Primary dry spell continues; new Boyd bonds still struggle; Bon-Ton jumps on exchange offer

By Paul Deckelman and Paul A. Harris

New York, June 4 - The high-yield primary market was shooting blanks for a second consecutive session on Monday amid continued investor caution about the macroeconomic environment, combined with reluctance by some prospective issuers to pay the kind of fatter coupons that investors are increasingly holding out for.

Word did surface, though, about two prospective bond offerings from broadband infrastructure provider Zayo Group LLC, which is expected to bring $1.25 billion of secured and unsecured bonds, and from P.F. Chang China Bistro, Inc., an Asian-themed restaurant operator, which is doing a $300 million deal. Both of those offerings are expected to launch next week.

Secondary market traders also reported a pretty quiet session. They said that last week's new deals continued to hold pretty much at the same levels they reached on Friday with Boyd Gaming Corp.'s eight-year notes continuing to trade well below their issue price and casino sector peer Rivers Pittsburgh Borrower LP's seven-year secured notes continued to strengthen.

Away from the new deals, Bon-Ton Department Stores Inc.'s bonds firmed smartly in active dealings on news that the retailer is offering to exchange new secured bonds for its current unsecured bonds in order to extend the maturity of that debt obligation.

Chesapeake Energy Corp.'s bonds were seen better, in line with a rise in its shares following a personnel shuffle on the natural gas producer's board of directors.

Statistical indicators of secondary market performance meantime remained softer.

Norbord plans two-part deal

No issues priced during the Monday primary market session.

However, one deal came aboard the active-forward calendar.

Toronto-based Norbord plans to hold a roadshow for a $240 million two-tranche offering of senior notes through the present week.

The wood-based panels producer announced it will privately place $165 million of senior secured notes (Ba2/BB-/DBRS: BB) that will rank pari passu with its existing senior secured notes due 2017 and $75 million of senior unsecured notes (B2/B+/DBRS: B).

The notes will be Rule 144A eligible.

The company will conduct an investor conference call Wednesday.

CIBC is the lead manager for the debt-refinancing deal.

Norbord takes its place along with the only other deal on the active calendar: American Casino & Entertainment Properties LLC's $310 million offering of seven-year senior secured notes (B3/B+), which are expected to price in the middle or late this week via Goldman Sachs, Wells Fargo and Deutsche Bank.

Quiet week expected

Although stock indexes in the United States stabilized Monday after undergoing vigorous selloffs late last week, cash high-yield bonds continued to be weak and the CDX 18 HY index ended 1/8-point lower on the day at 91¾ bid, 91 15/16 offered, sources said.

Against the backdrop of continued negative headlines out of Europe regarding the financial straits of the euro zone's peripheral states - in addition to troubling news about the economies of China and the United States - the primary market is apt to remain generally quiet this week, a syndicate banker said Monday.

However, there is currently a sizable pipeline of deals, much of it merger and acquisition-related, backed by bridge financing that the dealers are keen to see transformed into high-yield bonds and placed with the buyside accounts, sources say.

None but the most extreme volatility will stay the dealers' hands where these transactions are concerned, they added.

During the Monday session, buyside and sellside sources said at least two of these deals are coming into focus.

P.F. Chang's China Bistro is expected to launch a $300 million offering of senior notes during the June 11 week.

The deal, which is expected to help fund the leveraged buyout of the company by Centerbridge Partners, comes in conjunction with a $350 million senior secured credit facility that launched at a bank meeting Monday.

Deutsche Bank is leading the bond deal in a syndicate that includes Wells Fargo and Barclays.

Also Zayo Group is expected to bring a $1.25 billion offering of high-yield notes to market during the June 11 week.

The bonds, backing the acquisition of AboveNet Inc., are expected to come in two tranches: a $750 million tranche of senior secured notes and a $500 million tranche of senior unsecured notes.

Morgan Stanley and Barclays are the leads in a syndicate of banks that includes SunTrust, UBS, RBC and Goldman Sachs.

The financing also includes a $1.75 billion credit facility that will launch at a Wednesday bank meeting.

Boyd burned again

A trader said that in the absence of any new deals, Boyd Gaming's new 9% notes due 2020, which remained under pressure for a second straight session, was "kind of all the excitement."

He quoted the Las Vegas-based casino company's upsized $350 million issue at 98 bid, 99 offered, about the level at which those bonds were seen going home Friday, well down from the par level at which those bonds priced Thursday after the drive-by offering was upsized from an originally announced $300 million.

"I would have thought that Boyd would have done better," a second trader opined, given that it's a familiar issuer and is generally considered to be a fairly well run company.

A trader broached the notion that investors were reacting to the continued weak performance of the two biggest U.S. gaming markets, Las Vegas and Atlantic City; Boyd is 50% owner of the latter's big Borgata resort and has a number of properties in Las Vegas.

At another desk, a trader saw the Boyd bonds fall further, quoting them at 97¾ bid, 98¾ offered.

Boyd's existing 9 1/8% notes due 2018 were down 1¼ points, at 101¼ bid.

The Boyd slide was all the more apparent given the continued strong performance of its sector peer, Rivers Pittsburgh Borrower's 9½% senior secured second-lien notes due 2019.

The Pennsylvania-based casino operator priced $275 million of those bonds Wednesday after downsizing its forward calendar deal from $300 million. The bonds came at par, quickly moved above the 101 mark in the aftermarket, breached the 102 level on Thursday and stayed there ever since.

A trader saw the bonds Monday at 102½ bid, 102¾ offered, while a second had them at 102½ bid, 103¼ offered.

The first trader commented on why Pittsburgh popped while Boyd got bopped.

"You just never know who ends up getting in on these new issues, who [the underwriters] stuff it to," the trader said, "whether it's long-term buy-and-hold hands or the flippers."

Traders saw no Monday dealings in last week's other two issues: Frisco, Texas-based oil and gas exploration and production company Comstock Resources Inc., which priced a quickly shopped $300 million of 9½% notes due 2020 on Thursday, and Nara Cable Funding Ltd., which came to market with a suddenly appearing $310 million offering of 8 7/8% senior secured notes due 2018 on Wednesday.

Comstock priced its deal at 95.304 to yield 10 3/8%, after upsizing it from an original $250 million. Those bonds were quoted Friday a little below issue with a high-94 handle.

Nara, a unit of Spanish cable and broadband operator Grupo Corporativo ONO SA, priced its deal as a mirror tranche to its $1 billion of existing bonds that came to market in January, although at a 267 bps-lower yield than the new deal. The ONO bonds were quoted Friday as firming to levels between 86 and 88 bid.

'A nervous market'

In the secondary realm, a trader noted the lack of any new deals for a second consecutive session, adding that there wasn't all that much going on in the secondary market either.

"It's just a very nervous market," he declared, "as are the equity markets."

The latter - coming off Friday's big slide triggered by the considerably weaker-than-expected U.S. job-creation number for May and the downward revisions for March and April - managed to stabilize somewhat Monday, ending mixed. The bellwether Dow Jones Industrial Average lost 17.11 points (0.14%) to end at 12,101.46, its lowest level since December; it was the Dow's fourth straight loss. Broader indices like the Standard & Poor's 500 and the Nasdaq composite each ended up slightly on the day.

Back in the junk precincts, a trader said that everyone is jumpy. "When I go home, my stomach's killing me - and we don't even position that much," he said.

"Maybe, hopefully, they're talking about how Europe's finally going to take a good, heavy look at this [debt] nonsense," he asserted, "and we'll see what happens. But really - as Europe goes, we go right now."

Junk indicators lower

Statistical indicators of market performance were on the downside across the board for a fourth consecutive session Monday.

The Markit Group CDX North American Series 18 High Yield Index eased by 1/16-point to end at 91 7/8 bid, 92 1/8 offered, after dropping by 11/16 point on Friday.

The KDP High Yield Daily Index meanwhile lost 20 basis points Monday to end at 71.81, on top of Friday's slide of 31 bps. Its yield rose by 9 bps on Monday, on top of the 10 bp rise seen Friday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its fourth straight loss Monday, falling by 0.18%, on top of Friday's 0.471% decline.

The latest loss left its year-to-date return at 4.26%, down from Friday's 4.448%. It was the lowest level for the year-to-date figure since the 4.147% reading back on Feb. 21. Those levels remain well down from the peak level for 2012 so far, 6.80% set on May 7.

Bon-Ton buoys on exchange

"Bon-Ton was in the news," a trader said about the non-new deal names.

"They tried to creep up, big time," he said.

He saw the York, Pa.-based department store chain operator's 10¼% notes due 2014 move up to a closing level of around 73¾ bid, 74 offered. He said that was off from its highs for the day around 75¾ bid, 76 offered, but was well up from its previous levels in the mid- to upper-60s.

He noted that the bonds rose on news of the company's exchange offer to lengthen its debt maturity. That is "good for the holders, for sure," the trader said.

A second trader estimated the bonds up as much as 5 points on the day at 73½ bid, 74 offered, versus Friday's levels around the upper 60s.

Yet another trader said Bon-Ton "had a lot of volume," estimating that at least $16 million to $17 million changed hands on the day, making it one of the busiest issues in Junkbondland.

Bon-Ton announced that it will give holders of its existing $464 million of the 101/4s who tender their bonds in the exchange offer new 10 5/8% senior secured second-lien notes due 2017.

Holders who tender their bonds by the early deadline of 5 p.m. ET on June 15 will receive $1,000 principal amount of the new bonds for each $1,000 principal amount of the existing bonds they tender; those who tender after that will get $970 principal amount of new bonds per $1,000 principal amount of the outstandings tendered.

The exchange offer expires July 3.

Chesapeake up after changes

Chesapeake Energy's recently volatile bonds were seen on the upside Monday after the embattled Oklahoma City-based natural gas company announced that it will replace four of its independent directors with nominees named by its two biggest shareholders - 13% owner Southeastern Asset Management and 7½% holder Carl Icahn, who has been very critical of the recent course that management has followed.

The news sent Chesapeake's 9½% notes due 2015 up a point to 105.5, while its 6 7/8% notes due 2018 were also 1 point better, at just under 95 bid. The company's actively traded 6 5/8% notes due 2020 firmed to 99½ bid, on volume of more than $10 million.

In recently announcing that he took a large position in Chesapeake, Icahn said Chesapeake collected some of the best oil and gas assets in the world. But he also took a slap at current management, charging that the company's stock was undervalued due to "the enormous risk associated with an ever-changing business strategy, enormous capital funding gap, poor governance and unchecked risk-taking."

Icahn is thought of by some as a corporate raider, but others laud him for championing shareholder activism and holding management of companies he invests in accountable for their actions.

"We suspect a reconstituted board will likely clamp down on land acquisitions and capex and perhaps be more open to a broader array of solutions to [Chesapeake]'s capital issues - maybe including the sale of the entire company," said analyst Philip C. Adams of the Gimme Credit independent advisory service.

Adams also noted Chesapeake's surrender to demands by Icahn and Southeastern that they be allowed representation on the board.

Wall Street apparently agrees because Chesapeake's New York Stock Exchange-traded shares rose 94 cents, or 6.03%, to close at $16.52. Volume of 37.9 million was more than 20% above the norm.

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