Aircastle, Taylor Morrison lead busy $2 billion primary, Taylor trades up; Vantage on tap

By Paul Deckelman and Paul A. Harris

New York, March 30 - The high-yield primary sector closed out the week - as well as the month and the entire first quarter - with a flourish on Friday as five deals composed of six tranches totaling $2 billion came to market.

The big deal of the day was aircraft leasing company Aircastle Ltd.'s $800 million two-part offering, a scheduled forward calendar deal, as were almost all of the day's offerings. Both the five-year and eight-year tranches moved up by about a point from their respective par issue prices.

Homebuilder Taylor Morrison Communities Inc. upsized an offering of eight-year notes to $550 million; traders said the bonds firmed as much as 2 points after pricing.

Energy operator Vanguard Natural Resources LLC also upsized its eight-year deal to $350 million. In the aftermarket, those bonds were up from their discounted issue price.

Broadcaster Townsquare Radio, LLC switched on a $265 million issue of seven-year bonds, which traded right around its issue price.

The day's lone quick-to-market deal also was its smallest. Communications satellite operator Satelites Mexicanos SA de CV (SatMex) did a $35 million add-on to its existing 2017 bonds. It was not seen in the aftermarket.

The deals swelled the week's new-issuance total to about $7.8 billion in 17 tranches - more than double the $3.8 billion in 12 tranches that priced the previous week ended March 23.

On a year-to-date basis, Friday's deals lifted the new-issuance total to $98.02 billion in 199 tranches, running about 8% ahead of the $90.7 billion in 210 deals that priced by this time last year.

Traders saw continued strength in some of the deals that priced earlier in the week, notably the dollar-denominated piece of Thursday's two-part offering from Lawson Software, Inc. and Wednesday's Harron Communications, LP deal.

Away from the deals, Vantage Drilling Co. announced plans for a $775 million add-on to its existing 2015 notes, which are expected to price Monday. Syndicate sources also heard price talk on metals miner NewGold, Inc.'s $300 million eight-year deal, also expected Monday.

The non-new deal market was once again described as lackluster, although there was some gyration in coal-company bonds, sparked by mid-week news that tougher federal emission standards for coal-fired power plants are on the way.

Aircastle prices $800 million

A busy Friday session in the primary market saw five issuers raise $1.8 billion with a combined six tranches of notes.

Aircastle priced $800 million of senior notes (Ba3/BB+) in two tranches.

The Stamford, Conn.-based firm priced a $500 million tranche of five-year notes at par to yield 6¾%, on top of price talk.

Aircastle also priced a $300 million tranche of restructured non-callable eight-year notes at par to yield 7 5/8%. The yield printed at the tight end of price talk that was set in the 7¾% area. Call protection on the eight-year notes was increased from four years.

Goldman Sachs, Citigroup and J.P. Morgan were the joint bookrunners.

The proceeds will be used to repay bank debt with any remaining proceeds being used for general corporate purposes, including the purchase of aviation assets.

The price talk spread of 100 basis points between the five-year notes and the eight-year notes was remarkable, according to a hedge fund manager who added that Aircastle was able to bring the long tranche at the tight end of talk by extending call protection to the life of the notes.

Taylor Morrison upsizes

Taylor Morrison Communities and Monarch Communities Inc. priced an upsized $550 million issue of eight-year senior notes (B2/BB-) at par to yield 7¾%, on top of price talk.

Credit Suisse, Deutsche Bank and HSBC were the joint bookrunners for the deal, which was upsized from $500 million.

The Scottsdale, Ariz.-based homebuilder plans to use the proceeds to refinance bank debt and increase its cash balance. The additional proceeds also will be used to increase the company's cash balance.

The deal was well oversubscribed, according to an investor who played.

Vanguard Resources, atop talk

Vanguard Natural Resources and VNR Finance Corp. priced an upsized $350 million issue of 7 7/8% eight-year senior notes (Caa1/B-) at 99.274 to yield 8%, on top of the yield talk.

Citigroup was the left bookrunner for the deal, which was upsized from $300 million.

Credit Agricole, RBC, UBS and Wells Fargo were the joint bookrunners.

The Houston-based oil and gas production and development company plans to use the proceeds to repay its term loan and reduce revolver debt.

Townsquare prices 9% notes

Townsquare Radio and Townsquare Radio, Inc. priced a $265 million issue of 9% seven-year senior notes (B3/B) at 99.00 to yield 9.197%.

The yield printed below the midpoint of price talk, which was set in the 9¼% area.

Bank of America Merrill Lynch was the left bookrunner. Macquarie, RBC and SunTrust were the joint bookrunners.

The proceeds will be used to repay some outstanding debt of subsidiaries.

SatMex taps 9½% notes

Mexico's Satmex priced a $35 million add-on to its 9½% senior secured notes due May 15, 2017 (B3/B) at 102.00.

The reoffer price, which came at the rich end of the 101.50 to 102 price talk, rendered an 8.902% yield-to-worst and an 8.998% yield-to-maturity.

Jefferies ran the books for the quick-to-market sale.

The proceeds, along with internal cash, will be used to fund a new satellite.

The original $325 million priced at par in May 2011.

Satmex is a Mexico City-based satellite service provider.

Vantage brings add-on

Looking to the week ahead, Vantage Drilling plans to price a $775 million fungible add-on to its 11½% senior notes due Aug. 1, 2015 on Monday, following a global investor call.

Jefferies, Citigroup and RBC are the joint bookrunners.

The proceeds will be used to purchase all of Valencia Drilling Corp.'s rights and obligations under the shipbuilding contract for the deepwater drillship Dragonquest for $169 million, and to pay for the remaining construction and startup costs for the Dragonquest and for general corporate purposes. Valencia, an affiliate of F3 Capital, is Vantage's largest shareholder.

The original $1 billion issue priced at 96.361 to yield 12½% in July 2010. A previous $225 million add-on priced at 107 to yield 8.904% in May 2011.

Also, Canada's New Gold Inc. plans to price its $300 million offering of eight-year senior notes (confirmed B2/expected BB-) on Monday.

The deal was talked to yield 7% to 7¼% on Friday.

J.P. Morgan and Scotia are the joint bookrunners. RBC and UniCredit are the co-managers.

Unusually busy action

"It was a pretty busy afternoon for new issues for a Friday," a trader said of the secondary market. "I was surprised that some of these came."

He noted, "It is the quarter's end. So I think people needed to drive these by" before the end of the month and the quarter.

Taylor trades up

The star of the session in the secondary market was Taylor Morrison's upsized $550 million offering of eight-year notes.

A trader quoted the homebuilder's issue at 101½ bid, 102 offered, well up from the par level at which the deal priced after being upsized from an originally planned $500 million.

At a second desk, a trader saw the new bonds at 101 5/8 bid, 102 offered.

Aircastle gains altitude

A trader saw both tranches of the new Aircastle deal trading up to 100¾ bid, 101¾ offered.

That was up from the par level at which both tranches of the aircraft leasing company's bonds priced - both its five-year issue and its eight-year issue.

Vanguard moves up

Also seen on the upside were the new eight-year bonds of Vanguard Natural Resources.

That $350 million deal priced at 99.274 to yield 8%, after upsizing from an originally announced $300 million.

In the aftermarket, a trader said the bids rose to par bid, 100¼ offered.

A second trader had the bonds at par bid, 100½ offered.

Townsquare holds near issue

About the only one of the day's new issues that went to the aftermarket around its issue price was broadcaster Townsquare Radio's $265 million issue of seven-year notes.

The bonds priced at par, but were seen trading at 99¾ bid, par offered.

Lawson levels remain high

Going back to the deals that priced on Thursday, traders saw St. Paul, Minn.-based Lawson Software's seven-year notes continuing to trade strongly.

A trader said that the business software company's $1.015 billion of 9 3/8% notes due 2019 went really well and continued to trade way above the par level at which those bonds came to market.

He quoted them at about a 103¾ bid level.

Those bonds were part of a larger $1.35 billion equivalent two-part deal denominated in dollars and euros, which was upsized from an original $1.15 billion before pricing off the forward calendar. The other half of the deal - the €250 million of 10% notes due 2019 - was not seen trading around.

Another trader saw the Lawson bonds even better on Friday, pegging them at 104 bid, 104½ offered.

After pricing at par, the bonds shot up to that 104 level in immediate aftermarket dealings before ending Thursday in the mid-103 vicinity.

USG up a point

Thursday's other notable deal, Chicago-based building products manufacturer USG Corp.'s $250 million of 7 7/8% notes due 2020, was seen by a trader at 100¾ bid, or perhaps as high as 101.

That was up from the quick-to-market transaction's par pricing level. There was no trading on Thursday as the bonds came to market too late in the session.

"I like that bond. It's a really well-run company," a trader said.

Harron still up there

Another strong secondary performer, along with Lawson Software, was Malvern, Pa.-based cable operator Harron Communications' $225 million offering of 9 1/8% notes due 2020.

A trader saw them on Friday hovering around 103¾ bid.

On Wednesday, the issue priced at par off the forward calendar and proceeded to jump to 101½ bid, 102¼ offered in the aftermarket. It topped the 103 mark by Thursday and continued to push higher on Friday.

Hercules holds near issue

Several other of the week's deals did not see much appreciation when they hit the aftermarket. One example was Tuesday's big deal from Houston-based energy drilling contractor Hercules Offshore, Inc., which did a $500 million two-part transaction.

It priced $300 million of 7 1/8% senior secured notes due 2017 and $200 million of 10¼% senior unsecured notes due 2019 as a scheduled forward calendar deal, both pieces at par.

But Hercules was anything but a hero in secondary dealings with both tranches trading around, or even a little bit below, their issue prices the rest of the week.

On Friday, a trader mused that he was "surprised that it was not too well-received."

The 7 1/8% bonds, after holding a little above par right after their pricing and again on Wednesday, dipped to 99½ bid, 100½ offered by Thursday. By Friday, he said the bonds were back up to 100 3/8 bid, 100 5/8 offered.

The trader said the 10¼% notes were offered in a range of par to 1001/4. Those bonds fell below their par issue price from the get-go, bottoming on Thursday as low as 98 bid, 99 offered before coming back on Friday.

LyondellBasell little changed

The week's other really big deal - Rotterdam-based global chemical company LyondellBasell Industries, NV's $3 billion two-part drive-by offering "was just hanging right in there" around its issue price on Friday, a trader said.

The $2 billion tranche of 5% notes due 2019 and $1 billion of 5¾% notes due 2024 both priced at par on Monday and remained around their issue price after that.

The trader saw the 5% notes in a locked market at 100 1/8, suggesting the bonds traded earlier between par and 1001/4.

He saw the 53/4s at 99¾ bid, 99 7/8 offered on Friday.

At another desk, a trader said Lyondell's lack of movement was no big deal. He saw both tranches of the bonds hanging in Friday around the par area.

"They're a go-go name," the trader said. "Everybody wants to hold it, a buy and hold core position," so few holders are willing to sell the deal.

"Everyone got their allocations. Nobody wants to [tick] off the underwriters and nobody wants to [tick] off the company," he said, so everyone just hangs onto it.

Market signs up on day

Away from the new deals, a trader said that Friday was "a pretty lackluster day," with a number of market participants just cutting out early.

A second trader described the session as "mostly a sideways day."

Statistical measures of junk-market performance were seen better on Friday after two straight sessions on the downside.

They were mixed on the week versus week-ago levels.

A market source saw the Markit Group CDX North American Series 18 High Yield Index gain 1/8 point on Friday to finish at 96 7/8 bid, 97 offered following Thursday's half-point drop.

The index's performance for the week could not be directly compared to its levels at the close of the previous Friday, March 23 since in the interim, Markit did its regularly scheduled semi-annual roll done each March and September. The roll means it replaced some of the components of the previous Series 17 index and launched the new series.

The KDP High Yield Daily Index was unchanged on Friday at 73.90 after declining the previous two sessions. Its yield also was unchanged at 6.60% after gaining 3 basis points on Thursday.

It was down from its week-earlier level of 73.99%, while its yield was little changed from the previous week's 6.59%.

And the widely-followed Merrill Lynch High Yield Master II Index turned upward for the first time in three sessions, gaining 0.046% versus the 0.109% dip seen on Thursday.

That lifted index's year-to-date return to 5.148% on Friday from Thursday's 5.10%, although the cumulative return remains below its peak level for 2012 of 5.361% recorded on March 2.

On the week, the index gained 0.116% versus the previous week when it lost 0.079 to finish with a year-to-date return of 5.027%.

Coal still fizzling

Among specific names, traders said the coal sector was still taking its lumps for a third or fourth straight session following the mid-week announcement from the Environmental Protection Agency toughening up federal anti-emission standards at coal-burning power plants.

The EPA news raised investor concerns about what the tougher power-plant rules may mean to the companies that provide the fuel.

A trader said coal companies' bonds were still gyrating at mostly lower levels Friday.

One said the sector "has gotten thrashed." But that trader said "the coal companies bounced back a little bit" on Friday.

He saw Arch Coal, Inc.'s 7¼% notes due 2020 trading around 93 bid, up from 91½ bid, 92 offered on Thursday, though still down from levels above 94 that the coal operator's bonds held before the EPA announcement. And that's well down from levels near par at the beginning of March.

"I think it's symbolic of all the coal prices that got just slammed," a second trader said.

"James River Coal Co. is under pressure," he said. "And Patriot Coal Corp., there's lots of trading going on there. Patriot Coal is very heavy."

He saw the St. Louis-based company's 8¼% notes due 2018 trading in the high 70s.

"Buyers were definitely selling it," the trader said.

"It seems to me that we've reached a level where people start caring now."

He saw "better buyers" in Richmond-based James River's 7 7/8% notes due 2019, quoting the bonds trading in a 69-70½ context.

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