Pacific Drilling, Millicom, Murray price to cap $15 billion week; funds lose $403 million

By Paul Deckelman and Paul A. Harris

New York, May 17 - The high-yield primary market saw a trio of deals collectively worth $1.6 billion price on Friday - closing out one of the busiest new-issuance weeks seen so far this year.

Global telecommunications operator Millicom International Inc. was heard by syndicate sources to have priced $500 million of seven-year notes.

The sources also saw two deals coming out of the energy sphere. Pacific Drilling SA, a deep-water drilling contractor, had the big deal of the session - $750 million of seven-year senior secured notes.

Meanwhile, coal mining concern Murray EnergyCorp. did a downsized $350 million issue of eight-year secured notes

Those deals topped off a week which saw more than $15 billion of new dollar-denominated, fully junk-rated paper from domestic or industrialized-country borrowers come to market.

The Pacific Drilling bonds were quoted having moved up by nearly a point when they were freed for aftermarket dealings, but volume was seen as light.

Statistical measures of market performance were meantime seen mixed, after having been mostly unchanged on Thursday

However, another statistical measure - the flows of money to and from high yield mutual and exchange-traded funds, seen as a barometer of overall liquidity trends in Junkbondland - recorded its first downturn after four consecutive weeks of inflows, according to one of the major fund-tracking services.

AMG sees $403 million outflow

Junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, some $402.8 million more left those funds than came into them.

It was the first such cash loss seen by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., following four consecutive weeks of inflows totaling about $2.02 billion, according to a Prospect News analysis of the Lipper figures. That cash surge included the $789.4 million inflow which had been reported the week before, ended May 8.

Twenty weeks into the year, 2013 net inflows as reported by Lipper so far have amounted to about $2.52 billion, according to the analysis.

There have now been 13 inflows and seven outflows reported by Lipper so far this year.

In 2012, when cumulative net inflows for the year totaled an estimated $32 billion, according to the analysis, inflows to the funds had been recorded in 39 weeks of the year, and outflows in the remaining 13 weeks.

EPFR sees $94 million inflow

The other major fund-tracking service, EPFR Global, of Cambridge, Mass., meantime reported Friday that that in the week ended Wednesday $94 million more came into the junk mutual funds and ETFs that it tracks in its universe than left them.

It was the fifth straight inflow seen by the service, although it was well down from the $1.99 billion cash injection that it had reported during the previous week. During that five-week stretch, inflows have totaled $6.61 billion, according to a Prospect News analysis of the company's data.

On a year-to-date basis, EPFR has now seen 17 weeks of inflows, versus just three weeks of outflows since the start of 2013, with a cumulative net inflow during that time frame of $15.64 billion, according to the analysis.

EPFR and AMG/Lipper use different methodologies to reach their respective calculations, usually resulting in a wide variation in their numbers. While AMG/Lipper focuses strictly on domestic mutual funds and ETFs, rival EPFR includes a number of non-U.S.-domiciled funds in its universe. The two services' numbers usually head in the same direction in identifying liquidity trends, although occasionally, as in this week, they will diverge.

Calculating the results only from U.S-based funds, a data subset more closely aligned with AMG/Lipper's, EPFR reported a $159 million outflow in the latest week - the first such cash loss after four consecutive gains to the domestic-only funds, including the previous week's $1.35 billion inflow. In those four weeks, inflows had totaled some $3.63 billion, according to the Prospect News analysis.

On a year-to-date basis, EPFR's U.S.-only funds have seen inflows in 12 weeks since the start of the year, versus eight outflows, for a total cumulative net inflow to those domestic funds of some $5.877 billion, according to the analysis.

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 and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of investor money coming into or leaving the junk market - has been seen by analysts as a key element behind the high yield secondary sphere's strong performance last year versus other fixed-income asset classes, and its record active new-deal pace, which easily topped the $350 billion mark - patterns of primary activity and secondary strength which have mostly continued into the new year, so far.

Primary sees three deals

The pace of the primary market slowed on Friday.

Three issuers completed single-tranche deals, raising a combined total of $1.6 billion.

All three deals ran roadshows. Two of the three priced at the tight end of talk and the third came inside of talk.

None were upsized, but one was downsized.

Pacific Drilling at tight end

Pacific Drilling printed the session's biggest deal, a $750 million issue of seven-year senior secured notes (B1/B+) that priced at par to yield 5 3/8%.

The yield printed at the tight end of yield talk set in the 5½% area.

Goldman Sachs, Citigroup, Deutsche Bank and Barclays were the joint bookrunners for the debt refinancing.

Millicom comes inside of talk

Millicom International Cellular launched and priced a $500 million issue of 4¾% seven-year senior notes (Ba2//BB+) at 99.266 to yield 4 7/8%.

The yield came 50 basis points below the 5 3/8% guidance.

Joint global coordinator JPMorgan will bill and deliver. Standard Bank was also a global coordinator. BNP Paribas was a joint bookrunner.

The Luxembourg-based telecommunications company plans to use the proceeds to refinance existing debt of African subsidiaries in Chad, Democratic Republic of the Congo, Ghana, Senegal and Tanzania.

Murray Energy downsizes

Murray Energy priced a downsized $350 million issue of eight-year senior secured second-lien notes (Caa1/B-) at par to yield 8 5/8%.

The issue was reduced from $400 million and the company shifted $50 million of proceeds to its bank loan.

The yield printed at the tight end of yield talk set in the 8¾% area.

Goldman Sachs ran the books for the debt refinancing.

The week ahead

At Friday's close, only two deals were parked on the active forward calendar for the week ahead.

Springs Window Fashions is marketing a $470 million offering of eight-year senior secured notes (confirmed B2/expected B-) via JPMorgan and BofA Merrill Lynch.

The acquisition financing is expected to price on Tuesday.

And Getco is in the market with a deal related to the merger of Getco and Knight Capital Group. The $305 million offer of five-year senior secured notes (B2//) is being led by Jefferies and Goldman Sachs and is also set to price during the week ahead.

Pacific Drilling firms

In the secondary realm, when Pacific Drilling's 5 3/8% notes were freed to trade, a market source saw those bonds having pushed as high as 100 5/8 bid, 101 1/8 offered.

The Luxembourg-based ultra-deep-water contract drilling company's new deal had priced earlier in the session at par.

The source did not see any aftermarket activity in the day's other two pricings, from global telecommunications provider Millicom International and from St. Clairsville, Ohio-based coal operator Murray Energy.

A second trader observed that he "did not see any trading in any of these things."

He noted the sharp falloff in new-issue volume between, on the one hand, Wednesday's humongous $7 billion session - the heaviest seen so far this year - and Thursday's still very-busy $3.9 billion, and, on the other, Friday's final tally, which was less than half of Thursday's.

Friday, he declared, "was almost like a summer Friday."

Recent deals a mixed bag

Among other recently priced issues, a trader quoted Univision Communications Inc.'s 5 1/8% senior secured notes due 2023 at 100 7/8 bid, 101 1/8 offered.

That was up from the par price at which the Los Angeles-based Spanish-language media company had priced its $700 million drive-by issue on Thursday, after having upsized the transaction from $500 million originally. Those bonds had not initially traded in the aftermarket following their pricing, waiting until Friday.

Among Thursday's other deals, a trader saw Sugarhouse HSP Gaming Prop. Mezz LP's 6 3/8% senior secured second-lien notes due 2021 having gained 1/8 point on the day, moving them up to 101 5/8 bid, 102 1/8 offered.

The Philadelphia-based gaming operator priced $235 million of those notes at par, and they had firmed to 101½ bid, 102 offered in initial aftermarket dealings.

Also on the upside, Builders FirstSource, Inc.'s 7 5/8% senior secured notes due 2021 moved up to 101 5/8 bid, 102 1/8 offered, a gain of about 3/8 on the day.

The Dallas-based building products company's now bonds had initially traded up to 101¼ bid, 101¾ offered on Thursday after that $350 million issue came at par.

However, SuperValu Inc.'s 6¾% notes due 2021 continued to struggle following Thursday's par pricing for that $400 million deal.

The Eden Prairie, Minn.-based supermarket operator's bonds were seen going home Friday at 99 3/8 bid, 99 5/8 offered, about ¼ point under Thursday's initial aftermarket closing levels.

Market indicators mixed

Overall, the junk market's statistical performance indicators were seen turning mixed on Friday, after having been mostly unchanged the previous session. They were also mostly lower versus levels seen at the close of the prior week on Friday, May 10.

The Markit Series 20 CDX North American High Yield Index rose by 3/8 point on Friday to end at 107 1/8 bid, 107¼ offered. It had been unchanged on Thursday.

The index was also up versus its week-earlier level at 106 5/8 bid, 106 7/8 offered.

The KDP High Yield Daily Index edged up by 1 basis point Friday to 76.44, after having been unchanged on Thursday. Its yield was 1 bp wider at 5.03%, after having been steady on Thursday.

Those levels compared unfavorably with the week-earlier 76.70 index reading and 4.88% yield.

The widely followed Merrill Lynch High Yield Master II Index lost 0.001% Friday, after having gained 0.012% on Thursday.

The loss brought its year-to-date return down to 5.34% from 5.341% on Thursday. It was also below its peak level for the year of 5.835%, set on May 9.

On the week, the index lost 0.338% - its first weekly loss after three consecutive weeks of gains before that. Last week, it had risen by 0.258%, and the year-to-date return was 5.697%.

© 2015 Prospect News.
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