Georgia-Pacific sells upsized deal; junk treads water as stocks drop; Six Flags up on debt swap

By Paul Deckelman and Paul A. Harris

New York, April 20 - While the junk bond market was what one trader called "sloppy" on Monday, likely affected to some degree by the panicky plunge in equities, the new deal arena seemed to be immune from that overall uncertain tone.

Georgia-Pacific LLC brought a quickly shopped offering of seven-year notes to market - and the already respectably sized deal was increased in response to investor demand for the new paper.

However, outside of that well-executed transaction, Junkbondland seemed to lose some of the sure and solid footing that had characterized the previous week, when it had gained an enormous four-plus percent, as measured by the Merrill Lynch High Yield Master II Index.

Junk on Monday instead meandered around, on reduced volume. Recent active upsiders like Sprint Nextel Corp. and Rite Aid Corp. were seen lower. Here and there, some names did move higher, notably Six Flags Inc., whose badly battered bonds were being quoted up a few points in response to the company's offer to give bondholders equity in exchange for their debt. Other gainers - for whatever reason - included Ahold Finance USA Inc. and the hardly ever seen Lender Processing Services Inc.

Still, junk outperformed equities during a Monday session which saw the major U.S. stock indexes swoop, with the Dow Jones Industrial Average finishing 3.5% lower, sources said.

Stocks tumbled on a Goldman Sachs report warning that Citigroup's credit losses are continuing to mount at a rapid pace, as well as on a warning from Bank of America that it will increase by more than 50% the money it sets aside to cover loan losses.

Georgia-Pacific upsizes

Despite the travails of the stock market, the high-yield primary kept chugging along, with one dramatically upsized a.m.-to-p.m. drive-by deal pricing on top of price talk.

Georgia-Pacific priced an upsized $750 million issue of 8¼% seven-year senior guaranteed notes (Ba3/BB-) at 96.155 to yield 9%.

"The deal went extremely well," an informed source said, adding that the notes saw demand sufficient to allow the company to upsize the issue by $150 million from the original $600 million size, and to price it on top of the 9% area price talk despite the losses in equities.

Banc of America Securities, JP Morgan, Morgan Stanley and RBS Greenwich Capital were joint bookrunners for the quick-to-market Rule 144A for life deal.

Proceeds together with cash on hand, will be used for general corporate purposes including repayments of the company's domestic accounts receivable securitization facility and/or its revolver.

JBS sets price talk

Elsewhere JBS USA, LLC and JBS USA Finance, Inc. set price talk in the 13% area for their $400 million offering of five-year senior notes (B1//B+) on Monday, according to informed sources.

The notes are expected to price Wednesday morning, New York time, with an original issue discount of approximately 5 points.

The books are scheduled to close at 2:30 p.m. ET on Tuesday.

J.P. Morgan and Banc of America Securities are joint bookrunners for the debt refinancing and general corporate purposes deal from the Greeley, Colo., beef and pork processor.

Primary pace could pick up

Trailing the biggest week of 2009 in terms of dollar-amount of issuance, the pace of the primary market could continue to pick up, sources said on Monday.

A good execution on the Georgia-Pacific deal could have more implications for the high-yield primary market than Monday's ugliness in the stock market, a high-yield syndicate official said just before the Georgia-Pacific terms began circulating late in the afternoon.

That's partly because there is a lot of cash to be put to work in junk, the official added, referring to the $3.4 billion of inflows over the past five weeks into high-yield mutual funds that report on a weekly basis to AMG Data Services.

Aside from the above-mentioned JBS USA deal, there was only one high-yield offering in the market at Monday's close.

DigitalGlobe Inc. is marketing a $300 million offering of five-year senior secured notes (B+) via Morgan Stanley.

The roadshow is expected to end Wednesday, with the notes pricing thereafter.

And there are other offerings in the wings, one syndicate source said, while declining to furnish any names.

The source has visibility on one more offering this week, but more for the week after.

Recent new deals little seen

Apart from the Georgia-Pacific offering, a trader - who said that waiting for the big new deal seemed to be the main focus in an otherwise restrained market Monday - saw HCA Inc.'s new 8½% notes due 2019 "weaker, along with the market," quoting the Nashville-based hospital operator's bonds as trading at 98¼ bid, 98¾ offered. The company priced its $1.5 billion of bonds - sharply upsized from their original $500 million - last Wednesday at 96.755 to yield 9%. By Friday's session, the bonds had risen to around the 99 level.

At another desk, a trader said that the new bonds, which are not yet tracked by the Trace bond-reporting system, had retreated to an over-the-counter level of 97¾ bid, 98½ offered, which he termed down a point.

The second trader also noted that Crown Castle International Corp.'s new 7¾% notes due 2017 were not trading on Monday. He quoted them as having last traded on Friday at 99¾ bid, 100¼ offered. The Houston-based communications antenna tower operator priced its $1.2 billion of new paper through its CC Holdings GS V LLC/Crown Castle GS III Corp. subsidiaries, also last Wednesday, at 97.092, to yield 8¼%.

And he said that Seagate Technology International's new 10% notes due 2014, were also not seen trading around on Monday. The Scotts Valley, Calif.-based computer hard-drive maker priced $430 million of those bonds on Thursday at 95.317 to yield 11¼%, and were seen having gotten as good as 99 on Friday, although the trader quoted them going home on Friday afternoon at 98 ¼ bid.

One new issue which was seen hanging in at its recent levels, well above where it had priced, was Toll Brothers Inc.'s 8.91% notes due 2017. The Horsham, Pa.-based luxury homebuilder priced $400 million of the split-rated (Ba1/BBB-) bonds a week ago at 97.975, to yield 9¼%. On Monday, a market source saw the issue trading as high as 99.5, on mid-afternoon volume of some $8 million.

Market indicators seen mixed

Back among the established issues, a market source saw the CDX Series 12 High Yield index - which had remained essentially unchanged on Friday at 75½ bid, 76 offered - having slid more than a point on Monday to 74.671.

A trader added that cash bonds were anywhere from ½ to ¾ point lower on average.

Meanwhile, the KDP High Yield Daily Index, which had shot up 56 bps on Friday, rose another 6 bps on Monday to at 56.54, although its yield widened by 3 bps to 12.43%.

Advancing issues, which on Friday had led decliners by more than two to one, surrendered that entire bulge on Monday, ending the session actually trailing the losers by a narrow margin.

Overall market activity, measured by dollar-volume totals, fell 29% from the level seen in Friday's session.

A trader said that Monday was "an incredibly slow day," but said he didn't know why activity had fallen off like that, "other than high yield investors being stunned by the drop in equities, and not sure what to make of it."

The equity bellwether Dow Jones Industrial Average plummeted 289.60 points, or 3.56%, to 7,841.73, dragged down by renewed investor angst about the health of the important financial sector. The broader Nasdaq composite index fell by 3.88%, while the Standard & Poor's 500 swooned by 4.28%.

He said junk participants were trying to figure out "whether it's the beginning of another bear market in high yield corporates, or if it's just a temporary phenomenon. So they don't want to either buy bonds right now and have them lower by a point or two in a couple of days, or [risk missing] another buying opportunity."

The trader saw commonly followed benchmark issues mixed.

While Community Health Systems Inc.'s 8 7/8% notes due 2016 retreated to 96¾ bid from prior levels at 971/2, on volume of $12 million, Aramark Corp.'s 8½% notes due 2015 were unchanged at 95¼ bid, with $3 million traded.

However, he said that First Data Corp.'s 9 7/8% notes due 2015 were "actually up 1¼ versus Friday," to 68½ from 671/4, on volume of $10 million. However, he said that the 67¼ Friday closing level was "an aberration," since the bonds had traded higher than that "all day long," with most of the more than $30 million that changed hands doing so at levels as high as the 70¼ area, before turning south late in the session. Using that 70¼ figure as the more authentic and representative close on Friday, "they're in line [Monday], lower along with the Community Healths. But based on that aberration sale at 671/4, it would be an uptick to 681/2."

Saks, AK Steel do better

Another trader suggested that "even though the overall market was a little sloppy, you did have some exceptions." One such name, he said was Saks, Inc., which he said "was upgraded on the equity side," pushing the New York-based upscale department store operator's 9 7/8% notes due 2011 up a point or 2 to the 85 level.

Another exception to the overall weakness was AK Steel Corp.'s 7¾% notes due 2012, which he said had firmed to 85 bid. However, equity investors were not convinced, taking the West Chester, Ohio-based specialty steelmaker's New York Stock Exchange-traded shares down $1.70, or 14.23%, to end at $10.25, on volume of 11.1 million shares, or about one third more than usual.

AK, which reports first-quarter earnings on Tuesday, is expected to slide into the red, versus its year-earlier profit, a victim of weakening demand for structural metals because of the continued economic downturn. Analysts, on average, expect the company to report red ink of about 75 cents per share on revenue of around $930 million. In the year-ago period, the company was in the black, with per-share earnings of 90 cents, on revenue of $1.79 billion.

Ahold higher, and active

Another bond seen bucking the easier trend was Netherlands-based international supermarket operator Ahold's 6 7/8% bonds due 2029, which a trader described as "something you don't see a lot of." He quoted those notes having firmed to a round-lot level of par from the prior round-lot level of 95 3/8, although that was back on April 7. Some $15 million of the bonds changed hands.

He saw no fresh news out on the company, which operates the big Stop & Shop grocery store chain in the Northwestern United States.

Even more of a mystery, he said, was the rise in a bond that is seen even less frequently than Ahold - Lender Processing Services' 8 1/8% notes due 2016. About $10 million of the Jacksonville, Fla.-based company's rarely seen bonds firmed to 97½ bid from 96 previously. The company is a provider of integrated technology and services to the mortgage industry.

Rite Aid in retreat, Hertz hurting

Far more typical was Camp Hill, Pa.-based drugstore operator Rite Aid, whose bonds had been on a roll last week, along with much of the retail sector, even in the face of continued soft industry-wide sales figures.

A trader saw its 9½% notes due 2017 as the junk market's most-active issue of the day, with $18 million changing hands. He quoted the bonds at 39¼ bid, down from 42½ on Friday - although he said that the Friday closing level was probably not representative, since it was a single trade of $500,000, less than standard round-lot size, while before that, the bonds had been trading around 38-39, with about $5 million traded there, "so other than the 500 [bonds] at 421/2, the bonds would actually be up 3/8 point today, but based on that one last sale, they would be down 31/4."

Another recently strong issue seen backtracking on Monday was Hertz Corp.

The Parsippany, N.J.-based car-rental giant's 8 7/8% notes due 2014 have lately been a solid performer, helped by company plans to buy back some debt and its recent acquisition of key assets from a bankrupt former rival via an auction. However, on Monday, the trader saw it falling to 73¼ from 74 on Friday, when $15 million of the bonds traded, although there was no fresh negative news out.

Sprint's luck runs out

And the trader saw Sprint Nextel Corp.'s 6% notes due 2016 having retreated to 81½ from 82¼ on Friday, with $15 million traded, making the Overland Park, Kan.-based wireless provider's paper one of the more actively traded credits on the day.

At another desk, the bonds were seen having fallen to as low as 80½ -- a nearly 2-point fall - while Sprint's 6 7/8% notes due 2013 dipped nearly 3 points to the 72 bid level.

Sprint is another name which has rallied recently, helped by factors ranging from investor hopes for industry consolidation to last week's news that the Obama administration will make it easier for U.S. telecom operators like Sprint to get licenses to operate in heretofore mostly closed Cuba.

Sprint bonds have also benefitted from speculation that the company might move to buy back, or exchange existing debt - but that possibility seems now to be fading, according to analysts at Goldman Sachs & Co. Inc. In a research note on Monday, telecom analysts Scott Marchakitus and Scott Wipperman downgraded the company's bonds to "In-Line" from "Trading Buy" previously, opining that while a debt exchange involving the Nextel bonds is still possible, "upside is quite limited at today's prices." They noted that when they last issued a report on Sprint earlier this year, touting the notion that Sprint might consider entering into a debt exchange that would let investors, primarily the legacy Nextel bondholders, swap into a new subsidiary guaranteed bond in exchange for existing bonds at a discounted rate, the company's bonds were trading in the mid-30 to high-40 range.

"However, over the past six weeks, the Nextel bonds have traded up nearly 20 points, and are now quoted in the high-$60s/mid-$70s range, which we believe reflect fair value," leading them to downgrade the bonds on a valuation basis.

Six Flags flying on debt plan

Back on the upside, a trader saw Six Flags' 9 5/8% notes due 2014 trade at 17½ bid, well up from the 10½ round-lot level last seen on April 6, in the wake of the company's offer, announced after the market close on Friday, to give bondholders equity for their debt. However, he noted that it was just one $250,000 trade, and said that no other straight junk bonds were trading. He did quote Six Flags' 4½% convertible notes due 2015 at 15 bid, well up from a round-lot level of 10½ last Wednesday, with $14 million of the converts traded.

Another trader said that the New York-based theme park company's 12¼% exchange notes due 2016 were at "at least 65 bid," which he called "up a good couple of points, maybe even up 10 points over the last couple of days. They've been gradually moving up in here."

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