Cenveo, Global Partners price; First Data bonds jump on cash injection; funds off $239 million

By Paul Deckelman and Paul A. Harris

New York, June 19 – For a third straight session, junk market players saw a trio of tranches pricing on Thursday. Issuers brought $1.17 billion of new dollar-denominated, fully junk-rated paper to market, all of it in regularly scheduled deals that priced off the forward calendar.

That was off a little from the $1.45 billion that priced on Tuesday and the $1.42 billion that got done on Wednesday.

Stamford, Conn.-based commercial printer and communications solution provider Cenveo Corp. did a $790 million two-part offering that was structured into a $540 million tranche of five-year senior-priority notes plus $250 million of 8.25-year junior-priority paper. The former bonds were seen to have traded up a little bit in the aftermarket, while the latter notes hung more around their issue price.

Global Partners LP, a Waltham, Mass.-based midstream oil and gas company, priced $375 million of eight-year notes, which were not seen by traders having had any aftermarket activity.

Also on the new-deal front, there was a big split-rated two-part offering from gas pipeline operator Williams Cos. Inc. consisting of $1.25 billion of 10-year notes and $650 million of 30-year long bonds. High-yield denizens were watching the credit because it’s part of the financing for the Tulsa, Okla.-based company’s recently announced planned acquisition of junk energy credit Access Midstream Partners LP, but the Williams bonds themselves – junk rated by Standard & Poor’s but investment grade otherwise – priced off the IG desks on a spread-versus-Treasuries basis.

Among recently priced issues, Wednesday’s megadeal from West Corp. continued to bounce around at levels mostly below its par issue price.

Away from the new deals, the big name of the day was clearly First Data Corp., whose two series of 2021 bonds each jumped several points in heavy trading on the news that the transaction processing company’s owner, KKR & Co. LP, and several new investors will pump $3.5 billion of new money into its coffers, which First Data will use to pay down debt. Analysts said that the move will notably bring down its leverage ratio, which is bloated from all of the debt it took on to help fund its $26 billion leveraged buyout in 2007.

Overall, statistical indicators of junk market performance turned higher across the board on Thursday, breaking a string of six consecutive mixed sessions before that.

However, another indicator – the flow of fresh money into or out of high-yield mutual funds and exchange-traded funds, considered a good gauge of overall junk market liquidity trends – turned negative for the first time after six straight weeks before that on the upside.

Junk funds lose $239 million

As activity was finishing up on Thursday, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $239 million more left those funds than came into them in the week ended Wednesday.

It was the first net outflow from the funds seen since the week ended April 30, when they had collectively lost $631 million, and it broke a string of six consecutive weeks of net inflows since then, including the $277.1 million cash injection that had been 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 June 11.

During that six-week stretch, net inflows had totaled $2.32 billion, according to a Prospect News analysis of the figures. They had established a definite positive trend, breaking out of the choppy pattern of a week or two of inflows alternating with a week or so of outflows that had been in effect since around mid-March, which in turn had followed a strongly positive start to the year.

Even with the latest week’s downturn, there have still now been 18 inflows seen to the weekly-only reporting funds in the 24 weeks since the start of the year, according to the analysis, against six outflows.

The outflow in the latest week lowered the year-to-date cumulative net inflow number to an estimated $5.87 billion, according to the analysis, down from the previous week’s $6.11 billion, its peak 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.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime also saw an outflow in the latest week, a market source said.

EPFR’s methodology differs from AMG/Lipper’s, as its fund universe includes many non-U.S.-domiciled mutual funds and ETFs, including strictly European junk funds and broader global funds, versus AMG/Lipper’s strictly domestic orientation. Accordingly, the two services’ weekly numbers are also generally quite different. While their respective weekly results usually point pretty much in the same direction, that has not always been the case; in some weeks in which AMG/Lipper showed outflows, EPFR saw overall inflows.

The latest weekly outflow thus was only the third such deficit that EPFR had recorded in the 24 weeks since the start of the year, versus 21 weeks in which it reported positive numbers.

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 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.

Cenveo seniors and juniors

The dollar-denominated primary market saw two issuers price a combined three tranches of notes on Thursday to raise an overall total of $1.17 billion.

None of the tranches was upsized. There were no drive-bys.

Two tranches came at the tight end of talk. The other came at the wide end.

Cenveo, Inc. subsidiary Cenveo Corp. placed $790 million of secured notes in two tranches.

A $540 million tranche of non-callable 6% senior-priority notes due Aug. 1, 2019 (B3/B) priced at par to yield 6.002%. The yield came near the tight end of the 6% to 6¼% yield talk, which was in line with initial guidance that had the senior priority notes yielding in the low 6% context.

A $250 million tranche of 8½% junior-priority notes due Sept. 15, 2022 (Caa2/CCC) priced at par to yield 8.504%, at the wide end of the 8¼% to 8½% yield talk that had been set at the high end of the 8% to 8½% early guidance.

J.P. Morgan Securities LLC, BofA Merrill Lynch, Barclays and Macquarie Capital (USA) Inc. were the joint bookrunners for the debt refinancing.

Global Partners prices tight

Global Partners priced a $375 million issue of eight-year senior notes (B2/B+) at par to yield 6¼%.

The yield printed at the tight end of the 6¼% to 6½% yield talk.

BofA Merrill Lynch, JPMorgan, Wells Fargo Securities LLC and RBS Securities Inc. were the joint bookrunners for the debt refinancing.

Allegiant talk is 5 5/8% area

Looking toward the Friday session, books closed Thursday on Allegiant Travel Co.’s $300 million offering of non-callable five-year senior notes (B1/BB-), which are talked to yield in the 5 5/8% area.

The public offering, via bookrunner Goldman Sachs & Co., is set to price Friday morning.

Ardagh two-currency deal

Ardagh Packaging Finance plc and Ardagh Holdings USA Inc. rolled out notes offerings totaling €1,155,000,000 and $870 million on Thursday.

The debt refinancing deal, which is being marketed by means of a net roadshow, is expected to price on Friday.

It includes $430 million of senior secured floating-rate notes due June 30, 2019 (existing ratings Ba3/B+) and €1,155,000,000 senior secured fixed-rate notes due Jan. 15, 2022 (existing ratings Ba3/B+).

The unsecured tranche is a $440 million offering of senior notes due June 30, 2021 (existing ratings Caa1/CCC+).

Joint bookrunner Citigroup Global Markets will bill and deliver. Deutsche Bank Securities Inc. is also a joint bookrunner.

Dometic at the tight end

In the European session, Dometic Group AB priced a €314 million issue of five-year senior PIK toggle notes (Caa2/CCC+) at par to yield 9½%, at the tight end of the 9½% to 9¾% yield talk.

Joint bookrunner Goldman Sachs International will bill and deliver. Nordea was also a joint bookrunner.

Proceeds will be used to repay debt.

R&R Ice Cream two-part deal

R&R Ice Cream plc priced €255 million equivalent of senior secured notes due May 15, 2020 (expected ratings B2/B) in two par-pricing tranches.

A €150 million tranche priced to yield 4¾%, at the tight end of the 4¾% to 5% at par price talk.

In addition, A$152 million of notes priced to yield 8¼%. The yield came 12.5 basis points inside of yield talk in the 8½% area. The reoffer price came on top of price talk.

Joint bookrunner Credit Suisse will bill and deliver. Barclays is also a joint bookrunner. JPMorgan and MCS Capital Markets are bookrunners.

Proceeds, together with shareholder funding provided by PAI Partners SAS and certain other investors, will be used to finance the acquisition of Peters Food Group Ltd.

Novafives making debut

France-based Novafives SAS plans to make its debut in the high-yield bond market when it starts a European roadshow on Friday in Paris for a €580 million two-part offering of senior secured notes.

The roadshow wraps up on Wednesday, and the deal is set to price thereafter.

The Paris-based industrial engineering group is offering €380 million of seven-year fixed-rate notes, which come with three years of call protection, and €200 million of six-year floating-rate notes, which come with one year of call protection.

Credit ratings in the high single B to low double B context are expected to be assigned to the notes.

Global coordinator JPMorgan will bill and deliver. Deutsche Bank is also a global coordinator.

Barclays, BNP Paribas, HSBC and SG CIB are joint bookrunners.

Proceeds will be used to refinance debt.

Cenveo up from issue price

In the secondary arena, a trader said he saw both tranches of Cenveo’s new paper offered at 100 3/8, after having priced at par, but had not seen any other levels.

A little later on, another trader pegged both its 6% senior-priority notes due 2019 and its 8½% junior-priority notes due 2022 “wrapped around” a par-to-100 1/8 context.

But still later, a market source at another desk saw the bonds diverge somewhat as they moved into the aftermarket. He said that the 2022 notes pretty much stayed near their issue price at 100 1/8 bid, 100½ offered, but he saw the 2019 bonds a little better at 100 5/8 bid, 101 1/8 offered.

He also saw the split-rated (Baa3/BB+/BBB-) Williams notes trading within 1 bp or so of their respective pricing levels of 195 bps over comparable Treasuries for its 4.55% notes due 2024 and 230 bps for its 5¾% bonds due 2044.

Traders meantime saw no immediate aftermarket action in the day’s other pricing, Global Partners’ 6¼% notes due 2022, which priced at par.

West wallows around

Among the deals that priced on Wednesday, a trader said that West’s 5 3/8% notes due 2022 “looked like they were going south.”

He said that the Omaha-based communications services provider’s $1 billion issue – which had priced at par on Wednesday, only to gyrate around later that session below that issue level – had strengthened a little during morning trading on Thursday, getting as good as a par bid.

But later on, he said, they once again softened and were going out offered at par.

“It traded as low as 99 3/8 yesterday [Wednesday],” a second trader said. “Then it bounced back and got as high as par to 100¼.” However, he saw the bonds closing in a 99½-to-par context.

“There wasn’t a ton of volume in it,” he declared,“ but it was a whipsaw.”

Other Wednesday deals winners

As had been the case on Wednesday following their respective pricings, traders said that while the West megadeal fizzled, NUVOtv and Wave Division Holdings LLC sizzled, though on not much real volume.

NUVOtv, a Glendale, Calif.-based Hispanic-oriented cable network operator, brought an upsized $240 million of 10 3/8% senior secured notes due 2019 to market at par, and the paper reached a 102 to 103 context in its initial aftermarket dealings.

On Thursday, a trader quoted the bonds having gained another ½ point, ending at 102½ bid, 103 offered.

Kirkland, Wash.-based broadband cable company Wave Division Holdings did an upsized $175 million of 8¼% PIK toggle notes due 2019, which were also quoted solidly higher when they moved into secondary trading. They had priced at par after the deal was enlarged from an originally planned $150 million and had last been seen Wednesday going out at 102½ bid, 103½ offered.

On Thursday, a market source said that the new bonds were continuing to hold those same robust levels.

Also firmer on the day were All Aboard Florida’s 12%/12¾% senior secured PIK toggle notes.

The Coral Gables, Fla.-based passenger railroad company’s paper was seen up by 3/8 point on the day, chugging off into the sunset at 102 bid, 102¾ offered, on top of the 1 5/8-point gain recorded on Wednesday.

The company had priced its $405 million offering on Tuesday at par via its AAR Holdings LLC and AAF Finance Co. subsidiaries after upsizing the deal from an originally scheduled $390 million.

First Data dominates

Apart from the new-deal activity, traders said the junk market’s focus on Thursday was clearly First Data, whose bonds firmed smartly in very heavy trading on the news that owner KKR – which bought the Atlanta-based credit card and electronic transaction processing company in a $26 billion LBO in 2007 – will be pumping about $1.2 billion into First Data’s coffers. KKR has also received commitments for about $300 million from other existing investors as well as another $2 billion of commitments from new investors such as pension funds, mutual funds, asset managers and wealthy individuals, with the cash injection totaling about $3.5 billion.

First Data announced that it plans to use the proceeds from that private placement transaction “to strengthen the company’s balance sheet through repaying portions of its debt, allowing the company to focus additional capital on accelerating its transformation to a solutions and innovation company that helps First Data clients grow their businesses.” It said doing so would free up $375 million per year it is now spending on interest on that debt.

In an 8-K filing with the Securities and Exchange Commission, First Data outlined definite plans to redeem $2.18 billion of its existing mostly high-coupon junk bonds: $285 million of its $815 million of outstanding 10 5/8% senior notes due 2021, which will be redeemed at 110.625; $275 million of its $785 million of outstanding 11¼% senior notes due 2021, which will be redeemed at 111.25; $866 million of its nearly $2.5 billion of outstanding 11¾% senior subordinated notes due 2021, which will be redeemed at 111.75; and $753 million of its $2.15 billion of 6¾% first-lien senior secured notes due 2020, which will be redeemed at 106.75. In each case, the company will also pay accrued interest.

While not specifically mentioning what it will do with the remaining roughly $1.3 billion of proceeds from the investment, analysts speculated that First Data could conceivably use it to take out most of its $1.4 billion of 14½% senior PIK notes due 2019 issued at the FDC Holdings Inc. level – the company’s single most expensive piece of debt.

A market source said that the 11¾% notes were by far and away the busiest credit in Junkbondland on Thursday, with round-lot volume of over $106 million having traded by the close and the notes having jumped 2½ points to 116¼ bid, the likely takeout price, from prior levels in the 113-114 area.

He saw its 12 5/8% notes, which are not among the issues scheduled to be redeemed, having also jumped by nearly 3 points to 124¼ bid from prior levels above 121, with over $42 million of the bonds having changed hands.

But he said that those were the only two First Data issues that were really trading around, with everything else, including the three other issues slated to be partially redeemed, “trading on just small volume.”

Senior analyst David Novosel of the Gimme Credit independent research service said Thursday that the news “is clearly a positive, in a number of ways,” the most notable being that the company’s leverage ratio of debt as a multiple of EBITDA will come down to around 8.5 times from current levels near 10 times. He said that “obviously, this is a huge improvement – nonetheless, debt is still pretty significant here.”

But Novosel told Prospect News that in addition to the actual debt the company will pay down using the proceeds from the $3.5 billion cash injection, it could further reduce debt going forward using the $375 million saved in interest costs on the debt it will have already paid down.

He said that if it were to take the full $375 million, “or a large portion of that annually, in a couple of years, you’ve reduced [total debt] by another $700 [million] or $750 million, and now you would be getting towards 8.0 times leverage.”

Novosel pointed out that even though the company will be using a sizable chunk of the proceeds to take out some of its lower-coupon debt – the 6¾% notes – those bonds are secured, “so you’re getting rid of some high-coupon debt and you’re also getting rid of some secured debt,” which would have the benefit of freeing up the encumbered collateral used to secure the latter bonds.

The analyst said that while there is “possibly” what he called a “small opportunity” to use some of the proceeds from the interest savings to try to improve the company’s business, he said that at the end of the day, “you’re still stuck with pretty much the same business, the same revenue trends and the same margin trends,” which are not likely to greatly improve anytime soon.

So the real importance of the transaction and the likely use of proceeds, he concluded, is “it puts a more appropriate capital structure on the company.”

Indicators turn positive

Statistical indicators of junk market performance were higher across the board on Thursday after having been mixed over the previous six sessions.

The KDP High Yield Daily index gained 4 bps to end at 74.99 after having fallen by those same 4 bps on Wednesday.

Its yield came in by 2 bps to close at 4.97%, its second straight decline; it had been down by 1 bp on Wednesday. The yield has now narrowed in five sessions out of the last six.

The Markit CDX Series 22 index rose by 5/32 point to finish at 109 1/32 bid, 109 1/16 offered. It was the index’s second straight advance, having also added on ½ point on Wednesday to break out of a recent losing pattern.

Meanwhile the widely followed Merrill Lynch High Yield Master II index remained robust, posting its 12th straight improvement on Thursday, when it was up by a formidable 0.138%. That came on top of Wednesday’s 0.016% advance.

The latest gain lifted its year-to-date return to 5.55% – its 11th straight new peak level for 2014, eclipsing the old mark of 5.404% that had been set on Wednesday.

Several other index components also hit new milestones for the year on Thursday.

Its average issue price rose to a new high for the year of 105.8707, up from 105.7415 on Wednesday and from its previous high point for the year, Tuesday’s 105.7443.

Its yield to worst declined to 4.887%, a new low for the year and, in fact, a new all-time low as well. It declined from 4.941% on Wednesday and from its previous 2014 and all-time low, the 4.933% recorded on Tuesday.

And its spread to worst over comparable Treasury issues narrowed to 358 bps on Thursday, down from Wednesday’s 360 bps and identical to Tuesday’s previously set tight spread for the year to date.

Although junk bond yields are currently at their all-time lows, spreads remain up by more than 100 bps from their historical tight levels around 250 bps over comparable Treasuries, first set back in 1997 and then matched in 2007.

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