WMG, Ashland lead as deal barrage goes on; Bio-Rad, Ashland up; numbers lift Pilgrim's Pride

By Paul Deckelman and Paul A. Harris

New York, May 19 - There was just no stopping the high yield primary market on Tuesday, as issuers came to market with five deals totaling some $2.76 billion. The two biggest deals of the day came from Warner Music parent WMG Acquisition Corp. and Ashland Inc. The latter deal, along with Cellu Tissue Holdings, Inc.'s transaction, were the only scheduled calendar offerings of the day. Issuers bringing drive-by deals to market included WMG, Corrections Corp. of America and Bio-Rad Laboratories Inc.

With most deals pricing late in the session, there was limited aftermarket activity in the day's new paper, with traders actually only getting quote levels on the Bio-Rad and Ashland issues.

Among other very recently priced paper, the new bonds of Scientific Games International, Inc., which priced on Monday, initially pushed solidly upward when they were freed for trading. However, that early advance faded, leaving the bonds up only modestly on the day.

Traders saw continued strength in the bonds of brought in deals last week by Sealy Mattress Co., MGM Mirage and Ameristar Casinos Inc.

Among established credits having no new-deal connections, Pilgrim's Pride Corp.'s bonds were seen having firmed smartly in busy trading, with its senior bonds seen up about 7 points in the 80s and its subordinated paper about 6 points better in the 70s on apparent investor reaction to improved monthly operating numbers from the bankrupt Pittsburg, Tex.-based poultry producer, an analyst said. It was easily the most intriguing story to come out of the day's otherwise sleepy secondary.

Five new deals

Five U.S.-based high-yield issuers, each bringing a single tranche of notes, priced a combined total of $2.76 billion face amount of junk on Tuesday.

All five tranches were upsized.

Three of the five were quickly shopped, while two were completed on the heels of investor roadshows.

Two of the five issues came in the form of secured notes, two in the form of senior unsecured notes, and one was a senior subordinated issue.

Warner Music more than doubles size

Tuesday's largest dollar-amount of issuance came from WMG Acquisition Corp.

The New York-based music content provider priced an upsized $1.1 billion issue of 9½% seven-year senior secured notes (expected ratings Ba3/BB) at 96.289 to yield 10¼%.

The yield was printed on top of price talk.

The deal, which was upsized from $500 million, went very well and was several times oversubscribed, an informed source said.

Goldman Sachs was the left lead bookrunner for the debt refinancing. Banc of America Securities/Merrill Lynch was the joint bookrunner.

A trader - speaking before the Warner deal priced - said that "a lot of people" were "scratching their heads at" the 10¼% price talk, but added "if they've got the book to do it, good for him." He opined that "portfolio managers are looking to continue to put double-digit yielding pieces of paper into their portfolios, and are not necessarily terribly anxious to add paper yielding 7% or 8%. So there's a yield upgrade going on in portfolios."

Ashland oversubscribed

Ashland, which was one of the two deals that came Tuesday on the heels of investor roadshows, priced an upsized $650 million issue of 9 1/8% eight-year senior notes (Ba3/BB-) at 96.577 to yield 9¾%.

The yield was printed on top of yield talk. The price came somewhat cheap to price talk that specified approximately 3 points of original issue discount.

The order book was multiple-times oversubscribed, an informed source said.

Banc of America Securities and Scotia Capital were joint bookrunners for the bridge refinancing.

Corrections Corp. drive-by

Corrections Corp. of America priced an upsized $465 million issue of 7¾% eight-year senior notes at 97.116 to yield 8¼% in a Tuesday drive-by.

The yield was printed on top of the yield talk, while the price came within the approximately 3 points of original issue discount price talk. The offering was upsized from $300 million.

J.P. Morgan, Banc of America Securities and Wachovia were joint bookrunners for the debt refinancing deal.

Bio-Rad two-times oversubscribed

Another of Tuesday's trio of drive-by deals came from Bio-Rad Laboratories.

The Hercules, Calif.-based manufacturer and distributor of life science research products and clinical diagnostics priced an upsized $300 million issue of 8% senior subordinated notes due Sept. 15, 2016 (Ba3/BB+) at 98.25 to yield 8.321%.

The quick-to-market deal came toward the tight end of the 8¼% to 8½% price talk.

The deal, which was upsized from $250 million, went well and played to an order book that was more than two-times oversubscribed, said a source close to the deal.

Credit Suisse ran the books.

Proceeds will be used for general corporate purposes and for working capital.

Cellu prices $255 million

Finally, Cellu Tissue Holdings priced an upsized $255 million issue of 11½% five-year senior secured notes (B2/B) at 96.368 to yield 12½%.

The yield was printed on top of yield talk. The price came rich to talk which specified 4 to 5 points of original issue discount. The amount was increased from $230 million.

JP Morgan ran the books for the debt refinancing and general corporate purposes deal.

Wednesday and beyond

As the smoke cleared on Tuesday's torrid $2.76 billion session, three deals remained on the active forward calendar as business expected to be priced sometime before Friday's early close.

The only one of that trio to generate any news on Tuesday was Gibson Energy ULC and GEP Midstream Finance Corp.

Moody's assigned its B1 ratings to the Calgary, Alberta-based midstream energy company's $545 million offering of five-year first-lien senior secured notes. The outlook is stable.

Standard & Poor's, meanwhile rated the notes at BB-.

Price talk could surface on Wednesday.

UBS Investment Bank is left bookrunner for the bridge refinancing deal. RBC Capital Markets and RBS Greenwich Capital are joint bookrunners.

Talk might also surface on Apria Healthcare Group Inc.'s $600 million offering of senior secured notes due Nov. 1, 2014, another bridge refinancing. Banc of America Securities, Wachovia Securities and Barclays Capital are joint bookrunners.

Also in the market is Berry Petroleum Co., with a $300 million offering of senior secured notes due 2014 (B2/B) led by Wachovia.

The roadshow is scheduled to wrap up Thursday, with pricing to follow on the same day.

Meanwhile, drive-by activity is expected to continue, at least into the Wednesday and Thursday sessions, say sources on both the buy-side and sell-side.

New Bio-Rad, Ashland deals move up

When the new Bio-Rad Laboratories 8% senior subordinated notes due 2016 were freed for secondary dealings, a trader saw the bonds push up to 99 bid, 100½ offered from their 98¼ pricing level seen earlier in the session, which translated to a yield of 8.324%.

Another trader later on in the day saw the bonds do even better, going out at 99¾ bid, 100¼ offered.

The second trader also saw some activity in the new Ashland Inc. 9 1/8% notes due 2017, which had priced at 96.557 to yield 9¾%. He quoted the Covington, Ky.-based chemical maker's new bonds at 98¼ bid, 98¾ offered.

The traders did not see any immediate aftermarket action for the new WMG bonds, nor for the paper from Corrections Corp. and Cellu Tissue Holdings.

One did see Corrections Corp.'s existing 7½% notes due 2011 - which are to be taken out using the proceeds from the new bond issue as well as other cash on hand - at par bid, versus 99½ on Monday, though on just $1 million of bonds trading.

Warner Music Group's existing 7 3/8% notes due 2014 were meantime trading around at 86 bid.

Scientific Games ends firmer, but off peak

A trader saw the new Scientific Games International 9¼% senior subordinated notes due 2019 at 97½ bid, 98 1/8 offered. That was down from the peak levels at 98¼ bid, 98¾ offered which the New York-based lottery and gaming system technology developer's new bonds reached in their initial aftermarket action.

The company and its underwriters had priced $225 million of the bonds, upsized from the originally planned $200 million, on Monday at 96.823 to yield 9¾%.

"They've come back in" from the peak levels, he said, "and now, I think there are better sellers around."

New Sealy, MGM still holding their own

A trader saw the new Sealy Mattress 10 7/8% notes due 2016 continuing to "hold right in there" at the elevated levels beyond par which the Trinity, N.C.-based bedding maker's bonds reached on Friday after having priced $350 million earlier in the session at 95.976 to yield 11¾%.

A second trader saw the new bonds at 100½ bid, 101¼ offered.

Sealy's existing 8¼% notes due 2014 were about ½ point better on the day at 78 3/8 bid.

The first trader said that last week's $1.5 billion two-part deal from MGM Mirage "held right in there."

The Las Vegas-based casino giant's $650 million of 10 3/8% notes due 2014 had moved to north of par after having priced on Thursday at a 97.184 level to yield 11 1/8%.

At another desk, a trader saw those bonds doing even better, going out at 100 5/8 bid, 101 1/8 offered.

The other half of that deal, the $850 million of new 11 1/8% notes due 2017, was recently quoted at 1011/2, well above 97.344, where the bonds priced last Thursday to yield 11 5/8%.

Ameristar's new 9¼% notes due 2014 "are still north of par," having migrated there after $500 million of them priced at 97.07 last Tuesday, to yield 10%. He pegged the Las Vegas-based regional casino operator at 100.5 bid, and none offered.

The trader suggested that "a lot of the new deals that have priced over the past couple of weeks have been put away" - and they're in fairly strong hands.

"My sense is that while the Street was long, it may not be overly long currently. Dealers are not aggressive buyers of paper here. Hence, accounts aren't competing with dealers to buy paper."

Market indicators add to gains

Back among the established issues with no new-deal connections, a market source saw the CDX Series 12 High Yield index - which had gained a point on Monday - add another 1 1/8 point on Tuesday, finishing at 80 1/8 bid, 80 5/8 offered.

The KDP High Yield Daily Index, which rose by 6 basis points on Monday, gained another 23 bps on Tuesday to end at 60.09, while its yield narrowed by 7 bps to 11.43%.

Advancing issues, after having broken a three-session losing streak by moving back ahead of the decliners by a narrow margin on Monday, fattened that edge to a ratio of nearly seven-to-five. Overall market activity, measured by dollar-volume totals, rose about 4%from Monday's levels.

A trader said that "we saw a fair amount of secondary trading this [Tuesday] morning across virtually all sectors. It was pretty busy." But then the big deal on the day in the primary market, Warner Music Group's upsized $1.1 billion offering, was the subject of a mid-morning conference call by company executives, the issue's underwriters and prospective buyers, and "from then on, until about 20 minutes ago," he said, late in the afternoon, "it was less busy. We still had good two-way flows, but not nearly as it had been in the morning."

For much of the afternoon, he said, people were waiting for the Warner mega-deal, and for Corrections Corp. to price, so "there wasn't much trading going on."

He further said that "the sellers didn't necessarily get the price they were absolutely looking for today. There was a little more flexibility on the part of sellers in terms of where they would part with paper, so there was a good two-way market with some negotiation on clearing levels."

Another trader declared that "once again, we're seeing a better tone, but it was still very light volume. It seems to be more dealer-driven than accounts actually participating."

Sallie Mae active

The trader said the most active issue on the session was SLM Corp.'s floating-rate notes due 2011, "now that Sallie Mae is a high-yield bond," or at least, a split-rated crossover issue at Ba1/BBB-. He saw the Reston, Va.-based student loan marketer's bonds trade at 71¾ bid, versus 72¾ on Monday. Some $27 million of the bonds changed hands.

Chicken champion flies on better numbers

One of the biggest gainers was Pilgrim's Pride, the big poultry producer which filed for Chapter 11 protection on Dec. 1.

A trader saw the company's 7 5/8% notes due 2015 at 83¼ bid, up from 77 on Monday, terming it "an impressive move," and noted that the bonds had gotten as good as 84¾ during the session, before coming down a little from that peak level. He saw some $16 million of the bonds changing hands.

The trader also pegged its 8 3/8% notes due 2017 going out at 72 5/8 bid, up from 65 previously, on $20 million of turnover, placing both issues among the day's most active junk issues.

At another desk, a market source saw the 7 5/8s at 84 bid, calling that up nearly 10 points in very busy mid-afternoon dealings of over $18 million, while its 8 3/8s 2017 were seen up 7 points to the 71 level, with over $17 million traded, both among the day's most active junk issues.

Another source, while seeing both issues of those bonds at those levels, called the senior bonds up about 7 points on a round-lot basis, and the subs around 6 points.

There was seemingly no fresh news out on the company, in terms of news releases or Securities and Exchange Commission filings, that might explain the sudden rise. One wag quipped that maybe the bonds were up because "[president] Obama plans to use chickens as fuel" for the new generation of "green" cars the White House is proposing. "That would solve both the energy problem and Pilgrim's Pride's problems."

However, analyst Aqeel A. Merchant of Knight Libertas LLC in Greenwich, Conn., had a more conventional suggestion, noting that because Pilgrim's Pride is in reorganization, it files monthly operating reports with the U.S. Bankruptcy Court for the Northern District of Texas, in Fort Worth, in addition to the regular quarterly reports filed with the SEC - and the latest monthly numbers which came out late Monday, for the month of April, show continued improvement.

Merchant, who follows the food, beverage and restaurant industries for Knight Libertas, said that in the month ended April 25 Pilgrim's Pride was calculated to have racked up EBITDA of $54.7 million, up from $45.1 million for the month ended March 28 and $21.6 million for the month ended February 21. For the entire quarter ended March 28, it was calculated to have generated EBITDA of some $81.2 million.

Merchant told Prospect News that Pilgrim's Pride has had its ups and downs over the past year - the 7 5/8% bonds, which had been trading in the low 30s in early November, lost half their value and plummeted down to around the 15 area in December as some investors probably reasoned that " with the amount of secured debt that [Pilgrim's Pride] had, and the conditions in the DIP market, the company was probably going to be liquidated and go away, leaving bond holders with a de minimis recovery."

However the company confounded its critics by lining up a $450 million debtor-in-possession financing facility arranged by Bank of Montreal as lead agent. Under the leadership of its newly installed president and chief executive officer Don Jackson, Pilgrim's Pride moved aggressively to shed assets and cut costs, selling its Farmerville, La., chicken complex to Jackson's former company, Foster Farms, for $80 million, closing its Dalton, Ga., processing plant and indefinitely idling several other facilities as well.

Merchant noted that this year "chicken prices have only moved higher, while corn" - the main feedstock for commercial poultry operations - "has not appreciated as much. Given the declines in broiler eggs-set and broiler chickens placed" - i.e. common poultry industry measures of eggs placed in incubators and chicks earmarked for meat production, which act as leading indicators for future poultry inventory trends - poultry inventory "is expected to decline further, aiding prices and consequently profitability. So it's probably going to get better from here," the analyst concluded.

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