Stratus terms emerge, downsized NES, SquareTwo price; ManTech slates; funds gain $297 million

By Paul Deckelman and Paul A. Harris

New York, April 1 - The high yield primary sphere started off the new month of April on Thursday pretty much the same way it had closed out March, with several new deals heard pricing - although the roughly $434 million principal amount coming to market was well short of the nearly $1.5 billion seen in Wednesday's session.

Terms emerged on a deal from Stratus Technologies, Inc., which had priced $215 million of five-year notes with units late Wednesday. However, the Maynard, Mass.-based information technology company's new issue priced well below par and was seen hovering around that discounted price later in the day.

The other two deals which appeared were actually downsized from previously expected amounts, with Denver-based SquareTwo Financial Corp.'s $290 million offering of seven-year second-lien secured notes a little smaller than its original size, while NES Rental Holdings, Inc.'s $150 million of secured notes came in a full $100 million below the amount which had initially circulated. The Chicago-based construction and heavy equipment rental company's deal was also restructured with a shorter maturity.

The forward calendar gained a prospective offering, as ManTech International Corp., a Fairfax, Va.-based information security defense contractor, announced plans for a $200 million note offering.

Away from the new-deal realm, traders called the activity levels dull and lackluster, noting that some market participants remained out due to the nexus of the week's various religious observances, combined with spring recess school closings in many areas that make the week an ideal time for taking vacation days. What little action there was outside of the primary wound down early as players made their getaways before Friday's severely abbreviated session.

Junk funds gain $297 million

As things ground to a halt for the day, market participants familiar with the weekly high yield mutual fund-flow numbers compiled by AMG Data Services of Arcata, Calif. - considered a reliable barometer of overall junk market liquidity trends - said that in the week ended Wednesday $296.7 million more came into those weekly-reporting high yield funds than left them, a sign of continued investor support for Junkbondland.

It was the sixth consecutive weekly cash infusion. Since that winning streak started in late February, $3.012 billion has come into the funds in that time, according to a Prospect News analysis of the AMG figures, including the latest inflow and the $539 million cash injection seen in the previous week, ended Wednesday, March 24.

In the 13 weeks since the beginning of this year, inflows have now been seen in 10 of those weeks and outflows in the remaining three, including two massive cash hemorrhages seen in mid-February, each of them north of $900 million, that totaled $1.9 billion, according to the Prospect News analysis.

Even with that big cash exodus, though, the mutual funds show a year-to-date cumulative net inflow of $2.655 billion, according to the analysis - a new peak level for the year, eclipsing the old mark of $2.358 billion seen the previous week.

EPFR sees $972 million cash gain

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime also reported that $972 million more came into the funds than left them in the latest week.

That cash infusion followed the $812 million inflow seen in the previous week. Following the pattern seen in the AMG figures, the EPFR statistics have now shown six straight weeks of inflows, lifting the funds from a two-week rut in the Feb. 10 and Feb. 17 weeks which had seen $1.76 billion of combined outflows.

Reflecting the difference in the way AMG and EPFR calculate their respective fund-flow totals, the latter - which includes results from certain non-U.S. domiciled funds as well as the domestic funds - said that on a year-to-date basis, the mutual funds are now showing a $5.53 billion net inflow, widening from $4.56 billion in the previous week. The latest week's figure represents a new peak level for the year.

Any and all cumulative fund-flow totals, whether for AMG or EPFR, can include unannounced revisions and adjustments to figures from prior weeks.

The flow of money into and out of the junk bond funds is seen as a generally reliable barometer of overall high yield market liquidity trends - although they comprise less of the total monies floating around the high yield universe than they did in the past. Last year's strong pattern of inflows - with AMG reporting over $20 billion having come in to the weekly-reporting funds over the course of the year, along with over $10 billion more into funds which only report on a monthly, rather than weekly basis, and EPFR posting similarly robust numbers - was seen as a proxy for the overall surge of liquidity into the junk market from all sources, which helped to fuel record 2009 new-issuance of over $160 billion and unprecedented secondary returns topping 57%.

SquareTwo prices wide of talk

Thursday's primary market saw two issuers, each bringing a single downsized tranche, raising a combined $434 million of proceeds.

SquareTwo Financial Corp. priced a downsized $290 million issue of 11 5/8% seven-year senior second-lien notes (B2/B) at 98.265 to yield 12%.

The yield printed 25 basis points beyond the wide end of the 11½% to 11¾% price talk.

Bank of America Merrill Lynch and BMO Capital Markets Corp. were joint bookrunners for the issue which was downsized from $300 million.

Proceeds, together with the revolving credit facility proceeds, will be used to repay debt under the company's existing credit facility and its existing senior subordinated notes, as well as for general corporate purposes, including to fund the purchase of charged-off accounts receivables.

NES downsized, restructured

Meanwhile NES Rentals Holdings, Inc. priced a downsized, restructured $150 million issue of 12¼% five-year second-lien senior secured notes (Caa2/CCC+) at 99.083 to yield 12½%.

The yield printed on top of price talk that was revised upward from the original talk of 11½% to 11¾%.

The tenor of the notes was cut to five years from seven years.

The deal was reduced to $150 million from $250 million.

Deutsche Bank Securities Inc. and Bank of America Merrill Lynch were joint bookrunners.

Proceeds from the offering will be used for refinancing the company's second-lien term loan.

$5.5 billion week

Although the stellar executions took place earlier in the week, Thursday's total lifted the March-April crossover week's new issue volume to just under $5.5 billion proceeds, according to Prospect News data.

Meanwhile, the fund flows data continues to suggest that the buy-side is receiving cash to be put to work in the junk bond market.

The high-yield mutual funds saw $296.7 million of inflows for week to Wednesday, according to AMG Data Services.

The extent to which continued positive cash flows are stoking demand for high-yield bonds was perhaps most apparent in the March 29 week's biggest deal, the LINN Energy, LLC and LINN Energy Finance Corp. massively upsized $1.3 billion issue of 8 5/8% 10-year senior notes (B3/B).

The deal, upsized a second time from $750 million, after having previously been upsized from $500 million, priced at 97.552 to yield 9% on Tuesday.

Such was the demand for the LINN 8 5/8% notes due 2020 that the deal could have grown significantly larger still, according to an informed source.

And the massive upsizing came without a conspicuously grand concession, the source said, adding that around 12.5 basis points was likely the company's cost for growing the deal to $1.3 billion from $750 million.

RBC Capital Markets Corp., Barclays Capital Inc., BNP Paribas, Citigroup Global Markets Inc., Credit Agricole, RBS Securities Inc. and Wells Fargo Securities were joint bookrunners for the deal.

Stratus, March's last deal

Elsewhere Thursday, word surfaced that Stratus Technologies, issuing via three domestic and offshore entities, priced a $215 million sale of 12% five-year notes and warrants (B2/B-) late Wednesday night.

The $1,000.00 units priced at $964.10.

The notes will yield 13%.

The issue priced on top of the price talk.

Jefferies & Co. ran the books.

Stratus brought the curtain down on the biggest March the market has ever seen, sources said.

Dollar-denominated junk-rated issuance came to $36.6 billion in 79 tranches, according to Prospect News data.

That easily clears the $29.8 billion that priced in 48 tranches during November 2006 - the next highest monthly total going clear back to 2001.

The week ahead

Continued cash inflows notwithstanding, as the week ahead gets underway players will be looking at a rather modest active forward calendar.

ManTech International Corp. plans to price a $200 million offering of eight-year senior unsecured notes via Bank of America Merrill Lynch and JP Morgan.

In addition, MagnaChip Semiconductor SA is expected to price a $250 million offering of eight-year senior notes (B2/B+) on Tuesday via Goldman Sachs, Barclays Capital, Deutsche Bank Securities and Morgan Stanley.

The Korean chip-maker's offering has not been officially talked. However the whisper is 10%, according to an analyst who also told Prospect News that the order book is likely significantly oversubscribed.

Apart from those two, a telecom deal in the sub-$500 million range is expected to surface during the week ahead, according to a syndicate banker who declined to furnish an issuer name.

This official expects the build-up of the forward calendar be somewhat gradual, with more announcements coming later, as opposed to earlier, in the week ahead.

New issues dominate secondary

Traders said that most of the relatively quiet activity in the secondary market centered around newly or recently priced issues.

"It's impossible to follow all of this stuff right now," a trader exclaimed, referring to the cornucopia of new deals. "Everybody is just scratching their heads," trying to evaluate the new issues.

He called the new Stratus Technologies 12½% five-year notes, which were sold in units with equity warrants for three company subsidiaries, "the one deal that was really weak."

He opined that after pricing, "it got no traction. Very candidly, a couple of accounts were trying to get out [of positions], I don't know if they could. He said the bonds seemed to be staying around 96 bid, 96½ offered, versus their 96.410 issue price.

A second trader saw the Status bonds at 96½ bid, 97½ offered.

A trader said the new SquareTwo Financial Corp. 11 5/8% notes due 2017 "freed up late at the end of the day. We had some sellers of that," at the 99¼ level, versus 98.265, the level at which the $290 million issue had priced to yield 12%, but he said he had seen no real trading in it by the time he left the office.

A second trader quoted the bonds as having traded at 98½ bid, 99½ offered, up slightly on the bid side from the paper's issue price.

A trader saw the new NES Rental Holdings 12¼% five-year senior secured notes at par bid, 100 3/8 offered, versus the 99.083 level at which the downsized deal had priced to yield 12½%.

Tuesday and Wednesday deals trade around

A trader saw "a little bit of re-trading" in Ferrellgas Partners, LP/Ferrellgas Partners Finance Corp.'s $280 million issue of 8 5/8% 10-year senior notes, which had priced at par on Wednesday. He saw the Overland Park. Kan.-based propane gas distributor's new bonds trading around par bid, 100¼ offered, "pretty much where they went out" on Wednesday.

Another trader saw the bonds at 100¼ bid, 100¾ offered.

While there was some activity in Ferrellgas, the first trader said that "the other [Wednesday] deals didn't really see much."

A trader saw buyers for International Loan Finance Corp.'s two-part add-on deal which came to market on Tuesday, saying the paper was "right around issue, or up a quarter" point. The Century City, Calif.-based aircraft leasing firm - a unit of troubled New York-based insurance giant American International Group Inc. - priced $250 million of 8 5/8% notes due 2015 at 101, to yield 8.392%, and had priced $500 million of 8¾% notes due 2017, upsized from the initially shopped $250 million, at 100.75 to yield 8.604%. The company had previously priced $1 billion of each tranche on March 17.

A trader saw "not much free trading at all" in LINN Energy LLC/LINN Energy Finance Corp.'s new 8 5/8% notes due 2020. Those bonds -- massively upsized to $1.3 billion from the $500 million which the Houston-based independent oil and gas exploration and production operator had originally announced - priced Tuesday at 97.522 to yield 9%.

However, those bonds had moved up at least a point or two in their initial aftermarket dealings late Tuesday and on Wednesday, and a trader on Thursday saw them holding steady at 99¾ bid, 100¼ offered.

Market indicators little changed

Among bonds not connected with the new-deal market, a trader saw the CDX Series 14 index up by ¼ point on the session Thursday, pegging it at 98 bid, 98¼ offered.

The KDP High Yield Daily Index meantime slipped by 3 basis points Thursday to 72.03, while its yield widened by 3 bps to end at 7.85%.

Advancing issues held a led over decliners Thursday for an eighth consecutive session, although their winning margin was just a couple of dozen issues out of more than 1,300 tracked.

Overall market activity, represented by dollar-volume levels, was down 20% on Thursday from levels seen the previous session.

"Essentially today, everything died at noon," a trader said, "with the exception of late-afternoon pricings." He added that "there really was not a lot of trading activity this morning, either." The session was "overall fairly tame." He said that he "didn't see any spread widening today."

"It was a little boring," another trader said, "but the new issues keep coming." He added that "while they still can, [corporate] treasurers should refinance everything they possibly can do."

Action in YTC paper

"We're still seeing some yield-to-call paper being pushed around," a trader said, " both people selling it as well as an appetite for buying it, but nobody is really willing to give an inch."

Action in the autos

A trader said that General Motors Corp.'s bonds had 'a lot of volume," noting that "GMs move up over the week," with the 8 3/8% benchmark bonds due 2033 staying in a 37-38 context, "pretty much unchanged, but on decent volume."

He saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 in a 92ish-93ish neighborhood, pretty much unchanged.

At another desk, a trader saw the GM benchmarks unchanged at 37½ bid. 38 offered, while the Ford long bonds were down ½ point, quoting them at 94 bid, 95 offered.

Market players meantime digested the latest sales figures for the carmakers, showing each with sales gains in March of over 30% versus year-ago levels.

A trader saw Visteon Corp.'s bonds having moved up to the mid-90s, quoting the 7% notes due 2014 around 97-98. "They've moved up over the last week and a half," he said, and saw them continuing to gain "a couple more points" on Thursday versus their prior levels around 94-95.

Radian, financials rally

A trader said that Radian Group Inc. paper "moved up - that's been a big mover this week, any of that insurance company [debt], all have moved huge this week - Radian, PMI, MGIC - but Radian is the one that has traded up."

He saw the Philadelphia-based mortgage and municipal bond insurer's 5 3/8% notes due 2015 "up a couple points" at 78-79, while its 5 5/8% notes due 2013 were at 88-90, "also up a couple of points."

He said there was "not a lot of activity" in the credit, but there had been "a lot of activity earlier in the week, and now they're quoted higher."

"They're not big deals - but that's where the action is."

© 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.