Primary ends week quietly, Petaquilla restructures; SuperValu up on Cerberus news

By Paul Deckelman and Paul A. Harris

New York, Jan. 4 - The high-yield primary market ended the first trading week of 2013 on a quiet note on Friday - syndicate sources did not hear of any new deals having priced during the session.

That left Thursday's $800 million drive-by offering of 10-year notes by packaging products maker Crown Holdings, Inc. as the only issue to have priced this week, although market participants believe that the upcoming week - the first full week of the new year - will see considerably more activity.

The syndicate sources did hear, however, that Canadian metals mining concern Petaquilla Minerals Ltd. - whose planned $210 million secured bond financing transaction has been on the horizon for many months - had restructured that prospective offering, to now include a sizable chunk of first-lien bank debt in addition to whatever bonds are issued.

And they said that Apex Tool Group LLC will be shopping a $450 million bond deal around sometime this month.

In the secondary sphere, Crown Holdings' new bonds were heard to have given back some of the initial aftermarket gains they had notched after pricing.

Away from the new-deal arena, SuperValu Inc.'s bonds, and its shares, moved higher on news reports that the underperforming supermarket operator's on-again, off-again courtship with private equity giant Cerberus Capital Management LP is on again, with a deal to sell some of its assets to Cerberus possibly being announced as early as the upcoming week.

Statistical indicators of market performance were better on the day, and rose from their week-earlier levels as well.

Preparing for a big week

No high-yield deals priced on Friday.

However dealers spent the session winding up for what figures to be a big week ahead.

Throughout the holiday-abbreviated opening week of 2013 estimates as to how much new issue business will surface in the week ahead have climbed.

On Friday one debt capital markets banker professed visibility on at least eight deals, and added that there will likely be more than that.

Names were hard to come by, however.

Heading into the weekend, syndicates were unwilling to tip their hands and investors - in the name of protecting allocations - were reluctant to give out any names.

Among the possibles are Apex Tool Group LLC which is bringing $450 million of notes in an LBO-funding transaction to be led by Goldman Sachs, Barclays, Morgan Stanley, Citigroup, RBC and Deutsche Bank.

Another possible name that surfaced on Friday was Avis Budget Group Inc., expected to show up with bonds backing its acquisition of Zipcar Inc. in a transaction valued at $500 million.

However it is possible that neither of these two deals will surface during the Jan. 7 week, sources warned.

Hitting the (yield) wall

The three-session 2012-2013 crossover week saw just one straight-out junk deal price.

On Thursday Crown Holdings priced an upsized $800 million issue of non-callable 10-year senior notes (Ba2/BB) at par to yield 4½% via Deutsche Bank, BNP, Bank of America Merrill Lynch and Wells Fargo.

The audience for the deal included visitors from the high-grade market as well as such non-regular high-yield players as pension funds and insurance funds, according to a high yield mutual fund manager.

There were a significant number of flippers in the seven-times oversubscribed deal's high-yield audience, asserted the manager, who would only agree to speak off the record.

"We may be hitting a wall, here, in terms of what makes sense for high-yield investors," the manager said. He noted that at 6.01% the composite yield to worst of the JP Morgan index is at an all-time low.

Elsewhere, Ford Motor Co.'s $2 billion issue of 4¾% 30-year bonds (Baa3/BB+/BBB-) which priced Thursday at 180 bps over Treasuries, did not perform well for investors, the fund manager said.

Just after the Friday close a trader confirmed it, specifying that the new Fords were trading at 184 bps bid, 181 bps offered.

The deal went great for the company, the trader allowed.

However Ford has a tendency to price its deals on the screws, the source added.

A bunch of insurance funds wanted exposure to 30-year paper in the automotive space, but everybody who went along for the ride is under water.

New Crown steady to easier

In the secondary market, a trader said that the new Crown Holdings 4½% notes due 2023 were "holding their gains, but unchanged," in a 101 to 101½ bid context.

However, a trader at another desk said that the Philadelphia-based consumer products packaging company's bonds had traded as high as 101 5/8 bid, 102 offered, but then "came right back down" to close around 101 1/8 bid, 101 3/8 offered, near where they had traded in their initial aftermarket dealings on Thursday after the deal had priced at par.

That quickly shopped $800 million deal from the company's Crown Americas LLC and Crown Americas Capital Corp. IV subsidiaries, had priced after being upsized from the originally planned $500 million.

The second trader said that the new bonds were "not as active" as he thought the deal might have been, given that it was the first junk bond deal of the year and the first in more than two weeks, since DISH DBS Corp., Dispensing Dynamics International, U.S. Foodservice Inc. and Petroleum Go-Services ASA had all priced back on Dec. 19 of last year - the final junk issuance of 2012.

SuperValu a superstar

Away from the new-deal world, one of the most notable names was SuperValu, whose bonds and shares both firmed smartly on news reports indicating that it is close to inking a deal with private equity firm Cerberus, which will buy some of the underachieving Eden Prairie, Minn.-based supermarket operator's assets.

SuperValu's most liquid and most widely traded issue, its $1 billion of 8% notes due 2016, was seen by a market source late in the session to have pushed up to around the 98 bid level, a gain of about 3/8 point from Thursday's close and strictly on a round-lot basis, a handsome advance of some 2 3/8 points. Round-lot volume was over $7 million, putting it among the more active Junkbond names on the day.

Its 7½% notes due 2014 rose by 1 3/8 point to close at 99 3/8 bid, on volume of more than $6 million.

Some of the company's other issues were also seen higher, but only on small odd-lot pieces, with its 7.45% bonds due 2029 up about ½ point at 61¼ bid, and its 8% bonds due 2031 ahead by more than 4 points on the day at 63 bid. Both of the latter two credits had originally been issued by the former Albertsons Inc., and were then assumed by SuperValu when it bought most of the Boise, Idaho-based grocery store chain in 2006.

The company's New York Stock Exchange-traded shares meantime jumped as much as 22% in intra-day dealings before finishing up 35 cents on the day, or 13.51%, at $2.94. Volume of 27.1 million shares was more than four times the norm.

The bonds and shares firmed on news reports that SuperValu, which has been exploring strategic options that could include the sale of such store chains as Albertsons, Jewel-Osco or Save-A-Lot, or even all of the company, was close to an agreement with Cerberus.

The two companies have been in talks on a possible transaction for some months, but late last year, it appeared that such a deal might not come off because Cerberus' lenders were reportedly unhappy at the prospect of the private equity powerhouse buying SuperValu, which has struggled in recent years to maintain market share versus such larger traditional supermarket industry rivals as Kroger Co. and Safeway Inc., as well as such newer rivals as retailing industry behemoth Wal-Mart Stores Inc. and buying club giant Costco Cos.

The latest reports indicate that Cerberus will bow to the wishes of its banks and will not buy SuperValu whole. Instead, the company and its partners will buy some of SuperValu's assets outright, and will take a stake in the remaining public company.

Indicators better on day, week

Statistical junk market performance indicators turned higher on Friday, after having been mixed on Thursday, and were also higher versus their levels the week before.

The Markit Series 19 CDX North American High Yield index gained 1/16 point to finish at 102 3/8 bid, 102½ offered, after having retreated by 3/16 point on Thursday.

Helped by a big jump during Wednesday's session as investors reacted positively to news of the "fiscal cliff" agreement, the index was solidly higher on the week versus the 99 15/16 bid, 100 1/16 offered level seen at the close last Friday, Dec. 28.

The KDP High Yield Daily Index rose for a fourth consecutive session on Friday, gaining 7 basis points to end at 75.72, after having also risen by 7 bps on Thursday. Its yield came in by 1 bp to 5.58% - its third straight decline. On Thursday it had come in by 3 bps.

Those levels compare favorably with the week-earlier 75.34 index reading, and 5.70% yield.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its fourth straight gain on Friday, rising by 0.075%, on top of Thursday's 0.211% advance.

That lifted its year-to-date return to 0.704%, a new peak level for the year so far, from 0.629% on Thursday. That continued the strong momentum seen at the end of 2012, when it finished with a 15. 583% return for the year.

The index's yield to worst meantime continued to decline on Friday, coming in to 5.891% from Thursday's 5.908%, while its spread to worst versus the comparable Treasury issues tightened to 497 bps from an even 500 bps the day before. It had closed out 2012 with a spread of 6.083% and a spread of 523 bps.

The index showed a one-week gain of 0.718% - its seventh consecutive weekly gain. It had posted a gain of 0.089% the week before, raising its year-to-date return to 15.568%.

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