Sappi, MTR deals price; CIT gyrates again after change to tender; NXP up solidly on results

By Paul Deckelman and Paul A. Harris

New York, July 17 - The high yield primary market closed out an already busy week by pricing two additional deals, bringing the week's total to nearly a dozen, totaling nearly $3 billion and €1.6 billion. South African papermaker Sappi Ltd. came to market with a two-tranche senior secured deal denominated in dollars and euros, totaling the equivalent of $800 million. Traders saw both tranches of the new bonds firm smartly when they were freed for secondary dealings.

The day's other deal was a senior secured five-year offering from MTR Gaming Group, Inc., which was seen trading up more than a point after it was freed.

The five new deals which priced on Thursday - for Basic Energy Services Inc., Greif, Inc., KB Home, Plastipak Holdings, Inc. and Reliance Intermediate Holdings LP - were all seen having traded upward by at least a point or more from the levels at which they priced. A trader was particularly impressed by the gains notched by Midland, Tex.-based oilfield services company Basic Energy Services, whose deal had languished in limbo for a couple of weeks until it was rejiggered at mid-week to better meet investor expectations.

Among the more established bonds, it was another busy session of CIT Group Inc.'s bonds, although traders said the massive surge of investor interest in the New York-based commercial lender's bonds seen over the past two weeks, closely tracking its ups and downs as it attempts to restructure its finances, seemed to finally be abating somewhat. The latest grist for the mill was the company's announcement of changes in the terms of its recently announced tender offer for its floating-rate notes coming due in August.

Elsewhere, Ford Motor Co.'s bonds cruised higher for a third consecutive session, riding the positive momentum from the Number-Two domestic carmaker's better-than-expected quarterly numbers reported on Thursday.

But the biggest gainer, market sources said, was NXP BV, as investors responded positively to the Eindhoven, Netherlands-based semiconductor manufacturer's second quarter results, which included a swing back into the black from losses in the first quarter and a year ago, as well as substantial progress in cutting its big debt load.

Big end to big week

The July 20 week in the primary market ended with another bang from Europe, following an even bigger bang on Thursday.

PE Paper Escrow GmbH priced an upsized $798 million equivalent two-part issue of five-year senior secured notes (Ba2/BB) on Friday.

The Austria-based special-purpose vehicle, a subsidiary of Johannesburg, South Africa-based coated papers company Sappi Ltd., priced €350 million of 11¾% notes at 95.066 to yield 13 1/8%. The yield came at the tight end of the 13¼% area yield talk, while the euro-denominated notes priced in line with discount talk of approximately 5 points.

The size of the euro tranche was increased from an expected range of €250 million to €300 million.

Sappi also priced $300 million of 12% notes at 95.095 to yield 13 3/8%. The yield on the dollar-denominated notes also priced at the tight end of the 13½% area yield talk. The issue price was slightly rich to the discount talk of approximately 5 points.

The dollar tranche was sized at the high end of the expected range of $250 million to $300 million.

JP Morgan, Calyon Securities, Citigroup, HSBC and RBS Securities, Inc. were joint bookrunners for the issue, the overall size of which was increased from $500 million equivalent.

Sappi will also put in place a new €650 million credit facility.

Proceeds will be used to pay off near-term debt maturities.

The euro-denominated notes were at 98 5/8 bid late Friday, versus the 95.006 reoffer price, an investment banker said.

The deal played to a very good book, the banker added.

Two days in Europe

The Sappi deal came just one day after Fiat Finance & Trade Ltd. SA priced a €1.25 billion issue of 9% three-year eurobonds (Ba1/BB+/BB+) at 99.367 to yield 9¼%, in a blowout deal that saw 500 accounts place a total of orders exceeding €10 billion.

That two-day burst of euro-denominated issuance - a face amount of €1.6 billion - is the biggest two-day total of euro denominated issuance since late November-early December 2006, according to a syndicate official

On Nov. 30 and Dec. 1, 2006 M-Real Corp., TNT Logistics and Chesapeake Energy Corp. combined to price €1.725 billion.

MTR Gaming prices notes

Also on Friday MTR Gaming Group priced a $250 million issue of 12 5/8% five-year senior secured notes (B2/B) at 95.248 to yield 14%.

The yield was printed 25 basis points beyond the wide end of the 13½% to 13¾% price talk.

Goldman Sachs & Co. was the left lead bookrunner. Deutsche Bank Securities was joint bookrunner.

Proceeds, together with cash on hand, will be used to fund a tender for the company's outstanding 9¾% senior secured notes due 2010.

A busy July

With Friday's deals in the mix, the July 20 week saw a total of $2.925 billion face amount of dollar-denominated issuance.

While that amount is not terribly conspicuous, July 2009 is shaping up to be the second busiest July ever in the high yield primary market, the syndicate official said.

According to Prospect News data, month-to-date dollar-denominated issuance stood at just over $7.77 billion proceeds, at Friday's close.

That's a mere $140 million shy of 2005's $7.91 billion July. And there is $1.245 billion on the forward calendar for the week ahead.

So July 2009 will almost certainly displace July 2005 as the second-busiest July ever, in the primary market.

However the July 2004 total, nearly $9.39 billion according to Prospect News data, is almost certain to remain intact as the high-water mark for July issuance in high yield, the syndicate banker said.

The week's calendar

At Friday's close the active forward calendar contained four deals which are expected to price during the week ahead.

Peninsula Gaming, LLC is marketing a $530 million two-part offering: $215 million of six-year senior secured notes (Ba2/BB) and $315 million of eight-year senior unsecured notes (B3/B).

The roadshow is scheduled to wrap up on Wednesday.

Jefferies & Co. is the left bookrunner. Wells Fargo Securities is joint bookrunner.

Also Global Aviation Holdings, Inc. is roadshowing $165 million of senior secured first-lien notes due 2013 (Ba3/BB-) via Jefferies.

That roadshow is scheduled to conclude on Friday.

In addition, Great Atlantic & Pacific Tea Co., Inc. plans to price a $225 million offering of six-year senior secured notes (expected ratings B3/B-), via Banc of America Securities LLC/Merrill Lynch & Co., late next week.

Also, Duane Reade Inc. is expected to price its $325 million two-part offering during the week ahead, according to an informed source.

On July 15 the New York City-based drugstore company kicked off the deal, which includes $215 million of six-year senior secured notes (B3/B-), and $110 million of seven-year senior subordinated notes (Caa2/CCC).

Goldman Sachs & Co. is the left-lead bookrunner. Banc of America Merrill Lynch is joint bookrunner.

The deal might undergo revision, market sources said during the July 20 week.

Interest among investors has been decidedly skewed toward the secured tranche, the sources added.

Apart from those four, Prospect News heard of at least a handful of deal announcements for the week ahead.

However as is so often the case, the dealers declined to furnish names.

Sappi makes 'em happy

When the new Sappi dollar-denominated 12% senior secured notes due 2014 were freed for secondary dealings, a trader said they "did really well," quoting the bonds at 99½ bid, par offered - well up from the 95.095 level at which the $300 million of bonds had priced earlier in the session to yield 13%.

Another trader saw the bonds move up to 99¼ bid, 99¾ offered.

MTR moves up

One of the traders said he saw "nothing, zero," in the way of MTR Gaming Group's new 12 5/8% notes.

"MTR? Forget it. Not one market in the thing," he declared.

However, at another desk, a little later on, a trader did see the company's new bonds having moved up to 96½ bid, 97½ offered.

Basic Energy 'best performer'

A trader said that Basic Energy Services' new 11 5/8% senior secured notes due 2014 were "the best performers" among Thursday's voluminous new issues. He said the company's $225 million of bonds, which had priced at 94.621 to yield 13 1/8%, "ran up" to 98¾ bid, 99¼ offered.

After the company announced its original deal on July 6 - for eight-year senior unsecured notes - Basic just dropped from sight, leaving some in the market to wonder if the deal would ever get done. However, the trader noted that by this past Wednesday, "they changed the terms and made it a secured deal" of only a five-year tenor rather than the original eight years, "and they got it done."

Investors feel at home with KB

KB Home's new 9.1% notes due 2017 "really ran up," a trader said, seeing the Los Angeles-based homebuilder's $265 million of new bonds push up to par bid, 101 offered.

That quickly shopped offering - upsized from the originally planned $250 million - had priced at 98.014 to yield 9.46%. Several market participants on Thursday had expressed a measure of surprise at the issue, given the relative scarcity of new homebuilder deals since the real estate market went into its massive shakeout; the most recent previous deals from that hard-hit sector were a $230 million April 30 offering from Ryland Group Inc. and a $400 million April 23 offering from Lennar Corp.

Other new issues trade higher

Traders also saw firmer levels for the other new issues which came to market on Thursday.

Delaware, Ohio-based packaging maker Greif, Inc.'s $250 million of 7¾% notes due 2019 were seen trading at 98 bid, 99 offered, That was up from the 96.637 level at which the bonds had priced to yield 8¼%.

Plymouth, Mich.-based plastic packaging maker Plastipak Holdings Inc.'s $175 million of 10 5/8% notes due 2019 - upsized from $150 million originally - had moved up to 99½ bid, 100¼ offered from the 97.739 level at which the issue priced to yield 11%.

And Reliance Intermediate Holdings LP's $250 million of 9½% notes due 2019 firmed to what a trader called its "best level" of 96½ bid,96¾ offered. The Oshawa, Ont.-based provider of heating and cooling products and services had priced its deal at 95.298 to yield 10¼%.

Market indicators move higher

Back among the more established issues, the CDX Series 12 High Yield index - which had jumped 1 3/8 points on Thursday - was seen by a trader to have stayed pretty much where it was on Friday, quoting it going out at 87¾ bid, 88¼ offered - up more than 2 points from its level the previous Friday, July 17, of 85 bid, 85½ offered.

The KDP High Yield Daily Index, which leaped 45 basis points higher on Thursday, was up another 14 bps on Friday to end at 64.83, while its yield tightened by 6 bps to 9.77%. A week earlier, the index stood at 63.26, and its yield was 10.40%.

In the broader market, advancing issues - which had led declining issues on Thursday for a fifth straight session - hung in there on Friday, maintaining an advantage of about three to two.

Overall market activity, measured by dollar-volume totals, fell by 13% from Thursday's level.

Friday, a trader said, was a "kind of dead day." There was "a lot of focus" on the new-deal names, and less so on the established secondary market - even CIT, which had dominated the proceedings for the better part of two weeks.

CIT calms down

A trader said that "even CIT sort of quieted down," in the wake of the company's announcement of changes in the terms of its tender offer for the company's floating-rate notes coming due on Aug. 17.

He guesstimated that the company's bonds were perhaps up a point, quoting the 7 5/8% notes due 2012 in a "57ish" context, which he said was perhaps 1½ points better than Thursday's levels.

He saw the August floaters as having "drifted a little higher" to the low 80s, seeing the bonds trading in an 80-82 context, up from levels Thursday in the high 70s to around 80. Unlike previous sessions, when trading in the floaters was fast and furious, even topping $100 million on some days, the most recent trade he'd seen in those bonds had been at least an hour earlier, commenting: "You're not seeing them every 10 minutes."

The trader noted that the 80-82 is "obviously" above the new basic tender consideration the company set of 77½ for its offer, down from 80 originally - although with the early tender premium of $50 per $1,000 principal amount, up from $25 originally, that would keep the total consideration for those tendering by the July 31 early tender deadline at 821/2, as in the original terms, while cutting the compensation for procrastinators tendering after the early deadline but before the offer expiration date in August from 80 to 771/2.

He said that by doing this, the company was using "brass knuckles tactics" to try to dragoon holders of the floating-rate bonds into tendering by the 31st, but "I guess people aren't too frightened of it."

Another trader said the change "solidified that the bonds should trade a little below the tender price [with the early deadline bonus], and I guess they did - most of the trades were between 80 and 82. All they did was get a bigger hammer" to make sure the holders tender their notes "sooner rather than later."

CIT has warned that a failure of its tender offer for the $1 billion of August floater notes - forcing it to instead pay them off, something it says it cannot do - could force it into bankruptcy, despite the temporary rescue plan by the major bondholders announced on Monday.

The second trader said that while there was a lot of trading in CIT bonds - about $144 million total - "it was quite a bit lighter" from last week, which saw several $1 billion-plus sessions in CIT dealings. It was even less than half of Thursday's $323 million total.

Ford firming continues

Elsewhere, a trader said Ford Motor Co. "did move up a bit," continuing to ride the momentum from Thursday's release of favorable earnings data. He saw its 7.45% bonds due 2031 trading as high as 72 bid, which he called up 3 points from high-60s levels on Thursday.

Those bonds had originally moved up 3 points to the 67 level on Wednesday on market anticipation of good second-quarterly numbers - and the Number-Two domestic carmaker did not disappoint. Citing progress in cutting costs and reducing debt, Ford reported a $2.3 billion second-quarter net profit, or 69 cents per share - a far cry from its year-earlier $2.7 billion ($3.89 per share) loss. Excluding unusual items, Ford lost 21 cents per share - less than half the 50 cents per share of red ink Wall Street expected. That caused the bonds to tack on another couple of points Thursday to end just below 70 - and to plough right through that barrier on Friday.

The trader meantime saw Ford rival General Motors Corp.'s 8 3/8% benchmark bonds due 2033 trading in the 123/4-13 area, and noted that not long ago, the bonds were trading in a 10-11 context - in fact, he said, they were around 11½ on Thursday, and then "some buyers came in" to lift the bonds to nearly 13 on Friday, a "pretty decent move."

Chipmaker is day's champ

The biggest move, according to market participants, was the more-than 10-point jump in Dutch computer chip manufacturer NXP's 7 7/8% notes due 2014, which surged after the company reported positive second-quarter results.

A market source pegged those bonds at 62½ bid late in the session, well up from the 49 bid level seen earlier in the week. Turnover was brisk, with more than $23 million traded.

At another desk, the bonds were seen going out at around 60 bid, which was called up 10 points on the day, while its 9½% notes due 2015 edged up a couple of points to the mid-40s.

The rise in the bonds came after NXP reported that it was back in the black during the most recent quarter, swinging to a profit of $344 million from a year-earlier loss of $319 million. The latest period also showed improvement on a sequential basis from the $568 million deficit seen in the first quarter of the year. NXP credited the rise in net income largely to higher financial income as a result of bond exchanges which the company pursued earlier this year to cut debt, including a second-quarter transaction which cut debt by $517 million.

On its conference call with analysts and investors following the release of the numbers, company executives noted that since March, when it formally announced an initiative to cut debt and improve its balance sheet, it has cut debt by some $1.2 billion.

Debt-reduction activity since June 30 alone, the end of the second quarter, has included a private notes buyback and the issuance of new super-priority notes announced in mid-July.

Investors seemed unfazed by Standard & Poor's decision this week to reduce its rating this week on the company's secured and unsecured notes to CC with a negative outlook, citing its concerns about what it called NXP's "highly leveraged" capital structure and risk profile.

Cott bonds bubble up

Canadian soft-drink manufacturer Cott Corp.'s 8% senior subordinated notes due 2011 were seen in a 95-96 context as the week ended, up from the 93-94 level which those bonds held at the beginning of the week, although a market source noted that the advance was strictly in relatively small odd-lot transactions.

The company earlier this week announced that its bankers had agreed to amend its credit agreement, giving Cott giving it greater flexibility to purchase or redeem the 8% notes and to raise debt or equity to fund such a purchase or redemption.

Cott said, however, that the purchase or redemption of the notes and the raising of capital to pay for it are subject to several conditions, including significant availability requirements under the revolving credit facility, fixed-charge coverage tests and other conditions.

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