Upsized Iron Mountain, Bill Barrett price; Avis on tap; HealthSouth dives on Medicare worries

By Paul Deckelman and Paul A. Harris

New York, Sept. 20 - The high-yield primary arena got busier on Tuesday, which was in line with an increase in overall junk market activity levels and an improved tone.

Iron Mountain Inc., which stores records and data and disposes of them when they are no longer needed, priced a quickly shopped and upsized $400 million offering of eight-year notes, which moved up around a point after they hit the aftermarket.

Energy operator Bill Barrett Corp. also did an upsized $400 million drive-by deal, although unlike Iron Mountain, the new issue came to market too late in the day for any meaningful dealings.

The new-deal sphere further heard price talk emerge on Avis Budget Car Rental LLC's upcoming $250 million offering of 8.5-year notes, which could come to market after the order books close on Wednesday.

Secondary market traders saw continued strength, and even some more improvement, in the Sealed Air Corp. two-part deal that priced Friday.

Away from new or recent deals, health-care operator HealthSouth Corp.'s bonds fell along with its stock as investors worried that Medicare budget cuts would play havoc with the company's finances.

But most issues were seen better on the day, as were statistical performance indicators.

Bill Barrett oversubscribed

The new issue market saw two issuers raise a combined total of $800 million on Tuesday.

Each issuer brought a single $400 million tranche. Both tranches were upsized by $100 million, and both priced at the tight end of price talk.

Bill Barrett priced an upsized $400 million issue of eight-year senior notes (B1/BB-) at par to yield 7 5/8%.

The yield printed at the tight end of price talk, which had been set in the 7¾% area.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Deutsche Bank Securities Inc. and Wells Fargo Securities LLC were the joint bookrunners for the quick-to-market issue, which was upsized from $300 million.

The Denver-based independent oil and gas exploration and production company plans to use the proceeds to repay debt under its revolving credit facility and for general corporation purposes.

The Bill Barrett drive-by deal was multiple-times oversubscribed, according to a syndicate source.

It attracted interest from high-grade accounts, market sources said.

However, the top 10 orders in the book were high-yield names, according to the syndicate source, who added that the deal played predominantly to high-yield accounts.

Iron Mountain upsizes

Iron Mountain also priced $400 million of notes in a Tuesday drive-by.

The Boston-based information management services provider priced eight-year senior subordinated notes (B1/B+) at par to yield 7¾%, at the tight end of the 7¾% to 7 7/8% price talk.

JPMorgan, Morgan Stanley & Co. LLC, Barclays Capital Inc., Bank of America Merrill Lynch, HSBC Securities (USA) Inc., RBS Securities Inc. and Scotia Capital (USA) Inc. were the joint bookrunners for the issue, which was upsized from $300 million.

Proceeds will be used for general corporate purposes, including funding a portion of the company's shareholder payout commitments and possible future acquisitions and investments.

The order book was at least three-times oversubscribed, according to market sources.

Return of opportunistic deals

Bill Barrett and Iron Mountain, familiar names with good credit ratings, are exactly what accounts are looking for right now, said a sellside source who was involved in both transactions.

What's more, both of Tuesday's deals were opportunistic transactions; unlike last week's mega-deal from Sealed Air, they were not committed financings.

So unlike Sealed Air, there was no real urgency for either of Tuesday's issuers to come to market.

Also notable, both of Tuesday's deals saw a contraction in the estimated concession the issuers paid to come into the high-yield new issue market, which is attempting to recover from the correction it entered in late July.

Bill Barrett and Iron Mountain paid concessions of 37½ basis points to 50 bps, a syndicate official reckoned. Sealed Air paid 50 bps to 75 bps last week, the source added.

The technical picture also looked very favorable on Tuesday, trailing two consecutive days of positive flows into U.S. high-yield funds and exchange-traded funds, a sellsider said.

U.S. junk funds and ETFs saw a combined $260 million of inflows during the Friday and Monday sessions, the sellsider added, sourcing numbers that were reported by EPFR Global.

Deal onslaught unlikely

Tuesday's deals notwithstanding, opportunistic issuers are unlikely to begin showing up in numbers to tap the new issue market, a high-yield syndicate banker said after Tuesday's close.

The pipeline for opportunistic deals is not large, the sellsider added.

Factoring in the committed deals, issuance could run to $15 billion to $20 billion per month in October, November and December, which is a far cry from the $40 billion per month clip seen during the first half of 2011.

Avis Budget sets talk

Also on Tuesday, Avis Budget talked its $250 million offering of senior notes due March 2020 (B2/B) with a yield in the 9¾% area.

The books close at 10:30 a.m. ET on Wednesday, and the deal is set to price thereafter.

Morgan Stanley, Citigroup Global Markets Inc., Credit Agricole CIB, RBS Securities and Scotia Capital (USA) are the joint bookrunners.

Iron Mountain climbs after pricing

When the new Iron Mountain subordinated eight-year notes were freed for secondary dealings, a trader saw those bonds trading "right around the 101 level, on either side."

A second trader said the company's bonds had "rallied some on the break, not running away," but above the par issue price. He saw "a good amount of paper" trading around 100¾ bid.

"They were at a higher level, then they came off a little bit."

At another desk, a trader quoted the new bonds at 100 5/8 bid, 101 offered.

He noted that when the bonds first priced, there was a little bit of confusion among some market participants who said that the issue had priced down around 98-98.5; he suggested that the 98.5 figure was the net to the company after underwriters' fees and other transaction costs were deducted.

Iron Mountain's existing bonds were generally little-changed on the day. The busiest was its 8 3/8% notes due 2021; they ended the day up slightly at 104.8 bid on volume of over $7 million. About $2 million of its 6 5/8% notes due 2016 traded. They moved up about one-quarter point to par.

Barrett bonds a no-show

While there was trading in the Iron Mountain issue, the Bill Barrett deal came to market too late in the day - after 5 p.m. ET - to generate any kind of trading market.

Sealed Air still strong

A trader said that Sealed Air's $1.5 billion, two-tranche offering - which priced on Friday and then proceeded to move up solidly in the aftermarket on both Friday and Monday - was "still active, probably a little bit improved," with both tranches seen around the 103 bid level.

That was up from their going-home price on Monday, when the Elmwood Park, N.J.-based plastic packaging products-maker's $750 million of 8 1/8% notes due 2019 were quoted late in the session at 102 5/8 bid, 103 1/8 offered, while its $750 million of 8 3/8% notes due 2021 were finishing at 102¾ bid, 103¼ offered.

Both tranches of that mega-deal priced at par on Friday, pushed up to 101¾ bid, 102¼ offered later that session and then hovered above 102 bid on Monday.

The trader said that volume in the two tranches "is down from Friday afternoon and [Monday], but it's still an active name."

Another trader saw the bonds having done "really well," pegging both tranches in a 103-to-103¾ context. He opined that the issue "came cheap. I couldn't believe those coupons."

Some market players were hoping the company would have to increase the coupons to above the 8½% level in order to do the deal, but demand - orders for the paper topped a reported $4 billion - helped Sealed Air keep the coupon below market expectations.

Market indicators bounce back

Away from trading in the new deals, traders said that things in Junkbondland were generally stronger on Tuesday amid considerably increased activity. Using dollar volume as a gauge, the market, which on Monday had been down more than 22% from Friday's activity levels, was 62% busier on Tuesday.

Statistical performance indicators, which were down on Monday, moved to the upside on Tuesday.

A trader said the CDX North American Series 16 High Yield index gained 3/8 of a point on Tuesday to close at 93 5/8 bid, 93 7/8 offered after having been down by ¼ point on Monday.

The KDP High Yield Daily index rose by 8 bps on Tuesday to finish at 72.14 after having declined by 3 bps on Monday. Its yield rose by 3 bps, to 7.89%, after having been up by 2 bps on Monday.

The Merrill Lynch U.S. High Yield Master II index advanced by 0.056% on Tuesday after having fallen by 0.107% on Monday, its first loss after trending upward the previous three sessions.

Tuesday's gain lifted the index's year-to-date return to 1.59% from 1.542% on Monday, although that cumulative return remains well below the peak level for the year of 6.362%, set on July 26.

The market, a trader proclaimed, "was generally better."

Junk got something of a boost from equities, which after some early-session weakness were solidly higher for much of the day, although they surrendered most of those gains near the close as investors were spooked by renewed fears of a Greek debt debacle.

The bellwether Dow Jones industrial average - down by 108 points on Monday - rose by as much as 149 points during the session before giving almost all of it back to eke out a meager rise of 7.65 points, or 0.07%, closing at 11,408.66. Broader indexes such as the Standard & Poor's 500 and the Nasdaq Composite did even worse, surrendering all of their gains to end slightly on the downside, off by 0.17% and 0.86%, respectively.

HealthSouth gets hammered

While junk was generally better, the most notable mover of the day was on the downside. HealthSouth's bonds fell by several points amid investor worries that the Birmingham, Ala.-based operator of rehabilitation centers stands to be hurt badly by cuts in Medicare that will likely be included in the federal government's budget-cutting efforts.

A trader said that HealthSouth "is probably worth talking about today, on the back of this ruling out of Washington, it impacts those guys."

He said the company's bonds were "definitely weaker," down 2 or 3 points, on "heavy volume for that name."

For instance, he saw its 8 1/8% notes due 2020 "down a couple of points," going home around a 98-99 level.

A market source at another desk saw those bonds going out at 99¼ bid, down from Monday's close at 102, with over $8 million of the bonds having changed hands.

Another trader exclaimed "holy smokes!" as he calculated that the company's 7¾% notes due 2022 had fallen 5 points on the day, down to about the 95½ range, from Monday's level at 100½ bid.

He further pointed out that "somebody paid 99 right in the middle of that mess - they were asleep at the switch" and did not see the bonds falling.

HealthSouth's New York Stock Exchange-traded shares were down by as much as 15% during the day before going out down $1.48, or 8.23%, at $16.50. Volume of 10.7 million shares was more than seven times the norm.

Market watchers cited investor concerns because President Obama's newly unveiled $3 trillion deficit-reduction plan included $7 billion of cuts at rehabilitation facilities like HealthSouth.

However, a trader said that there was no broad contagion seen in the health-care sector. "It seemed to be fairly specific to those guys today."

A second trader agreed, seeing no real impact on the bonds of sector peers such as Select Medical Holdings Corp. or Kindred Healthcare, Inc., although their shares were also down, or mainstream hospital names like HCA Inc. or Community Health Systems Inc. The latter's 8 7/8% senior secured notes due 2015 ended the day unchanged at 100¾ bid, 101¼ offered.

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