Warner Music, Lions Gate price, gain; Horizon shops deal; Rackspace rises; funds lose $72 million

By Paul Deckelman and Paul A. Harris

New York, Oct. 13 – After several days of inactivity, the high-yield dollar-denominated primary market came back to life on Thursday as a pair of issuers tapped the market with regularly scheduled forward calendar offerings.

Entertainment company Warner Music Group Corp. priced $630 million equivalent of new dollar-and euro-denominated secured paper, including $250 million of eight-year notes in the dollar tranche.

Out of that same sector, Lions Gate Entertainment Corp. did a $520 million offering of eight-year notes.

Traders saw brisk aftermarket dealings in both new deals, with each firming modestly after having priced at par. Lions Gate was, in fact, the day’s Most Active junk issue.

The traders also reported fairly active trading in some of last week’s new issues, including Gulfport Energy Corp. and Concordia International Corp.

Meanwhile drugmaker Horizon Pharma plc hit the road Thursday to market a planned $300 million eight-year offering.

The news that Rackspace Hosting Inc. plans to do a big bond deal as part of the financing of the cloud computing company’s coming buyout by Apollo Global Management LLC helped to push its existing bonds up solidly in busy dealings on expectations those bonds will be taken out.

For the first time in almost a month, statistical market performance measures turned lower across the board on Thursday, after having been mixed over the previous two sessions and higher the day before that.

High-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – retreated into negative territory this week, registering a modest net outflow after posting two straight large weekly net inflows before that. Some $72 million more left those weekly-reporting-only domestic funds in the form of investor redemptions than came into them during the reporting week ended Wednesday – in sharp contrast to last week’s $1.908 billion cash gain (see related story elsewhere in this issue).

Warner prices dual currency deal

In the Thursday primary market session, Warner Music Group priced two tranches of eight-year senior secured notes (Ba3/B).

A euro-denominated tranche was sized at €345 million. It priced at par to yield 4 1/8%. The yield printed at the tight end of yield talk that had been set in the 4¼% area.

A $250 million dollar-denominated tranche priced at par to yield 4 7/8%, on top of yield talk.

Credit Suisse was the lead left bookrunner for the debt refinancing deal. Barclays, UBS, Macquarie and Nomura were joint bookrunners.

Lions Gate oversubscribed

Lions Gate Entertainment priced a $520 million issue of eight-year senior notes (B2/B-) at par to yield 5 7/8%.

The yield printed 12.5 basis points beneath the tight end of the 6% to 6¼% yield talk.

Early guidance was 6½%, a trader said.

Although investors were looking for a six-handle yield, they nevertheless hung in when pricing was cut, according to a trader, who said that the order book was about four times oversubscribed.

J.P. Morgan, BofA Merrill Lynch, Deutsche Bank, Credit Suisse, RBC and Barclays were the joint bookrunners for the acquisition deal.

Horizon starts roadshow

Horizon Pharma began a roadshow on Thursday for a $300 million offering of eight-year senior notes.

The deal, which is being led by BofA Merrill Lynch, comes with 8½% initial yield guidance and is expected to price on Tuesday.

Proceeds, along with $375 million of bank debt that the Dublin-based biopharmaceutical company is concurrently putting in place, will be used to help fund the acquisition of Raptor Pharmaceutical Corp. and refinance existing debt.

Thin calendar

The only other offering currently on a notably thin active new issue calendar is Sprint’s big $3.5 billion three-part securitization deal.

Although the secured amortizing notes are expected to be rated Baa2 by Moody’s and BBB by Fitch, the deal is being run on the high yield, investment grade and structured products syndicate desks, source say.

And it looks priced to move, a trader said on Thursday.

The class A-1 five-year notes are being whispered in the 4% area. The class A-2 seven-year notes are whispered in the 5% area. And the class A-3 10-year notes are whispered in the mid-to-high 5% area.

Goldman Sachs is the global coordinator and lead left bookrunner for the deal which is currently running a full roadshow.

Lions Gate roars in aftermarket

In the secondary realm, traders said that the new Lions Gate Entertainment 5 7/8% notes due 2024 were easily the most active issue of the day in Junkbondland on Thursday.

A market source estimated that more than $126 million of the Santa Monica, Calif.-based movie and television production company’s new paper changed hands, pegging them at 100 7/8 bid, up from their par pricing level.

A second trader saw the bonds in a 100½ to 100¾ bid context.

A third located them between 100½ and 101 bid.

New Warner issue active

The day’s other new-deal – Warner Music Group’s 4 7/8% senior secured notes due 2024 – was also trading around, although on nowhere near the volume that the Lions Gate transaction reached.

A trader said that around $18 million of those notes traded, considerably less than Lions Gate but still robust enough to land high up on the Most Actives list.

He saw the New York-based recording and music publishing company’s bonds ending up at 100½ bid, versus their par pricing level.

At another shop, a trader said the bonds were finishing in a 100¼ to 100¾ bid context.

Some recent deals busy

Some of the issues which came to market last week were seen fairly busy on Thursday.

Concordia International’s 9% senior secured notes due April 2022 were down about ½ point on the day at 99½ bid, one market participant said, estimating volume in the issue at around $14 million.

The Oakville, Ont.-based pharmaceutical company priced $350 million of those notes at par last Thursday in a regularly scheduled forward calendar deal.

While those bonds quickly pushed as high as 103 bid in initial aftermarket trading, they have since inexorably come down to around their current levels.

Gulfport Energy’s 6% notes due 2024 eased by 1/8 point on the day, ending at 102 bid on turnover of more than $11 million.

The Oklahoma City-based oil and natural gas exploration and production company priced a quickly shopped $650 million of those notes at par, also last Thursday.

The new bonds initially firmed to around a 101½ to 102 bid context and have maintained those levels since then.

Rackspace rallies

A trader saw Rackspace Hosting’s 6½% notes due 2024 up by as much as 4 points on the day, suggesting that they rose on “expectations that those bonds are going to be taken out via a make-whole call.”

A second trader quoted the bonds at better than 114½ bid, with over $42 million traded.

Rackspace, a San Antonio-based managed cloud company, is expected to take out the bonds as part of its pending acquisition by Apollo Global Management.

A market source said that it is expected to sell $1.2 billion of new junk bonds as part of that deal’s financing, as well as entering into a $2.25 billion bank debt deal.

Indicators move lower

Statistical market performance measures turned lower across the board on Thursday for the first time in almost a month, after having been mixed over the previous two sessions and higher the day before that.

The last time the indicators all moved down in tandem was back on Sept. 16; they have been either mixed or higher all around on all of the days since then.

The KDP High Yield Index retreated by 9 basis points on Thursday, its second straight loss, to close at 71.22; it had moved down by 4 bps on Wednesday.

Its yield, though, came in by 8 bps, to 5.43%, after rising 2 bps on Wednesday.

The Markit Series 27 CDX Index retreated by 7/32 point on Thursday, ending at 103 15/16 bid, 104 offered. On Wednesday, it had risen nearly 3/32 point.

The Merrill Lynch High Yield Index lost 0.11%, its third straight downturn. On Wednesday, it had been off by 0.037%.

Thursday’s drop cut the index’s year-to-date return to 15.717%, down from 15.844% on Wednesday and from its peak level of the year, 15.893%, seen on Monday.

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