First Data, Steel Dynamics, Host drive-bys lead $3.7 billion session; funds gain $401 million

By Paul Deckelman and Paul A. Harris

New York, Aug. 2 - As temperatures soared into the 90s in Northeastern business centers on Thursday, the junk bond market was also red-hot. It had one of its busiest sessions of the year, with almost $3.7 billion of new paper spread across seven tranches brought by six issuers.

The big deal of the day was a quickly shopped, upsized $1.3 billion offering of eight-year secured notes from electronic transaction processor First Data Corp.

There were also drive-by deals from Steel Dynamics Inc., which did a $750 million two-part transaction of seven- and 10-year bonds, and from Host Hotels & Resorts, LP, which upsized its 10.5-year issue to $450 million.

The forward calendar meanwhile emptied out a little as scheduled deals priced from TRAC Intermodal LLC/TRAC Intermodal Corp., Ashland, Inc. and Boyd Acquisition Sub, LLC/Boyd Acquisition Finance Corp., the latter backing Boyd Gaming Corp.'s pending acquisition of Peninsula Gaming LLC.

Traders said that of the day's new deals that came early enough in the session to make it into the aftermarket, several firmed smartly after having all priced at par - TRAC Intermodal, Ashland and Host.

The new deals from Peninsula Gaming, Steel Dynamics and First Data hit the market too late in the day for any kind of dealings.

Among issues that priced on Wednesday, Crescent Resources, LLC/Crescent Ventures Inc.'s new bonds were heard to have moved solidly higher when they were freed to trade. But Level 3 Communications Inc.'s deal retreated from its par pricing level.

Traders said that activity was largely focused on the new deals and on what one called "the disaster of the day," Knight Capital Group, Inc.'s heavily traded convertible notes. That paper gyrated wildly at sharply lower levels a day after a computer glitch caused much of the Wall Street firm's capital to be wiped out through false trades, forcing Knight to seek new funding.

SuperValu Inc.'s bonds rose for a fourth straight session, and investors speculated on the likely sale or breakup of the troubled supermarket company.

Statistical measures of market performance were mixed on the day.

The market continued to enjoy healthy liquidity, with high-yield mutual and exchange-traded funds showing a net cash inflow on the week, its eight straight such gain.

AMG gains $401 million

As things were wrapping up in Thursday's market, participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $401 million more came into those funds than left them.

That was a comedown from last week, when Arcata, Calif.-based AMG, a unit of Thomson Reuters' Lipper/FMI division, reported a $2.01 billion net inflow in the seven-day period ended July 25. Last week's inflow was the largest weekly inflow seen so far this year and, in fact, the biggest inflow the funds saw since the week ended Oct. 26, 2011, when a whopping $4.25 billion more came into the funds than left them. That was the biggest inflow AMG has recorded since it began tracking fund flows in 1992.

The latest inflow was the eighth consecutive strong showing by the junk mutual funds and ETFs.

Those eight inflows have totaled about $8.23 billion, according to a Prospect News analysis of the figures, representing a continuing solid turnaround from the pattern of weakness that had been prevalent in late May and early June, when the funds lost $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 $27 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, AMG said. Excluding those ETFs and just tallying the mutual funds, the year-to-date net inflow stood at around $20 billion.

Inflows have now been seen in 26 out of the 31 weeks since the start of the year against just five outflows.

EPFR: Funds up $1.43 billion

A rival fund-tracking service, Cambridge, Mass.-based EPFR Global, reported that in the week ended Wednesday, $1.43 billion more came into the funds it follows than left them, confirming the recent turnaround in the fund-flow trajectories. That followed the previous week's $2.21 billion cash injection.

As was the case with the AMG Lipper numbers, EPFR - which uses a different methodology but whose figures usually point in the same direction as AMG - reported that this was the eighth consecutive large inflow number. Inflows have totaled an estimated $13.08 billion during that stretch.

As was the case with AMG, those inflows followed four straight weeks of sizable outflows in late May and early June.

The latest week's inflow lifted EPFR's year-to-date total return to above the $43 billion mark from the previous week's $41.6 billion. It has reported 26 inflows this year versus five weeks in which there were outflows.

Cumulative fund-flow estimates, whether from AMG/Lipper or EPFR, 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 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 relatively active new-deal pace, with issuance volume running about 15% below last year's year-to-date totals.

First Data massively upsizes

On Thursday, the hard-charging primary market saw six issuers bring a combined seven tranches of dollar-denominated junk to raise a total of $3.64 billion.

First Data priced a massively upsized $1.3 billion issue of 6¾% 5.25-year senior secured notes (B1/B+/BB-) at 99.193 to yield 6 7/8%, on top of yield talk.

Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Wells Fargo Securities LLC, Credit Suisse Securities (USA) LLC, HSBC Securities (USA) LLC and SunTrust Robinson Humphrey Inc. were the joint bookrunners for the drive-by debt refinancing deal, which was upsized from $750 million.

Steel Dynamics' two-part deal

Steel Dynamics priced $750 million of senior notes (confirmed Ba2/expected BB+) in two tranches.

The deal included a $400 million tranche of seven-year notes that priced at par to yield 6 1/8%. The yield printed on top of yield talk.

In addition, Steel Dynamics priced a $350 million tranche of 10-year notes at par to yield 6 3/8%, also on top of yield talk.

Bank of America Merrill Lynch, Goldman Sachs & Co., J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Morgan Stanley & Co. LLC were the joint bookrunners for the quick-to-market debt refinancing.

Ashland at the tight end

Ashland priced a $500 million issue of non-callable 10-year senior notes (Ba2/BB-) at par to yield 4¾%, at the tight end of yield talk set in the 4 7/8% area.

Citigroup Global Markets Inc. was the left bookrunner for the quick-to-market deal. Deutsche Bank, RBS Securities Inc., Scotia Capital (USA) Inc. and US Bancorp were the joint passive bookrunners.

The Covington, Ky.-based specialty chemical company plans to use the proceeds, together with available cash, to fund the tender offer for any and all of its outstanding 9 1/8% senior notes due June 1, 2017.

Host Hotels upsizes

Host Hotels & Resorts priced an upsized $450 million issue of 10.5-year series C senior notes (expected Ba1/confirmed BB+) at par to yield 4¾%, also at the tight end of yield talk set in the 4 7/8% area.

Bank of America Merrill Lynch, Goldman Sachs, JPMorgan and Wells Fargo were the joint bookrunners for the drive-by deal, which was upsized from $350 million.

The Bethesda, Md.-based lodging real estate investment trust plans to use the proceeds to redeem the remaining $250 million of its 6 3/8% series O senior notes due 2015. Additional proceeds resulting from the $100 million upsizing of the deal will be used to redeem $150 of its 6¾% series Q senior notes due 2016. Proceeds will also be used for general corporate purposes.

Peninsula Gaming prices tight

A $350 million offering of 5.5-year senior notes (expected Caa1/confirmed CCC+) backing the acquisition of Peninsula Gaming by Boyd Gaming priced at par to yield 8 3/8%.

The yield printed at the tight end of the 8 3/8% to 8½% yield talk.

The issuing entities will be Boyd Acquisition Sub, LLC and Boyd Acquisition Finance Corp., which will be merged with and into Peninsula Gaming, LLC and Peninsula Gaming Corp.

Bank of America Merrill Lynch, JPMorgan, Deutsche Bank and UBS were the joint bookrunners.

TRAC Intermodal downsizes

TRAC Intermodal priced a downsized $300 million issue of seven-year senior secured second-lien notes (B3/B-) at par to yield 11%.

The yield printed on top of yield talk.

The issue was downsized from $325 million, with the company shifting $25 million of proceeds to its ABL facility, upsizing it to $725 million from $700 million.

JPMorgan, Bank of America Merrill Lynch, Deutsche Bank, DVB Bank, RBC Capital Markets and Wells Fargo were the joint bookrunners.

The intermodal chassis solutions provider plans to use the proceeds to repay bank debt, to terminate existing interest rate swap agreements, to pay prepayment penalties and for general corporate purposes.

DirectCash prices

In the Canadian market, DirectCash Payments Inc. priced a C$125 million issue of seven-year senior notes (B3/B/) at par to yield 8 1/8%, 12.5 basis points tighter than the 8¼% yield talk.

BMO Capital Markets Corp. was the lead manager.

Proceeds will be used to reduce DirectCash's outstanding bridge debt from its recently completed acquisition of Customers Ltd. in Australia.

New TRAC travels higher

In the secondary market, when TRAC Intermodal's new 11% senior secured second-lien notes due 2019 were freed for aftermarket dealings, a trader saw the Princeton, N.J.-based company's paper having moved up to 101 bid, 101½ offered from the par level where that $350 million tranche of bonds priced off the forward calendar after upsizing from $325 million.

However, a second trader later saw the cargo container and chassis company's bonds trading more in a 1001/4-to-100¾ context.

Ashland shows improvement

Ashland's new 4¾% senior notes due 2022 did even better in the aftermarket, a trader said, seeing the Covington, Ky.-based specialty chemicals manufacturer's $500 million issue "wrapped around 102."

A second trader more or less echoed that, pegging the bonds at 101¾ bid, 102¼ offered.

That deal, pricing off the forward calendar, came to market at par earlier in the session.

Host heads higher

Lodging industry real estate investment trust Host Hotels & Resorts' 4¾% series C notes due 2023 were seen trading at 101½ bid, 101¾ offered. The Bethesda, Md.-based company's quick-to-market $450 million transaction priced at par.

A second trader, though, had not seen any levels on the deal, which had upsized from $350 million originally.

Other deals come too late

Traders said that there were no aftermarket dealings in the other three transactions that priced during the session: Fort Wayne, Ind.-based metals company Steel Dynamics' quick-to-market $700 million offering of seven- and 10 year notes, Dubuque, Iowa-based casino operator Peninsula Gaming's scheduled $350 million of 5.5-year paper and a $1.3 billion drive-by offering of eight-year senior secured notes from Atlanta-based electronic transaction processor First Data, which was upsized from the originally shopped $750 million.

Crescent bonds curve upward

Among Wednesday's pricings, a trader saw Charlotte, N.C.-based real estate company Crescent Resources' 10¼% senior secured notes due 2017 having firmed smartly on Thursday to 102 bid, 103 offered.

The upsized $350 million issue, which priced at par after being restructured from a seven-year piece of paper, came too late in the session Wednesday for any kind of secondary dealings.

That scheduled forward calendar offering had priced after upsizing from an originally planned $325 million.

Level 3 heads lower

But a trader said that Level 3 Financing, Inc.'s new 7% notes due 2020 "faded" during Thursday's session, quoting the bonds going home at 99¼ bid, 99¾ offered.

A second trader saw them at 99½ bid, 99¾ offered.

The Broomfield, Colo.-based telecommunications and internet services provider's quick-to-market issue had priced at par on Wednesday after having been nearly doubled in size to $775 million from an originally announced $400 million.

When they were freed for aftermarket dealings Wednesday ,the bonds had been quoted around a par-to-100 1/8 context.

Overall market mixed

As had been the case on Wednesday, traders on Thursday said that new issues remained the focus of most junk market activity. Away from that, they saw a mixed market on Thursday, as borne out by statistical performance indicators. They had been up across the board on Wednesday.

The Markit Group CDX North American Series 18 High Yield index lost a half-point on Thursday to close at 96½ bid, 96¾ offered after having risen by 7/16 point on Wednesday.

The KDP High Yield Daily index meantime scored its sixth straight advance on Thursday, edging upward by 1 bp to end at 73.76; on Wednesday, it had gained 6 bps.

However, its yield was also up by 1 bp, to 6.24%, the first time the yield had risen in seven sessions. On Wednesday, it had come in by 3 bps.

The widely followed Merrill Lynch U.S. High Yield Master II index notched its sixth consecutive gain on Thursday, rising by 0.022% on top of Wednesday's 0.118% advance.

The latest gain lifted its year-to-date return to 9.281% from Wednesday's 9.257% , establishing yet another new peak level for 2012. The old mark had just been set on Wednesday. The index's recent levels are the strongest they've been in 19 months, since the end of 2010, when the market measure returned 15.19%.

SuperValu strengthens again

Among specific non-new-deal junk names seen doing better, traders noted that the troubled Eden Prairie, Minn.-based supermarket chain operator SuperValu's bonds moved higher for a fourth day in a row on Thursday, continuing to ride the momentum generated from Monday's news that Craig R. Herkert had been fired as president and chief executive officer.

A trader said that its most actively traded issue, the 8% notes due 2016, "held its ground to up a little," trading between 88 and 89 bid during the day before finally closing around 88, which he called up a half-point, on $8 million to $9 million of volume.

Analysts said that the company's decision to replace Herkert with its non-executive chairman, Wayne C. Sales, was being welcomed by both bond and stock investors as a sign that management will aggressively pursue potential strategic transactions including asset sales or perhaps even the outright sale of the whole company. (See related story elsewhere in this issue.)

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.