Vulcan mega-deal, Endo, W&T price to end short week; Sino-Forest chopped down after report

By Paul Deckelman and Paul A. Harris

New York, June 3 - Three deals totaling more than $2.5 billion of new paper came to market in five tranches late in the day on Friday, high yield syndicate sources said, lifting a previously pallid new-issuance total for the holiday-shortened week at least back to respectable, if not really overwhelming levels.

Vulcan Materials Co., a producer of construction materials such as concrete and asphalt, slightly upsized its offering of five- and 10-year notes to $1.1 billion. Traders said that both halves of the new deal moved up nicely when they were freed for secondary activity.

W&T Offshore, Inc., an oil and gas exploration and production company, brought in a $600 million issue of eight-year notes, which moved up moderately after their pricing.

And drug manufacturer Endo Pharmaceuticals Holdings, Inc. was heard to have increased the dosage of its two-part deal to $900 million from the original $700 million, while tinkering around with the longer-date tranche to slightly reduce its tenor. But the eight- and 10.5-year bonds hit the screens too late in the day for an aftermarket.

Friday's burst of late-session pricing activity more than doubled the week's new-deal total from the roughly $2 billion which had come to market over the first three days of the week, which was shortened by the shutdown this past Monday in observance of Memorial Day. But the total was left well below the roughly $10 billion of new paper that came to market the previous week, ended May 27.

Apart from the actual pricings, the primaryside was quiet, with the news coming from European issuers - price talk on Norwegian papermaker Norske Skogindustrier ASA's €300 million five-year deal, which is expected to price on Monday and shipping company Stolt-Nielsen Ltd.'s announcement of a five-year, dual-currency deal that's expected to roadshow to prospective investors in the coming week.

The secondary market, away from trading in the new issues, was fascinated by the unfolding Sino-Forest Corp. disaster, which saw the Canadian-Chinese timber company's shares get pounded for a second straight session on an extremely unfavorable research report, and this time, the company's straight junk bonds and convertible issues nose-dived along with the equities, with some issues quoted between 30 and 50 points lower on the day.

Statistical performance indicators were meantime universally on the slide for a second consecutive session, and were lower on the week as well.

Vulcan Materials upsizes

In Friday's primary market action three issuers priced a combined five tranches of notes raising an overall total of $2.6 billion.

To cast a positive light, two of Friday's three issuers upsized their multi-tranche deals.

To cast a negative one, all five of Friday's tranches were priced at the wide end of price talk.

Vulcan Materials priced an upsized $1.1 billion two-part senior bullet notes transaction (Ba1/BB/).

The Birmingham, Ala.-based company priced a $500 million tranche of 4.5-year notes at par to yield 6½%. The yield printed at the wide end of the 6¼% to 6½% price talk.

Vulcan Materials also priced a $600 million tranche of 10-year notes at par to yield 7½%, at the wide end of the 7¼% to 7½% price talk.

The amount was raised from $1 billion.

Bank of America Merrill Lynch, Goldman, Sachs & Co. and SunTrust Robinson Humphrey Inc. were the joint bookrunners for the public deal.

Proceeds will be used to repay a portion of the company's revolving credit facility, as well as to refinance and terminate its term loan, to fund a tender offer for a portion of the company's existing 5.6% senior notes due 2012 and its 6.3% senior notes due 2013, and for general corporate purposes.

Endo upsizes, restructures

Meanwhile Endo Pharmaceuticals priced an upsized, restructured $900 million two-part senior notes transaction (Ba3/BB-/).

The Chadds Ford, Pa.-based specialty health care company priced a $500 million tranche of eight-year notes at par to yield 7%.

The eight-year notes priced at the wide end of price talk which had been set in the 6 7/8% area. Call protection for the eight-year notes was extended to four years from three years.

Endo also priced a $400 million tranche of 10.5-year notes at par to yield 7¼%. The 10.5-year notes also priced at the wide end of price talk which had been set in the 7 1/8% area. The maturity was decreased to 10.5 years from 12 years.

Endo had originally planned to sell $700 million.

Bank of America Merrill Lynch, Morgan Stanley & Co., Inc., Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. were the joint bookrunners.

Proceeds, along with cash on hand and proceeds from a new $2.9 billion credit facility, will be used to finance Endo's acquisition of American Medical Systems and to refinance American Medical Systems debt and Endo's existing credit facility.

W&T prices $600 million

Also on Friday W&T Offshore priced a $600 million issue of eight-year senior notes (Caa1/B) at par to yield 8 ½%.

The yield printed at the wide end of the 8¼% to 8½% yield talk.

Morgan Stanley & Co., Inc. ran the books.

The Houston-based oil and natural gas company plans to use the proceeds to fund a cash tender offer for its 8¼% senior notes due 2014 and to redeem or repurchase the notes not tendered. Remaining proceeds will be used to repay debt under the company's revolving credit facility and to fund a portion of its recent acquisition in the West Texas Permian Basin.

$3.67 billion week

With Friday's action in the tally, the May-June crossover week saw junk issuers raise $3.67 billion in 10 speculative-grade dollar-denominated tranches.

That is the lowest weekly amount of issuance in 11 weeks - going back to the week of March 14, which saw $3.123 billion price in nine tranches.

Friday's business extends 2011 year-to-date issuance to $178.6 billion in 400 tranches.

It is an astonishing amount of business, market sources concede.

However new issue volume is apt to decrease, they add, referring to several indications.

First, post-Memorial Day business has thus far unfolded against a backdrop of falling stock prices, as the equity markets digest a litany of negative news regarding the U.S. economy.

The volatility in the equity markets made way for choppy post-Memorial Day executions, sources say.

Of the week's 10 tranches, one came wide of price talk, six came at the wide end of price talk, two came at the tight end of price talk and one - International Wire Group - came without price talk.

Several of the week's deals also underwent revisions, such as decreased maturities and increased call protection, which favor investors, an indication that issuers and dealers had to push a little harder to get some of the transactions across the finish line.

In addition to the chop, summer has come to the high-yield primary. Summer traditionally brings in a slower pace of issuance, although in recent years junk issuance has shown less seasonality.

At any rate, sell-side sources see something of a slowdown ahead - at least in the immediate future.

Norske Skog to price Monday

The week ahead will get underway with $3.335 billion on the active forward calendar.

Most of Friday's developments regarding the week ahead emanated from Europe

Norway's Norske Skogindustrier talked its €300 million offering of five-year senior notes (/B-/) with a yield in the 12% area, market sources said on Friday.

The level is at the high end of the 11% to 12% initial guidance heard earlier in the week.

Pricing is set for Monday.

The joint bookrunners are Citigroup, DnB NOR, SEB and Nordea.

Stolt-Nielsen sets roadshow

And Stolt-Nielsen will conduct a global roadshow during the June 6 week for its $200 million to $300 million equivalent offering of five-year senior notes.

The deal includes dollar-denominated and Norwegian kroner-denominated notes.

DnB NOR Markets, Nordea Markets and Swedbank First Securities are the joint lead managers for the general corporate purposes deal.

Vulcan very formidable

When the new Vulcan Materials bonds were freed for secondary dealings, a trader suggested that the Birmingham, Ala.-based construction aggregates producer's deal was "doing pretty well" in the aftermarket.

He saw Vulcan's five-year notes trading up around 100 ¾ bid, 101¼ offered, well up from their par issue price.

He saw the company's 10-year paper doing even better at 101½ bid, 102 offered, also up from par.

W&T trades up

The same trader also saw the day's other new deal that came early enough to have an aftermarket, having a good one.

Houston-based energy company W&T Offshore's eight-year issue was seen trading at 100 5/8 bid, 100 7/8 offered, up from its par issue price earlier.

A second trader meanwhile quoted the bonds as having risen to 100½ bid, 101¼ offered.

Chadds Ford, Pa.-based drug manufacturer Endo Pharmaceuticals' upsized $900 million two-part deal came too late in the session for aftermarket dealings.

Little seen of Sunstate

Thursday's $170 million offering from Phoenix-based equipment rental company Sunstate Equipment Co. LLC, issued with Sunstate Equipment Co. Inc., was little-seen in Friday's market.

A trader said he saw the 12% second priority senior secured notes due 2016 offered at 100¼ "first thing this morning - then I never saw anything else in them." The bonds had priced at par on Thursday.

A second trader also saw the Sunstate issue offered at 100 1/8, "and that's all that I see of them."

Traders meantime saw not a trace of Camden, N.Y. based electrical wire manufacturer International Wire Group Holdings, Inc.'s $100 million offering of 11½%/12¼% senior payment-in-kind notes due 2015, which priced late in the day on Thursday at par.

A trader noted that actually "both these deals are PIK" - while Sunstate's deal is nominally a straight bond deal, without any tricky structures, in fact, the 12% coupon features PIK step ups: the coupon increases 100 basis points if leverage is greater than or equal to 4.625 times on or after Dec. 31, 2011, and 150 bps if leverage is greater than or equal to 3.75 times on or after Dec. 31, 2012.

"Are we getting to a point," he asked rhetorically, "with everything being refinanced, that everything good or kind of good has been done, and now they're getting to the kind of lower [deals] where more and more PIK issues are getting done?"

He agreed with the notion that the record heavy new-deal issuance so far this year has included a few deals that might not have gotten done a year or two years ago, either because of investor discomfort with the company or else an unusual, risky structure.

"What's next," he asked, again rhetorically - "will they be coming back with contingent interest, where how big the coupon is depending upon what the cash flow is?"

With a return of somewhat unconventional, riskier structures - PIK notes, or zero-coupon bonds to the junk market, "if you want an allocation, that's what you're stuck buying."

AES eases a little

Among other recently priced deals, a trader said AES Corp.'s 7 3/8% notes due 2021 were being offered at 1011/2, versus the 101 3/8 bid, 101 5/8 offered at which he saw the Arlington, Va.-based power producer's deal trading going home Thursday.

"Everything was off a bit," a second trader said, seeing the notes at 101 bid, 101½ offered, which he said was down ¼ to 3/8 point.

The $1 billion deal had priced at par Wednesday, and then had moved above 101 in the aftermarket.

Market signs stay down

Away from the new-deal arena, statistical measures of market performance, which had turned more negative on Thursday, continued to struggle on Friday.

A trader saw the CDX North American Series 16 HY Index down by 3/8 of a point on Friday at 101 bid, 101¼ offered, after losing 3/16 of a point on Thursday.

The index thus ended down nearly 1 full point on the week from the levels at which it closed out the previous week on May 27.

The KDP High Yield Daily Index dropped by 6 basis points on Friday to 75.81, after having retreated by 7 bps on Thursday. Its yield rose by 3 bps for a second straight session, to end at 6.53%.

The index thus showed a retreat from its 75.93 level a week earlier, when its yield was 6.50%

And the Merrill Lynch High Yield Master II Index fell back for a second consecutive session, losing 0.152%, on top of Thursday's nearly identical 0.154% loss.

That dropped the index's cumulative return to 5.738% from 5.899% on Thursday, and was well down from its year-to-date peak level of 6.071%, reached on May 20.

For the week, the index was down 0.127%. It was the second straight week the index was off from the previous Friday's level.

Sino-Forest falls heavily

A trader said that Sino-Forest's bonds were "pretty much all over the place," trading around at sharply lower levels, in line with a another sharp drop in the Toronto-based Chinese timber company's shares, following a devastatingly negative report on the company that included accusations of massive fraud, which the company vehemently denied.

. "Yes, they did" really get clobbered, he agreed.

He saw the company's 9 1/8% notes that are slated to mature in August ending the day at 72 bid, 77 offered, saw its 10¼% notes due 2014 ending at 65 bid, 69 offered, and pegged its 6¼% notes due 2017 at 60 bid, 62 offered.

He saw the company's 5% convertible notes due 2013 at 58 bid, 61 offered, and its 4¼% converts due 2016 at 54 bid, 56 offered.

He said that "it's not exactly the environment where you start questioning stuff," in explaining the market's apparent readiness to believe the serious accusations contained in the Muddy Waters LLC report, even though management put out a statement denying the validity of those assertions.

A second trader said that at one point the 10¼% notes - which had been quoted around the 107 level on Thursday before the spit hit the fan and all hell broke loose - got down as low as 55 bid, a 52-point plunge on the day.

He had the 61/4s at 61 bid, calling it a 32-point drop, on heavy volume of over $20 million, making it the most active issue in the capital structure.

The bonds, he said, had closed on Thursday trading at 93½ bid, the same level at which they had traded on Wednesday. On Tuesday, he saw the bonds even better, as high as 94¾ bid, "so for them to trade down at 61 today, means it's probably not the best investment week" for them, he said with no small amount of understatement..

He meantime saw the 4¼% converts offered at 56.

At another desk, a trader declared that the Sino-Forest bonds were "the big movers of the day."

He said that the company's various issues "started down 40 to 50 points overnight, and then moved [back up off those lows]."

He saw the 10¼% notes trading in a wide 65-70 context, while the 61/4s were gyrating between 58 and 62.

He saw the 4¼% convertibles at 55 bid and the 5s at 56 bid.

A trader said he guessed that "the markets believe in the short-seller" who put out the highly critical, even downright derogatory Muddy Waters report about the company, "that there's a lot of truth to the absence of real revenue growth and receivables are going way up, and the financing continues, hugely without a lot showing on the cash-flow side."

He saw the 41/4s at 53 bid; while that was up from the early-morning depths around 48 bid, he noted that at the beginning of the week, that paper was trading at 98 bid, par offered. He quoted the 5% notes as low as 50 bid.

He also saw the 61/4s ending down 33 points at 60 bid, 61 offered versus 55 earlier.

"They were so volatile during the day, that within the course of a half-hour, they were trading between 53 and 66 - a really wild ride."

On Thursday, the 61/4s - after having traded all day between 92 and 93½ bid - swooned as low as 49 on a series of smallish trades of $100,000 or less right at the end of the day. The trader said that very early in the day, there actually was one trade around 90, near their former position, "but all of the rest were in the 50s and 60s, with the last trade being at 60."

The Thursday research report put out by Hong Kong-based investment company Muddy Waters Research, declared that the amount of land Sino-Forest reported buying from Lincang City in the Chinese province of Yunnan doesn't match city records - meaning that the company could not have produced as much timber in the area as it claimed.

Muddy Waters put out a "Strong Sell" recommendation on the stock, saying the equity was worth no more than $1 and also charged that "like Madoff, TRE is one of the rare frauds that is committed by an established institution. In TRE's case, its early start as an RTO [reverse takeover] fraud, luck, and deft navigation enabled it to grow into an institution whose "quality management" consistently delivered on earnings growth."

"TRE, which was probably conceived as another short-lived Canadian-listed resources pump and dump, was aggressively committing fraud since its RTO in 1995," the damning research report further charged.

On Friday, the company responded to the allegations, pointing out that Muddy Waters was founded by a prominent short-seller who would be in a position to make substantial money from a decline in the company's shares.

"Muddy Waters has a short position in the company's shares and therefore stands to realize significant gains from a share price decline that it precipitated," the company said in a statement. "Muddy Waters expressly admits that it makes no representation as to the accuracy, timeliness, or completeness of any information contained in its report. Further, its website discloses no address or ownership information, nor the credentials of any of the authors of the report.

"Neither the Ontario Securities Commission nor the Securities Exchange Commission website lists Muddy Waters or its author as being registered as an advisor."

Still, despite the murky validity of the report and its allegations, Sino Forest said it would assemble an independent committee to look into the matter.

Sino-Forest's Toronto-Stock Exchange-traded shares - which on Thursday had swooned by as much as 25% on the initial market reaction to the Muddy Waters report, causing trading to be halted and never resumed during the session, with the shares left down around 20% on the day on eight times normal volume - got chopped down even more brutally on Friday, At one point, they lost as much as two-thirds of their value, before finally going out down almost that much at C$5.23, a drop of C$9.23, or 63.8% on the day. Volume of 41.9 million shares was nearly 27 times the usual activity level.

One of the bond traders quipped "I guess somebody must have yelled "TIMBER!"

-Stephanie N. Rotondo contributed to this report

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