Petco, upsized Paetec price, both rise to close out $10 billion week; secondary slide resumes

By Paul Deckelman and Paul A. Harris

New York, Nov. 19 - The high-yield primary market on Friday closed out yet another busy week which saw $10 billion of new paper price, although activity was considerably more subdued than Thursday's whirlwind of a session.

Petco Animal Supplies Inc. and Paetec Escrow Corp. priced deals, the latter an upsized $450 million of eight-year notes and the former a $500 million tranche, also of eight-year paper.

When the two deals hit the aftermarket, traders said both moved up solidly.

The deals which priced too late Thursday to trade, like Endo Pharmaceuticals Holdings Inc., Interface Inc., Nortek Inc. and Valeant Pharmaceuticals International, moved into the secondary market on Friday, traders said. Endo and Interface did especially well and Nortek modestly well, but the Valeant bonds were not much changed from the level at which the upsized $1 billion deal had priced.

Among Thursday's other deals, Exterran Holdings Inc. hung around its par issue price, but the new deals from Gymboree Corp. and Wind Acquisition Finance SA hung on to their initial gains.

Going back earlier in the week, Dunkin' Brands and Ally Financial Inc. remained this past Monday's odd couple, with Dunkin' still hot and Ally still not.

Apart from the pricings, Cambium Learning Group Inc. was head to be hitting the road to market a six-year senior secured deal, while price talk emerged on Northern Tier Energy LLC's seven-year offering, which is expected to price on Monday.

After a decent Wednesday and a solidly better Thursday, bouncing back from declines earlier in the week, the non-new-deal secondary market reverted back to its previous form and was seen mostly easier. Negative news continued to impact names like Harrah's Entertainment Inc. and OPTI Canada.

Petco at the tight end

The Friday session saw just two tranches price - one apiece from two issuers - for a combined total of $935 million.

Petco Animal Supplies priced a $500 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 9¼%, at the tight end of the 9¼% to 9½% price talk.

J.P. Morgan Securities LLC, Credit Suisse Securities, Bank of America Merrill Lynch, Wells Fargo Securities, Morgan Stanley & Co. Inc. and Goldman Sachs & Co. were the joint bookrunners.

The San Diego-based pet food retailer will use the proceeds to refinance bank debt, to pay for a tender for its 10½% senior subordinated notes and to fund a dividend.

Paetec upsized

Meanwhile Paetec Escrow priced an upsized $450 million issue of 9 7/8% eight-year senior notes (Caa1/CCC+) at 96.674 to yield 10½%.

The yield printed at the wide end of the 10¼% to 10½% yield talk. The reoffer price came cheap to discount talk of 2 to 3 points. The amount was increased from $420 million.

Deutsche Bank Securities Inc. and Bank of America Merrill Lynch were the joint bookrunners for the acquisition deal.

$10.4 billion week

With Friday's deals in the tally, the Nov. 15 week saw $10.4 billion of proceeds raised in 23 junk-rated dollar-denominated tranches.

That extends the year-to-date total issuance to $266 billion in 594 tranches, as the 2010 primary market plunges ever deeper into record territory.

Northern Tier sets talk

Looking ahead to the holiday-abbreviated week ahead, Northern Tier Energy LLC and Northern Tier Finance Corp. talked their $290 million offering of seven-year senior secured notes (B1/BB-) with a 10½% area yield.

The book close at 11 a.m. ET on Monday, with the deal set to price after that.

Goldman Sachs & Co. is the left bookrunner for the acquisition financing. Macquarie, RBC Capital Markets Corp. and SunTrust Robinson Humphrey Inc. are the joint bookrunners.

Deals delayed

Apart from Northern Tier Energy, there were some question marks as the Friday session drew to a close, sources said.

At least half a dozen deals that had been expected to price by Friday's close were pushed into the pre-Thanksgiving week, one debt capital markets banker reckoned.

The hard-rallying high-yield market, characterized by accounts clamoring for bonds and harping about allocations throughout the autumn, may finally be seeing some investor pushback, a high-yield mutual fund investor said.

Witness the withdrawal of Burlington Coat Factory's $500 million debt refinancing and dividend-funding deal on Thursday, the investor said.

Witness also the $723 million outflow from high-yield mutual funds for the week to Wednesday, as reported Thursday by Lipper-AMG.

That outflow snuffed a 10-week streak of inflows.

Some of that money is moving into leveraged loans and some is migrating to the stock market, the investor said, adding that risk and return have lately fallen out of balance in the junk bond market.

Hence, as the primary market steers into the three-session pre-Thanksgiving week, it does so with a $3 billion calendar, and an expectation on the part of some market watchers that some of that calendar might not actually clear before the cranberries are dished up.

Cambium for post-Thanksgiving

One new deal was announced on Friday - this one set to price after the four-day Thanksgiving break.

Cambium Learning Group will begin a roadshow on Monday for its $175 million offering of six-year senior secured notes.

The roadshow wraps up on Dec. 1.

Barclays Capital and BMO Nesbitt Burns are the joint bookrunners for the debt refinancing and general corporate purposes deal.

New Paetec deal pops...

When Paetec Escrow's new eight-year deal priced, a trader said "that one jumped up" after having come to market at a deeply discounted 96.674.

He said that "someone wanted to pay us 98.5 - but now [around the time of Friday's close], they're 99¼ bid, 99¾ offered."

The Fairport, N.Y.-based business communications provider's bonds were "hanging in there," he said.

"They're doing very well."

Another trader, later in the session, quoted the new Paetec bonds as having gotten as good as 101 1/8 bid, 101 65/8 offered.

...and so does Petco

The trader also said that Petco Animal Supplies' new eight-year notes were "doing great."

He saw the San Diego-based pet supplies retailer's deal trading at 101 bid, 101 5/8 offered, after having priced earlier at par.

A second trader saw those bonds as good as 101¼ bid, 101¾ offered.

Late-Thursday deals mostly up

Among the deals which priced on Thursday but which came to market too late for trading that session, Endo Pharmaceuticals' 7% notes due 2020 at 101 bid, 101½ offered, a trader said.

That was up from the par level at which the Chapps' Ford, Pa.-based drug maker's $400 million offering had priced.

A trader said that Atlanta-based carpet maker Interface's 7 5/8% notes due 2018 had pushed up to 102 bid, 102¼ offered, well up from the $275 million deal's par issue price. "They're hanging in there," he said. 'That's a very good name."

Another trader saw the bonds going home at 102¼ bid, 102¾ offered.

One of the traders opined that "it looks like Nortek did okay, too." He quoted the building products maker's downsized $250 million of 10% notes due 2018 at 100½ bid, 101 offered.

However, a trader said that the new Valeant Pharmaceuticals International 6 7/8% notes due 2018 "went nowhere," quoting the bonds at 99 bid, 99½ offered.

The Mississauga, Ont.-based drug maker's quickly-shopped $1 billion offering - upsized from the originally announced $700 million - had priced late Thursday at 99.24 to yield 7%, but came too late for any aftermarket that session.

A second trader said that the issue was "a little lower" on the day at 99 bid, 99 1/8 offered.

"They traded up and then they traded down a little bit."

Other Thursday offerings

Among the deals which priced earlier in the session and which did see come trading on Thursday, a trader said that Giraffe Acquisition Corp. - i.e. Gymboree Corp. - was "still hanging in there."

He quoted the San Francisco-based specialty retailer's 9 1/8% notes due 2018 at 101 1/8 bid, 101½ offered, up from the par price at which the $400 million issue had priced..

A trader saw Wind Acquisitions' upsized $1.3 billion behemoth of a deal at 100 3/8 bid, 100 5/8.

That was well up from the 99.323 level at which the unit of the Italian telecommunications company had priced its big deal on Thursday.

Dunkin' still sizzles

A trader - noting that Dunkin' Donuts was his "favorite place" every morning for coffee and, of course, doughnuts - said that the Canton, Mass.-based doughnut shop and ice cream store's $625 million of 9 5/8% notes due 2018 remained solid at 100½ bid, 100 5/8 offered, well up from the 98.5 level at which those bonds had priced on Monday.

Monday's other notable pricing, Ally Financial's $1 billion of 6¼% notes due 2012, was seen continuing to struggle on Friday.

The $1 billion drive-by deal for the former GMAC was being quoted Friday at 98.5 bid, off slightly from 98.602 at which the notes had priced to yield 6½%. During the week, they had traded as low as 97 bid.

Secondary mostly down

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index gaining 1/8 point on Friday to end at 100 5/8 bid, 100 7/8 offered, after having risen 5/8 point on Thursday to bring the index back over the psychologically potent par bid level. Thus, after falling badly at midweek, the index ended the week marginally above the 100 9/16 bid, 100¾ offered level seen at the end of the previous week, on Nov. 12.

However, the KDP High Yield Daily index meantime fell by 15 basis points on Friday to end at 74.13, after having shot up by 28 bps on Thursday. Its yield rose by 4 bps to 7.27% Friday from Thursday's 7.23%. The index thus ended the week well below the 74.80 reading seen the previous Friday, while its yield widened out notably from the previous Friday's 7.10%.

And just a day after posting its first gain after four straight sessions on the downside, the Merrill Lynch High Yield Master II index fell by 0.083% on Friday, versus its 0.204% gain on Thursday. That left its year-to-date return at 14.119%, down from Thursday's 14.214% and from the 2010 peak level of 15.602% reading recorded on Nov. 9. For the week, the index fell by 0.711% to finish below the previous Friday's 14.937% reading.

Advancing issues fell behind decliners on Friday, by about a six-to-five margin, after having led them for two consecutive sessions, though their winning margin was just a few dozen issues out of the nearly 1,500 which traded.

Overall activity, represented by dollar-volume levels, slid by 40% on Friday, after having risen by 22% on Thursday from the previous session's volume level.

A trader said that apart from the secondary market's trading of new issues and those established names having real news out on them, Friday's session was "pretty boring."

Gaming issues come up losers

Among specific names, a trader said that Mohegan Tribal Gaming Authority was a name that "people are very, very nervous about".

He said that the 8% notes due 2012 issued by the owners of the Mohegan Sun casino resort in Uncasville, Conn. are down "at least" a point or two to the 86-87 range.

"There were more sellers," he said. "There was a lot of nervousness about what they're going to do with the company."

Also in the gaming space, a trader said that Harrah's Entertainment Inc. bonds were "obviously" weaker by 1 or 2 points after the Las Vegas-based casino giant cancelled its much-anticipated initial public offering.

He said the 10% notes due 2018, "probably the go-go bond," had eased to around 85½ bid, 86½ offered from prior levels around 87 or 88 bid.

GM keeps gyrating lower

A trader said that the bonds of Motors Liquidation Co. were again "getting hammered" in the wake of this week's pricing of the "new" General Motors' initial public stock offering and the beginning of trading in those shares on Thursday.

He saw the "old" GM's zero-coupon bonds due 2033 at 30½ bid, 31 offered, well down from the 35 bid, 36 offered level they held at the beginning of the week.

He meantime saw the widely held 8 3/8% benchmark bonds also due 2033 around 31 bid, 32 offered, down from levels as high as 36-37 at the beginning of the week.

He expressed puzzlement that the bonds were doing as badly as they are, especially since the company's valuation, reflected in the price of its new stock, seems considerably stronger with the stock issued at $33 per share than it would have been had the shares priced at the originally envisioned $26 per share low point.

At another desk a trader saw the GM, benchmarks down ¾ point on the day at 31½ bid, 32½ offered. He also saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 - which had fallen steeply on Wednesday in line with the slide in GM as the latter's stock deal priced, then recovered all of that ground on Thursday to move back above the 110 mark, was once again under fire on Friday, dropping 1½ points to end at 108½ bid, 109½ offered.

OPTI off on projection

A trader said OPTI Canada's bonds "got hit pretty good again today," continuing to be hurt by the announcement earlier in the week by the Calgary, Alta.-based energy company's partner in an ambitious oil-sands development project at Long Lake, Alta., Nexen Inc., that the facility won't hit full production capacity either this year or next.

He estimated OPTI Canada's bonds - which have been on the slide this week - to be down around another 2 to 3 points on Friday, with the 8¼% senior notes due 2014 at 71 bid, versus 73 late Thursday, 75 bid, 76 offered on Thursday morning and 76½ bid before Nexen's announcement.

"They're down about 5 or 6 points in the last couple of days," he said,.

A second trader saw the 81/4s at 70¼ bid, 71¼ offered, and saw the company's 7 7/8% second-lien senior secured notes due 2014 likewise lower at 70 bid, 71 offered.

"The bonds continued to drift down," said yet another trader, who mentioned OPTI Canada at the top of his list of notable market moves Friday. He quoted the bonds at 70½ bid, 71½ offered.

"People are checking me left and right on that one."

Nexen - which owns 65% of the Long Lake project, with OPTI having the other 35%- said on Tuesday that the project would produce between 38,000 to 42,000 barrels per day next year of bitumen - a very thick, heavy grade of crude oil which the partners aim to extract and convert to the more marketable light, sweet crude at Long Lake using a proprietary process they have developed. However it had been originally projected that production would hit 72,000 barrels per day in 2011.

Nexen projected that as Long Lake's ramp-up continues, it will raise production to a range of between 42,000 and 55,000 barrels per day by the end of next year, still well below the original production targets.

However, Nexen's chief executive officer, Marvin Romanow, said at an investor conference on Tuesday that he does expect Long Lake to soon begin generating positive cash flow rather than costing its owners money.

Romanow told the investors that Long Lake has now moved to a break-even point and "we are headed in the right direction."

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