Wind, Valeant megadeals lead $4 billion day; First Data up, GM down; funds lose $723 million

By Paul Deckelman and Paul A. Harris

New York, Nov. 18 - The high-yield primary market saw its busiest day of the week so far on Thursday, syndicate sources said, as almost $4 billion of new U.S. dollar-denominated paper priced, along with deals denominated in euros, Canadian dollars and even Norwegian kroner.

The big deals of the day, each topping the $1 billion mark, were upsized offerings from Italian telecommunications company Wind Acquisition Finance SA and Canadian drugmaker Valeant Pharmaceuticals International, the latter a quickly shopped transaction.

More deals came from Endo Pharmaceutical Holdings Inc. and Giraffe Acquisition Corp. (Gymboree Corp.) ($400 million each), Exterran Holdings Inc. ($350 million), Interface Inc. ($275 million) and Nortek Inc. ($250 million). Like Valeant, Interface was a drive-by deal. Nortek was downsized. Giraffe/Gymboree and Wind were seen by traders having firmed smartly in the aftermarket, while Exterran held a little bit above its par pricing level and the other deals came too late in the session to trade.

Wednesday's new issue from Service Corp. International was also seen having done well on the break, and Dunkin' Brands, everybody's darling, continued to trade well above issue.

Away from the deals that priced, talk emerged on Paetec Escrow Corp. and Petco Animal Supplies Inc.'s deals, which are both expected to price on Friday.

But Burlington Coat Factory Warehouse Corp., which had been shopping a $500 million eight-year deal, was heard to have pulled both its bond offering and a companion $1 billion bank loan proposal.

Away from the primary, First Data Corp.'s bonds were seen points higher, some in very heavy trading, helped by the exchange offer the company announced on Wednesday. But bonds of the former General Motors Corp. slid, also in heavy trading, as the restructured carmaker's new stock began public trading and posted robust gains.

Statistical performance measures all pointed northward for the first time in several days. But another key market measure - high-yield mutual funds, considered a reliable barometer of overall junk market liquidity trends - suffered their first net outflow since early September, as $723 million more left those funds than came into them in the latest week.

Junk fund losses

The outflow came as no surprise to junk market players, who had told Prospect News that they expected to see a negative number, given the way the market has struggled since returning from last week's Veteran's Day holiday break and especially in light of the pronounced secondary market downturns seen on Monday and Tuesday.

It was the first outflow seen since the $186.2 million cash loss recorded in the week ended Sept. 1. Since that time, the market had put together 10 straight weeks during which more money came into the funds than left them, according to a Prospect News analysis of the figures, including the $857 million inflow seen in the week ended Nov. 10. During that 10-week stretch, net inflows totaled nearly $5.64 million, the analysis indicated.

It was only the second outflow dating all the way back to mid-July, the analysis showed. During that 19-week period, net inflows had totaled over $9.9 billion.

The latest week's outflow brought the year-to-date cumulative total for the weekly reporting funds down to around $11.711 billion from the previous week's $12.434 billion, the peak level for 2010 according to the analysis.

Inflows have now been seen in 33 out of the 46 weeks since the beginning of the year, while there have been 13 outflows, the analysis indicated.

EPFR $564 million outflow

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported a $564 million outflow in the latest week, which the service called the biggest cash loss since an $816 million hemorrhage seen in the week ended June 2.

As was the case with the AMG figure, the latest week's outflow broke a stretch of 10 weeks in which inflows had been seen, including the $1.02 billion inflow seen in the week ended Nov. 10.

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 some $26.9 billion, down from the peak level for the year of $27.5 billion seen the week before.

Cumulative fund-flow totals, whether for AMG or for EPFR, may be revised upward or downward and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into Junkbondland - and the mutual funds represent but a small, though quantifiable, percentage of the total amount of money coming in - has fueled the sustained new-deal borrowing binge seen this year and last, as well as the robust secondary market.

Wind €2.7 billion equivalent

The primary market roared back into action on Thursday.

Eight issuers priced a combined nine tranches, totaling face amounts of $3.975 billion and €2.15 billion.

The European primary market featured benchmark issuance from Wind Acquisition, a name well known to junk investors. The company priced a downsized €2.7 billion-equivalent two-part, eight-year senior secured notes transaction (Ba3/BB-).

The deal included a downsized €1.75 billion tranche of 7 3/8% notes, which were priced at 99.327 to yield 7½%.

The yield printed on top of the price talk. The euro-denominated tranche was downsized from €2.5 billion.

Meanwhile, Wind priced an upsized $1.3 billion tranche of 7¼% notes at 99.323 to yield 7 3/8%.

The yield on the dollar-denominated notes printed in the middle of the 7¼% to 7½% price talk, and the tranche was upsized from $1 billion.

Credit Suisse and Deutsche Bank were the global coordinators and joint bookrunners for the transaction, the overall size of which was decreased from €3.2 billion. Of that amount, €500 million was shifted to the term loan.

Banca IMI, Barclays Capital, BNP Paribas, Bank of America Merrill Lynch, Citigroup, Credit Agricole CIB, Goldman Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley, Natixis Bleichroeder, RBS Securities, UBS and UniCredit were also joint bookrunners.

Proceeds, together with a new bank loan, will be used to refinance existing debt ahead of the planned acquisition of Wind's parent, Weather Group, by VimpelCom.

Europcar in middle of talk

Elsewhere in Europe, Europcar Groupe priced a €400 million issue of senior subordinated notes due April 15, 2018 (Caa1/B-) at par to yield 9 3/8%, in the middle of the 9¼% to 9½% price talk.

Deutsche Bank, Credit Agricole CIB, the Royal Bank of Scotland and SG CIB were the joint bookrunners for the debt refinancing.

Valeant $1 billion drive-by

In the United States, meanwhile, Valeant Pharmaceuticals upsized and restructured its quick-to-market high-yield bond deal on Thursday.

The Mississauga, Ont.-based specialty pharmaceutical company priced a $1 billion tranche of 6 7/8% eight-year senior notes (existing ratings B1/BB-) at 99.24 to yield 7%.

The yield printed on top of price talk.

A proposed 10.5-year tranche was withdrawn.

Goldman Sachs & Co. ran the books for the debt refinancing and general corporate purposes deal, which was upsized from $700 million.

Endo on top of talk

Elsewhere in the pharmaceuticals space, Endo Pharmaceuticals Holdings priced a $400 million issue of 7% 10-year senior notes (Ba2/BB+) at 99.105 to yield 7 1/8%, on top of the price talk.

J.P. Morgan Securities LLC, RBC Capital Markets Corp. and Barclays Capital Inc. were the joint bookrunners acquisition financing and general corporate purposes deal.

Gymboree at the tight end

Meanwhile, Giraffe Acquisition Corp., which will be merged with and into Gymboree, priced a $400 million issue of eight-year senior notes (Caa1/B-) at par to yield 9 1/8%.

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

Morgan Stanley & Co. Inc. and Credit Suisse Securities were the joint bookrunners for the acquisition financing.

Exterran $350 million

Exterran priced a $350 million issue of eight-year senior notes (Ba3/BB) at par to yield 7¼%, on top of the price talk.

Bank of America Merrill Lynch, Wells Fargo Securities, J.P. Morgan Securities LLC, BNP Paribas Securities Corp. and Credit Suisse Securities were the joint bookrunners for the debt refinancing.

Interface drive-by

In other quick-to-market action, Interface priced a $275 million issue of eight-year senior notes (B2/B+) at par to yield 7 5/8%, on top of the price talk.

Bank of America Merrill Lynch, Citigroup and Wells Fargo Securities were the joint bookrunners for the debt refinancing deal.

Nortek prices downsized deal

Nortek priced a downsized $250 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 10%.

The yield printed 12.5 bps beyond the wide end of the 9¾% area price talk.

With the downsizing, the Providence, R.I.-based building products manufacturer revised its plans for the use of proceeds, which will now be used for general corporate purposes, including a potential acquisition.

Previously, proceeds were to be used to redeem Nortek's 11% notes due 2013 as well as for general corporate purposes, including, but not limited to, acquisitions.

Also, a special call provision allowing the company to redeem up to 10% of the issue for the first three years at 103 was removed. The notes have four years of call protection.

Bank of America Merrill Lynch, Credit Suisse Securities and UBS Investment Bank were the joint bookrunners.

Talking the deals

Trailing the late Thursday news that the high-yield mutual funds had sustained $723 million of outflows for the week to Wednesday, according to the weekly funds flows report from Lipper-AMG, as well as news that Burlington Coat Factory withdrew its $500 million debt refinancing and dividend-funding deal as well as its $1 billion term loan, there are a few question marks in the primary market heading into the Friday session, sources said.

Heading into the Friday session, at least two deals are on deck, with news surfacing on Thursday.

Petco talked its $500 million offering of eight-year senior notes (Caa1/CCC+) with a 9¼% to 9½% yield.

J.P. Morgan Securities LLC, Credit Suisse Securities, Bank of America Merrill Lynch, Wells Fargo Securities, Morgan Stanley & Co. Inc. and Goldman Sachs & Co. are the joint bookrunners.

And Paetec talked its $420 million offering of eight-year senior notes (Caa1/CCC+) with a 10¼% to 10½% yield.

Deutsche Bank Securities Inc. and Bank of America Merrill Lynch are the joint bookrunners for that deal.

Both Petco and Paetec are expected to price before the Friday close.

However, an additional seven deals are on the forward calendar that, in the early part of the week, were believed to be possible business for the Nov. 15 week.

Some of those deals will be pushed into next week, and some could be pulled altogether, a sellside source said late Thursday.

Giraffe stands tall

When the new Giraffe Acquisition - i.e., Gymboree - eight years notes were freed for secondary dealings, traders saw those bonds pushing up more than a point from their par issue price.

One pegged them at 101¼ bid, 102 offered, while a second saw the San Francisco-based specialty retailer's bonds going out at 101 1/8 bid, 101 7/8 offered.

Wind seen a winner

Traders saw the upsized dollar portion of the Wind Acquisition deal doing well in the aftermarket, after having priced at 99.323.

One quoted the paper at 100¾ bid, 101 offered, while a second said that the new bonds firmed to around the 101 bid level.

A little later in the session, though, a trader at another desk saw the bonds in more of a 1001/2-to-100¾ bid context.

Exterran holds near issue price

A trader said that Exterran Holdings's new eight-year notes "didn't do very much." He saw the bonds in the aftermarket at 100¼ bid, 100¾ offered.

The Houston-based natural gas contract operations services provider's deal had priced earlier in the day at par.

Another trader did see the bonds move up a little to 100½ bid, 100 7/8 offered.

Life after pricing for death care bonds

Among the issues pricing on Wednesday, a trader said that Service Corp.'s 7% notes due 2019 "traded well" when they finally began dealings, rising to 101½ bid.

Another trader saw the Houston-based funeral home and cemetery operator's bonds at 101 1/8 bid, 101 5/8 offered.

The $250 million deal had priced at par on Wednesday, but appeared too late for any dealings.

Thermadyne near issue price

A trader said that Thermadyne Holdings Corp.'s new 9% senior secured notes due 2017 were holding about a half-point up from their issue price, at 100½ bid, 101 offered.

A second trader saw them at 100½ bid, 101¼ offered.

The St. Louis-based maker of welding and cutting equipment had priced its $260 million deal - upsized slightly from the originally announced $250 million - at par on Wednesday. The new bonds had then broken into the aftermarket with a bang, shooting up to 101 bid, 101½ offered.

However, after that initial flurry, the bonds came back down almost as quickly as they had risen to finish just a little above their issue level.

Dunkin continues to delight

Dunkin' Brands' new $625 million of 9 5/8% notes due 2018 remained the standout aftermarket performer among the new deals, with a trader seeing those bonds having firmed a little more on Thursday to go out at 100½ bid, 101 offered.

The Canton, Mass.-based franchisor of the popular Dunkin' Donuts and Baskin-Robbins ice cream stores priced its issue at 98.5 on Monday to yield 9.9% and they then immediately started to firm in the aftermarket. On Wednesday, the bonds had finished at 100 1/8 bid, 100 3/8 offered, and then continued their upward trek on Thursday.

Ally angst continues

When asked about the week's underachiever, Detroit-based automotive and residential lender Ally Financial Inc., a trader exclaimed, "That pig?" Thus pretty much summing up the feelings of many in the market for the $1 billion issue of 6¼% notes due 2017.

Those bonds priced on Monday at 98.602 to yield 6½% and had fallen as low as the 97 level when they began trading earlier in the week.

However, there were quotes of 99 here and there on Friday - an improvement from 98 3/8 bid, 99 offered on Wednesday and actually a little bit above issue for the first time since the pricing, a market source said.

Secondary indicators higher

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index ending up 5/8 point on Thursday to bring the index back over the psychologically potent par bid level at 100 3/8 bid, 100 5/8 offered. On Wednesday, it had risen by 3/8 point, but on Tuesday, the index had slid below par for the first time since Oct. 22.

The KDP High Yield Daily index meantime shot up by 28 basis points on Thursday to end at 74.28, after having risen by 12 bps on Wednesday. Its yield shrank by 13 bps on Thursday to 7.23%, after having gone down by 2 bps on Wednesday.

And the Merrill Lynch High Yield Master II index finally got back on the winning track Thursday after having fallen for four straight sessions. It gained 0.204 versus Wednesday's 0.09% easing. That pushed its year-to-date return back up over the 14% mark, to 14.214%, versus Wednesday's 13.982% reading, the first time the index had finished under 14% since Oct. 22. However, the index remained well below its peak level for 2010, a 15.602% reading recorded on Nov. 9.

Advancing issues led decliners for a second straight session on Thursday, although their winning margin was just a few dozen issues out of the nearly 1,500 which traded, same as on Wednesday, when the gainers broke out of a four-session slump.

Overall activity, represented by dollar-volume levels, rose by 22% on Thursday, after having eased by 2% on Wednesday from the previous session's volume level.

First Data firms on exchange

Among specific names, a trader said that there was "a huge amount" of First Data bonds trading - even more than GM - pushed upward by Wednesday's announcement of an exchange offer for the Atlanta-based electronic transaction processor's two series of 2015 bonds: its 9 7/8% dollar-pay notes and its 10.55% payment-in-kind notes.

The company is offering holders of the current bonds a mixture of new notes due in 2021 and 2022 for their current paper. The early tender deadline is Dec. 1.

"A lot of trading - wow," he said. "Look at the size."

The 10.55% bonds got as good as the 90 level during the day before coming off that peak to end at 88 bid, which was still up some 3¼ points from Wednesday's close, on dizzying round-lot volume of more than $146 million traded, a market source said.

Another market source pegged those bonds at 89½ bid, calling it a 4½ point gain on the session.

The 9 7/8% notes meantime were also up by around 3¼ points to end at 89½ bid, with round-lot volume topping $60 million, the first source said.

Earlier in the day, a trader at another shop had quoted the bonds up more than 2 points on the day around the 88¼ level, observing that " a lot of trading was changing hands. I guess people liked it."

Also helping the bonds, a source at another desk said, was the news that the company's chief financial officer, Ray Winborne, had said at the Bank of America Merrill Lynch Credit Conference on Wednesday that First Data should be able to "stomach" making the interest payments on the 10.55s in cash when it is required to start doing so in 2012.

Up till now, the company has issued additional bonds to debtholders to pay the interest on the issue, which amounts to more than $31 million per year.

GM skids to breakdown lane

A trader called the slide in the bonds of Motors Liquidation Corp. - the "old" GM left saddled with the debt and other unwanted assets of the carmaker when it restructured last year to emerge as the profitable "new" GM - "the big thing of the day."

"Its bonds fell down" even as the "new" GM's stock began public trading once again for the first time since June of 2009, when what was once the bluest of Wall Street's blue chips was delisted after its bankruptcy filing, the trader said.

He saw some GM bond issues down as much as 4 points on the day, like the 6¾% notes due 2028, which finished at 30 bid, 31 offered, while the 7.20% notes due 2011 lost 3½ points to close at 31 bid, 31½ offered.

The most widely held and traded GM issue, the benchmark 8 3/8% bonds due 2033, ended at 32, "also down a couple" from prior levels in the 34-35 range.

"That was the news - a gazillion traded, I'm sure," he said.

A market source at another desk tried to get a better handle on the extent of the trading, concluding that at least $116 million traded, counting only round lots, and with the caveat that the actual volume was likely considerably higher since the Trace system counts all trades larger than $1 million simply as $1 million-plus - no matter how much bigger. That source saw the bonds ending at 32½ bid, near the lows for the day and down some 2½ points on the session. The bonds had hung in only slightly lower early on, staying in a 34 bid context for much of the morning before starting to head lower as midday approached.

A trader elsewhere had the bonds down a deuce at 33 bid, after having gyrated between a peak of 36 earlier in the day and a low of 31 near the end. GM's 8¼% notes due 2023 actually finished up a point on the day at 35 bid, well up from its day's lows around 30, the trader said - but the 7.2s dropped nearly 4 points on the day to end below the 31 mark.

Based on the Detroit automaker's reorganization plan, "old" GM creditors, like the bondholders, were to receive stock in exchange for their debt holdings once the IPO came. Shares of the "new" GM were priced late Wednesday at $33 - coming in at the high end of guidance - and traded as high as $35.99 come Thursday, before settling back in to $34.19, up $1.19 or 3.61% in New York Stock Exchange trading, on very heavy volume of 458 million shares.

One trader deemed the IPO "kind of a disappointment" in theorizing why the bonds slid.

"I think there was expectation that stock was going to trade higher," he said. He also pointed to the heavy amount of turnover, which led him to believe that the majority of stock players were not those who were interested in holding on to the securities to see where they would go.

Another trader said he wasn't surprised by the bonds' performance in contrast with the stock.

"Stock drifted lower from about 11 a.m. to the close," he said in an e-mail to Prospect News. "Bonds were always implying a much higher price for the common, so once the IPO got done and people knew where to value the common, the bonds looked rich. Plus they should trade at a discount to the common."

When combined with the sale of some preferred shares, it is being estimated that GM raised about $20 billion from the IPO. However, the company will not receive any of that money, as the shares being sold were part of those owned by the U.S. and Canadian governments, as well as the United Auto Workers union.

Meanwhile, GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031, which had bounced more than 2½ points Wednesday from Tuesday's losses to move back above the 110 level, lost a half-point to end at 110 bid, 111 offered, a trader said.

Clear Channel is active

Away from GM and First Data, though, a trader said that he was "bored to tears."

He did see "a lot of trading" in Clear Channel Communications Inc. "I just kept seeing it, non-stop."

He said that the San Antonio, Texas-based media company's 10¾% notes due 2016 were right around 77½ bid, which he called unchanged on the day, "but decent volume."

Alluding to the heavy dealings in GM and First Data paper, he qualified his statement a little, saying that the volume in the name was "not like those other two at all - but still, it was decent activity."

There was no fresh news seen out on the company to explain the activity.

Stephanie N. Rotondo contributed to this report.

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