Avis, Cincinnati Bell, Michaels lead $2.5 billion day, Europe active, funds up $366 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 7 - There was just no stopping the super-charged high-yield primary market on Thursday, as a half-dozen domestic new deals - half of them quickly-shopped "drive-by offerings - were heard by syndicate sources to have priced, along with a pair of European offerings. When the dust had settled, bonds with a total face amount of $2.55 billion, €1.326 billion and CHF 300 million had come to market.

The big deal on the domestic side was Irving, Tex.-based art supply store chain proprietor Michaels Stores, Inc.'s upsized $800 million of eight-year notes. After pricing a bit below par, the new bonds initially retreated further, but then had moved up to around their issue price by the close.

Car rental giant Avis Budget Group, Inc., Midwest phone service provider Cincinnati Bell, Inc., and Houston-based oil and gas operator Hilcorp Energy Co. each visited the market with opportunistically timed, rapidly priced deals - Avis with a $400 million offering of 8.25-year notes, Cincinnati Bell with $500 million of 10-year paper, and Hilcorp with $300 million of 101/2-year bonds.

Also pricing were $300 million of eight-year notes from another Houston-based energy operator, Alta Mesa Holdings, LP, and a downsized $250 eight-year issue from Brickman Group Holdings, Inc., a Gaithersburg, Md.-based commercial landscaping company.

From Europe came word of two additional pricings - Swiss telecommunications company Sunrise Communications AG's massive three-part offering, mostly denominated in euros, but also having a Swiss franc component, and German automotive repair shop chain A.T.U. Auto-Teile-Unger Handels GmbH & Co. KG 's restructured two-part euro deal.

No other upcoming deals were heard to have surfaced on Thursday.

Secondary trading levels were firm, traders said, but activity dwindled as the new deal arena dominated the proceedings.

Junk funds gain $366 million

And as things were winding up for the day, market participants familiar with the weekly Lipper FMI high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. - considered a reliable barometer of overall market liquidity trends - said that in the week ended Wednesday $365.985 million more came into those funds than left them.

It was the fifth straight weekly inflow, following the $565.963 million cash infusion seen in the previous week, ended Sept. Sept. 29, according to a Prospect News analysis of the figures provided by market sources. During that time, net inflows have totaled about $3.591 billion, according to the Prospect News analysis.

The latest week's inflow brought the year-to-date cumulative total for the weekly reporting funds up to $9.246 billion, a new peak level for the year, from the previous week's $8.88 billion, the prior year-to-date peak, according to the analysis. Inflows have now been seen in 28 out of the 40 weeks since the beginning of the year, while there have been 12 outflows, the analysis indicated.

EPFR sees 265 million inflow

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported a $265 million inflow in the latest week, which followed a $1.03 billion inflow the week before.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals, although the two services' numbers generally point toward the same trends - EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds - its year-to-date net inflow total now stands at $20.6 billion, a new peak level for the year, versus the old peak of some $20.37 billion seen the week before.

Any and all cumulative fund-flow totals, whether for AMG or EPFR, may be rounded up or down 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 quantifiable, percentage of the total amount of money coming in - has fueled the new-deal borrowing binge as well as the robust secondary market.

Michaels Stores upsizes

Michaels Stores priced the day's biggest dollar-denominated deal, an upsized $800 million issue of 7¾% eight-year senior notes (Caa1//) at 99.262 to yield 7 7/8%.

The yield printed in the middle of the 7¾% to 8% price talk.

Deutsche Bank Securities, Bank of America Merrill Lynch, Barclays Capital, Credit Suisse, J.P. Morgan Securities LLC and Wells Fargo Securities were the joint bookrunners for the quick-to-market debt refinancing deal.

Cincinnati Bell at wide end

Meanwhile, Cincinnati Bell priced a $500 million issue of 10-year senior unsecured notes (B2/B+) at par to yield 8 3/8%, at the wide end of the 8¼% area price talk.

Barclays Capital and RBS Securities were the active bookrunners for the quick-to-market issue. Bank of America Merrill Lynch, Deutsche Bank Securities, Morgan Stanley and Wells Fargo Securities were the passive bookrunners.

The Cincinnati-based telecommunications company will use the proceeds to repay bank debt.

Avis Budget drives by

Most of Thursday's issuers were companies familiar to the high-yield market.

Avis Budget Car Rental, LLC and Avis Budget Finance, Inc. priced a $400 million issue of 8.25-year senior unsecured notes (B3/B) at par to yield 8¼%, at the tight end of the 8¼% to 8 3/8% price talk.

Citigroup, Morgan Stanley, Credit Agricole CIB and RBS Securities were the joint bookrunners for the quick-to-market issue.

The Parsippany, N.J.-based vehicle rental company plans to use the proceeds either to partially fund its planned acquisition of Dollar Thrifty or to repay outstanding corporate debt.

Alta Mesa at the wide end

Alta Mesa Holdings, LP and Alta Mesa Finance Services Corp. priced a $300 million issue of 9 5/8% eight-year senior notes (B3/B) at 99.307 to yield 9¾%, at the wide end of the 9½% to 9¾% price talk.

Wells Fargo Securities and Citigroup Global Markets Inc. were the joint bookrunners.

Proceeds will be used to repay the company's second-lien term loan, to pay down its revolver, to make a distribution to Alta Mesa Investment Holdings, Inc. and for general corporate purposes.

Hilcorp brings drive-by

Another Houston energy company, Hilcorp Energy, brought a drive-by deal.

Hilcorp priced a $300 million issue of 10.5-year senior notes (B2/BB-) at par to yield 7 5/8%.

The yield printed in the middle of the 7½% to 7¾% price talk.

Deutsche Bank Securities, Barclays Capital, J.P. Morgan Securities LLC, BMO Nesbitt Burns and Wells Fargo Securities were the joint bookrunners for the bank debt and general corporate purposes deal.

Brickman downsizes

Brickman Group Holdings priced a downsized $250 million issue of eight-year senior notes (B3/CCC+) at par to yield 9 1/8%.

The yield printed at the tight end of the 9¼% area price talk.

The issue was downsized from $300 million, with $50 million being shifted to the bank loan.

The first call premium was increased to par plus three-quarters of the coupon from par plus half of the coupon.

Bank of America Merrill Lynch and Barclays Capital Inc. were the joint bookrunners.

Proceeds, along with proceeds from a new credit facility, will be used to redeem the company's outstanding senior subordinated notes and to make a cash distribution to the equity holders.

Sunrise's big European deal

In Europe, Switzerland's Sunrise Communications raised CHF 1.475 billion equivalent by issuing three tranches of notes on Thursday.

Subsidiary Sunrise Communications International SA priced CHF 300 million and €371 million of senior secured notes due Dec. 31, 2017 (Ba3/BB) at par to yield 7%. The secured notes priced at the tight end of the 7% to 7¼% price talk.

Meanwhile, Sunrise Communications Holdings SA priced €505 million of 8 ½% senior unsecured notes due Dec. 31, 2018 (B3/B) at 99.2238 to yield 8 5/8%. The unsecured notes also priced at the tight end of the 8¾% area price talk.

Deutsche Bank and BNP Paribas were the global coordinators and joint bookrunners.

UBS, SG CIB and UniCredit were also joint bookrunners.

The Zurich-based telecommunications company will use the proceeds to fund the purchase of Sunrise Communications AG from TDC A/S by funds managed and advised by CVC Capital Partners.

A.T.U. prices restructured deal

Finally, Germany's A.T.U. Auto-Teile-Unger Handels priced a restructured €450 million two-part issuance of non-callable senior notes due April 15, 2014 (B3/B-).

The company priced €375 million of 11% fixed-rate notes at 98.539 to yield 11.501%.

The yield priced slightly beyond the wide end of the 11¼% to 11½% price talk, which had been increased from previous talk of 10½% to 11%.

Meanwhile, in a tranche which surfaced in the restructuring of the deal, A.T.U. priced €75 million of six-month Euribor plus 975 basis points notes at 99.

The coupon printed on the tight end of the six-month Euribor plus 975 to 1,000 bps price talk.

Goldman Sachs & Co. and Morgan Stanley managed the sale.

The car and truck repair service franchisee plans to use the proceeds to repay debt.

New Michaels gradually moves up

When Michaels Stores' new 7¾% notes due 2018 were freed for secondary dealings, a trader saw those notes go as low as 98½ bid, 99½ offered - well down from the 99.62 level at which those bonds had priced earlier.

However, a second trader queried a little later quoted the paper - upsized to $800 million from the originally announced $750 million - at 99 1/8 bid, 99 3/8 offered, adding that "it looks like a market top kind of pricing,"

He also pointed out with some relish that despite its relatively low rating - just a Caa1 from Moody's Investors Service - the Michaels deal was able to price with a respectably low yield of 7 7/8%.

As it turns out, Michaels' yield was considerably lower than both the somewhat higher-rated Alta Mesa deal as well as the similarly-rated Brickman offering, and also priced inside the yields for Avis and Cincinnati Bell, despite both of those companies - well known names in Junkbondland - carrying higher ratings.

Another trader also called the new issue's coupon "a little rich," and marveled "I don't know how they got those done."

Michaels' outstanding 10% notes due 2014 - which are being taken out via tender offer funded with the proceeds from the new issue - were meantime seen by a market source as having gained slightly to end at 105¾ bid.

Alta Mesa trades near issue

A trader saw Alta Mesa Holdings' new 9 5/8% notes due 2018 trading just a little above their issue price of 99.307, hovering at 99½ bid, 99 7/8 offered.

A second trader saw that $300 million issue get as good as 100½ bid, 101½ offered.

However, yet another trader later on pegged the energy company's bonds back at 99½ bid, par offered.

Avis 'tries harder'

A trader saw the new Avis Budget Group 8¼% notes due 2019 having gotten as good as 101½ bid, 102 offered, when the Parsippany, N.J.-based company's bonds broke into the secondary after that quickly-shopped $400 million issue priced at par.

Later, a trader saw the new deal having come off its earlier peak to settle in around 100½ bid, 101½ offered, and quipped "they tried harder," paying homage to the Number-Two U.S. car-rental concern's classic advertising campaign it mounted in its epic battle for industry supremacy with Number-One Hertz.

Hilcorp, Brickman too late for trading

The day's other name from the oil and gas sector, Hilcorp Energy's 7 5/8% notes, came to market too late in the session for secondary dealings, after having priced at par.

That was also the case, traders said, for Brickman Group Holdings' 9 1/8% notes.

The Cincinnati Bell deal was also a fairly late entrant into the market. A trader said the only quote he had seen on the Ohio telecom operator's drive-by offering of 8 3/8% notes was an offering at 101, but with no bid, after the bonds had priced at par.

Wednesday deals hold their own

A trader said that Wednesday's gigantic two-part offering from consumer products packaging company Reynolds Group Issuer Entities was pretty much hanging on to the gains it notched after the mega-deal had priced.

He saw its 7 1/8% senior secured notes due 2019 102¼ bid, 102¾ offered, while its 9% unsecured notes due 2019 were at 102¼ bid, 102 5/8 offered. Both $1.5 billion tranches had priced at par earlier Wednesday, before firming more than 2 points in the aftermarket.

Reynolds "opened down a point" on Thursday, another trader said, but by the end of the day, they were "closing up better," with the 9s at 102 7/8 bid, 103 1/8 offered, and the 7 1/8% notes at 102½ bid.

"They traded all day around 21/2, which is down a point, but now they're coming back at the end of the day," he said.

DineEquity Inc.'s $825 million of 9½% notes due 2018 were being quoted Thursday at 103 bid, 103½ offered - about the level at which the Glendale, Calif.-based casual-dining restaurant chain operator's bonds had closed on Wednesday, when they firmed smartly after pricing at par.

A trader saw the Navios Maritime Acquisition Corp. 8 5/8% first-priority ship mortgage notes due 2017 at 100 1/8 bid, 100½ offered; the Greek shipping company's $400 million issue, upsized from $375 million, had priced at par late Wednesday, too late for any secondary dealings at that time.

Market indicators point north

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index up 3/16 point on Thursday to end at 99 bid, 99½ offered, after having edged up by 1/16 on Wednesday.

The KDP High Yield Daily index meantime advanced by 14 basis points for a second day in a row on Thursday to close at 73.80. Its yield narrowed by 6 bps to 7.44%, after having come in by 4 bps on Wednesday.

The Merrill Lynch High Yield Master II index rose by 0.183% on Thursday, after having improved by 0.303% on Wednesday. Its year-to-date return rose to 12.963%, establishing yet another new peak 2010 level, versus the old mark of 12.757%, which had been set just on Wednesday.

Advancing issues led decliners for a tenth consecutive session on Thursday, although their winning margin narrowed to less than seven to five, versus the eight-to-five advantage they had enjoyed over the previous two sessions.

Overall activity, represented by dollar-volume levels, fell by 7% on Thursday, on top of the 10% decline seen during Wednesday's session.

A trader noted that "things are just slowing down because you've got a three-day weekend coming up." The U.S. fixed-income markets will be closed on Monday in observance of Columbus Day. Although the Securities Industry and Financial Markets Association did away with the traditional early close on the Friday preceding that holiday, and a number of others, several years ago, old habits die hard, and traders said they are not expecting very much to go on in Friday's ostensibly regular-length session, and believe many people will make an early exit to stretch their holiday break.

He also noted that Raymond James is holding a big corporate bond outing in Florida, further thinning the market's active ranks.

There was also the "breather" factor, he acknowledged, as the market took a little step back to attempt to digest the massive glut of new paper seen over the past week or so.

A trader said that Thursday's story "was just the same story, every day, as you know - the new issue train."

He said there was little going on in the secondary market, "just the new deals."

Yet another trader opined that "the whole day, it was deals, deals and deals," sucking all of the oxygen out of the market for anything else.

"We had good buyers across the secondary market, but just couldn't find anybody selling anything. It's very difficult to bring out bonds in many cases."

He said most people were "just sitting around, waiting" for the next deal to price.

-Stephanie N. Rotondo contributed to this report

© 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.