Valeant, MEMC, Jo-Ann Stores price; new Jo-Ann, Perry Ellis hot, Jones is not; funds gain

By Paul Deckelman and Paul A. Harris

New York, Mar. 3 - The high-yield primary market saw a considerably less busy session on Thursday than on Wednesday, but still managed to pump out more than $2 billion of new paper, most of it coming from Canadian drugmaker Valeant Pharmaceuticals International, which priced a two-part $1.5 billion offering of five-year and 11-year bonds.

But when that megadeal hit the secondary market, as one trader said, "it didn't really go anywhere."

Also pricing during the session was a $450 million offering of eight-year notes from retailer Jo-Ann Stores, Inc. and an upsized $550 million tranche of eights from high-tech components manufacturer MEMC Electronic Materials, Inc. The latter offering came to market too late for any kind of secondary trading, but the new Jo-Ann Stores issue traded well in the aftermarket.

Traders also saw Wednesday's offering from fashion house Perry Ellis International, Inc. trading at very stylish levels, while sector peer Jones Group's new bonds seemed to have been consigned to the bargain-basement bin.

Price talk surfaced on deals from JMC Steel Group, Inc. and shipbuilder Huntington Ingalls Industries, Inc. These are expected to price on Friday, while risqué restaurateur Hooters hits the road to interest investors in its $165 million offering of secured debt.

On the European continent, Italian automaker Fiat Industrial SpA and French alcoholic beverage dispenser Pernod Ricard SA were heard to be exploring possible bond offerings.

Back in the domestic secondary market, traders said that investors were mostly focused on the new deals, although negative developments on the ratings front pushed photo technology giant Eastman Kodak Co.'s bonds lower.

But statistical market measures strengthened, while high-yield mutual funds - considered a key indicator of overall junk market liquidity trends - continued to attract new investor money in the latest week.

Junk funds gain $131 million

After the session's activity had wound down, participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, some $131 million more came into those funds than left them.

According to a Prospect News analysis of the figures, it was the 13th consecutive cash injection, on top of the $492 million inflow seen the week ended Feb. 23. During that stretch, dating back to Dec. 8, $7.714 billion of net inflows have come into the junk market, according to the analysis.

On a year-to-date basis, 2011 net inflows have now totaled some $5.661 billion, according to the analysis, with cash infusions seen in each of the year's nine weeks so far, against no outflows yet.

That extends the strong inflow trend seen in 2010, when some $10.67 billion more came into the funds than left them, and inflows were seen in 37 weeks, against just 15 weeks experiencing outflows.

EPFR sees $335 million inflow

Another fund-tracking service, Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG, meantime reported a $335 million inflow in the latest week, which followed the previous week's $973 million gain.

It was also the 13th consecutive weekly inflow by EPFR's calculation.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals, although the two services' numbers generally point toward the same trends, EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds. Its year-to-date net inflow total now stands at some $13.9 billion.

Cumulative fund-flow estimates, whether from Lipper/FMI or EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though quantifiable, percentage of the total amount of money coming in - fueled the record new deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years. Both of those trends have been continuing on in 2011 as well.

Valeant prices $1.5 billion

Four issuers brought a combined five tranches of junk and raised $2.49 billion on Thursday.

Canada's Valeant Pharmaceuticals priced $1.5 billion in two tranches of senior notes (Ba3/BB-/).

The deal included $950 million of five-year notes, which priced at par to yield 6½%, and $550 million of 7¼% 11-year notes, which priced at 98.125 to yield 7½%.

Initial guidance on the five-year notes was 6¼%, according to a bond trader from a high-yield mutual fund.

Initial guidance on the 11-year notes was 7¼%, the trader added.

Goldman Sachs & Co. was the bookrunner.

The proceeds will be used to prepay the amounts outstanding under the company's term loan A facility, to finance the redemption of 4% convertible subordinated notes due 2013, to fund the $275 million repurchase of the parent company's common shares from ValueAct Capital Master Fund, LP and for general corporate purposes.

MEMC upsizes

South of the 49th parallel, MEMC Electronic priced an upsized $550 million issue of eight-year senior notes (B1/BB) at par to yield 7¾% on top of the price talk.

Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and Goldman Sachs & Co. were the joint bookrunners for the issue, which was upsized from $500 million.

The St. Peters, Mo.-based company plans to use the proceeds for general corporate purposes. These would include working capital, capital expenditures and the construction of solar power projects, as well as acquisitions, investments, strategic transactions and joint ventures.

Jo-Ann in middle of talk

Finally, Jo-Ann Stores priced a $450 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8 1/8%, in the middle of the 8% to 8¼% price talk.

J.P. Morgan Securities LLC, Bank of America Merrill Lynch and Barclays Capital Inc. were the joint bookrunners for the LBO and general corporate purposes deal.

The triple-hook trade

The new Jo-Ann Stores 8 1/8% notes due in 2019 were par½ bid, 101 offered, about an hour after the New York close, according to a high-yield mutual fund manager who owned to playing the deal for the flip.

"When they first started talking about the deal, the discussions were in the 8½% yield-range," the manager said, adding that it didn't take long for discussions to move down to the 8¼% context, and ultimately to the 8% to 8¼% final price talk.

Noting that the buyside needs to become invested, the manager said that sequences of calls from bond salesmen, which move yields lower and lower, are typically greeted by responses of, "Well, I still care, but I don't like it."

Noting the triple C ratings on both sides of the split, the investor recalled Tuesday's $400 million issue of senior notes due in 2019 (Caa1/CCC+/) from J. Crew Corp. It priced at par and also yielded 8 1/8%.

"You're supposed to be compensated for playing this sector, but right now Treasury risk is trumping credit risk," the manager said, adding that the yield on the 10-year Treasury has move up between seven basis points and 11 bps during the past two days.

"People came back from the JP Morgan conference in a good mood and ready to buy," the investor said, referring to JP Morgan Global High Yield & Leverage Finance Conference, which concluded on Wednesday.

"The companies that reported at the conference were upbeat, and it looks like Qaddafi might not drive the U.S. economy back into recession single-handedly after all.

"Besides, the calendar has been light - in part because of the JP Morgan conference. And cash keeps coming in, which people have to put to work."

Having mentioned "cash," the buysider noted that the latest Lipper-AMG number, $131 million of inflows to the high-yield mutual funds for the week to Wednesday, is somewhat thin in comparison with recent flows. Last week saw $492 million while the previous week was $375 million.

Huntington $1.175 billion

Huntington Ingalls Industries set price talk for its $1.175 billion two-part offering of senior notes (Ba3/B+/BB) on Thursday.

A tranche of 10-year notes is talked with a 7% to 7¼% yield.

Meanwhile a tranche of seven-year notes is talked to price 25 basis points inside of the 10-year notes.

The tranche amounts are expected to be set in roughly equal sizes.

The books close at 11 a.m. ET on Friday, and the deal is set to price thereafter.

Credit Suisse Securities, J.P. Morgan Securities LLC, RBS Securities Inc. and Wells Fargo Securities are the joint bookrunners.

The deal is expected to be a blowout, according to a buyside source who said that the word on the Street is that Huntington Ingalls is playing to a $6 billion order book.

JM Steel price talk

Meanwhile, JMC Steel talked its $725 million offering of seven-year senior notes (B3/B) with a yield in the 8½% area.

The Rule 144A for life deal is expected to price mid-morning on Friday.

J.P. Morgan Securities LLC has the books.

Proceeds will be used to help fund the Zekelman family's acquisition of a controlling stake in the company from the Carlyle Group.

Initially the order book was expected to remain open into Friday morning, according to an investor, who added that demand for the bonds apparently prompted the dealers to close shop early.

Hooters roadshow on Friday

The forward calendar saw a modest build on Thursday.

Hooters Restaurants will begin a roadshow on Friday for a $165 million offering of six-year senior secured notes (expected ratings B3/B).

The roadshow wraps up on March 11.

Jefferies & Co. is the bookrunner for the debt refinancing deal.

Investor meetings in Europe

Turning to Europe, Fiat plans to host a conference call with fixed-income investors on Friday.

The call, trailing a week of meetings in Europe, could result in a debt capital markets deal, pending market conditions.

Banca IMI, Barclays Capital, BNP Paribas, Credit Agricole CIB, Citigroup, Royal Bank of Scotland, SG CIB and UniCredit have organized the meetings and call.

Meanwhile, French spirits distiller Pernod Ricard will kick off investor meetings on Monday in Paris.

Subsequent meetings are set to take place in other European cities during the week ahead.

Those meetings could lead to a bond deal.

Credit Agricole CIB, Santander, Royal Bank of Scotland, ING and Mediobanca are leading the meetings.

Jo-Ann jumps in secondary

When the new Jo-Ann Stores eight-year notes were freed for secondary dealings, a trader said that the Hudson, Ohio-based specialty retailer's issue "did all right," quoting those bonds at 101 bid, up from their par issue price.

Two other traders saw the new bonds at 101 bid, 101½ offered.

Valeant stays near issue

On the other hand, a trader saw Valeant Pharmaceuticals International's big new two-part issue up just slightly from the levels at which the Mississauga, Ont.-based drug company's deal came to market earlier in the session.

He quoted its 6½% notes due 2016 at 100½ bid, 100¾ offered versus the $950 million tranche's par issue price and saw its $550 million of 7¼% notes due 2022 at 98¼ bid, 99 offered versus a 98.125 pricing level.

A second trader queried a little later saw the 61/2s at 100½ bid, 101 offered, while the 71/4s were at 98½ bid, 99 offered.

At another shop, a trader said that Valeant's deal "didn't really go anywhere." He saw the six-year bonds up ½ of a point, to 100½ bid, while with the 11-years, "we can be generous and say they were up ¼ of a [point]."

"They clearly outperformed Jones [Group] from [Wednesday], but they didn't exactly run to the upside."

Jones fizzles...

Those Jones Group 6 7/8% notes due 2019 notes meantime continued to underperform the other recent new deals, with a trader seeing them languishing at 98 5/8 bid, 99 offered, well down from the par price at which the New York-based apparel designer and marketer's $300 million driveby issue had priced on Wednesday.

"I guess no one wants to keep up with the Joneses," the trader quipped.

Another trader saw the bonds around 99 "all day today, back a little, but still not doing anybody any favors.

A third quoted the bonds at 99 bid, 99¼ offered.

... while Perry Ellis sizzles

But while the Jones bonds were decidedly unfashionable on Thursday, it was quite another story for another clothier, which had done a quickly shopped deal on Wednesday, Miami-based Perry Ellis International.

That company's $150 million of 7 7/8% notes due 2019, which had priced at par too late in the day Wednesday for any aftermarket activity, "did very well," said a trader who saw the new notes going home bid at 1023/4.

However, it was difficult to see a two-sided market on the Perry Ellis issue since "the offers were few and far between," he said.

Another trader saw them at 102¼ bid, but also had not seen any right-side levels.

A third company out of that same apparel sector came forward with a bond deal this week. New York-based J. Crew's 8 1/8% notes due 2019 hung in at 99¾ bid, par offered, just under the par level at which that $400 million offering priced on Tuesday.

But the first trader said that "Perry Ellis was clearly the star of the three, there's no question."

Key Energy stays up there

Most of the other new deals pricing on Tuesday or Wednesday, including Level 3 Communications, Inc., Windstream Corp., Consol Energy, Inc. and Isle of Capri Casinos, Inc., remained at or just slightly above the respective levels at which their deals priced.

However, traders said that Houston-based oilfield services operator Key Energy Services, Inc.'s 6¾% notes due 2021 continued to hold at least 1 full point above the par level where its upsized $475 million deal priced on Tuesday.

Likewise, Oklahoma City-based oil and gas exploration and production company SandRidge Energy Inc.'s upsized $900 million of 7½% notes due 2021 were seen by a trader at 101¼ bid. 101¾ offered, while a second saw the bonds even better, trading at 101½ bid, 102 offered, well up from Wednesday's par pricing level.

Secondary indicators firm up

Away from the new deal world, a market source saw the CDX North American Series 15 HY index up 3/8 of a point on Thursday to finish at 103 7/8 bid, 104 1/8 offered, after having lost 3/16 of a point on Wednesday.

The KDP High Yield Daily index meantime rose by 1 basis point on Thursday to end at 75.97, after having eased by 2 bps on Wednesday. Its yield came in by 1 bp to 6.62%, after having risen by 2 bps on Wednesday.

The Merrill Lynch High Yield Master II index gained 0.054% on Thursday, in contrast to its 0.014% retreat on Wednesday. That lifted its year-to-date return to 3.631%, a new peak level for 2011 so far, up from Wednesday's 3.576% and up also from the previous zenith, Tuesday's 3.59% reading.

Advancing issues led decliners for a fifth straight session on Thursday by the same roughly six-to-five margin seen on the previous two days.

Overall market activity, as measured by dollar-volume levels, rose by 26% on Thursday, after having fallen by 24% on Wednesday from the previous session's activity level.

Kodak eases with downgrade

Among specific issues, a market source said a downgrade of Eastman Kodak was "completely expected," as the company has been "burning more cash" after its most recent disappointing earnings report.

Still, the source said, "We've tended to be buyers of some of the shorter-dated paper."

Another trader said the news of the downgrade from Moody's Investors Service "didn't stir up a lot of trading," but added that the bonds were losing ground.

He saw the 7¼% notes due 2013 trade at 95 versus 95½ bid, 96½ offered previously.

"They're probably no better than 94 bid now," he said.

Another trader said the debt "continues to drift down," seeing the 7¼% notes around that 95 level. He called that 1 point to 1½ points weaker on the day.

At another shop, the bonds were being quoted at 95¼ bid, off by 1 point.

Moody's dropped Kodak's long-term credit rating to Caa1 from B3 and gave the credit a negative outlook. The ratings agency attributed its action to ongoing weakness in the Rochester, N.Y.-based digital camera and photographic film company's core business operations.

On Wednesday, news outlets reported that Investment Partners Asset Management was looking to Kodak shareholders Legg Mason Capital Management and Fidelity Management, which own a total of about 24% of the company's equity, to take a more active role in the company's turnaround by bringing in a turnaround specialist or forcing a sale.

Also on Wednesday, Kodak said it completed the acquisition of substantially all of the assets of the relief plates business of Tokyo Ohka Kogyo Co., Ltd.

ATP hangs onto gains

A trader said that ATP Oil & Gas Corp.'s bonds were trading around the 104 7/8 level, up marginally from the 104½ round-lot close seen on Wednesday.

Those high levels, in turn, were about where the bonds had risen to on Tuesday, helped by the news that a federal judge had ordered the Obama administration to process two requests by the Houston-based energy exploration and production company's to resume deepwater drilling in the Gulf of Mexico. The drilling had been suspended by Washington after last April's big Deepwater Horizon oil-rig disaster 70 miles off the Louisiana coast, which led to the underwater blowout of a well that BP plc and Anadarko Petroleum Corp. were drilling.

The news of the court order on Tuesday by New Orleans federal district judge Martin Feldman, coupled with the Department of the Interior's announcement that it had granted ATP sector peer Noble Energy Inc.'s request to resume its suspended drilling - the first such drilling resumption since the original accident - had caused the ATP bonds to shoot up to the 1041/2-105 level from prior levels around 101-102.

But a trader said that while the bonds had risen in Tuesday's dealings, that was about it; the bonds had essentially made their move and would stay around those new levels, barring any fresh new news developments.

AES Eastern rebound continues

AES Eastern Energy LP's bonds, which have been moving up from recent lows after they were hammered down earlier in the week, "bounced a couple of points again" on Thursday.

A trader saw its 9% notes due 2017 at 77 bid, 78 offered.

At another shop, a market source pegged those bonds up 1 7/8 points on the day at 78 bid.

The company's bonds fell earlier in the week after parent AES Corp. took a big charge against its earnings after writing down its investment in the New York State-based subsidiary and said that it would look to sell its four coal-fired plants.

AES' chief executive officer, Paul Hanrahan, said that those plants, which sell power under short-term contracts and on the spot market, would be better owned by a closely held company rather than AES, a public company with far-flung operations in 29 countries.

AES wrote down the value of AES Eastern by $827 million, contributing to the parent's slide into the red in the fourth quarter, when AES suffered a net loss of $169 million, or 56 cents a share, versus year-earlier net income of $283 million, or 7 cents per share.

The company cited falling power prices, prospects for lower prices and a recent credit-ratings cut for the unit by Standard & Poor's, which slashed the unit's rating to B- from B+ in late January. The agency, at that time, cited increased pressures on AES Eastern Energy's credit profile due to a change in hedging policy that had increased its merchant exposure as well as the decline in market prices since the fourth quarter of 2009 and declining debt service coverage.

"They had their conference call for earnings and there was a lot of discussion on what's going to happen to these plants," he said, "so that was part of it, clearly."

The 9s fell as low as 70 bid on Monday before starting to come back in the subsequent session.

Its 9.67% notes fell into the upper 60s on Monday, but then had bounced back to around 74 bid by Tuesday on short-covering after the overdone drop, another trader said.

The first trader said that the 9.67s were also better on Thursday "in sympathy, they'll trade up with the 9s."

Solo slide turns around

Another recently busy name seen on the rebound Thursday was Solo Cup Co., with a trader seeing its 8½% notes due 2014 ending around 85 bid, which he called up 1 point on the day on "decent volume."

He said that the bonds of the Lake Forest, Ill.-based maker of paper and plastic cups, plates and utensils were "bouncing back up, a little bit," after several consecutive sessions on the downside, which saw the bonds fall into the lower 80s from prior levels north of 90, on no real news.

A second trader said that Solo "did bounce a little" on Thursday, quoting them at 85 bid, 86 offered.

A market source elsewhere estimated that the bonds were up 1½ points on the day at 85½ bid.

NewPage heads north

A trader said that NewPage Corp.'s 10% notes due 2012 - very active on Wednesday and up by a point or more, although on no news - "added another point today on very heavy volume here and away."

He saw the Miamisburg, Ohio-based papermaker's issue at 70 bid at the close versus levels in the high 60s on Wednesday.

He saw NewPage's 11 3/8% senior secured notes due 2014 still in a par-100½ context, noting that those bonds "aren't going to move like the 10s," which he said was "the go-go name" for the paper company.

Another market source quoted the 10s at 69½ bid, up 1½ points on the day.

Brisk autosphere activity

A trader said that the benchmark 8 3/8% bonds due 2033 of Motors Liquidation Co. - the company formerly known as General Motors Corp. - "had a pretty good, active day" volume-wise, although he saw the bonds ending at 32 bid, 32¾ offered, unchanged on the day.

Another trader saw the benchmarks at 32½ bid, 33½ offered and called them up a point, while seeing GM domestic archrival Ford Motor Co.'s 7.45% bonds due 2031 ¼ of a point better on the day at 108¾ bid, 109¾ offered.

Stephanie N. Rotondo contributed to this report

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