Pricing parade pauses, but Clearwater, European deals slate; pre-holiday market firm, quiet

By Paul Deckelman and Paul A. Harris

New York, Oct. 8 - With over $9 billion of new paper under its belt this week - and even more if you count several euro-denominated deals - the high-yield primary sector took a well-deserved break on Friday, with no new deals pricing as activity in Junkbondland wound down ahead of Monday's Columbus Day holiday.

However, the forward calendar continued to build, with Clearwater Paper Corp. announcing plans for a $350 million offering of eight-year notes, to be used to fund an acquisition by the Spokane, Wash.-based papermaker.

And a trio of prospective deals emerged in Europe, from Spanish industrial conglomerate Abengoa SA, from Central European Media Enterprises Ltd., a broadcaster, internet and TV content provider serving Eastern Europe, and from Austrian gaming equipment maker Novomatic AG. Abengoa and Novomatic were heard ready to hit the road Monday to market their deals, while timing was less certain on Clearwater and Central European Media.

Traders meanwhile saw some activity in Thursday's new deals, including Hilcorp Energy Co., Brickman Group Holdings, Inc. and Cincinnati Bell, Inc., whose offerings had priced too late on Thursday for any real aftermarket, and for Michaels Stores, Inc.

Away from the new deals, the market was mostly quiet, with the bulk of the day's activity seen early on; the pace rapidly dwindled after midday as many participants made an early pre-holiday exit.

As for specific issues, Texas Competitive Electric Holdings Co. was seen down several points as the former TXU Corp. completed an exchange offer for some of that paper. Ford Motor Co.'s bonds continued to trade at strong premiums, even as the carmaker received a two-notch ratings upgrade by Moody's Investors Service.

Europe the focus of week ahead

No issues priced during the Friday session.

However there were announcements, all of which came with a European aspect.

Spanish multinational conglomerate Abengoa SA will conduct a roadshow during the week ahead for a $600 million offering of non-callable seven-year senior notes.

The deal is set to price early in the Oct. 18 week.

Credit Suisse, Bank of America Merrill Lynch, Citigroup and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used for general corporate purposes and capital expenditures for a project pipeline.

The rest of Friday's announcements came with less information.

Austria's Novomatic AG is expected to market an offering of high-yield notes with a seven-year maturity in the week ahead.

The size of the offer has not been announced, according to a New York-based sell-side source who is not in the deal.

Erste Group and UniCredit are managing the sale.

And CET 21 spol s.r.o., a subsidiary of Central European Media Enterprises Ltd., announced in a Friday press release that it plans to sell €170 million of senior secured notes, via Rule 144A and Regulation S.

No syndicate names or timing were disclosed in the release.

Proceeds will be used to fully repay a CZK 2.8 billion (€115 million) credit facility in the Czech Republic, and to repay certain intercompany debt.

CET 21, a subsidiary of Hamilton Bermuda-based Central European Media, operates the company's Czech Republic and Slovak Republic businesses.

The fact that Europe loomed large in Friday's announcements came as no surprise to a syndicate banker in New York.

That's because the week ahead is shortened in the United States due to the Monday celebration of Columbus Day, a bond market holiday.

Given that investors outside, as well as inside, the United States are going to be looking at those deals, the European announcements make sense, the syndicate banker said.

At Friday's close the new issue calendar was conspicuously light, the source added.

"Everything cleared on Thursday, and there has been no big wave of deals announced," the banker remarked, adding that the post-Columbus Day week could see a lesser amount of activity than recent weeks.

$9.17 billion week

With no issues pricing on Friday, the Oct. 4 week closed having seen $9.17 billion of issuance in 15 junk-rated dollar-denominated tranches.

At Friday's close, year-to-date issuance stood at $211 billion in 475 tranches, according to Prospect News data.

One syndicate banker shared an in-house year-to-date issuance total of $239 billion, which includes crossover deals (five Bs) and exchange-adjusted foreign currency deals.

If the market continues to rally, 2010 could top the $290 billion mark, the official said.

Michaels Stores: triple-hooks inside 8%

Given the technical strength of the market, and given the buy-side's need to get invested, things have gotten somewhat more aggressive in the primary market lately, sources conceded on Friday.

One deal people pointed to was Michaels Stores' $800 million issue of 7¾% eight-year senior notes (Caa1) which priced at 99.262 to yield 7 7/8% on Thursday.

The deal was upsized by $50 million, and the yield printed in the middle of the 7¾% to 8% price talk.

Proceeds will be used to fund a tender offer for the company's 10% senior notes due 2014, so Michaels Stores realized interest savings of 212.5 basis points.

"The market is strong, and there is good demand for deals - even those that require a little more work and a little more rate," a syndicate official said.

"Spreads are still big, but yields are at a point where you are getting better rates, even on the difficult deals, than you would have gotten last year.

"When the market is strong things just don't seem as difficult.

"People are focused on the positives instead of the negatives."

Reynolds: Biggest deal in half a year

The week also saw the biggest amount of issuance from a single issuer in half a year, as Reynolds Group Issuer Entities priced $3 billion of notes due April 15, 2019 at par on Wednesday.

The Chicago-based food packaging company priced $1.5 billion of senior secured notes (Ba3/BB) to yield 7 1/8%. The yield printed at the tight end of the 7¼% area price talk.

Reynolds Group also priced $1.5 billion of senior unsecured notes (Caa1/B) to yield 9%. The yield on the unsecured notes printed tighter than the 9¼% area price talk.

Credit Suisse and HSBC were the joint bookrunners.

Proceeds will be used to finance the acquisition of Pactiv Corp.

The deal was multiple-times oversubscribed, according to a syndicate source who conceded that allocations were severe.

Reflecting on the transaction, a banker said that along with a lot of bank debt maturities which stand to be addressed in the high-yield market during the run-up to 2011, sponsor-related and acquisition-related activity, such as Reynolds, will also continue to remain in play.

"Sponsors have money," the sell-sider said.

"They are doing dividend deals now.

"I think you will see sponsor activity in the coming two months, as we head toward the end of the year."

Late Thursday deals trade a little

A trader said that he "didn't see much" in the way of activity in recent new deals.

"We weren't active," he declared. "It was deader than dead."

However, at another shop, a trader did see some restrained activity in the new issues which had priced earlier in the week, particularly in several issues which came to market a little bit too late on Thursday for any meaningful secondary action.

A trader said that Avis Budget Group Inc.'s new 8¼% notes due 2019 had opened at 100 3/8 bid, 100½ offered. However, he said that as trading wrapped up, the Parsippany, N.J.-based car-rental company's bonds were offered at par, putting them around their issue price.

Avis Budget priced $400 million of 8¼% notes due 2019 at par on Thursday, and the bonds had initially traded up after that.

A trader said that Cincinnati Bell "did not get a very good reaction," seeing the Ohio-based telecommunications company's new 8 3/8% notes due 2020 - $500 million of which had priced late Thursday at par but did not trade around later on - having traded up to 100¼ bid, 100 3/8 offered.

But later, he said, the bonds were trading right at the par issue price, or even a little below it, at 99¾ bid, 100 1/8 offered.

"There was a ton of activity," he said. "They're stabilizing around par."

A trader saw Hilcorp Energy's $300 million of 7 5/8% notes due 2021 at 101½ bid, 102½ offered. The Houston-based oil and natural gas producer's bonds had traded at par on Thursday.

The trader also saw Brickman Group Holdings ,Inc.'s $250 million of 9 1/8% notes due 2018 at that same level; the Gaitherburg, Md.-based commercial landscaper's new issue had priced at par on Thursday.

Light trading before long weekend

One of the traders said that "activity was extremely light, with everybody bracing for next week."

He opined that the new deals "will be coming fast and furious before the year's end," as anybody still having financing needs tries to take care of them by tapping the junk bond market now, when overall borrowing conditions are favorable, rather than taking a chance on waiting.

With Friday's restrained dealings, "the portfolio managers got a chance to catch their breath," after the wild ride the market has been on over the past several weeks, driven by heavy new deal activity.

Market indicators stay strong

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index about unchanged on Friday at 99 3/8 bid, 99 5/8 offered, after having risen by 3/16 point on Thursday.

The index thus ends the week well up from the 97 5/8 bid, 97 7/8 offered reading seen the previous Friday, Oct. 1.

The KDP High Yield Daily index meantime tacked on 17 basis points on Friday to end at 73.97, on top of the 14 bp advance recorded for a second day in a row on Thursday, while its yield declined by 7 bps, to 7.37%, after having narrowed by 6 bps on Thursday.

The index thus ends the week up from its 73.30 reading and 7.63% yield seen last Friday.

The Merrill Lynch High Yield Master II index rose by 0.099% on Friday, after having improved by 0.183% on Thursday. Its year-to-date return pushed above the 13% level for the first time this year - participants hope it will be a lucky omen - to end at 13.075%, establishing yet another new peak 2010 level, versus the old mark of 12.963%, which had been set just on Thursday.

The index gained 0.984% on the week, to top the previous Friday's 11.973% year-to-date return.

Advancing issues led decliners for an 11th consecutive session on Friday, with a winning margin of better than six to five, relatively unchanged from the advantage seen on Thursday.

Overall activity, represented by dollar-volume levels, fell by almost 26% on Friday, worsening from the 7% decline seen on Thursday, as activity wound down ahead of Monday's Columbus Day holiday, which will see the U.S. fixed-income markets closed, even though equities will be in session.

Looming holiday quiets market

A market wag observed that the fixed-income world has a soft spot in its heart for Columbus, since his history-making voyage to the New World was a risky venture financed largely by - what else? - borrowed money; legend has it that Spain's Queen Isabella put up her jewels as collateral to fund the voyage, "making it the first secured junk bond deal."

Be that as it may, many people in the market took the approaching holiday as an excuse to do not very much.

A trader said that "when I walked in this morning, it was a little busy" - but he said that after that, "all of the activity seemed to stop after 11 a.m." ET.

What little activity did take place showed him that "the market still feels firm, and the short end, especially is up, even the stuff that's not being taken out" via redemption calls or tenders.

While the firm market is good for investors holding bonds, he continued , "it's bad if you're a buyer - because nobody is selling anything," holding on to paper on the assumption that it's just going to keep going higher."

The Deutsche Bank effect

Besides a reluctance by bondholders to sell, the trader noted that another brake on market activity was this week's well-attended Deutsche Bank Leveraged Finance Conference, held over the first four days of the week in Scottsdale, Ariz. Numerous well-known high yield companies including Level 3 Communications, Inc., Ford Motor Credit Co., Hertz Corp., Hovnanian Enterprises Inc., Leap Wireless International Inc., Cott Corp., Owens-Illinois, Inc. and Crown Castle International Inc., to name just a few, made presentations there.

He said that many portfolio managers and other buyside decision makers were at the conference and thus probably not doing too much investing.

"Every year, this week [just before Columbus Day], the Deutsche Bank conference takes over the world, so it's always a pretty dead week. Many people bring their families along to Arizona and make a vacation out of it and then you have the three-day Columbus Day holiday - so it makes no sense for them to come back in [Friday] for just one day where nothing is happening anyway."

A trader at another desk meantime noted that Avaya Inc.'s bonds were up by about 5 points this week, seeing the Basking Ridge, N.J., business communications solutions provider's 10 1/8% PIK notes due 2015 and 9¾% cash-pay bonds, also due 2015, as having moved up to 99½ bid and "right around par," respectively, from around 94½ the previous week.

"They supposedly presented [Thursday] at the Deutsche Bank conference," he noted in explaining the gains. He said the bonds had already moved up several points during the week, and said they were up another 2 to 2½ points Thursday following the presentation.

"There was a pretty good chunk of them for sale," he said. "Someone developed a good story, bought 'em and ran 'em up."

TXU dips as swap concludes

Elsewhere, bonds of Texas Competitive Electric Holdings Co. were seen heading south - they were among the relatively few issues losing ground in a generally strong market - in the wake of the company's announcement that it had exchanged old notes for new second-lien paper.

A trader saw the 10¼% notes due 2015 and the 10½ %/11¼% senior toggle notes due 2016 falling 3 points, the former at 62½ and the later at 551/2.

He added that about $25 million to $30 million of the 10¼% notes turned over, while about $20 million of the toggle notes traded.

Both issues were part of the debt exchange.

A market source at another desk pegged the 101/2s at 55¼ bid, calling them down more than 3 points, and said the 101/4s were down an even 3 points on the day at 63 bid, in brisk dealings.

Through the exchange offer, the Dallas-based energy company issued approximately $336 million of 15% senior secured second-lien notes due 2021 for about $478 million of its 10¼% notes and 10½%/11¼% senior toggle notes.

The exchange offer was completed on Wednesday but was first announced in an 8-K filed with the Securities and Exchange Commission on Friday.

Ford bonds keep firming

In the autosphere, a trader said that "Ford and GMAC are out of control," continuing to grind ever higher in nosebleed territory.

He saw Ford Motor Co.'s 7.45% bonds due 2031 up another point to 109 bid, noting "they're feeling better."

He saw Ford domestic rival General Motors Corp.'s benchmark 8 3/8% bonds due 2033 at 34½ bid, 35 offered.

"They were feeling firm, but there wasn't a lot of activity," he said.

As for GMAC - GM's former captive auto-loan financing arm, now an unaffiliated company that trades as Ally Financial Inc. - the Detroit-based automotive and mortgage lender's 7½% notes due 2013 were hovering at 109¼ bid, up 1½ points on the day, although its 8% bonds due 2031 eased slightly, but still remained above 111.

A second trader meantime saw the GM benchmarks at 34½ bid, 35½ offered, which he called unchanged on the day, and saw the Ford long bonds likewise steady at 108 bid, 109 offered.

At another desk, a trader, while acknowledging that Number-Two domestic carmaker Ford's bonds are all trading at a strong premium said that the news that Moody's Investors Service had raised Ford's credit rating by not one, but two notches - Ford's corporate family rating was elevated to Ba2 from B1 previously, the fifth upgrade for Ford from Moody's in the last 13 months - really did not have much impact on the bonds, owing to the overall thinness of the market.

"Some were up and some were down," he said, quoting Ford's short paper higher, like its 7¼% notes due 2011 at 105, up ½ point and its 7% notes due 2013 up ¾ point at 1091/4. He also saw the 7.45s better, up ¼ point at 109 bid.

Some of the Ford paper doing better, he added ":don't trade very much" and are just being marked up a couple of points to keep them consistent with issues which do trade more regularly.

Some Ford debt, he said was unchanged, and some was down, like its recently priced Ford Motor Credit Co. 5 5/8% notes due 2015, which eased by 3/8 point, to 104 3/8 - still well above the 99.466 level at which that $1 billion issue had priced on Sept. 14 to yield 5¾%.

A market source at another desk saw the 71/4s down more than a point on the day at about the 103½ level.

-Stephanie N. Rotondo contributed to this report

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