Rural/Metro prices; Ducommun, AMC deals hold gains; Southern Union pops, but Williams drops

By Paul Deckelman and Paul A. Harris

New York, June 24 - Rural/Metro Corp. priced a $200 million offering of eight-year notes on Friday to close out a not-particularly busy week in the high-yield primary, although new issue activity clearly picked up from last week, one of the year's slowest. The ambulance and fire protection services provider's new issue was seen by traders holding at or a little above its par pricing level.

In contrast, deals priced earlier in the week by AMC Networks Inc. and Ducommun Inc. continued to trade at a healthy premiums to their respective issue prices.

The primaryside forward calendar fattened, with syndicate sources hearing new deals being launched by energy operator Saratoga Resources, Inc., healthcare clinical and consulting services provider inVentiv Health and defense contractor SRA International.

Away from the new deals, traders saw Southern Union Co.'s bonds better on the news that would-be suitor Williams Cos. had made an unsolicited offer for the pipeline firm, topping a previous bid by Energy Transfer Equity LP. But the news had the opposite effect on Williams' paper.

Sino-Forest Corp. bonds were seen up by several points, investors apparently mollified a little by hedge fund billionaire John Paulson's declaration that his hedge fund had done thorough due diligence on the embattled Canadian-Chinese timber company before taking a sizable equity stake.

NewPage Corp.'s bonds - especially its first-lien secured paper - continued to erode, as the deadline for making a big interest payment on the latter bonds edged ever closer, with still no word from the company on whether that interest payment will be made.

The overall junk market was softer, with key performance indicators lower on the session as well as down on the week.

Rural/Metro prices

The Friday primary market featured a single deal.

Rural/Metro Corp. priced a $200 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 10 1/8%.

The yield printed at the wide end of the 10% area price talk.

The deal appeared to go well, according to a source from a high-yield mutual fund, who added that although Rural/Metro priced at the wide end of talk, that talk had tightened from early guidance of 10% to 10¼%.

Citigroup Global Markets Inc. was the left bookrunner for the debt refinancing deal. Credit Suisse Securities (USA) LLC and Jefferies & Co. were the joint bookrunners.

$2.81 billion week

With Rural/Metro in the tally, the June 20 week closed having seen $2.81 billion of dollar-denominated junk bonds price in eight tranches.

Although it eclipses the previous week's $1.45 billion in six tranches, the most recent week turned out the third lowest weekly total of 2011 to date, the lowest being the week of Feb. 20 which saw $1.05 billion in four tranches.

In spite of two consecutive weeks of below-normal issuance, year-to-date issuance to Friday stood at $189.1 billion in 426 tranches, vastly out-pacing the $116.8 billion that had priced in 276 in the history-making year of 2010, to the June 24 close.

Light week ahead

The new issue market remains active despite continued volatility in the global capital markets and an exodus of cash from the asset class as reflected by a record-setting $3.43 billion outflow from the high-yield mutual funds during the most recent week, sources say.

"Let's face it, the new issue market is quieter than it should be right now," a banker said.

"After all, this is late June, not August. And June is usually an active month in the high yield."

Even though the week ahead gets underway with a $2.7 billion active forward calendar, sell-side sources anticipate that the slowness of the past two weeks will continue into the week ahead, with the approach of the three-day Independence Day holiday weekend, as players take advantage of the slowness by spending vacation time.

However after the Independence Day weekend volume ought to increase significantly, sources say.

"We have a decent pipeline of deals for after the Fourth," a sell-sider said on Friday.

"All we need is some stability in the market in order to bring them."

inVentiv to start marketing

inVentiv Health, Inc. will begin a roadshow on Monday for a $390 million offering of eight-year senior notes (Caa2/CCC+).

The deal is expected to price late in the June 27 week.

Bank of America Merrill Lynch, Citigroup Global Markets, Jefferies & Co. Inc., Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Wells Fargo Securities LLC are the joint bookrunners for the acquisition financing.

Saratoga launches five-years

Saratoga Resources Inc. launched a $125 million offering of five-year senior secured notes on Friday.

A roadshow is scheduled for the June 27 week, beginning in New York.

The non-rated deal is set to price shortly after the July 4 weekend.

Imperial Capital is the bookrunner for the debt refinancing.

Rural/Metro firms from issue

When the new WP Rocket Merger bonds being issued as part of the Rural/Metro acquisition were freed for secondary dealings, a trader quoted them as having broken at par bid, 101 offered, versus the par level at which the Scottsdale, Ariz.-based ambulance services provider's $200 million deal had priced earlier.

However, another trader said that the bonds "did pretty well," quoting them as high as 100¾ bid, 101¼ offered at the end of the day.

Ducommun, AMC do well

Among issues which priced earlier in the week, a trader said that Carson, Calif.-based aerospace and defense contractor Ducommun's 9¾% notes due 2018 "continued to do well," quoting the $200 million issue at 102½ bid, 103¼ offered - well up from Thursday's par issue price.

Another trader said the bonds were at the 102½ bid, 103½ offered level, "and maybe even higher than that."

Bethpage, N.Y.-based AMC Networks' new 7¾% notes due 2021 continued to hang on to most of the gains they notched after the $700 million offering priced at par on Tuesday.

A trader saw those bonds at 101¾ bid, 102¼ offered on Friday afternoon.

Proceeds from the new debt will go towards the company's spinoff from Cablevision Systems Corp.

Indicators off on day, week

Away from the new-deal arena, statistical measures of market performance, off on Thursday, remained on the downside on Friday, and showed losses for the week as well.

A trader saw the CDX North American Series 16 HY Index down by 9/16 of a point on Friday, closing at 99 7/16 bid, 99 9/16 offered. That followed Thursday's half-point fall.

The index also ended down about ¼ point from the levels it held at the end of the previous week, on June 17.

The KDP High Yield Daily Index lost 4 basis points for a second consecutive session on Friday to finish at 74.72. Its yield edged up by 1 bp for a second straight day to close at 6.99%,

That left the index below its close at 74.96 the previous Friday, when its yield was 6.93%.

And the Merrill Lynch High Yield Master II Index showed a loss for a second straight session on Friday, inching down by 0.009%, on top of Thursday' 0.133% retreat. That left its year-date return at 4.324%, down from Thursday's 4.333% and well down from its year-to-date peak level of 6.071%, which was reached on May 20.

On the week, the index lost 0.15% - its fifth consecutive weekly decline.

A trader said that there was "not a ton of activity," and a second called Friday's session "kind of a blah day."

At another shop, a trader said "there wasn't anything too dramatic going on. I would say the market on the whole, for most of the day, was kind of unchanged."

He said there was no huge market reaction to Thursday's extremely huge $3.43 billion high yield mutual funds net outflow, reported by AMG/Lipper, even though it was the fourth consecutive cash bleed from those funds, which are seen as a reliable proxy for overall market liquidity trends.

"I guess people had anticipated the big outflow," given the way the junk market had been behaving, "so that wasn't a huge surprise for people."

He himself had also seen estimates that the outflow would dwarf the $1.6 billion outflow reported the previous week, including predictions that it would top $2 billion or even more than $2.5 billion.

"It came even higher than that - but the damage had already been done" in terms of market expectations of a historically large outflow.

With no one really shocked, or even much surprised by the big outflow, he said that in Friday's dealings, "for the most part, stuff was unchanged to maybe a tad weaker. But there was nothing too dramatic."

Southern Union seen better

A trader said that Southern Union's 7.20% long bonds due 2066 were trading inside of a 93½ bid, 94 offered context, which he pegged as up 2 points on the session, helped by the news that Williams Cos., the big Tulsa, Okla.-based natural gas company had made an unsolicited $4.86 billion all-cash bid for the Houston-based pipeline operator, trumping a $4.12 billion share-swap plan proposed by Energy Transfer Equity LP.

He said that the bonds "had been drifting down" over the past few sessions on apparent investor resignation to the likelihood of Energy Transfer's offer being accepted.

A second trader said that news stories indicated that the Williams bid would be better for the shareholders than the Energy Transfer arrangement.

But the first trader said that the prospect of Williams spending a major chunk of money for Southern Union had a negative impact on Williams' bonds; he saw its 7½% notes due 2031 down 7 points on the day, in brisk trading, to around the 118 level, after having been above 125 bid pre-news.

Sino-Forest surges back

In other names, a trader said that Sino-Forest paper "seemed to be something that's active" on Friday, at higher levels.

He said that the embattled Canadian-Chinese timber producer's 9 1/8% notes slated to come due on Aug. 17 were going out around 85 bid, which he called a 5-point rise on the day. The 10¼% notes due 2014 traded at 50 bid, 52 offered, which he said was also up 5 points, as were the 6¼% notes due 2017, at 48 bid, 50 offered.

"They were all up 5 points," he declared, presumably given a boost on the news that savvy stock picker John Paulson - whose Paulson & Co. hedge fund, Sino-Forest's largest investor, sold its 12.5% stake in the company this week - said in a letter to the clients that that his firm had done ample and thorough due diligence on the company before investing in it.

Even though Paulson no longer owns any of the stock, having bailed out after massive losses posted over the last three-plus weeks, those assertions that the hedge fund had done its homework and had thoroughly vetted Sino-Forest's bona fides before putting as much as a dime into it would be potentially reassuring news to jittery bond holders who have been absolutely spooked by the recent allegations of fraud leveled against the company by short-seller Carson Block's Muddy Waters LLC investment firm in a devastating negative research piece released on June 2.

After that report hit the screens and began to circulate in the market, the bonds were savagely hammered down to their current badly depressed levels - quite a comedown from their levels near or even above par across the board before the whole mess began.

The trader also saw Sino-Forest's busted convertible notes up "somewhere in a 3 to 4 point range," with the 5% converts due 2013 at 47 bid, 49 offered and its 4¼% converts due 2016 at 43 bid, 45 offered.

He said "that "early this morning, [all of the bonds] were up a couple of points, the first thing."

Even with Friday's Paulson pop, though, he said the whole Sino-Forest debacle remains "ugly. "Fraud is not a good thing."

A second trader called the 61/4s "a good bit better" on the day, trading around 50. He called that up 6 to 7 points.

At another desk, a trader said the issue popped up over 3 points to around 48. However, he said the 10¼% notes due 2014 a point weaker around 51.

The carnage seen this month in the company's bonds has been replicated in the vicious beating the market has inflicted upon Sino-Forest's shares, despite the company's vehement denials of Muddy Waters' fraud allegations.

And on Friday, the beat went on, with shareholders not terribly reassured by Paulson's defense of his investment rationale and disheartened further by his gloomy assessment that the stock will "remain depressed for an extended period of time, even if the investigation clears management."

Sino-Forest's Toronto Stock Exchange traded shares fell by 31 Canadian cents, or 10.65%, to C$2.60 on Friday, on about normal volume of 6.8 million shares. While the stock has now recovered to a level double the C$1.29 low that it hit in the wake of the news earlier this week that Paulson & Co. was dumping its shares after having sustained hundreds of millions of dollars of losses on its investment, those shares are still down more than 85% from their level of C$18.21 at the close on June 1, the day before the damaging Muddy Waters screed against the company was released.

NewPage knock-down continues

Elsewhere, a trader said that NewPage's 11 3/8% first-lien senior secured notes due 2014 "has been coming in a little bit," and saw the bonds as low as 89 to 89¾ offered on Friday - down from prior levels in the lower 90s. "They've just slowly been coming in" amid all of the mounting investor angst over whether the Miamisburg, Ohio -based coated-paper manufacturer will able to make the scheduled $100 million coupon interest payment on those bonds that is due on June 30.

With the due date just days away, NewPage has not indicated whether it plans to make the payment as scheduled - and if so, where it would get the funds to do so - or, alternatively, if it plans to not make the payment and invoke the standard 30-day grace period while it seeks an accommodation with bondholders and lenders. NewPage has not responded to e-mails or phone calls from Prospect News seeking a clarification.

The trader saw the first-lien bonds last at 89, with over $46 million of them trading, making it the busiest issue in Junkbondland on Friday. He saw NewPage's 10% second-lien secured notes due 2012 last trading at 26¾ bid, on volume of over $14 million. The second-lien notes trade many dozens of points behind the first-lien paper on investor realization that the company's assets are not sufficient to cover both in the event of a restructuring.

He observed that "a lot of the high volume that you see on Trace right now is these kind of CCC, or 'Things-Blowing-Up' names." He described this as "basically, stuff under 90 - or around 50ish. Those seem to be the big-volume names trading and the rest of the stuff are just 1s or 2s."

A second trader said that "a boatload of NewPage paper had traded; he saw the 11 3/8s ending at 88¼ bid, 89¼ offered, "down a couple [of points] on a lot of volume."

He saw the 10s at 25½ bid, 26½ offered, "down a couple as well," also on a decent amount of trading.

Another trader said that NewPage "continues to be active," seeing the 11 3/8s down a point, trading between 89 and 90 versus 901/2-91½ the previous session.

He remembered that "way back in February, I thought that the 11 3/8s could get through this whole process unscathed - but I'm not so sure now. They may be able to - but I'm not sure."

He also saw the 10s down around 26, and the really junior ones" - the 12% notes due 2013 - in the single digits.

He speculated that in the event of a default and subsequent restructuring - in or out of court - the holders of the latter bonds "might get some warrants, or something." He saw holders of the 10% paper getting "most of the equity", while the holders of the most senior issue, the 11 3/8s "will just get reinstated, as they are, if things work out really well, and if not, they'll get some kind of new debt instrument. "

A trader said that NewPage sector peer Catalyst Paper Corp.'s bonds were down by several points, seeing its 7 3/8% notes due 2014 at 59 bid, 62 offered, while the Richmond, B.C.-based paper manufacturer's 11% senior secured notes due 2016 were at 85 bid, 87 offered, also down by several points.

"A lot of things were heavy today," he said.

Cara stronger

Also north of the border, Cara Operations Ltd.'s 9 1/8% notes due 2015 rose ¼ point in trading on Friday and have traded stronger since the notes priced in November.

A market source quoted the notes at 103¾ bid, 104¾ offered, up from 103½ bid, 104½ offered the previous day.

The Vaughan, Ont.-based full-service restaurant operator - Canada's biggest - sold C$200 million of the notes at par last Nov. 24.

Newalta holds

Newalta Corp.'s notes, also sold in back November, traded slightly lower on Friday but are also much stronger since the original issue priced.

The Calgary, Alta.-based industrial waste management and environmental services company's 7 5/8% senior notes due 2017 fell slightly in trading on Friday to 104½ bid, 105½ offered from 104¾ bid, 105¾ offered on Thursday, according to an informed bond source.

The company sold C$125 million of the notes at par last Nov. 18.

Stephanie N. Rotondo and Cristal Cody contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.