Lawson mega-deal prices, jumps in trading; USG, Kemet issue; funds gain $457 million on week

By Paul Deckelman and Paul A. Harris

New York, March 29 - Lawson Software, Inc.'s upsized $1.35 billion equivalent deal came to market on Thursday, and traders said the dollar-denominated tranche of the business software company's two-part forward calendar offering soared when it hit the secondary market. It was helped by a relatively hefty coupon, by recent junk market standards.

High-yield syndicate sources also heard that building products manufacturer USG Corp. priced a quickly shopped $250 million eight-year issue, although that paper came too late in the day for any aftermarket.

There was also a smallish add-on from Kemet Corp., a maker of materials used in electronic components. If junk players felt that had a familiar ring to it, they were right - the same company priced a somewhat larger add-on at virtually the same terms exactly one week ago.

The new Lawson Software issue wasn't the only new issue seen cleaning up in the aftermarket on Thursday. Wednesday's $225 million deal from Harron Communications, LP was also firming smartly, adding to the gains the cable operator's bonds had racked up in their initial secondary dealings.

But there were no heroics from Hercules Offshore, Inc.'s Tuesday twofer deal, both tranches of which came in from the levels seen when the energy drilling contractor's bonds began trading on Wednesday.

Apart from the deals that have actually priced so far, the Junkbondland primary sources heard price talk on a trio of transactions that could come to market on Friday. They are from aircraft leasing company Aircastle Ltd., energy operator Vanguard Natural Resources, LLC and broadcaster Townsquare Radio, LLC.

In the secondary sphere, coal names such as Peabody Energy Corp. remained under pressure for a second straight day on investor angst over the impact that tough new proposed federal emissions rules for coal-fired power plants could have on the companies supplying that fuel.

Education Management Corp.'s bonds were battered as the academic company priced a new term loan at considerably more costly terms than the deal carried when that loan launched earlier in the month.

Overall statistical market performance indicators were uniformly down.

But high-yield mutual funds - considered a good proxy for overall junk market liquidity trends - notched yet another in a long string of recent inflows, their 17th in a row.

AMG posts $457 million inflow

As things were wrapping up on Thursday, market participants familiar with the weekly AMG high-yield mutual fund flow statistics said that in the week ended Wednesday, $457 million more came into those weekly reporting funds than left them.

It was the 13th consecutive gain so far this year, coming on the heels of the $978 million cash injection seen by Arcata, Calif.-based AMG - a unit of Thomson Reuters' Lipper/FMI division - in the week ended March 21.

There have been no outflows so far in 2012, while net inflows have totaled about $16.2 billion, according to a Prospect News analysis of the numbers, up from around $15.8 billion the week before.

It was also the 17th consecutive inflow overall, a streak that dates back to early December. Over that nearly four-month stretch, net inflows have totaled $18.3 billion, according to the Prospect News analysis.

EPFR sees $941 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, also reported a 17th straight week of inflows.

About $941 million more came into those funds than left them during the week ended Wednesday.

That followed the $1.41 billion cash addition the previous week.

On a year-to-date basis, with no outflows seen so far in 2012, inflows were north of $30 billion, EPFR indicated.

Before the figures came out, a trader suggested that EPFR's daily fund flow soundings had shown "small inflows every day," pointing to another positive week, even though the overall secondary market seemed to be showing signs of fatigue.

EPFR's figures and those of AMG generally point in the same direction, although their actual numbers usually differ since they calculate their respective fund-flow totals very differently. EPFR, for instance, includes results from non-U.S. domiciled funds as well as the domestic funds and counts exchange-traded funds excluded from the more narrowly focused AMG tally.

Cumulative fund-flow estimates, whether of the AMG numbers from Lipper/FMI or those from EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years, and continued to be the driver behind 2011's near-record issuance.

Those fund flows are also seen as the key element behind the high-yield secondary market's fairly strong performance so far this year and its active new-deal pace, with issuance volume now running ahead of last year.

Lawson upsizes two-part deal

The Thursday primary market session saw $1.28 billion of proceeds raised through three dollar-denominated tranches, each coming from a separate issuer.

Lawson Software priced an upsized $1.35 billion equivalent two-part transaction featuring seven-year senior notes (Caa1/B-).

The deal has a $1,015,000,000 tranche of notes that were priced at par to yield 9 3/8%, at the tight end of price talk that was set in the 9½% area.

Lawson also priced a €250 million tranche of notes at par to yield 10%, at the wide end of talk that had the euro-denominated notes coming 50 basis points behind the dollar-denominated notes.

The euro-denominated tranche was ultimately sized at the low end of the originally announced €250 million to €300 million range.

The overall deal size increased to $1.35 billion equivalent from $1.15 billion equivalent.

Left lead bookrunner Bank of America Merrill Lynch will bill and deliver.

Credit Suisse Securities (USA) LLC, J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC, Barclays Capital Inc., Deutsche Bank Securities Inc., RBC Capital Markets and KKR Capital Markets were the joint bookrunners.

The note offering is part of the financing for, and is conditioned on, the consummation of the proposed combination of Infor Global Solutions and Lawson.

Proceeds, together with borrowings under new senior secured credit facilities consisting of a $150 million revolver and $3.5 billion of term loans, will be used to refinance some existing debt, to finance the change-of-control notice and for the purchase and consent solicitation in connection with the 11½% senior notes due 2018.

The additional proceeds from the upsizing of the deal will be used to repay about $200 million of Lawson's holdco payment-in-kind loan.

The combined company, based in St. Paul, Minn., will be the world's third largest provider of enterprise business applications software and services.

USG drives through

USG priced a quick-to-market $250 million issue of 7 7/8% eight-year senior notes (B2/BB-) at 99.279 to yield 8%.

The yield printed on top of price talk.

Citigroup Global Markets Inc. was the left bookrunner. JPMorgan and Bank of America Merrill Lynch were the joint bookrunners.

The Chicago-based construction materials manufacturer plans to use the proceeds to fund the tender offer for its 2014 notes and for working capital and general corporate purposes.

Kemet taps 10½% notes

Kemet priced a $15 million add-on to its 10½% senior notes due May 1, 2018 (B2/B+) at 105.5.

The reoffer price renders an 8.86% yield to worst and a 9.292% yield to maturity.

Bank of America Merrill Lynch and Deutsche Bank were the joint bookrunners for the quick-to-market add-on.

The Greenville, S.C.-based capacitor manufacturer plans to use the proceeds to finance a portion of the acquisition of Niotan Inc. and for general corporate purposes.

The original $230 million issue priced at 98.685 to yield 10¾ in April 2010.

A $110 million add-on priced at 105.5 on March 22 with a 8.864% yield to worst.

Talking the deals

Setting the stage for a busy Friday session, Aircastle set price talk for its $800 million two-part offering of senior notes (Ba3//).

The notes maturing in 2017 are talked with a yield in the 6¾% area, and the notes maturing in 2020 are talked with a yield in the 7¾% area.

Tranche sizes remaining to be determined.

Goldman Sachs & Co., Citigroup and JPMorgan are the joint bookrunners.

Vanguard Natural Resources and VNR Finance Corp. talked their $300 million offering of eight-year senior notes (Caa1/B-) with a yield in the 8% area.

Citigroup is the left bookrunner. Credit Agricole, RBC, UBS and Wells Fargo are the joint bookrunners.

And Townsquare Radio, LLC and Townsquare Radio, Inc. talked their $265 million offering of seven-year senior notes (B3/B) with a yield in the 9¼% area.

Bank of America Merrill Lynch is the left bookrunner. Macquarie, RBC and SunTrust are the joint bookrunners.

In addition to those three, Cengage Learning Acquisitions, Inc. is on deck to price its $575 million offering of eight-year first-lien senior secured notes (B2/B) on Friday.

JPMorgan, Deutsche Bank, Morgan Stanley, RBC and UBS are the joint bookrunners.

Also on deck for Friday is Taylor Morrison Communities, Inc. with a $500 million offering of eight-year senior notes (B2//) via Credit Suisse, Deutsche Bank and HSBC.

Looking past Friday, the abbreviated week ahead of the Easter/Passover holidays - the bond market will take a breather on Good Friday, April 6 - figures to be a busy one, sellside sources are lately saying.

In addition to a strong calendar of announced deals, look for two conspicuously large offerings to appear as drive-bys during the week ahead, a debt capital markets banker advised.

Lawson gets a lift

When the new Lawson Software seven-year notes were freed for secondary dealings, traders saw the business software provider's new paper pop powerfully.

"Lawson did really well," one trader said, indicating that the new bonds, which had priced at par, got as good as 104¼ bid when they first began trading.

"After that, they settled down a little bit," he said - but he was still quoting the issue solidly higher on the day at 103½ bid, 103¾ offered.

A second trader also saw Lawson initially reaching nosebleed territory above 104 before moderating a little to go home at 103¼ bid, 1033/4.

Yet another trader observed the bonds at 103½ bid, 104½ offered.

While some recent junk deals with relatively small coupons have positively underwhelmed the junk market, giving high-yield accounts little or no positive reasons to jump in on them, one of the traders said that Lawson was not alone in stirring some interest.

"Any deal that has yield has traded very well," he declared. "There have been a number of them recently."

For instance, he said that United Surgical Partners International Inc./USPI Finance Corp.'s 9% notes due 2020 "are trading with a 103-handle."

The Dallas-based operator of surgical facilities priced its $440 million forward-calendar offering at par back on March 20, and those bonds were heard to have pushed up to 101½ bid on the break before going home that day at 102 bid, 102½ offered. The bonds continued to move marginally higher most days after that.

Harron heads higher

The trader said that another big-coupon deal recording big gains in the aftermarket was Harron Communications' 9 1/8% notes due 2020.

The Malvern, Pa.-based cable system operator's $225 million offering priced at par on Wednesday and then proceeded to quickly move up to 101½ bid, 102¼ offered.

In Thursday's market, the new bonds were seen doing even better. They "rallied a bunch" up to 103½ bid, 104½ offered, he said.

"So all of these 9% deals have done very well."

Hercules no hero

On the other hand, some new bond deals were seen not doing particularly well.

For instance, both tranches of Hercules Offshore's $500 million two-part offering were seen trading at or below the par level at which each piece priced off the forward calendar on Tuesday afternoon.

A trader said the Houston-based energy drilling contractor's $300 million issue of 7 1/8% senior secured notes due 2017 "held above par most of the day but faded a little at the end," going home at 99½ bid, 100½ offered.

He meantime saw the deal's $200 million tranche of 10¼% senior notes due 2019 "having also faded," to 98 bid, 99 offered.

The bonds came too late in the session on Tuesday for any aftermarket, but they had been seen on Wednesday trading as good as a 100½ bid, 101 offered level on the 7 1/8% notes, while the 10¼% notes had immediately traded below issue on Wednesday at 99¼ bid, 99¾ offered.

A second trader noted that even on Wednesday, "the unsecured bonds were weaker while the secured bonds were OK, and I think that trend continued" on Thursday.

However, he too acknowledged that the 7 1/8% notes "faded a little" as the day wore on.

A trader said that Tuesday's quickly shopped $375 million add-on offering of 7¾% notes due 2019 from Vanguard Health Systems, Inc. was unseen on the day, but he said the Nashville-based hospital operator's identical existing bonds were trading at 99 bid, 99¼ offered, not far from the 99¼ level at which that deal - upsized from an originally announced $350 million - came to market to yield 7.891%.

Cenveo struggle continues

While Hercules and Vanguard were trading about where each had come to market, or perhaps a tad below that, traders said that Cenveo Corp.'s new 11½% notes due 2017 continued to set a record for futility.

The Stamford, Conn.-based commercial printer's deal was not seen trading around on Thursday, but it was presumed to still be wallowing around the sharply lower levels it took after that deal priced on March 22.

"That one was obviously an outlier," one of the traders suggested in looking at the behavior of the bonds versus the mostly upside movement of other recent deals with generous coupons.

Those bonds priced at 96.328 to yield 12½%. However, when they began trading the following day ,traders saw the bonds at levels well below issue, with bids quoted as low as 89½ and offered levels no better than 92.

The deal priced fully a week after completing its roadshow, but first it was radically downsized to just $225 million - half the originally shopped $450 million - and was chopped down into a five-year deal with three years of call protection from the originally announced eight-year paper with four years of no-call status.

Cenveo's existing 8 7/8% notes due 2018 were seen up nearly 1 point at 95¾ bid.

Chesapeake still champ trader

Going back a little farther among the recently priced bonds, a trader said that Chesapeake Energy Corp.'s "crazy oddball" 6.775% notes due 2019 remained the busiest junk bond issue on Thursday - a position that the Oklahoma City-based natural gas company's $1.3 billion drive-by issue has held, on and off, on a number of days ever since its Feb. 13 pricing.

He saw over $16 million of the bonds changing hands, according to the Trace system, and said the overall volume figure "could well be higher" since Trace tends to undercount the size of any junk trade over $1 million.

The Chesapeake bonds were trading at 99½ bid, around the level the issue - upsized from an originally announced $1 billion - had settled into after pricing at 98.75 to yield 7%.

Market indicators lower again

A trader said that away from the new or recent deals, "there was not too much excitement going on."

He said the market appeared off about one-quarter to one-half point on light volume.

"I do think it's running out of steam," he opined.

Statistical measures of junk market performance were meantime seen easier across the board for a second consecutive session Thursday.

A market source saw the Markit Group CDX North American Series 18 High Yield index lose a half point to close Thursday at 96¾ bid, 96 7/8 offered, on top of Wednesday's 5/16 point retreat.

The KDP High Yield Daily index eased for a second straight session on Thursday, dropping by 9 basis points to go home at 73.90 after losing 4 bps on Wednesday. Its yield rose by 3 bps, to 6.60%, after having gained 1 bp on Wednesday.

And the widely followed Merrill Lynch High Yield Master II index finished lower for a second straight session on Thursday, easing by 0.109%. That followed Wednesday's 0.008% pullback.

That loss left the index's year-to-date return at 5.10%, down from Wednesday's 5.214% and down as well from its peak level for 2012 of 5.361%, which was recorded on March 2.

Education Management mauled

Among specific issues, a trader said that Education Management's 8¾% notes due 2014 tumbled to a 94-95 bid context, well down from prior levels around 99-par.

He cited the news that the Pittsburgh-based provider of private post-secondary education - which was shopping a proposed $350 million term loan B bank debt deal due 2018 around to prospective lenders - was heard by sources in that market to have "widened the talk on their term loan pretty substantially," flexing it up to 700 basis points over Libor with a 1.25% Libor floor from the Libor plus 525 bps interest rate plus a 1.25% floor at which the deal was launched at mid-month.

He also heard that "they put a little bit bigger" original issue discount on it versus the proposed 98½ issue price heard at the launch.

Later in the session, the deal did in fact price at 97 with the 700 bps over Libor interest rate.

"So those bonds got hit on the back of that news," he said, although he added that "there was not a lot of volume" in the name.

Verso gains on exchange

A trader heard that Verso Corp.'s senior secured floating-rate notes due 2014 were "obviously up on the back of their exchange news." The Memphis-based paper manufacturer's bonds moved up to 86 bid, 87 offered, up around a point from pre-news levels.

Verso on Thursday said that its wholly owned subsidiaries, Verso Paper Holdings LLC and Verso Paper Inc., have offered to issue up to $180.22 million principal amount of new 9¾% secured notes due 2019 in exchange for their outstanding $180.22 million principal amount of the 2014 notes.

The issuers also began soliciting noteholder consents for waivers and proposed amendments to the floaters and, separately, to authorize release from the liens and security interests in the collateral securing the notes.

The exchange amount is par for each $1,000 principal amount of notes tendered by the early tender deadline of 5 p.m. ET on April 10, which includes a $50 per $1,000 principal amount early tender payment.

The overall expiration deadline for the offer is April 24.

Coal continues lower

Coal-mining names were in retreat on Wednesday in reaction to proposed tougher federal emission standards for coal-fired power plants to cut carbon dioxide. On Thursday, a trader said that they "remain under pressure, although I don't think they moved that much" after Wednesday's sizable move for some of those credits.

He saw the miners' bonds decline by another half point but said there were "no big movements. They were a little weaker."

At another desk, a trader said Peabody Energy's 7 7/8% notes due 2026 had fallen to about 103¾ bid in round-lot trading Thursday - well down from prior round-lot dealings recently at 106 3/8 bid.

He saw the St. Louis-based coal operator's 6½% notes due 2026 down 1 point at 100¼ bid.

Arch Coal, Inc.'s 7¼% notes due 2020 were seen by another market source to have fallen 2½ points to 92 bid.

Alpha Natural Resources, Inc.'s 6% notes due 2019 dropped to 89¾ bid, a three-quarter point loss from Wednesday, when those bonds had fallen by 1¼ points.

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