Primary activity slows, small Afren add-on only pricing; market awaits Cambium; OPTI settles

By Paul Deckelman and Paul A. Harris

New York, Feb. 11 - The high yield primary market pretty much took the day off on Friday after the first four respectably busy days of the week racked up total new issuance in the dollar-denominated market of over $9 billion, including Thursday's $1.5 billion session.

Just one new offering was heard to have priced - and that was just a $50 million add-on by British energy concern Afren plc to the five-year offering it priced two weeks ago.

Claire's Stores Inc. announced plans to sell an issue of senior secured notes, with high-yield market sources hearing that the specialty retailer would begin a roadshow to shop its $400 million offering around in the coming week.

Cambium Learning Group, Inc., a provider of education services, was heard to be quickly shopping around a $175 million tranche of secured notes, with pricing expected on Monday.

Other than that, there was radio silence.

Traders saw Venoco Inc.'s $500 million of eight-year notes, which priced late Thursday, as having firmed smartly when the bonds hit the aftermarket, showing a more than 2 point rise in the Denver-based oil and gas exploration and production company's new paper. Other Thursday deals seen more than holding their own included cinema operator Regal Entertainment Group's $100 million add-on deal from a few weeks ago, and mortgage lender Provident Funding LP's $200 million of eight-year notes.

Secondary market activity, which had been dominated all week by trading in the new deals, fell off on Friday as the flow of new paper dried up, at least temporarily. Thursday's most active non-new-deal name, OPTI Canada Inc., was seen relatively busy on Friday, though it was mostly unchanged on far less volume than had been seen during Thursday's wild gyrations.

Secondary market indicators sere seen mixed on the day, though higher on the week, on reduced volume.

Afren sells add on

The session's sole new issue was a small one: a $50 million add on from Afren.

The London-based independent oil and gas exploration and production company priced the addition to its 11½% senior notes due Feb. 1, 2016 (existing ratings /B-/B) at 101.392 for an 11 1/8% yield to worst.

The quick-to-market deal launched earlier in the session at 11 1/8% and played to a mix of high-yield and emerging markets accounts, a source said.

Deutsche Bank Securities, Goldman Sachs & Co. and BNP Paribas were the joint bookrunners.

Afren plans to use the proceeds for general corporate purposes.

$10 billion week

Afren brings the week's total issuance to $10.28 billion in 24 dollar-denominated tranches.

That makes the Feb. 7 week the biggest since the $14.24 billion brought to market in the Jan. 9 week.

Year-to-date issuance is now $51.12 billion, almost double the $26.23 billion at the same stage in 2010.

With just two weeks complete, February 2011 has already reached $17.24 billion, more than the $15.49 billion for all of February 2010.

Venoco does very well

When Venoco's new 8 7/8% notes due 2019 were freed for secondary dealings, a trader saw the Denver-based energy exploration and production company's $500 million of paper as having moved up to 102 bid, 102½ offered, versus the par level at which the bonds had priced on Thursday.

Energy names active

A trader noted the gusher of energy names which have come to market in recent days - besides Venoco, there were Thursday's deals for Energy XXI Gulf Coast, Inc. and Baytex Energy Corp., Wednesday's offering from MarkWest Energy Partners, LP, Tuesday's mega-deal from Chesapeake Energy Corp. and Monday's offering from Chaparral Energy LLC.

He saw current trading levels for crude oil on the commodity markets, at over $100 per barrel, certainly giving the energy bonds a boost.

He saw Energy XXI's 7¾% notes due 2019 trading at 100 3/8 bid, which he said was "not bad." given the Houston-based exploration and production's prior trading level around 100 1/8 bid, after the $250 million issue came to market at par on Thursday.

"We thought it might have gone lower," he said.

Provident pop continues

Away from the energy deals, a trader said that Provident Funding's 10 1/8% notes due 2019 "hung in there" at around 102 3/8 bid, 102 7/8 offered.

The Burlingame, Calif.-based mortgage provider had priced its $200 million of bonds at par on Thursday and they had firmed solidly in the aftermarket, being quoted as high as 102¼ bid, 103¼ offered.

ACL anchored around issue

A trader saw American Commercial Lines' new payment-in-kind toggle notes due 2016 marooned around the same 98-ish context the Jeffersonville, Ind.-based shipbuilder and inland river transportation operator's upsized $250 million of paper had traded at late Thursday after having priced at 98.25, to yield 10 5/8% on a cash-coupon basis and 11 5/8% on a PIK payments.

"Yech," he exclaimed, "they should be better than that."

ACL was one of three such PIK bond issues that have come to market in recent days, the other two being Florida East Coast Holdings Corp.'s $130 million of 2017 notes, which priced on Wednesday at 98.25 bid to yield 10½% cash-pay and 11¼% PIK, and Yankee Candle Co.'s upsized $315 million of 10¼% cash-pay/11% PIK notes due 2016, which priced at 98 bid the previous Friday.

"I thought we'd never see that again," he said, half in jest, acknowledging that at one time, such a structure was quite common in Junkbondland, but after the financial troubles of the past few years it had pretty much died off until now, when investors are reaching for yield and more tolerant of the risk they must take to get it.

Other new bonds move up

While the ACL issue seemed moored around its issue price, other new deals that had moved up solidly after having been priced were holding their own on Friday.

A trader saw Regal Entertainment Group's $100 million add-on to its 9 1/8% notes due 2018 up around 107 bid, 107½ offered. The Knoxville, Tenn.-based movie theater operator priced the bonds at 104½ bid on Thursday, and they had firmed smartly to above the 106 bid, 106½ offered level in aftermarket dealings that session.

He also saw Ply Gem Industries, Inc.'s 8¼% senior secured notes due 2018 up at 101¾ bid, 102 1/8 offered - a little above the 101½ bid, 102 offered level at which the Cary, N.C.-based construction materials company's quickly shopped $800 million issue had traded on Wednesday, after its earlier pricing at par.

But the standout performer was Australian mining company's Midwest Vanadium Pty. Ltd.'s 11½% senior secured notes due 2018. That $335 million issue priced at par on Wednesday and then had risen to 103½ bid, 104 offered.

On Friday afternoon, the trader exclaimed "wow!" as he quoted the company's bonds at above the 104 bid, 105 offered level.

Claire's up on new-deal news

The news that Claire's Stores is bringing a new deal helped to push the specialty retailer's existing bonds up, along with the release of preliminary quarterly and year-end results.

One trader saw the 10½% notes due 2017 trading "up a couple points," closing at 102½ bid, 103 offered.

Another market source saw the 9 5/8% notes due 2015 around 103.

At another shop, a trader said there was "a little bit" of trading in the name, but "I wouldn't say that there was all that much [price] movement.

"Those bonds were already trading north of par," he added.

Besides the announcement of the bond deal, the company released its preliminary financial results for the fiscal fourth quarter and the full 2010 fiscal year that ended on Jan. 29.

Claire's is forecasting that net sales for the fourth quarter will come in around $422 million, a 2.7% increase over 2009 comparables. Sales for the year are also expected to be better at $1.43 billion, a 6.3% gain year over year.

According to one market source, Claire's has performed "below our expectations - but certainly good enough to sell $400 million of junk bonds.

"In this market, I'm not sure it matters," he added regarding the company's financial forecast.

"It seems a little ahead of itself," said another source.

Said another source who doesn't follow the credit: "If true [regarding the new issue], it sure makes me think we are reaching a credit bubble for sure."

Indicators stay mixed

Away from the new-deal constellation, a trader saw the CDX North American Series 15 HY index up ¼ point on Friday to end at 104 9/16 bid, 104 15/16 offered, after having eased 1/8 point on Thursday.

The index thus ends the week up from 104 1/16 bid, 104 5/16 offered at the close the previous Friday, Feb. 4.

The KDP High Yield Daily index meantime lost 6 basis points on Friday to finish at 75.87, after having edged upward by 1 bp on Thursday. Its yield rose by 1 bp on Friday to 6.70%, after having come in by that same amount on Thursday.

On the week, the index improved from 75.57 at the close the previous Friday, while its yield narrowed from the week-earlier 6.84%.

The Merrill Lynch High Yield Master II index got back on the right track on Friday with a 0.035% gain, after having suffered its first downturn in 15 sessions on Thursday when it declined by 0.066%, its first daily loss since Jan. 20.

Friday's gain lifted the index's year-to-date return to 2.878%, up from Thursday's finish at 2.842%, although it left that cumulative figure still down from its 2011 peak level of 2.909%, reached during Wednesday's session.

The index showed a one-week gain of 0.303% to lift it from the 2.567% cumulative return seen the previous Friday.

Advancing issues - which had also seen their 14-session winning streak over decliners come to an abrupt end on Thursday - likewise bounced back on Friday, moving out to a better than six-to-five edge over the losers, who on Thursday had overtaken the gainers by a margin of several dozen issues out of the more than 1,400 traded.

Overall activity, represented by dollar-volume levels, rose by 20% on Friday, after having fallen by 10% on Thursday from the previous session's level.

OPTI activity slacks off

Among specific issues, a trader said that there was "a little activity" in the bonds of OPTI Canada - but nowhere nearly as much as during Thursday's wild down-and-up session following the release of the troubled Calgary, Alta.-based oil-sands energy company's fourth-quarter and full-year 2010 results.

He saw the company's 7 7/8% second-lien senior secured notes due 2014 and its 8¼% unsecured notes, also due 2014, trading around the same 48-49 complex at which they had ended Thursday's session after a day of wild gyrations on heavy volume.

He said "they had some decent amount" of trading - "but obviously nothing like earlier in the week, especially on Thursday, when hundreds of millions of dollars of those bonds were changing hands.

During Thursday's session, those bonds - which had closed out Wednesday's trading in a 52-53 range - plunged as low as 41 or 42 bid after the release of the earnings data, but managed to come off those lows, particularly following OPTI's conference call at which it discussed the operational status of its joint-venture project with Nexen Inc. The OPTI bonds firmed later in the day Thursday to come back to around the 48-49 level, ending down just 3 or 4 points on the day instead of 10 or 12 points, as they had been earlier.

Among OPTI's first-lien secured bonds, which rank considerably higher in the capital structure than the 7 7/8s and the 81/4s, the trader saw the 9% notes due 2012 quoted Friday around 99 bid, about where they had gone home on Thursday.

Kodak up a little

A trader said Eastman Kodak Co.'s 7¼% notes due 2013 saw "some activity," trading at bid levels between 96½ and 97½ before going home around the latter figure.

He said the Rochester, N.Y.-based digital and film photography supplier's bonds were up about ½ point on the day, on "decent' volume.

Autos seen little changed

A trader said that the two most widely quoted names he saw were OPTI Canada and the bonds issued by the "old" General Motors Corp. before the carmaker's bankruptcy reorganization in 2009 that transformed it into Motors Liquidation Co. The latter's benchmark 8 3/8% bonds due 2033 were seen steady at 35½ bid, 36 offered, although he said that there was "not much activity" in the Detroit giant on Friday.

Another trader saw GM unchanged at 35 bid, 36 offered, with GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 likewise steady at 108¾ bid, 109¾ offered.

Stephanie N. Rotondo contributed to this report

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