Berry, Masonite price as primary calms down; new deals and established struggle as junk lower

By Paul Deckelman and Paul A. Harris

New York, March 6 - The high-yield market was considerably calmer on Tuesday than it had been on Monday, when over $7 billion of new purely junk or split-rated paper priced in a dozen non-stop deals.

On Tuesday, just two deals were seen having come to market - a quickly shopped $600 million offering of 10.5-year notes from Berry Petroleum Co. and an equally rapid $100 million add-on to building products maker Masonite International Corp.'s existing 2021 notes. Neither issue was seen trading around on Tuesday.

But there was a fair amount of dealings in the many issues priced on Monday.

While a few, like Pinnacle Entertainment Inc. and Omega Healthcare Investors, Inc., seemed to be holding their own and trading at - or even a little above - their respective par issue prices, most of Monday's deals struggled just to stay at or just under par, while Wynn Las Vegas, LLC and Fidelity National Information Services Inc.'s new deals seemed to especially be under pressure.

TransUnion Holding Co.'s $600 million tranche of senior secured PIK toggle notes that priced on Friday remained several points above its par issue price.

Away from the deals actually priced, Office Depot, Inc. and Neuberger Berman Group LLC were heard by syndicate sources to be hitting the road to market their respective bond offerings, with Office Depot expected to price toward the end of this week and Neuberger Berman likely to come next week.

Away from the new-issue arena, traders said most issues were softer, some even by multiple points, just on the market. Statistical indicators of market performance spent a second day on the downside. Specific big losers included First Data Corp., Hovnanian Enterprises Inc. and Ford Motor Co. Among the rare winners on the day were DJO Finance LLC and Harbinger Group, Inc.

Berry prices $600 million

Following Monday's frenetic session, the primary market passed a relatively quiet Tuesday with two issuers each bringing a single junk tranche, raising $700 million.

Tuesday's deals were not the home-run executions seen in late February.

Neither of Tuesday's two deals was upsized, and both priced at the wide end of price talk.

Berry Petroleum priced a $600 million issue of 10.5-year senior notes (B2/B+) at par to yield 6 3/8%, at the wide end of the 6¼% to 6 3/8% yield talk

Wells Fargo was the left bookrunner for the quick-to-market issue. BMO, Credit Suisse, J.P. Morgan, RBS and Societe Generale were the joint bookrunners.

The Denver-based oil and gas production and exploitation company plans to use the proceeds to redeem all $200 million of its 2016 notes, as well as to partially tender for its 2014 notes and pay down its revolver.

Masonite taps 8¼% notes

Masonite International priced a $100 million fungible add-on to its 8¼% senior notes due April 15, 2021 (B3/B+) at 103.5.

The reoffer price, which came at the cheap end of the 103.5 to 104 price talk, renders a 7.521% yield to worst.

Bank of America Merrill Lynch and Wells Fargo were the joint bookrunners for the quick-to-market add-on.

The Mississauga, Ont.-based door manufacturer plans to use the proceeds for general corporate purposes, which may include funding future tuck-in acquisitions.

The original $275 million issue priced at par in April 2011, so Berry realized 73 basis points of interest savings with the add-on notes relative to the yield printed on the original issue.

Neuberger starts Wednesday

Unlike the Monday and Tuesday sessions, the Wednesday primary market will get under way with a modest calendar.

Neuberger Berman Group LLC and Neuberger Berman Finance Corp. plan to start a roadshow on Wednesday for an $800 million two-part offering of senior notes (Ba1/BB+).

The deal includes a tranche of eight-year notes, which become callable in three years at par plus¾ coupon, and a tranche of 10-year notes with five years of call protection.

Pricing is set for March 13.

J.P. Morgan, Barclays, Credit Suisse and Morgan Stanley are the joint bookrunners.

Proceeds will be used to redeem all of the outstanding preferred units held by the Lehman Brothers Holdings Inc. parties and the vested preferred units held by NBSH Acquisition LLC, as well as to pay an additional preferred return to the holders of the preferred units, and for general corporate purposes.

Office Depot roadshow

Office Depot began a brief roadshow on Tuesday for a $250 million offering of seven-year senior secured notes.

Citigroup is the left bookrunner. Bank of America Merrill Lynch, J.P. Morgan, Morgan Stanley and Wells Fargo are joint bookrunners.

The Boca Raton, Fla.-based supplier of office products and services plans to use the proceeds to fund the tender offer for its 6¼% notes due 2013.

Moody's Investors Service is expected to assign its B2 corporate credit rating to Office Depot. Standard & Poor's is expected to assign its B- corporate credit rating.

Ekosem-Argar deal

Germany's Ekosem-Agrar GmbH will commence a subscription period on Monday for its €50 million offering of 8¾% five-year bonds (///BB+ from Creditreform Rating AG), according to a company press release.

The subscription period wraps up on March 23.

FION GmbH has the books. Equinet Bank AG is the lead manager.

The deal is structured as a private placement to institutional investors, according to the press release.

Proceeds will be used to finance continued growth and optimize the company's financial structure.

Ekosem-Agrar is the Walldorf, Germany-based holding company of Russian milk producer Ekoniva Group.

A softer session

In the secondary market, traders said that things were definitely on the downside as Junkbondland seemed to take its cues from the equity markets, which saw their worst session of 2012 so far.

The bellwether Dow Jones Industrial Average plummeted by 203.66 points, or 1.57%, to end at 12,759.15, and the broader S&P 500 and Nasdaq composite indexes showed similar losses on a percentage basis on renewed investor worries about Greece's debt problem and a slowing Chinese economy.

"It was softer, absolutely, in a lot of spots," a junk trader said, while a second said that "everything this morning was down by a point. They firmed up later on, but things for the most part still were not where they had been, [on Monday]."

New deals treading water

The traders saw no initial dealings in either the Berry Petroleum bonds, owing to the lateness in the day that the $600 million 10.5-year deal came to market at, or in Masonite's $100 million add-on deal, since such offerings typically do not especially generate a lot of aftermarket response.

The traders said that most of the new deals that came to market on Monday were trading at or a little just under par, where the vast majority of the dozen drive-by deals priced.

A trader saw Bombardier Inc.'s 5¾% notes due 2022 trading in a 99¼ to 99 5/8 context, while a second pegged the Montreal-based aircraft and railroad equipment maker's bonds at 99 3/8 bid, 99 7/8 offered. The $500 million deal had priced at par.

Masco Corp.'s split-rated (Ba2/BBB-/BB) $400 million offering of 5.95% notes due 2022 traded pm Tuesday at 99½ bid, par offered, several trader said. However, another market source saw the Taylor, Mich.-based building products maker's bonds at 99¼ bid, 99¾ offered.

Hexion Specialty Chemicals Inc.'s 6 5/8% first-priority senior secured notes due 2020 were trading at 99¾ bid, 100¼ offered, a trader said. A second trader quoted the Columbus, Ohio-based chemical manufacturer's $450 million deal at 99¾ bid, par offered, but said that he "didn't see much in the way of trading" in it.

After pricing at par on Monday, Hexion had been offered at 1001/2, but with no real bids seen.

In the energy patch, a trader saw Bill Barrett Group's $400 million of 7% notes due 2022 at 99¼ bid, 99¾ offered. A second saw the Denver-based oil and gas exploration and production company's deal at 99½ bid, par offered.

Houston-based oilfield well contractor Key Energy Services, Inc.'s $200 million add-on to its 6¾% notes due 2021 - one of the few deals Monday that did not price at par - trading between 102 and 103 bid, after the bonds priced at 102.5. Key believes that its balance sheet - improved by Monday's deal - gives it flexibility to carry out its corporate strategy.

A trader said in the late afternoon that Continental Resources, Inc.'s $800 million of 5% notes due 2022 were trading at 99½ bid, par offered "earlier this morning, but I've seen nothing since then."

Another trader, though, saw those bonds around par bid, 100¼ offered. They had priced on Monday at par after having been upsized from $650 million.

Some deals hot, others not

Not all of the new deals were treading water like that.

A trader said that from where he sat, Pinnacle Entertainment's 7¾% senior subordinated notes due 2022 "was the only one [of the slew of new deals] that was actually up."

He quoted the Las Vegas-based gaming company's bond at 100½ bid, 100 7/8 offered, up from their par issue price.

A second trader said the $325 million deal - upsized from an originally announced $250 million - traded at 100½ bid, 101 offered.

Omega Healthcare Investors' 5 7/8% notes due 2024 were seen by a trader at 99 7/8 bid, 100¼ offered.

"They've kind of been trading into par bids, offered at par, so they're hanging around par right now - or at least they're trying to," a trader said of the Hunt Valley, Md.-based health care REIT's split-rated (Ba2/BBB-) $400 million deal, which priced at par. A second trader had them at par bid, 100¼ offered.

On the other hand, a trader saw Wynn Las Vegas LLC's split-rated (Ba2/BBB-) 5 3/8% first-mortgage notes due 2022 having traded down to 98 bid, 98½ offered from par, where the $900 million deal priced.

But another trader saw them having bounced off those 98-area lows to end only down 1 point from issue, at 99 bid, 99½ offered.

Fidelity National Information Services, Inc.'s $700 million of 5% notes due 2022 traded as low as 98½ bid, 99 offered "first thing this morning," a trader said.

But he saw the bonds of the Jacksonville, Fla.-based financial transaction processing company later on moving back up to 99 bid, 99½ offered, although that was still below the par level where the transaction - upsized from an originally announced $500 million - had priced on Monday.

A second trader saw those bonds going out at 99 bid, 99¼ offered.

TransUnion trades strongly

Amid the generally lackluster performances seen in newly priced paper, traders said that TransUnion Holding Co.'s 9 5/8% PIK/toggle switches due 2018 continued to stand out.

"TransUnion is the one deal that's really held up," one trader said. "The other deals try to get up to 101, and if they get there at all, they just drop, like a small plane hitting some turbulence in the colder air."

He quoted the Chicago-based credit-reporting company's new bonds at 102¾ bid, 103 offered - down somewhat from Monday's peak levels around 103 5/8 bid given the overall softer tone in the market, but still well above the par level where the $600 million offering had priced on Friday to yield 9.629. The deal firmed to 102½ in initial aftermarket trading.

"TransUnion continued to do very well," a second trader said, adding that it"wrapped around 103" bid.

Friday's other deal, from Hornbeck Offshore Services, Inc., a Covington, La.-based provider of supply and marine transportation services to the offshore energy industry, continued to straddle par, at 99 7/8 bid, 100¼ offered, a trader said.

That quickly shopped $375 million issue of 5 7/8% notes due 2020 priced at par after having been upsized from an originally announced $350 million. The bonds got as good as bid levels around 100½ to 100 5/8 before dropping back to around par.

First Data falters

A trader said that understandably, "everything is still new issues."

A second trader said: "This market is just so new-issue driven. The mutual funds have tons of cash that they have to put to work - and the only place they can really do so in size is in the new-issue market."

Away from the new deals, though, a trader said that First Data Corp.'s bonds "got hit hard today," seeing the Atlanta-based credit-card transaction processor's 12 5/8% notes due 2021 down between 4 and 5 points, which he said left the bonds wrapped around par, while its 11¼% senior subordinated notes due 2016 were also down 4 to 5 points, at about 90 bid.

A second trader said the 12 5/8s were "down a good bit," quoting them at 99¾ bid, 1001/4, on "a lot of volume."

He quoted the 111/4s 3 points lower on the day at 89¼ bid, 90 offered.

The slide in the bonds followed the disclosure in a Securities and Exchange Commission filing that a majority of the company's lenders had okayed extending the maturities on more than $6 billion term loan debt due in 2014 to March 2017.

The lenders also gave the green light to First Data issuing new senior secured notes to prepay a portion of the term loan debt.

Hovnanian drops pre-earnings

Elsewhere, Red Bank, N.J.-based homebuilder Hovnanian is slated to release earnings on Wednesday and ahead of the report, investors were pushing the company's debt downward.

One trader called the 10 5/8% notes due 2016 down 3 points around 88. Another market source placed the notes at 89¼ bid, down over 2 points on the day.

At another shop, a trader said the paper was "in a few points" at "881/2-ish."

Last week, Hovnanian said that it was expecting to report a 27% increase in preliminary net contracts in its first quarterly release of fiscal 2012. The company said that for the quarter ended Jan. 31, contracts had grown to 1,079, up from 850 the year before.

Broad market lower

A trader proclaimed that "a lot of the big names were down 1, 2, 3 points, or even more."

A second agreed, declaring, "Pick anything and it was lower.

"Anything with any beta [volatility] to it was off 1 to 2 points."

For instance, he saw Sears Holding Corp.'s 6 5/8% notes due 2018 at 85¼ bid, 85¾ offered, calling the Hoffman Estates, Ill.-based department store operator's bonds off by three-quarters of a point on "modest trading."

Another trader said that Ford Motor Co.'s benchmark 7.45% bonds due 2031 skidded lower by 1¼ point s, to come to a stop at 126¾ bid, 127¾ offered.

A couple of winners

However, even amid Tuesday's sea of losers, there were winning issues, here and there.

A trader said that DJO Finance LLC/DJO Finance Corp.'s 10 7/8% notes due 2014 "traded all right," seeing the San Diego-based manufacturer of orthopedic products' paper going out a little higher at 102½ bid, 103½ offered.

He cited the news that the company, according to an SEC filing, plans to issue $230 million of senior secured second-priority debt and then use the proceeds to repurchase those $210 million of the 10 7/8s.

He also said that Harbinger Group, Inc.'s 10 5/8% notes due 2015 were "clearly bucking the [negative] trend" by moving above 103 bid.

But he saw no fresh positive news out about Harbinger - a New York-based holding group for subsidiaries Spectrum Brands Holdings, Inc., a branded consumer products company, and Fidelity & Guaranty Life Insurance Co., a life insurance and annuity company - that might explain the market-defying move.

Indicators fall continues

Statistical measures of junk market performance were definitively on the downside for a second consecutive session on Tuesday.

A market source said that the CDX North American Series 17 High Yield index dropped by 15/16 point to 96 3/8 bid, 96 5/8 offered on Tuesday, after having fallen by 11/16 point on Monday. It was the index's third straight loss.

The KDP High Yield Daily Index plunged by 37 basis points on Tuesday to 74.12, its second consecutive loss. It had swooned by 17 bps on Monday. Its yield rose by14 bps, to 6.60% after having gained 9 bps on Monday.

And the widely followed Merrill Lynch High Yield Master II Index, which on Monday snapped a string of 11 straight upside sessions that dated back to mid-February, was down for a second d straight day, losing 0.591% on top of Monday's 0.166% downturn.

The loss dropped the index's year-to-date return down to 4.564% from Monday's 5.186% and from Friday's 5.302%, the current peak level for 2012 so far.

Stephanie N. Rotondo contributed to this report

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