Restructured VTR, upsized Stena price to close $11 billion week; new deals trade firmer

By Paul Deckelman and Paul A. Harris

New York, Jan. 17 - The high-yield primary sector turned on the afterburners on Friday to end the week on a strong note, as a pair of overseas issuers priced $2 billion of new U.S.-dollar-denominated, fully junk rated paper, syndicate sources said.

A financing subsidiary of Chilean communications company VTR Barda Ancha (Chile) SA brought a $1.4 billion 10-year offering to market, after first restructuring it into just one tranche by dropping a planned eight-year piece of paper.

And Swedish shipping and energy concern Stena AB did an upsized $600 million of 10-year notes.

Those were the only two junk pricings during the session from domestic or industrialized-country borrowers, and they swelled the week's new-issuance total to just under $11 billion in 15 tranches, according to data compiled by Prospect News.

That total was well up from $2.75 billion in six tranches that got done the previous week, ended Jan. 10. It was, in fact, the heaviest new-issuance weekly total seen in Junkbondland since the week ended Nov. 15, 2013, when $11.20 billion priced in 22 tranches, according to the data.

Despite those robust numbers, year-to-date issuance of $13.67 billion of new paper in 21 tranches was lagging the red-hot year-earlier pace seen in the junk market by about 16.5%; issuance had already totaled $16.39 billion in 36 tranches by this point on the calendar in 2013, the data indicated.

In the secondary arena, traders reported solid aftermarket gains in both the VTR and Stena bonds, and likewise saw good trading levels for other recent new deals, including Thursday's PlyGem Industries, Inc. and CBS Outdoor Americas Inc. offerings, as well as Wednesday's transactions from Community Health Systems, Inc., Harbinger Group Inc. and Masonite International Corp.

Traders said that there was a generally firm tone in the overall market, sparked by investor hunger for paper and fueled in part by continued flows of funds into junk, with yet another weekly inflow to mutual and exchange-traded funds seen, albeit a relatively small addition.

Statistical market performance measures, though, were mixed on the day for a second consecutive session, and were also mixed versus their week-earlier levels for a second consecutive week.

VTR prices tighter than talk

The Friday primary market saw a pair of issuers from outside the United States price dollar-denominated single-tranche deals to raise a total of $2 billion.

VTR Finance BV priced a restructured $1.4 billion issue of 10-year senior secured notes (B1/B+) at par to yield 6 7/8%.

The yield printed 12.5 basis points beneath the tight end of the 7% to 7¼% yield talk.

The bonds traded sharply higher in the secondary market, where a trader saw them up 2½ points heading into Friday's close.

The Santiago, Chile-based cable and internet company upsized the 10-year notes from $800 million when it withdrew a proposed $600 million tranche of eight-year notes, which had been talked to yield in the 6¾% area

Prior to the restructuring the 10-year tranche had been talked to yield 50 basis points behind the eight-year tranche.

J.P. Morgan, BNP, Goldman Sachs and Morgan Stanley were the joint bookrunners.

Proceeds will be used to fund the split off of VTR GlobalCom, SpA and VTR Wireless, SpA from Liberty Global plc and for general corporate purposes.

Stena upsizes

Sweden-based Stena priced an upsized $600 million issue of non-callable 10-year senior notes (B2/BB) at par to yield 7%.

The deal was increased from $400 million.

The yield printed at the tight end of the 7% to 7¼% yield talk.

J.P. Morgan, Citigroup, BNP and HSBC were the joint bookrunners for the debt refinancing.

Finmeccanica taps 4½% notes

There was also Friday activity in the euro-denominated primary market.

Italy's Finmeccanica Finance SA launched and priced an upsized €250 million add-on to its 4½% senior notes due Jan. 19, 2021 (Ba1/BB+/BB+) at a 300 basis points spread to mid-swaps in a quick-to-market transaction.

The announced deal size was €150 million minimum.

The spread came at the tight end of the mid-swaps plus 300 to 305 basis points final spread talk, which had been revised from earlier talk of 305 to 310 basis points. Initial guidance was mid-swaps plus 310 bps.

The deal played to more than €550 million of demand.

BNP Paribas, Citigroup, Credit Agricole, HSBC and UniCredit were the joint bookrunners.

Nesco sets lunch, call

Nesco, LLC plans to participate in a group lunch with high-yield investors in New York as well as an investor conference call, both set to start at noon ET on Tuesday.

Under discussion will be a $500 million offering of seven-year senior secured second lien notes.

The deal is expected to price on Jan. 24.

Morgan Stanley and Barclays are the joint bookrunners for the acquisition deal.

Harland Clarke to roadshow

Harland Clarke Holdings Corp. plans to start a roadshow on Wednesday for an $865 million two-part offering of high-yield notes.

The offering includes a $275 million tranche of six-year senior secured notes (B1/B+), which become callable in three years at par plus 50% of the coupon.

The San Antonio-based company is also offering $590 million of seven-year senior unsecured notes (Caa1/B-), which become callable in three years at par plus 75% of the coupon.

Credit Suisse, BofA Merrill Lynch, Citigroup, Deutsche Bank, PNC and Union Bank are the joint bookrunners.

Proceeds will be used to help fund the acquisition of Valassis and to refinance debt.

Puma Global roadshow

Puma Energy Holdings Pte. Ltd. plans to begin a global roadshow on Monday for a $750 million offering of seven-year senior notes (Ba2//BB).

The roadshow wraps up on Jan. 27.

Goldman Sachs International and SG CIB are leading the deal.

The Singapore-based oil and gas products and services company plans to use the proceeds to refinance debt and fund development.

Elsewhere, Houston-based Camac Energy Inc. has concluded its roadshow for a $300 million offering of senior secured notes due in 2018 via lead bookrunner Arctic Securities.

The deal was announced in mid-December.

Price talk has not yet been set, according to a source familiar with the transaction.

Day's deals trade up

In the secondary market, traders saw strong gains in the day's new issues.

One of them saw Stena's new 7% notes due 2024 having improved to 101 bid, 102 offered, up from their par issue price.

A second trader pegged those bonds at 101¼ bid, 101 ¾ offered.

The VTR Finance 6 7/8% senior secured notes due 2024 were seen doing even better in the aftermarket, with a market source locating the new bonds as high as 102¼ bid, 103 offered, well up from their par pricing level.

New bonds in demand

A trader said that in general, "they [i.e. new or recently priced issues] traded up. The market is pretty hot - the appetite for new issues is still there."

He added that "all the new issues have been trading up off the break, trading firm."

For instance, he said that CBS Outdoor Americas' new 5¼% notes due 2022 had finished their initial aftermarket trading on Thursday at 100½ bid, 101½ offered, up from their par issue price, and saw the New York-based outdoor advertising company's new 5 5/8% notes due 2024 having moved up to 101 bid, 102 offered. He said that he had not seen any dealings in the bonds on Friday, but he surmised that they were likely still anchored around those late-Thursday levels.

A second trader did see some activity in those CBS Outdoor bonds on Friday, though he quoted them actually down a little from Thursday's close.

He saw the 5¼% notes off by 3/8 point at 100¼ bid, 100¾ offered, and the 5 5/8% notes down by ¼ point at 101¼ bid, 101¾ offered.

Ply Gem pops up

But that was atypical, with most of the new or recently priced deals showing firmer levels.

"There's just a lot of demand right now for paper," a trader at another shop declared. "There's not that much [existing] secondary paper out there to buy," with investors hanging on for dear life to established issues with relatively large coupons, in the 7%-8%-9%-10% and above range.

"So things went well" among the new issues, he said, quoting Ply Gem's 6½% notes due 2022 trading up at 100 7/8 bid, 101 1/8 offered, versus the par level at which the Cary, N.C.-based manufacturer of exterior building products like doors, windows and siding had priced its $500 million issue on Thursday, after downsizing it from an originally planned $550 million.

A second trader also saw those new PlyGem bonds at that somewhat higher level.

He also saw Ply Gem sector peer Masonite International's 8¼% notes due 2021 trading Friday at 100½ bid, 101½ offered, a ½ point gain from the levels originally seen late Wednesday, after the Tampa, Fla.-based door manufacturer had priced its upsized $125 million drive-by add-on to the '21s at 108.75 to yield 5.704%.

And that trader likewise saw Harbinger Group's 7¾% notes due 2022 up 1/8 point at 101½ bid, 102 offered.

The New York-based diversified holding company had priced $200 million of those notes at par on Wednesday in a quick-to-market transaction. Those bonds had surged to around a 101 3/8 to 101 7/8 context when they were freed to trade later Wednesday.

Community Health climbs

Traders saw the big deal of the week - Franklin, Tenn.-based hospital operator Community Health Systems' $4 billion two-part issue - also trading at stronger levels.

Its 6 7/8% notes due 2022 were seen having pushed as high as 102½ bid, 103¼ offered by Friday. That $3 billion tranche of bonds, brought to market by the company's FWCT-2 Escrow Corp. financing subsidiary, had priced at par on Wednesday after a roadshow. The tranche had been upsized from an originally planned $2.875 billion.

Meanwhile, the other part of that super-sized deal - the company's 5 1/8% notes due in August of 2021 - was seen by the trader having gained a more sedate ½ point from its par issue price, going out at 100½ bid, 101½ offered. Another market source said that the gain had actually taken place when the bonds were first freed to trade on Thursday.

Those 7.5-year notes had been downsized to $1 billion from an originally planned $1.705 billion, as part of the downsizing of the overall deal from $4.58 billion originally.

Community Health's established 8% notes due 2019 were seen up by ½ point at 100¼ bid.

Market seems strong

A trader said that "there are a lot of buyers in this market," while a second at another shop agreed that "the market feels strong, and we have a decent calendar coming up."

He further said that "demand [for bonds] clearly outpaced supply, so we'll see if it continues."

Cash flows into market

A key factor cited by market participants is the strong flows of fresh cash into the junk market from investors looking to put their money to work and hoping to take advantage of the higher yields there, relative to other fixed-income investments, in order to build some decent returns for their portfolios.

And the cash continued to come in the latest week.

Market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that some $65 million more had come into high-yield mutual funds and exchange-traded funds than had left them in the week ended Wednesday.

It was the second consecutive weekly flow of fresh money into those funds, coming on the heels of the $642 million net cash injection recorded by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., during the week ended Jan. 8.

There have been two weeks of inflows to the funds since the start of the year, totaling about $707 million, versus no outflows so far, according to a Prospect News analysis of those numbers.

Inflows have also been seen now in three out of the last four weeks, for a cumulative net inflow during that time of about $167 million, according to the analysis. That period was marred by the lone recent outflow of $643 million in the week ended Jan. 1.

On a longer-term basis, the latest inflow was the 15th in the last 19 weeks, going back to the week ended Sept. 11, 2013, which have seen net gains accumulate to the tune of about $8.96 billion in that time, according to the analysis.

In 2013, inflows were seen in 33 weeks, versus 20 weeks of outflows, although total net inflows for the year tallied up to about $1.27 billion, according to the analysis.

Cumulative fund-flow estimates may be revised upward or downward or may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts said that the sustained flows 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 or leaving the more than $1 trillion junk market - has been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past two years, and which has continued so far this year.

Market indicators stay mixed

Traders said that overall, dealings in the new issues dominated the secondary market on Friday, with little really standing out away from that.

Statistical junk-market performance indicators were mixed for a second consecutive session on Friday, after having been higher across the board for the two sessions before that.

On a week-over week basis, the market measures were mixed for a second straight week, following two weeks when they had been higher all around.

The Markit Series 21 CDX North American High Yield Index lost 3/32 point on Friday to close at 107 7/8 bid, 108 offered, its second loss in a row. It was also down by ¼ point on Thursday.

And the index was down as well from the 108 3/16 bid, 108 5/16 offered level at which it had closed out the previous week on Friday, Jan. 10.

The KDP High Yield Daily Index eased by 1 basis point on Friday to end at 74.93, its second straight setback; on Thursday, the index had retreated by 2 bps.

It yield, meanwhile, was unchanged at 5.43%, after having widened by 2 bps on Thursday.

But its levels compared favorably with the previous Friday's 74.84 index reading and 5.47% yield.

The widely followed Merrill Lynch High Yield Master II Index extended its amazing winning streak to 20 consecutive sessions, dating back to Dec. 19. It was up by 0.068% on Friday, after having risen by 0.073% on Thursday.

The latest gain lifted its year-to-date return to 1.058% on Friday, its 11th straight new peak level for 2014 and its first daily finish this year above the psychologically significant 1% marker. That cumulative return surpassed the previous high for the year of 0.99%, which had been set on Thursday.

The index showed a one-week gain of 0.393%, its 10th consecutive weekly improvement. It had finished the previous Friday with a 0.491% rise for the week and a year-to-date reading of 0.662%.

The index's yield to worst came in to 5.407% on Friday, its sixth straight new 2014 low level. That eclipsed the previous low point of 5.422%, set on Thursday.

Its spread to worst tightened to 403bps over comparable Treasuries, tying the tightest level for 2014 so far, which was set on Wednesday of this week. It came in from Thursday's level of 404 bps over.

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