Lyondell, Seagate mega-deals price as primary sees $5 billion; Freescale, Dynegy up on M&A news

By Paul Deckelman and Paul A. Harris

New York, Sept. 15 - Lyondell Chemical Co. , Seagate Technology HDD Holdings (Cayman) and Impress Holdings BV were all heard to have successfully priced billion-dollar-plus junk bond deals on Friday, bringing the week of post-summer vacation trading to a close not with a whimper but with a resounding bang. The Seagate and Impress deals were upsized from originally envisioned levels in response to brisk demand.

Also pricing were somewhat smaller deals from Berry Plastics Corp. and Enterprise Products Partners LP, the latter deal a quickly shopped add-on offering to an existing tranche of bonds.

The Lyondell, Seagate, Impress and Berry deals were all multiple-tranche offerings.

In the secondary market, Freescale Semiconductor Inc.'s bonds and those of Dynegy Inc. were both up on merger and acquisition news - concrete news rather than the M&A rumors and speculation that has been driving bond prices in a number of cases in recent days, including Visteon Corp., Vertis Inc., Starwood Hotels & Resorts Worldwide Inc. - and, earlier in the week, Freescale itself.

Among the automotive names, Dura Automotive Systems Inc.'s bonds continued their week-long decline, which has been linked to bankruptcy speculation and talk that both vendors and potential financiers are leery of the Rochester Hills, Mich.-based auto parts supplier. Meanwhile, Ford Motor Co.'s bonds were seen lower on the session - an apparent sign that debtholders are not impressed with the problem-plagued Number-Two domestic carmaker's latest plans to cut its costs, by reducing its workforce size through buyouts and early-retirement incentives.

In the backwash of the historic issuance seen on Friday, sources marked the broad high-yield market unchanged to slightly softer.

In 11 tranches from seven issuers, Friday saw slightly more than $4.993 billion of dollar-denominated issuance.

However overall the primary market saw 13 tranches price, including two euro pieces from Impress Holdings BV, which also priced one dollar-denominated tranche, for a grand total of approximately $5.921 billion on an exchange-adjusted basis.

Friday's dollar-denominated issuance, at just a hair below $5 billion, tops the $4.25 billion seen last Jan. 26, which was the biggest day in the primary market, according to sources, since May 11, 1999's $4.17 billion.

And all of Friday's issuance took place against a backdrop of phenomenal liquidity in the high yield asset class, according to sources from both the buy-side and the sell-side.

Lyondell atop the talk

The largest amount of issuance came from Lyondell Chemical Co., which priced $1.775 billion of senior unsecured notes (B1/B+) in two tranches.

The Houston-based chemical company priced an $875 million tranche of eight-year notes at par to yield 8%, on top of price talk.

Lyondell also priced a $900 million tranche of 10-year notes at par to yield 8¼%, again on top of price talk.

JP Morgan, Banc of America Securities LLC, Citigroup and Morgan Stanley were joint bookrunners for the debt refinancing, some of it related to an acquisition.

An informed source told Prospect News that the deal went well, and the order book was oversubscribed.

Meanwhile a buy-side source said that Lyondell's par-pricing 8% notes were going out in trading at 100.625 bid, 100.875 offered, while the 8¼% notes, which also priced at par, were going out at 100.75 bid, 101 offered, off the highs to which they initially broke.

Seagate massively upsizes

As mentioned above, Seagate priced a massively upsized $1.50 billion three-part senior unsecured notes (Ba1/BB+/BBB-) transaction, increased from the planned $1.25 billion.

The Scotts Valley, Calif., computer hard disk drive manufacturer priced a $300 million tranche of three-year floating-rate notes at par to yield three-month Libor plus 84 basis points, three basis points under the mid-point of the Libor plus 87 basis points area price talk.

In addition Seagate priced a $600 million tranche of 6 3/8% five-year fixed-rate notes at 99.683 to yield 6.449%.

The five-year notes priced at a 173 basis points spread to Treasuries, two basis points beneath the mid-point of the Treasuries plus 175 basis points area price talk.

The five-year notes sale generated $598.098 million of proceeds.

Seagate also priced a $600 million tranche of 6.8% 10-year fixed-rate notes at 99.702 to yield 6.841%. The 10-year notes came at a 208 basis points spread to Treasuries, 4.5 basis points under the mid-point of the Treasuries plus 212.5 basis points area price talk.

The 10-year notes sale generated $598.212 million of proceeds.

In terms of the face amount the overall transaction was upsized by $250 million from $1.25 million, and generated $1.496 billion of proceeds.

All three tranches were non-callable apart from a Treasuries plus 50 basis points make-whole call.

Morgan Stanley, JP Morgan and Goldman Sachs & Co. were joint bookrunners for the debt refinancing and general corporate purposes deal.

All three tranches were "highly oversubscribed," according to a source familiar with the deal.

Berry Plastics tight to talk

Berry Plastics Holdings Corp. sold $750 million of eight-year second priority senior secured notes (B2/CCC+) in two tranches.

The Evansville, Ind., plastic packaging products manufacturer priced a $225 million tranche of floating-rate notes at par to yield three-month Libor plus 387.5 basis points, on the tight end of the Libor plus 400 basis points area price talk.

Berry Plastics also priced a $525 million tranche of fixed-rate notes at par to yield 8 7/8%, again on the tight end of price talk, which was for a yield in the 9% area.

Deutsche Bank Securities, Credit Suisse, Citigroup and JP Morgan were joint bookrunners for the acquisition deal.

Agile upsizes

Hong Kong's Agile Property Holdings Ltd. priced an upsized $400 million issue of seven-year senior notes (Ba3/BB) at par to yield 9%.

That print came at the tight end of the 9% to 9 1/8% price talk, which had been inwardly revised from 9¼% area. The deal was increased from $350 million.

Morgan Stanley and HSBC were joint bookrunners for the acquisition and general corporate purposes deal.

Enterprise returns again

Finally, a little over a month after it tapped the market with a $200 million add-on deal, Enterprise Products Partners LP re-opened the same issue, pricing a $50 million add-on to its 8 3/8% 60-year fixed- to floating-rate junior subordinated notes (existing ratings Ba2/B+/BB+) at 104.154 to yield 7.761%, according to a press release issued by the company on Friday.

Lehman Brothers ran the books.

The original $300 million issue priced at par on July 13, 2006. The above-mentioned $200 million add-on priced at 103.104 to 7.915% on Aug. 22, 2006. The total face amount of the outstanding issue following the transaction disclosed in Friday's announcement is $550 million.

Enterprise Products is a Houston-based provider of processing, transportation and storage services to the natural gas, natural gas liquids and crude oil industries.

Impress does €1 billion

In Friday's euro-denominated business, Impress Holdings BV priced approximately €1 billion equivalent of bonds in three tranches, two of which were restructured.

The transaction saw the Deventer, Netherlands-based metal packaging company price tranches of €615 million and an upsized $175 million of seven-year senior secured floating-rate notes (B1/B) at par, with spreads of 312.5 basis points to three-month Euribor and three-month Libor, respectively.

That brought both tranches of secured notes on top of price talk.

The dollar-denominated tranche was upsized from $150 million.

Impress also priced a downsized €250 million issue of eight-year senior subordinated notes (B3/CCC+) at par to yield 9¼%, on the wide end of the 9% to 9¼% price talk.

The subordinated notes tranche was reduced from €275 million.

JP Morgan ran the books for the debt refinancing, some of related to an acquisition.

Friday's total also includes a $345 million Rule 144A and Regulation S deal from Kazakhstan's Alliance Bank, which, like the above-mentioned Agile Property deal, was marketed extensively to U.S. accounts.

Tons of liquidity

A high yield investor who agreed to speak on background said that Friday's issuance took place against a backdrop of "tons and tons of liquidity."

As evidnece, the investor said, not many of the new bonds issued on Friday appeared to be "flipped" back into the market for sale.

Sell-side sources also told Prospect News that this appeared to be the case.

The investor also remarked that Friday's historic primary market session took place against the backdrop of bad news on the automotive front, which represents a huge slice of the overall asset class since Ford Motor Co. and General Motors Corp. lost their investment-grade credit ratings during the first half of 2005 (the automobile manufacturing related sub-sector represents a whopping 14.66% of the Bear Stearns High Yield Index composite).

The news, of course, is that Ford is restructuring, cutting back its operations amid losses possibly totaling $9 billion for 2006.

According to the high yield investor, the news from Ford, although it did impact Ford's bonds, did not roll over into any other part of the high yield market.

"Everything else looked pretty good, but pretty quiet," the investor said.

"Heretofore any time you had news on the autos, either good or bad, it would carry over and set the tone for the rest of the market.

"That makes this unique," the investor said. "It's the first time I can think of that happening."

A $5.2 billion week

Tallying Friday's $4.993 billion, the week of Sept. 11 saw a total of just over $5.2 billion price in an even dozen dollar-denominated tranches. The week's only other deal, in fact, was the Ventas Realty, LP and Ventas Capital Corp. $225 million issue of 6¾% notes due 2017, which priced on Tuesday.

With Friday's total, year-to-date issuance stands at just under $90.7 billion in 261 dollar-denominated tranches.

That puts 2006 total issuance 21% ahead of 2005 on a year-over-year basis. At the Sept. 15, 2005 close the market had seen slightly more than $72 billion in 281 tranches.

Clears the decks

In the wake of Big Friday, the high yield forward calendar contains only $600 million of deals in the market from more or less off-the-run names.

However that situation is absolutely bound to change, sources say.

The liquidity of the high yield asset class is by no means a secret, and there remains a formidable backlog of deals - many of them large LBO financings - that will come in to meet investors' demand for junk bonds.

"It will certainly come because there is huge demand out there," said the investor who spoke to Prospect News on Friday.

"And the first quarter of 2007 should be pretty big as well.

"Absent fundamental bad news the market really isn't going to trade down just because of all of this supply."

New Berry, Lyondell bonds firm

When the new Berry Plastics bonds were freed for secondary dealings, a trader saw the company's 8 7/8% notes due 2014 jump to 101.25 bid, 102 offered "right out of the gate - but then they went down from those opening levels," he said, to finish at 100.5 bid, 100.75 offered. He saw the company's new floating-rate notes, also due 2014, at 100.5 bid, 101 offered, both up from their respective par issue prices.

Another trader saw both tranches of the Berry bonds at 100.25 bid, 100.75 offered. And still a third trader saw the 8 7/8s at 100.5 bid, 101 offered, and the floaters at 100.75 bid, 101.5

That trader also saw Seagate Technology's floating-rate notes due 2009 at 99.5 bid, par offered, and its 6 3/8% notes due 2011 at 99.25 bid, 99.75 offered. The two issues of bonds had priced at par and at 99.683, respectively.

And a trader saw Lyondell's new 8% notes due 2014 at 100.75 bid, 101 offered and its new 8¼% notes due 2016 at 101.25 bid, 101.5 offered, each up solidly from their par issue price.

A trader saw the new Impress Metals floating-rate notes and its fixed-rate notes each trading at 101.25 bid, up from their par issue price.

Freescale firms on buyout news

Back among the more established issues, traders saw Freescale Semiconductor's bonds at least a point better on the news that the Austin, Tex.-based chipmaker has agreed to be bought out by a private equity consortium for $17.6 billion. The company said in its news release announcing the deal that "it is currently anticipated that substantially all of the company's outstanding notes will either be tendered for or repaid."

That helped push its 7 1/8% notes due 2014 up a point, a trader said, to 106.5 bid, 107.5 offered, while its 6 7/8% notes due 2011 were also a point better, at 104 bid, 105 offered.

Another trader saw the 6 7/8s at 104.5 bid, 105.5 offered, up ¾ on the day, while its 7 1/8s were up ¾ to a full point at 106.5 bid, 107.5 offered.

The gain was a departure from the oft-expressed market adage "buy [on] the rumor, sell [on] the news." Earlier in the week, Freescale's bonds had gotten a boost as reports surfaced that the company was in talks with the consortium that ultimately bought it, which included The Blackstone Group, Texas Pacific Group and The Carlyle Group. A second group, led by Kohlberg Kravis Roberts & Co., had reportedly stepped in at the last minute with a higher offer, just as Freescale was about to agree to the Blackstone/Texas Pacific offer, but nothing ever came of that.

Dynegy up on asset buy

Elsewhere on the M&A front, Dynegy's bonds firmed on the news that the Houston-based independent power producer had agreed to combine its power generating units with those of LS Power Group in a $2 billion-plus deal. Dynegy will pay most of the cost of the acquisition in its own shares, plus $100 million in cash and a $275 million junior subordinated note to be issued to LS Power, a private equity company with power-industry interests (see related story elsewhere in this issue).

Dynegy "moved up today," a trader said, quoting the company's 8 3/8% notes due 2016 up 1½ points at 101.25 bid, 102 offered.

"They were up a bit, definitely," said a trader at another desk, who pegged the 8 3/8s up 2 points on the day at 101.25 bid, 101.75 offered, "sort of as expected."

Yet another market source saw those bonds up 1¾ points, also at 101.25 bid.

Amkor gyrates as SEC probe widens

On the downside, a trader said, "Amkor [Technology Inc.] was active, and opened down," its 7¾% notes due 2013 starting off at 91 bid, 92 offered, which he called down 3 points.

He attributed the retreat in the Chandler, Ariz.-based semiconductor manufacturing services provider's bonds to a "skimpy consent solicitation so far" that the company began on Thursday, seeking bondholder approval for waiving defaults incurred because of its failure to file financial statements with the Securities and Exchange Commission.

And the SEC added to investor angst on Friday by expanding its probe into the company's stock-option practices, the reason for the delayed financial filings.

Amkor last month said that it expects to restate financial statements from fiscal 1998 through the first quarter of 2006, to correct errors related to accounting for stock-based compensation expense.

The regulators requested Amkor provide documents to assist in the investigation; Amkor said it would cooperate.

However, said the trader, the bonds came off their lows later in the day, attributing the rise to news that bondholders would hold a conference Monday, "and that put some momentum back in the bonds," leaving them closing only a little lower on the day, at 93.5 bid, 94.5 offered.

Dura down again

Among the auto names, Dura Operating Corp.'s bonds "went straight down," a trader said, quoting its 8 5/8% senior notes due 2012 at 62.5 bid, 63.5 offered, down from 64 bid, 65 offered on Thursday.

Dura's senior bonds had been sliding for most of the week, as "the Grim Reaper was getting closer," as one trader said, with bankruptcy speculation swirling around the troubled company.

On Wednesday, Lehman Brothers said in a research note that the company was likely to file for protection within the next few months, eliminating future coupon payments in order to conserve cash. On Thursday, market rumors - strictly unconfirmed at this time, a trader said - indicated that the company was trying to line up debtor-in-possession financing, but was having a hard time finding a lender willing to give it reasonable rates.

Adding to the unease was a court decision earlier in the week in which a Detroit federal judge refused a company request that he order one of the company's vendors to keep supplying it with components - even though Dura owes that supplier $1.3 million.

The trader saw Dura's 9% subordinated notes due 2009 at 9½ bid, 11 offered, which he said was not much changed from where they had been. "They're already down pretty much," he said, with not too much further to fall. "The 8 5/8s dropped the most."

Another trader actually saw the latter bonds up a point at 9 bid, 10 offered - but said the 8 5/8s were down more than a point on the day in the low 60s.

Ford falters as plan fizzles

Also in the auto area, a trader saw Ford's benchmark 7.45% notes due 2031 down 3 points on the session at 76.5 bid, 77.5 offered, while another trader pegged those bonds down 2¼ points on the day at 76.5 bid, 77 offered.

The second trader also saw the 7% notes due 2013 of Ford Motor Credit Co., the embattled carmaker's profitable financing arm, down 1½ points at 91.5 bid, 92 offered.

The Ford bonds fell even as the problem-plagued Detroit giant announced plans to offer all 75,000 of its unionized hourly workers buyouts and early-retirement incentives, slash 10,000 more white-collar positions and close several additional plants, on top of those already slated for closing, as it tries to bring its costs more closely in line with its reduced sales.

However, worries about the company's cash position and a general feeling that the steps announced are not drastic enough helped keep the bonds lower, observers said.

Equity investors apparently felt the same way, with Ford's New York Stock Exchange-traded shares plunging nearly 12% in Friday's dealings.

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