Biomet, QR Energy, Pantry price, new Biomet better; Radio Shack routed after poor numbers

By Paul Deckelman and Paul A. Harris

New York, July 25 - Biomet, Inc. brought a solidly upsized $1 billion offering of eight-year notes to market on Wednesday, high-yield syndicate sources said. Traders added that the orthopedic device manufacturer's quick-to-market new deal firmed by around a point when it was freed for aftermarket dealings.

The Warsaw, Ind.-based medical products maker's transaction was the signature deal in a session that saw more than $1.5 billion of new paper price in three tranches.

Two regularly scheduled forward calendar deals also made their respective entrances - a $300 million eight-year note offering from oil and gas upstream company QR Energy LP/QRE Finance Corp., and a $250 million issue - also for eight years -from convenience store operator The Pantry, Inc. The latter two deals priced too late in the session for any meaningful aftermarket activity.

The traders also said that among Tuesday's deals, Universal Hospital Services, Inc.'s offering of eight-year secured notes firmed smartly, gaining more than a point.

SPL Logistics Escrow LLC's new bonds stayed about where they had done out on Tuesday.

Isle of Capri Casinos, Inc. and KB Home's offerings, which seemed to have a little trouble gaining traction on Tuesday after both pricing at par, crept up slightly on Wednesday.

Statistical measures of market performance were mixed after two days on the downside.

But there was no mistaking the slide in Radio Shack Corp.'s bonds after the far-flung consumer electronics chain retailer surprised Wall Street by sliding into a loss in the latest quarter.

Biomet massively upsizes

Wednesday's session saw three issuers, each bringing a single tranche of junk, raise a combined total of $1.55 billion.

In drive-by action, Biomet priced a massively upsized $1 billion issue of eight-year senior notes (B2/B-) at par to yield 6½%.

The yield printed at the tight end of the 6½% to 6¾% yield talk.

The deal was announced at $550 million, then upsized to $850 million before reaching its ultimate $1 billion size, according to a syndicate source, who characterized the transaction as a good execution.

Goldman Sachs, Bank of America Merrill Lynch, J.P. Morgan, Wells Fargo, Barclays and Citigroup were the joint bookrunners.

The Warsaw, Ind.-based surgical supplies manufacturer plans to use the proceeds to fund a tender offer for its 10 3/8% PIK toggle notes.

The additional proceeds from the upsizing will be used as cash on the balance sheet.

QR Energy prices $300 million

QR Energy, LP and QRE Finance Corp. priced a $300 million issue of 9¼% eight-year senior notes (Caa1/B-) at 98.62 to yield 9½%.

The yield printed at the wide end of the 9¼% to 9½% yield talk.

The issuer ran a full roadshow in early May, following which the offering was sidelined by market conditions.

It was revived last Monday with the same size and structure, and run by the same syndicate of underwriters.

The Houston-based energy company got a good deal done in a tough market, a syndicate source commented late Wednesday.

Citigroup was the left bookrunner. Barclays, Credit Agricole, RBC, RBS and Wells Fargo were the joint bookrunners for the debt refinancing transaction.

Pantry prices atop talk

The Pantry priced a $250 million issue of eight-year senior notes (Caa1/B+) at par to yield 8 3/8%, on top of yield talk.

It was a well oversubscribed deal, a syndicate source said, adding that the par-pricing bonds, which went to solid accounts, were quoted at 101 bid after the Wednesday close.

Bank of America Merrill Lynch, Wells Fargo, RBC, BMO and SunTrust were the joint bookrunners.

The Cary, N.C.-based convenience store chain plans to use the proceeds, together with a new credit facility and a portion of its available cash, to repay debt and for general corporate purposes.

DirectCash plans C$125 million

Wednesday's transactions having cleared, the forward calendar for the remainder of the July 23 week emptied.

However drive-by deals remain a possibility, sellside sources say.

"You saw some names drift lower, today, but high yield is not as volatile as the stock market, and you saw good executions," a syndicate banker said.

In the Canadian market DirectCash Payments Inc. is expected to bring its offering of C$125 million of seven-year senior notes (B3/B/) the week of July 30 following a roadshow.

BMO is the bookrunner.

Proceeds, along with proceeds from an offering of 2.8 million common shares at C$23.35 each, will be used to reduce DirectCash's outstanding senior and bridge debt from the acquisitions of Customers Ltd. in Australia and InfoCash Holdings Ltd. in the United Kingdom.

Calgary, Alta.-based DirectCash is a provider of ATMs, debit terminals and prepaid products.

Biomet bonds better

When Biomet's new 6½% notes were freed for secondary market dealings, a trader quoted the new bonds at 100¼ bid, up a little from the par level at which the orthopedic device market's $1 billion issue had priced.

However, within a few minutes of that quote, he saw the bonds get as good as 101 bid.

A second trader said that "the 101 bid pops up, and keeps getting hit. It's traded about three times there." He pegged the new bonds in a 100 7/8 to 101 1/8 context, "and all of the trades are taking place into a 101 bid in the Street."

Yet another trader, a little after that, saw the bonds go home at 101 bid, 101¼ offered.

Although the proceeds of the new deal are to be used to find a separately announced tender offer for the company's $500 million of 10 3/8%/11 1/8% PIK toggle notes due 2017, there was little trading in those bonds, which were quoted around 106¼ bid.

There was actually a shade more activity in its other existing issues - the 10% fixed-coupon notes due 2017, holding around 106½ bid on volume of about $4 million, a market source said, and its 11 5/8% fixed-coupon notes due 2017, little changed around 1073/4, also on about $2 million to $4 million of trading.

The new Pantry 8 3/8% notes due 2020 and QR Energy 9¼% notes due 2020 priced too late in the session Wednesday for any meaningful aftermarket activity.

Universal moves up

Among the bonds which priced during Tuesday's $1.575 billion primary market session, the clear winner was Universal Hospital Services' 7 5/8% second-lien senior secured notes due 2020.

The Minneapolis-based provider of medical equipment to hospitals and other healthcare facilities priced its opportunistically timed and quickly shopped $425 million issue at par on Tuesday, and a trader gave a late quote that session of 100½ bid, but not much trading was seen.

On Wednesday, though, a trader saw the bonds having firmed smartly to a 101¼ to 101¾ bid context, mostly trading at 101½ bid.

A second trader saw the bonds get even better than that, locating them between 101½ and 102 bid.

Other Tuesday deals firmer

Among the other deals which came to market on Tuesday, a trader said that SPL Logistics' 8 7/8% senior secured notes due 2020 "were doing well too, bracketing 101."

The Peoria, Ill.-based provider of service, parts and logistics - currently a part of construction equipment giant Caterpillar Inc., which is selling a majority stake to private-equity firm Platinum Equity Capital Partner, while retaining a minority stake for itself - priced its $450 million offering off the forward calendar at par on Tuesday, after upsizing it from an original $425 million. Those bonds had traded on Tuesday at bid levels between 100 5/8 and 101. Then late in the day Tuesday, he said, they were bid at 1001/2, 101 offered "and kind of died there."

A second trader saw them in that same context on Wednesday.

St. Louis-based gaming operator Isle of Capri Casinos' 8 7/8% senior subordinated notes due 2020 "traded down this morning." a trader said; he said they hit a 99 7/8 bid "when the equity markets were falling away [earlier in the session] and they moved up a little bit.." He saw them going out trading in a 100 to 100½ bid range.

A second trader saw them trading between 100 1/8 and 1001/2, while at another desk, a trader saw them trading between par and 1001/2.

He noted that the quick-to-market deal, after pricing at par on Tuesday and initially firming to between 100½ and 101 that session, had backed down by the time Tuesday came to a close, falling to bid levels slightly below par.

The first trader also said that he saw "guys trying to find the 7s that are being taken out" - a reference to the company's $357.275 million of 7% senior subordinated notes due 2014; Isle of Capri on Tuesday announced a tender offer for those bonds, to be financed with the proceeds from its new deal plus cash on hand.

Another quickly-shopped Tuesday deal that seemed to lose traction after pricing was Los Angeles-based homebuilder KB Home's 7½% notes due 2022. They had priced at par after being upsized to $350 million from an originally announced $250 million and then eased a little from there. They were quoted late Tuesday at 99¾ bid, 100½ offered.

On Wednesday, a trader said that the bonds opened around a 99¾ to 100¼ context, but later on firmed modestly to 100 1/8 bid, 100 3/8 offered.

"They were basically hugging par" on Wednesday, a second trader said, seeing the bonds trading between par and 100¼ bid. A third trader saw them a little better than that, moving between 100¼ and 100½ on Wednesday.

Junk market firmer

Away from the new deals, a trader said that the overall junk market - which had a softer tone to it on Tuesday - seemed to be a little better on Wednesday, taking its cue from equities, which also seemed to recover a little from Tuesday's across-the-board retreat.

He noted "the equity market was kind of weird today - the Dow was up, while the S&P [500] and the Nasdaq were down." The bellwether Dow Jones Industrial Average broke out of a three-session slump to end up 58.73 points, or 0.47%, at 12,676.05, while the Standard & Poor's 500 eased by 0.03% and the Nasdaq was down 0.31%, the fourth straight drop for both of those indexes.

In Junkbondland, statistical measures of market performance turned mixed on Wednesday, after having been lower across the board on both Monday and Tuesday.

A trader saw the Markit Group CDX North American Series 18 High Yield Index edge up by about 1/16 point - to end at 95 3/8 bid, 95 5/8 offered, after having fallen by ½ point on Tuesday, its third straight loss.

The KDP High Yield Daily Index, though, continued to retreat, moving back by 3 basis points on Wednesday to 73.31. It was the index's fourth consecutive downturn, including Tuesday's 21 bps plunge late in the session.

However, its yield came in by 1 bp to 6.43% - its first narrowing after three straight rises, including Tuesday's 7 bps widening.

The widely followed Merrill Lynch U.S. High Yield Master II Index was off for a third consecutive session on Wednesday, retreating 0,037%. That followed Tuesday's 0.002% loss.

The latest easing left its year-to-date return at 8.24%, down from Tuesday's 8.28% and below Friday's 8.457%, the peak level for 2012 so far. But the index's recent levels remain the strongest they've been since the end of 2010, when the market measure returned 15.19%.

Bonds for sale

The first trader said that he saw "some liquidations from an ETF [exchange-traded fund] of about $100 million bonds up for the bid."

For instance, he saw "names like Samson [Investment Co.] on there - it knocked that market down a good ½ to ¾ point, it tried to recover at the end of the day."

The Tulsa, Okla.-based private energy exploration and production company's $2.25 billion issue, which priced back in early February at par, "was most recently quoted around par bid, although the trader acknowledged that it's "not your everyday kind of trading item."

He said there were a number of such credits, "so they went away."

He continued that overall, "the market kind of firmed up, and I think there's still a fair amount of cash coming into the marketplace that has not been spent."

With those kind of favorable technical conditions, he suggested, "it's hard to see where the market is going to get knocked down unless there's some reversal of the reasons why people have been collecting high-yield bonds - [competing interest] rates are just too low and there's nowhere else to go right now."

There was one caveat, he cautioned - "we're still in the heart of earnings season, so that's going to be a factor in stuff that goes on."

Radio Shack gets run down

A case in point would be Radio Shack, whose 6¾% notes due 2019 got hammered down about 8 or 9 points into the mid-60s, after the Fort Worth Tex.-based operator of the ubiquitous and eponymous consumer electronics retail chain reported a surprise loss for the second quarter ended June 30.

"They took a big dive," a trader said, seeing the bonds ending at 66 bid - a full 9 points lower on the session.

"They were in pretty big," he added, noting that previously, the bonds had been trading in the middle 70s, "and now they're in the mid-60s."

Volume was more than $8 million, making the notes one of the busier junk issues on the day.

A second trader also said the bonds traded down to the 65-66 range.

"There's a lot of trading in the equity versus the bond - that arbitrage is going on."

Radio Shack's New York Stock Exchange-traded shares got clobbered as badly as the bonds did, falling as much as 32.6% during the session before ending down $1.05, or 28.77%, at $2.60. Volume of 14.7 million shares was four times the norm.

The bonds and shares slid after the company posted a surprise second-quarter loss of $21 million, or 21 cents per share, versus its year-earlier profit of $24.9 million, or 24 cents per share. While Wall Street was expecting a considerable decline from year-ago results, it did not expect such profound deterioration - analysts on average had been expecting a profit for the quarter of around 2 or 3 cents per share.

Revenues actually increased on a year-over-year basis, to $953 million in the latest quarter from about $942 million a year ago, but still fell below expectations of around $968 million.

"It's a company that's having a hard time of it - its business, especially in the mobile space, is vanishing," one of the traders opined, as the major wireless carriers like Verizon, AT&T and Sprint continue to open their own company stores to sell subscribers phones and phone service, or else do it increasingly online rather than through old-line traditional brick-and-mortar third-party stores like Radio Shack.

"It kind of takes away a lot of their reasons for existing," he added.

"I hate to say it - but nobody sees a bright spot where they're going to improve their business model."

He noted that the company is "sitting on a lot of cash" - it finished the quarter with some $517 million of cash and cash equivalents on its balance sheet - "but you take out that convert [its $375 million of 2½% convertible notes due in August 2013] and there's not much left, and their business is just not growing."

During the company's conference call following the release of its second-quarter numbers, company executives said they would refinance half of the convertible issue in the next month or so rather than leave it until next year.

They also said Radio Shack has "very strong" liquidity of over $900 million - and they announced plans to suspend their 50 cent-per-share stock dividend, saving about $49 million per year, some of which will be earmarked for debt paydowns (see related story elsewhere in this issue.)

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