CNO, Aurora downsize; Kansas City Southern, Landry's price; OPTI Canada off post-downgrade

By Paul Deckelman and Paul A. Harris

New York, Dec. 14 - As expected, activity in the high-yield new-issue arena picked up on Tuesday from the low levels seen on Monday, according to syndicate sources. But while domestic dollar deals coming to market increased to four on Tuesday from the previous day's solitary pricing transaction, overall new issuance for the session remained moderate, coming in at well under $1 billion - evidence of an apparent gradual winding down of primary-side activity heading toward the traditional year-end lull.

The Mexican unit of U.S. railroad operator Kansas City Southern priced $185 million of 10-year notes in a fast-track deal. Traders said the new bonds moved up slightly in the aftermarket.

Also coming in with a quickly shopped offering was Houston hospitality company Landry's Restaurants, Inc., which priced an $87 million add-on to its existing tranche of 2015 notes. The deal was quoted around its issue price in secondary trading.

There was a pair of downsized deals later in the day. Insurer CNO Financial Group, Inc. priced $275 million of seven-year secured notes, and health-care name Aurora Diagnostics Holdings, LLC/Aurora Diagnostics Financing, Inc. chimed with a $200 million seven-year issue. Both appeared too late for any kind of trading activity.

Price talk meantime emerged on industrial manufacturer Atkore International, Inc.'s $410 million seven-year secured deal, which could price after its books close Wednesday morning. Talk was also out on Canada's Quebecor Media Inc., which is shopping an issue of Canadian-dollar 10-year bonds for possible pricing Wednesday.

In the secondary market, bonds of another Canadian company - Calgary, Alta.-based energy operator OPTI Canada Inc. - were beaten down after a Standard & Poor's ratings downgrade.

Credit card transaction processor First Data Corp.'s bonds continued to head to the upside, though on no real news, as did bankrupt supermarket proprietor Great Atlantic & Pacific Tea Co., Inc.'s paper, continuing the trend seen for both in Monday's session.

CNO downsizes

Although the Tuesday session was moderately busy, the primary market continued to show signs of winding down for the year.

Four issuers, each bringing a single tranche of bonds, raised a combined $751 million.

CNO Financial priced a downsized $275 million issue of seven-year senior secured notes (/B-/) at par to yield 9%.

The yield printed on top of the price talk.

The bond issue was downsized by $25 million. The company upsized its bank loan by $50 million, to $375 million from $325 million.

Morgan Stanley & Co. Inc. and Barclays Capital Inc. were the joint bookrunners for the bonds.

Proceeds, along with cash on hand and a new credit facility, will be used to repay existing bank debt.

Watch for more issuers to "arbitrage" their bond and bank deals, a high-yield mutual fund manager advised Prospect News on Tuesday.

"The company gets a better deal with the term loan," the investor said, adding that companies will be prone to arbitrage between the bank loan and the bonds as long as the loan covenants are not too egregious.

The issuer also has a more advantageous call structure with the bank loan, which might have soft calls at 102 and 101, the investor pointed out.

"That's attractive to someone who thinks they are going to deleverage," the investor said.

"If you place a 10-year non-call-five bond, and things get better in a year, you can't call the bonds except in a tender. And it costs a fortune."

The investor lamented getting a poor allocation of the CNO bonds and saw the deal up a point in the aftermarket.

Aurora cuts deal size

Also completing a downsized bond deal on Tuesday were Aurora Diagnostics Holdings, LLC and Aurora Diagnostics Financing, Inc.

The Palm Beach Gardens, Fla.-based diagnostics company priced a downsized $200 million issue of seven-year senior notes at par to yield 10¾%.

The reoffer price and yield came in line with revised price talk. Originally, the bonds were talked with a 10½% area yield.

Morgan Stanley, Barclays Capital and UBS Investment Bank were the joint bookrunners for the issue, which was downsized from $230 million.

Proceeds will be used to repay bank debt, to help fund a pending acquisition and for general corporate purposes including working capital.

Kansas City Southern drive-by

Elsewhere, Kansas City Southern de Mexico, SA de CV priced a $185 million issue of 10-year senior notes (B1/BB-) at par to yield 6 5/8%, which was at the tight end of the 6 5/8% to 6¾% price talk.

Bank of America Merrill Lynch and J.P. Morgan Securities LLC were the joint bookrunners for the quick-to-market deal.

Proceeds, together with cash on hand, will be used to fund the company's tender offer for its 7 5/8% senior notes due 2013 and its 12½% notes due 2016, which was extended to Dec. 17.

The issuer is a subsidiary of Kansas City Southern, a Kansas City, Mo.-based railroad.

The deal was smaller than was anticipated by an investor who is familiar with the company and holds its debt securities.

The word in the market was that the deal size came in smaller than expected because not all of the bonds were tendered, the investor said.

Tuesday's bond deal, which came to market by way of reverse inquiry from nine or 10 anchor orders, was a good execution for the company, said the buysider, who did not find the 6 5/8% yield very attractive and only placed a small order.

Landry's taps 11 5/8% notes

Landry's Restaurants priced an $87 million add-on to its 11 5/8% senior secured notes due Dec. 1, 2015 (B3/B) at 1041/4.

The reoffer price came in the middle of the 104 to 104½ price talk.

Jefferies & Co., Inc. was the bookrunner for the quick-to-market deal.

Proceeds, along incremental term loan borrowings under the company's amended senior secured credit facility, will be used to fund the acquisition of Bubba Gump Shrimp Co. Restaurants, Inc. and expenses and for general corporate purposes.

This is the second time that the Houston-based restaurant company has tapped the issue. Landry's previously did a $47 million add-on, which priced at 106 to yield 10.186% on April 23, 2010.

The original $406.5 million issue priced at 98.427 to yield 12% on Nov. 18, 2009.

Talking the deals

Atkore International talked its $410 million offering of seven-year senior secured notes (B3/B+/) with a 9¾% to 10% yield on Tuesday.

The books close at 10 a.m. ET on Wednesday.

Deutsche Bank Securities Inc., UBS Securities and Credit Suisse Securities are the joint bookrunners.

Also, Quebecor Media talked its C$250 million of 10-year senior notes (B1/B+//DBRS: BB) with a 7¼% to 7 3/8% yield.

Scotia Capital Inc., TD Securities Inc. and National Bank Financial Inc. are the bookrunners.

KCS bonds firm slightly

When the new Kansas City Southern 10-year notes were freed for secondary dealings, a trader saw those bonds at par bid, 100½ offered, sticking to the same par level at which they had priced.

A second trader, though, saw them move up from that initial level to 100 3/8 bid, 100½ offered.

At another desk, a trader saw those bonds going home at 100¼ bid, 100½ offered.

Landry's stays near issue price

A trader saw Landry's Restaurants' new add-on offering, and the original bonds, hanging in around 104¼ bid, 105¼ offered, little changed from their 104¼ issue price.

The CNO Financial and Aurora Diagnostics issues came too late in the day for secondary dealings, traders said.

Scotts comes off Monday highs

Traders saw the 6 5/8% notes due 2020 priced Monday by Scotts Miracle-Gro Co. come down from the aftermarket levels they held after pricing Monday.

One trader quoted the $200 million issue at 100 bid, 100½ offered, while a second saw the bonds retreat even further, to 99 bid, 99½ offered.

The Maysville, Ohio-based provider of lawn and garden care products priced its quickly appearing deal on Monday at par, and the bonds were quoted having gotten as good as 100¾ bid, 101¼ offered when they moved to the aftermarket later Monday.

Fortescue firms up

After two days of getting slapped around in the aftermarket, Friday's massively upsized $1.5 billion two-part offering from FMG Resources Pty. Ltd. - a unit of Australian iron ore producer Fortescue Metals Group - finally seemed to be battling back on Tuesday, traders said.

A trader saw FMG's $600 million of 6 3/8% notes due 2016 trading at 99 7/8 bid, 100 1/8 offered, exactly straddling the par price at which the issue had priced on Friday. Those bonds had traded down later Friday to 99¼ bid, 99¾ offered and had been seen on Monday as low as 99 1/8 bid.

The company's $900 million of 6 7/8% notes due 2018 - which had also priced at par Friday and then fell back to 99¼ bid, 99¾ offered in the aftermarket - were likewise seen to have moved up Tuesday, to 99¾ bid, par offered.

Secondary indicators mixed

Away from the new-deal sphere, a trader saw the CDX North American Series 15 HY index up 5/16 point on Tuesday to end at 102 bid, 102¾ offered after having risen by ¼ point each of the previous two sessions.

The KDP High Yield Daily index meantime gained 12 basis points on Tuesday to end at 74.03 after having been essentially unchanged for the previous three sessions. Its yield came in by 3 bps to 7.44% after having pushed up by 5 bps on Monday.

But the Merrill Lynch High Yield Master II index lost 0.029% on Tuesday after having gained 0.096% on Monday. That left its year-to-date return at 14.235% on Tuesday, off from 14.269% on Monday. The index also remains down considerably from the 2010 peak level of 15.602% recorded on Nov. 9.

Advancing issues trailed decliners for a second straight session on Tuesday, although once again, the margin of difference was just a few dozen issues out of the almost 1,500 that traded on Tuesday.

Overall activity, represented by dollar-volume levels, rose by 33% on Tuesday on top of the 5% gain seen on Monday from the previous session's levels.

OPTI Canada off on downgrade

Among specific issues, a trader noted that OPTI Canada's bonds fell after S&P downgraded its ratings for the oil sands energy company, which owns 35% of joint-venture partner Nexen Inc.'s big Long Lake facility in rural Alberta for extracting bitumen and turning it into saleable light sweet crude oil.

He saw its 8¼% notes due 2014 trading around the 67 bid level, down from a 68-70 context on Monday.

A second trader quoted those bonds down 2¾ points on the day, at 67, and meantime saw the company's 7 7/8% senior secured second-lien notes due 2014 drop to 66¼ bid, down 2 5/8 points on the day.

The bonds fell after S&P cut OPTI's long-term credit rating to CCC- from CCC+ and lowered its senior secured debt rating on the company's revolving credit facility and first-lien debt to CCC+ from B.

The ratings agency said that as "the ongoing operational issues at the Long Lake project continues to stall production ramp-up, the acceleration of OPTI's cash burn is faster than we expected during our most recent review in August."

In her downgrade message, S&P analyst Michelle Dathorne warned that given the company's "relatively finite cash resources in 2011, its progress on its strategic review process is also straining its liquidity position and overall financial flexibility." OPTI is trying to find an investor or even a buyer for either its Long Lake stake or for the company itself.

She said S&P believes that the company's "ability to satisfy its financial and operational obligations has weakened further."

A&P up again despite downgrade

While that ratings downgrade dropped the OPTI Canada bonds, similar rating actions seemed to have little or no impact on the bonds of Great Atlantic & Pacific Tea, the bankrupt Montvale, N.J.-based operator of the iconic A&P grocery chain, among other operators.

A trader said that its bonds "do seem to be doing better," quoting the company's 5 1/8% notes due 2011 trading up to 30 bid after "they went out last [Monday] night a little lower than that." He also noted that they were well up from the levels in the upper 20s seen on Friday, when the bonds nose-dived 45 points from the lower 70s to the upper 20s on investor speculation - later vindicated by events - that A&P would file for Chapter 11 in order to restructure its onerous debt burden. He saw the bonds left bid at 30, while the company's 6¾% notes due 2012 were hanging around 28 bid. Both of those issues are nominally convertible but are quoted like regular junk bonds by high-yield traders, who note that the convertible component is essentially worthless, as A&P's stock is now trading well under $1.

A&P's 11 3/8% senior secured notes due 2015 meantime traded at 84½ bid, 85½ offered, up from around the 83 bid, 84 level seen on Monday. All of the company's bonds are now trading flat, having forfeited their accrued interest upon the weekend bankruptcy filing.

The trader said that "there are a lot of stories out there that Yucaipa [is] involved," referring to the investment company controlled by California supermarket billionaire Ron Burkle, who is not only a major A&P shareholder but who has reportedly also been building a hefty position in the secured debt, which would give him a greater say in the company's future during the bankruptcy proceedings.

Moody's Investors Service said Tuesday that it had downgraded A&P's probability-of-default rating to D from Caa3 and cut its corporate family rating to Caa3 from Caa2, its senior secured notes to Caa2 from Caa1 and its senior convertible notes to Ca from Caa3, citing news of the bankruptcy filing.

First Data firms again

A trader said that First Data's 11¾% notes due 2016 "looked pretty active today," trading between 83 bid and 841/4, which he said was up a little from Monday, when the bonds were trading between 82½ and 83.

He said that the 11¼% notes seemed to be the most active of the issues.

He also saw the Atlanta-based electronic transaction processing company's 9 7/8% notes due 2015 - one of the two issues that the company is trying to largely take out by means of a pending debt-for-debt exchange offer slated to end at midnight ET on Wednesday - traded at bid levels between 93½ and 94, and he said that "they were quite a bit lower" on Monday, trading within a 91½ to 93 range.

At another desk, a market source saw the 9 7/8s move up to 94 bid, which he called a gain of some 2½ points on the session, while seeing the 10.55% PIK notes due 2015 - the other issue that First Data is seeking to essentially eliminate by offering its holders several new series of cash-pay and PIK bonds maturing in the early 2020s - up by 1¾ points on the day at 94½ bid.

Clear Channel gains

A trader said that "a lot" of Clear Channel Communications Inc.'s paper traded on Tuesday.

He saw the San Antonio-based media company's 10¾% notes due 2016 trading at bid levels around 823/4-83 on Tuesday, versus 81½ on Monday, and wondered if there was positive news out that might explain the gain.

"I'm not sure what's going on in Clear Channel," he mused. "What the heck is the catalyst here?"

Another market source saw Clear Channel's 5½% notes due 2016 gain nearly 3 points on the day to finish at 63 bid.

Its 11% notes due 2016 were seen up 1½ points, at 83 bid, while its 7¼% bonds due 2027 were quoted up more than 5 points on the day, at 55.5.

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