BWAY Intermediate leads $1 billion primary as market struggles; funds plunge record $7 billion

By Paul Deckelman and Paul A. Harris

New York, Aug. 7 – The recently becalmed high-yield primary sphere saw its first $1 billion session in a week on Thursday. Three issuers combined to bring that face amount of new dollar-denominated and fully junk-rated paper to market, all in regularly scheduled deals pricing off the forward calendar. Proceeds totaled $990 million.

Atlanta-based rigid container manufacturer BWAY Intermediate Co. had the day’s big deal, a downsized $650 million of seven-year notes that priced slightly below par.

US Shale Solutions, Inc., a Houston-based provider of oilfield services to the energy industry, sold $210 million of three-year notes as part of units with equity warrants. The units came at a sizable discount to par.

Denver-based Brundage-Bone Concrete Pumping, Inc. did $140 million of seven-year notes.

Traders did not see immediate aftermarket activity in any of the day’s three deals.

However, they did see Wednesday’s offering from New York-based energy operator Warren Resources, Inc. trading above the par level. That $300 million eight-year issue had priced well below par.

Away from the new deals, Sprint Corp.’s bonds remained busy a day after the news that the wireless carrier had given up its months-long pursuit of smaller sector peer T-Mobile USA Inc.

Traders said that the market started out on a stronger note but weakened later on in the day in line with a stock market slide.

But statistical market performance indicators were mixed for a fourth consecutive session on Thursday.

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 fourth straight huge loss. In fact, it was the largest such downturn ever recorded.

Junk funds plunge $7 billion

As Thursday’s session was winding down, market sources familiar with the fund-flow statistics generated by AMG Data Services Inc. said that $7.07 billion more left those funds during the week ended Wednesday than had come into them – its largest such outflow on record since the company began tracking fund flows back in 1992.

That easily eclipsed the previous record-large drop of $4.63 billion, which had been recorded for the week ended June 5, 2013, according to a Prospect News analysis of the figures.

The latest week’s plunge was the fourth consecutive outflow topping $1 billion. It followed the $1.48 billion slide 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 30. Before that, there had been a $2.38 billion hemorrhage in the week ended July 23 and a $1.68 billion cash bleed in the week ended July 16.

Over the past four weeks, the funds have seen a net outflow of $12.61 billion, according to the analysis. The outflow is considered a sign of deteriorating investor confidence in the junk bond market in the face of fears of rising interest rates and other potential headwinds.

Although inflows to the weekly-only reporting funds have still now been seen in 21 of the 31 weeks since the start of the year, according to the analysis, against just 10 outflows, the latest week’s swoon swelled year-to-date net outflows to about $9.75 billion, according to market sources.

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, the analysis indicated.

While the recent exodus of cash from the funds had been largely attributed to heavy redemptions at the ETFs – considered a repository for fickle short-term hot money – the data indicated that only about $1.3 billion of the latest week’s nosedive was attributable to the ETFs, with the remaining $5.8 billion coming from the more established mutual funds.

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, meantime chalked up more than $11 billion of outflows, according to a market source. It was EPFR’s fourth straight outflow and third consecutive week of cash losses topping the $4 billion mark, according to the source.

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 usually are quite different – but in this case, with the domestic funds racking up such a huge outflow number this week, as reflected by the AMG/Lipper figure, EPFR also sees those funds bearing most of the blame for this week’s massive slide. The market source attributed $8 billion of the $11 billion outflow figure to U.S.-domiciled funds, about $2 billion to global-oriented high-yield funds and $1 billion to specifically Europe-centered funds.

While the two services’ 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 and thus has recorded inflows in 24 out of the 31 weeks since the start of the year, against seven weekly outflows during that time.

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 had mostly continued on into the first half of this year as well.

While the junk funds stumbled, a market source said that leveraged loan funds were down by about t$1.5 billion on the week, continuing a slide that began in April after a streak of uninterrupted week-over-week gains lasting nearly two years.

Investment-grade bond funds saw a net inflow this week of $139 million.

BWAY downsizes

Amid volatility and news of record-breaking outflows from the dedicated high-yield funds, the new issue market generated an altogether decent volume on Thursday.

Three issuers brought single-tranche, fully junk-rated deals that raised a combined total of $990 million.

BWAY Intermediate priced a downsized $650 million issue of 9 1/8% seven-year senior notes (Caa2/CCC) at 99.364 to yield 9¼%.

The dividend deal was downsized from $770 million.

The yield printed 12.5 basis points wide of yield talk in the 9% area, according to a market source.

BofA Merrill Lynch was the bookrunner.

US Shale sells notes, warrants

US Shale Solutions sold 210,000 units of notes and warrants.

The units, which sold for $970 each, are comprised of $1,000 of non-callable 12½% senior secured notes due Sept. 1, 2017 (B3/B-) with attached penny warrants for 2.78 shares of the company's common stock.

The notes yield 13.737%.

Jefferies LLC ran the books.

The acquisition deal, which generated $203.7 million of proceeds, priced on top of talk.

Brundage-Bone prices mid-talk

Brundage-Bone Concrete Pumping priced a $140 million issue of seven-year senior secured notes (B3/B) at par to yield 10 3/8%.

The yield printed in the middle of the 10¼% to 10½% yield talk.

Again, Jefferies was the bookrunner.

Proceeds will be used to fund the acquisition of Brundage-Bone, a Denver-based provider of concrete pumping services, by Peninsula Pacific Strategic Partners LLC.

Intrepid to tap 6 7/8% notes

Intrepid Aviation Group Holdings, LLC announced plans to price a $150 million add-on to its non-rated 6 7/8% senior notes due Feb. 15, 2019 on Friday.

The bookrunner, once again, is Jefferies.

The Stamford, Conn.-based commercial aircraft leasing company plans to use the proceeds for general corporate purposes including the purchase of aircraft.

The original $300 million issue priced at par on Jan. 24, 2014. The add-on notes will become immediately fungible with the original notes.

As there was no news on the backlog of deals, most of which had been expected to price Aug. 1, it is possible that Intrepid Aviation could be Friday's sole transaction.

Two of those deals that were pushed across last weekend are sidelined, awaiting better market conditions, sources roundabout the market say.

These include Jupiter Resources Ltd.'s $1,125,000,000 offering of eight-year senior notes (B3/B-), an acquisition financing via Credit Suisse Securities (USA) LLC, TD Securities, RBC Capital Markets, Barclays, Goldman Sachs & Co., UBS Investment Bank, Deutsche Bank Securities Inc. and Nomura, as well as the Milestone Aviation Group Ltd. $350 million offering of non-callable senior notes due 2017 via J.P. Morgan Securities LLC, BofA Merrill Lynch, Deutsche Bank, SunTrust Robinson Humphrey Inc., Huntington Investment Co. and Jefferies.

As to the rest of the offerings that were pushed back a week ago, and which had been expected to price before this Friday's close, no recent news has been heard, sources say.

Amid ongoing news of selling and redemptions in the high-yield market, people might be inclined to pull back and wait until September, by which time things will hopefully have improved, a trader said.

Secondary quiet and lower

Traders said that overall junk market activity was quiet, a combination of the usual midsummer lassitude and nervous investors hugging the sidelines as they watched stocks slide.

“We had a really quiet day here today,” one trader said. “For the most part, a lot of stuff was unchanged from yesterday [Wednesday].

“I just don’t think that things moved much today, in general. There was not a lot of flow on the desk.”

A second trader opined that the market “had a little bit better tone, but then when stocks started selling off in the middle of the day, things definitely got a little bit weaker” – generically down 1/8 to ¼ point.

He said Thursday was an example of “the real summer doldrums. Flows were very light. Based on what we saw, the market is definitely very thin. It was a case of people not being around.”

He added that “nothing extraordinary that I could think of” stood out.

Warren bonds hold their ground

Traders saw no immediate aftermarket activity in any of the day’s newly priced issues.

They did see some activity in Warren Resources’ 9% notes due 2022, with one declaring that the paper “hung in there,” going out “wrapped around 100½.”

A second trader saw the bonds at 100¼ bid, 100¾ offered.

However, he also noted that “that was where they were quoted right after they priced, so there was really not much difference from that.”

Warren priced its $300 million issue on Wednesday 98.617 to yield 9¼%.

“The thing initially did well,” the trader said, “but it didn’t really change much today.”

Hudbay, NRG little traded

Among other recently priced issues, a market source at another desk pegged Hudbay Minerals, Inc.’s 9½% notes due 2020 at 107 bid, 108 offered, calling that unchanged on the day.

The Toronto-based mining company priced $170 million of those notes as a quick-to-market add-on to its original issue last Thursday, bringing the bonds in at 107 to yield 7.502% after the add-on was upsized from $150 million.

He also saw NRG Yield, Inc.’s 5 3/8% notes due 2024 likewise unchanged at 101 3/8 bid, 101 7/8 offered.

The Princeton, N.J.-based owner of power-generation assets priced $500 million of the notes at par last Thursday. The deal was upsized from an originally announced $400 million.

NRG Yield and its parent company, NRG Energy, Inc., reported second-quarter results on Thursday.

On NRG Energy’s conference call, company executives said that its “drop-down” sales of assets to the 55%-owned NRG Yield were helping to replenish the parent’s capital and improve its overall finances. (See related story elsewhere in this issue.)

Sprint again active

Sprint paper was seen moving around for a second consecutive session after the Overland Park, Kan.-based wireless provider hung up the phone on its months-long effort to acquire smaller sector rival T-Mobile USA.

A market source saw Sprint Communications’ 11½% notes due 2021 up 3 points at 132 bid.

However, he also saw Sprint’s 6% notes due 2022 fall 1½ points to 98 7/8 bid. Over $8 million of the notes changed hands.

Market indicators still mixed

Statistical indicators of junk market performance were mixed for a fourth straight session on Thursday, versus the six-session losing streak seen previously.

The KDP High Yield Daily index notched its third straight gain, tacking on 4 bps to end at 72.97, after having firmed by 3 bps on Wednesday.

On Tuesday, it had soared by 29 bps to dramatically and decisively pull itself out of the rut it had been in over the previous seven consecutive sessions, posting its first advance since July 23.

Its yield eased by 3 bps Thursday to 5.54%, declining for a third straight session; it had come in by 2 bps on Wednesday and had tightened by 10 bps on Tuesday, its first narrowing after six straight wider sessions.

But the Markit CDX Series 22 index remained under pressure for a third straight day, losing ¼ point to finish at 106 3/16 bid, 106¼ offered. That retreat followed downturns of 5/32 point on Wednesday and 3/8 point on Tuesday.

However, the widely followed Merrill Lynch High Yield Master II index turned higher on Thursday by 0.192% after having dipped by 0.111% on Wednesday.

Thursday’s improvement raised the index’s year-to-date return back above the 4% barrier, to 4.158%, versus Wednesday’s 3.959% level. But 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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