Teekay LNG shops kroner deal; Cenveo bonds continue rise; no J.C. Penney move on divestment

By Paul Deckelman and Paul A. Harris

New York, Aug. 26 - The nearly comatose high-yield primary sphere roused itself from its mid-summer slumber on Monday with syndicate sources reporting that energy processing and transportation operator Teekay LNG Partners LP was shopping around a $115 million-equivalent Norwegian kroner-denominated floating-rate note deal on Monday. Pricing is expected around midday European time on Tuesday.

If that deal gets done, it would be the first junk-rated pricing of any kind seen in the last 10 days.

Traders continued to see just small movements on light volume on some of the more relatively recent dollar-denominated bonds priced earlier in the month, including Iron Mountain Inc., although its existing 2024 bonds were considerably busier, and Foresight Energy LLC.

Away from the new issues, Cenveo Inc.'s bonds resumed their climb on respectably busy volume for a relatively quiet summer session. The commercial printer's notes had firmed smartly last week on the news that it would acquire the operating assets of the bankrupt National Envelope.

The bankrupt Overseas Shipholding Group Inc.'s bonds fell in busy trading on Monday, along with its shares, after the tanker company filed revised financial statements.

The company said it was ready to begin negotiating with the Internal Revenue Service on the federal agency's claims for back taxes - and warned that the possible tax bite that could result will be "significant," perhaps reaching as much as the roughly $460 million that Uncle Sam is seeking.

There was little immediate trading in J.C. Penney Co. Inc.'s bonds on the news - announced around the time that the financial markets were closing - that the troubled retailer's largest shareholder, hedge fund manager William Ackman, will put his company's 39 million shares, or 18%, up for sale.

Statistical market-performance indicators turned mixed on Monday after having been firmer all around on Friday.

Teekay guided at 435 bps

The Norwegian kroner market came to life on Monday.

Teekay LNG Partners is guiding its NOK 700 million offering of five-year senior floating-rate notes at a 435 basis points spread to Nibor.

Books close at noon Central European Time on Tuesday.

The deal will not be rated by the credit ratings agency, but is being marketed in the context of a BB- security.

DNB Markets, Nordea Markets and Swedbank First Securities are the joint lead managers.

The deal may be offered via Rule 144A and Regulation S to qualified institutional investors in the United States.

Marketing in the United States will be limited, however, according to a market source who added that only a limited number of accounts the States are allowed to own NOK-denominated assets.

The independent owner and operator of marine vessels plans to use the proceeds for general partnership purposes.

The partnership, which is registered in Hamilton, Bermuda, provides liquid natural gas, liquid petroleum gas and crude oil marine transportation services.

Dollar junk market dormant

Factoring pre-Labor Day vacations, which have dramatically thinned the ranks of high-yield market participants in the United States, whatever attention is out there to be had should all go to Teekay on Tuesday.

No dollar-denominated deals were priced on Monday and none announced.

Sources are forecasting that the new issue market will likely remain quiet through the remainder of the run-up to Labor Day.

What's Teekay unit up to?

With no new deals priced in the dollar-denominated segment of Junkbondland since Foresight Energy's $600 million issue on Aug. 16, even a deal denominated in an exotic currency like the Norwegian kroner was piquing the interest of some junk players.

A trader noted that "the last time that they did a deal" - the NOK 700 million of senior notes due 2017 that the company issued back in mid-April of 2012 - "they exchanged it." In other words, the interest and principal payments were swapped into dollars.

"I'm wondering if they're going to do that again?"

The trader also theorized that Teekay LNG's parent company, Teekay Corp. "has higher-coupon debt outstanding, so I was thinking maybe they'll tender for it. They've got the 8½% [notes due 2020], "so they could easily make some money on that [new bond deal] and tender for those, I would think. But that's just sheer speculation."

Recent deals trade around

Among recently priced dollar deals, Foresight Energy's 7 7/8% notes due 2021 were seen by a trader down a quarter-point on Monday to end at 99¼ bid, 99 7/8 offered.

The St. Louis-based thermal coal producer and its Foresight Energy Finance Corp. unit priced their offering on Aug. 16 at 99.276 to yield 8% after the deal was upsized from the originally planned $500 million.

The bonds traded in that same 99ish context over the next few sessions and have stayed there since then.

Also in the energy patch, a trader saw Access Midstream Partners, LP's 5 7/8% notes due 2021 having gained 3/16 of a point to end at 102½ bid on round-lot volume of some $1 million.

The Oklahoma City-based natural gas services company's quickly shopped $400 million add-on to its existing bonds priced at 101.5 on Aug. 14 to yield 5.503%. ACMP Finance Corp. was the co-issuer.

And Iron Mountain was again a busy name - just as it had been last week - although there really was not all that much trading in the Boston-based information technology and document storage company's newest bond, its 6% notes due 2023.

Although there had been relatively brisk trading over several sessions last week - $6 million-plus on both Thursday and Friday, fairly respectable levels of turnover on otherwise sleepy summer sessions - Monday saw just $1 million of the bonds traded. A market source quoted them up a half-point at 99 7/8 bid.

However, the company's established 5¾% notes due 2024, which had traded over $6 million on Friday, although they were unchanged, saw over $9 million changing hands on Monday, the source said.

He pegged the bonds at 90 5/8 bid going home, a gain of 3/8 of a point on the day.

Cenveo rise resumes

Cenveo Inc.'s bonds, which had risen sharply on Thursday on the news that the Stamford, Conn.-based commercial printer will acquire the operating assets of bankrupt National Envelope, a large envelope producer, for $25 million in cash and stock, resumed their riser on Monday.

A trader saw the company's Cenveo Corp. 11½% notes due 2017 at 95 1/8 bid, declaring "that was up a little bit - they're hanging right in there."

On Thursday, the bonds had pushed up to around the 94½ level from prior levels around a 91-91½ context, on volume of over $8 million

The trader noted that as recently as Aug. 15 - well before the news of the National Envelope purchase came out - the bonds had been trading in an 88¾ to 89 bid range.

At another shop, the bonds were seen going out at 94¾ bid, still up from prior levels around 94. The bonds had gotten as good as 95½ before coming down from that peak, the second source said. Volume was over $8 million.

About $4 million of the company's 8 7/8% notes due 2018 were trading, he said, with the bonds finishing around 99½ bid, a gain of 3/8 of a point on the day.

J.C. Penney quiet

Elsewhere, there was little immediate bond-market response to the news - announced late in the day - that Pershing Square Capital Management is offering to sell its 39.1 million shares of J.C. Penney Co. stock.

While there was some odd-lot trading in the company's bonds, there were few sizable trades of, say, over $100,000, and none in round-lot territory of $1 million or up.

The company's 7.65% notes due 2016 rose by a half-point to 89 bid, but on limited trading.

The New York-based hedge fund, controlled by activist investor William Ackman, is for the moment the largest single shareholder in the troubled Plano, Texas-based department store operator.

Ackman recently announced his resignation from the company's board of directors following rounds of mutual sniping over appointing another chief executive officer.

Two years ago, Ackman helped engineer then-CEO Myron "Mike" Ullman III's replacement by Apple Inc. executive Ron Johnson, but the latter's attempts to boost Penney's sales by drastically overhauling the venerable store chain proved to be disastrous, as sales fell even faster.

That led to Johnson's ouster earlier this year.

Overseas Ship springs leak

A trader said that Overseas Shipholding Group's 8 1/8% notes due 2018 "dropped down a couple of points today," pegging the bonds as trading in an 87-to-88 context most of the day.

He said the last trade, at 88½ bid, was down 2 points on the day.

A second trader also saw those bonds down a deuce, going out at 89 bid, on volume of over $6 million.

The 7¼% notes due 2024 sank by 3½ points to 87 bid, but on only one or two large trades.

The company's over the counter-traded shares nosedived by 45 cents, or 11.84%, to end at $3.35. Volume of 227,000 shares was almost twice the norm.

The paper got pounded as the bankrupt New York-based tanker operator said that it is now in a position to begin negotiating with the Internal Revenue Service after completing a review and restatement of its financial statements for the past 12 years.

"The company believes, based on its analysis and its interactions with the IRS to date, that the actual amount of tax that the company ultimately will be required to pay to the IRS in respect of the potential deemed dividends and other adjustments discussed above will be significant and could be as high as $460 million, or potentially higher, for all periods ending on or before December 31, 2012, not taking in account any potential penalties but including interest," the company wrote in a form 10-K filed Aug. 26 with the Securities and Exchange Commission.

However, the company says it "has several defenses available to mitigate its liability and intends to assert those defenses vigorously."

The IRS has filed proofs of claims totaling $463.01 million in the Chapter 11 bankruptcy case.

The company's attorney said during an Aug. 26 hearing in the U.S. Bankruptcy Court for the District of Delaware that the completion of the financial review provides the basis for negotiations to begin on that claim.

'No rhyme or reason'

Apart from names that had specific news, "it was brutally quiet," a trader said.

"The market has been exasperating," he continued, with seemingly no rhyme or reason as to why things were or were not trading.

"It's just item by item, and nothing really stands out."

He said that among investors, "there's still apprehension about the Fed," with neither the release of the minutes from the policy-setting Federal Open Markets Committee's July meeting or the Kansas City Fed's annual Jackson Hole economic symposium providing very much clarity as to when the central bank will finally begin tapering off from the massive bond purchases that it has been doping for the longest time to keep market conditions favorable, or by how much.

Amid that lack of visibility, he said, "a lot of the accounts we're dealing with are getting a little defensive buying high-coupon stuff, like yield-to-call paper - just in case the market tumbles again.

"But who knows?"

A second trader said, "I'm scrolling through a bunch of names - and I'm just not seeing much."

"Such is the time period we're in."

Market indicators mixed

Statistical junk market performance indicators turned mixed on Monday, after having been higher across the board on Friday.

The Markit index lost 5/32 of a point to end at 104½ bid, 104 5/8 offered, after having risen by 13/32 of a point on Friday, its second consecutive advance.

The KDP High Yield Daily index, meanwhile, rose by 1 basis point to end at a 73.01, its second straight gain. It had been up by 2 bps on Friday.

But its yield rose by 1 bp to 6.34%, after having declined by 1 bp on Friday.

The widely followed Merrill Lynch High Yield Master II index saw its second straight advance Monday, rising 0.12%. On Friday, it had gained 0.1% to snap a six-session losing streak.

The gain raised the index's year-to-date return to 2.601%, up from the 2.478% level seen at the close on Friday. That return remained well down from its peak level for the year so far of 5.835%, recorded on May 9, though still up solidly from its 2013 low point of 0.384%, set on June 25.

Jim Witters contributed to this review

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