Avis shops deal; Ford flies on debt-cut plans; overall market better with stocks; Nortel slips

By Paul Deckelman and Paul A. Harris

New York, Sept. 14 - The high-yield primary sphere began gearing up for its next deal, as syndicate sources heard car rental giant Avis Budget Group Inc. preparing to begin shopping around a $250 million of 8.5-year bonds, starting with a Thursday conference call with potential investors.

At the same time, the secondary market saw little activity in either Avis' existing bonds because of the coming new deal, or in the bonds of its main rival, Hertz Global Holdings Inc., on the news that Avis has dropped its efforts to acquire smaller industry rival Dollar Thrifty Automotive Group, Inc. - clearing the way for Hertz to take over Dollar Thrifty.

Another automotive-relative name that did see a fair amount of activity on Wednesday was Ford Motor Co., whose benchmark bond issue rose by as much as 3 points on the session, traders said, on the news that the Number-2 domestic car manufacturer has more debt-cutting on its roadmap.

Ford had plenty of company on the upside, as Junkbondland generally had a firmer tone, following the lead of stocks, which rose for a third straight session as fears of a possible Greek debt crisis faded. Statistical indicators, recently under pressure, reflected that more bullish tone.

The recent new issue from Fresenius Medical Group AG continued to more than hold its own in the aftermarket.

However, not everyone went along for that upside ride; bankrupt communications technology firm Nortel Networks Ltd.'s bonds were in retreat, in busy trading that dominated the most-actives list.

Avis Budget sets call

No high-yield bonds priced on Wednesday, which became the fourth consecutive shut-out session.

The primary market did generate some news, however.

Avis Budget Group scheduled an investor call for 10:30 a.m. ET on Thursday to market a $250 million offering of senior notes due in March 2020.

The deal is also set to travel on an investor roadshow.

Pricing is set for late in the Sept. 19 week.

Morgan Stanley, Citigroup, Credit Agricole, RBS and Scotia Capital are the joint bookrunners.

Proceeds will primarily be used to partially fund the Avis Europe acquisition and to repay Avis Europe debt.

Textron's split-rated deal

In the crossover market Textron, Inc. priced $500 million of split-rated senior notes (Baa3/BBB-/BB+) in two tranches on Wednesday.

The deal included $250 million of 4 5/8% five-year notes which priced at Treasuries plus 375 basis points, and $250 million of 5.95% 10-year notes which priced at Treasuries plus 400 bps.

Active bookrunners were Bank of America Merrill Lynch, Citigroup and J.P. Morgan.

The deal was priced on the investment-grade desk.

Running the CDX

The CDX HY16 index finished at 92 5/8 bid, 93 offered, up 5/8 point on the day, according to a portfolio manager, who said that the CDX is running ahead of cash.

"The Street is running the CDX," said the investor who added that the HY16 has rallied from 91 1/8 bid on Friday, while in the same interval cash bonds are probably 1 point lower.

One reason for the synthetic index's strength is liquidity, the investor explained, adding that you can always get as much of the CDX as you want, while the same cannot be said for cash bonds.

"Cash bonds will probably follow the CDX, but today is the first day we saw improvement in cash bonds, while the CDX has rallied over the past several days.

"People will run the CDX. Cash bonds will follow. And the calendar will follow that," the buy-sider said.

Sealed Air allocations

Although the bond deal may be a week or more away the buy-side is already starting to sweat allocations for Sealed Air Corp.'s offering.

To that end, the dealers' sales forces have signaled that they are not going to be making a lot of calls to accounts, but rather will be available to field questions that accounts have about how the deal is shaping up.

That may sound counterintuitive, given present market conditions, but several factors point to a deal that will be significantly oversubscribed before it officially hits the market, a buy-side source said on Wednesday.

For openers, the bridge loan backing the $1.5 billion of senior notes is fully syndicated, so the dealers know exactly where to find the audience for the bond deal, the investor explained.

More important, Sealed Air is a benchmark-sized deal, which will motivate portfolio managers to own it, the buy-sider added.

Pricing on the deal - which, again, has yet to officially hit the market - could come anywhere between 8% and 9%, the manager said.

"Obviously people are hoping for a print at the higher end of that range, but there are already hints of an oversubscribed situation, where you could get cut back on allocations.

"That could motivate them to clamp down on pricing."

Meanwhile a trader looks for the deal to come in the low to mid-8% range.

"I know people would love to see it come 8¾% to 9% but I don't know if you're gonna get there," the trader said.

"I think the demand will be such that it will be well spoken for.

"Even though they're calling this a 'non-deal' roadshow, everybody knows there's a deal behind it."

Citigroup will be the left lead on the Sealed Air deal, sources say.

Avis, Hertz little seen

A secondary market trader said the news that Avis is preparing to sell its $250 million issue had little impact one way or another on the Parsippany, N.J.-based vehicle-rentals company's existing bonds.

For instance, he saw Avis' bellwether issue, its 8¼% notes due 2019, at 93¾ bid, up ¼ point from Tuesday's levels, "but I wouldn't say it was any great shakes," he declared, seeing only light trading in the name.

A second trader also said that he did not see very many dealings in the existing Avis bonds.

As for Hertz, the first trader said that the Park Ridge, N.J.-based vehicle rental kingpin's 6¾% notes due 2019 "don't trade much." On Wednesday they just stayed anchored around a 93 context.

He saw its 7 3/8% notes due 2021 steady around 94½ bid.

However, he did quote the company's 7½% notes due 2018 at 98½ bid, which he said was up between 1 and 1½ points, though there were no round-lot trades in the credit.

In contrast, Hertz's New York Stock Exchange-traded shares jumped by $1.35, or 13.47%, to $11.37, on volume of 14.6 million shares, almost three times the norm, helped by the news that Avis has decided to walk away from its showdown with Hertz over who will control Dollar Thrifty, the fourth-largest U.S. car-rental chain after Hertz, Avis and Enterprise Holdings Inc. Avis' withdrawal, to better concentrate on the acquisition of its European affiliate, leaves Hertz in the driver's seat as the only other bidder to emerge so far.

Avis' exit could persuade Dollar Thrifty, which has resisted takeover advances for 15 months, to reopen talks with Hertz about its $1.95 billion merger bid.

Ford firmer on debt-cut plans

The other automotive name most often mentioned was Dearborn, Mich.-based Ford, whose benchmark 7.45% bonds due 2031 were seen by a trader to have moved up around 2 points on the day to around the 112 range, after having been at 110 "just a couple of days ago."

That issue was one of the day's most actively traded with over $27 million having changed hands.

Another trader saw the bonds up by as much as 3 points, quoting the 7.45s trading between 111¼ and 112 1/4.

He cited the news that Ford plans further debt cuts, and the announcement by Fitch Ratings that it was upgrading one and affirming four ratings on Ford's asset-backed securities.

"Things are looking pretty good for them."

Ford's chief financial officer, Lewis Booth, said that the carmaker will pay off $1.8 billion in automotive debt by the end of this week, using some of its considerable cash on hand, and expects to lower its total of outstanding automotive debt to $10 billion by mid-decade.

American Axle improves

Also in the automotive realm, a trader said that "a name that's starting to catch on again, too," is American Axle & Manufacturing Holdings, Inc., a Detroit-based producer of drive-train components for, among others, Ford as well as other original equipment manufacturers.

He said that its 5¼% notes due 2014 went from highs around par several months ago, to lows around the 95 area.

In Thursday's dealings, he said the bonds were up more than a point at 96½ bid, 97½ offered.

Its 7 7/8% notes due 2017 were a point better at 97½ bid, 97¾ offered, up from 96½ bid the day before.

He saw no fresh news out on the company.

Market indicators move up

Away from the new-deal arena and from the automotive names, statistical measures of market performance, which had been down on both Friday and Monday and then were mixed on Tuesday, were decidedly better on Wednesday.

A trader said the CDX North American Series 16 HY Index gained ½ point on Wednesday to finish at 92 5/8 bid, 92 7/8 offered, continuing the momentum seen on Tuesday, it jumped by 1 1/8 points.

The KDP High Yield Daily Index gained 11 basis points to end at 71.85, versus having retreated by 19 bps on Tuesday. Its yield narrowed by 2 bps to 7.94%, after having risen by 6 bps on Tuesday.

The Merrill Lynch U.S. High Yield Master II Index gained 0.128%, its first upturn after three days in the red, including Tuesday, when the index was down by 0.105%.

The gain lifted its year-to-date return to 1.373%, up from Tuesday's 1.244%, although it remains well below the peak level for the year of 6.362%, set on July 26.

A trader said that "overall, the market was fairly strong, along with the stock market," which saw its third upturn in a row as investor fears of a possible debt default by Greece moderated after other European leaders promised to help the struggling Mediterranean nation.

The bellwether Dow Jones Industrial Average ended the day up 140.88 points, or 1.27%, at 11,246.73. Broader indexes like the Standard & Poor's 500 and the Nasdaq Composite, which like the Dow were higher for a third straight session, finished Wednesday up by 1.35% and 1.60%, respectively.

"The world is wonderful, at least for a day," one of the traders said, "but we'll see what happens [Thursday]."

Another trader saw Wednesday's market as "a pretty quiet day." He said the bulk of the volume "focused around crossover names - and CCCs, people trying to sell CCCs."

He added that he was "not aware of anything getting crushed."

'Like a rock'

A trader said that the new 6½% dollar-denominated notes due 2018 from Fresenius Medical Group, issued last week via its Fresenius Medical U.S Finance unit, were trading at bid levels of "at least 1003/4-101 - and that could be higher, I didn't see a right side," he said. He said that the offered levels could reach to 101¼ to 1013/4.

He opined that the new bonds - which had priced below par last week but which then quickly moved higher in the aftermarket and stayed there "are holding in like a rock."

A second trader said "there are no sellers of it, so nobody's raising their bid to chase it."

Fresenius, a Bad Homburg, Germany-based global provider of kidney dialysis products and services, priced its $400 million issue - upsized from the originally announced $300 million - last Thursday at 98.623 to yield 6¾%, at the tight end of pre-deal price talk envisioning a yield of between 6¾% and 7%.

They were seen having moved up to around a 99 7/8 bid, 100 1/8 offered level when they were freed to trade late in the day on Thursday, and had moved up to 100½ bid, 100¾ offered in Friday's dealings, and remained well above par this week.

The bonds priced as part of a two-part deal that also included €400 million of euro-denominated bonds having the same coupon and maturity, which priced at the same discount to par and yield level. The euro portion of the deal was upsized to €400 million from the originally announced €300 million, after a third tranche that was part of the original deal, for €100 million of three-year floating-rate notes, was abandoned.

While those bonds had been quoted as high as 102 bid earlier in the week, no quotes were heard on Wednesday.

Nortel knocked around

While most bonds were higher, some were going the other way on Wednesday.

Bankrupt Montreal-based telecommunications technology company Nortel Networks Corp.'s bonds were the busiest in the junk space on Wednesday, with over $55 million of its 10¾% notes due 2016 having changed hands.

A trader saw them finishing at 107¾ bid, 108¾ offered - down more than a point on the day after having begun the session at 109-110.

A second trader saw "a lot of activity, a ton of trading" in the credit, pegging the bonds in the 108-109 range all day.

The company's 10 1/8% notes due 2013 were also fairly busy, with over $23 million traded. He said that these were down 1 point at 108 bid, 108½ offered.

There was no fresh news out on the company - currently in the process of selling off its assets, such as its recently-auctioned patent portfolio, in order to liquidate.

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