Smithfield, Reliance Intermediate sell add-ons, Penn National, NII slate deals; secondary firm

By Paul Deckelman

New York, Aug. 7 - Smithfield Foods Inc. and Reliance Intermediate Holdings LP priced add-on offerings as the junk bond primary market wrapped up a moderately busy week on Friday.

Syndicate sources also noted the emergence of two other new deals that are expected to come to market in the upcoming week - for Penn National Gaming, Inc. and NII Capital Corp., with the Penn deal seen pricing as soon as Monday afternoon and NII seen pricing later in the week.

Among recently priced issues, Thursday's issue from Affinia Group Inc. - which had jumped as much as 4 points on the break to levels well above par - was seen continuing to strengthen on Friday.

Among the established bonds, traders saw gains in Smithfield's existing notes, on the theory that the new bond deal shows the overall strength of the Smithfield, Va.-based pork processor and hog producer.

Ford Motor Co.'s bonds, and those of its Ford Motor Credit Co. financing arm - including the latter's recent huge new deal - were also seen better, continuing to ride the momentum of Ford's July sales gain and the congressional rescue of the "Cash for Clunkers" program which has helped the company's sales greatly.

Among bonds with no new-deal connections, CIT Group Inc. was continuing to firm.

Smithfield strikes with add-on

Smithfield priced a $225 million issue of senior secured notes due 2014 as an add-on to its existing 10% notes due July 15, 2014 (Ba3/B+). The new bonds priced at 104 to yield 8.969%, coming at the rich end of price talk envisioning a 103.5 to 104 price.

The quickly shopped deal was announced on Friday morning and priced later in the day. It was brought to market by bookrunner J.P. Morgan Securities, Inc.

The price and yield levels at which the add-on bonds came was in sharp contrast to the levels at which the original $625 million tranche of notes priced back on June 25, showing the vast improvement in the junk market since then. Those original notes priced at 96.201 to yield 11%. The original bonds carried a spread of 841 basis points over the comparable Treasury issue - while the new bonds came at 616 bps over.

A trader said the Smithfield, Va.-based meat company's new bonds were staying "right around their issue price" in a 103.5-104.5 context.

And he said that Smithfield's existing bonds "really took off." He saw the company's 7¾% notes due 2013 move up to 871/2, from prior levels at 85½ bid, 86 offered, "in good size."

He also saw the Smithfield 7% notes due 2011 "trading pretty well," at 97 bid, up from prior levels at 95½ bid, 96 offered.

Smithfield said that it plans to use the proceeds from the deal to repay debt, notably its European credit facility.

The trader said that even though the deal proceeds are not expected to be used to directly take out existing bonds, the fact that "they could raise the money and stabilize their cash position and whatnot, people feel that they have the wherewithal to take out the credit facility, so that removes an obstacle. And these coupons are very manageable."

Reliance returns to the market

The other new issue actually was priced late Thursday, with little advance fanfare, with terms circulating in the market on Friday.

Reliance Intermediate Holdings priced a $100 million issue of 10-year senior notes as an add-on to its existing tranche of 9½% notes due Dec. 15, 2019 (Ba2/BB-). The new notes priced at 98.5 to yield 9.735%, at a spread of 600 bps over Treasuries

As with the Smithfield deal, those levels reflect the considerable gains the market has made since the original pricing, even though in the case of Reliance - an Oshawa, Ont.-based heating and cooling products and services provider - it was only a few short weeks since its original issue priced. Those original $250 million of notes priced at 95.298 on July 23 to yield 10¼%, and a spread of 660 bps.

The new issue, like the original, was brought to market by book-running manager Credit-Suisse Securities (USA) LLC.

Reliance plans to use the proceeds from the deal to pay transaction expenses and repay the company's 2008 Equity Bridge Contribution.

A moderately busy week

Although the week lacked the kind of dramatic mega-deals the previous week had, when Ford Credit came in with $1.75 billion just a day after HCA Inc. did a $1.25 billion transaction, it still notched a fairly respectable total of $1.61 billion, including the Smithfield and Reliance add-on deals.

A trader said that one of the most intriguing deals was the week's biggest offering, for Boston-based document and information storage company Iron Mountain Inc. The company priced a $550 million issue of 8 3/8% senior subordinated notes due 2021 on Wednesday at 99.625 to yield 8.425%, upsizing the deal from the original $450 million. A primaryside source - noting the relatively small gap between par and the price at which those bonds came - said it was the "smallest original issue discount in a dollar-denominated new issue this year," so far.

The trader said Friday afternoon that the bonds had firmed a bit from issue to 100.25-100.5, and remarked that the company was practically "a cash equivalent. It's not going anywhere. People buy it and put it in their portfolio."

But the best performer among the new deals in the secondary sphere remained Affinia Group's new $225 million offering of 10¾% senior secured notes due 2016, which priced on Thursday at 98.799 to yield 11%. Shortly after those bonds priced, traders were seeing the Ann Arbor, Mich.-based automotive aftermarket parts producer's bonds as having firmed smartly to 102 bid, 103 offered - and a trader Friday said they were "easily" at 103 bid, 104 offered. A second trader confirmed that higher level.

NII new bonds coming

Looking ahead to the upcoming week, NII Capital Corp. was seen by high yield syndicated sources to be bringing a $500 million offering of seven-year senior notes late in the week, with the marketing effort being kicked off by a Monday morning investor conference call.

The sources said that the company - a wholly-owned subsidiary of Reston Va.-based NII Holdings Inc., which provides telecommunications services to Latin America - will come to market via bookrunners Morgan Stanley and J.P. Morgan.

NII - formerly the international division of what was then Nextel Communications Inc. - said it plans to use the expected deal proceeds for general corporate purposes, which could include debt repayment, or might also include the expansion of its existing network, either through capital expenditures for internal expansion or acquisitions of other operators; the acquisition of telecommunications spectrum licenses or other assets; or the deployment of new network technologies.

Penn plans bond placement

The other deal climbing aboard the forward calendar on Friday was for Wyomissing, Pa.-based regional gaming company Penn National Gaming Inc., which is expected to price a $250 million offering of 10-year senior subordinated notes on Monday afternoon.

High yield syndicate sources said the company will market its deal to potential investors via a Monday morning conference call, with pricing seen later that same day.

The deal is being brought to market via Deutsche Bank Securities, Inc., Wells Fargo Securities, LLC and Bank of America Merrill Lynch.

Penn National plans to use the expected deal proceeds, along with cash on hand or draws under its revolving credit facility, to fund its previously announced tender offer and consent solicitation for all of its $200 million of outstanding 6 7/8% senior subordinated notes due 2011, and to repay $40 million of borrowings and interest under its term loan A facility.

Gaming interest heats up

The Penn National deal is the latest in a string of deals to come out of the gaming industry. Earlier in the week, Las Vegas-based American Casino & Entertainment Properties LLC announced plans for a $375 million five-year senior secured notes deal. And on top of that, new deals have recently come to market from three issuers in that sector - Peninsula Gaming LLC, which brought a two part deal at the end of July, and before that, Pinnacle Entertainment Inc. and MTR Gaming Group.

But while junk investors now seem more willing to place bets on the sector than they were earlier in the year, when gaming was going through a severe downturn largely attributable to the drying up of discretionary consumer spending, a high yield portfolio manager queried by Prospect News remains very skeptical about the sector - even if there are signs the slowdown is easing.

The manager said that "even more damaging" than whatever impact the consumer downturn is having is a structural problem - "just the amount of supply that's been provided. Yes, demand's a little soft - but you've had an explosion in the supply of gaming venues everywhere. It's a case of too much supply meeting a little softer demand, rather than demand really falling off a cliff."

For instance, that buysider said, "I was in Arizona maybe a year or so ago, and basically, I think there are 18 [Native American] tribes - and they're all building casinos. So whether its riverboats or Native American or whatever, to me the reason gaming sector historically used to be a very safe sector,' but is no longer really effective as a defensive play is that "one, you've had way too much supply to meet the demand, and two, one of the pillars of gaming was they essentially were a real estate investment. Now we've seen real estate values erode across the board, and we've seen a lot of distress in gaming property and overcapacity in Las Vegas and other venues.

"So the other support for gaming, besides [supposedly] being in a recession-resistant activity - people going to game, no matter what - now you A) have way too much supply for that demand, and B) a lot of the relative safety of the gaming, this defensive quality, was based on real estate - and this the first time we've actually had the value of real estate in gaming facilities substantially decline.

"So that's taken away a lot of that sense of the nature of gaming" as a safe haven.

Market indicators stay firm

Back among the more established issues, the CDX Series 12 High Yield index, after having been unchanged for several sessions, was seen by a trader up ½ point on Friday to 91¼ bid, 91¾ offered - up modestly on the week from the 90.66 level the index held the previous Friday, July 31.

The KDP High Yield Daily Index, which gained 16 basis points on Thursday, was up another 7 bps on Friday to end at 67.09, while its yield tightened by 3 bps to 8.99%. A week earlier, it stood at 66.23, with a 9.23% yield.

In the broader market, advancing issues - which had led declining issues for a 15th straight session on Thursday - continued to lead on Friday by a seven-to-four ratio.

CIT stays at lofty levels

New York-based commercial lender CIT Group's volatile bonds were "up a point or two" on Friday, a trader said, with its $1 billion of floating-rate notes that are coming due on Aug, 17 seen still hovering in the middle 90s - well above the 87.5 cents on the dollar the company said it would buy the bond at. The bonds had ended the previous week at 77, and jumped to nearly 90 on Monday on news of revised, better terms for the offer, and continued to gain through the week.

A trader, explaining why the bonds are still far above the takeout level, theorized that "holdouts believe that if [CIT] doesn't file [for bankruptcy] by the 17th, they'll get paid off at par."

Ford firming continues

Also seen cruising higher were the bonds of Ford Motor Co. and its Ford Motor Credit automotive financing subsidiary - particularly the huge new issue of Ford Credit three-year bonds that priced at the end of July at 91.589. Those bonds were trading on Friday above the 94 level. Parent Ford's 7.45% notes due 2031 were closing out the week in the upper 70s, up more than 5 points on the week.

Automotive parts makers were also very strong on the week, particularly name like American Axle & Manufacturing Holdings, Inc. The company's bonds had moved from the mid-30s at the end of the previous week to around the 50 level by Friday afternoon.

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