Primary quiet, though Deutsche Telekom shops T-Mobile notes; Neiman Marcus deal hits road

By Paul Deckelman and Paul A. Harris

New York, Oct. 8 - The high-yield primary sphere put up another goose egg on Tuesday - its third in the last seven sessions - as not a single dollar-denominated, fully junk-rated deal was seen to have been priced by a domestic or industrialized-country issuer.

However, syndicate sources said two very big deals were launched.

German phone giant Deutsche Telekom AG began shopping around some $3.1 billion of T-Mobile USA, Inc. bonds that it holds. By the day's end that already-huge prospective transaction got even bigger, as the original three-tranche offering was restructured and upsized into a five-tranche deal totaling $5.6 billion. Price talk surfaced on those tranches late in the session.

Those notes had been issued to Deutsche Telekom by its 72%-owned T-Mobile unit as part of the funding for the latter company's acquisition earlier this year of fellow wireless provider MetroPCS Communications Inc. MetroPCS's legacy bonds were meantime seen lower in very active trading.

The other big deal getting underway, the syndicate sources said, was Neiman Marcus Group Ltd.'s $1.56 billion of eight-year notes. The sources said that the high-end department store operator would start a roadshow on Wednesday for that prospective issue, with pricing expected sometime next week.

In the secondary market, there was not much activity among recently priced bonds, other than Monday's offering of five-year secured notes from engineering company Michael Baker International, LLC.

Traders described the overall market as slow and saw it mostly softer; they said that the continued Washington stalemate over the federal budget and raising the debt ceiling was having an impact on some accounts, making them more wary.

Statistical market-performance measures were seen mixed for a second consecutive session.

Deutsche Telekom remarkets

No dollar-denominated deals were priced during the Tuesday session.

However, a massive remarketing effort surfaced in which Deutsche Telekom is offering T-Mobile USA, Inc. senior notes (expected ratings Ba3/BB).

Deutsche Telekom launched a $3.1 billion three-tranche deal on Tuesday morning, then upsized it to $5.6 billion in the afternoon, adding two tranches of notes to the three launched in the morning.

Later in the day, price talk surfaced on all five tranches (see related story in this issue).

Deutsche Bank AG, Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley are managing the sale.

All of the notes were issued to Deutsche Telekom by T-Mobile as part of the merger between T-Mobile and MetroPCS Communications Inc., according to a market source.

The proceeds will go to Deutsche Telekom. T-Mobile will not receive any of the proceeds.

Neiman Marcus starts Wednesday

Neiman Marcus Group Ltd. plans to begin roadshowing $1.56 billion of eight-year senior notes on Wednesday.

The deal comes in two tranches: a $960 million tranche of cash-pay notes and a $600 million tranche of PIK toggle notes.

Credit Suisse, RBC, Deutsche Bank, Goldman Sachs and Morgan Stanley are the joint bookrunners.

Proceeds will be used to help fund the buyout of the Dallas-based luxury retailer by Ares Management LLC and Canada Pension Plan Investment Board from TPG and Warburg Pincus for $6 billion.

Oberthur prices at tight end

The European high yield continues to generate a steady stream of news.

France's Oberthur Technologies priced a downsized €190 million issue of senior notes due April 30, 2020 (/CCC/CCC+) at par to yield 9¼%.

The deal was downsized from €200 million.

Goldman Sachs, JPMorgan and Lloyds were joint global coordinators and joint bookrunners. Barclays, HSBC and SG CIB were also joint bookrunners.

Goldman Sachs will bill and deliver.

The Paris-based manufacturer of chip-based digital authentication products for the payment and telecommunications industries plans to use the proceeds to refinance debt.

In conjunction with downsizing the notes offer, Oberthur also downsized its U.S. term loan B to $280 million from $372 million and upsized its euro term loan B to €260 million from €165 million.

Hapag-Lloyd tapping 7¾% notes

Germany-based container shipping firm Hapag-Lloyd AG is in the market with a €150 million add-on to its 7¾% senior notes due 2018.

The deal is expected to price on Wednesday.

Joint bookrunner Deutsche Bank will bill and deliver, and Citigroup and JPMorgan are also joint bookrunners.

Proceeds will be used to redeem a portion of the company's 9% senior notes due 2015.

The original €250 million issue priced at par on Sept. 20, 2013.

The add-on notes will be fungible with the existing notes.

MetroPCS's busy T-Mobile sale

In the secondary market, pre-paid wireless operator MetroPCS's bonds were among the most heavily traded on the session, though were off a little. Bellevue, Wash.-based T-Mobile united with the formerly Dallas-based MetroPCS earlier this year via a reverse merger transaction; the T-Mobile bonds being sold by its 72%-owner Deutsche Telekom were issued to the German company as part of that complex combination. The combined T-Mobile/MetroPCS is the fourth-largest wireless carrier in the United States market.

A market source said that MetroPCS'6 5/8% notes due 2020were off by ¾ point on Tuesday to end at 104 bid. Volume of over $17 million was one of the heaviest of the day in Junkbondland.

Its 7 7/8% notes due 2018 were seen down 5/8 point, with over $11 million having changed hands.

There was also brisk activity in sector peer and T-Mobile rival Sprint Corp.'s paper during the session.

The Overland, Kan.-based number three U.S. wireless carrier's legacy Sprint Nextel 8 3/8% notes due 2017eased by 3/8 point to end at 113 3/8 bid, with over $7 million traded.

Its 7% notes due 2020 were also down 3/8 point at 102½ bid, on volume of over $6 million.

Michael Baker trades around

Elsewhere, a trader said that Michael Baker International's new 8¼% senior secured notes due 2018 "hung in there pretty well," seeing the paper going home in a locked market, both bid and offered at 100 7/8, although he had seen them earlier at 100 7/8 bid, 101 offered.

However, at another desk, a trader who had seen that issue get as good as 101¼ bid, 102¼ offered after its pricing, quoted them down ½ point on the day Tuesday, at 100¾ bid, 101¼ offered.

A third trader meantime pegged the bonds at 100½ bid, 101 offered.

Michael Baker, a Moon Township, Pa.-based engineering company, had priced its $350 million deal at par on Monday.

Memorial Production hovers

Traders said there was little going on in the way of aftermarket dealings in any of the other recently priced issues; for instance, one quoted Memorial Production Partners, LP's 7 5/8% notes due 2021 unchanged at 97½ bid, 98¼ offered.

The Houston-based energy partnership, along with its Memorial Production Finance Corp. funding unit, had priced that quick-to-market add-on tranche to its existing 2021 notes at 97 on Monday to yield 8.163%.

Shutdown takes its toll

Overall, a trader said that "we had a nervous market," with many investors feeling some of the jitters over the continuing budget and debt-ceiling stalemate going on in Washington that have spilled over from equities and other financial markets.

"This whole thing is a joke what's going on," he declared. "We should be ashamed of ourselves."

He jokingly suggested that perhaps House Speaker John Boehner and President Obama - both of whose investments are by law held in blind trusts during the period they are in office - "must have somehow shorted the stock market."

"Things were dead quiet," a second trader asserted. "The whole market is closed because of this whole debt ceiling [baloney]."

While he said that there were some people "coming in and hitting bids, there was no real tone to the market" and not much activity. "If anything, it was weaker," he added.

For instance, he said that the Markit Series 21 CDX North American High Yield index "feels weak, down to 1041/4, and it had opened at 104¾ or 104 5/8."

He noted that both the president and the House speaker had been on TV during the day, "but basically, they were both saying that they were not negotiating till the other side gives in, so it looks like there's not going to be any negotiation," at least for now.

Eventually, he predicted, "they're going to have to [negotiate] at some point, because they can't allow [a default] to happen."

But in the meantime, "there's not much going on."

The first trader said that even though "people are nervous," investor accounts "were selectively selling here." He added that "the market is not totally surrendering by any stretch of the imagination. Maybe people think the coupon [on bonds] is worth more holding it than anything in the equity markets is."

Market indicators stay mixed

Statistical junk-market performance indicators turned were mixed for a second consecutive session on Tuesday, after having been higher on Friday. It was the third mixed finish in four sessions.

The Markit CDX index lost 13/32 point on Tuesday to close at 104 1/8 bid, 104 3/16 offered, its second straight loss. It had also been down by 5/8 point on Monday.

However, the KDP High Yield Daily index put up its fifth consecutive gain on Tuesday, rising by 3 basis points to close at 73.6. That came on top of Monday's 4-bps advance.

Its yield, though, rose by 1 bp to 6.07%, after having come in by 3 bps on Monday.

And the widely followed Merrill Lynch High Yield Master II index scored its six consecutive improvement, edging up by 0.03%. It had risen by 0.076% on Monday.

The latest gain lifted its year-to-date return to 4.349% from Monday's 4.317% finish.

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