Junk primary falls silent, though Darling on tap; new MGM trades actively; Frontier falls

By Paul Deckelman and Paul A. Harris

New York, Dec. 17 - With the finish line to the year coming into sight, the high-yield primary's engine - up till now a steady performer - began sputtering on Tuesday, its gas tank nearly empty.

No junk-rated, dollar-denominated deals from domestic or industrialized-country borrowers were heard to have priced - the junk market's first shutout since the abbreviated session immediately following Thanksgiving back on Nov. 29.

But the primary may still have a little life left in it before it finally rolls to a complete stop for the year, probably sometime this week, as syndicate sources said that price talk had emerged on a pair of offerings expected to come to market on Wednesday: a much-anticipated $500 million eight-year deal from Irving, Texas-based food products recycling company Darling International Inc. and $400 million of seven-year secured notes from London-based containership operator Global Ship Lease Inc.

Junk market numbers-crunchers meantime noted that with some $326.046 billion of new junk debt having priced so far this year in 699 tranches, according to data compiled by Prospect News, 2013 stands tantalizingly close to matching or even possibly surpassing the all-time record high $327.055 billion that got done last year in 691 tranches.

In the meantime, traders reported heavy dealings in Monday's $500 million issue of 6.25-year notes from gaming and lodging powerhouse MGM Resorts International, with volume approaching the $100 million mark. While there were trades as much as 2 points above the bonds issue price, most of those were small, with size trading going on at or below issue.

Traders also saw some levels in Monday's new deals, including Michaels Stores, Inc. and Halcon Resources Corp.

Away from the new new-deal arena, there was considerable downside activity in Frontier Communications Corp. bonds, hurt by the news that the telecommunications company will acquire wireline assets from AT&T Inc. in a $2 billion debt-funded deal.

Statistical market-performance measures turned lower across the board, after having been mixed on Monday.

Talking the deals

No dollar-denominated deals priced on Tuesday, as market watchers continued to profess the expectation that, save for the comparatively modest calendar of deals that have been on the road, 2013 is all but in the books.

Talk surfaced on two deals on Tuesday.

Darling International Inc. talked its $500 million offering of eight-year senior notes (B1/BB+) with a yield in the 5½% area.

The deal, via Goldman Sachs, J.P. Morgan and BMO, appears to be well spoken for, according to buyside sources, one of whom characterized it as a blowout.

Elsewhere, Global Ship Lease Inc. talked its $400 million offering of seven-year first-priority secured notes (expected B3/confirmed B) to yield in the 9½% area on Tuesday.

Citigroup is the bookrunner.

Both Darling International and Global Ship Lease are expected to price on Wednesday morning.

MGM bonds busy

With no new deals to focus on, secondary market participants instead turned their attention to the issues that had priced on Monday, particularly the 5¼% notes due in March 2020 issued by Las Vegas-based gaming and lodging giant MGM Resorts International.

A trader quoted those bonds at 99½ bid, 100 offered, noting that while some small trades had gone off at levels as high as 101¼ bid - well up from the par level at which the company had priced its $500 million drive-by deal - all of the round-lot trading in the new credit had taken place within the lower range, with most going off in a 99¼ to 99¾ bid context. A second trader likewise pegged the bonds between 99¾ and 99 7/8 bid.

Round-lot volume in the new issue was over $90 million, and there were numerous smaller odd-lot trades as well, some at levels as high as 1021/4.

Another trader said that "all of the round-lot trading took place below par. The smaller pieces - the retail trades - were up by 2 points," as the original buyers parceled out smaller pieces of the deal at the higher price.

"When you price it too tight, and the institutions don't care [to buy it], you turn around and sell it to retail."

A market source meantime saw the company's existing 6 5/8% notes due 2015 ending at 105 13/16, calling them down by 1¾ points.

Michaels, Halcon trade

Among Monday's other new deals, a trader said that Halcon Resources' new 9¾% notes due 2020 were "very active," quoting the bonds in a 103½ to 104 context and saying that he had seen "a bunch of these trading."

A second trader did not see quite as much activity in the name, while quoting the bonds as having gotten as good as 104 1/8 bid.

Halcon, a Houston-based energy exploration and production company, had priced its $400 million deal as a quickly shopped add-on to its existing bonds, doing the deal at 102¾ to yield 8.999%. The new bonds had been seen trading in a 103½ to 104 bid context when they were freed to trade on Monday afternoon.

Michaels Stores' 5 7/8% senior subordinated notes due 2020 were seen by a trader at 100¼ bid, 100½ offered.

A second trader said that the bonds "didn't really go anywhere," seeing them at par bid, 100¼ offered.

Michaels, an Irving, Texas-based retailer of arts and crafts supplies, priced its quick-to market $260 million issue at par on Monday, too late in the session for any trading at that time.

Traders did not see any immediate aftermarket trading Tuesday in Monday's other deal - the $725 million add-on to First Data Corp.'s existing 11¾% senior subordinated notes due 2021.

The Atlanta-based electronic transaction processor priced that same-day offering - upsized from an originally announced $500 million - at 103½ to yield 10.863%.

Frontier falls on AT&T deal

Away from the new-deal realm, a market source said that Frontier Communications' issue of 7 1/8% notes due 2023 was one of the busiest credits on the Junkbondland most-actives list, with over $21 million of the Stamford, Conn.-based telecommunications company's paper having changed hands. He saw the bonds losing 1 point on the day to end at par bid.

At another desk, a market source saw a similar slide.

The bonds retreated even as the company announced that AT&T had agreed to sell its wireline operations in Connecticut to Frontier Communications for $2 billion in cash.

Frontier shares rose more than 8% after it said the deal would boost its dividend payout ratio, generate savings and improve its adjusted free cash flow.

However, the fixed-income community was less thrilled with the deal, which is to be funded with new debt.

Frontier announced in a Securities and Exchange Commission filing on Tuesday that it had a $1.9 billion unsecured bridge loan to help fund the acquisition. J.P. Morgan Securities LLC will be the lead bank on the debt deal.

Frontier said in its filing that it expects to market the debt financing sometime in the second to third quarter of 2014.

With the transaction, it is estimated that the company's leverage ratio of net debt as a multiple of EBITDA will increase by 0.4 times.

With that in mind, Moody's Investors Service said Tuesday that it had put Frontier's ratings, including its Ba2 corporate family rating and Ba2 (LGD4, 56%) senior debt rating, on review for a possible downgrade.

The ratings agency said that the review for a downgrade is based on Moody's view that the acquisition represents a departure from Frontier's prior stated conservative financial policy and discipline that, in Moody's view, was centered around debt reduction.

With the transaction to be mostly debt-financed, Moody's cautioned that this could stress Frontier's credit metrics beyond the limits of its current Ba2 rating.

Market signs turn lower

Overall, statistical junk-market performance indicators turned lower across the board after having been mixed on both Friday and Monday.

The Markit Series 21 CDX North American High Yield index suffered its first loss after two straight gains, dropping by 1/8 point to end at 107 bid, 107 1/8 offered. On Monday, it had gained ¼ point.

The KDP High Yield Daily index was down by 5 basis points for the second consecutive session to close at 74.22, its fourth loss in a row.

Its yield rose by 2 bps on Tuesday to end at 5.66% after having come in on Monday by 5 bps.

And the widely followed Merrill Lynch High Yield Master II index lost 0.018% on Tuesday after having risen by 0.064% on Monday to break a two-session losing streak.

Tuesday's loss left its year-to-date return at 7.024%, down from Monday's 7.043% and down as well from last Wednesday's 7.091% reading, its 2013 peak level.

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