Restructured InVentiv, Lawson Software deals price; NewPage up with coupon payment; funds down

By Paul Deckelman and Paul A. Harris

New York, June 30 - The first half of 2011 wrapped up on Thursday with the pricing of two deals restructured to make them more palatable to investors.

Healthcare consulting and clinical services producer InVentiv Health Inc. dumped its original plan for a new $390 million offering of eight-year bonds, instead opting to do a non-fungible mirror tranche its existing seven-year paper. The bonds priced at a sizable discount to par, but traders said they firmed solidly once they hit the aftermarket.

High-yield syndicate sources said that Lawson Software, Inc. and merging sector peer SoftBrands, Inc. also did a little tinkering with their planned $560 million issue of eight-year notes, which had originally been expected to price earlier in the week. Like the InVentiv deal, this transaction, too, was shortened by a year to make it a seven-yield piece of paper, and it priced well under par. However, the Lawson deal hit the tape too late in the session for any kind of trading activity.

Traders saw recently priced new issues well bid for, including Wednesday's deals from Crown Media Holdings, Inc. and National CineMedia LLC. The new bonds from Husky Injection Molding Systems Ltd., though, were seen just marginally better than their issue price.

Away from the primaryside, the burning question of whether NewPage Corp. would make a scheduled $100 million interest payment on its first-lien bonds - the source of considerable price gyrations in the company's paper over the past several weeks - was finally answered in the affirmative on Thursday, giving those bonds a solid boost.

Secondary market prices generally seemed firmer for a second straight session, with statistical indicators also pointing higher.

However, high-yield mutual funds - considered a reliable proxy for overall junk market liquidity trends - saw their fifth consecutive weekly outflow, a sign of lessened investor participation in the market. But the loss was less than one-10th the size of the record $3 billion-plus loss recorded the week before.

Funds lose $321 million

As the session was winding down, market participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, $321 million more left those weekly reporting funds than came into them.

It was the fifth consecutive week during which net outflows were seen, although the latest week's downturn was only a small fraction of the breathtaking $3.43 billion cash hemorrhage seen the week ended June 22.

During that five-week losing streak, outflows have totaled $6.259, according to a Prospect News analysis of the data.

That sustained blood-letting dropped the year-to-date cumulative inflow total to an estimated $1.562 billion from the previous week's $1.883 billion level. The new cumulative total is the lowest seen this year since the $734.4 million recorded in the first week of 2011 ended Jan. 5 and is well below the $7.82 billion estimate seen in the week ended May 25, the peak level for this year so far, according to the Prospect News analysis.

With 26 weeks gone in the year, there have now been 17 inflows recorded against nine outflows.

Fund-flow patterns began the new year on a roll with cash infusions totaling more than $8 billion seen over a 14-week stretch from early December through mid-March, including the more than $6 billion taken in during the first 10 weeks of this year.

Then fund-flow patterns turned choppy: two weeks of declines in March totaling $1.146 billion, followed by three weeks of inflows totaling $1.78 billion and then two more weeks of outflows in late April adding up to $190 million. That was then followed by inflows seen over the next four weeks, totaling $1.14 billion. Those gains have now been far overshadowed by the latest string of cash losses.

EPFR sees $2 billion plunge

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs from AMG, reported a roughly $2 billion outflow in the latest week - the fourth straight cash loss by that agency's calculations and third in a row to top the $2 billion mark, including the record $3.51 billion bleed seen last week and a $2.08 billion outflow the week before that ended June 15. Those four weeks of outflows had, in turn, followed a 10-week stretch of inflows up through the week ended June 1.

The latest week's cash big cash surrender dropped the year-to-date net inflow number to below $15 billion, EPFR said.

AMG/Lipper's numbers and EPFR's figures generally point in the same direction, although their actual figures usually differ markedly since the two services calculate their respective fund-flow totals quite differently. EPFR, for instance, includes results from some non-U.S. domiciled funds as well as the domestic funds.

EPFR's calculations show 20 weeks of inflows so far this year against six outflows.

Cumulative fund-flow estimates, whether from Lipper/FMI or EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though observable and quantifiable percentage of the total amount of money coming in - fueled the record new deal borrowing binges seen in both 2009 and then in 2010 as well as the robust secondary market seen both years. Those trends had pretty much continued into 2011 as well, although the market has hit something of a dry patch over the last month.

Lawson prices $560 million

A trio of issuers, each one bringing a single tranche, raised $940 million during the final session of June.

Lawson Software priced a restructured $560 million issue of 11½% seven-year senior notes (Caa1/B-) at 92.143 to yield 13¼%.

Original yield talk was set on Tuesday at 11¼% to 11½%.

Bank of America Merrill Lynch, Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc., Morgan Stanley & Co. Inc. and RBC Capital Markets were the joint bookrunners.

The maturity of the notes was shortened to 2018 from 2019. In addition, the deal underwent covenant changes.

Proceeds, together with equity contributions, cash on hand and $1.115 billion of new senior secured credit facilities, will be used to fund the acquisition of Lawson, to refinance substantially all of SoftBrands' existing debt and to repay Lawson's convertible bonds.

Lawson is being acquired by GGC Software Holdings Inc., an affiliate of Golden Gate Capital and Infor Global Solutions, for $11.25 per share in cash. The acquisition is valued at about $2 billion.

Negotiations between the company, its underwriters and bond and bank loan investors carried on into Wednesday night, according to a buyside source who took part and who added that the issue price for the bonds improved somewhat for the issuer because of Thursday's improved market conditions.

inVentiv restructures

inVentiv Health also completed a restructured deal on Thursday.

inVentiv priced a $390 million issue of notes, which have the same coupon and structure as the company's existing 10% senior notes due Aug. 15, 2018 (Caa2/CCC+), was priced at 95 to yield 11.031%.

The new notes, which are non-fungible with the existing notes, priced at the rich end of the 94 to 95 price talk.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., Jefferies & Co. Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Wells Fargo Securities LLC are the joint bookrunners.

Proceeds, along with proceeds from an incremental term loan in addition to an equity contribution, will be used to help fund the acquisition of PharmaNet Development Group, a Princeton, N.J.-based provider of drug development services, from JLL Partners Inc.

Prior to the restructuring, the company had been in the market with an offering of new eight-year senior notes.

The original $275 million issue priced at par in July 2010.

US Airways pass-through deal

Also on Thursday, US Airways Group priced $53.288 million of class C pass-through certificates, series 2011-1, due Oct. 22, 2014 (B3/B) at par to yield 11%.

Goldman Sachs & Co., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. were the managers for the Rule 144A for life notes.

Goldman Sachs was the structuring agent.

US Airways, a Tempe, Ariz.-based air carrier, priced $83.193 million of the class C certificates at par to yield 10 7/8% on June 23.

Quiet Friday

Thursday's action empties the forward calendar.

No deals are expected to price during the Friday session as the market heads into the three-day Independence Day weekend in the United States.

INC Research LLC's $250 million offering of eight-year senior notes (Caa1/B-) via Morgan Stanley, ING and RBC had previously been expected to price before the Friday close. It has been moved into the July 4 week, market sources said on Thursday.

InVentiv Health heads higher

When the new InVentive Health seven-year notes were freed for secondary dealings, a trader said that the Somerset, N.J.-based medical industry consulting and services company's $390 million deal "did well. Wow!"

The bonds had priced at 95, then were seen at 96½ bid, 97¼ offered on the break, before finally settling in at 97 bid late in the session.

The Lawson Software/SoftBrands issue of new seven-year notes came to market too late in the day for any secondary dealings.

Wednesday deals hold gains

A trader opined that "the recent new issues were all well bid for."

Looking at the deals priced during Wednesday's session, he saw Crown Media Holdings's 10½% notes due 2019 continuing to firm smartly on Thursday, picking up right where they had left off.

The Studio City, Calif.-based cable network operator had priced its $300 million issue at par, and those bonds hit the aftermarket trading at 101½ bid, 102 offered, before moving up to 103 bid, 103½ offered by day's end.

"Crown did really well [Wednesday]," a second trader said, quoting the bonds as having firmed further on Thursday to 103¼ bid, 104 offered.

The trader said the new 7 7/8% notes due 2021 issued by National CineMedia, LLC "did pretty good," starting the day off at 101 1/8 bid, 101 3/8 offered, before going home at 101½ bid, 102 offered.

A second trader saw those bonds at 101½ bid, 102½ offered.

The Centennial, Colo.-based company, which digitally distributes advertising and entertainment content to more than 1,400 movie theaters in the United States, priced its $200 million issue at par on Wednesday, too late for any aftermarket dealings that session.

However, another Wednesday offering - Husky Injection Molding Systems'10½%/12½% cash/payment-in-kind toggle notes due 2019 - was seen not much changed on Thursday, with a trader quoting the bonds at 100 1/8 bid, 100 5/8 offered.

The Canadian company, which produces machinery used by the plastics packaging industry, priced its $570 million issue at par on Wednesday, but was not seen initially trading around.

Older deals still strong

Looking a little further back, a trader saw AMC Networks Inc.'s 7¾% notes due 2021 at 102¾ bid, 103 offered.

The company - being spun off from Bethpage, N.Y.-based cable operator, telecommunications provider and professional sports franchise owner Cablevision Systems Corp., with the deal proceeds helping to finance that separation - priced $700 million of the bonds at par on June 22, and they began moving up solidly right after that, helped by pent-up investor demand for a big, liquid issue by a recognized and familiar junk issuer.

He also saw Ducommun Inc.'s 9¾% notes due 2018 at 102 bid, 102½ offered.

The Carson, Calif.-based aerospace and defense contractor's $200 million offering had priced at par on June 23 and then had moved up to bid levels between 102 and 103, before stabilizing around those levels.

However, he saw no sign of New York-based holding company HarbingerGroup Inc.'s 10 5/8% first-priority senior secured notes due 2015, which priced at 101 to yield 10.259%, also on June 23.

But he did see continued upside in Chrysler Group LLC's 8% senior secured notes due 2019, which "were up a point [Wednesday], and they're probably up again today."

The Auburn Hills, Mich.-based No. 3 domestic car manufacturer's $1.5 billion of those bonds had priced at par back on May 19 as part of a $3.2 billion two-part behemoth of a deal that also included a 10-year tranche and then proceeded to slide over the next few sessions to levels as low as under 95.

But on Wednesday, trader saw the bonds up around 2 points on the session from previous levels, closing at around 97 3/8 bid.

The trader suggested on Thursday that "you had some funds buying [the 8s and the 8¼% 10-years], simply because they're large, liquid issues."

Also believed to be helping give the two tranches a boost were bullish expectations by analysts about the company's June sales figures. Edmunds.com, a widely respected distributor of automotive industry information, predicted that Chrysler's June sales figures, due to be released in early July, would show a sizzling 26% jump from its admittedly low year-earlier sales volume for the month. Edmunds sees June sales gains of 17% and 11% for Chrysler domestic rivals General Motors Co. and Ford Motor Co., respectively.

Market measures move up

Away from the new deal arena, statistical measures of market performance, which on Wednesday had broken out of their rut seen on Monday and Tuesday, continued to firm on Thursday.

A trader saw the CDX North American Series 16 HY Index jump by 13/16 of a point on Thursday to end at 101 5/8 bid, 101¾ offered, on top of the ¾ of a point gain seen on Wednesday.

The KDP High Yield Daily Index zoomed by 26 basis points on Thursday to end at 75.06, after having added on 17 bps on Wednesday. Its yield fell by 9 bps to 6.87%, on top of the 7-bps decline seen Wednesday.

A trader said, "It almost felt like people were feeling a little less nervous [on Wednesday] and today."

He said the market had heard "rumors that there was a big short-seller of yield-to-call and short maturity paper at the end of last week and this week - but prices don't reflect any real damage being done to the short end of the curve."

He predicted that Friday's pre-holiday session "is going to be a non-event." Although U.S. fixed-income markets are officially scheduled to be open for a regular full session, traders said that desks are likely to be lightly staffed, with many people opting for an early exit ahead of the three-day July 4th holiday break.

He doubted, for instance, that there would be much going on in the way of trading in Thursday's new issues during Friday's session.

NewPage pops on payment

Among the established secondary names, NewPage's bonds were better, particularly its 11 3/8% senior secured first-lien notes due 2014, on news reports - later confirmed by the agent bank for those bonds - indicating that the Miamisburg, Ohio-based coated-paper manufacturer had, in fact, made the $100 million interest payment due on Thursday on its $1.7 billion of those notes.

Investor uncertainty on whether the coupon would be paid, or whether it would instead invoke the standard 30-day grace period while it negotiated with bondholders and lenders on a restructuring, had caused its bonds to fall precipitously since about mid-June, often on heavy volume, with the 11 3/8s dropping as low as the upper 80s from levels in the mid-to-upper 90s at the beginning of the month and its 10% senior secured second-lien notes eroding into mid-20s from levels north of 40 earlier in the month.

But on Thursday, the 11 3/8s pushed higher in brisk trading on the news of the coupon payment, with a market source seeing them having gained 1 3/8 points on the day in round-lot dealings, up to 931/2. The 10s were up by nearly more than three points, to the 30½ bid level, although activity of $10 million was less than in the 11 3/8s.

A trader noted that "the 10s had the bigger move," though on smaller volume. He saw them ending in a 30-31 context, while pegging the 11 3/8s between 93 and 94 bid, calling them up 1½ points.

Payment no real surprise

An analyst who watches the paper industry told Prospect News that in his view, there was never any doubt that NewPage would make the interest payment since "they have enough liquidity" - almost $200 million cash - to enable them to do so.

"There was a consensus out there" that it would happen.

In the run-up to the due date, the bonds fell in response to "the rumor that they weren't going to make the payment," which he said was spread "by people that were aggressively short the first-lien paper. They added fuel to the fire by saying [NewPage] was going to miss the payment."

He attributed most of the scuttlebutt to "a couple of aggressive hedge funds that put [the notion that the payment might not be made] in people's minds to bolster their short position."

He noted that the bonds had traded up a little on Tuesday, and especially Wednesday, in advance of the due date even with no word from the company, attributing the upside movement to short-covering, which continued into Thursday.

NewPage, he said, had every motive to make the coupon payment rather than hang onto the cash in anticipation of some kind of a restructuring transaction

"[The issuer] would want to keep the 'optionality' alive because in a restructuring, they are likely to reinstate the first lien, or roll it over, so you'd have to make that payment anyway, and they had the liquidity to do it, so, to me, there's no reason why they would not have made that payment.

"If it was the second-lien coupon, which might be equitized anyway, especially at the levels where they are trading, they should not throw away dollars" making the payment, "but it made a difference being the first-lien rather than the second-lien," he noted.

He said that the 10% notes "rallied a little bit on the idea that maybe the numbers are not so bad. But I still think that this company's capital structure is too aggressive, and they will need to figure out something soon."

Another looming deadline

Having just successfully pushed one important deadline out of the way, NewPage faces several more.

The $806 million of 10% notes are scheduled to mature next May 1. However, according to the company's most recent 10-Q filing with the Securities and Exchange Commission on May 12, it faces earlier deadlines by which it must either repay or refinance those bonds, or else see the maturities of various other parts of its capital structure accelerated.

For instance, in January, the company amended its $500 million revolving credit facility, which it entered into in December 2007, to extend its termination date. Lenders accounting for $470 million of revolver commitments accepted the extension, while lenders accounting for $30 million did not.

NewPage said in the SEC filing that if the company does not repay or refinance the 10% notes by July 4, the maturity of that $30 million commitment portion of the revolver is moved up to this coming Oct. 3, rather than the scheduled date of Dec. 21, 2012.

If the company does not repay or refinance the notes before Dec. 2, the $470 million portion of revolver commitments will mature next March 1, rather than in December of 2012.

And if the notes are not repaid or refinanced by next Jan. 31, the maturity on the 11 3/8% notes, which at $1.7 billion makes up the biggest part of the capital structure. will be moved up to next March 31 instead of the scheduled maturity in December of 2014.

NewPage said in the filing that because of these springing-lien clauses in the credit agreement and the first-lien notes' indenture, those pieces of debt have now been classified as current, rather than long-term, liabilities. It warned that "absent a refinancing of its second-lien notes, an additional [$1.3 billion] will become current during the [now-ending] second quarter of 2011."

NewPage said at that time that it was "exploring various alternatives to address our ongoing capital needs," although it could give no assurances that it would be able to work out a solution.

The analyst said that NewPage has taken to playing things close to the vest and not announcing what it plans to do, even though such an announcement saying that the company planned to make the coupon would reassure the financial markets.

"They don't do conference calls any more," he said, noting that in the past, when the company did do such calls, executives were often asked blunt questions about whether they had hired a restructuring advisor, or even if they planned to file for bankruptcy.

Now, he said, "they don't do any management presentations; they don't go to any conferences any more." He said that this is a "pretty clear" signal that "they are working on some type of exchange offer. Something is going on."

Third-quarter hopes

He said that "they could have just skipped [the first-lien coupon payment], but why signal to the market when you might want to see what happens to the third quarter and see what your numbers are?" as a reason for paying the $100 million.

He said that the third quarter, which will end on Sept. 30, "is traditionally the seasonally stronger period for this company," whose glossy, coated paper is a favorite of magazine and catalog publishers already planning their important pre-holiday issues.

"Catalog season alone gives you an extra 10% in volume over our traditional cycle. The reality is you'd probably want to see the strength of the third quarter."

The analyst said that there is a belief in the market that NewPage will eventually be acquired by or otherwise merge with sector peer Verso Paper Corp., likening such a combination to the union several years ago of Canadian papermaker Abitibi Consolidated with U.S. sector peer Bowater Corp. However, he said that Apollo Management LP, which controls about 70% of Memphis-based Verso, "is going to wait for [NewPage] to have an appropriate capital structure, and then they'll merge the entities together," rather than taking on the headache of NewPage's bloated capital structure, which included total debt and capital lease obligations of nearly $3.4 billion as of March 31 with annual interest obligations of over $330 million.

"They're not going to merge the capital structures as is."

He said making the coupon payment on Thursday "buys NewPage more time" to work on its capital structure, most notably a deal of some sort with the 10% noteholders "to see where their numbers go."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.