Academy Sports prices, moves up; market awaits upsized Reynolds megadeal; Hovnanian gets hit

By Paul Deckelman

New York, July 25 - Academy, Ltd. priced a $450 million issue of eight-year notes on Monday, high-yield syndicate sources said. After the Texas-based sporting-goods retail chain operator's new deal hit the aftermarket, it surged impressively, then came down from those early highs, but still ended up by several points.

Primaryside players heard price talk on Reynolds Group Holdings Ltd.'s upcoming behemoth of a two-part offering and noted that the packaging products maker had upsized its eight-year deal to $2.5 billion.

The Reynolds offering is expected to price on Tuesday morning, and traders said that the huge deal by a well-known issuer would attract considerable market attention, particularly in the absence of much else going on.

Traders didn't see much in the way of dealings in MTR Gaming Group, Inc., whose suddenly revived and upsized $565 million bond deal priced on Friday, barely more than a week after the race track and casino operator had pulled its deal. What trading there was on Monday took place below the offering's discounted issue price.

In the secondary arena, Hovnanian Enterprises Inc.'s bonds fell along with the homebuilder's stock on no new company-specific news, but perhaps on some investor angst about housing overall.

Statistical performance indicators were seen mixed coming off of Friday's gains.

Academy appears, improves

The day's only pricing came from Academy Ltd., which priced $450 million of eight-year senior notes (Caa1/CCC+) at par to yield 9¼%.

High-yield syndicate sources said that the bonds priced at the tight end of pre-deal market price talk envisioning a yield between 9¼% and 9½%.

The issue was brought to market via an underwriting syndicate that included Credit Suisse Securities (USA) LLC, which is handling billing and delivery and keeping the physical books, Goldman Sachs & Co., which was the joint lead on the physical books, and joint passive bookrunners Barclays Capital Inc. and Morgan Stanley & Co.

The bonds were marketed to potential investors via a roadshow, which began last Tuesday.

The bond deal is connected to the pending leveraged buyout of Katy, Tex.-based Academy - operator of the 131-store Academy Sports + Outdoors chain of sporting goods and outdoor gear stores in the Southeast and Texas, Oklahoma and Missouri - by New York-based private equity firm Kohlberg Kravis Roberts & Co. for an undisclosed price.

The financing for the leveraged buyout includes a $1.49 billion credit facility in addition to the bond deal.

The official issuer of record for the bonds is Allstar Sub LLC, which is to be merged into Academy upon completion of the acquisition.

Up, then down a little

When the new Academy bonds were freed for secondary dealings, a trader at first saw them in a locked market at 1023/4, then later quoted them at 102 5/8 bid, 102 7/8 offered.

A second trader saw the bonds get as good as 102½ bid, 102 7/8 offered, but then watched as the bonds came down from that peak first to 102 1/8 bid, 102½ offered and, finally, to 102 bid, 102¼ offered.

At another shop, a trader said that "a little bloom has come off the rose" as the bonds went out at 102 bid, 102½ offered, down anywhere from five-eights to three-quarters of a point from their earlier zenith.

But the traders did acknowledged that even holding to that 102 bid close, the bonds had notched hefty gains on the day.

Waiting for Reynolds

The other news of the day from Junkbondland's primaryside was the upsizing on the gigantic two-part offering, which Reynolds Group is expected to price on Tuesday morning.

Reynolds, an Auckland, N.Z.-based consumer food and beverage packaging products producer perhaps best-known for its famous Reynolds Wrap aluminum foil products, announced that it was upsizing the Reynolds Group Issuer LLC/Reynolds Group Issuer Inc./Reynolds Group Issuer (Lux) SA deal to $2.5 billion from the originally shopped $2 billion offering of eight-year senior secured and unsecured bonds.

The senior unsecured tranche was upsized to $1 billion from the $500 million originally shopped around, while the size of the $1.5 billion senior secured piece was unchanged.

Reynolds, which is in the process of acquiring Graham Packaging Co. Inc., a York, Pa.-based maker of customized blow-molded plastic bottles and jars, in a $4.5 billion transaction, including the assumption by Reynolds of Graham's net debt, said that the net proceeds from the increase in the size of the bond deal will be used to repurchase any of Graham's existing senior notes that are tendered in connection with change-of-control offers at 101% of principal that will be made following the closing of the Graham acquisition.

Reynolds further said that any remaining net proceeds from the upsizing of the bond deal will be applied to repay borrowings coming due in the near-term or to repay, repurchase or otherwise retire other indebtedness.

High-yield primaryside sources said that the $1.5 billion tranche of senior secured notes is expected to yield in the 8% area, while the upsized $1 billion tranche of senior unsecured notes was being talked in the 10% area.

The bonds are coming to market via joint bookrunning managers Credit Suisse Securities (USA) LLC and HSBC Securities (USA) Inc. They were marketed to potential investors via a roadshow, which began last Tuesday. Order books on the deal were scheduled to close on Monday afternoon, with pricing seen for Tuesday morning.

"It should be pretty active," said a trader, in view of Reynolds being the first really sizable deal since the $1.065 billion three-part offering which New York-based music publishing and recording giant Warner Music Group Corp. brought to market on July 14.

New MTR moves down

A trader said that he did not see any kind of dealings in the new 11½% senior secured second-lien notes due 2019 MTR Gaming priced on Friday.

However, several other traders did see the Chester, W. Va-based racetrack and slot machine racino parlor operator's $565 million deal in action and said that it looked like a losing hand to them.

One noted that the bonds - priced on Friday at 97 to yield 12.096% - were trading below issue on Monday, quoting them at 96 bid, 97 offered.

A second trader said that early in the session, the bonds were being quoted as low as 95 bid, 96 offered, and then moved up to around 95½ bid, 96½ offered.

He said that the "the rating was jostled," presumably referring to Standard & Poor's assignment of a B- to the new bonds and the ratings agency's assessment that this reflects "an expectation that increased competitive pressures from new competition in Ohio will result in the company's EBITDA coverage remaining weak for the rating over the intermediate term."

He saw the bonds late in the day around 96½ bid, 97¼ offered.

Market indicators mixed

Away from the new deal precincts, traders noted that market statistical indicators, which were better on Friday, turned mixed on Monday, perhaps reflecting the negative tone in equities amid the continued debt-ceiling political standoff.

A trader saw the CDX North American Series 16 HY Index down a quarter-point on Monday at 101 1/16 bid, 101 3/16 offered, after having been about unchanged on Friday.

The KDP High Yield Daily Index lost 4 basis points on Monday to close at 75.63, after having jumped 15 bps on Friday. Its yield was unchanged on Monday at 6.62%, after having tightened by 5 bps Friday.

But the Merrill Lynch High Yield Master II Index showed its fifth consecutive gain on Monday, up by 0.052% on top of Friday's solid 0.20% rise.

The latest gain lifted its year-date return to 6.263%, a new peak level for 2011, from Friday's 6.208%, the previous zenith.

Hovnanian debt falters

A trader said that Red Bank, N.J.-based homebuilder Hovnanian was trading busily during Monday's session at lower levels.

He called the 10 5/8% notes due 2016 nearly a point weaker at 951/2.

"They've been kind of falling down," he said, noting that the bonds were around par towards the beginning of the month.

Another market source also saw the issue at 951/2, deeming that down a deuce.

At another shop, the bonds were seen down more than 2 points to just over 95 bid, with volume estimated at over $25 million, making it one of the most actively traded junk bonds of the session.

The slide was in line with the fall in the company's New York Stock Exchange-traded shares, which dropped by 16 cents, or 6.90%, to end at $2.16 each on slightly-higher-than-normal volume of about 2 million shares.

There was no fresh company-specific news out to explain the declines, although some observers speculated that Hovnanian and other stressed homebuilders could be adversely affected if any move to lessen or remove the deductibility of home interest emerges from the Washington debt-ceiling imbroglio as a potential government revenue raiser.

NewPage subs gain momentum

NewPage Corp.'s 10% notes due 2012 were "a little bit better," according to a trader.

He pegged the issue around 27, up 2 points from Friday levels. He also saw the 11 3/8% notes due 2014 around 92.

"That was up a little bit," he said of the first-liens. "But not as much [as the 10% notes]. They're up probably almost a point."

Another trader also placed the 10% notes around the 27 level, which he said was up 2 to 3 points from Friday.

Earlier this month, the Miamisburg, Ohio-based papermaker paid a $100.7 million coupon on its first-lien notes. While it avoided a potential default, the company is not yet out of the woods, as it still has to repay or refinance the second liens before the end of the year to avoid the acceleration of other outstanding debt.

Stephanie N. Rotondo contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.