Landry's prices add-on; new Constellation Brands mega-deal jumps in heavy trading

By Paul Deckelman and Paul A. Harris

New York, May 1 - Restaurant and gaming concern Landry's Inc. kicked off the month of May in Junkbondland by serving up a $235 million add-on to its existing 2020 notes, high-yield syndicate sources said Wednesday.

The upsized, quick-to-market deal's new bonds were quoted modestly higher in the aftermarket.

Landry's was the sole dollar-denominated, junk-rated pricing during the session from a domestic or industrialized-country issuer, the sources said. They meantime saw a euro-denominated offering from German packaging producer Kloeckner Pentaplast and a sterling-denominated deal from British insurance broker Towergate Finance plc also come to market.

The forward calendar continued to build, with ION Geophysical Corp. announcing plans for a $175 million offering of five-year secured notes and kicking off a roadshow to market the deal, while Seven Generations Energy Ltd. was also hitting the road with an upcoming offering, of $250 million seven-year notes.

The sources also heard that Scottish oil and gas services company KCA Deutag - which had shopped a dollar deal around to investors via a roadshow in March - had returned to the junk market, though with a downsized, restructured $500 million secured paper offering, with pricing expected on Thursday. Swiss chemical manufacturer Ineos Group Holdings SA also restructured its upcoming transaction, adding a euro-denominated piece to its $678 million of 5.25-year notes, with this deal too expected to price Thursday.

Traders said that Tuesday's two-part mega-deal from beer, wine and spirits importer and producer Constellation Brands, Inc. was the toast of the town, with both its new eight-year and 10-year notes having firmed smartly in heavy dealings.

Away from the new deals, two of Tuesday's busiest credits - Chesapeake Energy Corp.'s 2019 notes and J.C. Penney Co. Inc.'s 2023 paper - were again high up on the most-actives list Wednesday.

Statistical indicators of market performance finally turned mixed on Wednesday, after having been higher across the board for the previous six sessions.

Landry's upsizes tap

Landry's crossed the finish line with the market's sole dollar-denominated deal on Wednesday.

The Houston-based restaurant, hospitality and entertainment company priced an upsized $235 million add-on to its 9 3/8% senior notes due May 1, 2020 (Caa1/CCC+) at 108.75 to yield 7.73%.

The deal was increased from $200 million.

The reoffer price came at the rich end of the 108.5 to 108.75 price talk.

Timing was moved ahead. When it was announced on Wednesday morning, the deal was expected to be in the market overnight and to price on Thursday.

With the execution Landry's shaved a whopping 1.65% off its interest rate compared to the original $425 million issue which priced at par just over a year ago.

Jefferies, Citigroup and Deutsche Bank were joint bookrunners for the quick-to-market add-on.

Landry's plans to use the proceeds to repay its revolver and for general corporate purposes.

Towergate completes floater

As has been the case throughout the week, the preponderance of high-yield primary market headlines came from Europe on Wednesday.

Chalk it up to attractive rates, massive amounts of buyside cash and an impetus on the part of issuers to get deals done before new capital markets transactions require fresh financial numbers, European sources say.

On Wednesday Towergate Finance priced a £396 million issue of five-year senior secured floating-rate notes (B1//) at par to yield Libor plus 550 basis points.

In a restructuring of the deal, a proposed add-on to the company's 8½% senior secured fixed-rate notes due Feb. 15, 2018 was withdrawn and the proceeds were shifted to the new floating-rate notes.

Global coordinator Credit Suisse will bill and deliver. Goldman Sachs and Lloyds TSB were also joint global coordinators.

Citigroup, JPMorgan and Morgan Stanley were joint bookrunners.

The Maidstone, England-based independent insurance broker plans to use the proceeds to refinance debt.

Kloeckner prices PIK toggle

Germany's Kloeckner Pentaplast priced an upsized €225 million issue of PIK toggle notes due Aug. 15, 2017 at par to yield 10¼%.

The notes pay a cash coupon of 10 ¼% or 11% if paid in kind.

The amount was increased from €150 million.

Early guidance came at a wide 10¼% to 11% yield range, according to a market source.

Jefferies will bill and deliver, while Goldman Sachs was the joint bookrunner.

Proceeds will be used to partially refinance preferred equity certificates.

Ineos adds euro tranche

Swiss chemical producer Ineos Group Holdings SA, which has been in the market with a $678 million offering of senior notes (Caa1/B-), added a €250 million tranche on Wednesday.

The dollar-denominated portion of the deal is unchanged.

A dollar-denominated tranche of 5.25-year notes, which come with two years of call protection, is talked with a yield in the 6 3/8% area, down from initial guidance of 6 5/8% to 6¾%.

A dollar-denominated tranche of seven-year notes, which come with three years of call protection, is talked with a yield in the 6 ¾% area, reduced from 7% to 7¼%.

Tranche sizes remain to be determined.

Joint global coordinator Citigroup will bill and deliver for the dollar-denominated notes.

The euro tranche will be 5.25-year notes, non-callable for two years. Price talk is set in the 6¾% area.

Joint global coordinator Goldman Sachs will bill and deliver for the euro-denominated notes.

Additional syndicate members for all tranches of the Rule 144A and Regulation S for life deal include joint global coordinator UBS, as well as joint bookrunners BofA Merrill Lynch, Barclays, ING and Lloyds.

Books closed on Wednesday for accounts in the United States. For European accounts books are scheduled to close at 7 a.m. ET on Thursday.

Ineos plans to use the proceeds to take out its dollar-denominated 8½% notes due 2016. Additional proceeds expected to result from the added €250 million tranche of 5.25-year notes will be used to take out a portion of the company's euro-denominated 8½% notes due 2016.

R&R talks PIK toggle notes

The last two sessions of the busy April-May crossover week promise lots of action in the new issue market in both Europe and the United States.

England's R&R Ice Cream plc set price talk for a €253 million offering of five-year senior PIK toggle notes (Confirmed Caa1/expected CCC+) on Wednesday.

Cash-pay talk is 9¼% to 9 ½% at par. The interest steps up 75 basis points if the issuer elects to make an in-kind coupon payment.

Joint physical bookrunner Barclays will bill and deliver for the acquisition deal. Credit Suisse is also a joint physical bookrunner.

KCA Deutag returns

Scotland's KCA Deutag plans to price a $500 million offer of 9¾% five-year senior secured first lien notes (B3/B) at 96 on Thursday.

The notes, which were the subject of a Wednesday investor call, feature a 50 basis points coupon step-up after 12 months, and an additional 100 bps step-up after 24 months if the sum of the outstanding term loans is $500 million or greater.

J.P. Morgan, BofA Merrill Lynch, HSBC, Lloyds and Morgan Stanley are the joint bookrunners.

Earlier this year KCA Deutag ran a March 18-22 roadshow for an $860 million offering of seven-year senior secured notes.

The deal was sidelined because the company and bond investors were unable to come to agreement on the interest rate, according to market sources.

As with the prior deal, the Aberdeen-based company plans to use the proceeds from the proposed first lien notes to repay debt.

ION Geophysical starts roadshow

The Wednesday session was also replete with a build-out of the active forward calendar.

ION Geophysical began a roadshow on Wednesday in New York for a $175 million offering of five-year senior secured second lien notes.

The deal is expected to price on May 8.

Citigroup is the left bookrunner. Wells Fargo is the joint bookrunner.

Proceeds will be used to repay debt and for general corporate purposes including potential capital contributions to the GeoRXT joint venture.

Earlier this year ION Geophysical announced that it planned to acquire a 30% stake in GeoRXT, an ocean bottom cable data services provider, from Reservoir Exploration Technology.

Seven Generations to roadshow

Seven Generations Energy Ltd. plans to start a roadshow on Thursday for its $250 million offering of seven-year senior notes.

The deal is set to price in the week ahead.

Credit Suisse and RBC are the joint bookrunners.

The Calgary, Alta.-based energy company plans to use the proceeds to fund planned capital expenditures and general corporate purposes.

Landry's heads higher

In the secondary market, a trader saw Landry's Inc.'s 9 3/8% notes due 2020 trading in the Street at 109¼ bid, 110¼ offered.

That followed the pricing earlier in the session of the Houston-based restaurant and gaming company's add-on to the existing 2020 notes.

That quickly-shopped addition had priced at 108.75 to yield 7.73%.

Constellation is the star

But the big mover and shaker of the session was Tuesday's two-part megadeal from Constellation Brands. That $1.55 billion behemoth had priced too late in the session on Tuesday for any aftermarket at that point - but it more than made up for lost time when bonds were freed on Monday morning.

A market source quoted the $1.05 billion of 4¼% notes due 2023 as having moved up to 102½ bid by mid-afternoon from their par issue price, and said that as of that point in the day, trading volume was already over $50 million - easily the most active junk issue of the day - and likely to go considerably higher.

He also saw the $500 million of 3¾% notes due 2021 at 101 7/8 bid, on mid-afternoon volume of over $25 million. Those bonds had also priced at par late Tuesday.

The prediction of continued activity in the credit for the remainder of Wednesday's session proved to be right on the money. Around the time the market closed, another trader said that 2023 notes had knocked down more than $139 million on the day, according to the Trace system, although he cautioned that the figure could contain some double-counts of the same trade, on both the buy and the sell side - but there seemed to be no doubt that most of those trades were legitimate and the day's volume was, in fact, very heavy. He saw the bonds going home at 102½ bid, 102 7/8 offered.

He saw the 2021 bonds ending in a 101½ to 101¾ bid range. Although those bonds were "not as active [as the 10-years], they were still pretty heavy," with final volume of around $60 million.

Investors "must be liking these," he said, despite the relatively sparse coupons, particularly on the eight-year notes. "There must just be so much cash around to be put to use."

Constellation's established 6% notes due 2022 meantime rose by nearly 1 point on the day to 116¾ bid, on busy volume of over $14 million.

But not everybody was necessarily drinking toasts to Constellation.

At the Gimme Credit independent investment advisory service, senior analyst Kim Noland said in a research note that Victor, N.Y.-based Constellation - a major producer and importer of brand-name beers, wines and liquors - "generates significant free cash flow but tends to spend it on stock buybacks and smaller acquisitions."

The current deal is part of the financing for a much larger acquisition, with Constellation buying out its joint-venture partner in a Mexican brewing operation for $4.75 billion.

Noland cautioned that while the ratings agencies initially warned of integration risks from the deal as well as the possible impact on the company's leverage levels, they ultimately did not downgrade Constellation - but "we remain concerned that bond prices do not compensate holders sufficiently for these risks." She rates Constellation's debt as an underperform.

Few trades in Rent-A-Center

A trader said that Monday's issue from Rent-A-Center Inc. had been "wrapped around 101"in Tuesday's dealings.

He did not see any dealings in that $250 million issue of 4¾% notes due 2021 on Wednesday, but suggested that with the overall secondary market a little easier on Wednesday, the bonds were likely around 100 7/8 bid, 101 1/8 offered.

The Plano, Texas-based rent-to-own operator's issue had priced at par in a quick-to-market transaction on Monday, and then had edged up to a 100¼ to 100¾ bid context late Monday.

Apart from the new or recent issues, he said," the secondary was a little off today, probably weaker by 1/8 point to ¼ point."

He added that "there's still a lack of liquidity in the secondary world - there's more buyers looking for paper.

"It's a seller's market.

Indicators turn mixed

Reflecting that marginally softer tone, statistical junk performance indicators turned mixed on Wednesday, snapping a streak of six consecutive sessions in which those market measures had been up across the board.

The Markit Series 20 CDX North American High Yield Index tumbled by 9/32 point on Wednesday to end at 105 19/32 bid, 105 21/32 offered. It was the first loss for the index after six straight sessions of gains before that, including on Tuesday, when the CDX had been up by 7/16 point.

But the KDP High Yield Daily Index, meanwhile, continued to climb on Wednesday for a seventh consecutive session, as it zoomed by 20 basis points to a close of 76.35, on top of the 11 bps rise seen on Tuesday.

Its yield came in by 5 bps for a second consecutive session on Wednesday, ending at 5.08%. That was also its seventh straight narrowing.

And the widely followed Merrill Lynch High Yield Master II index posted its 10 consecutive advance on Wednesday, rising by 0.234%, on top of the 0.184% rise seen Tuesday.

That lifted its year-to-date return to 5.176% - its eighth straight new peak level for the year, and its first time above the psychologically significant 5% mark in 2013. The previous peak level had been Tuesday's 4.805%.

The index's yield to worst also dropped to a new all-time low at 5.176% Wednesday, eclipsing the prior nadir of 5.231%, set on Monday. Its spread to worst tightened to 452 bps over Treasuries, a new tight level for the year, versus the prior tight point of 456 bps, also recorded on Monday.

Chesapeake gyrations continue

Among specific non-new-deal secondary names, it was another busy day for Chesapeake Energy's 6.775% notes due 2019, which had been among the most active traders on Tuesday, when those bonds jumped about 3 points on the day to the 109 bid level, on hefty volume of over $15 million.

On Wednesday, the bonds came off those closing highs to finish down ¾ point on the session at 108¼ bid, with over $16 million traded, but still remained above where they had been before the big push started.

The Oklahoma City-based natural gas producer's notes had climbed solidly on Tuesday as testimony in the federal court case pitting Chesapeake against the trustee for those bonds, Bank of New York Mellon Group, came to a close, with the judge promising a ruling in the contentious case on May 9.

The two companies are at odds over whether Chesapeake, which has called the bonds for redemption at par, was within its rights to do so under their indenture. Chesapeake said that the language of the indenture allowed it to give notice of redemption at par any time up to March 15, while the trustee said that another provision of that document required that such a redemption actually be completed by that deadline, or else the company would be obligated to call the bonds at a much higher price, should it choose to take them out.

Chesapeake's 9½% notes due 2015 were meantime unchanged at 113¼ bid, though volume was busy at $16 million.

J.C. Penney's gains continue

Another credit which had been very active on Tuesday - J.C. Penney's 7 1/8% notes due 2023 -- was also again among the busiest on Wednesday.

A trader called the bonds "up another couple points" on the day, trading at 1463/4.

Another trader said the debt "continued to be active," trading in a 146 to 147 context.

On Tuesday, J.C. Penney announced the tender and consent solicitation to amend certain parts of the indenture. The proposed amendments would allow for a new $1.75 billion loan from Goldman Sachs to be inked ahead of the tender expiration, as the bonds' indenture provides that no other debt be stacked on top of it.

Under the terms of the tender, holders who participate will receive $1,350 for each $1,000 of notes tendered. The amount includes a $50 consent payment.

However, with the bonds currently trading well above that amount, concerns that the company won't get enough participation, which would result in an attempt to defease the debt, abound.

The Plano, Texas-based retailer was making headlines again at midweek on the back of a new ad the company released. In it, the company admits that its turnaround effort was less than successful and urges customers to return, stating that they will find the same brands and prices they had previously known and loved.

Stephanie n. Rotondo contributed to this review.

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