New Berry, Fresenius bonds firmer; Cablevision slides on Altice news; funds gain $236 million

By Paul Deckelman and Paul A. Harris

New York, Sept. 17 – No new issues priced in the high-yield market on Thursday – but traders said that Wednesday’s offering of seven-year secured notes from packaging maker Berry Plastics Group, Inc. firmed smartly in heavy trading.

They also saw a respectable amount of activity in Wednesday’s other new deal – the 7.25-year notes from healthcare provider Fresenius SE & Co. KGaA, which also traded above their issue price.

However, last Friday’s big deal from Frontier Communications Corp. remained well below the peak levels seen after the wireline telecom company’s huge three-part deal had priced.

The primaryside meantime buzzed with talk about a big new bond deal that will partially finance European cable operator Altice NV’s planned acquisition of U.S.-based sector peer Cablevision Systems Corp. in a transaction valued at over $17 billion, including debt. The bank debt portion of that financing is scheduled to launch next week; however, the size and precise timing of the bond portion of the financing remains nebulous.

News of that gigantic takeover and the prospect of sizable new debt sent Cablevison’s existing bonds and those of its CSC Holdings LLC financing subsidiary into a tailspin, with sizable volume on several of those credits. Several issues of Altice’s bonds were also lower.

Overall, traders said the announcement by the Federal Reserve that it would hold interest rates where they are for now rather than starting to raise them at this time – a raise that some observers had predicted might emerge from the central bank’s two-day meeting – proved to be a positive for junk, along with other fixed-income markets.

But statistical measures of junk market performance still ended mixed on Thursday for a seventh consecutive session, the eighth mixed trading day in the last 10.

Another numerical indicator – the flow of investor money into or out of high-yield mutual funds and exchange-traded funds, considered a reliable barometer of overall Junkbondland liquidity trends – saw its second consecutive weekly inflow, with $236 million more having come into those funds than left them during the latest reporting period.

Soho House roadshow

New issue activity remained muted on Thursday, with no deals pricing in the high-yield primary market.

There was a single new deal announcement.

Soho House Bond Ltd. plans to begin an international roadshow on Friday for a £200 million offering of five-year senior secured notes (existing ratings Caa1/B-).

The deal is set to price early in the week ahead.

Physical bookrunner Barclays will bill and deliver. Jefferies is a bookrunner.

The London-based company plans to use the proceeds to refinance debt, including the redemption of its 9 1/8% secured notes due 2018, and for general corporate purposes.

A lot of telecom paper

The telecom sector commandeered the lion’s share of attention on Thursday, as the market heard that the acquisition of Cablevision Systems Corp. by Altice would produce $8.6 billion of new Cablevision debt in the form of bonds and term loans.

Although details on the bond portion of the deal remain to be announced, a $2.3 billion term loan and a $2 billion revolver are set to launch at a bank meeting on Monday. The leads are J.P. Morgan, BNP Paribas and Barclays.

Although the bond portion of the deal generated plenty of chatter on Thursday, exact numbers were difficult to come by.

However sources expect the bonds to come soon.

The other news from the telecom sector that created a buzz was the price drop of Frontier Communications’ $6.6 billion of bullet notes in three tranches, all of which were below par on the bid side heading into midday in New York on Thursday, according to a trader.

Those notes, the 8 7/8% notes due 2020, the 10½% notes due 2022 and the 11% notes due 2025, priced at par last Friday.

And they were priced to move, according to sources roundabout the market, who added that into the early part of the present week they were trading at solid premiums above new issue prices.

A couple of things took place in the middle part of the week to weaken investors’ appetites for telecom paper, however, a portfolio manager said on Thursday.

First was a notable price-slide in the bonds of Sprint Corp. trailing Moody’s downgrade of Sprint’s senior unsecured credit rating to Caa1 from B2, with a negative outlook.

That rating renders a substantial amount of Sprint’s senior unsecured debt for sale because there are significant number of funds constrained from owning notes that are triple-C rated, the buysider pointed out.

Also putting pressure on the Frontier Communications paper was the fact that with the stabilization period having concluded a lot of the “short-term owners” of Frontier paper – cheap pricing notwithstanding – felt the need to loosen their ties.

All at once there is a whole lot of telecom paper out there, the investor said.

“And between Cablevision, Dish and Charter, the market is expecting another $12 billion of it in the next two weeks,” the manager added.

In addition to the above-mentioned Cablevision deal, the investor was referring to Charter Communications Inc.’s $3.5 billion of senior notes, expected to be helmed by Credit Suisse, and Dish Network Corp.’s $3.3 billion of notes, in a deal which is expected to be led by Deutsche Bank.

Three deals on the road

Focusing on what is actually on the active forward calendar, there are only three issuers roadshowing deals at present, sources say.

In addition to the above-mentioned sterling-denominated deal from Soho House, Olin Corp. (Blue Cube Spinco Inc.) is marketing a $1.5 billion two-part offering of senior notes (expected ratings Ba1/BB+).

The deal includes eight-year notes that come with early guidance of 5¾%, and 10-year notes which come with guidance of 6%. It is expected to price Tuesday.

And Ellucian (Sophia LP) is in the market with $590 million of eight-year senior notes (Caa2/CCC+) being guided in the low 8% context, according to the trader. The buyout deal could price Friday or Monday.

Berry bonds better

In the secondary market, a trader said that “Berry [Plastics] finally began trading,” with its 6% senior secured second-lien notes due 2022 moving up to a 101 to 101¼ bid context.

A second trader pegged those bonds at 101¼ bid, 101½ offered, up solidly from the par level at which the Evansville, Ind.-based plastic packaging manufacturer had priced its $400 million quick-to-market issue on Wednesday via its Berry Plastics Escrow Corp. special-purpose financing vehicle.

At another desk, a trader said that the new Berry bonds were easily the busiest junk credit of the session, with over $79 million having changed hands. He saw the bonds going home at 101½ bid, which he called a 1 point gain over the levels about ½ point above par seen in relatively thin dealings Wednesday in the immediate aftermath of the pricing.

Fresenius firms up

Wednesday’s other deal – German kidney dialysis company Fresenius’ 4½% notes due January 2023 – were also seen having gotten better on the day.

A trader saw the notes at 100¼ bid, 100¾ offered in morning trading.

Later in the day, the bonds were being pegged as high at 100 7/ 8 bid, 101 3/8 offered.

Another market source located the notes at 100 5/8 bid, on volume of over $18 million, putting it among the busier issues on the day. He quoted the notes finishing at 100 5/8 bid, calling that up 1/8 point from levels around 100½ bid seen late Wednesday after the company’s Fresenius US Finance II, Inc. special-purpose funding vehicle priced the $300 million of notes at par.

Acadia holding at higher levels

Going back to earlier in the week, Acadia Healthcare Co. Inc.’s 5 5/8% notes due February 2023 were seen at 101 1/8 bid, 101 5/8 offered – unchanged on the session, but up from the 100.5 level at which the Franklin, Tenn.-based provider of inpatient behavioral healthcare services had priced its quickly shopped $275 million add-on to its existing notes on Monday, yielding 5.15%. The issue priced after having been upsized from an originally announced $250 million.

Frontier continues to struggle

Last Friday’s big deal from Frontier Communications continued to struggle in the aftermarket, with a high-yield participant seeing its 8 7/8% notes due 2020 at 100¼ bid, 100¾ offered, its 10½% notes due 2022 at 99 7/8 bid, 100 3/8 offered, and its 11% notes due 2025 at 99 bid, 99 3/8 offered.

Those levels were all well down from the hefty aftermarket gains notched after the Stamford, Conn.-based wireline telecom and internet broadband service provider had priced $1 billion of the 8 7/8% notes, $2 billion of 10½% notes and $3.6 billion of the 11% notes all at par in the second-biggest purely junk-rated deal seen so far this year. The five-years had traded above the 101½ bid level and the seven- and 10-years had moved above 102 in initial aftermarket dealings but then began to come off those peak levels earlier this week.

The bonds continued to trade actively.

On Thursday, another trader saw the 8 7/8% notes at 100¼ bid, down ¼ point on the day, with over $25 million of turnover.

He saw more than $78 million of the 11% notes having changed hands, gaining 1/8 point to finish at 99¼ bid, while over $54 million of the 10½% notes traded, also gaining 1/8 point to end at 99 7/8 bid.

Cablevision bonds battered

Away from the new deals that have priced, the news that Luxembourg-based cable provider Altice will acquire familiar junk credit Cablevision in a largely debt-financed $17 billion transaction sent the latter’s notes reeling.

The Bethpage, N.Y.-based cable operator and newspaper publisher’s 5 7/8% notes due 2022 plunged by 11¼ points to 86 bid, with over $40 million having traded, while its 8 5/8% notes due 2017 dropped by 3 points to 106 bid, on volume of more than $14 million.

The bonds of Cablevisions CSC Holdings financing subsidiary were also beaten down during the session, with its 5¼% notes due 2024 falling by more than 7 points to close at 86¼ bid. More than $23 million traded.

CSC’s 6¾% notes due 2021 fell by more than 6 points on the day to 99¼ bid, on volume of over $18 million.

Prospective acquirer Altice’s bonds were also lower; its Altice SA 7¾% notes due 2022 were seen down 1 point at 96 3.4 bid, with over $32 million traded, while its Altice Finco SA 7 5/8% notes due 2025 lost 1¾ points to finish at 96 7/16 bid, with over $11 million having changed hands.

Indicators remain mixed

Statistical measures of junk market performance were mixed for their seventh consecutive session on Thursday, their eighth mixed session in the last 10 trading days.

The KDP High Yield Daily Index suffered its fifth straight loss on Thursday, dipping by 3 basis points to end at an even 68.00 and threatening to head back below that psychologically significant mark since Sept. 4, when it had finished at 67.99. On Wednesday, it had plunged by 21 bps.

Its yield, meanwhile, rose by 2 bps to end at 6.34%, its second widening in a row, third in the last four sessions and fourth in the last six sessions. On Wednesday, the yield had ticked up by 7 bps.

However, the Markit Series 24 CDX North American High Yield Index rolled to its sixth successive gain on Thursday, edging up by 1/16 point to close at 104 15/16 bid, 104 31/32 offered. It was also the index’s seventh rise in the last eight sessions, and its ninth in the last 12 trading days. On Wednesday, it had improved by 5/32 point.

But the Merrill Lynch North American Master II High Yield Index languished at lower levels for a sixth straight session, easing by 0.048%, on top of Wednesday’s 0.274% retreat.

Thursday’s loss knocked its year-to-date return down to 0.271% from 0.320% on Wednesday.

Those levels remain well down from the 4.062% reading recorded on May 29, the index’s peak level for the year so far.

Funds see second straight gain

Another statistical gauge, however, was on the upside on Thursday, as high-yield mutual funds and exchange-traded funds – considered a reliable barometer of overall junk market liquidity trends – showed a second straight week of net additions by investors in the latest reporting week, after having suffered net redemptions for two straight week before that.

Some $236.376 million more had come into those weekly-reporting-only funds than had left them during the week ended Wednesday.

That inflow followed the $185.8 million cash addition that was reported last week for the seven-day period ended Sept. 9.

It also modestly cut the year-to-date net outflow figure to $2.861 billion in the latest week from more than $3 billion last week (see related story elsewhere in this issue).

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