Syniverse, ResCare price, move up; ConvaTec awaits; OPTI off again; funds up $403 million

By Paul Deckelman and Paul A. Harris

New York, Dec. 16 - Syniverse Holdings, Inc. and ResCare, Inc. came to market with new deals Thursday, high-yield syndicate sources said. Secondary traders meantime saw technology products and services provider Syniverse's $475 million eight-year issue and health care operator ResCare,'s $200 million of eights having each moved up by several points when the bonds were freed for aftermarket dealings.

Those traders also saw some good gains for trucking firm Swift Services Holdings Inc., whose upsized $500 million of eight-year secured notes priced too late in the session Wednesday for any aftermarket activity.

They also saw further gains in industrial manufacturer Atkore International, Inc.'s $410 million issue of seven-year secured bonds, which priced on Wednesday and then scored solid secondary gains, as well as engine-maker Briggs & Stratton Corp.'s $225 million tranche of 10-year bonds, which also came to market Wednesday.

Talk emerged on ConvaTec Healthcare's $1.48 billion equivalent three-part dollar- and euro-denominated offering, with syndicate sources expecting it to price on Friday. Barring any unexpected drive-by transactions, that big deal will likely bring the curtain down on this year's primary market activity.

OPTI Canada Inc. also remained a favorite whipping boy amid continued investor unease about the Canadian energy company.

Away from the new-deal arena, traders saw Rite Aid Corp.'s bonds beaten up after the drugstore operator reported yet another fiscal quarter of lackluster results. OPTI Canada Inc. also remained a favorite whipping boy amid continued investor unease about the Canadian energy company.

And, for a second consecutive week, investors put more money into junk bond mutual funds - a key gauge of high-yield market liquidity - than they took out. This was to the tune of $403 million, bringing total inflows to those funds to over $1.4 billion in the last two weeks and to nearly $12 billion on the year.

Junk funds gain

The inflows were widely expected by market participants; several traders said in advance of the number that they thought it would be positive, with one suggesting that "the money has been coming in [this week]. Everyone is talking up high yield."

It was the second consecutive cash infusion, following on the heels of the $1.03 billion injection seen the week ended Dec. 8 - one of the largest fund-flow changes seen this year.

In the last two weeks, net inflows to the weekly reportuing funds have totaled about $1.433 billion - a sharp contrast to the three straight weeks of outflows which preceded them, during which time the funds declined by around $1.959 billion, according to a Prospect News analysis of the figures. That three-week losing streak, in turn, had broken a 10-week inflow spree that lasted through mid-November, according to the analysis.

With the latest week's results, inflows have now been seen in 35 out of the 50 weeks since the beginning of the year, while there have been 15 outflows, the analysis indicated.

It brought the year-to-date cumulative total for the weekly funds up to around $11.907 billion versus $11.504 billion the previous week. However, that total still remains off from the $12.434 billion recorded in the Nov. 10 week, the peak inflow level for 2010, according to the analysis.

Cumulative fund-flow estimates may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

EPFR's $194 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG, meantime reported a $194 million inflow in the latest week, which followed the previous week's $366 million gain.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals - although the two services' numbers generally point toward the same trends - EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds. Its year-to-date net inflow total now stands at over $26 billion.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though quantifiable, percentage of the total amount of money coming in - has fueled the record new-deal borrowing binges seen last year and again this year, as well as the robust secondary market.

Syniverse oversubscribed

Primary market activity continued to thin on Thursday, market sources said.

Two issuers, each one pricing a single tranche of junk, raised a combined $675 million.

Syniverse Holdings priced a $475 million issue of eight-year senior notes (Caa1/B-) at par to yield 9 1/8%, at the tight end of the 9¼% area price talk.

Credit Suisse Securities, Barclays Capital Inc. and Goldman Sachs & Co. were the joint bookrunners for the LBO deal.

The deal was oversubscribed, and the bonds were up 2 points in the aftermarket, according to a trader from a high-yield mutual fund, who spoke on the telephone about 90 minutes after the final terms were circulated.

The bridge loan backing the bond deal had been syndicated, according to a mutual fund manager, who added that the bonds were, therefore, well spoken-for, and allocations for those who did not participate in the bridge were lousy.

ResCare at the wide end

Also on Thursday, ResCare priced a $200 million issue of eight-year senior notes (B3/B-) at par to yield 10¾%, at the wide end of the 10½% to 10¾% price talk.

The deal was led by joint bookrunners J.P. Morgan Securities LLC and Bank of America Merrill Lynch.

Proceeds will be used to repurchase and retire $150 million of the company's 7¾% senior notes due 2013, as well as to fund the second-step share exchange through which an affiliate of Onex Partners III, LP will complete the acquisition of all of the equity shares of ResCare, and for general corporate purposes.

The deal struggled, according to buyside sources.

ConvaTec structure, talk

With Syniverse and ResCare having cleared the market, one deal remains on the active forward calendar - probably the concluding new junk issue for 2010, market sources say.

ConvaTec set price talk for its $1.48 billion-equivalent downsized three-part high-yield notes offer on Thursday.

The New Jersey-based medical technology company talked a €300 million tranche of seven-year senior secured notes (Ba3/B+) with a 7½% area yield.

Meanwhile ConvaTec talked a $745 million tranche of eight-year senior unsecured notes (Caa1/B) with a 10½% area yield and a €250 million tranche of eight-year senior unsecured notes (Caa1/B) to price 25 bps to 50 bps behind the dollar-denominated senior unsecured notes.

The deal is set to price Friday morning.

J.P. Morgan Securities LLC and Goldman Sachs & Co. are the joint bookrunners for the bonds, the overall size of which has been decreased from $1.87 billion equivalent.

In addition to the downsizing, there were covenant changes.

The dollar-denominated offering is believed to have grown from the amount the company initially intended to sell, according to a high-yield mutual fund manager.

The 10½% price talk on the dollar-denominated senior unsecured notes is 100 basis points higher than the initial guidance 9½%, the investor added.

"There was a raft of covenant changes, which makes you believe that a couple of big guys are driving the bus," the buy-sider commented.

The deal was not easy, the investor added.

Bristol-Myers Squibb spun off ConvaTec for $4.1 billion in 2008, the manager recounted. "It has two years of history since being spun out. And they are saying that they want to match more of the capital structure to the geographical location of revenues.

"So it's difficult to get your arms around, but it's big. It's global. And it is health care.

"So it ought to do okay," the manager added.

Crowded approach

Apart from the ConvaTec deal, the high-yield runway appears to be clear, heading into year-end, sources said on Thursday.

However, the approach - i.e. deals expected to surface when the market resumes in January - is another matter.

The 2011 shadow calendar is already quite crowded, market sources say.

And fuel for the fire continues to pour on.

The high-yield mutual funds with $403 million of inflows for the week to Wednesday extended year-to-date inflows to $9.153 billion among accounts that report weekly.

Meanwhile, bank loan mutual funds saw $890 million of inflows, extending year-to-date positive flows to $10.89 billion to that asset class.

Syniverse, ResCare move up

A secondary market trader said that Thursday's session was "a fairly active day" in just-priced or recently priced debt.

"New bonds were on steroids," said another.

For instance, one of the traders saw "nothing but buyers" for ResCare's new eight-year notes, with the bonds trading up to 102, well up from the par level at which they had priced earlier in the day.

"We never got a chance to trade it - it just went straight up."

"Wow, did that one do well," a second trader exclaimed, also seeing the Louisville, Ky.-based home health care services provider's new paper shoot up to 102 bid, 102½ offered.

Yet another saw them even better than that, approaching the 103 level.

Meanwhile, he also saw Tampa, Fla.-based technology provider Syniverse's eight-year paper pushing up to around that level.

At another desk, a trader said that he saw Syniverse's notes push as high as bid levels around 102¾ to 103, but after that, "they kinda came in" off that peak. However, he still saw them going out with hefty gains, around 102 3/8 bid, 102 7/8 offered versus a par issue price earlier.

Wednesday deals do well

The strength shown by Thursday's new issues was also seen among their immediate predecessors.

A trader saw Overland Park, Kan.-based trucking company Swift Transportation's new 10% senior second-priority notes due 2018 as "kind of active," as they began trading around Thursday after having priced too late the day before for any kind of aftermarket.

He saw the new bonds move up to 101¼ bid, 101¾ offered on the break, finally going out at 101 3/8 bid, 101 7/8 offered versus the par level at which the $500 million deal - upsized from the originally shopped $490 million - had priced. A second trader also saw the bonds at 101¼ bid, 101¾ offered.

The star of Wednesday's secondary market - industrial manufacturer Atkore International's $410 million of 9 7/8% senior secured notes due 2018 - continued to gain ground on Thursday. One trader said: "They held their gains," but a second quoted the bonds at 103 bid, 103¼ offered, up from the 102-102½ context at which the bonds had traded Wednesday after pricing at par.

Briggs & Stratton's $225 million of 6 7/8% notes due 2020 "traded around the same level" they had held Wednesday, said a trader who quoted the Wauwatosa, Wis.-gasoline engine maker's paper at 101¼ bid, 101½ offered.

Another one who saw the bonds at those levels called them "a little firmer on the day."

The issue - upsized from the originally announced $200 million - had priced at par and then moved up modestly in late Wednesday dealings, traders said.

Secondary indicators mixed

Away from the new-deal universe, a trader saw the CDX North American Series 15 HY index up 3/16 of a point on Thursday to end at 102¼ bid, 102½ offered, after having eased by a quarter-point on Wednesday.

The KDP High Yield Daily index meantime lost 11 basis points on Thursday to end at 73.84, on top of Wednesday 8-bps decline. Its yield rose by 4 bps to 7.49% after having edged up by 1 bp on Wednesday.

The Merrill Lynch High Yield Master II index lost 0.013% on Thursday on top of Wednesday's 0.081% decline. That left its year-to-date return at 14.128% on Thursday versus 14.143% on Wednesday. The index also remains down considerably from the 2010 peak level of 15.602% recorded on Nov. 9.

Declining issues led advancers for a fourth consecutive session Thursday, widening their advantage to seven to six from the mere relative handful of issues - just a few dozen out of the almost 1,500 that traded - seen over the previous three sessions.

Overall activity, represented by dollar-volume levels, rose by 16% on Thursday versus Wednesday's 15% drop from the previous session's levels.

A trader called Thursday's session "a positive day," noting the gain in the CDX. He said that the equity markets "had a strong close," helped by investor reaction to a small drop in first-time unemployment claims, better housing starts data and a higher profit forecast by FedEx Corp., and this in turn helped to buoy junk.

"It just felt generally pretty good all around," he said, especially considering that "liquidity was pretty thin. There's not a lot of dealers that are really stepping in here."

Instead, he theorized, "What you're seeing is customers cleaning up stuff for year-end, getting their positions right and that kind of thing."

Rite Aid run-over

Among specific names, a trader said that Rite Aid's unsecured paper was down 2 points and its secured paper off by a point "after the company once again missed its numbers."

He saw the Camp Hill, Pa.-based No. 3 U.S. drugstore chain operator's "go-go" issue, the 9½% notes due 2017, at 84½ bid, 85 offered, while its 7½% secured notes due 2017 were at 95 bid, 96 offered.

A market source at another desk saw Rite Aid's 10¼% secured notes due 2019 trading at just under 104 bid, down 1 point on the day, while its unsecured 8 5/8% dropped 1¼ points to just under 87 bid.

On their conference call following the release of fiscal third-quarter numbers, company executives said Rite Aid had a "challenging" quarter, as a relatively mild cough, cold and flu season so far caused a drop-off in pharmacy sales from a year ago. The company cut its full-year guidance for the current 2011 fiscal year.

For the fiscal third quarter ended Nov. 27, Rite Aid posted a net loss of $79.1 million, 9 cents per diluted share, versus year-earlier red ink of $83.9 million, or 10 cents per share, with the modest improvement due to lower lease termination and impairment charges, lower inventory expense and lower interest and securitization expense, among other factors.

However, revenues for the 13-week quarter fell by 2.4% to $6.2 billion versus $6.4 billion a year ago due primarily to a 1.3% decline in pharmacy same-store sales at Rite Aids open at least one year - the retailing industry's key performance metric - as a result of the lower incidence of cough, cold and flu cases versus 2009, when the H1N1 swine flu bug was severe enough to be declared a pandemic by health officials.

Adjusted EBITDA was $212.5 million in the latest quarter, well down from $254.2 million a year ago.

Based on its fiscal third-quarter results and its lower expectation for same-store sales in the current fiscal fourth quarter, which will end in late February, Rite Aid lowered its fiscal 2011 full-year guidance for sales and adjusted EBITDA. Sales are now expected to be between $25 billion and $25.2 billion as same-store sales are seen dropping between 0.9% and 1.5%. That will likely bring adjusted EBITDA down to between $815 million and $855 million, with an adjusted net loss for the year of between $655 million, or 74 cents per share, and $525 million, or 60 cents per share.

However, executives on the call also noted that the company's liquidity position is "strong," with nearly $1 billion of borrowing capacity, while net debt declined by $153 million from a year ago.

OPTI Canada woes continue

Also on the downside, a trader said that "one of the big trouble spots" has been OPTI Canada, whose bonds have been battered soundly in recent days.

He cited financial market talk of Nexen Inc., the 65% owner of the Long Lake, Alta., oil sands energy joint venture 35% owned by OPTI, "having some issues" as well as the possibility that Nexen - up till now investment-grade rated - could be dropped into junk territory. Moody's Investors Service last week warned that it may cut Nexen's Baa3 rating to below investment-grade, citing the company's continued high debt level, coupled with the prolonged ramp-up of production at Long Lake. Meantime, Calgary, Alta.-based OPTI's own ratings were cut on Tuesday by Standard & Poor's.

He also cited talk that "the actual quality of the oil sands is less desirable than they had originally thought, and it was taking a lot more money to get the stuff out."

Nexen and OPTI's big and costly new facility is designed to extract bitumen, a heavy, viscous grade of crude oil, from the ground by heating it up via a proprietary process, and then turning the rubbery goo into the more desirable and saleable light, sweet crude oil. Executives from both OPTI and Nexen recently made presentations to investor conferences, during which they said that Long Lake's anticipated bitumen output in 2011 and 2012 would be less than originally projected.

"It's turning out to be a lot more expensive than they anticipated, and so the bonds have been suffering."

He saw OPTI's 9% first-lien senior secured notes due 2012 trading as low as 98½ bid versus recent levels above par. "It's a really short maturity, and those bonds were considered money-good."

He also saw its 7 7/8% second-lien secured notes and 8¼% senior unsecured notes, both due 2014, falling further down into the 60s.

The latter two bonds, he said, "traded today with a brief period of strength in the middle of the afternoon," pegging them up around the 66-67 bid range, before falling back later on to end around a 63-65 context, about where they had traded on Wednesday, also in busy dealings.

A second market source pegged the 7 7/8s at 64 3/8, down a half point.

Another trader said that the OPTI bonds "were all over the map: First they were actually up for a while, and then they faded near the close." He called the bonds "incredibly active."

The first trader meantime said, "We heard that there was a big seller around a couple of weeks ago, and it seems like guys are trying to sort of throw in the towel on the thing."

Of course, he also noted that "the flip side is that guys are saying that all of the information that people are bandying about now is information that's been out there, and its not necessarily new news."

He opined, "I think the Nexen news [i.e., whether the company gets downgraded or not] is really the key to that situation -and it's also a year-end thing. There's very little liquidity, and it's pretty much a Canadian name, so there's a general malaise in the market and nobody really wants to do anything" to bring the OPTI bonds back up.

A&P is up again

On the upside, a trader said that the Great Atlantic & Pacific Tea Co.'s bonds "rallied again for a fourth straight session, basically every day since they filed for bankruptcy."

He saw the troubled Montrose, N.J.-based supermarket operator's 11 3/8% secured notes due 2015 in the low 90s, while its 5 1/8% convertibles due 2011 and 6¾% converts due 2012, which trade essentially like junk bonds now that the underlying stock is nearly worthless, having firmed a little into the lower 30s.

The company filed for Chapter 11 over the weekend in hopes of restructuring its debt. Its bonds, which had fallen last Friday on investor expectations of such a step, have risen ever since then, although they are now trading flat, or without their accrued interest, equating to an actual loss of several points from the bonds' nominal levels.

First Data firms more

A trader said that First Data Corp.'s 11¼% notes due 2016 were "very active again," quoting the Atlanta-based credit-card transaction processor's bonds up around a point to the 85 bid level.

"Those continue to trade here in really good size," he said.

The company's bonds have recently been lifted in the wake of the company's recent offer to give new paper due in the early 2020s to holders of its 9 7/8% notes and 10.55% PIK notes, both due 2015, in exchange for their existing bonds. That exchange offer was scheduled to conclude at midnight ET on Wednesday of this week.

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