Nesco, HD price new deals; Bon-Ton reports poor sales, declines; funds see $597 million inflow

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., April 5 - Trading in the high-yield bond market was subdued Thursday as market players vacated their desks early for the three-day holiday weekend.

Even new issues were on the quiet side. The primary market saw two issuers price a combined three tranches of notes, raising a total of $1.9 billion on Thursday.

HD Supply, Inc. brought two of those tranches, pricing $1,625,000,000 of secured notes, and Nesco LLC priced $280 million of 11¾% notes due 2017 at a discount. The latter notes traded up to near par by the end of business.

Bon-Ton Stores Inc. was the nom du jour and saw the most action in the secondary. The bonds were off a couple points after the company reported March sales that trailed analyst estimates.

Burger King Holdings Inc. also got a fair bit of play again as investors reacted to news the company is looking to go public again. The fast food chain was taken private in late 2010. Its bonds, however, were down a bit after running up on the news on Wednesday.

HD Supply prices

HD Supply's $1,625,000,000 issue of notes included a $950 million tranche of seven-year senior secured first-priority notes (B2/B+) that priced at par to yield 8 1/8%.

The yield printed in the middle of the 8% to 8¼% yield talk.

The joint bookrunners for the first-lien tranche were Bank of America Merrill Lynch, Goldman Sachs & Co., Barclays Capital Inc., J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Wells Fargo Securities LLC and UBS Securities LLC.

In addition, HD Supply priced a downsized $675 million tranche of eight-year senior secured second-priority notes (Caa1/CCC+) at par to yield 11%.

The second-priority tranche was downsized from $775 million. The yield printed 12.5 basis points beyond the wide end of price talk, which had been set in the 10¾% area.

On the second-lien tranche Goldman Sachs, Bank of America Merrill Lynch, Barclays, JPMorgan, Credit Suisse, Deutsche Bank, Wells Fargo and UBS were the joint bookrunners.

The notes in both tranches underwent covenant changes.

Proceeds will be used to refinance HD's 12% senior notes due 2014, its ABL credit facility and its existing senior secured term loan.

The overall $2,625,000,000 of debt used in the refinancing also included a $1 billion term loan B.

HD Supply is an Atlanta-based distributor of building materials and tools.

Nesco finishes five-year deal

Thursday's only other action came from Nesco, which priced a $280 million issue of 11¾% five-year senior secured second-lien notes due April 15, 2017 (Caa1/B-/) at 98.164 to yield 12¼%.

Although there was no official price talk, initial yield guidance was 12%, according to a market source.

One trader had "not seen a thing in it" and noted that it was a small deal.

But another source quoted the paper up at 99½ bid, par ½ offered.

Bank of America Merrill Lynch, Wells Fargo, PNC Capital Markets, Morgan Stanley & Co. LLC, Jefferies & Co. and Deutsche Bank were the joint bookrunners.

Proceeds will be used to refinance the interim credit facility used to fund Platinum Equity's acquisition of Nesco, to repay borrowings under the ABL facility and to fund a special dividend to shareholders.

Nesco is a Bluffton, Ind.-based provider of specialty rental equipment for the electric power transmission and distribution industry.

EPFR: $597 million inflow

High-yield mutual funds saw $597 million of inflows for the week to Wednesday, according to EPFR Global.

It follows the previous week's $941 million inflow.

Year-to-date flows have all been positive.

According to a mutual fund manager, cash continues to flow persuasively into high yield.

This source has seen undisrupted daily inflows since mid-December. The last outflow the manager's funds sustained occurred on Dec. 13.

Busy week ahead

Although the active forward calendar was not fat heading into the Easter/Passover holiday weekend, the week ahead will almost certainly be a busy one.

Heading into Monday, the market will be focused on the $3 billion El Paso deal.

EP Energy Corp.'s deal features a $500 million tranche of seven-year senior secured notes that come with three years of call protection and a $2.5 billion tranche of eight-year senior unsecured notes that come with four years of call protection.

Price talk is due out on Monday, and the deal is set to price on Tuesday, according to a high-yield portfolio manager who is watching closely.

The secured notes are expected to come with a yield in the mid-7% range, and the unsecured notes are expected in the mid-9% range.

Citigroup Global Markets Inc. is the left bookrunner for the leveraged buyout deal.

The joint bookrunners are JPMorgan, Credit Suisse, Deutsche Bank, BMO Capital Markets Corp., RBC Capital Markets, UBS and Nomura.

In addition to El Paso, dealers are readying half a dozen deals to be rolled out during the post-holiday week, a syndicate banker said.

These include two deals from energy exploration and production companies, one of which will be an add-on. (During the run-up to the holiday weekend, one investor noted something of a glut of energy paper in 2012 high yield.)

Also, a pair of consumer-oriented companies and one industrial company are expected to show up.

Only one name was on offer. Freedom Group Inc. is expected to announce a $250 million offering of eight-year senior secured notes (B3//) during the week ahead.

Bank of America Merrill Lynch, Deutsche Bank and RBC will be the joint bookrunners.

Proceeds will be used to refinance debt.

Market ends softer

Market indicators turned south on Thursday as yields widened.

The KDP High Yield index reading was 73.72 with a 6.66% yield Thursday. That compared to 73.81 with a 6.62% yield on Wednesday.

The CDX North American High Yield index meantime fell half a point to 96 bid, 96¼ offered, a market source said.

Even typical benchmark issues, such as Ford Motor Co.'s 7.45% notes due 2031, sank a bit. The source called the issue down three-quarters of a point at 121 bid, 122 offered.

Bon-Ton down on sales

Bon-Ton Stores' 10¼% notes due 2014 took a hit Thursday after the company released weaker-than-expected March sales.

One trader said the name was "by far the big trader," with about $32 million of bonds changing hands. He called the notes down "a couple points" at 853/4, down from 88 previously.

Another trader also called the debt down a deuce at 85 7/8.

The York, Pa.-based retailer's March sales were down for the month, according to the company's latest report. For the five weeks ended March 31, same-store sales dropped 0.1% to $254.1 million.

Analysts polled by Retail Metrics Inc. had expected a 1.7% gain.

Best Buy retreats farther

Also in the retail world, Best Buy Inc.'s 5½% note due 2021 - currently rated as investment grade, though that could soon change - continued to lose ground on Thursday.

A trader pegged the issue at 911/2, down "another 2 points or so" from 93 bid, 94 offered on Wednesday.

As previously reported, Standard & Poor's said on Wednesday that it placed the BBB- ratings on CreditWatch with negative implications, citing the company's plan to decrease its big-box store base and reduce costs by $800 million over the next five years.

"In our view, these actions underscore that its current business model is not working and that the steps taken to date have not been enough to improve performance," S&P said in a statement.

Gimme Credit LLC analyst Carol Levenson said in an afternoon report out Wednesday that S&P's action was belated and that Gimme Credit has been thinking the company has issues for some time. The independent research firm placed Best Buy on their "Bottom Ten" list last year.

"There is no pressing need for the company to tap the capital markets," Levenson said. "But we worry that if Best Buy loses its investment-grade status, management would have less of a motive to maintain conservative financial policies, perhaps becoming more aggressive with share buybacks to boost the stock price."

Best Buy is a Minneapolis-based electronics retailer.

Burger King gives up gains

Burger King paper lost some of the ground gained in the previous session after news came out that the company is considering going public again.

A trader placed the 0% notes due 2019 at 76 5/8, down as much as half a point on the day.

Another market source also pegged the debt at that 76 5/8 level.

According to reports out Wednesday, private equity group 3G Capital - which took Burger King private in October 2010 - plans to merge it into Justice Holdings, a British investment firm co-founded by hedge fund titan William Ackman, in a $1.4 billion deal.

Shares of the merged company are expected to trade on the New York Stock Exchange - where Burger King used to trade - by around mid-year.

Burger King is based in Miami.

Auto names falter

In the automotive realm, Chrysler LLC's bonds were dipping, a trader said.

He saw the 8% notes due 2019 slip nearly half a point to 101. The 8¼% notes due 2021 were down almost a point at 101 1/8.

Also, Goodyear Tire & Rubber Co.'s 7% notes due 2022 lost three-quarters of a point, finishing at 97.

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