Upsized Physio-Control prices, AAR also, new Atwoods busy; market easier on day, up on week

By Paul Deckelman and Paul A. Harris

New York, Jan. 13 - Physio-Control International, Inc. was heard by high-yield syndicate sources to have priced an upsized $330 million offering of senior secured notes on Friday. The medical technology provider's new bonds were not seen trading around after their pricing relatively late in the day.

That was also true of supply and logistics company AAR Corp., whose $175 million of 10-year notes hit the market even later in the day.

Those two deals closed out a busy second week of the year in the junk primary sphere, during which an estimated more than $4.5 billion priced, outpacing the prior week's $3.3 billion. Included in the tally were a trio of drive-by offerings from familiar and well-liked high-yield issuers Level 3 Communications, Inc., MGM Resorts International and Charter Communications, Inc.

Traders meantime saw very busy dealings in the new Atwood Oceanics, Inc. bonds that priced on Thursday.

Apart from the deals that have already come to market, consumer products company Prestige Brands, Inc. announced plans for a $290 million bond deal to finance some asset acquisitions.

Primaryside players also heard that Belgian chemical producer Taminco Global Chemical Corp. was getting ready to hit the road in Europe and in the United States during the upcoming week to market its offering of eight-year senior secured notes.

Away from the new deals, traders said the junk market was relatively restrained, with some participants exiting early ahead of the three-day Martin Luther King Jr. holiday break, which includes Monday's debt market shutdown. Sears Holdings Corp. continued its status as one of the busiest bonds that was trading.

Statistical indicators of market performance were lower on the day, but better on the week.

Physio-Control at mid-talk

The Friday primary market saw two issuers, each one bringing a single tranche of notes, raise $502 million.

Physio-Control International, Inc. priced an upsized $330 million issue of senior secured notes (B2/B+) at par to yield 9 7/8%.

The yield printed in the middle of the 9¾% to 10% yield talk.

Citigroup was the left bookrunner. RBC was the joint bookrunner.

Proceeds will be used to help fund the leveraged buyout of the company by Bain Capital from Medtronic Inc.

AAR comes wide

AAR Corp. priced a $175 million issue of 7¼% 10-year senior notes (Ba3/BB) at 98.268 to yield 7½%, 12.5 basis points beyond the wide end of yield talk which was set in the 7¼% area.

Bank of America Merrill Lynch and Morgan Stanley were the joint bookrunners.

The Wood Dale, Ill.-based company plans to use the proceeds to repay revolver debt incurred during its acquisition of TelAir International GmbH and Nordisk Aviation Products Ltd.

Taminco starts deal

Taminco Global Chemical Corp. launched a $452 million offering of eight-year second-priority senior secured notes on Friday.

Roadshows get under way in London on Monday and in the United States on Wednesday.

Pricing is set for the week of Jan. 23.

Credit Suisse, UBS, Citigroup, Nomura, Deutsche Bank and Goldman Sachs are the joint bookrunners.

Proceeds will be used to help fund the buyout of the company by Apollo Global Management LLC from CVC Capital Partners for about €1.1 billion.

The week ahead

At Friday's close the active calendar was bereft of deals from U.S.-based issuers.

However the primary is expected to remain active, especially the drive-by market.

Heading into the week, Poland's Polkomtel SA, having wrapped up its roadshow in the United States, will begin marketing its €900 million equivalent multi-currency offering of eight-year notes in Europe.

The notes are being offered in dollar-, euro- and zloty-denominated tranches.

Deutsche Bank and Credit Agricole are the global coordinators and joint bookrunners.

Day's new deals are no-shows

With Physio-Control's new offering of seven-year secured bonds having finally priced fairly late in the session - and some market participants having already left to get a jump on the long holiday weekend - traders saw no immediate aftermarket activity in the Redmond, Wash.-based medical technology provider's upsized $330 million deal.

That was even more the case with Wood Dale, Ill.-supply and logistics services provider AAR Corp., whose $175 million deal hit the tape later than Physio-Control.

Atwood in action

But investors looking to play in newly issued paper had no further to look than Atwood Oceanics' $450 million offering of 6½% notes due 2020, which had come to market during Thursday's session.

On Friday, a market source saw more than $22 million of those bonds trading, putting it right near the top of the junk most-actives list. He saw those bonds at 101 bid, up from par, where the Houston-based oil and gas drilling company had priced its offering, which was upsized from the originally announced $400 million.

"It was one of the bigger traders today," said a source at another desk.

He pegged the bonds at 101 bid, 101 3/8 offered, and noted that they had been "a tiny bit higher last [i.e. Thursday] night," when he had seen them going out at 101¼ bid, 101¾ offered. "So it is just a little bit softer," he said.

Other Thursday deals quiet

Among the other deals that priced on Thursday, a trader saw Block Communications, Inc.'s 7¼% notes due 2020 at 100¾ bid, 101 offered during the morning, but saw no activity after that.

A second trader heard the bonds being quoted at 100 5/8 bid, 101 offered around midday, but added "I don't know if I ever saw them trade."

Block, a Toledo, Ohio-based diversified media company with interests in broadcasting, cable and newspaper publishing, priced the quickly shopped $200 million deal at par Thursday afternoon, too late for any meaningful aftermarket.

And a trader said that Amerigroup Corp.'s add-on to its existing 7½% notes due 2019 traded up around the 105 bid level, "but it was just $1 million" that changed hands.

Amerigroup, a Virginia Beach, Va.-based managed healthcare company, priced its $75 million drive-by offering - upsized from the originally announced $50 million - on Thursday at 103.75, to yield 6.87%. After they were freed, the new bonds were quoted at 104½ bid, 105½ offered.

The original $400 million issue of those notes, downsized from $450 million initially, priced at par last November.

Datatel, MGM hold most gains

Going back a little further, a trader said that he "did see Sophia a few times," trading around a 101-101¼ bid context.

That was down from 102½ bid, 101¾ offered.

Another trader saw those bonds at 101 bid, 101 ¼ offered.

Sophia LP - the borrowing vehicle for Fairfax, Va.-based higher education technology provider Datatel Inc.'s pending acquisition of sector peer SunGard Higher Education, priced $530 million of 9¾% notes due 2019 at par on Wednesday off the forward calendar. By Thursday, they had moved up to 101 3/8 bid, 101¾ offered.

The big deal of Wednesday's session - from Las Vegas-based gaming giant MGM Resorts International - was seen by a trader on Friday to be still at 101 bid, 101½ offered, although a second trader said he had not seen it trading.

MGM Resorts' $850 million of 8 5/8% notes due 2019 had priced at par, after having been solidly upsized from an originally announced $500 million.

The third member of Wednesday's new-issue troika was CCO Holdings, LLC, a unit of St. Louis-based cable operator Charter Communications.

It priced a $750 million offering of 6 5/8% notes due 2022, at 99.5 to yield 6.694%.

Those bonds had firmed up to around the par level that session and have remained there since then - a trader on Friday at par bid, 100¼ offered.

Level 3, BreitBurn around par

The week's first big deal - Tuesday's offering from Broomfield, Colo.-based telecom network operator Level 3's funding subsidiary, Level 3 Financing, Inc. - was seen by one of the traders around par bid, 100¼ offered.

That is about where the bonds had been trading this week, after the subsidiary had priced the $900 million offering of 8 5/8% notes due 2020.

Tuesday's other deal - from BreitBurn Energy Partners LP, a Los Angeles-based oil and gas exploration and production operator - was also seen just under par, at 99 7/8 bid, 100 3/8 offered.

However, that represents a solid gain for the quickly shopped $250 million tranche of 7 7/8% notes due 2022, since they had originally priced at 99.154 to yield 8%, later moving up more than a point to 100 3/8 bid, 100 7/8 offered, before backing down on Friday.

A quiet session

"Away from the new deal universe, a trader characterized Friday's session as "pretty uneventful. The markets gave ground a little bit from their highs of last week,"

A second trader noted that while Friday was officially a full session rather than an early close ahead of Monday's federal legal holiday, "I guess it could have been [an abbreviated session] because it seemed like it was pretty quiet, and folks were out."

Several traders said that a number of people had opted for an early exit, rather than sticking around for the full day.

One declared that "today was actually a pretty torturous day."

Indicators off but up on week

Statistical measures of junk market performance - which had turned mixed on Thursday after several positive sessions, were all the way on the downside on Friday.

However, they still managed to mostly show gains versus their levels a week ago.

A trader saw the CDX North American Series 17 High Yield index down by ½ point on Friday to end at 93¾ bid, 94 offered, after having gained 3/16 point on Thursday.

But it was up from 93 3/8 bid, 93 5/8 offered seen on Friday, Jan. 6.

The KDP High Yield Daily lost 15 basis points on Friday to close out at 72.71, after having edged downward by 2 bps on Thursday, while its yield rose 5 bps, to 7.27%, after having inched upward by 1 bp on Thursday.

That was little changed from the index's week-ago level of 72.72 and its 7.27% yield.

And even the recently robust Merrill Lynch High Yield Master II Index finally turned downward on Friday, breaking an amazing string of 20 consecutive gains - a winning streak which dated all the way back to Dec. 15. Its 0.92% loss was in stark contrast to Thursday's 0.051% advance.

The loss dropped the index's year-to-date return to 1.077%, down from Thursday's 1.171%, its high point for 2012 so far.

However, the index still remained ahead of its week-earlier cumulative return of 0.764%, and showed a one-week rise of 0.311% - its fourth consecutive weekly gain.

Sears strong despite CIT news

Among specific issues, a trader said that Sears Holdings' 6 5/8% notes due 2018 were "still trading with a 79 handle - so I don't think they're much changed," despite the news that CIT Group, Inc. a major lender to medium-sized businesses, including some which are vendors to the Hoffman Estates, Ill.-based department store operator, said that it will not give short-term financing to such vendors while they await payment for merchandise shipped to the company's Sears or Kmart department stores.

Another trader saw the Sears bonds "maybe down ½ point" at 79½ bid, versus levels around 80 at which the bonds had traded at Thursday, even in the face of the CIT news. He said that activity-wise, Sears was right up there among the leaders during Friday's fairly quiet session, with over $16 million traded - although that was well down from the more than $60 million of the bonds which changed hands on Thursday.

Sears' bonds have been among the most actively traded in Junkbondland over the past several weeks; the 6 5/8s, which were trading as high as 90 bid in November and which were still in the mid-80s before Christmas, plunged down to the lower 70s after the company announced on Dec. 27, the first trading day after the holiday, that consolidated same-store sales - the retailing industry's key performance metric - were down 5.2% from year-earlier levels during the crucial eight-week stretch ended Dec. 25, the traditional "make-or-break" period for most storekeepers. Sears also said at that time that it would look to close between 100 and 125 of its weakest-performing locations.

After bottoming in the low 70s, on heavy volume post-news, the bonds then proceeded to creep back up into the middle 70s by last week, and then into the upper 70s to around 80 during trading this week.

AMR idle despite news reports

A trader said he saw a few levels but "no huge volume" in AMR Corp.'s bonds, even amid reports that other large air carriers are eyeing possibly offering to buy the bankrupt airline giant, the parent of American Airlines.

He said that his shop had been watching American's 10½% notes slated to come due in October "a lot", but he saw them up only slightly - perhaps 1/8 point, while its 13% notes due 2016 were down ½ point at 108¼ bid.

He also saw the company's 8 5/8% notes due 2021 up 1/8 at 106 7/8 bid.

The lack of activity took place even against the news backdrop of airline industry rivals like Delta Airlines, Inc. and US Airways, Inc. exploring the idea of buying Fort Worth, Tex.-based AMR and its key operating division, American Airlines, both of which filed for Chapter 11 reorganization last year. Ironically, both Delta and US Air were among numerous large U.S. based carriers which restructured their own finances via the bankruptcy courts during the past decade and emerged as more efficient operators less encumbered by debt and burdensome labor costs than American.

News reports said that Atlanta-based Delta, as well as the buyout firm TPG Capital, was weighing bids for AMR, while Tempe, Ariz.-based US Air had reportedly hired advisers to study AMR's finances. None of the companies would comment on any of those speculated activities.

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