Burger King sets bond plans amid primary drought, existing bonds busy; Momentive dives

By Paul Deckelman and Paul A. Harris

New York, Aug. 26 – Burger King Worldwide Inc. outlined its plans on Tuesday for funding of its planned acquisition of Canadian coffee and donut dispenser Tim Hortons – and the menu includes $2.25 billion of secured notes as well as over $7 billion of bank debt.

The news about Burger King’s upcoming bond issue was about the only thing actually going on in the high-yield primary market – becalmed for the past week and now just running out the clock on August. New-deal activity is not expected to pick up until after Labor Day, when a number of deals will be on tap, many of them driven by merger and acquisition activity like the Burger King transaction.

The Miami-based fast-food giant’s existing 2018 bonds, which had seen little immediate activity in the wake of Monday’s announcement of the coming combination of the two companies, were meanwhile among the busiest credits in Junkbondland on Tuesday, although traders said that they mostly moved in the same 106-area context that they have recently been in.

Away from Burger King, it was another busy session on the downside for Momentive Performance Materials Inc.’s secured bonds after a bankruptcy judge ruled against efforts by the holders of those notes to force the maker of silicon and other specialty materials to make a special interest payment to them as part of its reorganization plan.

Overall activity in the secondary market remained mostly quiet, apart from “story” bonds like Burger King and Momentive.

Statistical market performance indicators turned mixed on Tuesday after having risen across the board on Monday, their fourth mixed session in the last five.

Burger King $2.25 billion bonds

The primary market remained dormant on Tuesday, with no deals pricing.

However, another big acquisition financing entered the pipeline.

Burger King Worldwide announced plans to issue $2.25 billion of senior secured second-lien notes as well as to put in place a $7.25 billion credit facility to help fund its acquisition of Tim Hortons Inc.

Both are expected to be in the market in the next few weeks.

J.P. Morgan and Wells Fargo are the lead banks on the debt.

Company officials said in a conference call on Tuesday that the term loan B is expected to have an interest rate around Libor plus 300 basis points, and the notes are expected to be priced around that area or a little higher (see related story in this issue).

September calendar builds

Burger King takes its place on a growing calendar of deals which, although not formally announced, are widely expected to be September primary market business.

The deals include

• Albertson's LLC's $1,625,000,000 of eight-year senior secured notes (B2) to fund the acquisition of Safeway, Inc.;

• Acosta Sales & Marketing's $800 million of senior notes to help fund the buyout of the company by Carlyle Group;

• Dynegy Inc.'s $4.9 billion to $5.1 billion of unsecured notes to fund the acquisition of assets from Duke Energy, EquiPower Resources Corp. and Energy Capital Partners;

• SFX Entertainment, Inc.'s add-on to its 9 5/8% second-lien senior secured notes due Feb. 1, 2019 (existing ratings Caa1/B-); and

• Ultra Petroleum Corp.'s $700 million of senior notes to fund the acquisition of the Pinedale field.

In addition to those, Rooster Energy Ltd. remains in the market with a $100 million offering of senior secured notes due 2019 (Caa1/CCC+). The deal, which launched in July, is expected as September business.

And Jupiter Resources Ltd. is expected to return with a $1,125,000,000 offering of eight-year senior notes that also launched in July and was subsequently sidelined by the late July-early August market volatility.

Fast-food frenzy

In the secondary market, a source said that Burger King’s 9 7/8% notes due 2018 were among the busiest issues seen during the session, tabulating more than $20 million having traded. He saw the bonds ending up ¼ point at 106½ bid after having been off by as much as ½ point earlier in the session.

A second trader said that those notes “had already been trading in that 105 7/8 to 106½ range, kind of a yield-to-call type paper.”

At another desk, a trader saw the 9 7/8s going home around 106 bid without an offering. “They’re in the street at that level.”

He suggested that “it doesn’t look like they moved a tremendous amount,” having already been in a 105½ to 106½ context, although he saw “a fair amount of bonds having traded.”

Burger King’s zero-coupon senior discount notes due 2019 were anchored around the 93 bid level, little changed on the day, on round-lot volume of about $4 million.

Bank issues hog the action

A trader , scanning the Trace lists, opined that “the most active names today were really all of the banks’ sub[ordinated] paper and their capital notes and the preferreds” – nominally junk-rated paper issued by investment-grade financial institutions.

Among the big-volume leaders in that sphere, to name just a few, were J.P. Morgan Chase & Co.’s 5.15% bonds due 2049, seen up ¼ point at 97½ bid on volume of over $53 million and its 6¾% paper due 2049, up ¾ point at 107¾, with over $23 million having changed hands.

UBS AG’s 6.243% issue due 2049 was seen little changed around 105 5/8 bid on volume of over $35 million.

Judgment day for Momentive

Back among the purely junk issues, a trader said that Momentive Performance Materials’ bonds “were very active” in the wake of an unfavorable ruling on a bondholder claim by the federal bankruptcy judge overseeing the Waterford, N.Y.-based silicon and specialty materials maker’s Chapter 11 reorganization case.

Its 8 7/8% first-lien senior secured notes due 2020 issued by MPM Escrow LLC nosedived by some 7¾ points, with much of the action very late in the day, leaving the bonds around 90½ bid, with over $90 million having changed hands.

A market source saw Momentive’s 10% 1.5-lien senior secured notes due 2020 getting hammered down by over 6 points on the session, going out just above 91 bid on volume of over $24 million.

U.S. Bankruptcy Court Judge Robert Drain, after hearing four days of arguments last week at the courthouse in suburban White Plains, N.Y., said in a ruling on Tuesday that Momentive Performance’s senior lenders – the holders of those first- and 1.5-lien notes – don’t have the right to a make-whole claim. The holders had sought such a payment on the grounds that the securities are being redeemed earlier than scheduled under a plan of reorganization that is currently on the table.

The lenders had previously opposed the plan, though they were getting cash for the debt they held. During Tuesday’s hearing, Judge Drain even chastised them for not taking the money.

On Monday, the lenders had indicated that they might be willing to give their support to the reorganization plan. Momentive still asked for an official ruling on Tuesday, even as lenders agreed to back the plan.

A ruling still needs to be rendered on separate arguments by the company’s junior bondholders, such as those who hold its 11% subordinated notes due 2016; they claim that they are being unfairly subordinated to other pieces of debt. If the judge rules against them, the plan of reorganization can move forward.

If he rules in their favor, however, it could mean the company needs to go back to the drawing board.

In apparent anticipation of an unfavorable ruling, those 11½% notes, which last week had been trading in the mid-single-digit range, were seen on Tuesday around 2 bid, 3 offered.

Firmer – but quiet – market

Overall, one of the traders said that the market “was firmer overall – but it was just not moving much.”

He said that accounts “are sitting on a fair amount of cash, so there are more inquiries in terms of offer-wanted than bid-wanted, because there are guys that have cash that are looking for paper.”

But he said that activity levels were low.

“There isn’t a lot of volume, and it’s harder to replace things that you’re selling right now.”

Of those built-up cash reserves, he said that “maybe they’re expected to be deployed come September with some new issuance.

Statistical indicators mixed

Statistical indicators of junk market performance turned mixed on Tuesday after having been higher across the board on Monday, their fourth mixed session in the last five trading days.

The KDP High Yield Daily index fell by 10 basis points to close at an even 74, its third downturn in the last four sessions. On Monday, it had gained 7 bps.

But its yield – which normally moves inversely to the index reading, rising as the index declines – atypically declined for a second consecutive session, coming in by 3 bps to end at an even 5.00%, on top of Monday’s 1 bp tightening.

The Markit CDX Series 22 index eased marginally to end at 108 7/32 bid, 108¼ offered; on Monday, it had gained 5/16 point, while on Friday it had been down by that same 5/16 point, part of a recently choppy pattern.

The widely followed Merrill Lynch High Yield Master II index made it an even dozen days on top, improving by 0.042% on Tuesday, on top of Monday’s 0.073% advance.

The latest upturn boosted the index’s year-to-date return to 5.754% – a new peak level for 2014. It was up from 5.709% on Monday, up as well from the previous 2014 high point of 5.751%, set back on July 7, and well up from its recent low point of 3.683%, reached on Aug. 1 during the junk market’s big late-July, early-August correction.

Stephanie N. Rotondo contributed to this review.

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