CIT Group brings $2 billion deal; new Telesat bonds firm; Chesapeake, Sears gain on news

By Paul Deckelman and Paul A. Harris

New York, May 1 - The high-yield primary market kicked off the new month on Tuesday with a big deal, as lender CIT Group Inc. came to market with a quickly shopped $2 billion two-part offering. However, that behemoth of a bond deal hit the tape too late in the day for any kind of an aftermarket.

That was the case on Monday with Telesat Canada's $700 million five-year issue. The satellite communications company's new bonds were seen on Tuesday having firmed nearly a point.

Traders also saw firmer levels on Monday's other new deal: US Airways Group, Inc.'s split-rated three-part offering of airline pass-through certificates.

Away from the deals that have priced, the primary sphere saw restaurateur Ruby Tuesday, Inc. getting ready to serve up a $250 million eight-year issue following a roadshow that should last through the beginning of next week.

Business services provider Harland Clarke Holdings Corp. was heard to be shopping a $300 million secured notes issue as part of its effort to amend and extend its term loan facility. The company's existing bonds gyrated wildly in very active trading on Tuesday.

Price talk emerged on travel information technology company Sabre Holdings $400 million secured note offering, which could price as soon as Wednesday.

Away from the new deal, Chesapeake Energy Corp.'s bonds - and its shares - rose in busy trading, as the natural gas company announced a top management shuffle and several other pieces of news.

Retailing giant Sears Holdings Corp. was also seen better after it announced plans to spin off some non-core assets.

CIT brings May Day megadeal

The month of May began with a megadeal from CIT Group, which priced Tuesday's sole transaction: a $2 billion two-part non-callable senior notes deal (B1/BB-).

The New York-based financial services company priced a $1.25 billion tranche of five-year notes at par to yield 5%, on top of price talk. CIT also priced a $750 million tranche of eight-year notes at par to yield 53/8%, at the tight end of the 5 3/8% to 5½% price talk.

Bank of America Merrill Lynch, Barclays, Credit Suisse, Morgan Stanley and UBS were the joint bookrunners for the quick-to-market deal, which was announced Tuesday morning at benchmark size.

Bank of America Merrill Lynch will bill and deliver.

Proceeds from the five-year notes will be used for general corporate purposes and to refinance CIT's outstanding 7% series C notes due 2017. Proceeds from the eight-year notes will be used for general corporate purposes and to refinance the outstanding 7% series C notes due 2016 and/or 2017.

The deal was very well received, according to a syndicate source, who added that the five-year tranche was tested with a yield of 4 7/8% and could have been done there, at a size that would have been lower than the $1.25 billion that ultimately priced.

The size was more important to the company than the lower yield, the source added.

Overall, there was $4.5 billion of demand for the $2 billion spread across both tranches, with the demand favoring the five-year paper, the source said.

And the deal saw plenty of participation from high-grade accounts.

Tuesday start for Ruby Tuesday

Although May Day thinned the ranks of Asian and European market participants, there were deal announcements in both the dollar- and euro-denominated markets.

Ruby Tuesday began marketing a $250 million offer of eight-year senior notes on Tuesday via bookrunner bank of America Merrill Lynch.

An investor roadshow is set to run through May 7.

The Maryville, Tenn.-based restaurant company plans to use the proceeds to repay all of its revolver debt, as well as to redeem all of its series B senior notes, to pay off certain mortgage loans and for general corporate purposes.

Elsewhere, Sabre Holdings talked its $400 million offering of seven-year senior secured notes (B1/B) to yield 8½% to 8¾%.

The deal is set to price on Wednesday afternoon.

Goldman Sachs, Bank of America Merrill Lynch, Barclays, Deutsche Bank, Mizuho, Morgan Stanley and Natixis are the joint bookrunners.

Schmolz + Bickenbach roadshow

Swiss specialty steelmaker Schmolz + Bickenbach AG will start a Europe-only roadshow on Wednesday for its €300 million offering of seven-year senior secured notes.

The roadshow wraps up on Monday.

BNP Paribas, Commerzbank, Credit Suisse, Royal Bank of Scotland and UniCredit are the joint bookrunners.

Proceeds will be used to refinance bank debt and for general corporate purposes.

New CIT bonds a no-show

In the secondary arena, there was no trading in the new CIT Group five-year or eight-year notes, which priced too late in the session for any kind of real aftermarket dealings.

As for the company's current 7% series C notes due 2016 and 2017, which are to be taken out using the new-deal proceeds, a trader saw relatively little new activity in them.

"Those bonds have kind of traded like they were coming out anyway. Everybody expected this to happen, so their 7s are basically unchanged."

He saw both the 2016s and the 2017s trading in a narrow range of 100 to 100½ bid.

"The only other outstanding CITs" - the 5½% notes due 2018 - "pretty much traded in line all day long," around the 103½ area.

Harland Clarke climbs

With Harland Clarke heard shopping a new deal around as part of the San Antonio, Texas-based business services company's amend-and-extend transaction on its senior secured term loan facility, its current bonds were bouncing crazily around on Tuesday, though at mostly higher levels.

A trader said those 9½% notes due 2015 were "really active," seeing them get as high as 97 bid, before coming down from that peak to go out around 94.

"Even 94 is up a couple [of points] on the day," he said.

A market source at another shop said that over $28 million of the Clarke bonds had traded on Tuesday, making the credit one of the most active in Junkbondland.

On Monday, those notes had actually finished around 95 bid, but only on smallish late trades. Final trading levels on any kind of size were down around a 91-92 context.

The bonds opened just below 95 on Tuesday, climbed to 97 before coming back down to just under 94, the final round-lot trades of the day, although there was additional activity afterward, with smallish odd-lot pieces trading back as high as the 99 neighborhood.

Telesat Canada trades up

Traders saw the new Telesat Canada 6% notes due 2017 gaining altitude on Tuesday, when the Ottawa-based satellite communications company's $700 million issue finally began trading in the secondary.

That quick-to-market offering had priced at par on Monday, but came too late in the day for any kind of an aftermarket.

A trader saw the new bonds initially trading at par bid, but by later on in the day, they were being quoted as high as 100 5/8 bid, 100 7/8 offered.

A second trader saw the bonds going out at 100½ bid, 101 offered.

US Airways pushes higher

Also reaching for the wild blue yonder were US Airways' new pass-through certificates.

The Tempe, Ariz.-based airline carrier priced an upsized three-part $623.379 million fly-by pass-through certificate deal on Monday, and two out of those three tranches moved up in the immediate aftermarket.

On Tuesday, a trader saw one of the two junk-rated tranches - the $124.98 million of 8% class B certificates due 2019 - at 101¼ bid, "looking" for an offering.

"They didn't trade much," and that was about the level that paper had gone home at on Monday after pricing at par, the source said.

However, a second trader later pegged those B2/BB+/BB- notes at 101¾ bid, 102 offered, while yet another quoted them at 101¾ bid, 102¼ offered.

The investment-grade (Ba2/BBB/A-) 5.9% class A certificates due 2024 were seen on Tuesday by all the traders at around the 101 bid level, give or take one-eighth of a point.

That was up a little from Monday's late level around 100¾ bid, 101¼ offered, which in turn was up from the par level at which the $379.785 million tranche had priced.

A trader said that both of those tranches "were trading a lot," which he called "not a big surprise."

On the other hand, nobody saw any trading at all in the third part of that three-legged deal - the $118.636 million 9 1/8% class C certificates due 2015. That B3/B/B tranche - a late addition to the class "A" and "B" certificates that were originally shopped around - had also priced at par on Monday, but was not seen in the aftermarket.

On Tuesday, one of the traders said that he received "a bunch of messages" from various junk market participants interested in the US Air paper, "but not one was about the 9 1/8s."

Chesapeake churns higher

Away from the new issues, traders saw some dealings in Chesapeake Energy's bonds, particularly its 6.775% notes due 2019, which traded upward in active dealings Tuesday following the news that the Oklahoma City-based natural gas producer's embattled chief executive officer, Aubrey McClendon, will relinquish his chairman's post.

The company will instead seek a non-executive chairman while McClendon stays on as CEO.

A trader saw those bonds trading between 98¾ and 99¼ bid, with the final trades of the day going off at 991/4, and noted that was up on the day from Monday's levels in the 97-98 area. Over $29 million of those bonds traded, placing them near the top of the junk most-actives list.

He saw Chesapeake's 6 1/8% notes due 2021 trading in the morning after the McClendon news was announced at 95¾ bid, 96¾ offered, before moving up further to end at 96 bid, 96¼ offered.

On Monday, those bonds had traded at 94¾ bid, "so yeah, they were up on the news," he added. Over $15 million of those bonds changed hands.

He also cited a company announcement that in view of continued soft natural gas prices, it will further cut back on its gas production. Those cutbacks come on top of earlier output cuts, which Chesapeake had announced previously.

The day's major news - the management shakeup - comes in the wake of disclosures over the past several weeks that McClendon, who helped to found the company and whose compensation package permitted him to buy as much as a 2.5% stake in each of the company's numerous wells, had borrowed $1.1 billion from various financial institutions, which also had professional relationships with Chesapeake itself, in order to buy those stakes and pay for his share of the drilling and operating costs. Those loans were secured by McClendon's stake in the wells.

While the company initially issued a statement saying the CEO's investments had been fully disclosed in regulatory filings and would have no impact on the company, some analysts and other critics sniped that they created at least the appearance of a potential conflict of interest.

Chesapeake later announced that it would end the program that let the CEO buy into the company wells.

The news that the chairman and CEO posts would henceforth be separated was also greeted with relief by company shareholders, who took Chesapeake's NYSE-traded stock up as much as 11.8% intraday. The shares ended up $1.16, or 6.29%, at $19.60, on volume of 77.5 million shares, almost four times the norm.

Spinoff plan boosts Sears

Elsewhere, a trader said Sears Holding's 6 5/8% notes due 2018 were "at least 1½ points higher" in Tuesday trading. He placed the paper at 901/2.

"That's been climbing," another trader said of the debt, calling the bonds "up a couple [points]" at 91 bid, 92 offered. That compared to 88 bid, 89 offered on Monday, he said.

The gains came ahead of the company's annual shareholder meeting on Wednesday, during which the company is expected to discuss potential plans to spin off its Hometown and Outlet stores.

In a regulatory filing on Monday, the Hoffman Estates, Ill.-based company said it would conduct a rights offering for the spinoff in the third quarter. The new company will trade on the Nasdaq under the symbol "SHOS," the company said.

ESL Investments Inc., a hedge fund owned by Sears' chairman, Edward Lampert, would purchase as many shares as possible, the filing indicated.

Additionally, Sears is expected to report improved first-quarter earnings later this month.

In a press release issued on Tuesday, the company said that it is expecting a net loss between $155 million and $195 million, or between $1.46 and $1.84 per share. That compares to a net loss of $165 million, or $1.53 per share, for the same quarter of 2011.

Caesars' revenue rises

Also on the earnings front on Tuesday, Caesars Entertainment Corp.'s debt rose modestly ahead of the company's after-the-bell earnings release.

A trader said the 10% notes due 2018 were "fairly active" at 76½ bid, 76¾ offered. He deemed that up half a point to three-quarters stronger.

Another market source called the issue up a point at 76¾ bid.

A third source saw the paper gaining 1½ points to end around 75.

For the first quarter of 2012, Caesars reported a 4.3% increase in revenues, which came to $2.27 billion. However, the net loss widened to $280.6 million from $147.5 million the year before.

"We saw strong performance in its core business in the first quarter, driven primarily by gains in Las Vegas and in its online businesses," Gary Loveman, chairman, president and chief executive officer, said in the earnings statement.

"We continued to make progress on expanding its distribution network both on land and online, on leveraging its scale to drive efficiency and growth and on further strengthening its financial position."

The wider net loss was attributed to a decrease in income from operations and higher interest expense.

Clearwire climb continues

A trader said that Clearwire Corp. "continues to rally," seeing the Kirkland, Wash.-based high-speed broadband service provider's 12% notes due 2015 at 92¾ bid.

The 12% notes due 2017 were at 73½ bid.

"They've been rallying every day since their earnings report last week," he said.

PDVSA paper still busy

A trader said that Petroleos de Venezuela SA's 9% notes due 2021 "were still on the actives list."

He quoted the Caracas-based Venezuelan state-run oil monopoly's bonds around 821/2, which he called "pretty much unchanged."

He also saw PDVSA's 5¼% notes due 2017 at 78 bid, 78½ offered, which he called down a half-point.

"There was "decent volume," he said, with at least $16 million to $17 million of each issue trading.

He said activity was "left over. We saw a lot of activity in that [Monday] as well."

A second trader said that "a lot of PDVSA was still trading - I guess everybody makes a different bet every day on what's going to happen to [Venezuelan strongman Hugo] Chavez."

Nokia still in spotlight

A trader said that Nokia Corp.'s 53/8% notes due 2019 finished at 87 bid, 87½ offered, which he called "pretty much unchanged," though on "decent volume" of about $14 million.

He saw the Finnish cell-phone maker's 6 5/8% bonds due 2039 closing at 81 bid, 81½ offered, estimating "that might be up a little bit, maybe a point."

He said that "decent volume, over $20 million" had traded.

A second trader said that Nokia - whose bonds got whacked over two days after Standard & Poor's dropped its ratings to junk status on Friday - "was pretty busy again this morning." But he stated that the name "calmed down a little," with about $20 million of the 6 5/8s trading versus more than $40 million on Monday.

He said the bonds last traded at 811/2, after trading between 81 and 82 most of the day. In contrast, he said that the bonds "were all over the lot" on Monday, getting as good as close to 83½ bid, before closing around 801/2.

"They were all over the place [Monday], but there was a little bit tighter trading range."

A paucity of paper

While most bonds were being quoted higher, a trader said that apart from activity in "story" names, like Chesapeake or Sears, "there's just nothing for sale right now. That's the big problem right now.

"It's a difficult market to find paper in," he said.

Market measures mostly better

The statistical measures of junk market performance were mostly better for a sixth consecutive session on Tuesday.

The Markit Group CDX North American Series 18 High Yield Index was actually unchanged on the day at 96 11/16 bid, 96 15 16 offered, a trader said, after having gained 1/8 point on Monday.

But the KDP High Yield Daily Index rose by 15 basis points on Tuesday to end at 74.15, after having gained 10 bps on Monday. Its yield declined by 5bps, to 6.45%, after having come in by six bps on Monday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its sixth straight daily gain, rising a hefty 0.245% on Tuesday, on top of Monday's 0.169% advance.

That lifted its year-to-date return to 6.485% from Monday's 6.224%.

That not only established a new peak level for 2012 - Monday had been the previous peak - but also completely blew past last year's high-water mark of 6.362%, which had been established on July 26, 2011.

That left the cumulative return at its highest level since Dec. 31, 2010, when it ended that year at 15.19%.

Stephanie N. Rotondo contributed to this report

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