US Airways brings certificates; Rural/Metro, Crown Media hit the road; market up, but Sino-Forest falls

By Paul Deckelman and Paul A. Harris

New York, June 21 - Summer in Junkbondland began on Tuesday pretty much the way spring had gone out on Monday: not much was going on in the way of new deals, leading market players to grasp at straws such as US Airways Group, Inc.'s $388.22 million split-rated two-part offering of passthrough trust certificates - the kind of deal the junk market usually pays no heed to.

There was also a pricing out of Europe. Austrian building supplies company Wienerberger AG brought a smallish euro-denominated deal, which was completely ignored in the domestic dollar market.

The primaryside did see a little bit of calendar-building action, though, as cable network operator Crown Media Holdings Inc. announced plans for a $300 million bond deal. A roadshow for that offering is expected to begin this week.

Also heard by syndicate sources to be hitting the road were ambulance service provider Rural/Metro Corp., with a $200 million offering of eight-year notes, and merging software companies SoftBrands, Inc. and Lawson Software, Inc., who are shopping a $560 million deal that will help fund SoftBrands' pending acquisition of Lawson.

Elsewhere on the M&A front, the sources heard inVentive Health, Inc. will likely bring a bond offering, in addition to a new term-loan deal, to finance its acquisition of PharmaNet Development Corp.

Secondary market activity remained mostly quiet, traders said, though with a somewhat better tone.

But that did not help the beleaguered bonds of Sino-Forest Corp., which fell sharply, along with its shares, on the news that the Canadian-Chinese timber company's biggest shareholder had run up the white flag and dumped its entire stake in response to the huge decline those shares have seen this month following a scathingly negative research report.

US Airways prices certificates

The primary market flickered to life on Tuesday. One deal crossed the finish line, and the new deal calendar saw a substantial buildup.

US Airways priced a $94.28 million tranche of class B certificates due April 22, 2020 (B2/B+). They sold at par to yield 9¾%.

The junk came in conjunction with a split-rated $293.94 million tranche of class A certificates due April 22, 2025 (Ba2/BBB), which priced at par to yield 7 1/8%.

Goldman Sachs & Co. was structuring agent and a bookrunner along with Citigroup Global Markets Inc. and Credit Suisse Securities (USA) LLC.

Wienerberger prices

The European market put up a slightly more impressive total on Tuesday.

Wienerberger priced a €100 million issue of 5¼% seven-year senior notes (Ba1/BB) at 99.23 to yield 5.385%.

The deal had been talked with a 5% coupon.

Raiffeisen International and UniCredit Bank Austria were the managers for the debt refinancing.

Lawson starts Wednesday

The new deal calendar took aboard junk offerings from both Europe and the United States.

SoftBrands and Lawson Software will begin a roadshow on Wednesday for a $560 million offering of eight-year senior notes (Caa1/B-).

A global investor call is scheduled for 12:15 p.m. ET on Thursday.

Bank of America Merrill Lynch, Credit Suisse, Deutsche Bank Securities Inc., Morgan Stanley & Co. Inc. and RBC Capital Markets are the joint bookrunners for the merger financing.

SoftBrands will issue the notes in conjunction with Atlantis Merger Sub, Inc., which will be merged into Lawson Software. Lawson will become the co-issuer.

Crown Media plans $300 million

Crown Media plans to start a roadshow on Thursday for its $300 million offering of eight-year senior notes (B3/B-).

The roadshow wraps up on June 29, and the deal is expected to price the same day.

J.P. Morgan Securities LLC has the books.

Proceeds will be used to refinance existing debt and to redeem preferred stock.

Rural/Metro starts roadshow

Rural/Metro began a roadshow on Tuesday for its $200 million offering of eight-year senior notes (Caa1/CCC+).

The roadshow wraps up on Friday, and the deal is set to price thereafter.

Citigroup is the left bookrunner. Credit Suisse and Jefferies & Co. are the joint bookrunners.

Proceeds will be used to repay debt, including amounts outstanding under the company's existing credit facilities, and to repurchase parent notes.

The issuing entity will be WP Rocket Merger Sub, Inc., which will be merged with and into Rural/Metro.

The Scottsdale, Ariz.-based provider of emergency and non-emergency ambulance services and private fire protection services is being acquired by Warburg Pincus for $17.25 per share.

Proceeding carefully

Rural Metro's Tuesday New York roadshow drew a respectable six tables of prospective investors, according to a market source who attended.

The chatter around the table was all about "de-risking," the source said, adding that junk does not look nearly as attractive as it did a month ago.

The credit noise out of Europe, presently centered on the sovereign debt of Greece, as well as a stream of economic numbers that reflect negatively on the U.S. economy seem to be serving as a catalyst for the de-risking.

"People are taking a hard look at everything in their portfolios and becoming more cautious," the source added.

Nevertheless, Rural/Metro is perceived to be a something of a defensive play due to its proximity to the all-weather health-care sector.

SIAG offers €50 million notes

Germany's SIAG Schaaf Industrie AG plans to sell up to €50 million of five-year notes (/CCC+/).

IKG is the lead manager. Steubing is the co-lead manager.

The prospective issuer is a Dernbach, Germany-based manufacturer of steel components for onshore and offshore wind turbines.

CCS axes C$675 million deal

CCS Corp. announced on Tuesday that, due to adverse market conditions, it has terminated its previously announced C$675 million (equivalent) senior notes offering (Caa2/CCC+).

As a result, the company also announced that it terminated its tender offer for its $312 million of outstanding 11% senior notes due 2015 as well as the repurchase of $299.9 million of the 11% notes in a private transaction.

The Calgary, Alta.-based waste management services provider to the oil and gas industries planned to use the proceeds from the new notes to fund the repurchases.

Goldman Sachs and Deutsche Bank were the joint bookrunners.

Second-biggest outflow seen

High-yield bond funds underwent the second-biggest weekly outflow ever during the most recent week, EPFR Global asserted in a Tuesday report titled "High yield funds trampled as rising risk aversion chases money into U.S. equity and bond funds."

"High yield bond funds, including funds investing mainly in U.S. and European issues, posted their second-largest weekly outflow on record as investors withdrew $2.09 billion from these funds," the report stated. It added that the most recent outflows were only exceeded by redemptions in the week ending May 26, 2010.

Again, the catalyst for the risk aversion appeared to be Greece and the possible credit fallout that could ensue should Greece default on its sovereign debt.

Cash is flowing into equity funds and into bond funds other than junk, EPFR said.

The waiting game

Watching from the sidelines as the dealers announced three new roadshows on Tuesday, a syndicate source noted that deals likely to come to market in the near term are the committed financings, as is the case with Rural/Metro.

Recalling Basic Energy Services, Inc.'s $200 million add-on to its 7¾% senior notes due Feb. 15, 2019 (B3/B-/), which priced at 101 to yield 7.527% on June 8, the source asserted that the deal represented a significant concession to the levels at which the existing notes were trading.

The Basic Energy new issue premium was about 75 basis points, the syndicate banker calculated.

"Things have not materially improved since then," the source remarked. The source predicted that such a premium will keep opportunistic issuers out of the market.

Airline certificates quoted up

With no new junk bonds having actually priced in the domestic market, participants were looking elsewhere for ideas.

A trader said that one of those places was the two-part offering of passthrough trust certificates that US Airways priced on Tuesday. Normally, such a deal wouldn't generate much interest among junkbonders, but with nothing else really going on, he said he was hearing the $293.94 million of 7 1/8% class A certificates due 2025 quoted offered at 101, versus their par issue price.

A second trader said the deal was "out there" during the afternoon, although he had not seen too much in it.

He saw both the A tranche and the $94.28 million class B 9¾% certificates due 2020, which also came at par, in a par-to-100½ bid range.

At another junk shop, a money manager said that he was "participating - but I couldn't get any bonds."

Recent deals hold levels

Among the true junk bonds that have recently priced, a market source said that Downstream Development Authority's new 10½% senior secured notes due 2019 were at 99¾ bid, 100¼ offered on Tuesday, although there wasn't that much activity going on with the Oklahoma-based Native American gaming concern's $295 million offering. Those bonds priced on Friday at 99.337 to yield 10 5/8%.

The source also saw Thursday's $225 million offering of 12 1/8% senior secured notes due 2018 from Goodman Networks Inc. straddling par.

The Plano, Texas-based telecommunications services company's deal priced at 98.273 to yield 12½% and then had moved up in the aftermarket to around present levels. However, activity on Tuesday was seen as quiet.

Christmas in June?

Those recent new deals weren't the only area in the junk-bond universe that was quiet on Tuesday.

Despite the fact that several thousand revelers spent the day greeting the annual summer solstice with traditional Druid chants and other festivities at Britain's ancient Stonehenge monument, a trader said that to him, the session felt like it had "a weird kind of between Christmas-and-New Year's type feel" - even with the mercury in most places climbing to 80 degrees or more.

The only difference, he said, was that "people are here - but that's the kind of feel we're getting from accounts."

An improved tone

While the market was fairly quiet, another trader detected a more positive vibe than had been seen the last several days.

"Generically, the market is clearly better, kind of across the board," he declared.

While he had seen the renewed carnage in the Sino-Forest bonds, "most of the other stuff is in the opposite direction. We definitely bounced by, generically, half a point to 1 point today, and there are some examples that are up even more than that."

One such credit, for instance, was Caesar's Entertainment Corp.'s - the old Harrah's - 10% notes due 2018, which had been struggling amid a mostly down market the past couple of days, hurt by investor worries about the gaming sector in the face of the continued sluggish U.S. economy and high gas prices.

On Tuesday, though, he saw the Las Vegas-based casino giant's issue up more than 2 points at 88½ bid, 89 offered, "kind of your high-beta example of the market's uptick."

Another market source who saw those 10% bonds at 88½ called that a 13/4-point gain.

The company's 11¼% notes due 2017 were seen up about 3/8 point on the day at just under 109 bid.

Market signs show improvement

That better tone was also reflected in Tuesday's statistical measures of market performance, which were improved markedly from Monday.

A trader saw the CDX North American Series 16 High Yield index jump ¾ of a point Tuesday to end at 100 3/8 bid, 100 5/8 offered after having been essentially unchanged on Monday.

The KDP High Yield Daily index rose by 9 bps to 74.7 after having plunged by 26 bps on Monday. Its yield came down by 3 bps to an even 7% after having risen by 10 bps on Monday.

And the Merrill Lynch High Yield Master II index broke out of its unlucky slump of 13 consecutive losses by posting a 0.035% gain - its first upturn since June 1 - in contrast to Monday's 0.191% retreat.

That increased the index's cumulative return to 4.319% from Monday's 4.282% reading. However, the index remains well below its year-to-date peak level of 6.071%, which was reached a month ago on May 20.

Sino-Forest chopped down again

But not everything was on the upside. A trader said that Sino-Forest's bonds "have been fairly active" on the session, falling in tandem with a renewed slide in the Canadian-Chinese timber company's shares driven by the news that its largest equity investor, the New York-based hedge fund operated by investor John Paulson, had sold its entire 34.7 million-share stake.

Paulson & Co. made its move after those shares - with an estimated former value of more than C$630 million - had lost nearly 90% of their value after a highly negative report about the company sent those shares tumbling, dragging the bonds down with it.

The trader saw the 10¼% notes due 2014 falling to around 40 on volume of more than $25 million after having traded earlier in a range of 42 to 47.

He also saw the company's 6¼% notes due 2017 swooning about 20 points to end at the 37 level.

"The other issues have kind of been bouncing around," he said, "depending on what time of the day it was."

He quoted the busted 5% convertible notes due 2013 "inside the range" of 37 bid, 39 offered, while its 9 1/8% notes - due to mature less than 60 days from now on Aug. 17 - had nosedived to a 72 bid in morning trading, down around 20 points from its prior levels in the low 90s.

The latter bonds had been trading near par and the other issues above par - some considerably above it - before Muddy Waters LLC, a Hong Kong-based investment company founded and headed by short-seller Carson C. Block, released a scathing, strongly worded report on June 2 accusing the company of all kinds of fraudulent practices, charges that the company has vehemently denied while questioning Block's credibility and motives.

The market paid scant attention to the denials. The shares and bonds both have been on the slide, on-and-off, ever since.

"You had the Paulson news, with him selling his stake," the trader elaborated. He then asked rhetorically whether the Sino-Forest troubles might spell bad news for other Chinese companies such as a lot of property and real estate development companies whose bonds trade in the high-yield space.

"Is this thing a donut? And does this spill over to other China companies?"

A second trader said that the company's bonds and shares "absolutely" were getting killed over the past two days between new allegations that arose from a weekend newspaper report and now the news about savvy stock-picker Paulson's pullout.

At another desk, a market source estimated that $22 million of the 101/4s had changed hands, with the bonds falling into the 40s from their levels late last week around 63 bid. He saw them going home around the 44 mark, although when throwing out smallish trades and only sticking to round-lot transactions, they finished around 40.

He also saw the 61/4s - which had traded around 50 last week - bounce wildly around on Monday in a 15-point spread between 43 and 57 after a major Canadian newspaper, the Globe and Mail, claimed in a weekend story that "inconsistencies" have been found in the valuation of Sino-Forest's holdings in China's Yunnan province - findings that appear to echo or even confirm at least some of the allegations of fishy book-keeping leveled at the company in the Muddy Waters report.

Then on Tuesday, the source said, those 61/4s plummeted down to the mid 30s on trading of more than $26 million, although the last large transaction of the day lifted the level back to around 43.

Sino-Forest's battered Toronto Stock Exchange-traded shares nosedived by as much as 52.7% from Monday's closing levels during intra-day trading on Tuesday after the news of Paulson dumping the shares hit the tape. While they came off those initial lows, they still ended down 74 Canadian cents, or 27.11%, at C$1.99 on volume of over 60 million shares, nearly 12 times the norm. The shares have lost 89% of their value since June 1, the day before the Muddy Waters report came out, when they had traded at C$18.21.

Catalyst climbs on UBS hire

Elsewhere, a trader said that the news that Catalyst Paper Corp. had hired UBS Securities to help it explore strategic alternatives pushed the Richmond, B.C.-based paper manufacturer's bonds "up a couple of points."

He saw its 7 3/8% notes due 2014 at 60 bid, 62 offered, compared with prior levels around 58 bid, while its 11% notes due 2016 rose to 88 bid, 90 offered.

A trader said that Catalyst sector peer NewPage Corp.'s bonds "didn't move all that much today," even as his shop "traded a bunch of it" on Tuesday.

He saw its 10% second-lien senior secured notes due 2012 little changed around a 29½ to 30 context.

At another desk, a trader said the Miamisburg, Ohio-based coated-paper manufacturer's bonds were "fairly active," with its 11 3/8% first-lien senior secured notes trading around 92 bid on $20 million of volume.

He also said its 10s - which trade many dozens of points behind the first-lien notes despite their ostensibly senior secured status on investor belief that the company does not have enough asset coverage to satisfy both sets of bonds in the event of a restructuring - were trading at 30½ bid on volume of $23 million.

Both levels were around where the bonds had ended on Monday.

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