though very observable and quantifiable percentage of the total amount of money coming in - has been seen by analysts as a key element behind the high-yield secondary market's strong performance so far this year versus other fixed-income asset classes, and its active new-deal pace, which has recently surged past 2011's year-to-date totals.

Momentive drives by

Three issuers completed single tranche deals on Thursday, raising a combined total of $1.75 billion.

Momentive Performance Materials priced a $1.1 billion issue of first-priority senior secured notes due Oct. 15, 2020 (B1/CCC+) at par to yield 8 7/8%.

The yield printed in the middle of the 8¾% to 9% yield talk.

J.P. Morgan, Citigroup, Deutsche Bank, Goldman Sachs, UBS, BMO, Morgan Stanley and Bank of America were the joint bookrunners.

Proceeds will be used to repay bank debt, to purchase or redeem the company's 12½% second lien notes due 2014, and for general corporate purposes.

Cequel at the tight end

Cequel Communications priced a $500 million issue of eight-year senior notes (B3/B-) at par to yield 6 3/8%, at the tight end of price talk which was set in the 6½% area.

One investor, who had participated in the Cequel bridge loan, received an allocation that amounted to approximately one-fifth of the order size, and was trying hard to be a good sport, even though, in the unwritten code of the junk bond market, bridge participation is perceived to be a conduit to a better allocation.

Calculating from the size of the allocation versus the size of the order the investor reckoned that the deal might have been five-times oversubscribed, but added that it could easily have been 10-times oversubscribed, such is the demand in the primary market these days.

Credit Suisse, J.P. Morgan, Goldman Sachs and RBC were the joint bookrunners for the quick-to-market deal.

Upon release from escrow the proceeds will be used to help fund the buyout of the company by BC Partners and CPP Investment Board.

BI-LO taps 9¼% notes

BI-LO, LLC and BI-LO Finance Corp. priced a $140 million add-on to their 9¼% senior secured notes due Feb. 15, 2019 (B3/B-) at 104.5.

The reoffer price, which came on top of the price talk, gave a 7.995% yield to worst and an 8.317% yield to maturity.

Citigroup and Deutsche Bank were the joint bookrunners.

The Greenville, S.C.-based supermarket operator plans to use the proceeds to dividend approximately $145 million of equity contributed by the sponsor in connection with the acquisition of Winn-Dixie.

NBTY for Friday

Looking to Friday's session, NBTY, Inc. set price talk for its $500 million offering of five-year senior contingent cash pay notes (Caa1/B-/).

Cash coupon talk is 7¾% to 8%. The PIK coupon will come 75 basis points behind the cash coupon. Price talk is 98. Cash yield talk is 8¼% to 8½%.

The deal is set to price mid-day on Friday.

Barclays, Bank of America and Credit Suisse are joint bookrunners for the dividend deal.

Viking Cruises sets talk

Viking Cruises, Ltd., also on deck for Friday, talked its $250 million offering of 10-year senior notes (B3/B+) to yield in the 8¾% area.

Wells Fargo and Credit Suisse are the joint bookrunners.

One other announced deal is seen as possible Friday business, sources say.

Gulfport Energy Corp. has been marketing a $250 million offering of eight-year senior notes.

Credit Suisse is the bookrunner.

New Cequel seen better

In the secondary market, when the new Cequel Communications 6 3/8% notes were freed for trading, the St. Louis-based TV, internet and phone service provider's new deal was seen solidly higher from its par pricing level.

Although one trader had the bonds as low as 100¾ bid - saying that was "all that I could see" - others saw more strength in them. One trader pegged the new bonds at 102 bid, while another had them at 101 3/8 bid, 101¾ offered.

BI-LO, Momentive unseen

Traders saw no trace of aftermarket activity in the day's other two deals - Greenville, S.C.-based supermarket operator BI-LO's add-on to its existing 9¼% senior secured notes due 2019 and Columbus, Ohio-based chemical manufacturer Momentive Performance Materials' 8 7/8% first-priority senior secured notes due 2020.

While BI-LO's new issue priced relatively early in the afternoon, the traders said that the tap's relatively small $140 million size likely meant that the issue just got put away by a couple of buyers.

Momentive's $1.1 billion drive-by issue certainly did not have that problem - but the mega-deal did appear too late in the session for any kind of dealings Thursday.

Existing Momentives boosted

The company's outstanding debt, however, "was active with the announcement of the new deal," a trader said.

He saw the existing 9% notes due 2021 trade as high as 80 before settling back in around 77. Momentive's 11½% notes due 2016 meantime rose 8 to 10 points to trade in the high-60s.

A second trader called the 11½% notes 10 points higher on the day at 69 bid, noting that the issue "hadn't traded in awhile."

He also located the 9% notes at 761/4, "up a couple [points]."

TransDigm, Jaguar add to gains

Among the bonds which came to market on Wednesday, TransDigm's new 5½% senior subordinated notes due 2020 were seen by a trader Thursday having gained altitude versus the initial aftermarket levels reached after the Cleveland-based aircraft components manufacturer's upsized $550 million issue had priced at par.

One trader saw the bonds having moved up to 101 bid, 101½ offered, while a second had them trading in a 101 to 101 3/8 context.

One Wednesday, the quick-to-market deal - upsized from an originally shopped $500 million - had firmed a little from its issue price when the bonds were freed to trade, getting as good as 100½ bid, 101 offered at one point.

A trader meantime quoted Wilmington, N.C,.-based biotech and pharmaceuticals maker Jaguar Holding Co. I (PPDI)'s new 9 3/8%/10 1/8% PIK senior toggle notes due 2017at "a wide" 101-103 context on Thursday, while two other market sources each independently saw the bonds having tightened from there to 101¼ bid, 101¾ offered going home.

On Wednesday, that quickly-shopped $525 million deal - upsized from $500 million originally - had priced at 98.064 to yield 9 7/8% on a cash basis and 10.4% if interest were to be paid in kind.

The bonds had then firmed to 100½ bid, 101 offered at the close on Wednesday.

Wednesday's other deals - from CVR Refining LLC/Coffeyville Finance Inc., Endeavour International Corp. and Shelf Drilling Holdings, Inc. - were not seen trading around on Thursday. Only Sugar Land, Texas-based fuel refiner and nitrogen fertilizer producer CVR's rapidly marketed $500 million offering of 6½% second lien senior secured notes due 2022 had even traded on Wednesday, the traders said, when the bonds had been seen trading around 100½ bid, after pricing at par.

Sprint runs up

Away from the new deals, traders said the dominant feature was the very busy trading in Sprint Nextel's bonds, and those of its Sprint Capital Corp. subsidiary, spurred by the news that the Overland Park,, Kan.-based Number-3 U.S. wireless carrier was in talks to sell a major stake in the company to Japanese wireless service provider Softbank Corp.

Published reports said that should a deal be inked, the Tokyo-based company might pay as much as 1 trillion yen, or about $12.8 billion, for as much as a 70% stake in Sprint, which is looking for new sources of capital to continue funding its next-generation LTE network buildout so it can compete with larger rivals Verizon Wireless and AT&T Mobility, while holding off Number-4 player T-Mobile USA Inc.

A trader said that Sprint Capital's 6 7/8% notes due 2028 were easily the busiest credit in Junkbondland on Thursday, with over $136 million having traded. He saw those bonds up 9½ points on the day, with most trades happening between 101 and 102 bid, and some as high as 103.

Sprint Capital's 8¾% notes due 2032 jumped almost 11 points on the day to end at 114¾ bid, with $47 million having changed hands, while parent Sprint Nextel's 6% notes due 2016 rose by 1¾ points to end at 105 bid, on volume of $20 million.

Smaller rival Leap Wireless International Inc.'s 7¾% notes due 2020 were up 2 points at 101¼ bid, on $12 million of volume.

The San Diego-based company's treasurer told an investment conference audience that Leap was confident in its ability to access the capital markets, as evidenced by a big bank loan deal it just completed, and said it was making plans to pay off a convertible notes issue at its maturity (see related story elsewhere in this issue).

Secondary slow, but stronger

Apart from Sprint, traders saw a slow market, giving reasons ranging from the absence of many market participants still out in Arizona for the Deutsche Bank leveraged finance conference to the distraction provided by the televised major league baseball playoffs.

Another trader opined that "it's going to be quiet like this until the election."

However, statistical indicators of junk market performance were higher across the board Thursday, breaking out of a two-session slump.

The Markit Group CDX North American Series 19 High Yield Index gained ¼ point to end at 99 13/16 bid, 99 15/16 offered, after having lost 3/8 point Wednesday, its second straight loss.

The KDP High Yield Daily Index meantime moved up by 7 basis points to end at 74.30, after having fallen for a second consecutive session Wednesday, when it was down 12 bps.

Its yield was unchanged at 6.06%, after it rose by 3 bps Wednesday, its second consecutive rise.

And the widely followed Merrill Lynch U.S. High Yield Master II Index gained 0.206% Thursday, versus Wednesday's loss of 0.078%, which was its second straight retreat.

The advance lifted its year-to-date return to 12.683% on Thursday from Wednesday's 12.451%, although those levels still remain below the 2012 peak level so far of 12.814%, set on Sept. 19.

Stephanie N. Rotondo contributed to this report

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