Claire's, Starz, HudBay, HealthSouth price in $1.9 billion day; new bonds firm up; funds gain

By Paul Deckelman and Paul A. Harris

New York, Sept. 6 - The newly restarted high-yield primary pricing parade rolled on with some $1.9 billion of new paper priced during Thursday's session. That followed the more than $3 billion that came to market on Wednesday.

Apparel retailer Claire's Stores, Inc. had the biggest deal of the day - a $625 million add-on to its existing 2019 senior secured notes.

There was also a pair of $500 million deals, one from cable movie channel operator Starz LLC, which priced an issue of seven-year notes, and another from copper mining concern HudBay Minerals Inc., whose quickly shopped offering of eight-year notes was heard by syndicate sources to have been upsized.

Rehabilitation hospital operator HealthSouth Corp. also did an upsized quick-to-market deal, pricing $$275 million of 12-year notes.

Secondary market traders said that the new Claire's, Starz and HudBay deals all firmed smartly when they were freed for aftermarket activity; however, no dealings were seen in the new HealthSouth bonds.

The traders also saw some solid gains in the new bonds of companies that had priced deals on Monday or Tuesday, notably Monday's American Axle Manufacturing Inc. offering, as well as Tuesday's transactions from Digicel Group Ltd., Catalent Pharma Solutions Inc. and Carrizo Oil & Gas, Inc.

Away from the deals actually priced, market participants heard talk out on energy name Tesoro Logistics LP and insurance brokerage Hub International Ltd., both of which are expected to come to market on Friday.

Offshore drilling contractor Ocean Rig UDW Inc. and commercial jet engine lessor Willis Lease Finance Corp. announced new bond offerings.

Traders said that dealings in the new issue paper dominated the secondary realm, with American Axle again the busiest name in Junkbondland.

Statistical indicators of junk market performance were higher across the board, in line with a stock surge prompted by investor optimism about Europe's debt crisis.

And a key indicator of junk market liquidity trends - flows of money into and out of high-yield mutual funds and exchange-traded funds - showed gains for a 13th consecutive week.

AMG gains $201 million

As Thursday's market activity was winding down, a market source familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $201 million more came into those funds than left them.

The inflow streak by the junk mutual and exchange-traded funds dates back to the week ended June 13.

However, that number was well down from the $1.175 billion gain reported last week by Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division.

In those 13 weeks, net inflows have totaled about $11.375 billion, according to a Prospect News analysis of the figures. The gains represent a continuing solid turnaround from the pattern of weakness, which had been prevalent in late May and early June, when the funds lost some $6.43 billion over the space of four weeks, including two huge cash hemorrhages, each in excess of $2 billion, according to the analysis.

On a year-to-date basis, that latest inflow pulled the cumulative net inflow figure up to about $30 billion, including the ETFs, according to the Prospect News analysis. The year-to-date figure counts monthly reporting funds as well as the weekly reporters, the company said.

Inflows have now been seen in 31 out of the 36 weeks since the start of the year, against just five outflows.

EPFR sees $1.6 billion inflow

But while Lipper saw a sharp falloff in the amount of money coming into the funds this week, another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from Lipper's, reported that in the week ended Wednesday, some $1.6 billion more came into those funds than left them - virtually identical to the prior week's $1.61 billion inflow.

It was the 13th consecutive week in which the funds showed a net injection of cash. Those cash infusions total up to $20.9 billion, according to a Prospect News analysis of that data.

On a year-to-date basis, the service has seen inflows in 31 weeks, with just five weeks of outflows, most of them recorded during the stretch from mid-May through early June.

EPFR said that total 2012 inflows in the latest week were north of the $53 billion mark. Those figures include the monthly reporting funds as well as strictly weekly reporters and also include the exchange-traded funds.

EPFR and Lipper use different methodologies to track fund flows, resulting in significantly different numbers, but the basic direction for the two services is generally the same.

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.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the successive record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the 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, running about neck and neck with 2011.

Claire's Stores re-taps 9% notes

The primary market news volume moderated slightly on Thursday, trailing the feverish pace of deal announcements on Tuesday and Wednesday.

Nevertheless, the Thursday session was an active one, with four issuers each bringing a single dollar-denominated tranche, raising a combined $1.9 billion.

Claire's priced a $625 million add-on to its 9% senior secured first-lien notes due March 15, 2019 (B3/B) at 102.50 to yield 8.49%.

The reoffer price came at the rich end of the 102 to 102.5 price talk.

Goldman Sachs, RBC, Credit Suisse and J.P. Morgan Securities were the joint bookrunners for the debt refinancing deal.

HudBay returns, upsizes

Nearly four months after postponing a similarly structured $400 million deal due to market conditions, Toronto-based HudBay returned on Thursday to price an upsized $500 million issue of eight-year notes (B3/B) at par to yield 9½%.

Thursday's deal was upsized from $400 million.

The yield printed at the wide end of the 9 3/8% to 9½% yield talk.

The company's return to the primary market appeared to go well, according to a trader from a high-yield mutual fund, who spotted the new 9½% notes due 2020 at 101 7/8 bid in the secondary market following Thursday's close.

Bank of America Merrill Lynch ran the books for the quick-to-market issue.

The integrated mining company plans to use the proceeds for general corporate purposes and to fund the development of its Lalor and Reed projects in Manitoba and its Constancia project in Peru.

Starz comes inside of talk

Starz, LLC and Starz Finance Corp. priced a $500 million issue of seven-year senior notes (Ba2/BB) at par to yield 5%.

The yield printed 12.5 basis points inside of yield talk which had been set in the 5¼% area.

Joint physical bookrunner SunTrust will bill and deliver for the debt refinancing deal. Bank of America Merrill Lynch and Barclays were also joint physical bookrunners.

J.P. Morgan, RBC, RBS and Scotia were joint bookrunners.

HealthSouth 12-year deal

HealthSouth priced an upsized $275 million issue of 12-year senior notes (B1/BB-) at par to yield 5¾%.

The yield printed at the tight end of the 5¾% to 5 7/8% yield talk.

The deal traded to par¾ bid, 101 offered by the time the market closed on Thursday, a buyside source said.

Wells Fargo, Barclays, Citigroup, Goldman Sachs, J.P. Morgan, Bank of America Merrill Lynch, Morgan Stanley, RBC and SunTrust were the joint bookrunners for the quick-to-market issue, which was upsized from $250 million.

Proceeds will go to refinance debt and for general corporate purposes.

Talking the deals

Two deals are on deck for the Friday session.

Hub International talked its $730 million offering of six-year senior notes (Caa2//) with a yield in the 8¼% area on Thursday.

In addition to price talk, dealers announced a modification of the deal's first call premium, reducing that premium to 50% of the coupon from 75% of the coupon. The two-year length of call protection remains unchanged.

Morgan Stanley, Bank of America Merrill Lynch and RBC are the joint bookrunners.

Also Tesoro Logistics LP and Tesoro Logistics Finance Corp. talked their $310 million offering of eight-year senior notes (B1/BB-) to yield 6% to 6¼%.

Wells Fargo is the left bookrunner. Barclays and Citigroup are the joint bookrunners.

Ocean Rig starts Friday

One prospective issuer took a place on the active forward calendar during Thursday's session.

Cypress-based Ocean Rig UDW will begin a roadshow on Friday in London for its $750 million offering of five-year senior secured notes.

A roadshow is set to get under way in the United States during the week ahead.

Deutsche Bank, Morgan Stanley and DNB are the joint bookrunners.

Proceeds will be used to fully repay all outstanding debt under the company's $1.04 billion senior secured credit facility, amounting to $487.5 million as of June 30, and for the purposes of financing offshore drilling rigs.

Thursday deals trade up

In the secondary market, a trader said that the new deals "just keep on coming," and he noted that most of the day's offering firmed smartly when they began trading around.

For instance, he said that "there must have been a food fight" with the new Starz 5% notes due 2019, which "shot right up to 102" when they hit the aftermarket.

He saw the Englewood, Colo.-based cable TV movie channel operator's $500 million issue trading in a 102 1/8 -to-102½ context, well up from their par issue price.

A second trader also saw the bonds in a 102-to-102½ range.

The first trader also saw "a lot of activity" in the Claire's 9% senior secured first-lien notes due 2019 in a bid range between 104¼ and 1041/2, which he noted was well up from the 102½ level at which the Hoffman Estates, Ill.-based retailer's $625 million add-on to its existing notes had priced, "so they had a nice pop right off the bat."

Another trader also saw the Claire's bonds in that same 104-to-104½ context.

A trader quoted HudBay's 9½% notes due 2020 as having moved up to 102 bid.

That quickly shopped $500 million issue had priced at par after having been upsized from an originally announced $400 million.

Another trader herd the HudBay bonds quoted around 101¾ bid, but added that he did not "really see a trade in those."

Several traders queried by Prospect News said that they did not see any aftermarket activity in Birmingham, Ala.-based rehabilitation hospital operator HealthSouth's new 5¾% notes due 2024.

That $275 million quick-to-market offering had priced at par after having been upsized from $250 million originally.

Axle shoots up

A trader said that apart from the deals priced on Thursday, he also saw activity in "a bunch of these small, random new issues" that had priced earlier in the week, adding that "anything in the last couple of days is kind of trading up."

Probably the star performer in that group would be American Axle Manufacturing Inc.'s 6 5/8% notes due 2022. The trader quoted the Detroit-based automotive drive train manufacturer's issue at 102 bid, 102½ offered.

That was well up from the 1001/2-to101 context at which those bonds had traded on Wednesday, when most of the bonds were seen moving around a 100 5/8 bid range - about where they had been since that $550 million quick to market deal priced at par on Tuesday afternoon.

But on Thursday, the trader said, "Yeah. That bond jumped. I think with the stock market jumping up, a lot of things also went up."

A second trader noted that on Wednesday, "they were trading below [101] all day, and then they started buying them at the end of the day and this morning."

He saw the bonds hit a peak at 102 bid, after having traded at 101½ in the morning, and then moved up to 101 5/8 bid, 101 7/8 going out.

An estimated $44 million of the bonds changed hands on Thursday, following Wednesday's more than $54 million, with the Axle issue topping the most-actives list both days,.

The second trader theorized, "It was the first deal that was priced right out of the box after the [Labor Day] holiday. It was priced while the equity markets were still down and people were filtering back [to work]."

He said that the bonds had actually risen to end up a point on Wednesday and were up another point."

"They're only up a point from yesterday," he pointed out.

Wednesday deals improve

Several of the deals priced on Wednesday were also seen as handsome gainers in Thursday's market.

For instance, a trader saw Digicel's 8 1/8% notes due 2020 get up to 101¼ bid, 101½ offered - up from the par level at which the Jamaica-based wireless service operator's $1.5 billion offering had priced.

A second trader said the bonds got up to 102 bid, but after a trade at that level, he "hadn't seen much after that. The only offering I'm seeing is around 103 - so they're kind of quiet."

A third trader saw the bonds get as good as 102 1/8 bid, 102 5/8 offered.

A trader saw Carrizo Oil & Gas' 7½% notes due 2020 trading up to levels above 1021/4, then falling back to a 101 5/8-to-102 context "most of the afternoon here."

The Houston-based energy exploration and production company's $300 million drive-by offering priced at par after having been upsized from $250 million and rose to 100½ bid in the aftermarket.

New deals strictly the focus

A trader said that the new-issue market "absolutely" dominated junk market secondary trading.

"If you talked to any of the accounts about anything away from the calendar, their response was (a), they're focused on the calendar, and (b), that's where they want to spend their money - at least for the time being anyway."

"New deals were the focus," a second trader agreed.

"You've got all of these things just flooding in, and if you tried to do stuff with people, they would be on a [new issue] conference call. So that seems to be the model."

Indicators mostly firm

Away from the new-deal arena, statistical indicators of junk market performance were solidly higher across the board on Thursday, after having been mildly higher on Wednesday.

The Markit Group CDX North American Series 18 High Yield Index jumped by 1 1/8 point to close at 99 3/8 bid, 99 5/8 offered, after having been unchanged on Wednesday.

The KDP High Yield Daily Index climbed by 19 basis points to end at 74.10, on top of its 2 bps rise on Wednesday. Its yield came in by 6 bps, to 6.11%, after having eased by 2 bps on Wednesday.

The widely followed Merrill Lynch U.S. High Yield Master II Index meanwhile continued to pile on the gains.

The index notched its 15th consecutive gain on Thursday, rising by 0.207% on top of the 0.079% advance on Wednesday.

That lifted its year-to-date return to 10.884%, which marked a new 2012 peak, eclipsing the old mark of 10.655% that had been set just the day before. The index is now at its highest level since the last session of 2010, when it closed out that year with a 15.19% return.

The yield to worst stood at 6.651%, down from Wednesday's 6.711% reading. Thursday's yield was also the new low yield for the year, versus the 6.678% mark set last Thursday.

© 2015 Prospect News.
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