Pause marks end of $6.4 billion week; new Toys bonds firm, Aurora jumps; McClatchy up on Q2

By Paul Deckelman and Paul A. Harris

New York, July 27 - The high-yield market closed out a moderately busy week on a quiet note on Friday, as no new dollar-denominated, junk-rated deals were heard to have come to market during the session.

That left the week's new-issuance total at $6.43 billion in 19 tranches - a respectable enough number, although far short of the $10.3 billion in 21 tranches which had priced the week before, ended July 20.

That brought year-to-date issuance up to $176.2 billion in 382 tranches, down some 15.6% from $208.9 billion in 460 tranches that had priced by this time a year ago.

While no new issues priced, syndicate sources heard that TRAC Intermodal LLC, which provides cargo containers and chassis to the trucking, rail and maritime freight shipping industries, plans to hit the road on Monday to market a $305 million seven-year secured deal.

Among the issues which came to market during the week, traders saw Toys 'R' Us Inc.'s new five-year notes having firmed from Thursday's issue price, along with very strong levels in Aurora USA Oil & Gas Inc.'s five-year add-on notes, which also priced on Thursday. Biomet Inc.'s new offering, and The Pantry Inc.'s, both eight-year issues that priced Wednesday, had also moved up.

Away from the new issues, newspaper publisher McClatchy Co.'s bonds and shares rose after a good second quarter, which included progress paying down its debt.

In general, the market was strong, buoyed by continued funds coming into junk, as well as better investor sentiment in risk markets overall - stocks closed out the week on a very strong note - amid hopes for further monetary stimulus from the Federal Reserve.

Statistical indicators of market performance were higher on the day Friday, although they were seen as mixed versus the somewhat stronger levels seen at the end of last week.

TRAC starts marketing Monday

A quiet summer Friday session in the primary market passed without a single issue pricing - but the dealers did announce one roadshow start.

TRAC Intermodal plans to begin meetings on Monday to promote its $325 million offering of seven-year senior secured second-lien notes (B3/B-).

The deal, via J.P. Morgan, Bank of America Merrill Lynch, Deutsche Bank, DVB Bank, RBC and Wells Fargo, is set to price late in the week.

The Princeton, N.J., intermodal chassis solutions provider plans to use the proceeds to repay bank debt, as well as to terminate existing interest rate swap agreements, pay prepayment penalties and for general corporate purposes.

Big inflows, small calendar

In accordance with Thursday's news that high-yield mutual funds saw their biggest inflow of the year to date, $2.01 billion according to Lipper-AMG, the high-yield buyside is perceived to have a pile of cash that it wants to put to work in junk.

However the announced calendar is thin, with just two dollar-denominated deals presently on the road.

In addition to the above-mentioned TRAC Intermodal offer, Crescent Resources, LLC is marketing a $325 million offering of seven-year senior secured notes (confirmed Caa2/expected B+).

That deal, via Jefferies, Credit Suisse and J.P. Morgan, is also expected to price during the July-August crossover week.

The clearing level on Crescent Resources probably should be 11%, said a buyside source who is watching the situation closely.

However the issuer - almost certainly armed with the knowledge that the buyside has that pile of cash which it needs to put to work - has a somewhat different view, the buysider conceded.

Apart from those two announced deals the drive-by market, which has run hot and heavy since the Fourth of July, will continue to crank, syndicate sources say, although no one saw fit to volunteer any names on Friday. Since July 4, there has been $12 billion in 26 drive-by tranches representing 60% of the total new issue volume during that period.

Two names do appear within a fortnight or less of launching, sources said.

Ashland Inc. is expected to sell notes to help fund a tender offer for its $650 million of 9 1/8% senior notes due June 1, 2017, sources say.

Citigroup and Deutsche Bank are the dealer managers for the tender, which expires on Thursday.

Also WaveDivision Holdings LLC is expected to bring a $250 million offering of senior notes (Caa1//) to market in late July or early August, in an acquisition financing via Deutsche Bank, Wells Fargo, RBC and SunTrust.

A $470 million term loan was launched at a bank meeting on Thursday.

Aurora shines brightly

A generally firmer tone in the junk market led to solidly improved levels for some of the new deals which had priced during the week, particularly for Aurora's new add-on to its existing 9 7/8% notes due 2017.

The U.S. unit of the West Perth, Australia-based energy company priced its $165 million offering on Thursday, upsized from an originally announced $100 million, with the quick-to-market deal pricing at 101.5, for a yield to worst of 9.364%.

While there was no immediate aftermarket action seen that session, a trader on Friday saw the bonds having pushed up to 104 bid, 105 offered.

"They did well, even though it was a really small deal," a second trader said, in pegging the new bonds at 103¼ bid, 103¾ offered.

"We had a big inflow [Thursday] and people had to put their money to work."

Toys trades up

Thursday's other pricing, from Wayne, N.J.-based specialty retailer Toys 'R' Us, also improved, though not quite as dramatically.

The quickly-shopped $450 million issue of 10 3/8% notes due 2017 had priced at 99.033 to yield 10 5/8% after upsizing from an originally announced $350 million, but came too late in the day Thursday for any kind of an aftermarket.

Then on Friday, a market source saw the new bonds at 100¼ bid, 100½ offered, in what he described as "active trading." That level was later echoed by a second trader.

At yet another desk, a trader said the bonds were at 100 3/8 bid, 100½ offered.

"That was a very suspect deal, at first," he opined. "People weren't too keen on it, initially - but the [strong] market helped it tremendously," along the lines of the old saying about a rising tide lifting all boats.

"That was exactly the case," he said.

Senior analyst Kim Noland of the Gimme Credit independent research service said in a note on Friday that while the generous coupon and yield was "enticing" enough to investors to warrant the upsizing, still, "[w]e view this as a very high yield in the current environment and the company's inability to achieve a lower interest rate is reflective of weak credit measures and also to further potential financial weakness."

Noland also noted that while the deal proceeds will be used to repay the company's outstanding $400 million of 7 1/8% notes due 2013, thus improving its maturity profile, the transaction does not completely address the still over $1 billion of 2013 maturities.

Even so, Noland allowed that with the latest deal, its credit quality deterioration "is likely stabilizing."

Biomet gets better

Among some of the deals which priced earlier in the week, one which stood out in Friday's aftermarket was Biomet Inc.'s 6 ½% notes due 2020. The Warsaw, Ind.-based maker of artificial joints and other orthopedic medical devices and products priced its quick-to-market $1 billion offering of those bonds at par on Wednesday, after nearly doubling the size of the transaction from an originally shopped $550 million.

While the new issue was originally quoted only marginally higher, by the end of that afternoon, traders sere seeing it having gotten as good as 101 bid, 101 ¼ offered.

On Friday, a trader saw the bonds having improved handsomely, to 102 ¼ bid, 102 ¾ offered.

A second trader saw the bonds trading in a bid range of 101 5/8-and102 1/8, finally going home around 101 ¾ bid.

"People liked that name from the get-go," he declared

Pantry pops up

A trader saw The Pantry's new 8 3/8% notes due 2020 trading north of the 102 mark, getting as good as 102½ bid.

The Cary, N.C.-based convenience store chain operator had priced its $250 million scheduled forward calendar deal on Wednesday at par; the new bonds had gotten up to a 101¾ bid, 102¼ offered level on Thursday, and continued to improve as the week finished up.

Universal eases off

Several traders saw Universal Hospital Services Inc.'s 7 7/8% second-lien senior secured notes due 2020 trading just a little bit above par on Friday.

One quoted the bonds at par bid, 100½ offered, while a second located them at 100½ bid, 100¾ offered.

"I saw that get weaker," he noted "they came in."

The Minneapolis-based provider of sophisticated medical equipment to hospitals and other healthcare institutions brought its $425 million drive-by deal to market on Tuesday, pricing the bonds at par and seeing them later that session at 100½ bid. However, on Wednesday, the new issue had firmed smartly rising to a 101½ to 102 context.

No one offered any explanations as to why the deal had backed off from its initially strong aftermarket levels of earlier in the week to end on Friday near its issue price.

Better overall tone

The erosion of the Universal Hospital bonds, however, was the exception rather than the rule, with most of the new issues that had priced firming from their earlier levels and even non-new-deal secondary names also seen mostly taking an upside ride.

In the wake of the better than $2 billion of inflows to high-yield mutual and exchange-traded funds in the latest week that was reported Thursday by both the AMG Data Services unit of Thomson Reuters' Lipper analytical group as well as the rival EPFR Global, one of the traders suggested that "all of a sudden, the market feels healthy and it looks like the Fed is going to ease," brightening overall investor sentiment in risk markets such as equities and junk bonds.

Stocks for instance, were up across the board on Friday for a second straight session; between that advance and Thursday's big gains, the previous downturns were pretty much eradicated. The bellwether Dow Jones Industrial Average actually saw its third straight gain, shooting up by 187.73 points, or 1.46%, to climb back over the psychologically potent 13,000 level for the first time in several weeks and end at 13,075.66.

The broader Standard & Poor's 500 and Nasdaq Composite indexes, meantime did even better, propelled upward by hopes that the Fed and the European Central Bank will provide monetary stimuli in order to avoid a slide backward into recession by the U.S. and European economies. The S&P index rose 1.91%, while the Nasdaq zoomed by 2.24% on the day.

Back in Junkbondland, statistical indicators were better on the day across the board for a third straight session, although they were mixed versus a week earlier for a second straight week.

A trader saw the Markit Group CDX North American Series 18 High Yield Index jump by 1 3/16 points on Friday to go out at 97¼ bid, 97½ offered, after having risen by 5/8 point on Thursday. It was the index's third straight gain.

That closing level was also up by about a point from the level seen at the close the previous Friday, July 20.

The KDP High Yield Daily Index rose by 7 basis points on Friday to finish at 73.43, its second straight advance, after having firmed by 5 bps on Thursday.

Its yield contracted for a third straight session, declining by 3 bps to end at 6.37%, after having also come in by 3 bps on Thursday.

However, the index reading represented an erosion from the previous Friday's 73.59 index reading while the yield rose slightly from the prior week's 6.36%.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its second straight gain on Friday, adding 0.164%, on top of Thursday's 0.144% rise.

The latest gain lifted its year-to-date return to 8.574% from Thursday's 8.396%. Friday's reading established a new peak level for 2012, eclipsing the old mark of 8.457%, which had been set the previous Friday. The index's recent levels are the strongest they have been since the end of 2010, when the market measure returned 15.19%.

The index was also up on a one-week basis by 0.107% Friday, its eighth straight week-over-week advance.

McClatchy moves up

Among specific non-new-deal credits, a market source said that McClatchy's 11½% senior secured notes due 2017 were up by 2¼ points on Friday to close at 106¼ bid, on volume of over $15 million - the most active of any purely junk-rated issue, although the split-rated Ford Motor Credit Co. LLC's 5% notes due 2018 knocked down more volume, at over $28 million.

McClatchy's other bonds saw considerably less trading, its 5¾% notes due 2017 gaining 2 1/8 points to end at 82¼ bid, but on only a couple of million bonds traded.

The Sacramento, Calif.-based newspaper publisher 's New York Stock Exchange-traded shares meantime zoomed by as much as 16% intra-day, before going out up 16 cents, or 9.52%, at $1.84, on volume of 582,000 shares, an 81% gain over the average daily turnover.

The bonds and shares bounced after the company reported net earnings of $26.9 million, or 31 cents per diluted share, in the 2012 fiscal second quarter ended June 24. That was a big improvement over the year-earlier profit of $4.9 million, or 6 cents a share, and handily beat Wall Street's expectations of an 8 to 10 cent per share profit.

The company also reported that during the quarter, it reduced its debt by $35 million, and has brought debt down by more than $70 million in the first two quarters of the year, ending the second quarter with a debt level of $1.564 billion and a cash balance of $37.7 million.

The company's chief financial officer, Elaine Lintecum, said on its conference call following the release of the results that McClatchy's nearest-term maturity of November 2014 for its 4 5/8% notes, totals just $66 million, which she declared was "not an issue given our free cash flow."

The CFO also said that its leverage ratio at the end of the second quarter as defined in it credit agreement was 4.57 times cash flow, with interest coverage of 2.24 times.

Lintecum also said that legislative changes have reduced its pension funding obligations from about $78 million for 2013 and 2014 combined, to approximately $10 million in 2013 and $25 million in 2014, "allowing us to focus more cash on debt repayment."

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