Fifth & Pacific breaks primary drought; Chesapeake up on asset sale buzz, ATP, Cenveo gain

By Paul Deckelman and Paul A. Harris

New York, June 6 - The high-yield primary market broke out of its three-day slump on Wednesday - or at lease edged away from it - finally pricing a quickly-shopped $150 million add-on to an existing deal from Fifth & Pacific Cos., Inc. - the Manhattan fashion house and specialty retailer formerly known as Liz Claiborne Inc.

Despite the small size of the new seven-year senior secured notes, paper-starved investors took the deal up when it was freed for secondary market trading.

The primaryside was otherwise inactive.

However, traders noted increased activity and a brighter tone in the secondary market, helped by a strong rebound in recently beleaguered stocks. Junk market statistical indicators rose across the board for the first time in many days.

Among specific issues, Chesapeake Energy Corp.'s bonds strengthened on news reports that the embattled natural gas company is in talks to sell its pipeline assets for as much as $4 billion.

Hovnanian Enterprises Inc.'s bonds firmed smartly as the underperforming homebuilder unexpectedly turned in its first quarterly profit in two years.

And some of the names which had been gainers in Tuesday's session stayed on the upside on Wednesday. Among then was ATP Oil & Gas Corp., which continued to ride the momentum from its recent announcement of a new chief executive officer. Cenveo Corp.'s bonds strengthened further on the news that the commercial printing company had had executed an agreement for new term loan borrowings and an amendment allowing it to repurchase its subordinated bonds due next year

Iron Mountain, Inc.'s announcement of its plans to become a real estate investment trust (REIT) had little impact on the trading levels of the document storage company's bonds.

Fifth & Pacific taps 101/2s

The Wednesday session saw a single deal price.

Fifth & Pacific priced a slightly upsized $152 million add-on to the Liz Claiborne, Inc. 10½% senior secured notes due April 15, 2019 (B2/B) at 108.25.

The reoffer price, which came in the middle of the 108 to 108.50 price talk, resulted in an 8.863% yield to maturity and an 8.273% yield to worst.

Half of the deal was driven by reverse inquiry, according to an investor who was involved.

The order book was three-times to four-times oversubscribed, the source added.

The amount was increased from a planned $150 million.

The existing Liz Claiborne 10½% notes recently traded as high as 113, but the recent chop in high yield carried them down to 111 bid by Wednesday's open, said the investor, noting that the 108.25 reoffer price of the add-on notes was seen as a discount of nearly 3 points to trading levels of the existing paper.

Bank of America Merrill Lynch, J.P. Morgan, SunTrust and Wells Fargo were the joint bookrunners for the quick-to-market issue.

Proceeds will be used to repay $37.1 million that the company has drawn under its asset-based revolver for the repurchase in a privately-negotiated transaction of €28.6 million of its 5% euro notes due 2013, to redeem the remaining €52.9 million of those euro notes, and to help finance the buyout option for a 51% interest of its joint venture partner in Kate Spade Japan.

Formerly known as Liz Claiborne, Inc., Fifth & Pacific is a retailer of women's apparel and accessories. It is headquartered in New York City.

The original $205 million issue priced at par on April 1, 2011. A previous $15 million add-on priced at 100.625, resulting in a 10.357% yield to worst, on April 5, 2011.

The issuers for both of those trances were Liz Claiborne, Inc.

Generally quiet in primary

Aside from the Fifth & Pacific news, the primary market remained generally quiet during Wednesday's session.

Three dollar-denominated deals remain on the calendar as business expected to price before the end of the week.

American Casino & Entertainment Properties LLC is in the market with a $310 million offering of seven-year senior secured notes (B3/B+) which are scheduled to price mid-to-late in the present week.

Price talk on the deal, which is being led by Goldman Sachs, Wells Fargo and Deutsche Bank, was expected on Wednesday.

However no price talk surfaced, according to market sources who added that it has been "radio silence," with respect to news on the American Casino deal.

Early conversations were taking place in the 9% area, according to a trader from a high-yield mutual fund.

Meanwhile Canadian wood panel manufacturer Norbord Inc. was scheduled to host a conference call on Wednesday for its $165 million offering of three-year senior secured notes (Ba2/BB-/DBRS: BB) which are coming to market as a Rule 144A eligible private placement.

CIBC is the left bookrunner. Credit Suisse and Bank of America Merrill Lynch are the joint bookrunners.

And French car-maker Renault SA is marketing a $250 million equivalent offering of two-year notes (Ba1/BB+/BBB+).

The deal, which is being run from the syndicate desk in Japan, is set to price on Friday.

Spread talk is 275 to 285 basis points to the Japanese benchmark.

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd. and Mizuho Finance are the leads.

Zayo bonds in the wings

Looking beyond the June 4 week's business, all eyes are turning to Zayo Group LLC's planned $1.25 billion two-part offering of notes which is expected to hit the market during the week ahead.

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

On Wednesday launched its $1.5 billion seven-year term loan B on Wednesday with price talk of Libor plus 575 basis points to 600 bps with a 1.25% Libor floor and an original issue discount of 98.

The unsecured bonds are being discussed in a 10% to 10½% yield range, according to a buyside source who plans to be involved.

The secured notes ought to come slightly lower than 8%, the source added.

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

Asked whether Wednesday's Fifth & Pacific drive-by deal represented a positive portent for the primary market business ahead, sources gave lukewarm responses Wednesday afternoon.

"The high yield improved today, and the stock market was strong, but there was probably a lot of short covering," a trader said.

"Whether that strength will carry into tomorrow is anybody's guess, given the kind of volatility we have seen."

Liz Claiborne sitting pretty

When New York-based fashonista Fifth & Pacific's add-on to its 10½% senior secured notes due 2019 were freed for secondary dealings, a trader quoted the former Liz Claiborne's quickly-shopped new deal as having "moved up pretty nicely," at 109 bid, 109¼ offered, versus its 108¼ pricing level

Later on, he said, the bonds had moved up a little more to 109¼ bid, "and the offering is gone, so they're probably going to move up some more."

Traders mentioned that there was some activity in the deal, despite the fact that it was just a relatively small add-on transaction, an indicator of how starved for new paper the junk market is, since its last previous deals came fully a week ago - last Thursday - when Boyd Gaming Corp. brought a $350 million offering of 9% notes due 2020 to market, and Comstock Resources Inc. priced $300 million of 9½% notes due 2020. Both were quick-to-market deals

Boyd, a Las Vegas-based casino operator, priced its bonds at par after having upsized its offering from an originally announced $300 million, while Comstock, a Frisco, Tex.-based energy exploration and production company, came to market with its deal at 95.304 to yield 10 3/8%, after upsizing the transaction from $250 million originally. Both deals were seen trading below their issue price in the aftermarket.

Market shows improvement

Away from the new deals, a trader said that he saw "not a huge amount of excitement," although he noted a better tone with "stuff trading up maybe ¼ to ½ [point] from [Tuesday's] lows."

A second trader opined that "the run-of-the-mill bonds - decent high-yield bonds - were up around a point today. The more volatile names were probably up a little bit more than that, assuming there wasn't any particular story about those bonds."

Yet another trader mentioned the 286.84 point gain, or 2.37%, rise seen by the Dow Jones Industrial Average, which closed at 12,414.79. It was the biggest one-day gain in the equity market bellwether index since Dec. 20. Broader indexes like the Standard & Poor's 500 and the Nasdaq composite, were also each up more than two full percentage points on the day. The big improvement from Tuesday's smallish gains and from three sessions on the downside before that was sparked by hopes that European bankers and officials can cook up a rescue plan for Spain's beleaguered banks, and by domestic investor hopes of more stimulus from the Federal Reserve.

Back in Junkbondland, the trader saw "a good tone across the board - things were up by a solid point or two, although he saw "no really dramatic news items."

Junk indicators improve

Statistical indicators of market performance turned higher across the board on Wednesday for the first time in nearly two weeks, after having been mixed on Tuesday and one the downside pretty much across the board for the previous four consecutive sessions.

A trader saw the Markit Group CDX North American Series 18 High Yield Index rise by 9/16 point on Wednesday, after having shot up by 13/16 point on Tuesday.

The KDP High Yield Daily Index broke out of a four-session slump, jumping by 27 basis points to end at 71.98, after having fallen by 10 bps on Tuesday. Its yield tightened by 10 bps, to 7.22%, after having risen by 5 bps on Tuesday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index snapped a five-session losing streak on Wednesday, as it pushed up by 0.412%, versus the previous session's 0.236% decline.

The latest loss left its year-to-date return at 4.442%, up from Tuesday's 4.013% reading, but still well down from the peak level for 2012 so far, 6.80%, set on May 7.

Chesapeake up on sale talk

Among specific issues, traders saw Chesapeake Energy's bonds better, citing news reports that the big Oklahoma City-based natural gas company - whose bonds and shares have recently been volatile at generally lower levels, hurt by the combination of lower natural gas prices and the company's own need for aggressive cash-raising measures - is in late-stage talks to sell nearly all of its pipeline assets for over $4 billion.

Its busiest issue, the 6 1/8% notes due 2021, were seen by a market source to have moved up a point to end at 95¾ bid, on round-lot volume of over $14 million.

The source said that Chesapeake's 6.775% notes due 2019 were up 3 points on the day at 99 bid, although on a strictly round-lot basis, ignoring smaller trades as not representative, it was a 2 point gain to 97½ bid, on volume of over $9 million.

Its 9½% notes due 2015 were up by nearly 2 points, finishing at 106¾ bid, on over $9 million of trading.

According to published reports, Chesapeake is in negotiations with Global Infrastructure Partners, an infrastructure investment fund that is already a partner with Chesapeake in its pipeline company Chesapeake Midstream Partners LP.

Global would buy out Chesapeake's stake in the Oklahoma City-based midstream energy company, and would buy its other pipeline assets as well.

News of the discussions also boosted Chesapeake Midstream's 6 1/8% notes due 2022, which were quoted up 3 points on the day at 98½ bid.

Moody's Investors Service recently said that Chesapeake had to sell at least $7 billion of assets this year to close the funding gap between its revenues and its capital spending and debt-reduction requirements, and to stay in compliance with covenants.

But senior analyst Philip C. Adams of the Gimme Credit independent research service said in a note Wednesday that "over $4 billion for pipeline assets, plus $5-6 billion for Permian Basin [Texas] assets and suddenly, CHK's $10 billion hole for 2012 would just about be cured - subject to year-end covenant calculations and the [free cash flow] outlook for 2013."

ATP advances again

Also on the energy front, ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 firmed for a third consecutive session Wednesday.

A trader saw the Houston-based offshore energy exploration and production company's bonds finishing at 57 3/8 bid, 58 offered, after having gotten as high as 58 bid earlier. Volume was over $16 million, making it one of the busiest junk issues.

The trader said that the bonds had traded at 56½ bid, 57 offered on Tuesday and were "up quite a bit from last week," when they languished at 52 bid, 53 offered, "so they're up nicely."

The bonds have been on the rise ever since Friday's late-session announcement that the company had tapped a new chief executive officer, Matt McCarroll, who previously ran Dynamic Offshore Resources LLC.

McCarroll takes over the CEO position from T. Paul Bulmahn, who founded the company and who remains its chairman.

Cenveo climb continues

Another issue that had been up solidly on Tuesday and continued its winning ways Wednesday was Cenveo's 7 7/8% subordinated notes due 2013; the bonds have firmed on the news that the Stamford, Conn.-based commercial printing company is moving ahead with its financing plans.

A trader saw those bonds rise about 1 5/8 points on Wednesday to go home at the 98 bid level, on volume of over $4 million.

On Tuesday, they had jumped to a 96-97 context from around 92 on Monday, after the company's parent, Cenveo Inc., announced that Cenveo Corp. had executed an agreement that provides for an additional $65 million term loan under its senior secured credit agreement. The new loan is identical to the existing term loan under the credit agreement and is expected to close this week.

Cenveo said that its wholly-owned unit also executed an amendment to the credit agreement, which also is expected to close this week, to allow the company to repurchase up to $135 million of the 2013 bonds, subject to maintaining certain liquidity thresholds and other customary conditions.

It further said that the amendment also delays a step-down in the maximum first-lien leverage ratio covenant to 2.25 times from 2.50 times until the first quarter of 2013.

Cenveo said that proceeds from the new loan tranche will initially be used to repay outstanding revolving credit borrowings, which will, in turn, free up revolver capacity to refinance the 2013 paper.

It said that this amendment, plus previous credit agreement amendments, will allow for all of those notes to be refinanced.

Hovnanian higher on numbers

A trader saw Hovnanian Enterprises' 10 5/8% notes due 2016 jump by 4½ points on the session to around the 91 level, on "pretty good volume" of more than $17 million.

That followed the announcement by the Red Bank, N.J.-based homebuilder that it had posted its first quarterly profit in two years.

It reported earnings for the fiscal second quarter ended April 30 of $1.8 million, or 2 cents a share, versus a loss of $72.7 million, or 69 cents a share, a year earlier.

Iron Mountain unmoved

The announcement from Iron Mountain that the Boston-based document storage company plans to convert itself into a real estate investment trust starting in 2014 was greeted with yawns by the junk market.

"There was not huge IRM volume," a trader said, "maybe a couple of million."

He saw its 8 3/8% notes due 2021 up ¼ point at 105½ bid, while its 8% notes due 2020 gained ½ point to end at 105.

The company said it expects to shift away from debt and more to equity to find its needs as a REIT, projecting a likely lowering of its cost of capital and its leverage levels (see related story elsewhere in this issue).

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