CST, Erickson, AES lead $1.7 billion primary; new bonds trade up; funds gain by $521 million

By Paul Deckelman and Aleesia Forni

New York, April 25- The high-yield primary market was busily churning out new deals on Thursday, syndicate sources said, with nearly $1.7 billion of new dollar-denominated, junk-rated paper from domestic or developed-nation issuers having priced in five deals by the day's end. In contrast, only one $600 million offering priced on Wednesday.

Unlike most sessions, which see a morning lull followed by a late-day rush to get everything done, Thursday's pricings began in the morning and continued through the midday and on into the afternoon.

Among those early deals were CST Brands Inc. and Erickson Air-Crane Inc. Petroleum retailer CST priced $550 million of 10-year notes, while Erickson, a provider of helicopter lift services, did $400 million of seven-year secured notes. Both issues were said by traders to have gained two points or more in aftermarket dealings.

A third notable deal came later on in the day from global power producer AES Corp., which threw the switch on a quick-to-market $500 million of 10-year notes. Those bonds moved up modestly in the aftermarket.

There were two other dollar deals pricing Thursday. Specialty retailer SSH Holdings, Inc. (Spencer Spirit) brought an upsized $165 million of five-year PIK toggle notes to market in a quickly shopped transaction, and used-car retailer DriveTime Automotive Group, Inc. came with a $50 million add-on to its existing 2017 bonds. Neither was seen trading around afterwards.

Another auto dealer, Britain's Pendragon plc, was heard to have priced an issue of sterling-denominated seven-year notes.

Back among the dollar deals, price talk emerged on Canadian paper and pulp manufacturer Resolute Forest Products Inc.'s $600 million of 10-year notes. The deal is expected to come to market on Friday.

The overall market was again seen firm, traders said, with statistical performance indicators higher across the board for a third consecutive session.

And flows of fresh cash either into or out of high-yield mutual funds and exchange-traded funds - a key indicator of junk market liquidity trends - were reading positive for a second straight week, both major fund-tracking services reported.

AMG sees $520.8 million inflow

Early Thursday evening, junk market participants familiar with the fund-flow statistics generated by AMG Data Services, Inc. reported that in the week ended Wednesday, $520.8 million more had come into those funds than had left them.

It was the second consecutive weekly inflow seen by Arcata, Calif.-based AMG, a unit of the Lipper analytics division of Thomson Reuters Corp., and it followed the $241.76 million cash addition recorded in the previous week, ended April 17.

The $762.56 million seen over the past two weeks represents a solid comeback from the loss seen the week before that, ended April 10, when Lipper saw an outflow of $78.6 million, junk sources said. That outflow had been the first outflow seen after a string of three consecutive weekly inflows before that totaling about $267 million.

Seventeen weeks into the year, 2013 net inflows as reported by Lipper so far have amounted to about $1.57 billion, according to a Prospect News analysis of the figures.

There have now been 11 inflows and six outflows reported by Lipper so far this year.

In 2012, when cumulative net inflows for the year totaled an estimated $32 billion, according to the analysis, inflows to the funds were recorded in 39 weeks of the year and outflows in the remaining 13 weeks.

EPFR sees $1.53 billion inflow

The other major fund-tracking service, Cambridge, Mass.-based EPFR Global, meanwhile said that during the week ended Wednesday, $1.53 billion more came into the funds it follows than left them.

As was the case with the AMG/Lipper number, this week's EPFR figure was the second inflow in as many weeks. It came on the heels of last week's $797 million cash addition.

Those two inflows, totaling $2.33 billion, represented a bounce from the previous week's $149 million outflow from the junk mutual funds and ETFs that EPFR tracks. That outflow in the week ended April 10 had been the first such loss seen after seven straight weeks of inflows to those funds. Net inflows during that stretch had mounted up to about $6.4 billion, according to a Prospect News analysis of the EPFR figures.

On a year-to-date basis, there have now been 14 weeks since the beginning of 2013 in which EPFR has seen inflows against three weeks in which it saw outflows. The year-to-date cumulative net inflow rose to $11.37 billion, according to the analysis.

EPFR's methodology differs from that of AMG/Lipper in that it includes some non-U.S.-domiciled funds along with domestic funds, while the Lipper unit tracks only the latter category. Despite the different methods, the two services' figures generally point in the same direction.

EPFR meanwhile also said that in the latest week, the strictly domestic funds it tracks - a category more closely comparable to the Lipper fund universe - had seen an inflow of $702 million .That followed the previous week's $428 million gain.

Those inflows totaling $1.13 billion represented a comeback from the $365 million outflow seen the week ended April 10, which in turn had broken a string of six consecutive inflows totaling around $3.2 billion.

On a year-to-date basis, the cumulative net inflow figure for those U.S.-only funds rose to about $3.54 billion, with inflows having been seen in 10 weeks so far this year and outflows in seven, according to the Prospect News analysis.

Cumulative fund-flow estimates, whether from EPFR or from AMG/Lipper, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

The continued flow of fresh cash into junk - and the mutual funds and ETFs represent but a small, though very observable and quantifiable percentage of the total amount of investor money coming into or leaving the junk market - has been seen by analysts as a key element behind the high-yield secondary sphere's strong performance last year versus other fixed-income asset classes and its record active new-deal pace, which easily topped the $350 billion mark - patterns of primary activity and secondary strength that have mostly continued into 2013 so far.

Inflow no surprise

A trader queried before the numbers came out correctly projected that the fund flow numbers would be positive, given the recent firming trend in the junk market.

He noted that besides high yield, "there aren't too many options" for investors looking to put money to work and actually earn something rather than just parking cash in some other vehicle and getting just a miniscule return for that.

"When you've got high yield still yielding north of 5%, and if you believe the Fed is going to stay on hold" and not move to raise interest rates any time soon, "there are still risks, of course," he said, but "I'd rather get paid 5%-plus and take some risks than be buying 10-year corporate paper at 2¼% or something like that."

CST prices $550 million

A busy day for the high-yield primary market saw CST Brands price a $550 million issue of senior notes due May 1, 2023 at par, or Treasuries plus 330 basis points, according to a market source.

The notes were talked in the area of 5¼%.

Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Wells Fargo Securities LLC, Mitsubishi UFJ Securities, RBC Capital Markets and RBS Securities Inc. are the joint bookrunners for the Rule 144A and Regulation S with registration rights offering.

Proceeds will be used to fund a distribution to Valero Energy Corp. as part of the tax-free spinoff of Valero's retail business that will create CST Brands.

The issuer is a San Antonio-based independent North American retailer of transportation fuels and convenience merchandise.

AES brings new issue

AES also came to Thursday's primary, selling $500 million of 4 7/8% senior notes due May 15, 2023 at par, according to a market source.

The notes priced on top of talk, which had tightened from earlier guidance of 5% to 5¼%.

Proceeds will be used to partially fund the tender offer for the company's notes due 2014 and a portion of the notes due 2015, 2016 and 2017. Any remaining proceeds will be used for general corporate purposes.

Morgan Stanley & Co. LLC, Barclays, Citigroup Global Markets Inc., Credit Suisse, Deutsche Bank Securities Inc. and RBS Securities are the bookrunners for the Securities and Exchange Commission-registered deal.

The power company is based in Arlington, Va.

Erickson sells $400 million

In other primary action, Erickson Air-Crane priced a $400 million offering of 8¼% seven-year second-priority senior secured notes at par, according to a market source.

Deutsche Bank was the left bookrunner. Wells Fargo was the joint bookrunner.

The Rule 144A and Regulation S with registration rights notes become callable in three years at par plus 75% of the coupon. A special call provision allows the issuer to redeem 10% of the notes annually during the non-call period.

The Portland, Ore.-based provider of helicopter lift services plans to use the proceeds to fund the acquisitions of Evergreen Helicopters, Inc. and Air Amazonia and to refinance debt.

Spencer Spirit upsizes

Spencer Spirit priced an upsized $165 million issue of senior PIK toggle notes due 2018 at 98 to yield 9.51% on Thursday, according to a market source.

The original issue size was set at $160 million.

The notes pay a 9% cash coupon; the PIK coupon is 9¾%.

The notes will be non-callable for one year, then callable at 102, 101 and par after that.

Proceeds from the Rule 144A and Regulation S for life deal will be used to repurchase shares from stockholders and pay the related fees and expenses of this offering.

Wells Fargo and Credit Suisse are the bookrunners.

Spencer Spirit operates a mall-based specialty retailer and is based in Egg Harbor Township, N.J.

DriveTime add-on

DriveTime Automotive Group priced a $50 million add-on to its existing 12 5/8% notes (B3/B/) due 2017 at 111 to yield 7.671% during Thursday's session, according to a market source.

Jefferies & Co. and Wells Fargo were the joint bookrunners for the Rule 144A and Regulation S with registration rights transaction.

Proceeds will be used to repay a portion of the company's outstanding warehouse facilities.

The notes will be fungible upon registration.

The original $200 million issue priced on May 27, 2010 at 98.854 to yield 12 7/8%.

DriveTime is a Phoenix-based used vehicle retailer. It focuses solely on sales and financing services to the subprime market.

Pendragon sale

Thursday's primary also saw Pendragon price a £175 million 6 7/8% seven-year bond in a private placement, according to a company news release.

Proceeds, along with proceeds from the company's new £145 million four-year revolving credit facility, will be used to repay and cancel Pendragon's legacy high-coupon debt private placements, the cross-currency swaps associated with them and its existing bank facility.

"This refinancing exercise extends considerably the group's debt maturity," the release stated.

Meanwhile, the group plans to achieve an underlying EBITDA target of 1.5 times by the end of next year.

Pendragon is a Nottingham, England-based auto dealer.

Resolute Forest on deck

In other market news, Resolute Forest Products has set price talk for its proposed $600 million offering of 10-year senior notes at 5½% to 5¾%, according to a market source.

Books close Friday at 10 a.m. ET, and pricing is expected thereafter.

The notes will be non-callable for four years and will then be callable at par plus 75% of the coupon.

The notes feature a 101% poison put and an equity clawback of up to 35% for the first three years at par plus the coupon.

BofA Merrill Lynch, Citigroup and BMO Capital Markets Corp. are the joint bookrunners.

Barclays, J.P. Morgan Securities LLC and Wells Fargo are the co-managers.

Proceeds from the Rule 144A and Regulation S with registration rights transaction will be used to redeem the company's existing senior secured notes due 2018 and for general corporate purposes.

Resolute Forest Products is a Montreal-based pulp and paper manufacturer.

Thursday deals trade up

When the new CST Brands 5% notes due 2023 were freed for secondary dealings after having priced at par fairly early in the session, a trader saw those bonds having quickly pushed up to 102½ bid, 102¾ offered.

The company's new deal was later seen by two separate traders having finished in a 1021/2-to-103 bid context.

Erickson Air-Crane's 8¼% second-priority senior secured notes due 2020 were seen by a trader around 102 bid in the afternoon. That was up from the par level at which the company had priced its deal late Thursday morning.

A second trader pegged the bonds at 102 bid, 102½ offered.

AES' new 4 7/8% notes due 2023, meantime, were quoted at one shop at around 100½ bid.

However, at another desk, the company's new issue was seen having gone home around 101½ bid.

AES' established 7¾% notes due 2014 rose ¼ point to 105½ bid; that bond was one of several in the 2014-to-2017 space that the company plans to tender for with the new-deal proceeds.

One of the traders said that "those [three new deals] were the only ones trading," with no initial aftermarket seen in either the morning's DriveTime Automotive add-on to its existing 2017 bonds or in Spencer Spirit's PIK toggle notes, which priced in the afternoon.

New deals dominate

A trader said that overall, "everything felt good today. Everything was trading higher."

He said that most activity was centered around the new issues - although here and there established names were being traded if they had earnings out or other news.

Among the bonds moving around after having released earnings, a market source saw Dallas-based wireless phone service provider MetroPCS Communications Inc.'s 7 7/8% notes due 2018 down nearly 2½ points at 107 5/8 bid.

Business services provider Affinion Group Inc.'s 7 7/8% notes due 2018 lost a point to close at 77 bid, the source said, while its 11½% notes due 2015 eased to 84½ bid. The company said on its conference call that it would be "proactive" in dealing with its upcoming 2015 debt maturities but offered little in the way of concrete details. (See related story elsewhere in this issue.)

Market indicators up again

Statistical junk performance indicators were higher across the board for a third straight session on Thursday.

The Markit Series 20 CDX North American High Yield index rose by ¼ point on Thursday - its fifth consecutive gain - to finish at 105 1/8 bid, 105¼ offered. On Wednesday, the index had gained 7/32 point.

The KDP High Yield Daily index, meanwhile, edged up by 1 bp to end at 75.80, its third straight advance. On Wednesday, it had jumped by 9 bps.

Its yield came in by 1 bp, its third straight decline, to end at 5.33%. On Wednesday, the yield had contracted by 8 bps.

And the widely followed Merrill Lynch High Yield Master II index posted its sixth consecutive advance on Thursday, gaining 0.176% on top of Wednesday's 0.159% rise.

That lifted its year-to-date return to 4.262% on Thursday - its fourth consecutive new peak level for the year. On Wednesday, it had finished with a 4.079% return, the previous high point for the year and the first time in 2013 that the index has been above the psychologically potent 4% mark.

The index's yield to worst declined to 5.31% on Thursday, a fifth consecutive new all-time low. It was down from the previous low mark of 5.369% on Wednesday.

It spread-to-worst narrowed to 461 bps over comparable Treasuries - its third consecutive new tight spread for the year - from 467 bps on Wednesday, the previous tight level for 2013.

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