Service Corp., Asbury price, Rite Aid next, Service Corp. up; Exide jumps as judge lifts order

By Paul Deckelman and Paul A. Harris

New York, June 17 - Service Corp. International and Asbury Automotive Group, Inc. were heard by high-yield syndicate sources to have kicked off the new week in Junkbondland on Monday with a pair of quick-to-market offerings.

Service Corp. priced $425 million of 8.5-year notes, and the deathcare giant's new deal seemed to have plenty of life in it when it reached the aftermarket, firming by about a point from its issue price.

Auto retailer Asbury Group did an upsized $100 million add-on to its subordinated 2020 notes, but traders did not see any dealings in the newly priced paper.

The syndicate sources also said that Number-3 U.S. drugstore operator Rite Aid Corp. was rapidly shopping around a $400 million eight-year bond deal, expected to come to market on Tuesday.

That was one of several prospective issues joining the forward calendar, although the others were non-dollar transactions from European borrowers - euro-denominated deals from Dutch data-center operator Interxion Holding NV and a financing subsidiary of Greek gaming technology provider Intralot SA, and a sterling-denominated offering from a unit of British roadside assistance provider The Automobile Association Ltd.

Back in the dollar market, traders said the session was quiet, other than trading in recent issues such as those from Swiss chocolate manufacturer Barry Callebaut Services NV, which continued to firm, and energy operator Quicksilver Resources, Inc., which continued to struggle. They saw a generally brighter tone to the market, as participants apparently shook off last week's bad news about continued outflows from junk mutual and exchange-traded funds, a key barometer of overall market liquidity. Statistical market performance indicators rose across the board after having been mixed the previous several sessions.

One non-new-deal name which did more than just firm a little - it shot dramatically higher in heavy trading - was bankrupt battery maker Exide Technologies. Its bonds were given a big jump start by market speculation - later proven to be accurate - that a recent ruling by California environmental regulators shutting one of its plants would be overturned by the courts.

Service Corp. drives by

News flow in Europe and the United States picked up during Monday's session in the high-yield primary market, which saw two issuers raise $535 million with single-tranche deals.

Both came as quick-to-market transactions.

Service Corp. International drove through with a $425 million issue of 8.5-year senior notes (B1/BB-) which priced at par to yield 5 3/8%.

The yield printed in the middle of the 5¼% to 5½% yield talk.

J.P. Morgan, BofA Merrill Lynch and Wells Fargo were the joint bookrunners for the acquisition financing.

Asbury Automotive upsizes

Asbury Automotive Group priced an upsized $100 million add-on to its 8 3/8% senior subordinated notes due Nov. 15, 2020 (B2/B+) at 109.75 to yield 5.628%.

The reoffer price came rich to price talk set in the 109.5 area while the size was increased from an initial $75 million.

BofA Merrill Lynch and J.P. Morgan were the joint bookrunners.

The Duluth Ga.-based automotive retailer plans to use the proceeds for general corporate purposes. The company may use the proceeds, together with cash on hand or available borrowings under various credit or mortgage facilities, to redeem its outstanding 7 5/8% notes.

Rite Aid to price Tuesday

The forward calendar built out on Monday, with four deals in three separate currencies announced.

Rite Aid plans to price a $400 million offering of eight-year senior notes (existing ratings Caa2/CCC) on Tuesday.

Citigroup, BofA Merrill Lynch, Wells Fargo, Goldman Sachs and Morgan Stanley are the joint bookrunners for the debt refinancing.

AA starts Tuesday

AA Bond Co. Ltd., the U.K.-based roadside service company, plans to start a roadshow on Tuesday for a £655 million offer of class B secured notes.

The notes have a six-year expected maturity and a 30-year legal maturity, and are expected to receive credit ratings in the double-B range.

Physical bookrunner Deutsche Bank will bill and deliver. Royal Bank of Scotland is also a physical bookrunner.

Barclays, Mizuho, BofA Merrill Lynch, HSBC, Lloyds TSB, Mitsubishi UFJ, RBC and UBS are joint bookrunners.

Proceeds will be used to refinance bank debt.

Interxion starts roadshow

Netherlands-based Interxion Holding NV began a roadshow for a €300 million offering of seven-year senior secured notes which is expected to price mid-to-late in the present week.

Barclays, Citigroup, Credit Suisse and BofA Merrill Lynch are the leads for the debt refinancing deal.

Intralot's five-year deal

Greece-based Intralot Finance Luxembourg SA began a roadshow on Monday for a €300 million offering of five-year senior notes (B1//) which are also expected to price mid-to-late in the present week.

Citigroup and HSBC are the active bookrunners for the debt refiancing. Barclays and SG CIB are the passive bookrunners.

Demanding concessions

The market felt good on Monday, a London-based debt capital markets banker said.

"Things felt reasonably good late last week, and we're continuing to stay positive," the official remarked, heading into the London close.

During the turbulence which took hold in May and continued into June, the high-yield index underwent an approximately 100 basis points sell-off, the official calculated.

The volatility also reintroduced issuers to the long-dormant new issue concession.

"Up until four weeks ago the new issue concession was zero or less," the banker said.

"Now investors are demanding and getting concessions," the source added, reckoning the post-selloff new deal concession to be 25 to 50 bps.

Risk has also taken a hit, the official said, adding that the market in Europe presently prefers five-year paper.

"Anyone who wants to issue 10-year paper right now is paying up," said the banker.

And while history-making cash outflows from high-yield funds have made headlines in the United States, the fund flows picture in Europe, though more challenging to measure, seems less dire to this source.

"A lot of people are starting to see cash come back in the door," the banker said.

All eyes are now on the Fed, the banker said, referring to the Federal Reserve Bank's two-day June policy meeting, which is scheduled to end with a statement on Wednesday.

Global financial markets are poised to receive a definite signal that the Fed will begin to taper off the latest of its "quantitative easing" economic stimulus initiatives, QE3.

Barring an overly draconian move signal from the Fed - which could spark another move lower in junk and other global capital markets - there is a parade of issuers waiting to tap the market, the banker said.

Service Corp. shows strength

In the secondary market, traders saw the new Service Corp. International 5 3/8% notes having moved up by about a point after the Houston-based funeral home and cemetery operator's deal had priced at par.

Two traders at different shops were quoting the new bonds at 101 bid, 101¼ offered, while a third pegged them at 100 7/8 bid, 101 3/8 offered.

Asbury Auto absent

Several traders said that they saw no immediate aftermarket activity in Asbury Automotive's add-on to its 8 3/8% notes.

"I don't think we're going to see too much trading in that," one of them said, noting the deal's small size - $100 million - even after having been upsized.

IronGate issue not seen

Another new deal which seemed to drop off the radar screens after having been priced was Friday's $180 million offering of 11% senior secured notes due 2018 from IronGate Energy Services, LLC.

Those bonds had priced on Friday at 98.132 to yield 11½%.

A trader said that "there probably is only going to be one dealer, or maybe two" handling the smallish deal, with buyers likely lined up even before the deal had priced.

"As soon as it gets allocated, it'll get put away," he declared.

Quicksilver has little appeal

Also in the energy sphere, a trader saw Quicksilver Resources' 11% notes due 2021 at 94½ bid, 94¾ offered, "so they're trading slightly below [their issue price]."

However, a second trader was quoting the bonds higher, seeing them having gotten up to 95 1/8 bid, 96 offered.

The Fort Worth, Texas-based owner acquirer of oil and natural gas properties had priced its $325 million of those bonds last Wednesday at a heavily discounted 94.928 to yield 12%, after having radically downsized the offering from an originally announced $675 million, and also doing some tinkering around with the covenants in order to extend call protection from four years to six years.

That downsizing cut the overall size of the company's two-part deal from $875 million to $525 million, including the other half of the deal - $200 million of second-lien senior secured floating rate notes due 2019 that had priced at 97 to yield 575 basis points over Libor.

On Monday, the trader saw the floaters also trading below issue, at 96 5/8 bid, 97 ½ offered.

A trader had warned Friday that the new deal "just couldn't get out of its own way."

Barry Callebaut keeps rising

Quicksilver's problems gaining traction in the aftermarket stood in contrast to the strength shown by Barry Callebaut Services' 5½% notes due 2023, which a trader quoted as high on Monday as 101½ bid, 102½ offered, calling that a 1 point gain from Friday's already stronger levels.

However, a second trader said the Zurich-based chocolate manufacturer's deal was trading around 100¼ bid, 101¼ offered - not much changed from where it had gone home on Friday, but still well up from where it had priced.

That $400 million offering had priced on Thursday at 98.122 to yield 5¾%, after having been sharply downsized from an originally shopped $600 million.

But the downsizing had apparently helped, as the new bonds quickly traded up more than 1 full point when they broke into the aftermarket later Thursday, and they continued to firm on Friday and again on Monday.

Sanchez snaps back

Also on the upside, a trader said that Sanchez Energy Corp.'s 7¾% notes due 2021 - which had priced a week ago at par and then seemed to trade down around the middle of last week, had moved back up to a par bid, "which is all the way back."

Shortly after they priced last Monday, the Houston-based oil and natural gas exploration and development company's $400 million deal - upsized from an originally announced $350 million - had moved down to around a 99 to 99¾ bid context, and had ended around 99¼ bid, 99½ offered at mid-week, before starting to firm again by the end of last week.

A quiet session

Away from the new deals, traders saw what one termed "a definitely quiet session."

A second trader said that "Mondays and Fridays are slow - that's what we're in right now."

He said that "nothing really was going on - it was very spotty today, I wouldn't say that there was anything" of importance going on.

"Away from these new issues, there wasn't much going on - it was very situational."

He felt that the market "definitely had a better tone to it today - maybe a little more of inflows may have come to this marketplace and all is good."

Recent outflows less important

Several traders downplayed the lasting impact of the huge outflows from junk bond mutual funds and exchange-traded funds recorded over the last few weeks - even though such fund flows are often seen as a key gauge of overall junk market liquidity trends.

AMG Data Services of Arcata, Calif., a unit of Thomson Reuters Corp.'s Lipper analytics division, reported on Thursday that in the week ended Wednesday, some $3.283 billion more had left the funds than had come into them. That followed the even greater $4.63 billion - a record - that had bled from the funds the previous week, ended June 5, and an $874.68 million outflow recorded the week before that, ended May 29.

Meanwhile, rival fund-tracking service EPFR Global of Cambridge, Mass., whose methodology differs from AMG/Lipper because it includes some non-U.S. funds in the universe it tracks, said the junk funds lost $6.47 billion in the week ended Wednesday, including $4.33 billion from the U.S.-only funds. That had followed the record $6.59 billion cash hemorrhage seen the week before that, including $4.72 billion from the U.S. funds.

However, despite those scary-sounding numbers, a trader said that nobody in the market was shocked by all of this, because "you knew that it was going to be an outflow," since everyone was already hearing of big fund redemptions in the days preceding each huge weekly number. However, he did allow that "I didn't know that it was going to be quite that substantial."

A second trader agreed that everyone was already expecting large outflows, so the numbers did not set off some kind of avalanche of selling.

He likened seeing the big outflow numbers to "reading an earnings report the next day in the paper," which he said would explain why a company's stock or bonds were down the previous session. By the same token, all the big outflow numbers really do is confirm what people had already seen - that the market was down because of the big outflows which had been seen on a day-by-day basis. "Everybody knew that that was what was driving the weakness in our market."

The "headline number is negative," he said, "but it's already been in the market."

And he asked, rhetorically, "what if, all of a sudden, inflows started coming in?"

The first trader also had that possibility in mind, suggesting that with the market having had its two weeks of huge outflows and seeming to have steadied a little after that, "now you may see a slight reversal."

Market indicators firmer

Among other indicators, statistical junk market performance indicators were better across the board on Monday, after having been mixed over the previous three sessions.

The Markit Series 20 CDX North American High Yield index rose by 13/32 point on Monday to go home at 104 1/8 bid, 104¼ offered, after having lost 7/16 point on Friday.

The KDP High Yield Daily Index notched its second consecutive gain Monday, jumping by 16 basis points to end at 74.27, on top of Friday's 13 bps gain, which had broken a three-session losing streak.

Its yield meantime came in for a second consecutive session, declining by 9 bps to close at 5.88%. That followed its 5 bps tightening on Friday - the first such narrowing after three sessions before that on the rise.

And the widely followed Merrill Lynch High Yield Master II Index was improved for a second consecutive session, rising by 0.222%, on top of Friday's 0.338% advance.

The latest gain raised its year-to-date return to 3.148%, up from 2.919% at the close Friday.

Exide excites market

Among specific issues, Exide Technologies' 8 5/8% notes due 2018 were "kind of volatile," a trader said on Monday.

Across the board, traders said the paper opened around 62, ran up to 65 then hit a high of 70 during the session.

"They were left bid there for awhile," one trader noted.

One trader saw the paper going out as high as a 69-70 context, which would be up "7 to 8, maybe even 9 points."

Another market source said that the bonds closed at 69¼ bid, calling them up 6 3/8 points on the day, with round-lot volume of over $37 million and numerous odd-lot trades recorded as well - easily the busiest junk market issue of the day.

The bonds' gyrations came as the judge overseeing the Milton, Ga.-based battery maker's case gave his approval to reopen a recycling plant in Vernon, Calif. The plant was closed in April by state environmental regulators due to a hazardous waste leak.

The restarting of the plant, however, is only temporary. Exide had appealed the decision to shutter the plant and was sent to administrative court. But that court has been falling behind and has yet to release a decision. As such, the bankruptcy judge, Luis Lavin, said Monday that the closure and the administrative court's slow-goings would cause irreparable harm to the company and that the public health was not any more at risk if the recycling center reopened.

The judge then issued a temporary restraining order, which will allow the plant to begin operating again.

"It's a temporary reprieve that prevents the shutdown of the plant," a trader said. "There will be more to come on that one."

"It's still one of those names that could go either way," another trader said. "Investors are positioning themselves whichever way they feel [the company will go]."

Stephanie N. Rotondo contributed to this review

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