Giant Sprint deal drives by, dominates primary; US Foods bonds jump on planned sale to Sysco

By Paul Deckelman and Paul A. Harris

New York, Dec. 9 - Sprint Corp. placed an unexpected call to the high-yield primary market on Monday with a quickly shopped $2.5 billion offering of 10.5-year bonds - the biggest deal Junkbondland has seen in several months.

The new deal from the number three U.S. wireless operator arrived too late in the session for any kind of an aftermarket. But several of its existing bonds traded busily enough to make the junk most-actives list.

Market participants said the announcement that Sprint would do a benchmark-sized bond offering completely overshadowed anything else going on in the new-deal realm, including new-deal announcements from energy operator Memorial Production Partners LP's affiliate, Memorial Resource Development LLC, racetrack operator Churchill Downs Inc. and food industry waste management company Darling International Inc.

Traders reported little aftermarket activity in the bonds of companies that had brought new junk issues last week, although there were a few quotes around on some of Friday's deals, including energy operator Ultra Petroleum Corp. and Asian telecommunications firm Pacnet Ltd.

But the vast bulk of the day's dealings in the secondary market took place in US Foods Inc.'s bonds, which firmed smartly in heavy trading on the news that the closely held food distribution company has agreed to be acquired by publicly traded and investment-grade-rated sector peer Sysco Corp. in a cash-and-stock deal valued at about $8.2 billion, including Sysco's assumption of US Foods' debt.

Statistical indicators of market performance were higher for a second consecutive session.

Sprint prices $2.5 billion

Just one dollar deal priced on Monday, but it was a whopper.

Sprint launched and priced a $2.5 billion issue of non-callable senior notes due June 15, 2024 (B1/BB-) at par to yield 7 1/8%, on top of yield talk.

Market buzz had the book above $5 billion, and expectations circulated that Sprint would ultimately print a higher amount - perhaps as much as $3.5 billion.

BofA Merrill Lynch was the left bookrunner. Citigroup, Credit Agricole, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Mizuho and RBC were the joint bookrunners.

The Overland Park, Kansas-based telecom plans to use the proceeds for general corporate purposes, including retirement or service requirements of outstanding debt and network expansion and modernization.

Memorial Resources PIK deak

Although just one dollar-denominated deal priced on Monday, market watchers expect a steady stream of primary market business this week and a somewhat thinner stream for the week ahead, the week that in all likelihood will close the book on 2013.

There were deal announcements on Monday.

Memorial Resource Development and Memorial Resource Finance Corp. began a roadshow on Monday for a $350 million offering of five-year senior PIK toggle notes (expected ratings Caa1/B-).

The deal is set to price on Friday.

Citigroup, BMO and Wells Fargo are the joint bookrunners.

Proceeds will be used to finance a distribution to funds managed by NGP Capital Resources Co., to retire the Memorial Resource Development revolver and fund additional liquidity at Memorial Resource Development, including a debt service reserve.

Churchill Downs guided at 6%

Churchill Downs began a roadshow on Monday for its $250 million offering of eight-year senior notes (expected ratings B1/BB), a deal that is also set to price before the end of the week.

Initial guidance is 6%.

JP Morgan and Wells Fargo are joint bookrunners for the debt refinancing.

In other news, Darling International announced in a Monday press release that it plans to sell $500 million of senior notes.

Proceeds from the deal will be used to satisfy, discharge and redeem the company's 8½% senior notes due 2018, as well as to finance a portion of the acquisition of the Vion Ingredients division of Vion Holding NV and for general corporate purposes.

Additional debt financing comes by way of a $1.2 billion term loan via J.P. Morgan Securities LLC, BMO Capital Markets and Goldman Sachs Bank USA, which launched last week.

Closer at hand is the Opal Acquisition, Inc./One Call $610 million offering of eight-year senior notes, which is expected to price on Tuesday, market sources say.

Official price talk has yet to be heard, but the deal is whispered in the low 8% range, according to a trader.

BofA Merrill Lynch, RBC, Morgan Stanley, Deutsche Bank and Jefferies are the joint bookrunners.

WEPA Hygieneprodukte notes

The European primary market also turned out some news on Monday.

Germany's WEPA Hygieneprodukte GmbH priced a €52 million add-on to its 6½% secured notes due May 15, 2020 (expected ratings B2/B+) at 107 to yield 5.201%.

The reoffer price came on top of price talk.

Joint bookrunner Deutsche Bank will bill and deliver for the general corporate purposes deal. HSBC was also a joint bookrunner.

French shipping firm CMA CGM SA talked its €300 million offering of five-year senior notes (expected ratings Caa1/CCC+) to price with a yield in the 9 3/8%.

Books close on Tuesday.

Joint bookrunner BNP Paribas will bill and deliver. Credit Suisse and SG CIB are also joint bookrunners.

And Citigroup issued a save-the-date notice, advising investors that a high-yield name from the chemical sector will be introduced at a Tuesday luncheon in London.

New Sprint notes unseen

In the secondary market, traders said that the new Sprint 7 1/8% notes came to market too late in the session for any kind of an aftermarket.

A market source noted that the $2.5 billion deal was the biggest that the junk market had seen since Oct. 8, when German phone giant Deutsche Telekom AG resold $5.6 billion of bonds of Bellevue, Wash.-based T-Mobile US, Inc. - ironically a Sprint rival in the wireless industry - in five tranches.

And it was the single largest new junk market tranche to hit the market since Dallas-based hospital operator Tenet Healthcare Corp. sold $2.8 billion of new 8 1/8% notes due 2022, which priced back on Sept. 13 as part of a $4.6 billion two-part deal.

Established Sprint bonds busy

While the new Sprints were a no-show, several of the company's existing issues were seen trading around in substantial size.

A trader said that the 6% notes due 2022 issued by predecessor company Sprint Nextel Corp. was the most active of those Sprint credits, with about $8 million traded heading into late afternoon. He saw the bonds up ¾ of a point around 98½ bid, 98¾ offered, although he said some odd-lot trades were going off at levels around par bid.

He said that most of the company's other paper was unchanged to down ¼ of a point, including the Sprint Nextel 6% notes due 2016,which he said were unchanged at around 109 bid on volume of $8 million. A second trader quoted the bonds up ¼ of a point at 109¼ bid.

The company's 8 3/8% notes due 2017 lost ¼ of a point to end at 116¼ bid, on $7 million traded

Sprint affiliate Sprint Capital Corp.'s 6 7/8% notes due 2028 were quoted at 93¼ bid, also on $8 million volume. Its 6.9% notes due 2019 were seen down as much as 2 points, closing at 109.

Recent deals little traded

Traders said that there was not much going on in the bonds that came to market last week.

One said that "the only thing I've seen" was Forest Laboratories, Inc.'s 5% notes due 2021. He pegged those bonds at 100 5/8 bid, 101 1/8 offered.

That was about unchanged from where the bonds had finished on Friday, and up from the par level at which the New York-based pharmaceuticals company priced its $1.2 billion scheduled forward calendar deal on Thursday, after having upsized it from the originally announced $1 billion amount.

Apart from Forest Labs, though, he said, "I haven't seen any of the other paper that's been priced recently."

Another trader agreed that he saw nothing on Monday in the recent deals.

"In all honesty, the secondary market right now is really people struggling to find paper, whether one wants to believe it or not."

For instance, he retold the story of an investor who came in looking to buy "a couple of million" of a particular credit, but "when we started looking around, we found that you have two or three mutual funds owning 88% of the issue. You're not going to find those bonds, ever."

At another desk, though, a trader offered a couple of quotes on recent paper, seeing Pacnet Ltd.'s 9% senior secured notes due 2018, at 102 7/8 bid, 103 3/8 offered, which he called a 3/8 point gain on the day.

The Hong Kong-based telecommunications company priced $350 million of those bonds at par on Friday in a scheduled deal off the forward calendar, and they had been seen later Friday trading around 102½ bid, 103 offered.

The trader also saw Ultra Petroleum's 5¾% notes due 2018 up 1/8 of a point at 101¾ bid, 102¼ offered.

The Houston-based independent exploration and production company had priced $450 million of those notes at par on Friday in another scheduled forward calendar deal. The transaction was upsized from $400 million originally, and the bonds traded around a 101½ to 102 context later Friday.

US Foods firms

The traders agreed that the big name of the day in the secondary market was easily US Foods' 8½% notes due 2019 .

"They were up smartly to around the 109 area, up from about 105," one trader said.

Another trader said the secondary market's activity "has all been US Foods," calling the credit up 3¼ points in a 109½ to 109 5/8 bid context. He said round-lot trading topped $55 million, more than triple the next nearest credit.

The bonds jumped on the news that investment-grade sector peer Sysco Corp. will acquire Rosemont, Illinois-based US Foods in a transaction valued at some $8.2 million. It will pay the closely held company's owners, including KKR & Co. and Clayton, Dubilier & Rice LLC, a combination of $3 billion in Sysco common shares plus $500 million cash. It will also assume about $4.7 billion of debt.

Market signs stay strong

Overall, statistical junk-market performance indicators were higher across the board on Monday, up for a second consecutive session. They had been unchanged to mostly higher on Friday, after having turned mixed on Thursday, their fourth mixed session in the last five.

The Markit Series 21 CDX North American High Yield index posted its second straight gain after five consecutive losses. It rose by 5/16 of a point on Monday, on top of Friday's 17/32 point gain, to end at 107 5/16 bid, 107¾ offered.

The KDP High Yield Daily index rose by 8 basis points to close at 74.37, after having been unchanged on Friday after two straight losses. Its yield likewise narrowed by 2 bps, to 5.64%, after having been unchanged on Friday and having risen by 3 bps on Thursday.

The widely followed Merrill Lynch High Yield Master II index scored its third consecutive gain on Monday, improving by 0.116% on top of Friday's 0.048% advance.

Monday's gain brought its year-to-date return up to 6.986%, its second consecutive new peak level for 2013. That was up from Friday's 6.862%, its previous zenith for the year.

The index's spread to worst over comparable Treasury issues tightened to 427 bps on Monday from Friday's 429 bps, matching the year's previous tight level set on May 9.

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