Novelis, FMG bring mega-deals to cap $13 billion primary week; A&P battered by bankruptcy buzz

By Paul Deckelman and Paul A. Harris

New York, Dec. 10 - Novelis Inc. and FMG Resources Pty Ltd. came to market on Friday with a pair of two-part mega-deal-sized offerings, high yield syndicate sources said - a humongous $2.5 billion for Atlanta-based metals company Novelis and a sharply upsized $1.5 billion for FMG, a unit of Australian iron ore producer Fortescue Metals Group.

Those transactions closed out another very busy week in Junkbondland, with $13 billion of new notes having priced.

When the new Novelis bonds were freed for secondary dealings, they were seen to have moved solidly upward. The same could not be said for FMG's deal, with both tranches seen by traders hovering below the par levels where they priced.

Germany's Durr AG meanwhile priced a small add-on to its euro-denominated 7¼% notes.

Syndicate sources heard price talk emerge on Aurora Diagnostics Holdings, LLC's planned seven-year note offer, which is expected to price Monday. They also heard Syniverse Technologies hitting the road to market its $230 million offering of seven years.

Away from the new-deal arena, the secondary market was dominated by the dizzying decline in Great Atlantic & Pacific Tea Co.'s paper after news stories circulated saying that the venerable operator of the iconic A&P chain, among several others supermarkets, is getting ready to file for Chapter 11.

Tenet Healthcare Corp.'s bonds got healthier in response to the late Thursday announcement of a bid for the Dallas-based hospital operator by larger rival Community Health Systems Inc., whose bonds were seen only marginally lower.

Novelis prices $2.5 billion

The Friday primary market session saw two issuers, each bringing a pair of junk tranches, issue $4 billion of bonds.

Novelis priced $2.5 billion of senior notes (B1/B+) in two tranches.

The deal included a $1.1 billion tranche of seven-year notes which priced at par to yield 8 3/8%, in the middle of the 8¼% to 8½% price talk.

In addition, Novelis priced a $1.4 billion tranche of 10-year notes at par to yield 8¾%, at the wide end of the 8 5/8% to 8¾% price talk.

Citigroup was the left bookrunner. J.P. Morgan, Bank of America Merrill Lynch, RBS Securities Inc. and UBS Investment Bank were the joint bookrunners.

Proceeds will be used to help refinance debt and return capital to parent company Hindalco.

FMG massively upsizes

Meanwhile FMG Resources (Fortescue Metals Group) completed a massively upsized, restructured $1.5 billion two-part senior notes transaction (B1/B/B+).

The Australian company priced an upsized $900 million issue of seven-year notes at par to yield 6 7/8%. The seven-year notes tranche, which was upsized from $400 million, priced on top of price talk.

Also, in a tranche that was added in a deal restructuring, FMG priced an upsized $600 million tranche of five-year notes at par to yield 6 3/8%. The five-year notes tranche, which was also upsized from $400 million, priced at the tight end of the 6½% area price talk.

The deal launched into the market as an $800 million offering comprised entirely of seven-year notes.

J.P. Morgan ran the books.

Proceeds will be used to finance expansion activities and for other general corporate purposes.

The massive upsizing notwithstanding, the bonds were not trading well in the secondary market, late Friday afternoon, according to a debt capital markets banker away from the deal.

$13 billion week

With Friday's business in the tally, the Dec. 6 week closed having seen issuers raise $13 billion of proceeds in 24 dollar-denominated, junk-rated tranches.

That is the biggest week in three months, according to Prospect News data, which indicates that the week of Sept. 13 saw $13.8 billion in 24 tranches.

Year-to-date issuance totaled $288.4 billion at Friday's close.

Astonishing as that history-making year-to-date total is, the 2011 primary has at least one more week left to run.

And it figures to be a vigorous week, sources say.

The $4.325 billion that was parked on the active calendar at Friday's close does not tell the whole story, syndicate bankers asserted.

Each of the big dealers is believed to have several offerings primed and ready to launch, they added.

Most of them can be expected to appear in the earlier part of the week ahead, sell-side sources say.

Is an assault on the $300 billion mark in the cards?

Possibly. However the $11.6 billion of issuance needed to reach that threshold would require an issuance total well in excess of the $8.8 billion average weekly issuance total, going back to the beginning of November. Only two weeks during that period, the most recent week and the week of Nov. 8 ($11.7 billion), produced volumes of issuance sufficient to reach the $300 billion mark by the Dec. 17 close.

And the Friday, Dec. 17 close could bring down the curtain on 2010, one syndicate official suggested, adding that the buy-side accounts are likely to want to close up shop for the year during the pre-Christmas week.

Recent history backs up that suggestion.

The final action in 2009 came on Dec. 18, when the market saw a combined $2.9 billion from Clear Channel Worldwide Holdings, Inc., Geokinetics Holdings USA, Inc. and Vantage Drilling Co.

The week ahead

Turning to what is already visible for the week ahead, Aurora Diagnostics Inc. talked its $230 million offering of seven-year notes (/CCC+/) with a 10½% area yield on Friday.

The Palm Beach Gardens, Fla.-based diagnostics company also increased call protection to four years from three years.

The notes, which will be issued via Aurora Diagnostics Holdings, LLC and Aurora Diagnostics Financing, Inc., are set to price on Monday.

Morgan Stanley & Co. Inc., Barclays Capital Inc. and UBS Investment Bank are the joint bookrunners.

Meanwhile, the books closed on Friday for First Capital Holdings, Inc.'s $100 million offering of five-year senior notes (B3/B-), according to an informed source, who added that the deal is expected to price on Monday or Tuesday.

Earlier in the week the notes were talked with a 12% coupon at a discount to yield 12½%.

Gleacher & Co. has the books.

Syniverse starts roadshow

Finally, Syniverse Holdings, Inc. began a roadshow on Friday for its $475 million offering of eight-year senior notes (Caa1/B-/).

The deal is expected to price during the week ahead.

Credit Suisse, Barclays Capital and Goldman Sachs & Co. are the joint bookrunners for the LBO financing.

Novelis deal does well...

When the new Novelis bonds were freed for aftermarket dealings, traders saw both halves of that deal moving up.

A trader remarked that "they're both trading right around the same prices" in the 101¼ bid, 101½ offered area.

A second trader agreed, pegging both the 8 3/8% notes due 2017 and the 8 ¾% notes due 2020 at 101¼ bid, 101¾ offered, versus par, where both tranches had priced earlier in the day.

...but not FMG Resources

On the other hand, the day's other big deal, that for FMG Resources, never did get out of its own way when it arrived in the aftermarket.

A market source said he had heard that the new bonds were not doing so well.

A trader at another desk, agreed, seeing both halves of the deal trading at 99¼ bid, 99¾ offered, down from the par issue price of both the 6 3/8% notes due 2016 and the 6 7/8% notes due 2018.

Thursday deals hold their own

Among the deals which came to market during Thursday's session, a trader said that Nalco Co.'s dollar-denominated 6 5/8% notes due 2019 "held up pretty well."

He saw the Naperville, Ill.-based water treatment and specialty chemicals company's paper at 101 7/8 bid, 102 offered. That was up slightly from the 101½ bid, 102 offered at which the $750 million deal traded late Thursday after it priced earlier that day at par.

He also saw the new Dean Foods Co. 9 ¾% notes due 2018 "doing OK," at 101½ bid, 101 5/8 offered.

A second trader had the bonds at 101½ bid, 102 offered.

The Dallas-based dairy products producer had priced $400 million of those bonds on Thursday at par, too late in the day to get in on any aftermarket dealings.

Likewise, Houston-based energy operator Concho Resource Inc.'s $600 million of 7% notes due 2021 had moved up to 101½ bid, 102½ offered; the deal, upsized from the originally announced $350 million, had priced at par late Thursday but was not seen in that session's aftermarket.

Tenneco Inc.'s $500 million of new 6 7/8% notes due 2020 were seen trading at 101¼ bid, 101¾ offered, about the same level they held after the Lake Forest, Ill.-based automotive components company priced its transaction Thursday at par.

"Everybody loves it," a trader said, "and with that coupon, that is very surprising. I'm just shocked. I never thought that I would see them being able to do a deal at just 6 7/8%."

He suggested that the deal was doing so well for the simple reason that "auto parts companies are just hot."

He noted that sector peer ArvinMeritor Inc.'s 8 1/8% notes due 2015 have moved up to around 104 bid, while Park Ohio Corp.'s 8 3/8% notes were at 101 bid, "and the only reason they're not higher is that nobody wants to sell. Another good performer, he said, has been Goodyear Tire & Rubber Co.

"People are just convinced that that industry will always still be around."

Indicators largely stable

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index up ¼ point on Friday to end at 101 5/8 bid, 101 7/8 offered, after having been unchanged on Thursday. The Index thus ends the week up from the 100¾ bid, 101¼ offered level seen at the close the previous Friday, Dec. 3.

The KDP High Yield Daily index meantime was closing at 73.92 Friday, virtually unchanged from the day before for a second consecutive session. Its yield edged up to 7.42%, a second straight 1 bp gain on the day. The index thus closes up on the week from 73.72 the previous Friday, while its yield was down a little from the prior Friday's 7.48%.

The Merrill Lynch High Yield Master II index gained 0.014% on Friday, after having risen 0.031% on Thursday. That lifted its year-to-date return to 14.159% on Friday from 14.144% on Thursday. It was also a 0.303% gain on the week versus the previous Friday's 13.814% reading. However, the index remains down considerably from the 2010 peak level of 15.602% recorded on Nov. 9.

Advancing issues and decliners were essentially even on Friday, while the gainers had overtaken the losers Thursday by a seven-to-six margin.

Overall activity, represented by dollar-volume levels, fell by 16% on Friday, on top of the 10% fall-off seen on Thursday from the previous session's levels.

A&P bagged on bankruptcy talk

A trader said that investor worry over Great Atlantic & Pacific Tea Co.'s possible coming bankruptcy "monopolized" secondary dealings on Friday.

A&P, he declared, "just got slaughtered," although he said that the 11 3/8% senior secured notes due 2015 "held up relatively well." He saw those bonds trading in a 791/2-82 context, around where they had been previously, although he noted that they were now trading flat, or without their accrued interest, translating to an effective loss of several points despite the relatively small change in nominal prices.

By contrast, he said, the 5 1/8% notes due 2011 "were trading just 3 points behind that," or in the low-to-mid 70s, "before the debacle."

The news that the company had hired attorneys and was considering restructuring through Chapter 11 hammered the bonds down by 45 points or more, into the 20s. Its 6¾% 2012 notes, he said, "are pari passu" with the 5 1/8s in any restructuring any recovery scenario, and they too got smacked down into the 20s.

A market source at another desk saw the 5 1/8s having traded around 73 as recently as Thursday - but they opened at 50 and continued to plunge after that before bottoming out in the 20s. He saw the 63/4s fall from Thursday's levels around 58 down to that same mid-20s context on Friday

A trader said that at his shop "all the focus was on trading GAP," referring to A&P by its stock exchange ticker symbol.

The bonds were "all over the place," he said. The 11 3/8% notes spent the morning "wrapped around 70" - but by the end of the day, had moved back up to around 80 bid, 82 offered, essentially not much changed on the day, since in the event of a bankruptcy those senior secured notes would rank before the other bonds in the capital structure and have a far better recovery.

He meantime saw the 5 1/8s fall as low as 19 and trade as high as 30, before going out at 25 bid, 27 offered.

Tenet trades up

Elsewhere, a trader said that Tenet Healthcare bonds "just flew" on the news that larger rival Community Health Systems had offered to buy Tenet for $3.3 billion and assume $4 billion of debt, although Tenet said the offer undervalues it.

He saw its 8 7/8% notes up 3½ points at 112¼ bid, 112½ offered, versus 108¾ bid, 109 offered pre-news, "so that really did well."

The 8% notes due 2020 were up about 2 points at 100¾ bid, 101¾ offered.

"The lower-coupon ones were up about a point," he added.

' As for Community Health, he said its bonds "held up much better than we expected," considering the amount of debt it would be absorbing if the takeover were successful. He quoted its 8 7/8% notes due 2015 at 104¾ bid, 105 offered, down from 105½ bid, 106 offered pre-news.

"We thought it would get hit a lot more," he said, "so this isn't that bad."

He said that there was "a ton" of the Franklin, Tenn.-based hospital operator's benchmark issue trading around at those slightly lower levels on Friday.

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