Chesapeake Energy, Avaya, Ally price in $4 billion day; existing Chesapeake bonds keep firming

By Paul Deckelman and Paul A. Harris

New York, Feb. 8 - The mega-deals were in the driver's seat for the high-yield primary market on Tuesday as a trio of super-sized deals came to market.

Chesapeake Energy Corp. priced a quickly shopped $1 billion offering of 10-year notes. The deal followed the company's announcement on Monday of a $5 billion asset sale plan, which caused its existing bonds to firm smartly.

Ally Financial, Inc. also swooped in with a rapidly marketed $2.25 billion offering, which was more than doubled in size from when it first hit the radar screen with the addition of a second tranche of bonds.

Off the forward calendar, Avaya, Inc. came to market with a shade over $1 billion of 10-year notes.

When the three big new deals were freed for secondary market activity, traders saw all three pretty much anchored around or just under the par level at which the offerings had priced.

Natural gas operator Chesapeake's existing bonds meantime continued the improving trend seen on Monday.

However, Pride International, Inc.'s bonds gave up some of the gains they had notched on Monday, while Clear Channel Communications Inc.'s bonds, also up solidly on Monday, were mixed on Tuesday.

High-yield syndicate sources heard Ply Gem Industries, Inc. shopping an $800 million offering of secured notes around, likely for Wednesday.

And they heard price talk on Australian mining concern Midwest Vanadium Pty. Ltd., whose $335 million secured deal could price Wednesday after the closing of the order books.

Ally massively upsized

The primary market remained torrid on Tuesday, as three issuers raised $4.26 billion by selling a combined four tranches of notes.

No single issuer brought less than $1 billion on Tuesday.

Ally Financial, formerly GMAC Inc., priced a massively upsized $2.25 billion of three-year senior notes (B1/B) in two tranches.

The deal featured a $1 billion tranche of fixed-rate notes that priced at par to yield 4½%. The yield printed at the tight end of the 4½% to 4 5/8% price talk.

After the deal hit the market, Ally Financial added a $1.25 billion tranche of floating-rate notes that priced at par to yield Libor plus 320 basis points.

No price talk was given for the floating-rate tranche, sources said.

Barclays Capital Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. and RBS Securities were the joint bookrunners for the quick-to-market deal, which was upsized from $1 billion and priced on the investment-grade desk. Citigroup will bill and deliver.

Proceeds will be used to make loans, purchase receivables and for general corporate purposes.

The 4½% fixed-rate notes were trading at 100¼ bid, 100 5/8 offered in the secondary market late Tuesday afternoon, according to a high-yield mutual fund manager who declined to play either tranche because of the low yields.

"The best you can say for it is that it's better than cash," said the manager, who is seeing lots of cash inflows that need to be put to work.

Notwithstanding the fact that the Ally deal priced on the high-grade desk and came with low yields, high-yield accounts did participate, a syndicate source said.

Avaya, at the tight end

Elsewhere, Avaya priced a $1.01 billion issue of senior secured notes due April 1, 2019 (B1/B) at par to yield 7% on Tuesday.

The yield printed at the tight end of the 7% to 7¼% price talk.

Morgan Stanley & Co. Inc., UBS Investment Bank, Citigroup, Goldman Sachs and J.P. Morgan Securities LLC were the joint bookrunners.

Proceeds will be used to repay bank debt.

Chesapeake Energy drives by

Finally, Chesapeake Energy priced a $1 billion issue of non-callable 10-year senior notes (Ba3/BB/BB) at par to yield 6 1/8%, at the tight end of price talk that had been set in the 6¼% area.

Morgan Stanley and Wells Fargo Securities, LLC were joint bookrunners for the quick-to-market deal.

The Oklahoma City-based natural gas producer will use the proceeds to pay down revolving credit facility debt.

Spotting Chesapeake's new 6 1/8% notes due 2021 at 100 1/8 bid in the secondary market, a high-yield investor exclaimed that the deal was priced "too tight."

Nevertheless, demand in the high-rated paper was probably strong, the buysider conceded, noting that investors may have been playing Chesapeake Energy with an eye to the company becoming investment grade sooner rather than later.

News circulated on Monday that Chesapeake Energy expects to raise $5 billion via the sale of its Fayetteville assets and equity investments in two companies including Chaparral Energy, the investor noted, adding that the company intends to use the proceeds to pay down debt.

"That's the kind of thing that will get them investment-grade ratings," the buysider said.

Ply Gem for Wednesday

Looking to the Wednesday session, Ply Gem Industries plans to price an $800 million offering of seven-year senior secured notes (Caa1/B-/).

Although no price talk had circulated by press time Tuesday, the deal is being discussed in the context of an 8½% yield, according to a mutual fund investor who expects to participate in the transaction.

The deal was the subject of reverse inquiry, the investor added.

Credit Suisse and UBS Investment Bank are the joint bookrunners.

Proceeds will be used to redeem the company's 11¾% senior secured notes due 2014.

So if the 8½% yield materializes in Wednesday's transaction, the Cary, N.C.-based building products company will realize a whopping 325 bps of interest savings.

Midwest Vanadium talks

Finally, Australia's Midwest Vanadium talked its $335 million offering of seven-year senior secured first-lien notes (B3/B-) with an 11½% to 11¾% yield on Tuesday.

The order books close at 11 a.m. ET on Wednesday.

JPMorgan has the books for the Rule 144A and Regulation S for life offer.

Proceeds will be used to refinance debt, to fund capital expenditures and for general corporate purposes.

Chesapeake hangs around issue

When the new Chesapeake Energy 10-year notes were freed for secondary dealings, a trader quoted that paper at 99¾ bid, par offered, right around the par level where the Oklahoma City-based natural gas company's $1 billion drive-by issue had priced.

A second trader said he had seen the bonds "multiple times" trading at 99¾ bid.

At another desk, a market source saw those bonds at par bid, 100¼ offered.

Chesapeake's existing paper - which had firmed smartly on Monday on the news that the company plans to sell a considerable bucket of assets in hopes of raising as much as $5 billion, which will be put toward repaying debt - continued to strengthen on Tuesday, particularly its 9½% notes due 2015. A market participant called the latter bonds "the big trader of the day," seeing them at 122½ bid, up from 121¼ on Monday and well up from a round-lot 117 level last week. "So they're up 5 points in total," said a trader, who called them clearly one of the more active junk issues and certainly the most active among Chesapeake's paper.

Avaya straddles par

A trader saw the new Avaya eight-year deal at 99 5/8 bid, par offered, in slightly from the par level where the $1.01 billion offering had priced.

A second trader opined that the Basking Ridge, N.J.-based communications systems provider's new deal initially "looked like it wasn't going to do too well," seeing the new paper below par "a couple of times" before seeing the bonds later move up from those lows. He saw the issue offered at 100 1/8 and surmised that it had been bid at 99 7/8.

Ally up a bit

A trader quoted Ally Financial's new fixed-rate three-year notes at 100¼ bid, 100 5/8 offered, saying that "lots were trading in that range."

A second trader saw the Detroit-based automotive and residential lender and banking company's bonds at 100 5/8 bid.

UPCB retreats below par

Among the deals that priced on Monday, a trader said that UPCB Finance III's 6 5/8% senior secured notes due 2020 at a bid level around 99¾ to 99 7/8 after having traded earlier at par bid, "so they're off a little bit."

The European cable and broadband operator - a unit of U.S. communications giant Liberty Global, Inc. - priced $1 billion of those bonds at par late Monday. They didn't get to trade around on Tuesday.

"Everything is in slightly," a trader said of the various new notes that priced Monday or Tuesday, though he pointed out that Treasuries were coming in, which would take the edge off some of the new paper.

"I am not sure why none of these [new deals] are running away today," a second trader said. He thought it ironic that "the best trader is lowest coupon" - the Ally deal, which he added was "kind of funny."

He further said that he was "starting to wonder if all of this weakness [seen in various issues] is just Treasuries, because Treasuries got beat up a little today."

Chaparral, ACE hold their own

However, not all of those new deals were giving up ground.

A trader saw Chaparral Energy, Inc.'s new 8¼% notes due 2021 trading around 101½ bid, 101¾ offered in midday odd-lot trading.

He said that 101½ to 101¾ "probably covers them" after having traded a few times at 101 5/8 bid.

The Oklahoma City-based oil and natural gas operator's $400 million of the bonds - upsized from $350 million - priced at par on Monday and later moved as high as 101 bid, 101½ offered.

The trader also saw ACE Cash Express, Inc.'s 11% senior secured notes due 2019 at 101¾ bid with no offer, "so they did pretty well," estimating that would "probably work out" to 101¾ bid, 102¼ offered.

The Irving, Texas-based financial services provider's $350 million deal priced Monday at par and then was heard to have moved up to levels as good as 101½ bid, 102 offered in the aftermarket.

Clear Channel mixed

A market participant saw Clear Channel Communications' 6 7/8% notes due 2018 up by a deuce on the day to end at 81 bid, while its 7¼% bonds due 2027 were half-point gainers, to 641/2, extending the gains seen in Monday's trading following the San Antonio-based media company's announcement that it plans to sell $750 million 10-year secured notes in order to pay down some of its bank debt and take out the 6¼% notes coming due this year.

However, another market source saw things a little differently, seeing the Clear Channel 11% notes due 2016 off ½ point on the day at 981/2, while its 5½% notes due 2016 also declined, by around 1 point, to 77 bid.

Secondary strength continues

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index pretty much unchanged on Tuesday at 104 5/8 bid, 104 7/8 offered after having improved on Monday by 9/16 point.

The KDP High Yield Daily index meantime rose by 13 bps on Tuesday to finish at 76.02 after having jumped 32 bps on Monday. Its yield came in by 5 bps on Tuesday to 6.65% after having tightened by 14 bps Monday.

The Merrill Lynch High Yield Master II index continued to post gains on Tuesday - the 13th day in a row - as it rose by 0.10%, which was on top of a 0.207% advance seen Monday.

That lifted the index's year-to-date return to 2.882% on Tuesday - yet another new peak level for the year so far. It had closed on Monday at 2.78%, the previous 2011 high point.

Advancing issues led decliners for a 13th straight session on Tuesday. They led by about the same seven-to-five margin seen on Friday and again on Monday.

Overall activity, represented by dollar-volume levels, rose by 32% on Tuesday after having fallen by 24% on Monday from the previous session's level.

Pride pulls back

Among specific issues, Pride International - whose bonds got a big boost on Monday from the news that competitor Ensco plc has agreed to buy Pride in a $7.3 billion deal that will create the world's second-largest offshore drilling company - gave up some, though not all, of those M&A-influenced gains.

A trader saw Houston-based Pride's 6 7/8% notes due 2020 trading between 112 3/8 bid, 113 offered after having traded as high as 115 bid on Monday, up about 5 points on the day. "So they backed off a little bit today," he said, although he noted that they were still well up from the 109 7/8 bid level they held on Friday before the acquisition news.

U.S. Oncology bonds drop

A trader saw U.S. Oncology's 9 1/8% senior secured notes due 2017 moving around at bid levels between 119½ and 1193/4.

That remains well down from the 123½ bid level those bonds held prior to Friday, when traders became worried that the Woodlands, Texas-based health-care company would try to pay them less for calling their bonds via a make-whole call than they expected.

Market sources suggested that the company might try to set the call price using as a reference security Treasury notes due when the bonds are finally due in 2017 rather than government paper maturing in 2013, when the Oncology bonds are first callable, which is the usual junk market process when bonds are being redeemed before they become callable (see related story elsewhere in this issue).

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