Junk wraps $6.5 billion week with no further dollar bonds; recent deals ease on softer market

By Paul Deckelman and Paul A. Harris

New York, Feb. 10 - The high-yield primary market closed out the week on Friday the way it had begun it on Monday - quietly, with no dollar-denominated junk bond issues heard to have priced by the time things wound down.

Even the $500 million deal from energy operator Endeavour International Corp. - expected to price after it was heard by market sources to have to have been restructured into a shorter deal with less call protection and improved covenants and a likely fatter yield to sway would-be buyers - turned out to be a no-show, at least for this session.

That closed out a week which saw $6.57 billion of new bonds price - a respectable enough amount, but one dwarfed by last week's titanic $15.37 billion flood of new paper, which had made that week ended Feb. 3 not only the busiest new-issue week this year, but also the heaviest since last May.

Friday's only pricings took place among overseas-domiciled issuers doing non-dollar deals, with Swedish alarm service provide Verisure Holding AB (Securitas Direct) pricing a €871.5 million three-part offering of euro-denominated notes. Terms emerged on French cable operator Numericable Finance & Co. SCA's €350 million of seven-year secured notes, which priced Thursday.

There was some forward calendar action, though, as medical services provider PSS World Medical Inc. was getting ready to hit the road to market a $250 million 10-year issue, while chemical maker M&G Finance Corp. - whose seven-year secured notes deal is already on the calendar - was heard to have downsized that deal and restructured it.

Among the issues which priced on Thursday, latecomer Caesars Entertainment Corp.'s new bonds were heard by traders to have pretty much stayed right around their issue price. Reynolds Group Holdings Ltd. surrendered the initial aftermarket gains it had notched after pricing, as did Ally Financial Inc. And Thursday's big loser, the new Kinetic Concepts Inc. bonds, just kept stumbling and tumbling lower.

Away from the new deals, traders saw the overall market down, as stocks and junk reacted negatively to the continued European turmoil surrounding plans to bail out Greece, which saw riots in the streets on Friday.

Among the losers was auto-battery maker Exide Technologies Inc., whose bonds and shares slid even though it reported better-than-expected earnings - but missed analysts' revenue projections.

Amid an overall soggy market, statistical performance indicators all turned negative on the day, although they were still mostly improved versus last week.

Verisure upsizes

No dollar-denominated deals priced during Friday's primary market session, and the week ended having seen $6.57 billion of issuance in 10 junk-rated dollar-denominated tranches.

To Friday's close, 2012 issuance came to $43.68 billion in 82 tranches, according to Prospect News data.

Sweden's Verisure Holding AB (Securitas Direct) completed an upsized, restructured €872 million three-part note transaction on Friday.

A €100 million tranche of series A floating-rate notes due Sept. 1, 2018 (B2/B) were priced with a coupon of three-month Euribor plus 650 bps at 93.

A €500 million tranche of 8¾% series A fixed-rate notes due Sept. 1, 2018 (B2/B) were priced at 94.08 to yield 10%. The yield printed in line with yield talk.

Both of the series A tranches came with first-lien security.

The €900 million hung bridge loan also had €271.5 million of second-lien debt.

Due to the intense demand for the first-lien paper dealers decided to offer the second-lien notes as well.

It came in the form of €271.5 million of 8¾% series B notes due Dec. 1, 2018 (Caa1/CCC+) which came at 83.194 to yield 12½%. The yield printed on top of yield talk.

With the addition of the series B notes, the overall deal size grew from €600 million.

Global coordinator and joint bookrunner Morgan Stanley will bill and deliver. Goldman Sachs International was also a global coordinator and joint bookrunner. Bank of America Merrill Lynch, HSBC, Nomura and Nordea were also joint bookrunners.

Proceeds will be used to refinance debt used by Bain Capital and Hellman & Friedman to acquire Securitas Direct from EQT.

Big demand for Securitas

Demand for the new Securitas bonds - particularly the series B second-lien paper - was intense, according to market sources on both sides of the Atlantic.

Although a syndicate banker would only allow that the deal was oversubscribed, an investor gave more graphic accounting, saying that allocations were running about 10% of order sizes "which tells you pretty much all you need to know about the demand."

The €271.5 million of 8¾% notes due Dec. 1, 2018 which came at 83.194 to yield 12½% played to very strong demand, according to a debt capital markets banker in London, who remarked that accounts in Europe have bundles of cash to put to work, and so found the discount and yield on the Securitas paper nearly irresistible.

As to the global configuration of accounts playing the deal, the split was about 50-50, with half the players in Europe and the other half in the United States.

M&G downsizes, rejigs deal

M&G Finance Corp. downsized its offer of seven-year senior secured notes to a $200 million to $300 million range from its previously announced size of $500 million, a syndicate source said on Friday.

Call protection was extended to the lifetime of the notes from previous call protection of four years.

Dealers talked the notes with a 10% coupon, with approximately 10 points of original issue discount, to yield 12%.

Books close at 5 p.m. ET on Monday. The deal is set to price on Tuesday.

J.P. Morgan has the books.

The Rule 144A and Regulation S for life notes are rated BB by Fitch Ratings. Moody's Investor Services is expected to assign a B3 rating.

M&G is the second deal to undergo substantial revisions in the past two sessions.

On Thursday Endeavour International Corp. restructured its $500 million offering of senior notes and increased the price talk.

The maturity of the notes was decreased to six years from eight years, and the call protection was decreased to three years from four years.

Revised price talk has the notes pricing with a 12% coupon at 96 to yield 13%. Earlier talk specified a yield in the 11½% area.

There were also covenant changes.

Although the Citigroup-led deal was initially expected to price Friday, the final pricing was pushed back until Monday, according to a buyside source, who added that the order book is believed to be about deal size.

PSS to roadshow from Monday

PSS World Medical will start a roadshow on Monday for a $250 million offering of 10-year senior notes.

The deal is set to price late in the week ahead.

Credit Suisse and Bank of America Merrill Lynch are the joint bookrunners.

Proceeds will be used to pay down revolver debt, partially pre-fund repayment of the company's convertible notes due 2014 and for general corporate purposes.

Northland marketing $450 million

Northland Resources SA and its wholly owned subsidiary Northland Resources AB are marketing $450 million equivalent of bonds in one or several tranches.

The book-building process is set to conclude on Tuesday.

Pareto Securities AS is acting as global coordinator and sole bookrunner.

Proceeds will be used for financing various costs, capital expenditures and working capital in connection with the development of the Kaunisvaara Project, and funding the debt service reserve accounts.

Northland is a Luxembourg-listed development-stage mining company with a portfolio of iron ore projects in northern Sweden and Finland.

The company's Kaunisvaara Project will exploit two magnetite iron ore deposits in Sweden.

'A Greece fire'

Traders said that the high-yield secondary remained mostly focused on the new deals that had come to market earlier in the week - but the overall tone was negative mirroring the tone in the equity market, which retreated as the wheels seemed to come off the latest effort to save failing Greece from a default; European finance ministers balked at the plan that was being touted as the magic bullet just a day or two ago, demanding deeper spending cuts and more austerity - which in turn sent thousands of Greeks into the streets to clash with police in Athens and elsewhere.

"Everyone was saying 'let's put Greece back on the front burner' as something to worry about," a trader said.

"When you see people throwing Molotov cocktails and rocks at the cops in Athens, it kind of grinds things to a halt. "We have a Greece fire."

A second trader characterized Friday's market as "a little sloppy, for a change," versus the more positive junk bond sessions we had been seeing lately.

He called the overall market tone "very nervous," in terms of all of the uncertainty, particularly the revival of market worry about the European debt situation and other unsettling political and macroeconomic developments both overseas and at home.

Caesars a little lower

For instance, he said, "when I left the office [Thursday] night, they had finally priced Caesars, and the first quote as they went out was 1001/2-101. When I walked in this morning, and I was in at 7:15 [a.m. ET], it was 'par bid hit, more offered.' And that set the tone for the day, for a little retrenchment across the board."

He saw the Las Vegas-based gaming giant's $1.25 billion offering of 8½% senior secured notes due 2020, which had priced at par late Thursday, really too late for any kind of real aftermarket at that time, at 99 7/8 bid, par offered.

Compared with the kind of backsliding seen in the other new deals, those bonds of the former Harrah's Entertainment, "pretty much held their own."

A second trader saw the new bonds trading inside a 993/4-par context, while a third also saw them around 99¾ bid, par offered.

Ally trades off

Thursday's big deal from Detroit-based automotive and mortgage lender Ally Financial was seen lower on the day Friday versus the aftermarket levels seen on Thursday, when the former GMAC priced a quickly-shopped $1 billion issue of 5½% five-year senior notes at 98.926 to yield 5¾%. When those bonds were freed for trading, they had risen between a half-point and a point. A typical quote was 99½ bid, 99¾ offered.

But on Friday, a trader saw them having fallen back a little to 99 bid, 99 3/8 offered, while a second trader saw them having declined even further, to 98 5/8 bid, 98 7/8 offered.

Reynolds in retreat

The traders saw big losses in another one of Thursday's big deals - Auckland, New Zealand-based packaging products maker Reynolds Group Holdings' opportunistically timed, quickly shopped and massively upsized $1.25 billion add-on to its 9 7/8% senior notes due Aug. 15, 2019.

While those bonds - increased from the initially announced $750 million - priced at par to yield 9 7/8%, they quickly pushed up to 101 bid, 101¼ offered in the aftermarket.

On Friday, however a trader said "they backed down today" - although he added that "everything backed down."

He quoted the new Reynolds deal going out at 99¾ bid, 99 7/8 offered, which he said was, all told, "not too bad."

At another desk a trader said the bonds were at par bid, 100½ offer - essentially unchanged from their issue price, though down from their late-Thursday highs.

A third trader did see the Reynolds paper holding onto at least some of their gains from the previous session, pegging them at 100¼ bid, 100 offered.

Kinetic carnage continues

While those bond deals were all seen trading lower, they had at least been initially higher.

But there was no such silver lining for the last of Thursday's four big deals - from San Antonio, Tex.-based medical technology company Kinetic Concepts Inc. and its KCI USA, Inc. unit, whose $750 million of 12½% senior notes due Nov. 1, 2019 priced at 98.75 to yield 12¾% and then promptly began to trade lower, finally going home Thursday quoted as low as 97¼ bid, 97¾ offered.

And it was more of the same on Friday, when one trader saw them go as low as 95 bid, 95½ offered.

A second trader said that he "just heard it being offered, all over the place, down in the 96 range."

He said that it was "kind of ugly."

At another desk, a trader flatly declared that "that thing [i.e. Kinetic] was a dog."

He said that after the initial trading near issue, "they kept drifting, drifting, drifting," to around a 96-96½ context, "if the bid is real."

He added that that deal is "last one out is a rotten egg."

He said that he had talked to a "major" investor in the company's existing debt "and they just didn't like the covenants - they thought it wasn't being marketed properly, and they just decided to stay away - and this was when the market was hot."

He concluded that "it almost sounded like that deal was doomed before they even priced it."

Junk off on day, mixed on week

Away from the new deals, after four straight sessions of being mixed, statistical measures of junk market performance headed for the downside on Friday. However, they remained mixed for the week as a whole, with a somewhat positive bias on that basis.

The CDX North American Series 17 High Yield index - which had been consistently lower all week, including Thursday's 9/16 point retreat - did not deviate from that pattern Friday, as a trader saw it down by another ½ point to end at 96 7/8 bid, 97 1/8 offered.

That was a clear deterioration from the 98 5/8 bid, 98 7/8 offered level at which the index had closed out the previous week on Friday, Feb. 3.

The KDP High Yield Daily Index lost 7 basis points on Friday to close at 74.32, after having gained 1 bp on Thursday. Its yield rose by 5 bps to 6.67%, after having come in by 1 bp on Thursday.

But the index was up from 74.13 a week ago, and its yield had come in from 6.70% last week.

And the widely followed Merrill Lynch High Yield Master II Index finally faltered after eight consecutive winning sessions, falling by 0.122% on Friday, in contrast to Thursday's 0.035% gain.

The loss dropped the index's year-to-date return to 3.664% on Friday, down from Thursday's 3.884%, the peak level for the year so far.

However, the index showed a one-week gain of 0.28%, its eighth consecutive advance versus the previous week. The index had closed the previous Friday with a year-to-date return of 3.374%.

Exide paper loses energy

Among specific issues, a trader said Exide Technologies' 8 5/8% notes due 2018 were "getting rocked" after the company put out earnings that missed the market.

The trader saw the bonds falling as much as 5 points on the day to end at 791/4. That compared to an intraday low of 77½ - well under the closing levels around 86 on Thursday.

Another trader said the bonds "traded off half a dozen points" to 79 bid, 80 offered.

A market source at another shop said that Exide's paper was down some 6½ points on the day at 791/4. Volume was over $47 million, making it the busiest Junkbondland issue on the session.

The Milton, Ga.-based battery maker reported its fiscal third-quarter earnings on Friday. Profit more than doubled due to a $76.7 million French tax benefit, but revenues unexpectedly declined.

The company blamed the revenue dip on "unseasonably warm" weather.

For the quarter ended Dec. 31, net profit was $68.2 million, or 84 cents per share, versus $31.2 million, or 38 cents per share, the year before. Revenues declined 2% to $784.1 million.

Analysts polled by Thomson Reuters were expecting earnings of 20 cents per share on revenues of $847 million.

Looking forward, Exide said that continued mild weather in North America and Europe would likely impact its results, as would a slowing economy.

"A continued focus on costs will allow us to partially mitigate these negatives," said Jim Bolch, president and chief executive officer, in the earnings release. "In light of these continuing uncertainties, the company expects its fiscal 2012 operating income will be less than previously projected and does not anticipate providing specific earnings guidance for the foreseeable future."

Stephanie N. Rotondo contributed to this report

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