Sallie Mae, split-rated Puget price deals; Chang's to hit road; Navistar nosedives on ruling

By Paul Deckelman

New York, June 12 - The high-yield primary market remained largely becalmed again on Tuesday.

While there were two pricings seen, both came off the investment-grade desks of the various banks involved and were expected to largely draw attention primarily from high-grade crossover players looking to pick up some yield.

Education finance company SLM Corp. priced a split-rated (Ba1/BBB-/BBB-), upsized $300 million add-on to the existing $750 million of those 2017 notes, which priced earlier this year.

Utility operator Puget Sound Energy Inc. did an upsized $450 million of 10-year notes. Like the SLM deal, it was a quick-to-market offering priced off the investment-grade desk despite Puget Sound's nominally high-yield rating (Ba1/BB+).

Among the purely junk credits in the primary arena, syndicate sources heard CCC- rated restaurateur P.F. Chang's China Bistro, Inc. getting ready to hit the road early next week with a $300 million issue of eight-year notes, part of the financing for the company's pending acquisition by Centerbridge Partners, LP.

Another recently announced leveraged buyout deal that may wind up in Junkbondland at some point in the near future is Bain Capital, LLC's acquisition of Consolidated Container Co. The latter was heard by a junk market source to be interested in lining up a bridge loan to at least temporarily finance the acquisition while more permanent funding is put in place, but no concrete details were available on Tuesday.

In the secondary arena, Navistar International Corp.'s up-and-down ride continued on Tuesday, this time decidedly to the downside, after a federal court struck down an Environmental Protection Agency regulation that was seen helping the embattled truck, bus and diesel engine maker. Navistar was the most heavily traded purely junk issue on the day.

Also getting slapped around on brisk volume was ATP Oil & Gas Corp., which continued to feel investor heat in the wake of last Friday's abruptly announced resignation of its new chief executive officer.

Sallie Mae brings add-on

With no real junk bond deals pricing right now, high-yield players ended up watching odd quasi-junk/quasi-investment-grade credits price during the session.

One such name was the Newark, Del.-based education financing company known to the investment world as Sallie Mae.

It came to market on Tuesday with a quickly shopped and upsized add-on to one of the two series of bonds that it sold in a giant-sized deal earlier this year.

Sallie Mae upsized its offering of 6% notes due 2017 to $350 million from the originally planned $250 million.

The notes then priced at 98.517 to yield 6 3/8%.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC were the bookrunners on the deal. Since Sallie Mae carries a split rating (Ba1/BBB-/BBB), the deal was reported by syndicate sources to have come off the high-grade desks of the banks involved.

Proceeds will be used for general corporate purposes.

The deal was structured as an add-on to the $750 million of those 6% bonds, which SLM sold earlier this year as part of an upsized two-part offering.

That megadeal, increased from an originally planned $1 billion, priced on Jan. 24. It consisted of $750 million of the 6% notes, upsized from $500 million, which priced at 98.942 to yield 6¼%, and $750 million 7¼% notes due 2022. The latter tranche, which was also upsized from an original $500 million, priced at 98.264 to yield 7½%.

A trader on Tuesday quoted the new bonds at 98¾ bid.

A second trader said the existing bonds, which had not recently seen much trading, saw a flurry of trades "since 4 p.m. [ET],"or about the time the add-on priced, in a 99-99¼ bid context.

Puget Sound powers up

Also coming off the investment-grade desks, despite a nominal rating at the high end of the junk spectrum (Ba1/BB+), was Puget Sound Energy's offering.

High-yield syndicate sources heard the Bellevue, Wash.-based electric utility company as having priced an upsized $450 million offering of 5 5/8% senior secured holdco notes due 2022 at 99.993 to yield 5 5/8%, inside of pre-deal market price talk envisioning a yield of around 5¾%.

The deal was enlarged from the originally planned $350 million.

The quick-to-market offering was done via bookrunners Bank of America Merrill Lynch, J.P. Morgan Securities LLC and Wells Fargo Securities LLC.

Proceeds will be used to repay a portion of outstanding credit facility borrowings.

Traders did not see any activity in the new bonds in the aftermarket.

High yield or high grade?

Kingman D. Penniman, the founder and president of KDP Investment Advisors Inc., thought it was interesting that even with a fairly busy calendar on the investment-grade side, there was some "poaching" of deals going on. Split-rated or even nominally junk deals that would normally be expected to come off the high-yield desks migrated to the high-grade desks, which would have more likely buyers lined up.

"There is such a demand for yield there," he told Prospect News. "The investment-grade [buyers] are looking for higher-quality crossover credits because both of these were previously investment grade.

"So the question is: are the crossover credits being traded on the high yield or the investment grade, or the investment-grade desks?"

In the meantime, he said there's currently "a dearth" of any real activity on the junk side, with only a smallish deal here and there, like last week's $165 million issue of senior secured notes due 2015 from the likes of Toronto-based wood-products company Norbord Inc.

High yield, he said, "is still waiting to see some stabilization in outflows."

The market seems to have "pulled away the welcome mat" from prospective new issuers, at least for the moment.

P.F. Chang's slates deal

One issuer that will be braving the current market conditions to get a deal done is P.F. Chang's China Bistro, which was heard by high-yield syndicate sources on Tuesday to be getting ready to market its planned $300 million offering of eight-year notes (Caa1/CCC+) to potential investors.

The Scottsdale, Ariz.-based operator of Asian-themed restaurants will begin a roadshow for its deal on Monday, with pricing expected around the end of next week.

The bonds will be brought to market by bookrunning managers Deutsche Bank Securities Inc., Wells Fargo Securities LLC and Barclays Capital Inc.

Proceeds from the planned bond deal, along with the proceeds from a planned bank loan financing, will be used to partially finance the estimated $1.1 billion cost of the pending acquisition of the company by Centerbridge Partners LP.

Other funds for the transaction besides the bond deal and the bank debt include up to $580 million of equity.

Under the terms of the deal announced on May 1, Centerbridge will acquire P.F. Chang's for a price of $51.50 per share in cash, representing a premium of roughly 30% over the average closing share price of P.F. Chang's common stock for the 30 days ended April 30, the day before the acquisition announcement. It is currently tendering for Chang's outstanding stock.

The offer is conditioned upon holders of the company's roughly 21 million shares tendering at least 83% of those holdings to Centerbridge.

Looking for a bridge

Another LBO-type deal that may hit the junk market sooner or later, depending upon market conditions, is Consolidated Container. A high-yield market source heard that the Atlanta-based maker of rigid plastic bottles and other containers used for consumer products is looking to arrange a bridge loan in support of its recently announced deal to be acquired by affiliates of Bain Capital Partners LLC.

Terms of that buyout have not been publicly released, and there was no immediate word on Tuesday as to the size, structure or timing of the planned interim financing, or of the more permanent financing, which would replace the bridge funding further down the road.

A spokesman for Consolidated Container referred all inquiries to Citigroup Global Markets Inc., but a spokesman there declined any comment - even on what role his company might be playing in the financing process.

Another source close to the transaction said that the deal for Bain to buy Consolidated was just announced a little more than a week ago, and "nothing has been put in place" on the deal's financing at this time.

Consolidated was advised during its negotiations with Bain by Bank of America Merrill Lynch and by Barclays Capital Inc. Barclays said that it is not participating in the financing for the buyout. Bank of America Merrill Lynch did not immediately respond to inquiries on the matter.

Junk signs stay mixed

Away from the primary realm, statistical indicators of junk market performance meantime were mixed for a second consecutive session on Tuesday, after having been higher across the board for the previous three sessions for the first time in several weeks.

A trader saw the Markit Group CDX North American Series 18 High Yield Index up by 3/8 point on Tuesday to end at 93 15/16 bid, 94 3/16 offered, after having lost three-quarters of a point on Monday.

The KDP High Yield Daily Index came in by 5 basis points on Tuesday to end at 72.25, after having eased by 4 bps on Monday. Its yield widened out by 6 bps, to 7.15%, after having been unchanged for the previous two sessions.

And the widely followed Merrill Lynch U.S. High Yield Master II Index retreated on Tuesday after four straight sessions to the upside. It lost 0.143%, after having gained 0.199% Monday.

The latest loss left its year-to-date return at 5.033%, down from Monday's 5.183%, and well down from its peak level for 2012 so far, 6.8%, set on May 7.

Navistar knocked down

Among specific names, traders said that, by far, Navistar's gyrations were clearly the story of the day on Tuesday.

"They just keep moving lower and lower," one said, while a second agreed that the Lisle, Ill.-based truck, bus and diesel engine maker's paper "is getting whacked pretty good."

"They got killed again," a third trader opined, punctuating his assessment with a well-known scatological expletive as he gauged just how far those bonds - trading a few points above par just a week ago - have plunged in the days since then.

He saw Navistar's 8¼% notes due 2021 opening the day around 97¼ bid, which was actually up from Monday's late levels around 96.

But then the bonds skidded sharply lower on the news that a federal appeals court had ruled that the Environmental Protection Agency had erred in allowing Navistar to continue to produce and sell a diesel engine that is non-compliant with federal clean-air standards by paying a $1,900 fine to the agency for each such engine sold.

The EPA had previously justified the payment regime on the grounds that not allowing Navistar to sell the engines at all would result in great economic distress for company, perhaps even forcing its shutdown.

Those arguments failed to impress Navistar competitors Cummins Engine, Volvo and Daimler AG, which sued to force the EPA to stop giving Navistar what they considered to be an unfair break.

After that, the junk trader said, Navistar's bonds fell as low as 90 bid, although he saw them come off the bottom to end at 94, still well down on the day. More than $50 million of the bonds had traded - probably a lot more, he said, given the limitations of the Trace system.

"It was just a gyrating day for them," he said. "If you were on the right side of the trade, you made money. But if you were on the wrong side, you lost money - a lot of it."

ATP remains soft

Elsewhere, ATP Oil & Gas' 11 7/8% notes due 2015 were again trading actively on Tuesday.

One trader said $30 million to $40 million of the paper changed hands, seeing the notes "continue to drift lower."

He said the bonds traded in a 44-45 context during the session.

Another trader pegged the notes at 44, down from a 45-46 context previously.

Late last week, the Houston-based company said that its newly hired CEO Matt McCarroll - brought aboard on June 1 - was leaving his new post due to an inability to come to terms on an employment contract.

Investors, however, questioned the story, and several sources wondered why ATP would have announced the hiring before a contract had even been inked.

But while others are concerned about something fishy, at least one market source speculated that the job was simply too much for McCarroll to handle.

"He probably didn't know what he was getting into," he said. "It's a much bigger job than it seems to be.

"[ATP] has always been marginal at best," he continued. "At the end of the day, they are over-levered and under-revenued. That's definitely a little concerning."

He held on to hope, however. "They'll work through it," he said. "Right now, it's good because it's causing some activity in the bonds."

The source further stated that he expected the current episode to take six months or so to play out, at the end of which the company would either emerge stronger or as the big loser.

Stephanie N. Rotondo contributed to this report

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