P.F. Chang, Choice Hotels price deals to close $2.8 billion week, new bonds move higher

By Paul Deckelman

New York, June 22 - P.F. Chang's China Bistro Inc. and Choice Hotels International, Inc. priced new deals Friday to close out a modestly busy week in Junkbondland.

High-yield syndicate sources said that restaurateur P.F. Chang did a $300 million offering of eight-year notes, while Choice, an international lodging company, opened the door on a $400 million offering of 10-year paper.

The traders reported that both of those deals moved up smartly to around and even above the 102 bid level, a particularly notable feat for the Chang offering, which had actually priced at a discount to par.

The deals closed out a week that saw nearly $2.8 billion of new junk-rated, dollar-denominated paper come clattering down the chute, almost $1 billion more than the week before.

Besides the purely high-yield offerings, there was junk-market interest in such split-rated credits as the Choice Hotels deal and earlier in the week, Newfield Exploration Co., traders said.

Away from the deals that actually priced, the primary market was quiet. There were no new-deal announcements, although German chemical film maker Klockner Pentaplast was heard preparing to launch a euro-denominated deal early next month.

Outside of the new-deal realm, traders said junk names appeared to at least be holding their own and the market had a brighter tone than on Thursday.

Statistical performance indicators were mixed on the day, but were positive on a week-over-week basis.

$2.8 billion week

Heading for the barn as Friday's session wound down, just under $2.8 billion of new dollar-denominated, junk-rated paper priced in six tranches, according to data compiled by Prospect News. That's versus the $1.97 billion in five tranches that came to market the previous week, ended June 15. Most of last week's tally was due to a single deal - Zayo Group LLC's well-received $1.25 billion two-part transaction.

That week followed the slowest week so far this year with just $317 million in two tranches that came to market the week that ended June 8.

This week was the second straight week in which issuance increased week-over-week, breaking a four-week losing streak during which activity declined from one week to the next.

Year-to-date, $150.803 billion priced in 318 tranches, running about 19% behind the pace of a year ago, when $186.602 billion priced in 420 tranches by this point in the calendar, about the same gap seen the previous week.

P.F. Chang prices

There was just one pure junk deal pricing on the day, as P.F. Chang's China Bistro, Inc. priced a $300 million offering of eight-year senior notes (Caa1/CCC+), high-yield syndicate sources said.

The Scottsdale, Ariz.-based operator of two Asian-themed restaurant concepts was heard to have priced its issue of 10¼% notes due 2020 at 99.33, to yield 10 3/8% .That was right in the middle of pre-deal market price talk circulating in the market Thursday, which envisioned a yield between 10¼% and 10½%.

The forward-calendar deal was brought to market by book-running managers Deutsche Bank Securities Inc., Wells Fargo Securities LLC and Barclays Capital Inc.

The bonds are officially being issued by Wok Acquisition Corp. as part of the financing for the estimated $1.1 billion pending acquisition of the company by affiliates of Centerbridge Partners LP, a New York-based private-equity company. Wok Acquisition will be merged with and into P.F. Chang's China Bistro as part of the acquisition by Centerbridge.

Other funds for that transaction include a $380 million bank-debt deal and up to $580 million of equity.

The bond deal surfaced in the market last week and the offering was formally launched Monday with the beginning of a roadshow marketing the deal to potential investors.

Market sources heard Thursday that the deal was downsized from its original $300 million to $275 million, with the extra $25 million shifted to the bank-debt deal the company was shopping around, bringing that loan transaction up to $380 million from an original $355 million.

But the bond deal was apparently restored to its original size before Friday's pricing.

Choice split-rated hits market

The only other new-deal seen in the junk-bond market Friday isn't really a junk credit at all; high-yield syndicate sources said that Choice Hotels International priced a $400 million split-rated offering of 10-year senior notes (Baa3/BB).

They said the Silver Spring, Md.-based international lodging franchisor company priced its 5¾% notes due 2022 at par.

Market-watchers said the deal was priced off the high-yield desks of the underwriting banks - joint book-running managers Deutsche Bank Securities Inc., Wells Fargo Securities, LLC, Bank of America Merrill Lynch, Goldman, Sachs & Co. and J.P. Morgan Securities LLC and co-manager Sun Trust Robinson Humphrey, Inc.

That was due to the company's planned use of the new-deal proceeds, even though the company had a nominally investment-grade rating of Ba2/BBB at the time the new deal was announced Tuesday.

Choice Hotels said in a filing Tuesday with the Securities and Exchange Commission that it plans to use the proceeds of the bond deal, along with a portion of the proceeds from a planned new $350 million senior secured credit facility, to pay a special cash dividend totaling $600 million to its shareholders. The company said that if its board of directors elected to pay a smaller dividend than $600 million, or to pay no dividend at all, proceeds from the financing would be used for general corporate purposes.

The news did not go over well with the major ratings agencies, which subsequently cited the planned sizable increase in the company's leverage to pay equity holders as a factor in their respective downgrades of Choice's ratings.

Standard & Poor's lowered the company's corporate credit rating by two notches to BB+ from BBB with a stable outlook, and also assigned the new bonds a BB rating. S&P said the downgrade reflects Choice's plan to pay the $600 million debt-financed special dividend to shareholders, which it said signals management's willingness to drive balance-sheet leverage above the company's stated financial policy goal, in line with a BB+ rating over the intermediate term.

Moody's Investors Service cited similar concerns Thursday when it lowered the company's existing ratings to Baa3, its lowest non-junk rating, from Baa2. The agency also changed the outlook on Choice Hotels to negative from stable. Moody's also assigned the new bonds a Baa3 rating

New deals do well

Despite those qualms, investors seemed to like the new Choice Hotels paper, as well as the P.F. Chang offering.

"The market was quiet - but the new issues were doing great," a trader said Friday.

He saw the Choice Hotels paper as having shot up in the aftermarket to around 102 to 102½ on the break, after pricing at par; later in the session, he said, they moved up further still to 103 bid.

He said the new P.F. Chang bonds traded up to 102 bid after pricing at 99.330 to yield10 3/8%.

A second trader saw the new Choice Hotel paper at103¼ bid, 103¾ offered.

Ally, Calumet trade around

Among the deals that priced earlier in the week, a trader said that Detroit-based automotive and residential lender Ally Financial Inc.'s two-part $1.5 billion offering of senior guaranteed notes Thursday, stayed around the respective issue prices for the two tranche.

That opportunistically timed drive-by deal was split into $1 billion of 4 5/8% notes due 2015 and $500 million of 5½% notes due 2017. The latter tranche was an add-on to its existing $1 billion of those notes that were sold back in February.

The 2015 notes priced at 99.310 to yield 4 7/8%, while the add-on 2017 paper priced at 101.5 to yield 5.131%.

On Friday, he said the 4 5/8% notes due 2015 were quoted around 99½ bid, up a little from pricing.

He saw the 5½% notes due 2017 bid at 101½ to 1013/4.

Thursday's other deal - a quick-to-market $275 million issue of 9 5/8% notes due2020 from Indianapolis-based chemical manufacturer Calumet Specialty Products Partners, LP - was trading at a par bid on Friday - well up from the 98.25 level where the offering priced to yield 9.941

That deal was upsized from $250 million originally. Traders said the new bonds firmed to around the 99 level in initial dealings Thursday and then continued to rise Friday.

Sappi stays firm

A trader said that Wednesday's big deal, the upsized $700 million two-part deal from Sappi Ltd. "hung right in there."

He saw the $400 million of 7¾% senior secured notes due 2017 at 99¾ bid, par offered, along with the Johannesburg, South Africa-based coated paper producer's $300 million of 8 3/8% senior secured notes due 2019 at 100 1/8 bid. Both priced at par, in line with pre-deal market price talk.

Sappi's quick-to-market $700 million two-part offering of senior secured notes was upsized and restructured from an original one-tranche $300 million transaction.

Market measurers turn mixed

Away from the new-deal realm, a trader said, "All in all, it was a very quiet, but firm day for the high-yield market."

He said the market "shrugged off" various bits of bad news to mostly trade higher.

"With all of the inflows," he declared, "people need to put money to work."

A trader saw the Markit Group CDX North American Series 18 High Yield Index jump by 13/16 point on Friday to 95½ bid, 95¾ offered, bouncing back solidly after dropping by ¾ point on Thursday.

The index ended the week well up from its close the previous Friday at 94 5/8 bid, 94 7/8 offered.

The KDP High Yield Daily Index ended up 3 basis points Friday at 73.01; on Thursday, it was unchanged, after it jumped 30 basis points on Wednesday. Its yield Friday came in to 6.77%, after it was unchanged at 6.82% on Thursday.

Those levels compared favorably with where the index was a week earlier - a reading of 72.33 and a yield of 7.03%.

But the widely followed Merrill Lynch U.S. High Yield Master II Index faltered slightly Friday, breaking a streak of seven straight sessions on the upside. It fell by 0.05%, versus Thursday's 0.143% gain, its seventh straight rise.

The easing left its year-to-date return at 6.429%, down a little from Thursday's 6.483% and still somewhat below its peak level for 2012 of 6.80% set May 7.

But it was up from 5.387% the previous Friday. The 0.988% gain on the week was the third consecutive weekly rise.

© 2015 Prospect News.
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