Ultrapetrol, Goodman price; junk market muddled; Chrysler cruises; funds fall by $875 million

By Paul Deckelman and Paul A. Harris

New York, May 30 - The activity level in the high-yield primary arena slackened off on Thursday, syndicate sources said. Just two deals totaling $315 million of dollar-denominated, fully junk-rated paper from domestic or industrialized-country issuers came to market, down from the previous session's $1.25 billion.

Industrial shipping company Ultrapetrol (Bahamas) Ltd. sailed in with a $200 million offering of eight-year ship mortgage notes.

Telecommunications services provider Goodman Networks, Inc. was seen pricing a quickly shopped $100 million add-on to its existing secured notes.

Both of the day's deals were quoted higher in initial aftermarket dealings.

Meanwhile, traders saw lackluster activity in the new issues that had come to market on Wednesday from Nationstar Mortgage Holdings Inc., Regal Entertainment Group and Ingles Markets, Inc.

Away from the new deals, Chrysler Group LLC's bonds went for an upside ride on news reports that 58.5% owner Fiat SpA was in talks with its banks on financing to buy the remainder of the No. 3 U.S. carmaker it does not currently own, with a refinancing of both carmakers' debt seen as part of the eventual plan.

And Smithfield Foods Inc.'s paper remained busy, riding the momentum from Wednesday's rise in its bonds triggered by Chinese counterpart Shuanghui International Holdings' agreement to acquire the U.S. hog producer and pork processor in a $7 billion deal.

But the overall junk market remained in a funk caused by a combination of fixed-income market concerns that the Federal Reserve would begin to gradually scale back its quantitative easing policies for stimulating growth and sheer fatigue after several straight weeks of heavy new junk issuance. Statistical market performance indicators were mixed on the day.

Seeming to confirm the overall feelings of angst, flows of money into or out of high-yield mutual funds and exchange-traded funds - seen as a key barometer of junk market liquidity trends - turned decidedly negative in the most recent week, according to both major fund-tracking services.

AMG sees $875 million outflow

As Thursday's activity was winding down, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. said that during the week ended Wednesday, $874.68 million more left those funds than came into them.

That number stood in stark contrast to the $376 million inflow seen the week before, ended May 22, by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp.

According to a Prospect News analysis of the Lipper figures, the latest week's outflow was the largest such cash loss seen in Junkbondland since the massive $1.38 billion hemorrhage that the company reported for the week ended Feb. 6, which in turn had been the single biggest outflow since the preceding June.

Twenty-two weeks into the year, 2013 net inflows as reported by Lipper so far have amounted to about $2.23 billion, according to the analysis.

There have now been 14 inflows and eight outflows reported by Lipper so far this year.

In 2012, when cumulative net inflows for the year totaled an estimated $28.9 billion, according to the analysis, inflows to the funds were recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

EPFR sees $266 million outflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, said Thursday that the funds it tracks saw a net outflow for the week of $266 million.

That snapped a string of six consecutive weeks before that in which inflows had been seen, totaling about $7.7 billion according to a Prospect News analysis of the company's data. That now-ended winning streak included the $1.1 billion cash infusion that EPFR had seen in the week ended May 22.

On a year-to-date basis, EPFR has now seen 18 weeks of inflows versus just four weeks of outflows since the start of 2013, with a cumulative net inflow during that timeframe of $16.47 billion, according to the analysis.

AMG/Lipper and EPFR differ in their methodologies: EPFR includes non-U.S.-domiciled funds among those it tracks, while AMG/Lipper's focus is strictly domestic. But while their figures can vary widely from one another for that reason, their trends generally point in the same direction, which in this case is a clear loss of nerve by high-yield investors who previously had been pumping seemingly endless amounts of cash into the junk funds in order to get decent returns in a low-interest-rate environment.

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 that have mostly continued this year, at least till now.

Ultrapetrol at the tight end

Two issuers brought single-tranche deals on Thursday, raising a combined total of $315 million.

In a deal that was expected to receive attention from both high yield and emerging markets investors, Ultrapetrol (Bahamas) priced a $200 million issue of eight-year first preferred ship mortgage notes (B3/B-) at par to yield 8 7/8%.

The yield printed at the tight end of yield talk set in the 9% area.

BofA Merrill Lynch and Jefferies & Co. were the joint bookrunners.

The industrial shipping company plans to use the proceeds to redeem its existing 9% first preferred ship mortgage notes due 2014 and for general corporate purposes.

The Nassau, Bahamas-based company primarily serves clients in South America.

Goodman taps 12 1/8% notes

Goodman Networks priced a $100 million add-on to its 12 1/8% senior secured notes due July 1, 2018 (/B/) at 105 to yield 10.81%.

The reoffer price came on top of the price talk.

Jefferies was the bookrunner for the quick-to-market deal.

The Plano, Texas-based telecommunications services company plans to use the proceeds to help finance its merger with Multiband Corp.

William Hill to price

William Hill plc (Ba1/BB+) mandated a trio of banks to arrange meetings with fixed income investors ahead of a possible benchmark-sized, sterling-denominated debt offering.

The deal could price before the end of the week.

Royal Bank of Scotland, Barclays and Lloyds TSB are the leads.

Royal Bank of Scotland will bill and deliver.

An investment grade-style execution is expected.

The gaming firm is based in London.

Novalis expected Friday

Elsewhere in Europe, France's Novalis SAS is expected to price its €450 million offering of five-year senior secured notes (/B+/) on Friday, according to a market source.

Formal price talk has not surfaced, but the deal is being guided in the 6% area.

Global coordinator and joint bookrunner BNP Paribas will bill and deliver. Deutsche Bank is also a global coordinator and joint bookrunner. Goldman Sachs and JPMorgan are also joint bookrunners.

Also, Germany's Servus HoldCo Sarl, known as Stabilus, is expected to price its €315 million offering of five-year senior secured notes (B2/B) on Friday.

While the market awaits official price talk, the deal is being guided at 7½% to 8%.

JPMorgan is the bookrunner.

Warren Resources starts Monday

Warren Resources, Inc. plans to start a roadshow on Monday for its $200 million offering of eight-year senior notes, according to a market source.

The deal is expected to price in the week ahead.

BMO Capital Markets is the bookrunner.

The New York-based independent energy company plans to use the proceeds to repay bank debt, to fund capital expenditures and for general corporate purposes.

Day's deals quoted higher

In the secondary market, a trader quoted Ultrapetrol's new 8 7/8% ship mortgage notes due 2021 at 101 bid, 101½ offered - up from the par level at which those bonds had priced earlier.

He also saw Goodman Networks' 12 1/8% senior secured add-on notes due 2018 at 107¾ bid, 108¾ offered - up from the 105 level at which the transaction had priced.

Wednesday deals not much moved

In contrast, all of the quick-to-market deals that had priced during Wednesday's session were seen basically staying in a narrow range just above where each had priced.

For instance, a trader saw Ingles Markets' 5¾% notes due 2023 early in the session in a 1001/4-to-100½ context "on a couple of million."

The Black Mountain, N.C.-based supermarket operator had priced $700 million of the notes at par, although that deal appeared too late in Wednesday's session for any secondary dealings at that time.

He said that Regal Entertainment's new 5¾% senior holdco notes due 2023 "really didn't move much," trading between 100¼ and 100½ "the whole day." A second trader also saw the Knoxville, Tenn.-based movie theater chain operator's $250 million issue at that level, up a little from their par pricing level.

Nationstar Mortgage's 6½% notes due 2022 were seen by a market source at 100¼ bid, 100½ offered.

A second trader said that the Lewisville, Texas-based non-bank mortgage lender's new deal "was trading on Trace, but nobody was quoting it in the Street." He saw the paper at a low of par and a high of 100 3/8.

The company had priced its $300 million deal on Wednesday at par via its Nationstar Mortgage LLC and Nationstar Capital Corp. subsidiaries. It had been seen a little later at 100 3/8 bid, 100 7/8 offered.

Recent deals struggle a little

Going back a little further, a trader said that Meritor Inc.'s 6¾% notes due 2021 "didn't do too well, even though it's a good credit."

He quoted the Troy, Mich.-based commercial and military vehicle components manufacturer's $275 million issue at 99 bid, 99½ offered. While that was up a little from some of Wednesday's quotes in the 98ish area, it was still off from the par level at which that quick-to-market issue had priced on Tuesday after upsizing from an originally announced $250 million.

A trader saw Vivent, Inc.'s add-on to its existing 8¾% notes due 2020 at 99¾ bid, 100¾ offered - a drop of nearly two points from the levels at which the Provo, Utah-based alarm service and home automation company's quickly shopped $200 million tack-on transaction had traded at after pricing.

That deal got done on Tuesday via the company's corporate parent, AXP Group, Inc., which priced the notes at 101¾ to yield 8.347%.

But while the first trader saw those bonds on the slide, a second still pegged them at 101½ bid, 102 offered but added that "nobody was quoting them."

That trader opined that "this whole market is backed up along with Treasuries," whose prices have slid recently and whose yields have climbed sharply from where they had been earlier in the year, reflecting investor fears that the Federal Reserve will start an early wind-down of the expansive "quantitative easing" policies that have been credited with keeping interest rates at or near historic lows.

"The interest-rate-sensitive stuff has really gotten smacked," he said, quoting Ball Corp.'s 4% notes due 2023 on Thursday at 96 bid, 96½ offered.

The Broomfield, Colo.-based packaging company's quick-to-market $1 billion deal had priced at par back on May 9 after having been massively upsized from the originally announced $600 million in order to meet heavy investor demand.

But after an initial upside flurry in the secondary arena, the bonds began dropping steadily, sinking to current levels, a slide that coincided with the backup in Treasury issues. Market observers said that the fall in Treasuries and the rise in their yields has really hurt the better-quality junk credits that had priced at relatively low spreads over Treasuries, including Ball, whose deal came at 220 basis points over.

Chrysler motors higher

Away from the new deals, traders saw most secondary names unchanged to a little easier - but a major exception was Chrysler Group's bonds, which firmed smartly on Thursday amid indications that 58.5% owner Fiat of Italy might buy all of the Auburn Hills, Mich.-based U.S. automaker it does not already own.

That speculation was fueled by a news report saying Fiat was in talks with its banks to line up financing for such a bid. The other 41.5% of Chrysler is currently owned by the United Auto Workers union's VEBA health-care trust, which took possession of its stake when the third-largest of Detroit's Big Three reorganized through the bankruptcy courts in 2009.

The report said that Fiat would first buy out the VEBA trust's stake and then would refinance its own debt and Chrysler's bonds and other obligations.

That prospect caused Chrysler's 8¼% notes due 2021 to gain more than 1½ points on the day to finish at 113 5/8 on massive volume of over $40 million, the most of any junk credit Thursday.

Its 8% notes due 2019 shot up by 1 5/8 points to 111 7/8 bid on turnover of $7 million.

Smithfield busy again

Another active non-new-deal name was Smithfield Foods, whose 6 5/8% notes due 2022 rose by half a point to 113¾ bid on brisk volume of over $20 million.

Those bonds had jumped by 3 points on Wednesday, on volume of over $40 million, on the news that Chinese meat-processing company Shuanghui International Holdings had agreed to acquire the Virginia-based U.S. hog producer and pork processor for $34 per share, or $4.72 billion in cash. With debt assumption, the deal is valued at over $7 billion.

Market indicators turn mixed

Statistical junk performance indicators were seen mixed on Thursday - which was something of an improvement after having been down across the board the previous four sessions.

The Markit Series 20 CDX North American High Yield index broke a five-session losing streak to move 1/8 point higher on Thursday, ending at 105 9/16 bid, 105 5/8 offered. On Wednesday, it had lost 7/32 point.

But the KDP High Yield Daily index remained mired in the losing column for a fifth straight session, dropping by 11 bps to close at 75.54. On Wednesday, it had swooned by 36 bps.

Its yield meantime rose by 5 bps on Thursday, its fifth straight rise, to end at 5.38%, after having ballooned out by 14 bps on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index lost 0.021% on Thursday, its third straight setback. That followed a loss of 0.52% on Wednesday.

The latest loss lowered its year-to-date return to 4.451% on Thursday from Wednesday's 4.474%, which had been its first time back under 5% since April 30, when it had finished at 4.805%. And the level remained well down from its peak level for the year of 5.835%, which was set on May 9.

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