Intelsat, Limited Brands pace revived junk primary; some issues up; Sprint still struggles

By Paul Deckelman

New York, Mar. 22 - The high-yield primary market had its busiest session in weeks on Tuesday, with over $4 billion of new paper clattering down the chute and into the hands of investors.

While overall primaryside activity was brisk, it was also lopsided; most of the day's tally of new issuance came from just two big transactions.

Intelsat Jackson Holdings SA priced its $2.65 billion offering of eight- and 10-year bonds, though not before the satellite communications company had grounded a potential third tranche of 12-year paper. Intelsat's new bonds stayed right around their issue price when they were freed for secondary trading.

However, retailer Limited Brands, Inc. - the day's other big deal - saw its deal firm modestly once the $1 billion of 10-year notes moved into the aftermarket.

Natural gas operator Copano Energy LLC priced $360 million of 10-year notes, which also firmed modestly in the aftermarket.

A pair of defense contractors - Kratos Defense & Security Solutions, Inc. and ADS Tactical, Inc. - invaded the new deal space with offerings of $285 million and $275 million, respectively, and both of those showed some firepower in secondary dealings.

Also up was health care facilities operator Aviv REIT, Inc.'s upsized $100 million of eight-year notes.

Apart from issues that actually priced, new deal players heard that European steelmaker Aperam was shopping a $500 million two-part offering, with pricing seen likely on Friday.

Also out of Europe came word of price talk on German cable operator Kabel BW's big four-part deal, which contains a sizable dollar component. The rest of the transaction is euro-denominated, and the deal could price as soon as Wednesday afternoon.

Traders meantime said that activity in the secondary market was at a lower pace than on Monday and indicators were mixed. Sprint Nextel Corp.'s bonds were once again off in the wake of the demise of any possible deal to link up Sprint with another second-tier wireless carrier, T-Mobile.

Intelsat deal the big one

The day's headliner, at least from a size perspective, was Intelsat Jackson Holdings' restructured, quickly shopped $2.65 billion two-part offering of new senior notes.

Intelsat priced $1.5 billion of 7¼% notes due 2019 at par, pricing them at the wide end of pre-deal market price talk envisioning a yield between 7% and 7¼%. Those notes come with four years of call protection.

The company also priced $1.15 billion of 7½% notes due 2021 at par. These notes too came at the wider end of their 7¼% to ½% price talk. The 10-year notes have five years of call protection.

That megadeal came to market just a day after the Luxembourg-based subsidiary of international communications satellite company Intelsat SA announced the behemoth-sized deal, though in a somewhat different form.

Original plans had called for the company to sell three tranches of bonds, with maturities of eight years, 10 years and 12 years, but word circulated in the junk market on Tuesday morning that the 12-year tranche had been dropped. The overall deal size remained the same, however, and was split between the remaining two tranches.

It was brought to market via bookrunners Barclays Capital Inc., Merrill Lynch, Credit Suisse Securities (USA) LLC, Goldman Sachs& Co. and Morgan Stanley & Co. Inc.

Deutsche Bank Securities Inc., HSBC Securities (USA) Inc., RBC Capital Markets LLC and UBS Securities LLC were acting as co-managers on the deal.

Intelsat Jackson plans to use the deal proceeds, along with cash on hand, to fund tender offers for several series of the company's bonds, which were separately announced on Monday.

Intelsat stays earthbound

When Intelsat's bonds were freed for secondary dealings, they did not gain very much in the way of altitude.

"It didn't do quite as well as we had expected," one trader said,

He quoted the eight-year bonds as hanging around their par issue price, while seeing the 10-years get as high as a 100½ bid, before falling back to a lock at 1001/4.

A second trader saw both halves of the deal in a par bid, 100¼ offered context.

Limited brings $1 billion

The day's other megadeal came from Columbus, Ohio-based specialty retailer Limited Brands, which priced an upsized drive-by offering of $1 billion of senior notes due 2021 at par to yield 6 5/8%, at the tight end of pre-deal 6 5/8% to 6¾% price talk.

The issue was originally announced at $750 million.

Bookrunners included Merrill Lynch, J.P. Morgan Securities LLC and Citigroup Global Markets Inc., along with senior co-managers HSBC and Wells Fargo Securities, LLC.

KeyBanc Capital Markets Inc., Mitsubishi UFJ Securities (USA), Inc., Mizuho Securities USA Inc., RBS Securities Inc., PNC Capital Markets LLC, Santander Investment Securities Inc. and Williams Capital Group, LP populated the list of co-managers.

Limited, the operator of such well-known retailers as Victoria's Secret and Bath & Body Works, plans to use the proceeds of the new deal to buy back up to $500 million of the company's stock via a previously announced share repurchase program. Some of the proceeds will also go to general corporate purposes.

When the new Limited Brands paper moved into the aftermarket, a trader saw the retailer's bonds get as good as 100 7/8 bid, 101 3/8 offered, up solidly from their par pricing level.

Copano comes to market

Houston-based natural gas operator Copano Energy L.L.C. and affiliate Copano Energy Finance Corp. came to market on Tuesday with a $360 million offering of 10-year senior notes. Like the Limited Brands deal and even like Intelsat, which had only been formally announced on Monday before pricing on Tuesday, Copano was one of several such drive-by transactions pricing during the session.

High yield primaryside sources heard that the bonds priced at par to yield 7 1/8%, coming in at the tight end of price talk assuming a yield of between 7 1/8% and 7¼%.

The deal - a public offering registered with the Securities and Exchange Commission - was brought to market via joint bookrunning managers J.P. Morgan, Merrill Lynch, Deutsche Bank, RBC Capital Markets and Wells Fargo.

Credit Suisse, BBVA Securities Inc., BNP Paribas Securities Corp., SunTrust Robinson Humphrey, Inc., Comerica Securities, Inc. and U.S. Bancorp Investments, Inc. acted as co-managers for the transaction.

Copano plans to use the net proceeds from the offering to fund its pending tender offer for any and all of its $332.665 million of outstanding 8 1/8% senior notes due 2016. That tender offer runs through April 18, although the early consent deadline is on April 4.

Any remaining net proceeds will be used to provide additional working capital for general corporate purposes for the company, which processes natural gas and transports it via a pipeline subsidiary.

A trader saw the new Copano bonds trading as well as 100¾ bid, 101¾ offered, up from their par pricing level.

Kratos upsized offering

Yet another quickly marketed deal came from Ktatos Defense & Security Solutions, which priced an upsized add-on tranche to its existing secured 2017 bonds on Tuesday.

The San Diego-based defense contractor - named after Greek mythology's figure personifying strength and power - came to market with $285 million of 10% senior secured notes due June 1, 2017, upsized from the $250 million transaction announced earlier in the morning.

The bonds priced at 107, in line with price talk, to produce a yield to maturity of 8.515%.

The securities are being issued under the same terms as the $225 million of 10% notes that the company sold last May. Those priced at par on May 22 after being upsized from an originally announced $200 million.

The official issuer is Acquistion Co. Lanza Parent, which is to be merged with and into Kratos as part of the pending $270 million cquisition by Kratos of Pennsylvania's Herley Industries, Inc.

Proceeds from Tuesday's bond deal will be used, together with cash contributions from Kratos, to finance the acquisition of all of the Herley's outstanding shares, to pay related fees and expenses and for general corporate purposes.

The deal came to market via bookrunning manager Jefferies & Co., Inc., along with co-managers KeyBanc and Oppenheimer & Co., Inc.

ADS prices after changes

The day's other pricing out of the defense and law enforcement equipment sector came from Virginia Beach, Va.-based ADS Tactical, which was heard by high-yield syndicate sources to have priced a $275 million offering of seven-year senior secured notes after the company and its underwriters agreed to certain changes in the bonds' indenture.

The bonds priced at par to yield 11%, at the wide end of market price talk looking for a yield of between 10¾% and 11%.

The sources heard that the Rule 144A transaction priced after the issuer and underwriters J.P. Morgan, Morgan Stanley and Wells Fargo had agreed to certain covenant changes in order to get the deal done, including the elimination of a special call provision that would have allowed the company to redeem 10% of notes annually at 103 during the four-year non-call period following the bonds' issuance.

"That's gone," said a trader after the deal priced.

Another change was to set the first call price at par plus three-quarters of the coupon, rather than the usual par plus half the coupon found on most bonds.

The debt carve-out was also reduced by $50 million, among other indenture changes.

ADS Tactical plans to use the deal proceeds to repay debt and fund a $223 million shareholder dividend.

Defense bonds do OK

The bonds of the two companies were seen to have done relatively well in the secondary market. A trader quoted the ADS notes having risen to 101½ bid, 102 offered, while seeing Kratos' new deal quoted offered around 111 versus its 107 pricing.

However, the traders expressed skepticism that the latter trade was real. One said that just because "some joker throws out a crazy offering on 250 bonds ($250,000), doesn't mean it's a real level.

He suggested that the bonds' real level was probably around 108 bid, 109 offered.

Another pegged them more likely around 110.

Aviv Healthcare upsizes

The day's smallest deal came from Chicago-based health care facilities owner Aviv REIT, which upsized its opportunistically timed and rapidly marketed $100 million add-on to its existing 7¾% senior notes due 2019, which it had sold in January.

The deal priced several hours after its initial announcement and was increased from the initially planned $75 million. The notes priced at 102.75, at the tight end of price talk envisioning a range between 102.5 and 102.75.

The yield to maturity was 7.163%.

The transaction came to market via joint bookrunning managers Merrill Lynch, Morgan Stanley and RBC.

Citigroup and Stifel, Nicolaus & Co. Inc. were the co-managers on the deal.

The bonds will be considered part of the same series as the $200 million of 7¾% bonds sold at par in January. The notes were formally issued by Aviv subsidiaries Aviv Healthcare Properties LP and Aviv Healthcare Capital Corp.

The company plans to use $36 million of the deal proceeds to repay a portion of its secured debt, with the balance of about $64 million to be used to fund the debt component of $110 million of pending investments.

A trader saw the new Aviv bonds get as good as 104 3/8 bid, 104 7/8 offered, more than a point above their issue price.

Kabel talk heard

Away from the deals that actually priced, talk emerged on Tuesday for German cable and broadband operator Kabel BW's massive €2.25 billion equivalent four-part bond offering.

Syndicate sources heard the planned tranches of $500 million and €850 million of eight-year fixed-rate secured notes talked in the area of a 7¾% yield, the €350 million seven-year floating-rate note component talked at a yield of between 425 and 450 basis points over the Euribor rate and the €680 million piece of 10-year fixed-rate notes likely to yield in the 9¾% area.

Books on the deal are expected to close Wednesday at 4 p.m. U.K. time - noon in New York - with pricing expected thereafter.

Credit Suisse, J.P. Morgan and Deutsche Bank will be the bookrunners on the deal.

Proceeds from the offering will be a part of the financing for the cable company's acquisition by U.S. billionaire John Malone's Liberty Global Inc.

Aperam makes an appearance

Also out of Europe, Aperam - the Luxembourg-based stainless steel producer spun off from international steel giant ArcelorMittal earlier this year - was heard by market sources to be shopping a proposed $500 million two-part bond deal around to investors, with pricing expected by the end of the week.

The company was said to have pitched the deal to New York-area investors on Tuesday, including a midday conference call, with roadshow sessions slated for Boston on Wednesday and Los Angeles on Thursday, to be followed by an anticipated Friday morning pricing.

The deal would consist of two equally sized tranches of bonds, provisionally labeled tranche A and tranche B. The first would consist of $250 million senior notes due 2016, having 2½ years of call protection, while the second, also sized at $250 million, would consist of senior notes due 2018 having four-years of non-callability.

Citigroup, Credit Agricole Securities, Goldman Sachs and ING Financial Markets LLC would be the bookrunners on the deal.

Aperam plans to use the deal proceeds, along with cash on hand, to repay outstanding amounts under its bridge facility with former parent AreclorMittal.

Secondary indicators mixed

Away from the newdeal world, a trader saw the CDX North American Series 15 HY index down 3/16 of a point on Tuesday to end at 103 1/8 bid, 103 3/8 offered, after having gained 3/8 point on Monday.

The KDP High Yield Daily index meantime eased after Monday's advance, coming in by 2 basis points to finish at 75.63, after having risen 6 bps per day over the previous two sessions. Its yield edged up by 1 bp, to 6.75%, after having narrowed by that same amount on Monday.

But the Merrill Lynch High Yield Master II index rose for a fifth consecutive session on Tuesday, by 0.049%, on top of Monday's 0.169% gain. That lifted its year-to-date return to 3.633%, well up from 3.583% on Monday, although it remained below its 2011 peak level of 3.73%, set on Mar. 9.

Advancing issues led decliners for a fifth consecutive session on Tuesday, this time by around a seven-to-six margin.

Overall market activity, as measured by dollar-volume levels, jumped 27% on Tuesday, after having been little changed on Monday from the prior session's level.

Sprint still under pressure

Among specific names, Sprint Nextel paper lost another point or two in trading, as investors continued to react negatively to news regarding bigger rival AT&T's purchase of T-Mobile.

A trader said about $30 million of the 6.90% notes due 2019 traded "down a little bit" to 104 bid, 104½ offered. About $10 million to $15 million of the 8¾% notes due 2032 turned over around 107, which the trader said was "down from yesterday's high," but about the same as Monday's close.

This was well below where those bonds had traded last week, when there was much talk in the market about Sprint and T- Mobile, the Nos. 3 and 4 U.S. wireless carriers, respectively, joining forces to create a more formidable competitor to industry top dog AT&T and to more closely follow main rival, Verizon Wireless.

Another trader placed the 6.9% notes around the 104 level, calling that down a point or 2, while the 8 3/8% notes due 2017 fell 1½ points to a 112-113 context.

"So Sprint paper continues to get whacked some," the trader said.

At another desk, the 6% notes due 2016 were seen slipping nearly a point to 101½ bid.

Chatter that Sprint was planning to buy T-Mobile got knocked out of the water after AT&T announced its intent to purchase the unit on Sunday. As a result, bonds of the Overland Park, Kan.-based wireless telecommunications carrier were hammered on Monday, leaving one market source to opine it was mainly investors that had bought paper on the back of rumors Sprint would gain the asset.

Stephanie N. Rotondo and Jennifer Chiou contributed to this report

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