Ingles, Nationstar, Regal price; junk retreat continues but Smithfield jumps on Chinese buyout

By Paul Deckelman and Paul A. Harris

New York, May 29 - Activity picked up on Wednesday in the high-yield primary sphere as three issuers came to market with quickly shopped deals totaling $1.25 billion.

The biggest transaction of the day came from supermarket operator Ingles Markets Inc., which rang up a $700 million offering of 10-year notes. It was the second bond deal to come out of the grocery sector in recent days, following the example of SuperValu Inc.'s $400 million eight-year transaction earlier in the month.

Nationstar Mortgage Holdings Inc. did a $300 million nine-year deal via a pair of financing subsidiaries; the lender's new issue firmed a little when it was freed for trading.

Movie theater operator Regal Entertainment Group rounded out the day's action with $250 million of 10-year notes issued at the parent holding company level. Those bonds also edged up in the aftermarket.

Among other recently priced deals, activity was brisk in Meritor Inc.'s new eight-year notes, which had gotten done on Tuesday. But the truck components maker's paper went home down sharply on the day - as did some other recent deals, including US Airways Group Inc., B&G Foods Inc. and Junkbondland's seemingly favorite whipping boy lately, Ball Corp.

Traders said that the overall junk market was lower, in line with Wall Street's slide, a drop reflected in the across-the-board downturn in statistical market performance indicators. However, one name which was solidly higher in heavy trading was Smithfield Foods, Inc., driven by the news that Chinese meat processing giant Shuanghui International Holdings has agreed to acquire hog and pork producer Smithfield in a deal valued at more than $7 billion.

Two deals wide of talk

Volatility in equities rippled somewhat into the high-yield primary market on Wednesday, sources said.

News volume was notably thin.

Of the day's three deals, two priced wide of yield talk, while the other priced at the wide end of talk. None were upsized.

An investor who sat out all three of Wednesday's deals mentioned redemptions.

"We've seen two straight days of outflows," the portfolio manager said. "They were not meaningful. And if you ask around the market, no one is seeing big outflows."

The buysider also mentioned Treasury yields, which have gapped higher in the past week.

"The Treasury scare will subside," the investor said, but added that recently priced high-grade paper, or "spread product," is understandably taking a beating, as is some of the recent tighter-pricing junk.

For example, the Tenet Healthcare Corp. 4 3/8% notes due in October 2021 (Ba3/B+) are 97 3/8 bid, 97 7/8 offered, the investor said, recounting that the deal priced at par on May 15.

"If you're into paper like that, you're getting hit," the source said.

Ingles negotiates 10-year deal

On Wednesday Ingles Markets priced a $700 million issue of 10-year senior notes (B1/BB-) at par to yield 5¾%.

The yield printed 12.5 basis points beyond the wide end of yield talk set in the 5½% area.

BofA Merrill Lynch, Wells Fargo, BB&T and SunTrust were joint bookrunners.

The Black Mountain, N.C.-based supermarket chain plans to use the proceeds to fund a tender offer for its 8 7/8% senior notes due 2017, to repay certain other debt, to fund capital expenditures and for general corporate purposes.

Nationstar Mortgage prices

Nationstar Mortgage LLC and Nationstar Capital Corp. priced a $300 million issue of nine-year senior notes (B2/B+) at par to yield 6½%.

The yield printed 12.5 bps beyond the wide end of the 6¼% to 6 3/8% yield talk.

Credit Suisse and BofA Merrill Lynch were the joint physical bookrunners. Barclays, Wells Fargo and J.P. Morgan were the joint bookrunners.

The Lewisville, Texas-based non-bank residential mortgage servicer plans to use the proceeds for general corporate purposes including acquisitions and transfers of servicing portfolios and/or related business.

Regal prints at 5¾%

Regal Entertainment Group priced a $250 million issue of 10-year senior notes (B3/B-) at par to yield 5¾%.

The yield printed at the wide end of the 5½% to 5¾% yield talk.

Credit Suisse, Barclays, BofA Merrill Lynch, Deutsche Bank and Wells Fargo were the joint bookrunners.

The Knoxville, Tenn.-based movie theater circuit operator plans to use the proceeds for general corporate purposes, including refinancing existing notes.

Regal edges up

When Regal's 5¾% notes were freed for secondary dealings, a trader quoted the new bonds trading in a par to 100½ bid context, versus the deal's par issue price earlier.

A second trader pegged the bonds as high as 100 3/8 bid, 100 5/8 offered.

At another desk, a market source said that the new Regals were actually trading fairly actively, with over $12 million having changed hands by the close, which established the issue as one of the day's busier junk bond credits.

He quoted the bonds up about ¼ point from their issue level.

The first trader, meantime, saw the company's existing 5¾% notes due 2025 trading off by about 1½ to 2 points on news of the new deal, ending at 100¼ bid, 100¾ offered.

Another market source saw those bonds off by 2 1/8 points on the day at 100 3/8 bid, but pointed out that there was very little in the way of any size trading in the issue.

Regal's other two issues of outstanding bonds - its 9 1/8% notes due 2018 and 8 5/8% notes due 2019 - were both seen up on the day, apparently reflecting the news that the movie theater operator plans to take out both of those issues via a tender offer funded with the proceeds from the new bond deal. However, as in the case of the 2025 bonds, trading in those issues was reported to be very light. The 2018 issue gained 1 3/8 points to end at just over 114 bid, though on about $2 million of volume. The 2019 bonds, issued by Regal Cinemas Corp., gained 3/8 point to close at 111¼ bid, though also on very light volume.

Nationstar not much traded

A trader said that he "did not see very much at all" by way of dealings in Nationstar Mortgage 's new 6½% notes.

Another trader did quote the bonds at 100 3/8 bid, 100 7/8 offered, versus their par issue price.

Ingles Markets' 5¾% notes due 2023 were heard to have come to market too late for any immediate secondary dealings.

There was also very little action in the latter's existing 8 7/8% notes due 2017, which are to be taken out via a tender offer financed by the new-deal proceeds.

The bonds eased by 1/8 point, ending in a 104 7/8 context.

Recent deals soften up

With Wall Street continuing to take it on the chin as Treasury yields have risen and prices fallen, one of the junk traders said that overall volumes "were pretty good," although he allowed that the bulk of the day's listed activity on the Trace system came in the crossover space - split-rated names like education financing company SLM Corp. and Ford Motor Co. and the latter's Ford Motor Credit Co. vehicle financing arm, rather than truly junk credits.

"There were a lot of bid lists first thing this morning, and there was selling pressure coming out of London - Europe seemed to drive everything today. That's where the selling emanated from early this morning, which took the equity markets down and everything."

Against that backdrop, he said, junk "never gained any traction," and the market ended down by ½ point to a full point, on average.

Among recently priced deals, "people were pushing back on price."

One of the busiest junk names on the day was Meritor, the Troy, Mich.-based truck components manufacturer that came to market on Tuesday with an upsized $275 million drive-by offering of 6¾% notes due 2021.

Some $30 million of those bonds changed hands, winding up in a bid context just below 99, which a market source called down 1 7/16 points from late Tuesday, when the bonds finished around 100½ bid, after having priced earlier at par. Another source located the bonds at 98¾ bid, 99¼ offered.

Also among the actives were several other recent deals.

US Airways Group's 6 1/8% notes due 2018 were seen down nearly ½ point on Wednesday to end at 98 bid, on volume of over $13 million. A second trader had then going out at 97 7/8 bid, 98 5/8 offered.

The Tempe, Ariz.-based airline operator's $500 million offering had made an unscheduled stop in the junk market on May 21, pricing at par but then proceeding to continually lose a little altitude each day after that, sometimes on sizable volume.

B&G Foods Inc.'s 4 5/8% notes due 2021, in contrast, had priced at par May 20 as a $700 million drive-by deal, which quickly moved up to around a 101½ to 102 bid context and then seemed to stay there over the next few sessions.

But under the pressure being put on the junk market the past few days, the issue began to weaken, dipping to 101 bid by Tuesday and falling another ¾ point on Wednesday to end at 1001/4. Some $21 million of the Parsippany, N.J.-based packaged foods producer's bonds traded on Wednesday.

And Ball Corp.'s 4% notes due 2023 continued to lose ground in active dealings on Wednesday, with a market participant seeing those notes drop another 1 3/8 points on the day to close at 96¼ bid.

"Two weeks ago, that was the name that everybody was rushing to get into and just had to have," a trader acidly noted.

The Broomfield, Colo.-based packaging company's quick-to-market $1 billion deal had priced at par back on May 9, after having been massively upsized from the originally announced $600 million in order to meet heavy investor demand.

But after an initial upside flurry in the secondary arena, the bonds began dropping steadily. Traders said this coincided with the back-up in Treasury issues, which they said hurt the better-quality junk credits that had priced at relatively low spreads over Treasuries, including Ball, whose deal came at 220 basis points over.

Smithfield soars on China deal

Away from the new deals, while the junk bond market was seen generally heavier, one notable exception was Smithfield Foods, whose 6 5/8% notes due 2022 jumped by 3 1/8 points on the session to go home at 113 3/8 bid, on mammoth volume of over $40 million.

That surge came in tandem with an equally sharp rise in the Smithfield, Va.-based hog producer and pork processor's New York Stock Exchange-traded shares, which rose by as much as 31% in intra-day dealings, before finally finishing up 28.42%, or $7.38, at $33.35. Volume of 72.5 million shares was almost 21 times the usual turnover.

The bonds and shares shot upward on the news that Chinese meat-packing concern Shuanghui International Holdings had agreed to acquire Smithfield for $34 per share, or $4.72 billion in cash. With debt assumption, the deal is valued at over $7 billion - the biggest Chinese purchase yet of a U.S. company.

Market indicators drop

Statistical junk performance indicators were seen lower for a fourth consecutive session on Wednesday.

The Markit Series 20 CDX North American High Yield Index lost 7/32 point to end at 105 7/16 bid, 105 ½ offered, its fifth straight loss. On Tuesday, it had closed down 3/32 point.

The KDP High Yield Daily Index swooned by 36 basis points to finish at 75.65, its fourth consecutive downturn. On Tuesday, it had dropped by 16 bps.

Its yield meantime ballooned out by 14 bps to 5.33% on Wednesday, its fourth straight widening out, after having risen by 7 bps on Tuesday.

And the widely followed Merrill Lynch High Yield Master II Index lost 0.52% on Wednesday, its second straight loss. It had been down 0.068% on Tuesday.

The latest loss lowered its year-to-date return to 4.474% on Wednesday from 5.02% on Tuesday - its first time under 5% since April 30, when it had finished at 4.805%. And the level remained well down from its peak level for the year of 5.835%, set on May 9.

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