$4 billion Teck deal leads huge day, Host, Crown, Silgan also price; MGM zooms on Q1, remarks

By Paul Deckelman and Paul Harris

New York, May 5 -The high yield primary market had its biggest day in six months Tuesday, as four new deals having a collective face value of $5.275 billion priced. The vast bulk of that issuance came from one deal, a three-tranche offering worth $4.225 billion, from Canadian mining company Teck Resources Ltd. All three tranches priced at a steep discount to par - and all three soared back up to around the par level when they were freed for secondary dealings.

Also pricing were a trio of upsized offerings - for Crown Holdings Inc. subsidiaries Crown Americas LLC and Crown Americas Capital Corp II, for Host Hotels & Resorts Inc., and for Silgan Holdings Inc. Only the latter two deals made it into the secondary on Tuesday, with the Crown offering coming too late in the day for any meaningful aftermarket dealings.

Among other recently priced new deals, Supervalu Inc.'s seven-year issue from last Thursday continued its solid rise, while Ingles Markets Inc. at the very least managed to hang onto the gains which it too has notched since pricing last Thursday.

In the secondary arena, MGM Mirage's bonds were sharply higher, some by as much as 10 points, after the Las Vegas-based casino giant reported a first-quarter profit - albeit mostly due to an unusual item, the sale of one of its casinos - and company executives indicated on their conference call that bookings, which had fallen drastically, seemed to be starting to stabilize.

Traders also saw strength in AK Steel Holding Corp.'s bonds, even as the West Chester, Ohio-based producer of specialty steel alloys for the automotive and other industries warned that the bankruptcy of Chrysler LLC and announced General Motors Corp. plant shutdowns would cause its shipments to fall in the current second quarter.

Bonds of GM's 49%-owned auto loan unit, GMAC LLC, were seen mixed, backing off from the strong surge which had been seen over the last several sessions on the news that the federal government will continue to support GMAC as it emerges as the key lender to bankrupt Chrysler's dealers and to its car buyers.

Embracing risk

The primary market saw its biggest day of 2009 to date as four issuers priced a combined face amount of $5.275 billion with six tranches of bonds.

With high-yield defaults still low, risk aversion is diminishing, said a mutual fund manager whose portfolio includes high-yield bonds and stocks.

Demonstrating that, the Merrill Lynch Master II index, which generated a composite return of 12.6% between March 31 and May 4, saw the greatest amount of rallying among low-quality credits, the investor said.

Between those dates, the triple-C portion of the index returned 21.7% while the double-B portion returned 8.6%.

Teck, priced to move

For the primary, it was the biggest day in terms of dollar-amount of issuance since Oct. 24, 2008, when TXU Corp. priced a $7.5 billion three-part bridge-related transaction.

On Tuesday Canada's Teck Resources Ltd. priced $4.225 billion of senior secured notes (Ba3/BB+) in three tranches, also a bridge-related deal.

The quick-to-market deal was comprised:

• $1.315 billion of 9¾% five-year notes which priced at 95.27 to yield 11%, on top of yield talk and within the mid-90.00s price talk;

• $1.060 billion of 10¼% seven-year notes which priced at 94.654 to yield 11 3/8%, on top of yield talk and within the mid-90s price talk; and

• $1.850 billion of 10¾% 10-year notes which price at 94.893 to yield 11 5/8%, tight to the 11¾% area yield talk and within the mid-90s price talk.

Demand for the notes was massive, according to market sources.

The notes were priced to move, a buy-side source remarked, and noted that all three tranches of notes gained between 3 and 4 points in secondary market trading.

JP Morgan, Banc of America Securities LLC and Citigroup were joint bookrunners.

Host Hotels upsizes

Elsewhere Host Hotels & Resorts, LP priced and upsized a $400 million issue of 9% eight-year notes (Ba1/BB+) at 96.599 to yield 9 5/8%.

The quick-to-market deal, which was increased from $350 million and played to a solid order book, came at the tight end of the 8¾% area price talk, the source added.

Goldman Sachs & Co. led the syndicate of banks underwriting the Rule 144A for life offering.

Proceeds will be used for refinancing debt and for general corporate purposes.

The issuer is a Bethesda, Md.-based lodging real estate company.

Crown Americas oversubscribed

Crown Americas priced an upsized $400 million issue of 7 5/8% eight-year senior notes (B1/BB-) at 97.092 to yield 8 1/8% on Tuesday.

The yield was printed in the middle of the 8% to 8¼% yield talk, while the discount came within the talk of 2 to 3 points of original issue discount.

The quick-to-market deal went very well, with an order book that built throughout the day and ended up being several times oversubscribed, according to an informed source.

Deutsche Bank Securities, Banc of America Securities LLC and Citigroup were joint bookrunners.

Proceeds will be used for general corporate purposes consisting of the permanent repayment of debt under the company's senior secured credit facilities, the repurchase of a portion of Crown European Holdings' first priority notes and/or the funding of one or more acquisitions. In the meantime, Crown intends to use the proceeds to temporarily repay existing debt under its senior secured revolver and accounts receivable securitization facilities.

Silgan tight to talk

Silgan Holdings Inc. priced an upsized $250 million issue of 7¼% seven-year senior notes (Ba3/BB+) at 97.28 to yield 7¾%.

The yield came at the tight end of the 7¾% to 8% price talk, and within the discount talk of 2.5 to 3 points.

The deal, which was increased from $200 million, went well due to the demand for quality paper, according to an informed source. He added that he order book was multiple-times oversubscribed.

Banc of America Securities LLC, Deutsche Bank Securities and Morgan Stanley were joint bookrunners for the term debt refinancing.

Goodyear launches $500 million

Meanwhile The Goodyear Tire & Rubber Co. will host an investor lunch on Wednesday for its $500 million offering of senior notes due 2016.

The Securities and Exchange Commission-registered deal is expected to price on Thursday.

J.P. Morgan, Citigroup, Deutsche Bank Securities and Goldman, Sachs & Co. are joint bookrunners.

Proceeds, together current cash and cash equivalents and unused availability under credit facilities, will be used for general corporate purposes, including the repayment at or before maturity of $500 million of six-month Libor plus 375 bps senior floating rate notes due Dec. 1, 2009. The floating-rate note presently bears interest at 6.29%.

Nalco could upsize

Nalco Holding Co. set price talk for its $300 million offering of eight-year senior unsecured notes at the 8¾% area, with 2 to 3 points of original issue discount.

The deal, which could be upsized, is expected to price on Wednesday.

Deutsche Bank Securities, Banc of America Securities LLC and HSBC are joint bookrunners for the debt refinancing from the Naperville, Ill.-based provider of water treatment products and services.

Nalco is concurrently in the market with a $500 million bank loan.

In addition to Goodyear and Nalco, the active forward calendar also contains Inverness Medical Innovations, Inc.'s $200 million offering of seven-year senior subordinated notes (B3/B-).

A brief roadshow launched on Monday and wraps up on Wednesday.

The deal is expected to price on Thursday.

UBS Investment Bank is the left lead for the general corporate purposes deal from the Waltham, Mass.-based developer of medical diagnostic devices.

Teck is tremendous - but trader smells a rat

A trader saw all three tranches of Teck Resources' new deal trading up at least "3 or 4 points, across the board," from their respective mid-90s pricing levels in initial aftermarket dealings - but those bonds were by no means finished for the day.

A bit later on, another trader saw the bonds having firmed further, quoting the 10¼% notes due 2016 as having moved up to 98¾ bid, 99¼ offered from their issue price of 94.654, while the 9¾% notes due 2014 rose to 99 bid, 99½ offered from their 95.270 pricing level. Teck's 10¾% notes due 2019 got as good as 9½ bid, par offered.

While the first trader saw those explosive gains largely within the context of the overall junk market jump, fueled, he said by "the ton of cash" that has come into Junkbondland in recent weeks, with "lots of money out there chasing bonds higher," the second took much darker view of the situation. He called the sharp rise in all three "really unbelievable," adding, "talk about pulling the wool over the issuer's eyes - this is the epitome of misguiding an issuer!"

He opined that the nearly 5 point jump on the break in, say, the 103/4s, was "ridiculous. Come on."

Pricing the deal as cheaply as it priced, he continued "is such a disservice to the issuer. I really don't know how underwriters get away with it. It's almost like a used car salesman taking advantage of someone who doesn't have a clue about cars."

With Teck Resources only the latest of a number of deals which priced at a substantial discount to par, only to surge forward by multiple points almost as soon as they were freed for secondary activity, the trader speculated that issuers "may be totally clueless" to the fact that by letting their deals be priced so cheaply, they are in effect leaving many millions of dollars on the table for someone else to scoop up. For the Teck deal, he said, "calculate $4 billion times five points. Unbelievable!"

Silgan move more muted

In contrast, the trader saw Silgan Holdings' new 7¼% notes due 2016, which had priced at 97.28 to yield 7¾%, having edged only slightly higher to around 97½ bid, 98 offered.

"That's normal," he said of the Stamford, Conn.-based consumer products packaging company's bonds' aftermarket rise. "Anything within a point is understandable and normal. But 5 points is, like, ridiculous."

Another trader meantime said the new Silgan bonds "weren't moving up that much," seeing them at 97 5/8 bid, 97 7/8 offered.

Host halts after hitting highs

When the new Host Hotels' 9% notes due 2017 were freed, a market source saw them trading only slightly above the 96.599 issue price; he quoted the Bethesda, Md.-based lodging real estate investment trust company's paper "a touch off their highs" at 96 5/8 bid, 97 5/8 offered.

The new Crown Holdings bonds came to market too late for any immediate secondary activity.

Supermarket bonds trading super

Among recently priced issues, a trader saw Black Mountain, N.C.-based regional grocery chain Ingles Markets' new issue of 8 7/8% notes due 2017 at 98 5/8 bid, 98 7/8 offered, about where they were on Monday. The $575 million tranche - upsized from $500 million originally - had priced at 96.548 last Thursday to yield 9½%, and then had moved up to around the 98 mark on Friday and above 98 on Monday.

Ingles, he said, "is a good credit, people like it."

He also saw Eden Prairie, Minn.-based national supermarket giant Supervalu's 8% notes due 2016 "doing well too," adding that the company is "another decent credit."

He saw the $1 billion of bonds getting as good as 99 1/8 bid, 99½ offered on Tuesday. The issue - upsized from the originally planned $500 million - had priced last Thursday at 97 to yield 8.58%, moving up steadily on Friday and again on Monday, and continuing that rise on Tuesday.

Ryland, Starwood still struggle

While the new deals have for the most part been trading up, the trader allowed that "some of the deals still haven't gotten out of their own way," like Ryland Group Inc.'s $230 million offering of 8.40% notes due 2017. The Calabasas, Calif.-based homebuilder's deal, upsized slightly from the $225 million originally planned, priced last Thursday at 98.006 to yield 8¾%, but has managed no better than trading around their issue price.

"That [deal] might have been a little premature for the market," he said.

The same holds true for Starwood Hotels & Resorts Worldwide, Inc. The White Plains, N.Y.-based international lodging giant's $500 million of new 7 7/8% notes due 2014 priced at 96.285 on Thursday to yield 8¾%, but have also struggled to even stay at their issue price - at some times since their pricing the bonds have been seen down as much as 2 points.

Market indicators mostly better

Back among the established issues, a market source saw the CDX Series 12 High Yield index - which had jumped by a full point on Monday - down 3/8 point on Tuesday to 791/2.

However, the KDP High Yield Daily Index, which had risen 33 basis points on Monday, advanced by another 35 bps on Tuesday to 59.48, while its yield tightened by 15 bps to 11.54%.

Advancing issues easily led decliners for a fifth straight session, topping them by around a five-to-three margin.

Overall market activity, measured by dollar-volume totals, rose by 38% from Monday's levels.

A trader said that the day's action had "been insane. Stuff has just been going up in a vacuum."

The buying binge, he said, was being fueled by all of the fresh cash that has been coming into the high yield arena, attracted by the fact that the junk asset class has handsomely outpaced Treasuries, equities and virtually every other asset class so far this year - the authoritative Merrill Lynch High Yield Master II Index of junk market performance currently boasts an eye-popping year-to-date return in the 18% area.

"I've been talking to portfolio managers," he said, "and "they're getting a ton of cash in. Whether they like it or not, they have to put money to work."

Big new deals, like the Teck Resources mega-deal, "maybe will take some money out of the market" - but for now, he said, "the market is just on fire, in most cases."

A trader said the sharp gains which the junk market was exhibiting was "a combination of both" fundamental factors, like some companies posting better earnings and improved investor sentiment, and technicals, like the huge amount of cash waiting to go to work.

He noted that "fundaments were out the window when there was a lack of confidence, actually to the extreme, which equates to panic, and a lack of liquidity, so I think now with the rebound, you have both factors coming into play, technicals and fundamentals. "

That combination, he continued, will likely "create an exaggerated rebound, just like there was an exaggerated drop." Having both factors present is "sort of like lightning striking, creating this surge, since most accounts were sitting on the sidelines" previously.

MGM rise is no Mirage

With Teck Resources the name of the day in the new-deal arena, a trader said that in the purely secondary sphere, not impacted by the new issues, MGM Mirage was clearly the name of the day on its big move upward. That surge followed the late-Monday release of its first-quarter results and the hopeful guidance from company executives that the sharp decline in bookings that have decimated the company's revenues may finally be subsiding.

A trader saw MGM Mirage's bonds actively traded, and at higher level, quoting its 6% notes scheduled to come due on Oct. 1 at 90 bid, or a 34% yield to maturity, well up from 84¾ the day before, on $25 million traded.

He saw the company's 8% notes due 2010 better by 5 points at 82 bid, on turnover of $27 million., while its 6¾% notes due 2012 firmed some 4½ points to 673/4, with $23 million traded. MGM's 7½% notes due 2016 jumped nearly 8 points to 65 bid, with $24 million traded.

Another trader, who had earlier seen the MGM bonds up about 10 points pretty much across the board, said they were ending up 6 to 7 points, "just pick any one." Its 6 5/8% notes due 2015, for instance, were closing up more than 7 points at the 65 level. An even bigger gainer was the MGM-owned Mandalay Resort 9 3/8% notes due 2010, which zoomed more than 10 points to the 68 level.

After the close on Monday, MGM Mirage - the biggest casino operator in the important Las Vegas market and second-biggest gaming company in the world after Harrah's Entertainment Inc. - reported a first-quarter profit of $105.2 million, or 38 cents per share - down from its year-earlier earnings of $118.3 million, or 40 cents per share, but still a profit nonetheless, in a very tough environment for consumer-dependent gaming companies.

But while that gain helped shoot both bonds and shares higher, it should be noted that the latest results include a 44 cent per share one-time gain from selling its Treasure Island hotel and casino in Las Vegas, as well as smaller one-time gains related to a fire at another MGM Las Vegas property, the Monte Carlo resort and casino. Without those gains, the company's adjusted results for the quarter actually showed a 10 cent per share loss, worse than the roughly 7 cents per share of red ink which Wall Street had been expecting.

In its earnings release, MGM Mirage pointed out that it is seeing signs that business levels are stabilizing as resorts have seen increases in occupancy levels through the first quarter and into April, and forward booking has improved.

As for its balance sheet, at March 31 the company had $14.4 billion of borrowings outstanding and its cash balance was $1.4 billion.

During the quarter, the company drew down the remainder of unused borrowing capacity available under its $7 billion senior credit facility.

"We continue to work constructively with our advisors and senior lenders to find a comprehensive long-term solution to improve our financial position," said Dan D'Arrigo, executive vice president and chief financial officer, in the release.

"We are evaluating a variety of options - which may include asset sales, new capital, and modifying or extending our existing debt - to address our liquidity needs and strengthen our balance sheet," D'Arrigo added.

AK Steel shows strength

A trader noted that even though AK Steel "just reduced guidance because of what's been going on with GM and Chrysler," its bonds remained firm. "Holy [expletive]," he exclaimed, in seeing the bonds trade up at 911/2, which he termed "up another 2 points."

AK on Tuesday cautioned investors that it anticipates an operating loss of $75 million to $80 million in the second quarter, versus the $50 million loss it had estimated previously, although even the larger operating loss would still be an improvement over its first quarter operating loss of $99.9 million.

AK also expects shipments to fall to 725,000 tons during the quarter, down from its previous projection of 800,000 tons.

GMAC turns mixed after run-up

GMAC LLC's bonds - recently strong on the promise of federal aid as GMAC assumes its key role as a provider of financing for dealers and car buyers of bankrupt Chrysler - were seen mixed Tuesday after the big lender reported a wider first-quarter loss, despite GMAC's assertions that it would be able to withstand a possible bankruptcy filing by 49% owner GM.

A trader saw GMAC's 8% bonds due 2031 dip to 63 bid from 64½ on Monday, on volume of $14 million, although he saw its 5 5/8% notes coming due on May 15 actually edge up ¼ point to 99½ bid, or a 30% yield to maturity, on $2 million bonds traded.

However, at another desk, GMAC's 7¼% notes due 2011 were pegged down nearly 4 points on the day at 82 bid, while its 7¾% notes due 2010 lost ¾ point to end at 90. 5 bid.

Another source saw the 71/4s off 3 points on the day, while also finishing at 82, although its 6 7/8% notes due 2012 advanced by 2 points to 79 bid.

Increasing loan defaults were blame for the company's $675 million loss for the quarter, its sixth loss in the last seven reporting periods. In 2008, the company posted a loss of $578 million for the same quarter.

In its automotive finance unit, income dropped 13% to $225 million. Auto loans more than 30 days past due increased 3.1%.

Under its mortgage unit, which includes the struggling Residential Capital LLC subsidiary, the company lost $125 million.

A trader meantime saw General Motors' benchmark 8 3/8% bonds due 2033 at 8½ bid, up ½ point on the day, on $4 million.

However, another market source saw GM lower on the day, with its 7 1/8% notes due 2013 quoted down more than 23 points at the 6½ bid level.

Also in the autosphere, among Ford Motor Co. bonds, the carmaker's benchmark 7.45% issue due 2031 continued its recent firming trend, rising to 54 bid from 52½ on Monday, a trader said, although only on $2 million of turnover. Ford has benefitted from investor confidence that the Number-Two domestic carmaker will be able to avoid being swept into the bankruptcy courts as Chrysler was and as GM increasingly seems to be.

He also saw its Ford Motor Credit Co. 7 3/8% notes slated to come due on October 28 at 97 bid, or a 14% yield to maturity, and called it unchanged.

A market source also saw the Ford Credit 7% notes due 2013 firm by as much as 4 points to the 78 plateau, although the parent's 9.30% bonds due 2030 lost about 2½ points to end at 46.

Stephanie N. Rotondo contributed to this report.

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