United Surgical, upsized IDQ price; Surgical surges; Nord Anglia on tap; Hercules slates deal

By Paul Deckelman and Paul A. Harris

New York, March 20 - Tuesday's high-yield primary market was twice as busy as Monday's, syndicate sources said, both in terms of the amount of new dollar-denominated, junk-rated paper that priced and the total amount. The activity level, however, was still well below what it had been a week ago, when over $1 billion of new bonds priced.

United Surgical Partners International, Inc., an operator of stand-alone surgical facilities, came in with a $440 million offering of eight-year notes. After that deal was freed for secondary activity, traders saw the new bonds firm smartly in the aftermarket.

IDQ Holdings, Inc., a maker of automotive air conditioning maintenance and repair products, came to market with a slightly upsized $220 million issue of five-year senior secured notes. There was no aftermarket action seen in the new credit.

The two deals, totaling $660 million, represented something of a pickup from Monday, when just one deal priced - AK Steel Corp.'s upsized $300 million offering of 10-year notes. Trader saw the steel alloy producer's new issue struggling in the secondary.

Two major carmakers were seen by the junk sources to have tapped the non-dollar segment of the market for financing. Italy's Fiat SpA brought in €850 million of five-year paper, while terms emerged on Ford Motor Co.'s RMB 1 billion, or $158 million-equivalent, offering of three-year notes - the No. 2 U.S. auto company's first such Chinese currency transaction.

Away from the deals that actually priced, talk emerged on British educational services provider Nord Anglia Education UK Holdings plc's $325 million five-year secured issue, which could come to market on Wednesday.

The forward calendar grew as seaborne oil-rig contractor Hercules Offshore Inc. unveiled plans for a $300 million secured offering of five-year notes. British consumer debt services provider Lowell Group began shopping a sterling-denominated tranche of seven-year secured notes around.

Secondary activity away from the new deals remained subdued. Statistical indicators of market performance were modestly lower across the board.

United Surgical at tight end

United Surgical priced a $440 million issue of eight-year senior notes (Caa1/CCC+/) at par to yield 9% on Tuesday, according to a syndicate source.

The yield printed at the tight end of the 9% to 9¼% yield talk.

Barclays Capital Inc. was the left bookrunner. J.P. Morgan Securities LC, Goldman Sachs & Co. and Morgan Stanley & Co. LLC were the joint bookrunners.

Proceeds, along with proceeds from a new credit facility, will be used to refinance existing debt and fund a special dividend to equity holders.

IDQ on top of talk

IDQ Holdings priced an upsized $220 million issue of 11½% five-year senior secured notes (B3/B) at 98 to yield 12.042%.

The deal priced in line with price talk, which set forth a yield in the 12% area factoring in an original issue discount of two points.

Jefferies & Co. Inc. ran the books for the deal which was upsized from $210 million.

Proceeds will be used to refinance debt and to fund a distribution to shareholders.

Fiat prices €850 million

There was more drive-by activity in the European primary market on Tuesday as Fiat priced an €850 million issue of five-year notes (Ba3/BB/BB) at par to yield 7%.

The yield printed on top of the price talk.

Banca IMI, Barclays Capital, Credit Agricole CIB, Commerzbank, Goldman Sachs International, Natixis and Unicredit were the bookrunners.

Barclays will bill and deliver.

The deal played to €2.4 billion of demand in an order book that contained approximately 400 accounts, an informed source said.

Lowell brings £200 million

England's Lowell expects to price a £200 million offering of seven-year senior secured notes (B1/BB) before the end of the present week.

JPMorgan and Lloyds TSB are the bookrunners.

The Leeds, West Yorkshire, England-based provider of consumer debt services plans to use the proceeds to repay bank debt and a shareholder loan.

From elsewhere in England, Nord Anglia Education talked its $325 million offering of five-year senior secured notes (B2/B/) to yield 10¼% to 10½%.

The deal is set to price on Wednesday via Barclays and Goldman Sachs.

Hercules two-parter

Hercules Offshore plans to price a $500 million two-part notes offer on March 30.

The deal features a $300 million tranche of five-year senior secured notes, which come with two years of call protection, and a $200 million tranche of seven-year senior unsecured notes, which come with three years of call protection.

Deutsche Bank Securities Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. and UBS Investment Bank are leading the Rule 144A and Regulation S offer.

Proceeds will be used to repay all of the debt outstanding under the company's existing secured term loan.

As a result of the repayment of the term loan, the company's outstanding 10½% senior secured notes will become unsecured, according to a company press release.

Remaining net proceeds from the pending sale of notes will be used for general corporate purposes, including the funding of a portion of the acquisition of the drilling rig Ocean Columbia as well as the costs associated with its repair, upgrade and mobilization.

United Surgical seen surging

When United Surgical Partners' new eight-year notes were freed for trading, a market source quoted them at 101½ bid, up from the par issue price at which the company's $440 million issue had priced earlier in the session.

He later saw those bonds improve to 101¾ bid, 102¾ offered.

At another shop, a trader saw that forward calendar deal get even better, pegging the bonds at 102 bid, 102½ offered.

"Nice move!" he exclaimed. "It's the first deal that's done worth a damn in a while. The [other] deals haven't been doing too well."

IDQ unseen in aftermarket

Several traders said that they saw no sign of automotive air-conditioning products maker IDQ's new five-year secured notes, which priced at 98 bid after the quickly shopped issue was upsized to $220 million.

AK Steel struggles

Monday's quick-to-market $300 million offering of 8 3/8% notes due 2022 from familiar Junkbondland issuer AK Steel was seen trading below the par price at which the West Chester, Ohio-based metals company had brought its deal to market, upsized from the originally announced $250 million.

One trader quoted the bonds at 99 bid, par offered, while a second saw them at 99 1/8 bid, 99 5/8 offered.

"Yuck," he said. "They didn't do so good."

A market source saw AK's existing 7 5/8% notes due 2020 also under pressure, quoting them down three-quarters of a point on the day at 97¾ bid. At one point earlier, they had been seen as high at a 99-handle, before coming down.

Over $6 million of the notes changed hands.

A vote of confidence in AK

While investors seemed to have been underwhelmed by AK Steel's new deal judging from the aftermarket performance of both the new issue and the existing bonds - the latter had also been down by about a half-point on Monday after the new deal was announced and price - not everyone seemed to share that negative view.

In a research note released on Tuesday, independent advisory service Gimme Credit noted the company's plans to use the proceeds from the bond deal to repay its revolving credit facility borrowings, and opined: "Taking advantage of favorable high-yield market conditions to reload its revolver and boost liquidity makes sense to us in light [of] uncertainty regarding demand and pricing over the next few quarters."

Senior analyst Evan Mann said, "Despite margin pressure in the near term, we look for improved operating performance and credit ratios over the intermediate term."

He also noted the steelmaker's "adequate" liquidity and lack of any near-maturing debt.

Recent deals trade around

Some of the recent new deals for well-known junk market names were seen trading around on Tuesday.

For instance, a market source saw MGM Resorts International's new 7¾% notes due 2022 trading around 100 3/8 bid, perhaps a touch higher than where those bonds had traded on Friday and again on Monday, on very active mid-afternoon volume of more than $15 million.

The Las Vegas-based casino giant's $1 billion drive-by offering - upsized from an originally announced $750 million - priced at par late Thursday.

International Lease Finance Corp.'s 5 7/8% notes due 2019 were seen trading at 98½ bid, while its 4 7/8% notes due 2015 were seen at 99 7/8 bid, both on volume of over $6 million per tranche.

The Los Angeles-based aircraft leasing division of insurance giant AIG priced $750 million of quickly shopped 4 7/8% notes at 99.65 to yield 5% on March 14, along with $750 million of 5 7/8% notes at 99.28 to yield 6%.

United States Steel Corp.'s 7½% notes due 2022 were trading at 100 3/8 bid Tuesday, with over $9 million of the Pittsburgh-based integrated steel giant's new paper changing hands at mid-afternoon.

U.S. Steel priced $400 million of the bonds at par in a quick-to-market deal on March 12.

Sprint seen active

Away from the new-deal arena - where the bulk of the day's secondary activity took place - a trader said that Sprint Nextel Corp.'s bonds "saw some activity," with about $25 million of the Overland Park, Kan.-based No. 3 U.S. wireless operator's 7 3/8% notes due 2015 having traded.

He saw the bonds hanging around a bid range of 97 to 98 most of the day, with most of the trades happening at the high end of that spectrum, calling the closing level of 98 bid unchanged on the day.

It was down versus a couple of days ago, when they were at 98½ to 99, but on "decent volume."

ATP is off

The trader also saw "some activity" in ATP Oil & Gas Corp.'s 11 7/8% second-lien notes due 2015, estimating that more than $16 million of the Houston-based offshore energy exploration and production operator's bonds had changed hands.

He saw the bonds trading in a 741/2-to-75½ bid range, before finishing at 75, calling that down 1 point on the day.

Ford falters

A trader saw Ford Motor Co.'s benchmark 7.45% bonds due 2031 down 2 points on the session, seeing them going home at 121 bid, 122 offered.

Over $9 million of the Dearborn, Mich.-based automotive giant's issue traded around.

Affiliate Ford Motor Credit Co.'s 8 1/8% notes due 2020 skidded by nearly 1¾ points on the day to also finish at 121 bid, a market source said.

Market indicators ease off

Statistical measures of junk market performance were seen uniformly lower on Tuesday, deteriorating after three straight mixed sessions before that.

A market source said that the CDX North American Series 17 High Yield index was off by 1/8 point on Tuesday to close at 98¾ bid, 99 offered, after having gained just over a half-point on Monday. It was the first downturn after three straight upside sessions.

The KDP High Yield Daily Index meantime eased for a third straight session on Tuesday, dropping by 7 basis points to end at 74.09, after having lost 3 bps on Monday. Its yield rose by 2 bps, to 6.55%, after having increased by 3 bps on Monday.

The widely followed Merrill Lynch High Yield Master II Index fell back by 0.191% on Tuesday, after having been higher the two previous sessions, including Monday, when it rose by 0.058%.

The loss left the index's year-to-date return at 5.074%, down from Monday's 5.17% reading, and down as well from its peak level for 2012 of 5.361% recorded on March 2.

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