Nielsen brings drive-by; Nova Chemicals plunges on liquidity fears; United Rentals steady to weaker

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Jan. 21 - An upcoming maturity and liquidity concerns sent Nova Chemicals Corp.'s bonds down as much as 20 points Wednesday, traders reported.

An issue maturing in April fell 20 points, while other issues' losses were only single digits. The declines came as news reports indicated that liquidity could be an issue, especially as the $250 million 7.4% notes come due.

Meanwhile, United Rentals Inc.'s debt ended steady to slightly weaker. Still, traders said activity was light, despite recent news that the company had cut its 2008 guidance.

General Motors Corp. lost its top spot in the automotive sector, as new sales reports showed Toyota beating the Detroit carmaker in 2008 sales. According to market players, the company's bonds dipped slightly by the end of the day.

Market indexes slip

Market sources saw the market ending unchanged to slightly lower on the day, despite a good-sized rally in the equities.

"The market was flat to marginally down," a trader said. "It certainly didn't rally with [the stock market] rally."

The CDX Index was off 3/8 point at 74 5/8 bid, 75 1/8 offered.

The KDP High-Yield Daily Index fell to 54.23, with a yield of 13.76%. That compared with a reading of 54.32, with a yield of 13.83%, on Tuesday.

"The [CDX] index has been off over the past two days but the cash market is not off because people have so much cash," a high-yielld mutual fund investor said.

"Cash and synthetics are doing the exact opposite: cash is flat to up while synthetics are down.

"Both are moving on technicals."

Nielsen's drive-by

Drive-by action rekindled the primary market as Nielsen Finance LLC and Nielsen Finance Co. priced an upsized $330 million issue of 11 5/8% five-year senior notes (Caa1/B-) at 90 to yield 14½% in a quick-to-market transaction Wednesday.

Pricing was at the tight end of the 14½% to 14¾% yield talk, in line with the high-11% range coupon talk, and on top of the approximately 90 dollar-price talk.

JPMorgan, Deutsche Bank Securities, Citigroup and Goldman Sachs & Co. were joint bookrunners.

The issue generated $297 million of proceeds which will be used for general corporate purposes, possibly including capital expenditures or, in the future, the retirement of a portion of Nielsen's £250 million sterling notes.

The deal was extensively premarketed and well placed before it was announced, according to an informed source.

Holders of existing Nielsen bonds demonstrated support for the issue, the source added.

However given that those holders tended to have rather extensive exposure to Nielsen, they did not put in for large amounts of bonds, the source added.

Nielsen's ratings

Since the beginning of the fourth quarter of 2008 sources on both the buy-side and the sell-side have advised Prospect News that for the foreseeable future the primary market would only be open to issuers who met certain qualifications - namely non-cyclical issuers known to the market, and in possession of high quality credit ratings.

Several of these sources specified that double B ratings on at least one side of the slash are practically prerequisites for prospective issuers.

Hence Wednesday's Caa1/B- rated Nielsen deal seemed to violate the "ratings" qualification, and Prospect News pressed its sources to explain why the deal could be done in spite of this seeming violation.

A high-yield mutual fund manager who did not play the deal took the opportunity to bash the ratings agencies.

"Not all triple C's are the same," the investor said.

"It depends whether you believe the ratings agencies are worth anything.

"Nielsen has a better business model. Management seems to do a pretty good job even though nobody likes them because they don't tell you anything."

Meanwhile a trader for another mutual fund pointed out that Wednesday's deal only had a triple-C rating on one side of the slash, i.e. Caa1 from Moody's. S&P rated the deal at B-.

"It's not a bad company," the trader commented, adding that the TV-rating business could be thought of as somewhat recession-proof.

Year-to-date numbers

With Wednesday's Nielsen deal in the mix, year-to-date issuance comes to $2.43 billion equivalent of proceeds in five tranches.

That total is well ahead of the $850 million that was priced in two tranches in 2008 to the Jan. 21 close.

The average face amount of 2009's four dollar-denominated tranches is $556 million. There has been one €275 million euro-denominated tranche from Fresenius US Finance II Inc.

Among all five tranches the year-to-date average coupon is 9.425% (giving each deal equal weight).

The average discount to par is slightly more than nine cents.

And the average yield is 11.788%.

Won't play primary

There was nothing personal in the high-yield mutual fund manager's passing on Wednesday's Nielsen deal.

This source has disdained the new issue market repeatedly in conversations with Prospect News dating back to last summer.

The investor concedes that the recent deals, as evinced by the numbers above, have come on terms that are decidedly friendly to the buy-side. What's more, the mutual fund manager concedes that these deals have traded up notably in the secondary market.

"All the deals have gone well, and you get great flips," the investor said.

"But you don't really get big enough allocations to move your needle."

In addition, this buy-sider believes that the high-yield market has gotten ahead of itself, for technical reasons.

"Peoples' cash positions are high. They've gotten cash. We've gotten cash.

"People seem to feel compelled to put that cash to work even though the economic news is bad.

"I'm just being a little more selective."

Nova dives on liquidity fears

Meanwhile in secondary action, fears regarding an impending maturity sent Nova Chemicals' 7.4% notes coming due in April down 20 points on the day, traders reported.

One trader saw the bonds fall to around 62, calling the action "ugly." Another said there was "a bunch of activity" in the issue, which he saw ending at 62 bid, 63 offered, down from opening levels near 70 and Tuesday closing levels in the low-80s.

"That's way down. Wow," he remarked.

The trader also quoted the 6½% notes due 2012 at 33 bid, 34 offered, down from the high-30s previously.

Yet another source deemed the 6½% notes more than 3 points weaker at 34.75 bid.

The company's stock was also seen taking a massive hit as a report questioning the company's liquidity hit the market. Canadian newspaper Globe and Mail said Wednesday that Nova has C$1.1 billion of debt maturing in the next two years and that the company has thus gone to its bankers in an effort to amend terms of the debt.

In response, Nova issued a press release late in the day - too late, however, to recover any losses on the day - stating that it had $575 million available liquidity as of Dec. 31, 2008. The company also said it has full access to its credit facilities.

"Although we would find purchase of our $250 million bonds due April 1, 2009 attractive at current prices, consistent with our insider trading policy we do not intend to consider purchasing any bonds until next week's release of our fourth quarter 2008 results," the company said in the statement. The results will be released on Jan. 29.

Nova is a Calgary-based manufacturer of plastics and chemicals "essential to everyday life."

United Rentals ends weaker

United Rentals' bonds were on the quiet side, despite the company cutting its guidance in the previous session.

One trader noted that trading in the bonds was thin, though "a lot of the stock traded." He saw the 6½% notes due 2012 at 83.25 bid, 84 1/8 offered, which he called unchanged. He added that the trades were "scrappy in size."

At another desk, a trader pegged the bonds around 83.25, down "a point or so" from levels around 84.5 on Tuesday. Another source placed the 7% notes due 2014 at 68 bid, a point weaker.

The Greenwich, Conn.-based equipment rental company announced late Monday that it lowered its 2008 guidance due to weakness in the construction sector, as well as the overall economic downturn. United Rentals also said that it will face a large impairment charge in the fourth quarter.

Under the new forecast, the company expects to see sales of $3.27 billion, down from previous forecasts between $3.3 billion and $3.4 billion. Analysts had been expecting revenue of $3.28 billion.

Earnings will also be affected, the company added. A $1.1 billion goodwill impairment charge will also show up on fourth-quarter results.

"Our revised full year guidance reflects external factors such as the current construction cycle and the macro-economy, as well as our decision to accelerate branch closures into the fourth quarter of 2008," Michael Kneeland, chief executive, said in a statement.

As a result of the news, Moody's Investors Service downgraded the company on Wednesday.

GM slips, loses top spot

General Motors' debt ended the session softer, as the carmaker fell below rival Toyota as the largest automaker in the world.

A trader said the benchmark 8 3/8% notes due 2033 slipped to 15 during trading.

"That's down a little bit, but it's meaningless," he said. "Once things are trading at 15, I'm not sure it really matters."

Another trader also saw the issue dip slightly to 15.25 bid, 17.25 offered.

GM said on Wednesday that it sold 8.35 million vehicles in 2008, versus Toyota's sales of 8.97 million. All told, GM's sales fell 11%, while Toyota dropped 4%.

But the new data pushed Toyota ahead of the automotive sector, the first time since 1931.

In the rest of the autosphere, Ford Motor Co.'s 7.45% notes due 2031 were deemed unchanged at 24.5 bid, 26.5 offered. Another source saw the 7.45% notes around 25, calling that "right where it has been," and the 9 7/8% notes due 2011 at 75.5, half a point better to unchanged.

Broad market mostly flat

Masonite International Inc.'s term loan was a little stronger on Wednesday, with the improvement attributed to market technicals, according to a trader.

"Some guys have done the work and are starting to create a position," the trader remarked.

The term loan was quoted at 37 bid, 39 offered, up from Tuesday's levels of 35 bid, 38 offered, the trader added.

Meanwhile, Freeport-McMoRan Copper & Gold Inc.'s 8 3/8% notes due 2017 traded in decent size - one trader said $40 million of the bonds traded - though the debt was largely unchanged. The trader saw the issue around 78.25, while another trader placed the bonds around 78.

Nortel Networks Corp.'s floating-rate notes due 2014 closed unchanged at 18 bid, 19 offered.

Sara Rosenberg contributed to this article.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.