High-yield bonds end Friday mixed; Freedom, EP deals do well; CenturyLink debt heads higher

By Stephanie N. Rotondo and Paul A. Harris

Portland, Ore., April 13 - It was a subdued day for high-yield bonds on Friday, given the Passover holiday and, as one trader noted, the New York Yankees' opening day game.

"Volume is pretty low," a trader said.

Freedom Group Inc.'s new $250 million of 7 7/8% senior secured notes due 2020 was faring well, as was EP Energy Corp.'s recent two-part bond deal.

In the secondary, CenturyLink Inc. paper was higher and active during the session. The company made headlines on Thursday when it was learned that three board members from the former Qwest Corp. were leaving their posts.

Also in the news was Sprint Nextel Inc. The company on Thursday gave a date on which it would unveil its new network. Come Friday, the bonds were holding their own.

The primary market failed to generate any news on Friday.

With no issues pricing, the week ended having seen $5.6 billion of issuance in nine junk-rated, dollar-denominated tranches.

That extends year-to-date issuance to $109.5 billion in 220 tranches.

Parsing the flows

Market watchers had time during the quiet Friday session to parse the $1.293 billion outflow from the high-yield mutual funds for the week to April 11, as reported on Thursday by Lipper-AMG.

It was the first negative week since November for one asset manager, whose portfolio includes both junk bonds and leveraged loans.

"[Despite this,] we're still on a trajectory for economic recovery," the buysider asserted.

"Both equity and high yield have run very hard, and so, at some point, there should be a pause. Issuance has slowed down, which should help."

This source looks for high yield to regain its legs soon.

A bank loan trader, however, pointed to the $281 million of inflows to bank loan funds for the same week during which high-yield funds sustained the nearly $1.3 billion outflow and suggested that some of that cash migrated into loans from junk bonds.

"The junk market has run long and hard," the loan trader said. "People might be wondering how much upside there is left.

"And right now, they might be finding the greater security of bank loans attractive."

The week ahead

The April 16 week gets under way with just two deals on the active calendar.

Physiotherapy Associates is roadshowing a $210 million offering of seven-year senior notes (B3/B-), an LBO deal being led by Jefferies and RBC.

And Carmike Cinemas, Inc. is marketing $210 million of seven-year senior secured notes (B2/B) via Macquarie, with proceeds to repay debt, fund working capital and finance general corporate purposes.

Along with those two announced deals, Landry's Inc. is expected to announce a $400 million offering of eight-year senior notes, via Jefferies.

In the late part of the post-Easter week, there was a modicum of consensus that new issue activity is likely to remain somewhat muted in the near term.

One debt capital markets banker pointed to renewed volatility in the global capital markets and negative cash flows from high yield.

A banker from a different syndicate, however, maintained that things could turn around quickly.

There are plenty of deals in the pipeline, the banker said, adding that although the April primary market will cross its midpoint with less than $12 billion of dollar-denominated issuance, April could still end up seeing a respectable $30 billion of new issue business with any sign of stability.

Mixed day for markets

It was a mixed day for high-yield bonds, as was indicated by market indexes.

The CDX North American High Yield index fell nearly 1½ points to 94 11/16 bid, 94 7/8 offered, according to a market source.

The KDP High Yield index, meantime, closed up at 73.45, with a yield of 6.76%, versus 73.37, with a 6.81% yield the day before.

Freedom Group doing well

Among recent deals, Freedom Group's $250 million issue of 7 7/8% eight-year senior secured notes (B3/B-) was faring well.

The deal priced at par on Thursday.

A market source quoted the issue at 101 7/8 bid, 102 3/8 offered at the end of the day.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and RBC Capital Markets were the joint bookrunners.

Proceeds, along a new term loan, will be used to fund the tender for and/or redeem the company's 10¼% senior secured notes due 2015 and its 11¼%/11¾% senior PIK notes due 2015 and for general corporate purposes.

The issuing entities are FGI Operating Co., LLC and FGI Finance, Inc., financing units of the Madison, N.C.-based designer, manufacturer and marketer of firearms and ammunition.

EP remains active

Also in new deals, EP Energy's two-part bond deal was still moving around a bit.

A market source saw the $750 million issue of 6 7/8% notes due 2019 at 102½ bid, 103 offered, and the $2 billion issue of 9 3/8% notes due 2020 at 101 7/8 bid, 102 3/8 offered.

Both deals priced at par on Tuesday.

Citigroup Global Markets Inc. and J.P. Morgan Securities LLC were the joint physical bookrunners.

Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., BMO Capital Markets Corp., RBC Capital Markets, UBS Securities LLC and Nomura were the joint bookrunners.

The overall size of the bonds was decreased to $2.75 billion from $3 billion, with $250 million shifted to the company's term loan.

Covenant changes were announced along with the price talk and revised sizing on Monday.

Proceeds will be used to fund the leveraged buyout of the company by Apollo Global Management LLC, Riverstone Holdings LLC, Access Industries Inc. and other investors.

The issuer is a Houston-based oil and natural gas exploration and production company.

CenturyLink active, firmer

CenturyLink paper was active and higher during Friday trading.

A trader called the 5.8% notes due 2022 up slightly to 99, while the 7.6% notes due 2039 gained 1½ points, finishing at 96.

"Those are active," he said of the issues. "They've been active the last couple days.

Another market source pegged the 5.8% notes with a 101-handle.

On Thursday, the Monroe, La.-based telecommunications provider said that three of its board members - all transplants from the merger with Qwest just over a year ago - would be leaving their posts.

The company does not intend to fill the positions and instead will shrink the board to 13 from 16.

Furthermore, the company is slated to report earnings on May 9. Expectations are the company will report a 58-cent per share profit on revenues of $4.61 billion.

Sprint holds steady

Sprint Nextel announced the rollout date of its new LTE network that will replace the old Nextel network.

The company said on Thursday that the network should come by 2014.

But that news did little to spark any price moves in Sprint's debt.

A trader said there was "not much change for Sprint," seeing the 6 7/8% notes due 2028 unchanged at 753/4. The 6.9% notes due 2019 were likewise unchanged at 871/2, while the 7 3/8% notes due 2015 slipped a touch to 961/4.

Another market source placed the 6 7/8% notes at 76¾ and the 6.9% notes at 871/2.

A third market source called the 6% notes due 2016 up half a point at 89½ bid.

In addition to news of the network rollout, the market is also preparing for Sprint's earnings release later this month. Analysts are forecasting a 41-cent per share loss on $8.72 billion in revenues.

Sprint is an Overland Park, Kan.-based telecommunications provider.

Clear Channel weakens

A trader said that Clear Channel Communications Inc.'s debt was declining Friday, despite a lack of news to drive the movement.

He saw the 11% notes due 2016 at 70, down 2½ points.

"That was the big one," he said.

The 9% notes due 2021 were meantime off half a point at 891/2, as were the 10¾% notes due 2016, which ended around 73.

Clear Channel is a San Antonio-based multimedia company.

Cemex falls

Cemex SAB de CV's bonds were also taking a hit on no news, a trader reported.

He saw the 9¼% notes due 202o down a deuce at 97 and the 9½% notes due 2016 down a point at 951/2.

Cemex's U.S. operations are based in Houston. The company manufactures cement and other aggregates.

Reddy Ice better bid

Reddy Ice Corp.'s 13¼% notes due 2015 were "better bid," a trader said, though he noted that few actual trades took place.

He placed the debt in the high teens.

The Dallas-based ice maker announced in a press release on Thursday that it had voluntarily filed a prepackaged bankruptcy filing "to complete its previously announced plan to strengthen its balance sheet and ensure strong financial footing for the future."

The company has secured a $70 million debtor-in-possession facility from Macquarie Bank Ltd. The bank will also provide $50 million in exit financing.

The company expects to emerge from bankruptcy in 45 days or less.

Following news of the filing, Standard & Poor's downgraded the company's credit rating to D from CC on Thursday. Moody's Investors Service followed suit on Friday, cutting the rating to D from Ca.

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