KB, Isle drive-bys lead $1.6 billion day; Crescent slates; Xtreme out; GenOn extends gains

By Paul Deckelman and Paul A. Harris

New York, July 24 - The high-yield market's new-issue pace picked up on Tuesday, as four borrowers each priced a single-tranche deal, collectively accounting for $1.575 billion of paper.

Among those transactions was familiar junk borrower KB Home bringing a quickly shopped and upsized $350 million issue of 100-year notes to fund its recently announced tender offer for some of its bonds.

Another familiar name doing a deal, also to finance a tender offer, was Isle of Capri Casinos, Inc. with an opportunistically timed $350 million issue of eight-year paper.

High-yield syndicate sources also saw a $425 million secured drive-by deal from medical equipment provider Universal Hospital Services, Inc.

SPL Logistics Escrow LLC's upsized $450 million issue of secured eight-year paper was the day's lone scheduled pricing to come off the forward calendar.

All of the deals priced at par, with SPL firming modestly in the aftermarket and the other names not wandering far from issue price.

Real estate operator Crescent Resources, LLC was seen getting ready to hit the road on Wednesday to shop around a seven-year secured deal, with pricing expected next week.

But, oilfield services operator Xtreme Drilling & Coil Services Corp. was heard to have withdrawn its $175 million five-year offering.

Away from the new issues, GenOn Energy Inc. added to the gains notched on Monday on the news that the power generating company is to be acquired by rival NRG Energy Inc., whose bonds were also seen better.

But most high-yield names were seen on the downside, reflecting a generally soggy market. Statistical indicators of market performance were lower across the board for a second consecutive session.

SPL at the tight end

A busy Tuesday saw three of the four issuers bring drive-by deals. Two of the four deals were upsized.

Tuesday's sole roadshow deal came from SPL Logistics, which priced an upsized $450 million issue of eight-year senior secured notes (B2/B+) at par to yield 8 7/8%.

The yield printed at the tight end of price talk, which had been set in the 9% area.

UBS was the lead left bookrunner for the acquisition deal, which was upsized from $425 million. Macquarie was the joint bookrunner.

Universal Hospital Services

Universal Hospital Services priced a $425 million issue of eight-year second-lien senior secured notes (B3/B+) at par to yield 7 5/8%.

The yield printed in the middle of the 7½% to 7¾% yield talk.

The deal, which was oversubscribed, saw a good amount of participation from holders of the company's existing notes, according to a syndicate source who marked the notes at par ½ bid, well after Tuesday's close.

Barclays, Bank of America Merrill Lynch and RBC were the joint bookrunners for the quick-to-market debt refinancing deal.

Isle of Capri senior subs

Isle of Capri Casinos priced a $350 million issue of eight-year senior subordinated notes (Caa1/CCC+) at par to yield 8 7/8%, at the wide end of price talk that had been set in the 8¾% area.

Credit Suisse, Wells Fargo and Deutsche Bank were the joint bookrunners for the quick-to-market debt refinancing issue.

KB Home upsizes

In a deal transacted on the investment-grade desk, KB Home priced an upsized $350 million issue of 10-year bullet notes (B2/B) at par to yield 7½%.

The yield printed on top of yield talk, according to market sources. Earlier guidance was 7¾%, according to a buyside source.

Citigroup, Credit Suisse and Deutsche Bank were the bookrunners for the quick-to-market debt refinancing deal, which was upsized from $250 million.

Pantry sets talk

Looking toward the Wednesday session, the Pantry, Inc. talked its $250 million offering of eight-year senior notes (Caa1/B+) with a yield in the 8 3/8% area.

That price talk came in the middle of earlier guidance of 8¼% to 8½%, according to a trader from a high-yield mutual fund.

Bank of America Merrill Lynch, Wells Fargo, RBC, BMO and SunTrust are the joint bookrunners.

At Tuesday's close, the only other deal that was on the active forward calendar as business slated to price during the present week was QR Energy's $300 million offering of eight-year senior notes (Caa1/B-).

Although official price talk did not circulate on Tuesday, guidance is 9¼% area, according to the trader from the high-yield mutual fund, who added that half the bonds had already been spoken for when the company roadshowed the deal in early May. It then paused the transaction until yesterday.

"Considering the amount of cash out there, it's amazing that there aren't more deals on the calendar," the trader remarked.

"Every deal has been multiple times oversubscribed."

Crescent starts Wednesday

Looking beyond the present week, Crescent Resources, along with subsidiary Crescent Ventures, Inc., plans to start a full roadshow on Wednesday for its $325 million offering of seven-year senior secured notes (expected ratings Caa2/B+).

The deal is set to price during the middle part of the week ahead.

Jefferies, Credit Suisse and J.P. Morgan are the joint bookrunners.

Proceeds, together with $50 million of new equity from sponsors Anchorage Capital Master Offshore, Ltd. and MatlinPatterson Global Opportunities Partners III LP, will be used to repay existing debt and to fund general corporate purposes.

Isle off early gains

When Isle of Capri's new 8 7/8% senior subordinated notes due 2020 were freed for secondary dealings, a trader said that the St. Louis-based gaming company's new $350 million quick-to-market issue initially moved up from its par pricing level.

"They tried," he said of investors, who attempted to take the bonds higher, seeing them get to a 1001/2-to-101 context, before dropping back to finish the day somewhere between par and 100¼ bid.

"I guess the tide rose, so now that island is trying to stay above water," he quipped.

A second trader saw the bonds trading between 100¼ and 1003/4, but yet another trader, a little later on, pegged the bonds at 99 7/8 bid, 100 3/8 offered.

Isle of Capri's existing 7% senior subordinated notes due 2014, which are slated to be taken out via a tender offer funded with the proceeds from the new deal, were being quoted on Tuesday having firmed about a half-point on the day to just under 1001/2, with over $6 million of the bonds changing hands.

Little movement in new deals

The day's other new issues were also seen all trading around not too far from their par issue price - in contrast to some of last week's new deals, notably Hologic Inc.'s 6¼% notes due 2020, which quickly shot up to between 103½ and 104 bid after the Bedford, Mass.-based medical diagnostic systems maker's upsized $1 billion deal priced at par last Thursday. Those notes were still trading near there as late as Monday afternoon.

Other deals from last week, which racked up handsome initial gains in the secondary market - even though they subsequently gave some of that back - included Rockaway, N.J.-based party supplies retailer Party City Holdings, Inc.'s $700 million of 8 7/8% notes due 2020; Broomfield, Colo.-based telecom and internet services company Level 3 Communications Inc.'s $300 million of 8 7/8% notes due 2019; and Smithfield, Va.-based pork processor Smithfield Foods Inc.'s upsized $1 billion of 6 5/8% notes due 2022.

A trader did see a little bit of strength on Tuesday in SPL Logistics Escrow LLC's $450 million offering of 8 7/8% senior secured notes due 2020, estimating that the Peoria, Ill.-based service, parts and logistics company's deal - upsized from $425 million originally - had moved up to between 100 5/8 and 101 bid, after pricing at par. A second trader also saw the bonds get as good as 101.

But KB Home's quickly shopped $350 million of 7½% notes due 2020 - upsized from $250 million originally - were seen by a trader moving around between 99¾ and 1001/2. A second trader saw the Los Angeles-based home builder's deal at 99 7/8 bid, 100 3/8 offered, versus their par issue price.

Minneapolis-based medical equipment provider Universal Hospital Services' $425 million drive-by offering of 7 5/8% senior secured second-lien notes due 2020 was seen by a trader at 100½ bid, but no offered level, after pricing at par.

There was continued brisk trading in last week's new 10-year deal from Smithfield, with a market source seeing those 10-year bonds up around a quarter-point, at 101½ bid, with over $22 million of the bonds changing hands, making it one of Junkbondland's most active issues on the day.

While that was down from the levels as good as 102-to-103 to which the bonds had moved last week, it was still well up from their 99.5 issue price. Smithfield upsized the quickly shopped deal to $1 billion from $650 million originally, pricing the bonds last Wednesday to yield 6.694%.

Smithfield's existing 7 ¾% notes due 2017 were seen up by nearly a point on Tuesday, ending at just under the 111 mark, though volume was light at just $Aug. 6.

A sloppy session

A trader said that the new deals were the dominant focus of Tuesday's market.

"It was your typical summer day, and you had four or five new deals price late in the afternoon - and that was about it," he said.

Away from the new issues, the junk market was seen as generally easier on the day, continuing to follow the lead of equities, which were down for a third straight session on Tuesday on renewed worries of an economic slowdown in Europe and what effect that might have on the U.S. economy. Declines in key bellwether names like Apple Inc. and United Parcel Service were also a negative factor.

Back in the junk world, statistical measures of market performance were lower across the board for a second consecutive session on Tuesday, after having been mixed on Friday and higher the two sessions before that.

A trader saw the Markit Group CDX North American Series 18 High Yield Index drop by½ point on Tuesday - its third straight loss - to end at 95 3/8 bid, 95 5/8 offered, on top of Monday's 3/8 point loss.

The KDP High Yield Daily Index was also off for a third consecutive session, plunging by 21 basis points to finish at 73.34. That followed Monday's 4 bps retreat. Its yield rose by 7 bps, to 6.44% - its third straight rise - after having been up by 1 bp in each of the two previous sessions.

And the widely followed Merrill Lynch U.S. High Yield Master II Index was off for a second straight session on Tuesday, losing 0.002%. That followed Monday's 0.175% pullback, its first loss after six straight sessions before that on the upside.

The latest loss left its year-to-date return at 8.28%, down from Monday's 8.282% finish. Both of those readings, in turn, were below Friday's 8.457%, the peak level for 2012 so far. But the index's recent levels are the strongest they've been since the end of 2010, when the market measure returned 15.19%.

GenOn gains continue

The generally negative tone seen in the junk market on Tuesday, however, did not extend to GenOn Energy, whose bonds were up for a second consecutive session, still basking in the warm afterglow of the Sunday night announcement that the big Houston-based power generating company will be acquired by sector peer NRG Energy Inc. in a $1.7 billion all-stock transaction that aims to produce the largest competitive power generating company in the United States.

That news had caused the company's bonds to soar on Monday, with the various issues up anywhere between 2½ points and 13 points on the day, although only a few of those issues actually traded in any appreciable size.

For the most part, Tuesday's gains were smaller than Monday's explosive upside, and volume was generally less as well.

"You see that kind of action on the Trace report," one trader said, although he characterized it as "no big change - just some more of that paper trading hands."

A market source at another desk saw GenOn's 9 1/8% notes due 2031 gain 2½ points on the day to end at 102¼ bid, on top of the 13-point jump those bonds took on Monday, moving up smartly from pre-news levels in the middle 80s to just under par, albeit on light turnover of only a couple of million bonds.

On Tuesday, activity picked up to around the $15 million level. Those bonds had originally been issued by Mirant Americas Generation LLC, one of the two companies - the other being RRI Energy Inc - which had merged in late 2010 to form GenOn.

The source also saw some fairly brisk activity in another old Mirant issue, the 8½% notes due 2021. On Monday, more than $14 million of the bonds had traded, rising about 9 points on the day, from the low 90s to just over par bid. On Tuesday, the bonds gained another 2½ points to close at 103½ bid, with over $10 million having changed hands.

Over $8 million of RRI's old 7 7/8% notes due 2017 traded on Tuesday, the market source said, calling them up about a point at the 104 bid level. That was on top of the nearly 7 points that those bonds had gained on Monday on heavy trading of more than $30 million.

While GenOn's bonds continued to gain, Princeton, N.J.-based NRG's paper was also seen on the upside on Tuesday, after having been mixed on Monday.

The company's most actively traded issue was its 7 7/8% notes due 2021, probably the busiest of all junk bonds on Tuesday with total turnover approaching the $40 million mark. The source saw those bonds up nearly a point and a half, finishing just above 104 bid. Some $12 million of those bonds had traded on Monday, when they were actually off slightly on the session.

NRG's 8¼% notes due 2020 gained nearly a full point on the day Tuesday to close at 107 bid, on volume of over $12 million. The notes had gained three-quarters of a point on Monday, on similar volume in that $12-to$1Aug. 6 range.

AK gyrates after wider loss

On the downside, there was some activity on Tuesday in the bonds of AK Steel Holding Corp., after the West Chester, Ohio-based maker of stainless steel and other specialty alloys reported a wider loss during the second quarter, although that was mostly due to a huge non-cash charge against earnings taken because of an accounting requirement.'

A trader said, "Small pieces have been trading up" to around the 861/4-to87¼ level on its 8 3/8% notes due 2022, which he characterized as "not bad."

He saw its 7 5/8% notes due 2020 hanging around in a range of 86¼ to 861/2, calling it "unchanged to maybe up a tad."

"People like AK Steel," he said, "they really do."

He noted that the bonds had been trading in the lower 90s about two months ago, then eroded down to the low 80s in line with an overall pullback in junk over the next few weeks, but have recently battled their way back up to the middle 80s.

"I think you're going to see [further gains] on that. Very candidly, I think they'll move back up a little bit with those coupons."

He added, "Most of your equity guys still have it as an overweight."

However, not everyone was convinced.

A market source at another desk said that looking strictly at round-lot transactions and throwing out the odd-lot pieces, the bonds actually gave up a little ground on Tuesday following the less-than-stellar second-quarter numbers.

He saw the 8 3/8s off maybe a point in ending at 86¼ bid and called the 7 5/8s down a deuce at a little above the 85 bid level. However, size trading in both issues was very light on Tuesday with just one large-bloc trade in the 8 3/8s and maybe two or three in the 7 5/8s.

For the 2012 second quarter ended June 30, AK reported a yawning net loss of $724.2 million, or $6.55 per diluted share, far wider than the $11.8 million of red ink, or 11 cents per share, seen in the first quarter. This was even though, sequentially, earnings from operations in the latest quarter jumped to $56.7 million from $4.1 million in the first period.

But the company said that the far wider loss was almost entirely attributable to a non-cash charge of $736 million, or $6.65 per share, which it was forced to take under accounting rules for a valuation allowance for its deferred tax assets.

Excluding that huge one-time factor, AK posted adjusted net income for the second quarter of $11.4 million, or 10 cents per share - up from the first-quarter loss, though still down from year-ago net income of $33.1 million, or 30 cents per share.

On the conference call following release of the numbers, AK Steel executives said that the company has "solid" liquidity of over $700 million and faces no covenant problems.

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