Laureate prices, eases to close $10 billion week, Pantry to hit road; recent deals off peaks

By Paul Deckelman and Paul A. Harris

New York, July 20 - The high-yield primary sphere closed out its busiest week in more than four months on Friday with a lone pricing, from international college operator Laureate Education Inc., which came to market with an upsized $350 million issue of seven-year notes.

That swelled the week's total issuance to just under $10 billion in 20 tranches, according to data compiled by Prospect News - nearly double the roughly $5.9 billion in 10 tranches seen the week before, ended July 13. This week was heaviest primary volume seen since the more than $11 billion recorded in the transition week between February and March, and third heaviest of the year.

It also brought year-to-date new issuance up to some $170.8 billion, although that continued to lag the equivalent year-earlier pace of $197.8 billion by around 13%, according to the Prospect News data.

When the new bonds were freed for secondary market activity, they were seen to have pulled back a little from where they had priced - in line with a generally somewhat easier tone that traders saw throughout Junkbondland on Friday.

They said that most of the recent new deals - including the more than $4 billion which had priced on Thursday - had come off the highs they had hit in initial aftermarket trading, including the new issues from Party City Holdings, Inc. and Innovation Ventures LLC. However, Hologic Inc.'s eight-year mega-deal bucked the trend and hung on to its Thursday gains.

Away from the deals which had actually priced, syndicate sources heard that convenience-store operator The Pantry, Inc. was getting ready to open a roadshow Monday for its $250 million offering of eight-year paper, for likely pricing later in the coming week.

Traders said that as had been the case over the previous several days, including Thursday, new issues were the main focus in the secondary arena, versus more established bonds.

In line with the minor retreat seen among the new deals, statistical measures of secondary market performance were mostly lower on the day versus Thursday's across-the board rise, but generally showed strength versus a week earlier for a seventh consecutive week.

Laureate prices $350 million

Friday's primary market session produced just a trickle of news.

Laureate Education completed the day's only new issue, pricing an upsized $350 million of seven-year senior notes (Caa1/CCC+) at par to yield 9¼%.

The deal was upsized from $300 million and the yield printed at the wide end of the 9% to 9 ¼% yield talk.

The deal was trading at par ¼ bid, par ¾ offered at the close, according to a buyside source, who added that almost all of the deals that priced in the week ending Friday were well supported, and that allocations have tended to be tough.

Citigroup and J.P. Morgan were the joint lead bookrunners. Barclays, Credit Suisse, Goldman Sachs, KKR and Morgan Stanley were the bookrunning managers.

The Baltimore-based provider of higher educational services plans to use the proceeds from the new notes to repay its revolver, which may be redrawn for general corporate purposes. General corporate purposes include working capital, debt repayment or acquisition financing.

Pantry roadshow starts Monday

The only other news during Friday's primary market session was that The Pantry plans to start a roadshow on Monday for a $250 million offering of eight-year senior notes (expected ratings Caa1/B+).

The deal is set to price late in the July 23 week.

Initial guidance on the deal is the low-to-mid 8% range, according to a trader from a high-yield mutual fund.

Bank of America Merrill Lynch, Wells Fargo, RBC, BMO and SunTrust.

The Cary, N.C.-based convenience store chain plans to use the proceeds, together with a new credit facility and a portion of its available cash, to repay debt and for general corporate purposes.

The only other deal in the market is the one backing the acquisition of SPL Logistics by Platinum Equity.

The offering is comprised of $425 million of eight-year senior secured notes (B2/B+).

UBS is the lead left bookrunner. Macquarie is the joint bookrunner.

SPL is expected to come in the mid-9% range, the trader said.

More drive-bys expected

Although Pantry and SPL are the only names on the calendar heading into the weekend, the July 23 week is expected to see a continuation of the brisk pace of quick-to-market activity that has characterized the post-Independence Day primary market, during which time more than 50% of new issue business has come in the form of drive-by deals.

Looking beyond the week ahead, toward the July-August crossover week beginning on July 30, sources say that although the new issue market has been known to take a breather during the month of August, a slow August 2012 is not a given.

Some people took vacations during the quiet Independence Day week, so they won't necessarily be taking time off in August, an investment banker said on Friday.

Another sellside source asserted that there are at least two-and-a-half weeks in August before the market begins winding down ahead of Labor Day, the traditional summer-fall terminus in the high yield.

It is reasonable to expect the primary market to remain active during that pre-Labor Day interval, the sellsider said.

New Laureate bonds back off

When Laureate Education Inc.'s new 9¼% notes due 2019 were freed for secondary dealings, a trader said they had eased from the par level at which the Baltimore-based higher-education provider had priced its upsized $350 million issue.

He said they had backed off to around 99½ bid, 99¾ offered, although he saw them going out offered in the street at 1001/4, without a bid side.

A second trader had not seen any aftermarket dealings in the new paper, which had been increased from an originally planned $300 million.

Easier tone seen

Traders saw a generally easier tone in Friday's market, including most of the deals which had priced during Thursday's whirlwind $4 billion-plus session, which had been the biggest day in the primary in several months.

After several consecutive days on the upside, one said, "the market finally gave up a little bit today. Most things were off their highs."

He added that "people were tired a little bit" after Thursday's almost non-stop primary pricing parade, which saw eight different issuers come to market with a total of nine dollar-denominated junk tranches, plus a tenth tranche denominated in euros.

A second trader agreed, declaring that Friday's market "definitely had a weaker tone," estimating it down generically by 1/8 to ¼ point.

In contrast with Thursday's hurly-burley, he said that Friday "seemed pretty quiet. The new issues that priced the last few days were definitely softer today - but they all traded pretty well in the secondary after they priced, so I think that most of them are still above their issue levels. But they are weaker than where they were the last couple of days."

The Party dies down

For instance, the traders noted that Party City Holdings' new 8 7/8% notes due 2020 had backed off a little from the strong levels that the Rockaway Township, N.J.-based party supplies retailer's $700 million issue had notched in Thursday's aftermarket after pricing at par.

That initial momentum had taken the bonds as high as 103¼ bid, 103¾ offered by the end of trading on Thursday.

However, on Friday, one of the trader quoted the bonds as having come well down from those peak levels to go out at 102 bid, 102¼ offered.

A second trader saw the issue having backpedaled to 102 bid, 102¼ offered at the close.

That having been said, though, he suggested that Party City "still held up pretty well." He called the closing levels "not bad," since they were still well up from issue.

Recent deals lower

The same was generally true of most of the new deals which priced either on Thursday or within the past couple of sessions before that.

"They gave up a little bit today, off their highs," one said.

He quoted Smithfield Foods Inc.'s 6 5/8% notes due 2022 trading at bid levels between 101¾ and 101 7/8. "Remember how they were trading with a 102 handle [Thursday]?" he asked rhetorically.

The Smithfield, Va.-based pork producer had priced its quick-to-market $1 billion offering of those bonds - upsized from an originally announced $650 million - at 99.5 on Wednesday to yield 6.694%, and the bonds had risen to 101½ by the end of trading Wednesday; they continued to fatten up on Thursday, with one market participant quoting them as having gotten as good as the 104 level at one point and several others locating them between 102 and 103.

Thursday's super-heavy volume of over $75 million had made that bond easily the most active junk issue that session, while on Friday, the volume dwindled to about $18 million - still respectably busy, but not the most actively traded credit.

The same pattern of having backed off their initial aftermarket highs was seen among some of the Thursday deals in addition to Party City.

A trader said that DISH DBS Corp.'s 5 7/8% notes due 2022 "did okay," but acknowledged that the bonds had traded earlier in the session near their Thursday closing levels before coming in later on. He said that the $1 billion add-on to the Englewood, Colo.-based satellite television broadcaster's existing bonds had traded as high as 101 bid before easing later on to close at 100 5/8 bid, 100 7/8 offered, "right near their issue price."

DISH's opportunistically timed issue - doubled to mega-deal size from an originally announced $500 million - had priced on Thursday at 100.5 to yield 5.771%, but had gained altitude in Thursday's aftermarket to close at 101½ bid, 101¾ offered.

A trader saw Innovation Ventures LLC's 9½% senior secured notes due 2019 as having come in Friday to close at 100½ bid, 101 offered.

The Framingham, Mass.-based maker of the popular 5-Hour Energy caffeine-based pick-me-up tonic had priced its $450 million of those bonds - upsized from $400 million originally - at par on Thursday, and they had jumped to 102 bid in initial dealings before coming down first to 101 bid, 101¼ offered, and then later Thursday to a close at 100¾ bid, 101¼ offered.

Bucking the trend

The one name which seemed to buck the generally negative trend was Hologic, whose $1 billion issue of 6¼% notes due 2020 continued to hold above the 103 bid area to it had jumped on Thursday after upsizing from $750 million and pricing at par.

A trader quoted the Bedford, Mass.-based medical diagnostic systems maker's paper still trading between 103 and 104 bid, in line with Thursday's late aftermarket levels around 103¾ bid, 104 offered.

A second trader declared that "they held right in there," seeing them completely unchanged from late Thursday, although he had no ready explanation as to why those bonds had held steady while all of the other new deals suffered some erosion versus Thursday's late highs.

One other name seen doing better on Friday than it had on Thursday was Los Angeles-based cloud computing and communications operator j2 Global Inc.'s 8% notes due 2020. That $250 million deal had priced at par, but did not trade around on Thursday because it had come too late in the session.

On Friday, a trader pegged the new bonds at 100½ bid, 101 offered, while a second saw them get as good as 100¾ bid, 101¾ offered.

Several traders said they had meantime seen no trading in Horsehead Holding Corp.'s 10½% senior secured notes due 2017, which had also priced too late in the day on Thursday for an aftermarket.

The Pittsburgh-based zinc and zinc products producer's $175 million issue had priced at 98.188 to yield 11%.

Two traders cited the deal's relatively small size - one of them calling it "a tiny deal" by the usual standards of the junk bond market.

"It's probably not going to trade much," he opined, "and if it does, it will only be through the two underwriters" who brought the issue to market.

Old bonds take a back seat

Away from the new-deal arena, several traders said that they really saw "nothing," as one put it, going on in the secondary market on Friday.

"It was all new issue focused," he added.

Statistical measures of market performance turned mixed on Friday, after having been up across the board over the previous two sessions. However, they mostly rose versus their closing levels the previous Friday for a seventh consecutive week.

A trader saw the Markit Group CDX North American Series 18 High Yield Index drop by ½ point on the day to go home at 96¼ bid, 96½ offered, after having edged up by 1/16 point on Thursday, which had been its third straight gain.

That closing level was also off from 96 3/8 bid, 96 5/8 offered at which the index had closed out the previous week, ended July 13.

The KDP High Yield Daily Index dipped by 5 basis points on Friday to finish at 73.59, after having shot up by 17 bps on Thursday, its second straight gain.

Its yield rose by 1 bp on Friday to 6.36%, after having fallen by 6 bps Thursday, its second straight contraction.

However, both the index reading and the yield figure represented an improvement on the previous Friday's 73.49 index reading and 6.42% yield.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its sixth straight gain on Friday, adding 0.03%, on top of Thursday's 0.209% rise.

The latest gain lifted its year-to-date return to 8.457% - a new peak level for 2012 - versus Thursday's 8.425%, the previous high point. The index's recent levels are the strongest they have been since the end of 2010, when the market measure returned 15.19%.

The index was also up on a one-week basis by 0.554% Friday, from the 7.86% return seen a week earlier. It was the seventh straight week-over-week advance.

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