SPX prices $500 million deal; Claymont jumps on buyout news; builders, mortgage names better

By Paul Deckelman and Paul A. Harris

New York, Dec. 10 - SPX Corp. was heard by high yield syndicate sources to have successfully priced its half-billion-dollar offering of new seven-year notes on Monday. There was no immediate aftermarket activity in the new issue, traders said.

In the secondary market for established issues, Claymont Steel Holdings Inc.'s bonds and shares jumped on the news that Russian coal and steelmaker Evraz Group SA has agreed to acquire the Claymont, Del.-based steel-plate manufacturer in a deal valued at some $565 million, including debt assumption.

Takeover talk also lifted the bonds of Primus Telecommunications Group Inc., although there was no firm news out about the McLean, Va.-based company.

Bonds of homebuilders such as Hovnanian Enterprises Inc., KB Home and Standard Pacific Corp. were higher, as was paper from such mortgage providers as Countrywide Financial Corp. and Residential Capital LLC - as well as ResCap corporate parent GMAC LLC - ahead of Tuesday's final policy meeting of the year for the Federal Reserve Board, which is widely expected to announced another interest rate cut. Those bonds were also helped by a very slightly more-hopeful-than-expected forecast from the key real estate industry trade group.

A syndicate official said that the CDX High Yield 9 index ended the Monday session 1/8 point higher at 96 5/8 bid.

Another source from a different high yield syndicate desk said that the cash market ended the day ¼ to ½ point higher, with equities providing the underpinning. However this source added that high yield has not been trading in lock step with stocks over the past couple of weeks.

SPX brings $500 million

The primary market saw one issue price as SPX Corp. placed $500 million of seven-year senior notes (Ba2/BB).

In a transaction led by Banc of America Securities LLC and JP Morgan, the bonds were priced at par to yield 7 5/8%, on top of the price talk.

Proceeds will be used for general corporate purposes which may include financing the acquisition of APV, a division of Invensys plc.

An informed source said described the SPX transaction as a very solid deal that played to a great blue chip book.

Elsewhere sources, taking note of the company's mid-double B ratings, commented that the new issue market remains open to higher tier credits such as SPX.

Meanwhile some market sources anticipated hearing terms Monday on the Legends Gaming (DiamondJacks Casinos) restructured $220 million two-part offering of notes due 2012 (B) via Jefferies & Co. However no terms were available as Prospect News went to press.

The offering is comprised of a $160 million tranche of senior secured notes, with price talk in the 11½% area.

In a restructuring, the gaming company is also offering a $60 million tranche of senior subordinated secured PIK notes, of which 10% will be cash-pay and the remainder will be PIK for life. Price talk on the subordinated tranche is 16½% to 16¾%.

Initially the company came to market with a single $220 million tranche of senior secured notes due 2012.

A&P opts for converts

Great Atlantic & Pacific Tea Co., parent company of A&P supermarkets, will take out the bridge loan backing its acquisition of Pathmark Stores Inc. with a convertibles deal, an informed source said on Monday.

The source added that the financing was originally expected to be done with both junk bonds and convertibles.

Initially A&P put in place a $780 million bridge loan, the source recalled.

In the period during which antitrust approval was pending, the company sold shares of Canadian supermarket company, Metro. With the proceeds from the share sale A&P reduced the amount of the bridge to $380 million.

The bridge was funded on Dec. 3.

On Monday A&P announced it would take out the bridge with a convertibles deal, via Banc of America Securities and Lehman Brothers.

The company elected to circumvent the bond market because of the greater covenant flexibility and the interest savings that convertibles provide.

A thin calendar

Aside from the aforementioned Legends Gaming deal, only two offerings are presently believed to be in the market.

Quality Distribution LLC is expected to price a $50 million add-on to its three-month Libor plus 450 basis points senior floating-rate notes due Jan. 15, 2012 (Caa1/CCC) on Wednesday via Credit Suisse.

Elsewhere Helix Energy Solutions is marketing a $500 million two-part senior notes offering (B3) - a debt refinancing deal via Banc of America Securities.

The Houston-based energy company is in the market with tranches of fixed-rate notes due 2015 and floating-rate notes due 2014 which are expected to price early in the week of Dec. 17.

Also, an informed source said that Sequa Corp.'s $700 million bond offering, which launched in early November, is still out there and could price by the end of the year.

However this source and others suggested that the primary market might remain relatively quiet during the remainder of 2007.

One high yield syndicate source said that deals which do come are apt to be the higher-rated offerings such as SPX Corp.

Meanwhile bonds associated with the LBO risk overhang continue to be marketed behind the scenes.

SPX unseen, NewPage higher

A trader said late in the session that he had not seen the new SPX 7 5/8% notes due 2014 trading around, following their pricing at par. Neither he nor another trader had seen any trace of the new IKON Office Solutions Inc. floating-rate notes due 2012, which had priced Friday at 99 with a coupon of Libor plus 500 basis points.

However, one of the traders did see some secondary activity in NewPage Corp.'s 10% notes due 2012, which had priced Friday at par, with the Miamisburg, Ohio-based coated paper producer's bonds having firmed nearly 2 points, going home at 101.75 bid, 102.25 offered.

And a trader surveying the landscape for recently priced bonds observed that the new Texas Competitive Electric Holdings Co. LLC issue, which priced on Nov. 29 is "still moving higher."

He saw the Dallas-based energy company's new 10¼% cash-pay notes due 2015, which originally priced at 95, having moved up to 99 bid, par offered, while its 10½% PIK notes due 2016, which had priced at 93.25, were hovering Monday around 99 bid, 99.75 offered.

Market seen quiet, firmer

Apart from the newly minted bonds, traders saw the market Monday mostly quiet, though with a firmer tone ahead of the central bank meeting.

"It was quiet and boring," one said, while another suggested that "people are waiting on the Fed."

The second trader described Monday as "one of the quietest days of the year. We were dead, and most of the places we talked to were also dead." He characterized the overall market tone as "generally firmer."

Advancing issues outpaced decliners by a better than six-to-five ratio. Surprisingly, overall market volume - despite anecdotal observations from traders - was actually well above Friday's anemic levels. Among market barometers, the KDP High Yield Daily Index was up 0.18 to 78.25, while its yield tightened by 5 bps to 8.56%.

Claymont climbs on buyout

A trader called Claymont Steel's 8 7/8% notes due 2015 "maybe the most active high yield bond of the day," noting an 11-point jump in the bonds' price on the buyout news. He saw them going home at 101.25 bid, 101.75 offered. Another trader pegged the bonds up 10 points at 101.5 bid, 102.5 offered.

Claymont's Nasdaq-traded shares rose $1.29, or 5.86%, to $23.29, on very heavy volume of 2.88 million, about 31 times the average daily turnover in that name. The shares, which had closed at $22 on Friday had shot up by as much as $4, or 18%, to $26 in pre-market dealings Monday, before coming back down to where they actually did close once the deal terms were publicized.

Pushing the bonds and shares up was the news that Evraz Group had agreed to acquire Claymont in the $23.50 per share deal, or for $412.8 million. Including debt and net of cash, the deal totals about $565 million.

In January, Evraz completed its acquisition of another steel name at one time familiar to high yield market participants, Oregon Steel Mills Inc.

The Claymont deal was seen having some impact on AK Steel Corp.'s 7¾% notes due 2012. The Middletown, Ohio-based specialty steelmaker's bonds which had closed at 99 on Friday, according to a market source, opened at around par on Monday, and by the end of the day had pushed up to above the 101 level, up more than 2 points on the session, helped by a late large-block trade.

Primus up on 'rumors'

Also in the realm of takeover speculation, a trader pronounced Primus Telecom's 8% notes due 2014 up 2 points at 54.5 bid, 55.5 offered "on rumors they were going to make a deal to sell themselves."

However, there was no firm news one way or another out on the McLean, Va.-based telecom operator.

Homebuilders up on industry optimism

Elsewhere, homebuilder names were seen higher, given a lift when a realty trade group raised its forecast for home sales in 2008, a development which also helped mortgage companies as well.

That pronouncement from the National Association of Realtors represents the first glimmer of hope that the long housing slump may finally be on the verge of improving - even though it also warned that there would not be much relief in sight on the new-home scene.

Despite that cautionary note, "housing was a little better," declared a trader who saw KB Home's bonds all "trading up," with the Los Angeles-based builder's 6¼% notes due 2015 firming to 88.5 bid, its 5 7/8% notes due 2015 at 87 bid, 88.5 offered, and its 7¾% notes due 2010 at 93.25 bid, 94.5 offered, all up about a point or so.

A trader said Hovnanian Enterprises' 6½% notes due 2014 were a point better at 73 bid, 74 offered, while its 6 3/8% notes due 2014 were ½ point better at 73. Its 8 7/8% notes due 2012 were seen 2½ points better at 63 bid, 65 offered.

A trader saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 half a point better at 79.5 bid, 81.5 offered. He also saw Standard Pacific's 7% notes due 2015 firm to 71 bid, 73 offered, up a point, as were WCI Communities Inc.'s 9 1/8% notes due 2012 at 56 bid, 58 offered, although Tousa Inc.'s 8¼% notes due 2011 actually lost a point to 44 bid, 46 offered.

Another trader saw the WCI 9 1/8s better on the day by 2 points at 57.5 bid, 59.5 offered, while its 7 7/8% notes due 2013 were also up a deuce at 54.5 bid, 56.5 offered.

A market source saw Beazer's 6 7/8% notes due 2015 at 75 bid, up ¼ point, while its 6½% notes due 2013 were 1 point better at 74.5 bid, 75.5 offered.

The housing bonds - which rose last week when the subprime rescue plan negotiated between the government and the mortgage industry was finally unveiled - continued to improve, along with the sector's equity, after the NAR forecast that house sales will actually rise slightly in 2008 to 5.7 million. That forecast is up marginally from last month's prediction of 5.69 million units.

The organization's chief economist, Lawrence Yun, said that the worst part of the credit crunch has already worked its way through the data; "now that mortgage conditions have improved, some postponed activity should turn up in existing-home sales over the next couple of months, and I expect sales at fairly stable to slightly higher levels."

The group said that its Pending Home Sales Index, a forward-looking indicator based on contracts signed, increased 0.6% in October - its second consecutive monthly gain. The index rose to a reading of 87.2 for October from an upwardly revised reading of 86.7 in September.

Lest anyone become too exuberant, however, the NAR pointed out that the October index still was 18.4% below its year-earlier reading of 106.8. And - importantly for the builders - the organization also warned that it expects new-home sales to come in this year at 788,000 this year, well down from 1.05 million in 2006, and it sees new-home sales falling to 693,000 in next year. The group's news release bluntly declared that "no sustained improvement is seen for new homes until 2009."

Mortgage names also get a boost

Because what is good for housing is good for the mortgage industry, and vice versa, mortgage names were seen higher, apparently helped by the optimism generated by the NAR report, as well as the warm afterglow from last week's big rise related to the subprime freeze plan, which is seen as a key to stabilizing the deteriorating foreclosure situation and restoring borrower confidence.

A trader saw mortgage industry leader Countrywide Financial's 6¼% notes at 63.5 bid, 64.5 offered, which he said was up from earlier levels at 62.5 bid, 64.5 offered, but still not much changed from closing bid levels last week around 63.

However, another trader saw the 61/4s up a point at 63 bid, 64 offered, while its 3¼% notes due 2008 were also a point better at 91 bid, 93 offered.

A trader saw Countrywide competitor Residential Capital LLC's 8% notes due 2013 (formerly the 6½% notes due 2013, before the coupon stepped up after several ratings downgrades) up a point at 68 bid, 69 offered.

A market source saw its 8 3/8% notes due 2015 up 1¼ points at 68.25. Its 7% notes due 2011 were at 70 bid, up 1½ points. A trader saw ResCap owner GMAC's 8% bonds due 2031 a point better at 86 bid, 87.5 offered.

Another market source saw the 8s up ¾ point at 87 bid, and its 6 7/8% notes due 2012 also at 87, up 1½ points on the day.

GMAC's 49% owner, General Motors Corp., was likewise better, a trader said, its widely traded benchmark 8 3/8% bonds due 2033 a point up at 82.5 bid, 83.5 offered. GM's domestic arch-rival, Ford Motor Co., came along for the upside ride, its 7.45% bonds due 2031 also a point better at 76 bid, 77 offered.

Analyst's remarks good medicine for Rite Aid

A trader said he saw "a lot of bids" for Rite Aid Corp. bonds, in line with a solid rise in the Camp Hill, Pa.-based drugstore operator's shares, after favorable comments about the company from a respected analyst.

He saw the company's 8 1/8% notes due 2010 at 99.5 bid, par offered, while its 7½% notes due 2015 were at 93 bid, its 9¼% notes due 2013 at 92 bid and its 8 5/8% notes due 2015 at 87.5 bid, "all up a point from Friday."

That happened in tandem with a better than 8% rise in Rite Aid's New York Stock Exchange-traded shares, after Lehman Brothers analyst Meredith Adler - Institutional Investor magazine's choice as its top-ranked drugstore analyst - predicted the stock, which closed Monday at $4.41, will reach $7 before too long; Adler opined that Rite Aid "has made significant progress over the past several years to strengthen its competitive position."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.