Primary stays strong as Perstorp sells $1.1 billion; Sprint down; Cengage pummeled on earnings

By Stephanie N. Rotondo

Phoenix, Nov. 9 - New and recent deals remained the focus of the high-yield bond market Friday as three issuers price a combined four tranches of dollar-denominated notes, raising an overall total of $1.24 billion, though a trader noted that "a lot of the market was definitely softer."

Sprint Nextel Corp.'s new 6% notes due 2022 - a $2.28 billion issue that priced Thursday -dominated trading, according to sources. The issue fell to "just below issue price," one trader said, but managed to come back to levels near par.

Meanwhile, Cengage Learning Acquisitions Inc. was the day's "big loser," a trader said, after the company reported "ugly" numbers.

Also on the downside were J.C. Penney Co. Inc.'s bonds. Like Cengage, the retailer also posted "pretty awful numbers."

And, Exide Technologies Inc. followed the trend, declining "a bunch of points" after the company announced it would idle its lead recycling operations in Pennsylvania.

Perstorp's dual-currency deal

Perstorp Holding AB led primary activity on Friday with a $1.09 billion equivalent note transaction in dollars and euros.

Goldman Sachs and J.P. Morgan were the joint bookrunners for the debt refinancing deal.

The offering included an upsized $720 million equivalent amount of senior secured first lien notes due May 15, 2017 (B2/B) in two tranches.

A $380 million tranche of first lien notes priced at par to yield 8¾%, at the wide end of the 8½% to 8¾% yield talk.

A €270 million tranche of first lien notes priced at par to yield 9%, on top of yield talk which had the euro-denominated notes pricing 25 basis points behind the dollar-denominated notes.

The combined amount of the first lien notes tranches was increased from $660 million equivalent.

In addition Perstorp priced a $370 million tranche of 11% second-lien notes due Aug. 15, 2017 (Caa2/CCC) at 96.496 to yield 12%. The yield printed 100 basis points beyond the wide end of the 10¾% to 11% yield talk.

The second lien tranche was upsized from $350 million, partially restoring an earlier downsizing from $430 million.

In all, $60 million of proceeds was ultimately shifted to the first lien tranches from the second lien tranche.

FTI prices at wide end

Friday's executions may have betrayed a whiff of investor pushback, one market source observed, noting that three of the four dollar-denominated tranches saw yields print either at the wide end of yield talk, or, in the case of the Perstorp second lien notes, significantly wide of talk.

Likewise with FTI Consulting, Inc., which priced a $300 million issue of 10-year senior notes (Ba2/BB) at par to yield 6%, at the wide end of the 5 7/8% to 6% yield talk.

J.P. Morgan, Merrill Lynch, Goldman Sachs and HSBC were the joint bookrunners for the quick-to-market deal.

The West Palm Beach, Fla.-based provider of business advisory services plans to use the proceeds to take out its notes due 2016 via a tender offer and/or redemption, to pay down its revolver and for general corporate purposes, which could include working capital, share repurchases, capital expenditures, acquisitions, refinancing other debt or capital transactions.

Deluxe prices at talk

In another drive-by deal, Deluxe Corp. priced a $200 million issue of eight-year senior notes (Ba2/BB-) at par to yield 6%, on top of yield talk.

J.P. Morgan, Credit Suisse and Mitsubishi UFJ were the joint bookrunners for the debt refinancing.

$13 billion week

With Friday's deals in the books, Election Week saw high yield issuers raise a total of $13.0 billion with 23 junk-rated, dollar-denominated tranches.

Hence, by the time the three-day Veterans Day holiday weekend rolled around the high yield primary certainly appeared to have regained its pre-hurricane legs (the previous week, punctuated by the disastrous storm that hit the East Coast of the United States, saw just $5.8 billion in 12 tranches).

With Friday's business in the tally, year-to-date issuance came to a phenomenal $291.7 billion, leaving the previous record amount of yearly issuance, 2010's $252.8 billion, deeper and deeper in the dust.

Athabasca prices C$550 million

In addition to Friday's dollar- and euro-denominated business, Athabasca Oil Corp. sold C$550 million of five-year senior secured second lien notes (/B/DBRS: B) at par to yield 7½%, compared to guidance in the low 7% area, an informed source said.

The deal was upsized from the morning's launch of C$450 million, a source close to the sale said.

The offering initially was estimated at up to C$600 million.

TD Securities Inc. and GMP Capital Inc. were the lead managers.

Word in the market was that there were 50 accounts in the book for Athabasca's deal. About 75% of those accounts were Canadian, and allocations were said to be high.

Epicor for Tuesday

At least one deal that was expected to price on Friday was moved into the post-Veterans Day week, a buyside source said.

Eagle Midco, Inc., a holding company of Epicor Software, had been expected to price its $340 million offering of five-year senior discount notes before Friday's close, market sources said.

Merrill Lynch and RBC are the joint bookrunners.

The Friday session also brought news of a pulled deal.

Australia's BlueScope Steel Ltd. postponed its $300 million offering of six-year senior notes (B1/BB-) due to market conditions.

Legacy plans eight-year deal

The four-session post-Veterans Day week gets underway with a $3.3 billion active forward calendar.

There were deal announcements on Friday.

Legacy Reserves LP and Legacy Reserves Finance Corp. plan to price a $300 million offering of eight-year senior notes late in the week.

Merrill Lynch and RBC are the joint global coordinators for the acquisition deal. UBS and Wells Fargo are the joint bookrunners.

Ainsworth lines up secureds

Finally, Ainsworth Lumber Co. Ltd. plans to market a $350 million offering of five-year senior secured notes on a roadshow set to take place during the week ahead.

An investor call is scheduled for Tuesday.

The roadshow wraps up on Thursday, and the deal is set to price after that.

Merrill Lynch is the bookrunner for the debt refinancing.

Market closes weak

As the week came to a close, market indexes finished decidedly weaker.

The KDP High Yield Index fell to 74.1 from 74.18, as yields pushed out to 6.16% from 6.11%. The CDX North American Series 19 High Yield Index slipped ¼ point to 97¾ bid, 97 7/8 offered.

Sprint on the soft side

A trader said that Sprint Nextel's new 6% notes due 2022 were the day's most actively traded securities, with $90-plus million changing hands.

The trader said the debt was trading "just below issue price," at 99¾ bid, 99 7/8 offered.

Another trader said the paper got as low as 99 1/8 bid, 99¼ offered, but then rallied.

"It was back trading closer to par at the end of the day," the trader said.

Yet another trader called the bonds up ¼ point at 99 7/8. He added that "almost" $100 million bonds turned over.

The Overland Park, Kan.-based telecommunications provider's older debt was also weaker.

A trader said the 6.9% notes due 2019 were down over a point at 1071/2. That compared to previous levels around 109.

Another trader quoted the notes at 107½ bid, 108 offered, down "a point-ish."

Cengage gets massive beatdown

Cengage Learning's debt experienced heavy losses in the secondary market on Friday on the back of fiscal first quarters results being announced that showed a year-over-year decline in earnings, revenues and adjusted EBITDA, according to a trader.

One trader said the bonds "got slaughtered," the 11½% notes due 2020 falling to the mid to high 80s from levels around 104 previously. The 12% notes due 2019 meantime dropped from the mid 80s to the mid 50s.

At another desk, a trader said the debt was "all over the place."

The 11½% notes, he said, spent most of the day trading around 89. However, there was a late-day offer at 86, he noted.

He also saw the 12% notes offered at 54, versus bids around 90 a couple day's prior.

"How do you like that?" he said. "That's a rough one."

And, the 10½% notes due 2015 were offered at 39, down from previous trades around 80.

"So they're off a lot," the trader commented.

For the first quarter of fiscal 2013, Cengage reported net income of $13.2 million, compared to net income of $131.5 million in the prior year.

Revenues for the quarter were $538.3 million, down 22.2% from $691.9 million in the first quarter of fiscal 2012.

And, adjusted EBITDA for the quarter was $233.1 million, down 33.2% from $348.8 million in the previous year.

Cengage is a Stamford, Conn.-based provider of teaching, learning and research services for the academic, professional and library markets.

J.C. Penney retreats

J.C. Penney also put out dismal earnings on Friday, which put pressure on its bonds.

A trader said the 5.65% notes due 2020 were "fairly active" and down "a couple points," trading in a 90 to 90½ Zip code.

"I would have thought we'd see more J.C. Penney," another trader said. He called the 7.95% notes due 2017 down 1½ to 2 points at 1013/4, the 5.65% notes a point weaker at 90, the 7.4% notes due 2037 down 3½ points at 90 and the 7 1/8% notes due 2023 down 1½ points at 97.

The report out Friday showed the company's worst decline in same-store sales since the retailer began its new shopping platform - a move away from coupons and sales events.

Same-store sales were down 26.1% in the third quarter. Analysts had expected a decline of 17.9%.

Total sales were down 26.6% at $2.93 billion.

Still, the net loss narrowed to $123 million, or 56 cents per share, from $143 million, or 67 cents per share.

Gross margin was 32.5%, versus 37.4% the year before.

"The ever-ebullient and optimistic management points to increased sale productivity in the new shops as a sign that its new strategy will pay off in the long run," wrote Gimme Credit LLC analyst Carol Levenson in an afternoon report. "But in our view it's the new pricing strategy that is dragging [J.C.] Penney down further and further every quarter it remains in place, not the way the stores are arranged."

Exide to idle plant

Exide Technologies' 8 5/8% notes due 2018 were weaker after the battery maker announced its intent to idle its lead recycling operations at its Reading, Pa.-based facility no later than March 31, 2013.

A trader pegged the issue at 78 bid, 79 offered, down from 82 previously.

Another trader placed the notes at 801/2, down from 81½ bid, 82 offered.

The decision to idle the plant was due in part to "the high capital investment needed, due to regulatory requirements, to remain operational in Reading," Paul Hirt, president, said in a statement. Hirt further noted that its internal lead demands" would be met by its other three recycling centers.

About 150 jobs will be impacted by the decision.

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