Arch, Antero, AK, Ainsworth price, Bombardier on tap; Epicor pulls discount notes deal

By Paul Deckelman and Paul A. Harris

New York, Nov. 14 - If Wednesday's junk bond market were an episode of "Sesame Street," it would have been "sponsored by the letter 'A'." In an odd coincidence, all four of the issues that priced during the $1.3 billion session - and two others which did not - had names that started with the first letter of the alphabet.

Arch Coal Inc. did an upsized $375 million of seven-year notes. After the deal priced at a sizable discount to par to boost yield, the bonds were seen having firmed smartly in the aftermarket.

Also from the energy realm, Antero Resources priced $300 million of eight-year notes, which were not seen having traded around.

Even later in the day, AK Steel Corp. and Canadian borrower Ainsworth Lumber Co. Ltd. each priced a $350 million tranche of senior secured notes at par, but neither Ainsworth's five-year debt nor AK's six-year bonds traded.

Two other deals being watched during Wednesday's session but which did not price were marketing solutions provider Alliance Data Systems Corp.'s planned $400 million of six-year notes, and healthcare operator AmSurg Corp.'s $250 million of eight-year paper. Price talk was heard on the latter deal, which could come to market Thursday.

Away from the "A-list" of potential borrowers, Canadian transportation equipment manufacturer Bombardier Inc. was shopping around a $1 billion issue of eight- and 10-year notes, whose pricing is expected to also take place Thursday. News of the big deal and of a ratings downgrade from Standard & Poor's hurt the company's existing bonds.

Syndicate sources meantime heard that Eagle Midco Inc., a holding company of Epicor Software, had withdrawn its planned $340 million offering of five-year discount notes.

Arch Coal upsizes

Primary market news volume remained heavy on Wednesday.

Four issuers brought single-tranche deals raising a combined total of $1.36 billion.

Apart from the transactions that cleared, price talk circulated for deals on the calendar and new deals were announced, as the primary market braces for as much as $6.9 billion of announced business which could come to the block before Friday's close.

On Wednesday, Arch Coal priced an upsized $375 million issue of 9 7/8% notes due June 15, 2019 (B3/B-) at 95.934 to yield 10¾%.

The yield printed at the wide end of the 10½% to 10¾% yield talk. The reoffer price came toward the rich end of price talk which had specified 4 to 5 points of original issue discount. The amount was increased from $350 million.

Merrill Lynch, Morgan Stanley, Citigroup, Credit Suisse and PNC were the joint bookrunners for the quick-to-market deal general corporate purposes deal.

Ainsworth at the tight end

Ainsworth Lumber priced a $350 million issue of five-year senior secured notes (B2/B) at par to yield 7½%, at the tight end of yield talk that was set in the 7 5/8% area.

Merrill Lynch was the bookrunner.

Proceeds, along with funds raised in a rights offering and a standby purchase agreement together with cash on the balance sheet, will be used to repurchase and/or redeem the company's existing notes and term loan.

AK Steel brings secureds

AK Steel Corp. priced a $350 million issue of six-year senior secured notes (B1/BB-) at par to yield 8¾%.

The yield printed 12.5 basis points beyond the wide end of price talk that was set in the 8½% area.

Merrill Lynch, Deutsche Bank, Wells Fargo, Citigroup, Goldman Sachs and UBS were the joint bookrunners for the quick-to-market debt refinancing and general corporate purposes deal.

Antero drives by

Antero Resources Finance Corp. priced a $300 million issue of eight-year senior notes (B2/B+) at par to yield 6%, at the wide end of the 5¾% to 6% yield talk.

Wells Fargo was the left bookrunner for the quick-to-market debt refinancing deal. J.P. Morgan, Barclays, Credit Agricole and Citigroup were the joint bookrunners.

AmSurg sets talk

Apart from the deals that priced, news emerged on the substantial calendar of deals - as much as $6.9 billion - that could price before the end of the week.

AmSurg set yield talk for its $250 million offering of eight-year senior notes (Ba3/B) in the 5¾% area.

The deal is set to price Thursday via SunTrust, Merrill Lynch, Citigroup and Wells Fargo.

Bombardier plans $1 billion

The session also came with new deal announcements.

Bombardieris planning to price $1 billion of non-callable senior notes (Ba2/BB/BB) with eight-year and 10-year maturities on Thursday.

Tranche sizes are to be determined.

Deutsche Bank, Merrill Lynch, BNP, Citigroup, Credit Agricole, J.P. Morgan, NBCF and RBC are leading general corporate purpose deal.

Alliance to sell bullet notes

Alliance Data Systems had been anticipated to price its $400 million offering of non-callable six-year senior notes during Wednesday's session.

However the deal will instead price on Thursday, an informed source said, speaking on the telephone after the Wednesday close.

No price talk was announced.

J.P. Morgan, Merrill Lynch, RBC and Wells Fargo are the joint bookrunners for the acquisition and general corporate purposes deal.

Negative sentiment in the equity markets, with the Dow Jones Industrial Average having fallen 5% since election day, may be creating headwinds in the high-yield primary, especially for drive-by deals, a syndicate banker said on Wednesday.

However don't look for the primary market to be sidelined anytime soon, sellsiders said.

There is still lots of cash to put to work.

What appears to be developing is a renewed sense of urgency on the part of issuers to get deals done sooner than later, against the backdrop of a capital markets scenario that may be in the throes of being overtaken by financial and political headlines, an investment banker said.

Com Hem talks PIK notes

There was also news from the European high-yield market on Wednesday.

NorCell 1B AB, the holding company for Swedish cable operator Com Hem Group, talked its proposed €250 million offering of seven-year senior PIK notes (expected ratings Caa2/CCC+) with a yield in the 13% area, including an original issue discount of 1 to 2 points.

The deal is expected to price on Thursday.

Joint bookrunner Deutsche Bank will bill and deliver for the debt refinancing deal. Morgan Stanley is also a joint bookrunner.

Care UK to tap 9¾% notes

Also, Care UK Health & Social Care plc has scheduled a London roadshow as well as an investor call for Thursday.

Under discussion will be a proposed £75 add-on to its 9¾% senior secured notes due Aug. 1, 2017, which is expected to price on Friday.

Joint physical bookrunner Citigroup will bill and deliver for the acquisition financing and general corporate purposes deal. HSBC, ING and Lloyds TSB are also joint physical bookrunners.

There is unlikely to be a great deal more activity from the European high-yield primary market during the run-up to 2013, a senior London-based debt capital markets banker said on Wednesday, and added that the remainder of 2012 business could be as little as two deals.

Much of what is being worked on in Europe, right now, is likely to be 2013 business, the banker added.

Epicor withdraws

Finally, Eagle Midco, Inc., a holding company of Epicor Software, withdrew its $340 million offering of five-year senior discount notes due to market conditions, an informed source said on Wednesday.

Epicor is the second prospective issuer to pull away from the market during the past week.

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

Arch Coal is hot

When the new Arch Coal 9 7/8% notes were freed for secondary dealings, a trader said that the St. Louis-based coal operator's upsized $375 million offering "did well," quoting the quick-to-market issue up nearly 2 points, in a 97½ to 97¾ bid range.

A trader said that his shop "traded bonds in that context," but found that there was "not a lot for sale - the deal was pretty well put-away, from what we can tell so far."

He opined that the Arch transaction was "an interesting pricing. I thought that it's an interesting structure - the four years call protection they're giving you is good. I liked the OID [discount] and I liked the price."

He was also quite impressed by the nearly 11% yield, declaring that "when things start yielding twice the average price of some of the deals that are coming, or almost twice the yield of some of those deals, I think that I'd look there for value, instead of elsewhere.

"I mean, how many 5% deals are going to go up 10 points, unless they're upgraded multiple times?"

Antero absent from aftermarket

The Antero deal priced towards the end of the trading day, but was not seen in the aftermarket.

"I never saw Antero," one of the traders said of the Denver-based energy exploration and production company's $300 million of 6% notes due 2020, which had priced at par.

And there was nothing seen in the secondary market of the day's other two purely junk-rated, dollar-denominated domestic/developed-country offerings - from Ainsworth Lumber and from AK Steel.

New deals pressure existing bonds

Besides its bond deal, AK Steel also priced an upsized $150 million of seven-year exchangeable senior notes. That transaction took place after the market close, with the notes carrying a 5% coupon and a 35% initial conversion premium.

All of that wheeling and dealing proved to be more than the holders of AK's existing 7 5/8% notes due 2020 could handle. Those bonds, which had gone home on Monday trading at 87 bid, opened at that level on Tuesday, but had slid to 83 bid by the close on $7 million of round-lot trading, a market source said.

Arch Coal's established 8¾% notes due 2016 were seen down nearly a deuce on the day at 100 1/16 bid, with over $4 million traded.

The same phenomenon was observed with Bombardier's 7¾% notes due 2020, even as the company was shopping around its $1 billion of new eight- and 10-year notes to potential investors.

A market source saw the Montreal-based aircraft and railroad car manufacturer's 7¾% notes due 2020 trading as low was 108¾ bid, well down from the 112½ bid level seen earlier in the day, although on smaller volume.

Another trader, though, said that while having a new $1 billion deal out there "certainly didn't help" the existing bonds, "they really got whacked on the downgrade" from Standard & Poor's.

S&P lowered the company's long-term corporate rating to BB from BB+, with a stable outlook.

The ratings agency cited Bombardier's "significantly lower-than-expected cash generation in 2012 due to fewer customer advances and weaker operating profit given the global economy."

That deterioration, along with anticipated heavy capital spending on new product development at the company's aviation operation, will mean that Bombardier's leverage ratio will remain high, with debt more than six times earnings till at least 2014.

The agency also said it assigned a BB rating to the upcoming new bonds and just a 4 recovery rating to issue - reflecting only a 30% to 50% expected recovery in the event of a default.

While citing the satisfactory business risk profile, S&P also noted what it calls an "aggressive" financial risk profile.

Recent bonds a no-show

Apart from the trading in the new Arch Coal bonds and in the existing bonds of such new-deal names as Arch, AK Steel and Bombardier, traders said not much was going on in the secondary.

There wasn't even very much trading in the new Sprint Nextel Corp. 6% notes due 2022. The Overland Park, Kan.-based Number-Three U.S. wireless provider's quickly-shopped $2.28 billion offering had priced at par during last Thursday's session, and was actively traded on Tuesday, as over $30 million changed hands around 991/2, making it one of the busiest junk names that day.

However, a trader on Wednesday said there was "nothing today" in the Sprint paper.

Stormy seas for Shipholding

There likewise was little trading in other recent deals, traders said, and not much going on among the non-new-deal names.

The only name really standing out was Overseas Shipholding Group's 8 1/8% notes due 2018, which gyrated around following the New York-based tanker operator's bankruptcy filing.

The bonds, which traded as low as 18, moved up to around the 30-32 mark after the filing "but of course, they were trading flat," a trader said.

Another said "they were the big trader of the day." A market source saw over $38 million of the notes having changed hands by mid-afternoon, far dwarfing the activity level in other credits. He pegged the bonds around 26 bid.

Other than Overseas, a trader characterized the market as "hit and miss. There was no rhyme or reason to it, it was all driven by customer inquiry.

Traders said the junk secondary market, while clearly softer, was avoiding a rout - versus the recent sharp declines in the equity market. One called Junkbondland down ½ to 1 point on the day, in relatively quiet dealings.

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