GenCorp, Gibraltar, Zachry deals cap $7.7 billion week; new bonds move up; market firm

By Paul Deckelman and Paul A. Harris

New York, Jan. 18 - The high-yield primary market closed out another active week on Friday, pricing a trio of dollar deals totaling $920 million.

Defense contractor GenCorp Inc. had the biggest deal of the day, a $460 million offering of eight-year secured notes. The bonds moved up solidly when they hit the aftermarket.

Engineering services provider Zachry Holdings, Inc. brought $250 million of seven-year notes to market. Those bonds also moved up when freed for secondary dealings.

Building products manufacturer Gibraltar Industries, Inc. did a $210 million issue of eight-year subordinated notes. These bonds were also up by several points on the break.

The three new deals capped off a week that saw $7.7 billion of new dollar-denominated, fully junk-rated paper from domestic or developed-country issuers price in 19 tranches, according to data compiled by Prospect News. That was up a little from last week's $7.2 billion in 14 tranches. Year-to-date issuance of $18.5 billion is running some 77% ahead of its pace at this time last year.

Apart from the new deals that priced, traders said that other deals that came to market earlier in the week were holding their own, including both the dollar- and the euro-denominated tranches of the big multi-part offerings from Ardagh Packaging Finance plc and DuPont Performance Coatings.

Statistical measures of market performance were mostly better on the day, and versus week-ago levels as well.

GenCorp sells secured deal

In Friday's dollar-denominated market, three issuers priced single-tranche deals, raising a combined total of $920 million.

All three deals priced at the tight end of price talk.

"That's a theme," a high-yield portfolio manager commented just before the Friday close." Everything is pricing about 3/8 rich, or more, to what the market expected when the deal was launched.

"And everything is trading up 3 points in the secondary."

A case in point was GenCorp, which priced a $460 million issue of second-priority senior secured notes due March 15, 2021 (Ba3/B-) at par to yield 7 1/8% on Friday.

The yield printed at the tight end of yield talk that had been set in the 7¼% area.

It was a bridged deal, and allocations could possibly have been worse, according to a fund manager who considered an offer of 104, prior to going home, but stayed his hand, not especially liking the bond's yield at that price.

Morgan Stanley, Citigroup and Wells Fargo were the joint bookrunners for GenCorp's acquisition deal.

Zachry's seven-year notes

Zachry Holdings priced a $250 million issue of seven-year senior notes (B2/B+) at par to yield 7 ½%.

The yield printed at the tight end of the 7½% to 7¾% yield talk.

J.P. Morgan, Bank of America Merrill Lynch and Wells Fargo were the joint bookrunners for the acquisition financing.

Gibraltar prices at tight end

Gibraltar Industries priced a $210 million issue of eight-year senior subordinated notes (B2/BB-) at par to yield 6¼%.

The yield printed at the tight end of the revised 6¼% to 63/8% yield talk; earlier talk was in the 6½% area.

Gibraltar represents a textbook case of what's presently going on in the high-yield market, a fund manager said.

When it hit the market, yield discussions were taking place in the context 6½% to 6¾%, the source recounted.

"But they clamped down, and the deal came at 6¼%, and is up more than 3 points," the buy-sider say, spotting the paper at 103 7/8 bid just before Friday's close.

"That tells you that there is an awful lot of cash chasing this stuff," the manager said, and added that pension funds and insurance funds appear to be increasing their high-yield bond baskets.

"Even a small percentage increase from an insurance fund ultimately represents a huge additional amount of cash in the market," the investor asserted.

J.P. Morgan and KeyBanc were the joint bookrunners for Gibraltar.

Proceeds will be used to repurchase all of the company's outstanding 8% senior subordinated notes due 2015.

Southern Pacific atop talk

In the Canadian market, Southern Pacific Resource Corp. priced C$260 million of five-year senior secured second-lien notes (/B+/DBRS: B) at par to yield 8¾%, on top of price talk.

The offering initially was sized at C$300 million and talked to yield 8½% on Thursday following a roadshow that began on Monday.

TD, RBC, Credit Suisse and BMO led the deal.

Cerba prices €365 million

In the European market, France's Cerba European Lab SAS priced a €365 million issue of seven-year senior secured notes (B2/B+/BB-) at par to yield 7%.

The yield printed at the tight end of the 7% to 7¼% yield talk.

Global coordinator and joint bookrunner Goldman Sachs will bill and deliver. JPMorgan was also a global coordinator and joint bookrunner. In addition, Credit Agricole and Natixis were joint bookrunners.

The clinical pathology laboratories operator plans to use the proceeds to refinance debt and for general corporate purposes.

Odigeo starts roadshow Monday

Although the bond market in the United States will be closed on Monday as the nation commemorates Dr. Martin Luther King, Jr., the European markets will be open.

Spain-based online travel services provider Odigeo plans to start a roadshow on Monday to shop its €325 million offering of five-year senior secured notes (expected ratings B3/B).

The deal is expected to price in the middle or late part of the Jan. 21 week.

Joint bookrunner Credit Suisse will bill and deliver. Goldman Sachs, Lloyds TSB, SG CIB and UBS are also joint bookrunners.

Proceeds will be used to refinance debt.

The week ahead figures to be a highly active one in both Europe and the United States, sources said on Friday.

Look for the dealers to hit the ground running on Tuesday, syndicate sources in the United States advised.

One syndicate official professed visibility on sizable offerings from the health care and energy sectors.

Bank of America Merrill Lynch is expected to march a considerable amount of business into the market during the Jan. 21 week, sources said on Friday.

As always, issuer names were not easy to come by.

However watch for Avis Budget Group Inc. to show up with bonds to help finance the acquisition of Zipcar Inc. in a transaction valued at approximately $500 million, a sellside source said.

Day's new issues jump

When the new issues that priced on Friday were freed for secondary market activity, traders said that all three pushed up by multiple points on the break.

Traders at two separate shops said that GenCorp's 7 1/8% second-priority senior secured notes due 2021 jumped to 103¼ bid, 103 5/8 offered, versus the par level where the Sacramento, Calif.-based aerospace and defense contractor had priced its deal.

Gibraltar Industries' 6¼% senior subordinated notes due 2021 also zoomed above the 103 bid mark on the break, finishing at 103½ bid, 104 offered versus their par issue price.

A second trader saw the Buffalo, N.Y.-based building products company's new deal going home at 103¾ bid, 104¼ offered.

San Antonio, Texas-based engineering services concern Zachry Holdings' 7½% notes due 2020 meantime firmed to 102½ bid, 102¾ offered, a trader said. That was well up from the par level at which the issue priced.

Recent deals hold levels

Away from the day's new issues, traders saw that the deals which had priced earlier in the week and which had then mostly firmed - some by several points - were little changed from those higher levels on Friday. Volume was restrained, with some market participants making an early exit ahead of the three-day Martin Luther King Day holiday weekend.

A trader saw both tranches of new paper associated with Georgia Gulf Corp. at 102 1/8 bid, 102 5/8 offered.

A second pegged those bonds at 102¼ bid, 102¾ offered, unchanged from where he had seen them going out late Thursday.

Georgia Gulf, an Atlanta-based chemicals company, priced a quick-to-market $450 million issue of 4 7/8% notes due 2023 at par on Thursday, and the new bonds were seen up at least 2 points in initial aftermarket dealings.

At the same time, Eagle Spinco - a specialty vehicle for financing Georgia Gulf's acquisition of PPG Industries' commodity chemicals operation - priced $688 million of 4 5/8% notes due 2021 at par as a scheduled forward calendar issue. These bonds too had been seen up a deuce on the break late Thursday and remained there on Friday as well.

SunCoke Energy Partners, LP's 7 3/8% notes due 2020, were quoted by a trader on Friday at 104¼ bid, 105¼ offered, although he said that there was not much trading in the credit because, at $150 million, it was "teeny - pretty small" by usual Junkbondland standards.

The quotes were well up from the 102 bid, 103 offered levels seen on Thursday after the Lisle, Ill.-based producer of metallurgical coke and its SunCoke Energy Partners Finance Corp. subsidiary had priced their deal at par off the forward calendar.

Clearwater Paper Corp.'s 4½% notes due 2023 were going out at 99¾ bid, 100¾ offered on Friday, a trader said -- one of the few issues this week which seemed to be underperforming in the aftermarket, although he couldn't say why.

The Spokane, Wash.-based paper manufacturer had priced its quick-to-market $275 million offering on Thursday at par; the new bonds firmed slightly to 100½ bid, 101 offered by the day's end, but came off those levels in Friday's dealings.

Ardagh Packaging Finance plc's 7% senior unsecured notes due 2020 were seen by a trader Friday at 101½ bid, 102 offered.

That was down a little from the levels around 102 1/8 bid, 102 5/8 offered at which the bonds had been traded on Wednesday and again on Thursday, although another trader said that they were still hanging in around that neighborhood.

The first trader meantime saw no activity on Friday in the company's 4 7/8% senior secured notes due 2022; the second trader had them little changed from the 101½ bid, 102 offered level where they had traded after pricing on Wednesday.

Ardagh, a Dublin, Ireland-based producer of glass and metal containers, had priced $850 million of the 7% notes, upsized from $700 million originally, and $420 million of the 4 7/8% notes on Wednesday, with both tranches coming to market at par.

That deal, co-issued by Ardagh Holdings USA Inc. also included a €250 million 5% tranche of senior secured notes due 2022. A market source saw those bonds at 101 bid, 101½ offered on Friday.

The same source also saw some activity in a euro-denominated tranche of bonds issued this week by DuPont Performance Coatings. That €250 million issue of 5¾% senior secured notes due 2021 had moved up to 101 bid, 102 offered from their par pricing level, the source said, adding that "the market [for euro-denominated paper] is just opening up after the new year. I anticipate activity would be creeping up."

The Wilmington, Del.-based supplier of vehicle and industrial coating systems sold those euro notes on Wednesday along with a U.S. dollar-denominated tranche.

The company's $750 million of 7 3/8% senior unsecured notes due 2021 priced at par on Wednesday, jumped to around the 103 bid level in initial aftermarket dealings. They were still above 103 bid on Thursday and on Friday. A trader said they were at 103½ bid, 104 offered. A second trader had them at 103½ bid, 103¾ offered. The DuPont Performance dollar and euro notes were being sold by Flash Dutch 2 BV and U.S. Coatings Acquisition Inc. as part of the financing for Carlyle Group's acquisition of DuPont Performance Coatings from chemicals giant E.I. DuPont.

'Vibrant' market

Although Friday's volume was quiet, a trader said that the overall market was pretty vibrant, certainly solid.

He said "the whole market was pretty firm." He said the only place where he saw any softness - and he even attributed that to profit-taking off recent gains - was among the metal credits. For instance, he saw AK Steel Corp.'s debt "probably a point, maybe 1½ points off its high." The West Chester, Ohio-based specialty steelmaker's 7 5/8% notes due 2020 finished at around 92, versus prior levels in the mid-93 area.

"Still, they didn't get crushed, or anything."

For the week as a whole, he said that "the only place where there was real action" was Ameren - Ameren Energy Generating - whose bonds "got destroyed" on Wednesday on bad investor reaction to the St. Louis-based power generating company's decision to get out of the merchant energy business.

The company's bonds fell about 20 points, although he said that they had recovered perhaps 13 of those points by the end of the week. Even so, he said, it was "a remainder that the market can be quite treacherous on the downside, given the lack of liquidity."

The company's 7.95% bonds due 2032 were up 6 points on Friday, ending at the 65 bid mark.

Market measures mostly better

Statistical junk market performance indicators were generally better for a third straight session on Friday, and rose on a week-to-week basis as well.

The Markit Series 19 CDX North American High Yield index gained 1/8 point on the day Friday to end at 102 17/32 bid, 102 23/32 offered, after gaining ¼ point on Thursday.

It was up from the 102¼ bid, 102½ offered at which it ended the previous Friday, Jan, 11.

The KDP High Yield Daily Index rose by 4 basis points on Friday to 75.90, after having been unchanged on Thursday. Its yield came in by 2 bps to 5.46% after having been steady on Thursday.

Those levels roughly compare with a week-earlier index reading of 75.91% and a yield of 5.49%.

The widely followed Merrill Lynch U.S. High Yield Master II Index was up for a third straight session on Friday, gaining 0.086% on the session, following Thursday's 0.123% advance.

That gain lifted its year-to-date return to 1.54% on Friday from 1.453% on Thursday. Friday's reading was a new peak level for the year so far, eclipsing the old mark, which had been set on Thursday.

The index showed a one-week gain of 0.228%, its ninth consecutive weekly gain. The week before, ended Jan. 11, it had risen 0.6% on the week to end with a 1.309% year-to-date return.

Cristal Cody contributed to this review

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