New month begins quietly as calendar builds; RBS does split-rated deal; overall market heavier

By Paul Deckelman and Paul A. Harris

New York, June 3 - The month of June opened on a quiet note in Junkbondland on Monday, with syndicate sources seeing no pricings of purely junk-rated, dollar-denominated paper from domestic or industrialized-country.

The only real news on the pricing front involved a technically split-rated $1 billion offering of 10-year subordinated notes from Royal Bank of Scotland Group plc. Market sources saw no aftermarket dealings.

The absence of any pricing did not mean that nothing was going on, however, as several prospective issuers - all of them energy-oriented - formally announced new bond deals and were heard to have begun roadshows to market them to would-be investors.

Quicksilver Resources Inc. was shopping a two-part $875 million offering of six- and eight-year notes around, while Sanchez Energy Corp., SemGroup Corp. and Approach Resources Inc. were each doing a single tranche of notes. Approach and SemGroup were expected to price on Friday, while the others could come later this week or perhaps next week.

IronGate Energy Services, LLC was also heard hitting the road to market a deal for likely pricing next week. Other prospective issuers joining the forward calendar included Epicor Software Corp., Emerald Exposition Holdings and Jack Cooper Holdings Corp.

Among recently priced deals, some activity was seen on Monday in last week's eight-year offering from Meritor Inc., as well as in Ball Corp.'s beleaguered billion-dollar deal, which priced earlier last month amid robust investor demand but has been hammered steadily downward in line with falling Treasury market prices.

Traders called Monday's market generally weaker, and statistical performance indicators were all seen headed south for a second consecutive session.

RBS tier 2 notes

Royal Bank of Scotland completed a $1 billion sale of 6.1% 10-year subordinated Tier 2 notes (Ba2/BB+/BBB-) at a spread of Treasuries plus 400 basis points.

Guidance was in the high 300 bps area, around 380 bps, the source said.

Pricing was at 99.859 to yield 6.119%.

Bookrunners were RBS, Citigroup and Deutsche Bank.

Epicor talks PIK toggles

In a deal unveiled Monday morning, Epicor Software talked its $350 million offering of five-year senior PIK toggle notes (expected ratings Caa2/CCC+) to price at 98 with a cash coupon of 9% and a PIK coupon of 9¾%.

Pricing is set for Tuesday.

BofA Merrill Lynch, Credit Suisse and RBC are the joint bookrunners for the dividend funding deal.

Jack Cooper second-lien

The active forward calendar saw a substantial buildup on Monday.

Much of the business announced is set to price late this week or early in the week ahead.

Jack Cooper Holdings plans to price a $225 million offering of seven-year senior secured second-lien notes (expected ratings B2/B-) later this week.

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

Proceeds will be used to refinance debt and preferred stock.

Emerald Expo acquisition

Emerald Exposition Holdings (Emerald Expo) plans to sell $200 million eight-year senior notes via Goldman Sachs, BofA Merrill Lynch, Credit Suisse, Morgan Stanley, RBC and UBS.

Proceeds will be used to help fund the acquisition of Nielsen Expositions by Onex Corp. from Nielsen Holdings NV.

SemGroup starts roadshow

SemGroup began a roadshow in New York City on Monday for its $350 million offering of eight-year senior notes (B3/B+).

The deal is expected to price on Friday.

Citigroup, BMO, Deutsche Bank, RBC, RBS, Scotia and UBS are the joint bookrunners.

Proceeds will be used to fund the acquisition of Mid-America Midstream Gas Services, LLC and for general corporate purposes. If the acquisition does not close, proceeds will be used for general corporate purposes.

Approach refinancing

Approach Resources began a roadshow on Monday for its $250 million offering of eight-year senior notes (expected ratings B3/B-).

The deal is expected to price on Friday.

J.P. Morgan, RBC and KeyBanc are the joint bookrunners for the debt refinancing.

Quicksilver two-part deal

Quicksilver Resources began a roadshow for an $875 million two-part notes offer.

The deal includes a $200 million tranche of six-year second-lien notes and a $675 million tranche of eight-year senior notes.

The deal is set to price late this week or early in the June 10 week.

Credit Suisse, Citigroup, Deutsche Bank, J.P. Morgan, TD and UBS are the lead arrangers for the debt refinancing.

Sanchez Energy roadshow

Sanchez Energy began a roadshow for its $350 million offering of eight-year senior.

The deal is expected to price late during the June 3 week or early during the June 10 week.

RBC is the left bookrunner. Credit Suisse is the joint bookrunner.

Proceeds will be used to repay the company's first-lien credit facility incurred to fund a portion of the Cotulla acquisition, to repay its second-lien credit facility in full and to fund general corporate purposes, including the prefunding of capital expenditures.

IronGate starts Tuesday

IronGate Energy Services plans to start a roadshow on Tuesday for its $180 million offering of five-year senior secured notes.

The deal is set to price during the June 10 week.

Jefferies is the bookrunner.

The notes come to market as a Regulation D private placement. They, however, will be automatically exchanged into Rule 144A and Regulation S notes upon closing.

Proceeds will be used to fund the LBO of Archer Rental Tubular Division from Archer Ltd. by Clearlake Capital Group.

Weaker market seen

In the secondary arena, a trader said that "the market defined a weaker tone today, even though equities were trading in the other direction" and ended on a positive note, with the bellwether Dow Jones Industrial Average closing up 138.46 points, or 0.92%, to end at 15, 254.03, and other broader stock gauges also finishing in the black.

Despite that potential positive, the trader characterized junk issues as down a quarter-point to half on average.

He said that recent angst among junk market players and other fixed-income investors about the possibility of interest rates moving higher "is certainly a part of it."

He also noted that up until several weeks ago, "things just kept running up, so we were due for a pullback."

And he said, "we're seeing some outflows too" from high-yield mutual funds and exchange-traded funds, as some investors look to put their invested cash elsewhere.

Ahern seen easier

Among specific issues, a trader said that Ahern Rentals, Inc.'s 9½% second-priority senior secured notes due 2018 were trading at 101¼ bid, 102¼ offered.

That was down from Friday's levels of around 101¾ bid, 102½ offered, at which the Las Vegas-based construction equipment rental company's $420 million issue traded after it priced at par. The issue was upsized from an originally shopped $415 million.

However, at another desk, a trader bucked the generally more pessimistic outlook by seeing Ahern's paper up a quarter-point on the day, getting as high as 102 bid.

Ultrapetrol takes a dive

A trader saw Ultrapetrol (Bahamas) Ltd.'s 8 7/8% first preferred ship mortgage notes due 2021 run into some choppy waters Monday, quoting them as having retreated to 99¼ bid, 100¼ offered, from Friday levels as high as 101 3/8 bid, 102 offered.

The Hamilton, Bermuda-based industrial shipping company had priced its $200 million offering at par last Thursday.

The bonds had moved to around 101 bid, 101½ offered in initial aftermarket dealings and then had stayed above those levels on Friday, before backtracking on Monday.

Meritor moves lower

One of the most active names of the session was Meritor's new 6¾% notes due 2021.

A market source said that over $13 million of those bonds traded, pegging them at 98¾ bid, unchanged to slightly below the 99ish context where those bonds had traded on Friday.

A second trader called the notes off by¼ point, at 98½ bid, 99¼ offered.

And a third trader had them going home at 98½ bid, 99¼ offered.

Meritor, a Troy, Mich.-based manufacturer of various components for commercial trucks and military vehicles, priced $275 million of those notes at par in a drive-by transaction last Tuesday, after the deal was upsized from an originally announced $250 million.

After the notes initially moved slightly above par when first freed for aftermarket dealings, they came down after that first to around 99 and then to levels below that.

Other recent deals mixed

Among other recent deals, a trader saw Regal Entertainment Corp.'s 5¼% notes due 2023 at 100¼ bid, 101¼ offered - up aquarter-point on the day, bucking the generally negative tone in the junk market.

The Knoxville, Tenn.-based movie theater chain operator had priced its $250 million of the notes at par in a quick-to-market deal last Wednesday. The bonds stayed in a narrow range at or just a little above their issue price for the rest of last week.

Another Wednesday deal, from Nationstar Mortgage Holdings Inc., was seen a little lower on the day, with a trader calling those 6½% notes due 2022 down a quarter-point at par bid, 100½ offered.

A second trader also saw them down¼ point at that level and noted that volume was about $5 million.

The Lewisville, Texas-based mortgage lending and servicing company priced $300 million of the notes at par in a quickly shopped transaction. The notes moved to a 100¼ to 100 3/8 bid context after that, before easing on Monday.

Ball Corp. bonds bashed

Monday saw continued relatively active trading in Ball Corp.'s 4% notes due 2023, with over $12 million having changed hands.

A market source saw the notes ending down 3/16 of a point on the day, at 94 15/16 bid, after having gotten as low as 94¾ earlier.

The Broomfield, Colo.-based packaging company's deal represents a cautionary tale of sorts for the junk market, according to traders.

He noted that when the quick-to-market deal priced at par on May 9, investor demand for the oversubscribed issue was so brisk that the company upsized its transaction to $1 billion, nearly double the originally announced $600 million size.

But, having priced at the recent top of the high-yield market, there was no place to go but down, as Treasury issues began to back up amid investors' interest-rate concerns, taking the junk market down with them.

After a slight initial upward flurry in the bonds, they fell back below par, and have not been seen there since.

Traders saw the bonds gradually losing ground each day, noting that interest-rate sensitive paper like Ball Corp.'s, which priced at a very un-junk-like 202 basis points over comparable Treasuries, was reacting especially severely to the fall in Treasury prices and the corresponding backup in Treasury yields.

Market indicators lower

Statistical junk performance indicators were seen lower across the board for a second consecutive session on Monday.

The Markit Series 20 CDX North American High Yield index eased by 1/32 of a point on Monday to end at 104 11/16 bid, 104¾ offered, its second straight loss. On Friday, the index had slid by 13/16 of a point.

The KDP High Yield Daily index continued to languish in the losing column for a seventh straight session on Monday, plummeting by 27 basis points to finish at 75.16, after having dropped by 11 bps on Friday. Its yield ballooned out by 11 bps on Monday to close at 5.54%, its seventh consecutive rise.

On Friday, it had gained 5 bps for a second straight session.

And the widely followed Merrill Lynch High Yield Master II index lost 0.356% on Monday, its fifth straight setback. That followed a loss of 0.194% on Friday.

The latest loss sliced its year-to-date return to 3.878%, marking its first time under 4% since April 23, when it read 3.913%. The latest level was down from Friday's 4.249% and remained well down from the index's peak level for the year of 5.835%, set on May 9.

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