Alliance Data, Capsugel, Clearwater drive-bys total $1.32 billion; funds plunge $2.38 billion

By Paul Deckelman and Paul A. Harris

New York, July 24 – A trio of drive-by deals dominated the high-yield primary sphere on Thursday, syndicate sources said, accounting for $1.32 billion of new dollar-denominated, fully junk-rated paper.

The largest transaction of the day came from direct marketing services provider Alliance Data Systems Corp., which came in with an upsized $600 million of eight-year notes.

Capsugel SA, a manufacturer of pharmaceutical capsules, did a $415 million add-on to its existing 2019 PIK toggle notes.

And Clearwater Paper Corp. priced a $300 million 10.5-year issue.

Traders said that both the Alliance Data and the Capsugel issues firmed from their respective issue prices, but they did not see any aftermarket activity in Clearwater owing to the lateness of the hour at which it finally priced.

The three drive-by issues continued a trend of opportunistically timed and quickly shopped issues such as those already brought to the market this week by Regency Energy Partners LP on Tuesday and Micron Technology, Inc. on Wednesday.

The latter deal, meanwhile, was heard by traders to have been easily the most heavily traded credit of the day in Junkbondland. The bonds moved up solidly from their issue price. So did Wednesday’s other pricing, Citgo Petroleum Corp., which joined Micron on the day’s Most Actives list.

Statistical market performance indicators were mixed on Thursday after having been unchanged to higher on Wednesday, mixed on Tuesday and lower on Monday

Another indicator – the flow of cash into or out of high-yield mutual funds and exchange-traded funds, considered a good barometer of overall junk market liquidity trends – saw its second straight huge loss, the biggest in a year.

Funds hemorrhage $2.38 billion

Market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said late Thursday that $2.38 billion more left those funds during the week ended Wednesday than had come into them.

It was the second huge outflow seen in as many weeks and followed the $1.68 billion cash loss reported last week by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., for the seven-day period ended July 16.

The two big outflows, taken in tandem and totaling $4.06 billion, have completely overshadowed the inflows seen in the three weeks before that through the week ended July 9, which amounted to $816.2 million.

The latest week’s massive outflow was the largest since the $3.28 billion bleed seen exactly one year ago, for the week ended July 24, 2013, according to a Prospect News analysis of the data.

Even with the latest week’s mega downturn, inflows to the weekly-only reporting funds have been seen in 21 of the 29 weeks since the start of the year, according to the analysis, against just eight outflows.

However, the new negative trend dropped the year-to-date cumulative net inflow number to an estimated $2.66 billion from the previous week’s $5.01 billion and left it well below the $6.68 billion recorded in the July 9 week, the peak inflow level for the year so far.

Cumulative fund-flow estimates may be revised upward or downward or may be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

In 2013 – which had 53 reporting weeks due to a statistical quirk – inflows were seen in 33 weeks, versus 20 weeks of outflows, with total net inflows for the year tallying up to about $1.27 billion, according to the analysis.

Although the mutual funds and ETFs represent only a relatively small percentage of the total amount of investor money coming into or leaving the more than $1.5 trillion junk market, their flows are very observable and quantifiable, more so than those of other, larger cash sources, and thus are suited to act as a fairly reliable proxy for overall junk market liquidity trends.

Analysts said that the sustained flows of fresh cash into junk have been a key catalyst behind the relatively strong performance seen by both the junk primary and secondary markets over the past several years and which has mostly continued on into this year as well.

A market source meantime said that while junk funds were fizzling, investment-grade corporate bond funds were sizzling with net inflows of $1.59 billion.

But leveraged-loan funds lost $413 million on the week.

Alliance Data Systems upsizes

A busy primary market saw $1.32 billion of proceeds raised in three dollar-denominated tranches from three different issuers on Thursday.

Executions were steady.

Thursday's sole add-on priced at the rich end of price talk, and the remaining two deals priced in the middle of yield talk.

All three deals were drive-by executions that priced on the back of investor conference calls.

One of the three was upsized.

Alliance Data priced an upsized $600 million issue of non-rated eight-year senior notes at par to yield 5 3/8%.

The debt refinancing deal was upsized from $500 million.

The yield printed in the middle of the 5¼% to 5½% yield talk.

Wells Fargo Securities LLC was the left bookrunner. BofA Merrill Lynch, J.P. Morgan Securities LLC, RBC Capital Markets LLC, Fifth Third Securities Inc. and SunTrust Robinson Humphrey Inc. were the joint bookrunners.

The Plano, Texas-based provider of direct marketing services plans to use the proceeds, including those additional proceeds resulting from the $100 million upsizing of the deal, to pay down its revolver.

Capsugel at the rich end

Capsugel priced a $415 million add-on to its senior HoldCo PIK toggle notes due May 15, 2019 (Caa1/B-) at 101.75.

The reoffer price came at the rich end of price talk that specified 101.5 plus or minus 0.25 points.

The notes have a 7% cash coupon that steps up to 7¾% for PIK payments.

Citigroup Global Markets Inc., Barclays, Deutsche Bank Securities Inc., KKR Capital Markets, Mizuho, SMBC Nikko and UBS Investment Bank were the joint bookrunners for the dividend deal.

Clearwater 10.5-year bullet

Clearwater Paper priced a $300 million issue of non-callable 10.5-year senior notes (Ba2/BB) at par to yield 5 3/8%, on top of yield talk.

Goldman Sachs & Co. ran the books.

The Spokane, Wash.-based paper and cardboard manufacturer plans to use the proceeds, along with company funds and a draw on its revolver, to redeem all of its outstanding 7 1/8% senior notes due 2018.

Kosmos talk is 8% to 8¼%

Looking to the Friday session, Kosmos Energy Ltd. is expected to price its $300 million offering of seven-year senior secured notes (/CCC+/B) following the 10 a.m. ET book closing.

The deal, which is playing to both high-yield and emerging-markets accounts, was talked to yield 8% to 8¼% on Thursday.

Global coordinator and joint physical bookrunner Barclays will bill and deliver. BNP Paribas is also a global coordinator and joint physical bookrunner.

BofA Merrill Lynch, HSBC, Credit Agricole CIB, SG CIB, Standard Bank and Standard Chartered Bank are bookrunners.

Kosmos Energy is based in Hamilton, Bermuda, and has an office in Dallas. It has operations in Ghana, Ireland, Mauritania, Morocco and Suriname.

Warren Resources to launch

Also on Friday, Warren Resources, Inc. plans to launch a $300 million offering of senior notes.

The deal is expected to be marketed by means of a roadshow.

BMO Capital Markets Corp. is leading the acquisition deal. Additional joint bookrunners and co-managers are expected to be announced.

Pizza Express restructures deal

In the European market, PizzaExpress priced £610 million of high-yield notes in a restructured two-part LBO-financing transaction.

Special-purpose vehicle Twinkle Pizza plc priced a £410 million tranche of seven-year senior secured notes (B2/B) at par to yield 6 5/8%.

Twinkle Pizza Holdings plc priced a £200 million tranche of eight-year senior unsecured notes (Caa1/CCC+) at par to yield 8 5/8%.

The notes in both tranches priced on top of yield talk.

A proposed senior secured floating-rate notes tranche was withdrawn, and the proceeds were shifted to the fixed-rate senior secured notes tranche.

Joint bookrunner JPMorgan will bill and deliver. Deutsche Bank and Goldman Sachs International were also joint bookrunners.

Phoenix Pharma prices tight

Phoenix Pharmahandel GmbH & Co. KG launched and priced a €300 million issue of 3 5/8% seven-year senior notes (/BB/BB) at 99.243 to yield 3¾%.

The yield printed at the tight end of the 3¾% to 3 7/8% yield talk.

The deal amount came at the high end of the €200 million to €300 million target size.

The order book, containing €550 million of orders from 130 accounts, are closed, the source added.

Joint bookrunner Commerzbank will bill and deliver. Credit Suisse and ING were also joint bookrunners.

The volatility that lately is roiling the waters in the United States is a lot more muted in Europe, a debt capital markets banker there remarked.

Although there has been volatility, gyrations in the index tend to be range bound within a few basis points up or down, the source added.

The outflows that have taken hold of the U.S. market, with dedicated accounts seeing $4 billion of outflows over the course of the past two weeks, have not gripped the European market, where flows have been “flat-ish,” the banker said.

“Some people are seeing redemptions, but others are taking money in,” the banker remarked.

One reason for the difference is the comparative dearth of high-yield exchange-traded funds in Europe. Those funds, the “fast money” in high yield – which have taken hold in the dollar-denominated market in a big way over the past half-decade – have been hemorrhaging quite a lot of cash over the past two weeks, the source added.

Alliance Data gains

In the secondary market, traders saw gains in the new Alliance Data Systems 5 3/8% notes due 2022 after that upsized issue had priced at par.

One trader pegged the new deal at 100¼ bid, 100 3/8 offered.

“It seems like some guys are shooting at it a little bit,” he said.

Late-afternoon volume in the deal was somewhere in the $5 million to $10 million range.

A second trader located the bonds trading between 100¼ and 100¾.

Yet another trader saw the deal having tightened from there to around 100½ to 100¾.

Capsugel climbs

A trader said that Capsugel’s $415 million add-on to its $465 million of existing 7%/7¾% PIK toggle notes due 2019 “had a nice pop,” seeing the bonds in a 102 to 102¼ bid context.

The Morristown, N.J.-based maker of hard- and soft-gel capsules for the pharmaceutical and nutrition supplements industries priced the bonds at 101.75.

At another desk, a market source saw the bonds lifted to 102 bid, on volume of $16 million, making it one of the busier issues of the session.

Many trades in Micron

Wednesday’s late-pricing drive-by deal from Micron Technology saw plenty of trading action on Thursday. One market source quoted those 5½% notes due February 2025 at 100¾ bid, up from their par issue price, on volume of more than $115 million.

A second trader saw the bonds in a 100½ to 100¾ context, opining that “they did pretty well.”

He said that if volume in the new credit from the Boise, Idaho-based semiconductor manufacturer did top $115 million, “it wouldn’t surprise me,” since that would be 10% of the $1.15 billion of the notes that got priced after the transaction was upsized from $750 million originally.

“You would have that amount in guys that add and guys that flip [the bonds],” although he suggested that the real volume figure might be around $50 million, “but it was probably double-counted.”

Another trader saw the bonds at “a very tight” 100 5/8 to 100 7/8 context.

Citgo adds to gains

For a second consecutive session, there was solid upside movement in the new 6¼% senior secured notes due 2022 issued by Houston-based gasoline refiner and marketer Citgo Petroleum, a wholly owned subsidiary of Venezuela’s national oil monopoly, Petroleos de Venezuela SA.

The company had priced $650 million of the notes at par on Wednesday, and they were seen having gotten as good as a 101½ to 102 context in initial aftermarket dealings.

On Thursday, a trader saw them offered as high as 102¾, surmising that the bid side was around par.

Another market source called the bonds up ¼ point at 102¼ bid, on volume of over $17 million.

Market indicators turn mixed

Statistical indicators of junk market performance turned mixed on Thursday after having been unchanged to higher on Wednesday, mixed on Tuesday and lower on Monday.

The KDP High Yield Daily index was unchanged at 74.09 after having risen by 4 bps on Wednesday – its first winning day after six straight sessions on the downside before that.

But its yield moved up by 2 bps to 5.26% after having come in by 3 bps on Wednesday, its first narrowing after having widened out for the previous five sessions.

The Markit CDX Series 22 index eased by 1/16 point, finishing at 108 bid, 108 1/16 offered, after having been virtually unchanged on Wednesday and up by 7/32 point on Tuesday.

The widely followed Merrill Lynch High Yield Master II index made it three gains in a row on Thursday, improving by 0.045%, on top of Wednesday’s 0.113% rise and Tuesday’s 0.107% advance. Before that, the index had fallen over five consecutive sessions.

Thursday’s gain raised its year-to-date return to 5.216%, up from 5.168% on Wednesday. However, it still remained well down from the 5.751% return recorded on July 7, the peak level so far for 2014.

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