Sabra brings small add-on; SPL, QR Energy ahead; Gen-On, GeoEye jump on merger deal news

By Paul Deckelman and Paul A. Harris

New York, July 23 - The high-yield primary market had a slow start to the new week Monday - quiet in contrast to the busy new-deal pace seen last week, one of the heaviest weeks so far this year.

Only one dollar-denominated junk-rated issue was heard by syndicate sources as pricing and that was just a quickly shopped $100 million add-on to an existing bond issue brought by Sabra Health Care REIT, Inc. via a par of subsidiaries. The new deal was not seen in the aftermarket due to its small, illiquid size, traders said.

However, two other deals were seen moving into place for likely pricings over the next session or two. Talk was heard on the $425 million offering from SPL Logistics Escrow, LLC, the financing vehicle for Caterpillar Inc.'s sale of a majority stake in its service-parts logistics division to a private equity firm.

There was a little bit of activity in the European market. German cable operator Kabel Deutschland Vertreib und Service GmbH was heard as pricing an add-on to its existing euro-denominated 2018 notes. And Portugal Telecom, SGPS SA upsized its euro-denominated four-year bond deal.

Back in the domestic market, traders saw Hologic Inc.'s new eight-year notes continuing to defy gravity, but saw other recent issues continuing to come in off the highs they hit in the aftermarket after pricing last week, especially energy-drink maker Innovation Ventures, LLC, which initially rose but has now dipped below Thursday's par issue price.

Meanwhile, QR Energy LP's $300 million eight-year issue is expected to come to market at mid-week.

Away from the new and recent deals, merger-mania was giving a good boost to some high-yield names, specifically GenOn Energy Inc. and GeoEye, Inc., which will be acquired by NRG Energy Inc. and DigitalGlobe Inc., respectively. While GenOn's bonds were up solidly across the board, NRG's paper was mixed.

Outside of the M&A names, though, traders saw a generally easier junk market, with statistical performance indicators bearing that out.

Sabra upsizes

The dollar-denominated junk market saw just one upsized deal price Monday.

Sabra Health Care LP and Sabra Capital Corp. priced a $100 million add-on to their 8 1/8% senior notes due Nov. 1, 2018 (existing ratings B1/BB-) at 106.

The deal was upsized from $75 million.

The reoffer price, which came on top of the price talk, rendered a 6.487% yield-to-worst.

Bank of America Merrill Lynch, Barclays and Wells Fargo were the joint bookrunners.

The proceeds will be used to repay revolver debt, as well as to fund possible future acquisitions and for general corporate purposes.

The original $225 million issue priced at par in October 2010, so the company realized a whopping 2¼% of interest savings with the add-on, relative to the yield that was printed on the original issue.

Kabel taps secureds

Rocked by yet more volatility related to sovereign credit, the euro-denominated junk market also saw a drive-by deal Monday.

German cable operator Kabel Deutschland Vertried und Service priced a €200 million add-on to its 6½% senior secured notes due June 29, 2018 (Ba2/BB) at 106.75.

The reoffer price, which came at the rich end of the 106.50 to 106.75 price talk, rendered a 5.162% yield to maturity.

Joint bookrunner Morgan Stanley will bill and deliver. Deutsche Bank and Goldman Sachs were also joint bookrunners.

The Unterfoehring, Germany-based company plans to use the proceeds to finance, in part, the acquisition of Tele Columbus or, in case the acquisition is not completed, for general corporate purposes.

The original €500 million issue priced at par in June 2011, so Kaleb Deutschland realized 1.4% or interest savings with its tap, versus the yield on the original issue.

The volatility, which shook much of the financial world, appeared not to have much impact on the Kabel Deutschland deal, a London-based debt capital markets banker said.

The European buyside has plenty of cash that it wants to put to work in high yield, especially with a known entity like Kabel Deutschland.

Although euro zone volatility ramped up Monday, the iTraxx Europe Crossover index ended the day just 13 bps wider, at 674 bps bid, 677 bps offered, after being 20 bps wider earlier in the session.

SPL Logistics sets talk

Looking ahead, SPL Logistics talked its $425 million of eight-year senior secured notes (B2/B+) with a yield in the 9% area.

The books close at 11:30 a.m. ET on Tuesday and the deal is set to price thereafter.

UBS is the lead left bookrunner for the acquisition deal.

Macquarie is the joint bookrunner.

QR Energy returns

After roadshowing its deal in early May and subsequently pulling back from the market, QR Energy, LP and QRE Finance Corp. resumed marketing that deal again Monday.

An investor call was held Monday for the $300 million offering of eight-year senior notes (Caa1/B-), which are set to price Wednesday.

Citigroup is the left bookrunner. Barclays, Credit Agricole, RBC, RBS and Wells Fargo are the joint bookrunners.

The Houston-based MLP plans to use the proceeds to repay debt under its revolver.

Elsewhere, one well-placed syndicate source had visibility on four to six deals expected to price this week.

"It should be busy, but not as busy as last week," the official said, referring to the July 16 week's $10.3 billion of dollar-denominated issuance in 21 tranches.

In terms of dollar amount, last week was the biggest week since May 7, which saw $11.4 billion.

However in terms of deal volume, last week was the biggest week in nearly five months. The week of Feb. 27 also saw the pricing of 21 tranches.

Only one week in 2012 saw a greater amount of deal traffic than last week's. During the week of Jan. 30, 27 tranches priced.

Sabra a secondary no-show

In the secondary market, several traders said they saw no sign of the Sabra Health Care add-on deal, saying that the Irvine, Calif.-based company's issue was just too small at $100 million.

However, nobody saw any activity in a somewhat larger new deal - Baltimore-based post-secondary education provider Laureate Education Inc.'s $350 million of 9¼% notes due 2019. Those bonds priced at par Friday, after being upsized from an originally planned $300 million and then traded off a little in Friday's aftermarket, at 99½ bid, 99¾ offered.

Recent deals lose ground

Some of last week's issues were trading around, but most were at somewhat lower levels than they closed out the week last Friday. Those levels were down from the peak trading levels they hit after pricing earlier last week.

For instance, a trader said he saw Party City Holdings, Inc.'s new 8 7/8% notes due 2020 "a few times." He said the bonds were trading at 101¼ bid, 101 5/8 offered.

That was down from the levels seen after the Rockaway, N.J.-based party goods retailer priced its $700 million issue at par last Thursday, and the bonds got as high as 103¼ bid, 103¾ offered in the immediate aftermarket. By late Friday, they came off those peak levels to end in a 102- to 1021/4-bid context. They continued to come in Monday.

Smithfield Foods Inc.'s 6 5/8% notes due 2022 were quoted Monday at 101 bid, 102 offered, a trader said. That was down from the 101¾ bid, 101 7/8 offered level at which those bonds were seen trading Friday and well down from the levels in the 102½ bid, 103 offered neighborhood at which they traded Thursday.

The Smithfield, Va.-based pork producer priced $1 billion of the bonds - sharply upsized from an originally announced $650 million - in a quick-to-market offering Wednesday. The bonds came at 99.5 to yield 6.694% and firmed to 101½ bid in initial aftermarket trading.

On Monday, another market source saw the bonds get as good as the 104 bid level, but the source cautioned that this was only a couple of small odd-lot trades and were not representative of the real trading levels, which mostly hovered in the 101- to 1011/2-bid level before the bonds went home at 101¼ bid, on round-lot trading of more than $12 million.

5-Hour Energy out of gas?

Traders noted that another one of last week's new deals - Innovation Venture's 9½% senior secured notes due 2019 - were showing even more pronounced erosion from last week's highs.

The Framingham, Mass.-based maker of the popular 5-Hour Energy pick-me-up tonic had priced $450 million of those bonds last Thursday at par, after upsizing the quick-to-market issue from an originally planned $400 million. While they shot up to 102 bid in initial aftermarket dealings later that session, by the end of the day they came off those peak levels and went home around the 101 bid mark. On Friday, they retreated further to a 100½ to 101 range.

On Monday, a trader said they dipped below the issue price, trading between 99 and par going out. At one point, he said the bonds were as cheap as a 99¼ offered level, although he didn't see a left side on that.

A second trader also thought the below-issue price was notable enough to mention, unprompted.

"They traded as high as 102½ on that first afternoon, but they actually traded below issue today," he said.

"The thing was as high as almost 103 on Thursday," the first trader said, "And then it just marched on downward."

He likened it to someone coming off the short-term boost of an energy drink once the caffeine begins to wear off.

Hologic holds up

In contrast, Bedford, Mass.-based medical diagnostic systems maker Hologic continues to hover well above its par issue price.

A trader saw those 6¼% notes due 2020 on Monday at 103½ bid, 104 offered - about the same levels at which that $1 billion issue, upsized from an original $750 million, traded almost from the get-go after pricing Thursday afternoon.

"It doesn't seem like it's been bouncing all over the place like the other issues," he observed.

"It could be that it was just placed better," he said, in terms of the accounts that actually got allocations of the over-subscribed issue.

A second trader, noting the stark difference between the aftermarket behavior of Hologic's deal versus the 5-Hour Energy transaction, pointed out that the former is "a much higher-quality credit."

"Don't forget, you're talking about a 6¼% coupon versus a 9-handle coupon [for 5-Hour Energy]," the trader said.

"Clearly, this is the kind of market where higher-quality stuff does better, so Hologic is definitely holding in well, there's no question," he said.

GenOn jumps on NRG merger

With not much going on in the primary arena, a trader said that the big name of the day was GenOn.

"Obviously they're doing much better," the trader said, on the news that NRG Inc. agreed to buy Houston-based GenOn in a $1.7 billion all-stock transaction that aims to produce the largest competitive power generating company in the United States.

GenOn was formed in late 2010 from the merger of RRI Energy Inc. and Mirant Corp.

A trader at another desk quoted GenOn's old RRI Energy 7 7/8% notes due 2017 trading between 102½ and 102¾ bid, on volume of $46 million, which he called up 3- to 31/2-points on the day. The trader saw the company's 9½% notes due 2018 issued by the newly formed GenOn itself after the RRI-Mirant merger trading at in a 107- to 1071/2-context, up 7 points, with $19 million trading.

At another shop, a market source pegged the 7 7/8% notes at 102¾ going home, but called those bonds up as much as 6½ points versus the last previous round-lot levels. He said round-lot only volume was more than $33 million, still tops in Junkbondland on Monday.

The market source also saw the 91/2s up about 7½ points at the 107½ bid level on $18 million of strictly round-lot trades.

GenOn's 8½% notes due 2021 - issued by the old Mirant Americas Generation LLC - jumped 9 points, to around the 101 bid level, on volume of more than $14 million.

Several of the company's other series of outstanding RRI, Mirant or GenOn bonds also showed sizable point gains, but on only limited volume.

As for Princeton, N.J.-based NRG's bonds, one of the traders said the paper "was kind of unchanged."

"You have one issue down a point, while another issue was up a point, so no huge change in either direction on that," the trader said.

He saw the company's 7 7/8% notes due 2021 were down a point, last trading at 102 bid, while its 8½% notes due 2019 gained a point to go out at 106 5/8 bid. More than $12 million of the 7 7/8s changed hands and about $7 million of the 8½% bonds.

NRG's 8¼% notes due 2020 gained about three-quarters of a point on the day to finish at 106¼ bid, with more than $13 million of round-lot volume and very brisk odd-lot volume.

Over on the equity side of the fence, GenOn's New York Stock Exchange-traded shares zoomed by nearly 31% during the session, finally finishing up 47 cents, or 25.82%, at $2.20. Volume of nearly 145 million shares was almost 18 times the usual turnover.

NRG's NYSE-traded shares were up more than 11% during the day before ending up $1.47, or 8.14%, at $19.52. Volume of 22 million shares was six times the norm.

In announcing the big deal, the companies said they expect at least $1 billion of debt reduction over time and increased EBITDA from their combined operations; NRG projected debt-versus EBITDA leverage ratio of 4.1x in 2014, pro forma for completion of the transaction, versus a 4.6x ratio for a standalone NRG.

GeoEye flying high

Also on the merger front, a trader said that GeoEye's bonds were up sharply on news that the Herndon, Va.-based provider of earth imagery and geospatial analysis of satellite photography will be acquired by sector peer DigitalGlobe Inc. in a $900 million cash-and-stock transaction.

He said that GeoEye's 9 5/8% notes due 2015 were up 3 points on the session, while its 8 5/8% notes due 2016 gained as much as 9 points during the day.

At another desk, the 8 5/8s were seen up by nearly 4 points, going out at 108 bid, on volume of about $4 million.

The 8 5/8s were estimated to be up 5 points, at 105½ bid.

GeoEye's Nasdaq-traded shares gained as much as nearly 36% during the day before finishing up $5.26, or 34.67%, at $20.43 on volume of 2.9 million shares, more than 11 times the usual daily activity level.

In their announcement, the two companies said the combined entity would have "modest leverage with balance sheet flexibility for future investment in growth."

Digital Globe said that it secured about $1.2 billion of fully committed financing from Morgan Stanley Senior Funding Inc. and from Bank of Tokyo Mitsubishi UFJ, Ltd. to refinance the combined companies' outstanding debt.

Market mostly lower

Apart from those M&A-driven gains, a trader said that the overall market was weaker, in line with the stock market's second consecutive down day, triggered by investor fears that Spain may need a bailout and by lower earnings from major companies like McDonald's.

Back among the bonds, statistical measures of market performance turned easier Monday after being mixed Friday and higher the two sessions before that.

A trader saw the Markit Group CDX North American Series 18 High Yield Index drop by 3/8 of a point Monday, to end at 95 7/8 bid, 96 1/8 offered, after losing a half-point Friday, its first loss after three straight gains.

The KDP High Yield Daily Index was off for a second straight session as well, retreating by 4 basis points to end Monday at 73.55, after dipping by 5 bps on Friday, its first setback after two straight gains.

Its yield rose by 1 bp for a second consecutive session Monday, to end at 6.37%, after declining on both Wednesday and Thursday of last week.

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