Primary returns with T-Mobile, NuStar, Access Midstream deals; AMR anti-merger slide continues

By Paul Deckelman and Paul A. Harris

New York, Aug. 14 - The high-yield primary market was back on its game on Wednesday, recovering some of its "mojo" after a rare shutout on Tuesday, when no new dollar-denominated, fully junk-rated issues had priced.

In contrast, some $1.6 billion came to market in six tranches on Wednesday, most of them opportunistically timed and quickly shopped transactions, and half of them add-ons to existing bond issues.

The largest deal of the day was also the last and hence did not see any kind of aftermarket activity, as wireless operator T-Mobile USA Inc. priced $500 million of five-year notes.

Beverage supplier DS Waters of America Inc. did a $350 million offering of eight-year secured paper, which priced after the deal was restructured. That transaction also came too late in the day for any kind of secondary dealings.

Before that, energy name NuStar Logistics, LP came to market with $300 million of 7.5-year notes; traders said the new bonds moved up later in the day.

Out of that same sector, Access Midstream Partners, LP brought in a $400 million fungible add-on to its existing 2021 bonds. Those notes moved up from their reoffer price when they were freed to trade.

Two other issuers brought smaller add-on deals to market Wednesday: Cogent Communications Group, Inc., with a $65 million tack-on to its existing 2018 notes, and Flexi-Van Leasing, Inc., with a $15 million addition to its 2018 bonds. The latter company had been in the junk market just two weeks ago with its original $250 million issue.

Away from the new-deal realm, ServiceMaster Co.'s bonds retreated in brisk trading as the company's preliminary second-quarter financial results slid into the red versus their year-earlier profit.

There was even more activity in AMR Corp.'s bonds - which had nosedived on Tuesday after the U.S. Justice Department and several state attorneys general announced opposition to the troubled airline operator's proposed $11 billion merger with industry rival US Airways Group, Inc. and which continued to rapidly lose altitude on Wednesday. US Air's bonds also moved lower in busy dealings.

Statistical market performance indicators were mixed for a fourth consecutive session.

T-Mobile drives by

Six issuers brought single-tranche junk deals, raising a combined total of $1.6 billion on Wednesday.

The high-yield market's drive-through window appears to remain wide open, as four of the six issues came quick-to-market.

T-Mobile priced a $500 million issue of five-year senior notes (Ba3/BB) at par to yield 5¼%.

The yield printed at the tight end of yield talk that was set in the 5 3/8% area.

Deutsche Bank ran the books for the general corporate purposes deal.

Access Midstream atop talk

In other drive-by action, Access Midstream Partners and ACMP Finance Corp. priced a $400 million fungible add-on to their 5 7/8% senior notes due April 15, 2021 (Ba3/BB) at 101½ to yield 5.503%.

The reoffer price came on top of price talk.

Barclays, BBVA, Citigroup, RBS and Wells Fargo were the joint bookrunners.

The Oklahoma City-based natural gas services provider plans to use the proceeds for general partnership purposes, including the repayment of revolver debt.

DS Waters re-upsizes

After downsizing its notes offer to $300 million from $350 million on Wednesday morning, DS Waters of America Inc. re-upsized the deal to $350 million on Thursday afternoon and priced the 10% eight-year second-priority senior secured notes (B3/B-) at 97.337 to yield 10½%.

The yield came at the wide end of the 10% to 10½ yield talk.

The deal was restructured, and there were covenant changes (see related story in this issue).

Credit Suisse, Barclays, Jefferies and BMO were the joint bookrunners.

NuStar at the wide end

NuStar Logistics, LP priced a $300 million issue of non-callable 7.5-year senior notes (Ba1/BB+/BB) at par to yield 6¾%.

The yield printed at the wide end of the 6½ to 6¾% yield talk.

As the deal broke into the secondary, a trader saw the notes at 100½ bid, 101 offered.

J.P. Morgan, Mizuho and SunTrust were the joint bookrunners.

The San Antonio-based provider of petroleum terminaling and storage services plans to use the proceeds for general corporate purposes, including the partial repayment of its revolver.

Cogent taps 8 3/8% notes

Cogent Communications Group, Inc. priced a $65 million add-on to its 8 3/8% senior secured notes due Feb. 15, 2018 (B2//) at 109.

The yield to maturity is 6.055%, and the yield to worst is 4.787%.

Deutsche Bank, Citigroup, Jefferies and Morgan Stanley were joint bookrunners for the quick-to-market deal.

The company will use proceeds for general corporate purposes, to buy back its convertible debt if holders exercise their put option or to repurchase its common stock or convertible senior notes or pay recurring or special dividends to stockholders.

Flexi-Van adds $15 million

Two weeks after pricing the original issue, Flexi-Van Leasing, Inc. returned to the high-yield primary market on Wednesday to price a $15 million add-on to its 7 7/8% senior notes due Aug. 15, 2018 (B3/BB-) at par to yield 7 7/8%.

BofA Merrill Lynch ran the books for the quick-to-market deal.

Medical Properties sets call

Although market watchers have been forecasting a slowdown because of potentially dwindling buyside ranks taking vacations in the run-up to the three-day Labor Day weekend, which gets underway on Aug. 30, the active forward calendar still features a stack of deals expected to price before the end of the present week.

That stack grew on Wednesday as Medical Properties Trust announced plans to price a $150 million add-on to the MPT Operating Partnership, LP and MPT Finance Corp. 6 3/8% senior notes due Feb. 15, 2022 (existing ratings Ba1/BB) on Thursday.

JPMorgan and BofA Merrill Lynch are the joint bookrunners.

The Birmingham, Ala.-based trust plans to use the proceeds to acquire three hospitals from acute health-care provider Iasis Healthcare LLC. Should the acquisitions not be completed, Medical Properties will use the proceeds to pay down its revolver debt and for general corporate purposes.

The original $200 million issue priced at par in February 2012.

Access bonds improve

In the secondary market, traders saw Access Midstream's 5 7/8% add-on notes due 2021 having moved up after their 101½ pricing.

One trader saw the bonds at 102¼ bid, 102½ offered, while a second trader pegged the bonds at 102 bid, 103 offered.

The company's existing 4 7/8% notes due 2023 meantime gained 1 point on the day to end at 93 bid on volume of more than $12 million.

NuStar a new star

The day's other pricing out of the energy sphere, NuStar Logistics' 6¾% notes due 2021, also showed some strength when it reached the aftermarket.

Traders at two separate shops quoted the bonds at 101¼ bid, 101½ offered, up from the par issue price earlier in the session.

Other deals not seen

Traders said that the day's other pricings had not been seen in the aftermarket.

Bellevue, Wash.-based T-Mobile USA's 5¼% notes due 2018 and the restructured 10% second-priority senior secured notes due 2021 from Atlanta-based consumer beverage provider DS Waters of America each came too late in the session for any meaningful secondary market activity.

And while Washington, D.C.-based communications services provider Cogent Communications Group's 8 3/8% senior secured notes due 2018 and Kenilworth, N.J.-based transportation equipment provider Flexi-Van Leasing's additional 7 7/8% notes due 2018 both priced well before that, at $65 million and $15 million, respectively, those issues were thought to be too small to see much trading around.

Earlier deals still active

A trader said that Monday's $400 million offering from R.R. Donnelley & Sons Co. was trading around 101 5/8 bid, 102 ½ offered.

The Chicago-based printing, packaging and marketing company's 7% notes due 2022 priced at par after the quick-to-market offering was upsized from an originally announced $350 million, and the bonds had pushed up to a 101 to 102 bid context in initial aftermarket dealings and then remained around those levels.

Elsewhere, BMC Software, Inc. "was one of the most actives," a trader said. "They're still being traded."

He saw the Houston-based company's 8 1/8% notes due 2021 trading at 101¾ bid, 102¼ offered.

BMC sold $1.63 billion of those notes last week, pricing the bonds at par last Wednesday after having upsized the deal from $1.38 billion and having restructured the transaction to drop a proposed euro-denominated tranche, making it solely a dollar-market deal. It was the first high-yield megadeal seen since German automotive and industrial ball-bearing manufacturer Schaeffler Holding AG's $1 billion issue on July 18 and the biggest junk deal since Canadian drug manufacturer Valeant Pharmaceuticals Internationals Inc.'s $3.23 billion two-part transaction, which priced on June 28. The new BMC bonds had quickly jumped to a 101½ to 102 bid range right after pricing, saw heavy trading several days last week, and stayed around those levels.

ServiceMaster slides

Away from the new deals, a market source saw considerable activity in ServiceMaster's bonds after the Memphis-based provider of residential and commercial lawn-care, extermination, appliance maintenance and cleaning services reported that its operating earnings slid into the red in the latest quarter versus a year-earlier profit, mostly due to continued problems with its TruGreen lawn-care segment. It posted a $564 million operating loss for the second quarter ended June 30, versus $96 million of year-ago earnings.

ServiceMaster's 8% notes due 2020 fell by 1 5/8 points on the session to end at 96 bid on volume of over $21 million, while its 7% notes due 2020 lost 7/8 point, closing at 91 5/8 bid, on turnover of some $16 million.

AMR plunges again

But as busy as those bonds were, the most active name in Junkbondland on Wednesday - just as had been the case on Tuesday -was clearly AMR, whose bonds nosedived for a second consecutive session in response to Tuesday's announcement that the U.S. Justice Department and several state attorneys general had filed suit to block the troubled airline operator's proposed $11 billion merger with industry rival US Airways Group.

AMR's 6¼% notes due 2014, which had plunged more than 13 points on Tuesday to close at 103 bid, resumed their free-fall Wednesday, sliding as low as an 89 to 90 bid context at mid-morning before partially rebounding in the early afternoon to move back up to around 95 bid, still down 8 points on the day. A market source said that over $67 million of the bonds had traded by the close, on top of the more than $50 million that had changed hands on Tuesday.

While other AMR bonds also did trade at lower levels, such as its 9% notes due 2016, last quoted around 95 bid on Wednesday and down from 104 at the close Tuesday and 117 last week, and its 7 7/8% notes due 2039, which gyrated around down in the 20s, the 6¼% notes were the only one of the company's issues really generating any sizable volume of big-block trades.

US Airways Group's 6 1/8% notes meanwhile fell as low as 90 3/8 bid by mid-afternoon before firming a little from that nadir to go out at 92 bid, with over $17 million having traded. They had started the week around 96 and had eased to around the 95 level on Tuesday after the Justice Department action was publicized, though there were only a relative handful of smallish trades at that time.

On the equity side of the fence, AMR's over-the-counter traded shares lost as much as 35% of their value during Wednesday's session before partially rebounding to end the day down 43 cents, or 13.56%, at $2.74. Volume of 78.4 million shares was nearly 10 times the norm. Wednesday was the second straight session the stock was getting hammered in response to the government opposition to its merger; on Tuesday, the shares had plummeted by $2.70, or 45.9%.

US Airways Group's New York Stock Exchange-traded shares were down as much as 6% during the session Wednesday before finally finishing at $16.17, down 19 cents, or 1.16% on the day, on volume of 28 million shares, or more than four times the usual turnover. The shares had swooned by $2.46, or 13.1% on Tuesday.

Bucking the trend

If successful, the government's move to ground that airborne megamerger will derail a transaction that otherwise would greatly restructure the face of the airline industry - a business that has been riding a strong wave of consolidation, both domestically and internationally, for more than a decade.

That consolidation trend began even before 9/11, but it intensified in the wake of the sharp fall-off in air travel that followed and brought on a severe industry shakeout that saw many venerable air carrier names disappear forever , for example, the old TWA that was absorbed in 2001 by AMR's principal operating subsidiary, American Airlines. Other well-known domestic carriers flying off into the clouds of history included Northwest Airlines, which became part of Delta Air Lines in 2010, Continental Airlines, now a part of United Airlines since 2011, and America West Airlines, since 2005 a part of US Airways Group's principal operating subsidiary, US Airways. AirTran was gobbled up by Southwest Airlines, which is currently integrating it into its operations.

In terms of such measures as the total number of passengers flown each year since 2010, including this year to date, and fleet size, American and US Airways currently rank respectively as the fourth and fifth largest U.S.-based carriers, behind industry leader Delta and its two main rivals, United and Southwest. But the proposed AMR-US Airways merger would not only vault the new entity (which will continue to operate as American Airlines) ahead of those U.S. competitors, it would at the same time become the largest airline in the world. Currently, Delta, United and Southwest right now rank first, second and third, followed by the current American in fourth place and Germany's Lufthansa as fifth-biggest.

In its Tuesday filing with the federal district court in Washington, the Justice Department warned that letting the giant-sized transaction go through and combining the two carriers "would substantially lessen competition for commercial air travel in local markets throughout the United States and result in passengers paying higher air fares and receiving less service."

For one thing, it noted that combining the two companies would end the direct competition on thousands of routes currently served by both US Airways and American. At Ronald Reagan Washington National Airport, where US Airways has an operations hub and which American also currently serves, the combined entity would be the sole major carrier on 63% of the non-stop routes either originating or ending there, the government said.

Were the merger to go through without substantial modifications, it would reduce the number of major U.S.-based carriers serving American cities to just a relative handful, with the new American/US Airways combination, United, Delta and Southwest then together accounting for over 75% of U.S-originated passenger traffic between just the four of them, their respective market shares far larger than those of considerably smaller rivals JetBlue, Alaska Airlines and Spirit Airlines.

Besides the federal government, the attorneys general from Arizona, where US Airways Group has its Tempe headquarters, and from Texas, Fort Worth-based AMR's home turf, are looking to block the merger, as are the states of Florida, Pennsylvania, Tennessee and Virginia, as well as the District of Columbia.

On a Wednesday conference call, lawyers and executives from AMR and US Airways Group said the two companies would vigorously oppose the government's efforts to quash the merger, arguing that the combination would not harm consumers and is needed to enable the troubled AMR to effectively continue to compete with its larger rivals.

Many analysts see the proposed merger as vital to AMR's hopes of successfully emerging from the bankruptcy process. Hurt by years of rising fuel prices and increased competition - with many of its rivals having become much leaner and more financially viable than the bloated AMR by using bankruptcy as a tool to slash debt and shed burdensome labor and aircraft leasing contracts and unprofitable routes - AMR and its subsidiaries sought protection from bondholders and other creditors via a Chapter 11 filing with the U.S. Bankruptcy Court for the Southern District of New York in Manhattan on Nov. 29, 2011. AMR was the last of the major old-line "legacy" carriers, including rivals United, Delta and even prospective merger partner US Airways Group, to do so.

The court is scheduled to hold a confirmation hearing Wednesday for AMR's proposed plan of reorganization, which is predicated on the merger with US Airways Group going through.

Market indicators remain mixed

Statistical junk market performance indicators were mixed for a fourth straight session on Wednesday - though just barely.

The Markit Series 20 CDX North American High Yield index edged up by 1/32 point on Wednesday to end at 105 1/32 bid, 105 3/32 offered. It was the second consecutive small gain, following Tuesday's 1/8 point advance.

But the KDP High Yield Daily index saw its second straight loss on Wednesday, easing by 1 basis point to close at 73.53, after falling back by 5 bps on Tuesday - its first loss after three straight gains before that.

Its yield, though, fell by 1 bp on Wednesday, to 6.12%, after having risen by 4 bps on Tuesday.

The widely followed Merrill Lynch High Yield Master II index was unchanged on Wednesday after having fallen by 0.062% on Tuesday, its first loss after three straight days on the upside before that.

That left the index's year-to-date return at 3.132%. The return was down from its peak level for the year so far of 5.835%, recorded on May 9, though up solidly from its 2013 low point of 0.384%, set on June 25.

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