Upsized Cequel deal prices, Viasystems coming; new deals hold own; secondary mostly softer

By Paul Deckelman and Paul A. Harris

New York, Oct. 30 - The last trading session of October on Friday saw the pricing of an upsized junk bond offering from Cequel Communications Holdings I, LLC. The St. Louis-based cable operator's new bonds traded around their issue level when they were freed for secondary dealings.

Around issue, or somewhat above it, was also where some of the bonds which priced on Thursday or earlier in the week were seen on Friday, such as Reynolds Group's new offering of seven-year senior secured notes. However, other new credits, such as Berry Plastics Escrow LLC/ Escrow Corp.'s paper from Wednesday's session, were seen a little below their issue levels.

Elsewhere on the new-deal front, syndicate sources heard that Viasystems Inc.'s anticipated offering of senior secured notes is expected to price early in the upcoming month of November.

Junk marketeers meantime were looking forward to other deals pricing during the first week of the new month, including Colt Defense LLC, Cott Beverages Inc., General Maritime Corp. and Netfix, Inc.

In the secondary market, the big slide in stocks, along with an overall lack of interest, with everyone focused on this past week's busy new-issue calendar, various sporting events and even Halloween, among other distractions, helped bring on a down market. Traders said there was some activity in CIT Group Inc., amid the news that the troubled New York-based commercial lender and its top bondholder, billionaire investor Carl Icahn, had finally buried the hatchet, but they said that it was mostly in small odd-lot pieces, showing no conviction, as investors took a wait-and-see approach to the latest developments.

Meanwhile the primary market passed a quiet session with just one deal pricing.

Cequel massively upsized

Cequel Communications Holdings I, LLC and Cequel Capital Corp. priced an upsized $600 million issue of 8 5/8% eight-year senior unsecured notes (B3/B-) at 98.58 to yield 8 7/8% on Friday.

The notes priced at the tight end of the 8 7/8% to 9 1/8% price talk. The deal was increased from $400 million.

Goldman Sachs & Co., Credit Suisse and J.P. Morgan Securities Inc. were joint bookrunners.

The St. Louis-based cable company will use the proceeds to repay bank debt.

The new Cequel 8 5/8% notes due 2017 were straddling issue price, trading in the context of 98¼ bid, 98¾ offered not long after the final terms of the deal were circulated, according to a Mid-West investor, who commented that the deal appeared to have been fully priced.

The investor, reflecting that Cequel chief executive officer Jerry Kent formerly served in the same capacity for Charter Communications, claimed to be watching Friday's Cequel deal from the sidelines.

$5 billion week

With the Cequel deal clearing on Friday, the final week of October came to a close having seen $5.18 billion proceeds of global issuance of dollar-denominated, junk-rated bonds in 13 tranches.

Nearly one-quarter of the week's issuance came in the form of Reynolds Group's new 7¾% senior notes due in 2016 (B1/BB/), which priced Thursday at 98.695 to yield 8%, in tranches of $1.125 billion and €450 million.

The notes were holding in well at 99¾ bid on Friday afternoon, a trader said.

The attraction for Reynolds stems from the fact that it is large, an investor told Prospect News on Friday.

"If you wanted size you could eventually buy it in the market if you received an insufficient allocation," the buy-sider added.

"And perhaps, because it is big and liquid, it will end up going into the CDX High-Yield 14, when the index rolls, and will become a benchmark, and people will want to own it on that basis."

Inflows have the upper hand

Noting Thursday's news that high-yield mutual funds took in another $200 million-plus of cash for the week to Wednesday, according to AMG Data Services, a trader said that a firm technical bid remains in play.

The amount of cash to be put to work trumps recent headline news regarding fatigue on the part of central bankers with respect to economic stimulus, which has partly been blamed for volatility in the stock market.

A mutual fund manager, hearing this color, seemed to more or less agree.

"People are being a little more suspect with regard to what they are going to buy," the investor asserted.

"There are those making arguments that the market is overvalued, while others are saying that it is undervalued.

"But I think you could argue that it's fairly valued.

"You keep getting cash inflows. And there is an 80%-plus correlation that if cash comes in, the market tightens."

This investor believes that the buy-side is still long cash, and nowhere near fully invested.

"For a large portion of the calendar you're just turning bank loans into bonds," the fund manager said.

"If you own the bank loan, for the most part you're getting good allocations on the bonds. However, in terms of getting invested, you are ultimately running behind.

"You're not really expanding the market with this calendar. You're flipping it - one piece of security for another."

The week ahead

In line with this investor's color, the week ahead sports a handful of deals on the active forward calendar, all of which feature debt refinancing - some of it bond debt - as at least a partial use of proceeds.

Netflix, Inc. wraps up a roadshow on Monday for its $200 million offering of eight-year senior unsecured notes (Ba2/BB-), via J.P. Morgan.

Proceeds will be used to terminate the Los Gatos, Calif.-based movie rental company's credit facilities and for general corporate purposes.

Cott Beverages Inc. plans to price its $200 million offering of eight-year senior unsecured notes on Tuesday.

Barclays Capital is the left bookrunner for the bond debt refinancing. Deutsche Bank Securities Inc. and J.P. Morgan Securities Inc. are joint bookrunners.

Norwegian Cruise Line roadshowed its $450 million offering of seven-year senior secured notes (B3/B+) during the pre-Halloween week, and is expected to price the deal during the week ahead.

Deutsche Bank Securities, Barclays Capital, Citigroup and J.P. Morgan are joint bookrunners for the bank and bond debt refinancing.

Colt Defense LLC is expected to price its $225 million offering of eight-year senior unsecured notes on Wednesday via J.P. Morgan and Morgan Stanley.

Proceeds will be used to repay bank debt.

And finally, in yet another bank debt refinancing, General Maritime Corp. expects to price its $300 million offering of eight-year senior unsecured notes (B3/B) on Thursday.

J.P. Morgan and Goldman Sachs are joint bookrunners.

Cequel trades around issue price

When the new Cequel Communications Holdings bonds moved over into the secondary realm, a trader saw them get as tight as 98 5/8 bid, 98¾ offered.

He said that the 98 5/8 bid got hit, leaving the bonds at 98½ bid, 98¾ offered.

A second trader also confirmed that the $600 million issue of 8 5/8% notes due 2017 - upsized from the originally announced $400 million - went home at 98½ bid, 98¾ offered.

New Reynolds rallies

A trader said that Reynolds Group's new 7¾% senior secured notes due 2016 opened in a 99 7/8-par context and traded as high as par bid "a couple of times today" during the session, though they later came in a little to an afternoon level at 99 5/8 bid, 99 7/8 offered.

"They kind of drifted in" from their session high, he said.

The afternoon level, he continued, "is in line with just a quiet Friday."

Another trader, who saw the new $1.125 billion of dollar-denominated bonds in a similar 993/4-par context, noted that they were "better than [Thursday], when the Richmond, Va.-based consumer packaging maker priced its massive $1.8 billion equivalent two-part offering of the notes. Besides the dollar-denominated mega-deal, Reynolds also priced €450 million of euro-denominated paper. The new bonds were seen to have firmed above 99 bid when they broke into the secondary.

Other Thursday deals unseen

While the Reynolds offering - the biggest deal of Thursday's nearly $3 billion session, not to mention the more than $4 billion primaryside tally for the week - was seen trading higher, traders saw a virtual disappearance of the other new deals which had also priced that session - for Scientific Games International Inc., Potlatch Corp., GCI Inc. and Associated Materials LLC/Associated Materials Finance.

A trader said that he had seen no secondary dealings in the latter deal, for instance - even though the Cuyahoga Falls, Ohio-based building products maker's $200 million issue of 9 7/8% senior secured notes due 2016 had firmed smartly during Thursday's trading after being freed for secondary - they popped up above the 102 mark after having priced earlier at 98.757 to yield 10 1/8%.

He also saw no new levels in GCI's 8 5/8% notes due 2019, which had priced at 99.17 to yield 8¾% and then firmed to a level in the 991/2-100½ area.

"Just what I saw [late Thursday] - I haven't seen it since," adding that at $425 million - upsized a little from the $400 million size announced by the Alaska telecommunications operator - "you would think that we would have seen it a little bit more."

And he said that Potlatch's $150 million of 7½% notes due 2019 were likewise unseen, quoting the Spokane, Wash.-based timberland REIT's new deal at the 99½ bid, par offered level at which it had finished on Thursday.

"Aside from it first popping its head up" and firming from its 98.254 issue price, which translated into a 7¾% yield, nothing was going on in the credit the following day.

New Berry bonds remain below issue

Among other recently priced deals, Berry Plastics' $620 million two-part offering was seen trading slightly under the levels at which the Evansville, Ind.-based plastic container manufacturer first priced the bonds on Wednesday.

A trader quoted its 8¼% first-priority senior secured notes due 2015 at 98¼ bid, 99 offered - down from the 98.841 level at which that $370 million issue, upsized from $325 million originally, priced to yield 8½%. He said the bonds were later offered at 981/2.

And he saw its 8 7/8% second-priority senior secured notes due 2014 at 91½ bid, off from the 92.25 level at which the $250 million of bonds - downsized from $295 million originally - priced to yield 10.974%.

They were down, at least on the bid side - and that could just be someone with a low bid, trying to buy stuff cheap," given the market's generally quiet tone.

Market indicators mostly in retreat

Back among the existing bonds not connected with the new-deal market, a trader saw the CDX Series 13 index down 1 5/8 points on Friday at 91¾ bid, 92 offered, after having gained more than 1 point on Thursday. That left it well below the 94 1/8 bid, 94 5/8 level at which it had finished out the previous week, on Friday, Oct. 23.

Meanwhile, the KDP High Yield Daily Index dropped by 19 basis points on Friday to end at 69.44, after having risen 3 bps in Thursday's dealings. Its yield widened by 8 bps to 8.70%, after having tightened by 1 bp the previous session. That was a deterioration from the previous Friday, when the index had finished at 70.11, with a yield of 8.49%.

In the broader market, advancing issues held their lead over decliners for a second consecutive session on Friday, though again by only a narrow margin of a couple of dozen issues out of more than 1,500 tracked.

Overall market activity, as measured by dollar-volume levels, was down 18% from Thursday's pace.

A trader characterized Friday's session as 'a very lethargic day." He said market participants' attention was very distracted, as it seemed "most people were talking about the World Series, the [upcoming] Giants game and Halloween."

Another said it was "a little boring," with many players hugging the sidelines in the wake of the big downturn in stocks, with the Dow Jones Industrial Average plunging nearly 250 points, erasing whatever gains the bellwether equity index had notched over the whole month. Broader indexes such as the Nasdaq composite and the Standard & Poor's 500 showed equal, or larger percentage declines on the day.

Another trader, commenting on the market's quietude, suggested that "a lot of folks were still recovering from either the Yankees game or the Rock and Roll Hall of Fame Concert," Thursday night. "It seemed to be that people were moving a little slow after those two events."

He also noted the chilling effect the equity carnage had on bonds, observing that "it was one of these things where we started off with a quiet Friday - then the next thing you know, we're down 250 [Dow] points. Stuff came in and kind of quieted down."

CIT soap opera continues

Among specific credits, CIT Group's paper meandered around as investors pondered the impact of the latest news to come out of the seemingly endless saga of the troubled lender - its big exchange offer to the bondholders and solicitation of their support for a pre-packaged bankruptcy officially expired as Thursday turned into Friday, even though the results were not immediately known; meanwhile, Icahn and CIT made their peace, with the company agreeing to accept a $1 billion loan from the billionaire investor, while lining up $4.5 billion from other financing sources. Published reports still said a bankruptcy filing of some sort was a distinct possibility, possibly as early as the weekend.

Against that puzzling backdrop, a trader said that there were 'a lot of 'bid-wanteds' in CIT paper, but most of it was just "random small pieces" and few big round-lot trades to set the trading parameters.

He said the 4.65% notes due 2010 of the old CIT Canada unit was perhaps the most actively traded - and that was only $8.5 million, with the bonds staying in a 941/2-96½ range. Its 6.10% hybrid bonds due 2067 turned over $6 million, with trading in a 43/4- 5½ range, "on either side of 5.

"When you do pull up the Trace of the CIT bonds, it's like 100 here, 250 there - there's not huge volume on the liquid ones, the larger issues.

"You've got 200, 300 and it's just page after page." Outside of the two issues he mentioned, which at least saw trading of a couple of million dollars each, "everything else is 60 bonds, 40 bonds, 90 bonds, 180 bonds - and we're just talking pages" of such odd-lot trades.

Investors, he declared were taking a "wait-and-see" approach on how the various news developments about the company shake out.

A second trader said "there was more news today" - notably the agreement between Icahn and CIT - "so they moved up to right around 66 for the untendered bonds." However he added that it seemed like "there was not a whole lot of activity, since so many bonds are tied up [in the exchange offer]."

He said investors "are just waiting for it to play out - I think there may be a filing this weekend. But everything got quoted up a point from [Thursday]."

With the shortest bonds having recently come down to the mid-60s from prior levels around 70 and the longer bonds rising to the mid-60s from prior levels around 61-62, "they're converging to the deal."

Another trader said that CIT dominated talk in the market, and called it "all over the lot." He said "they were down on the day, and people were trying to hit bids, and they couldn't hit bids, and it was just a fiasco.

"That's what most people were looking at."

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