Upsized Goodyear, Nalco deals price; new Nalco firms, Teck rise continues; market tone strong

By Paul Deckelman and Paul Harris

New York, May 6 - Fresh off its near-record $5 billion-plus new issue binge the previous day, the high-yield primary chose not to rest upon its laurels on Wednesday, but kept the ball rolling with upsized offerings from Nalco Co. and Goodyear Tire & Rubber Co. - the latter transaction raised to the magic $1 billion mark.

While the Akron, Ohio-based tiremaking giant's mega-deal came too late in the day for any kind of aftermarket activity, Nalco's half-billion dollar offering was heard by traders to have firmed smartly to almost the par bid level.

At the same time, Teck Resources Ltd.'s gigantic three-part offering, which accounted for more than $4 billion of Tuesday's swollen new-issue tally and which surged explosively on the break later on that session, was seen tacking on another point or so Wednesday, lifting all of the tranches up to or even above, par.

The overall market was showing tremendous strength, with many issues up multiple points, even on no news. Among the gainers were Goodyear's established issues, trading up ahead of its new deal; MGM Mirage, extending Tuesday's hefty gains, and Toll Brothers Inc.'s recently priced split-rated bond, the most actively traded credit of the day.

Cash bonds rose a point, give or take, on Wednesday, according to a high-yield mutual fund manager.

"The market is bifurcated," the source added.

"The lower-quality is up 3 points while the higher-quality is flat.

"But the lower quality is all you can buy. And if you buy a million you move the market."

Goodyear doubles size

Meanwhile the primary market continued the blazing pace set on Tuesday.

Two issuers, each placing a single tranche, sold a combined face amount of $1.5 billion.

Both deals were massively upsized.

Goodyear Tire & Rubber priced $1 billion of 10½% seven-year senior notes (B1/B+) at 95.846 to yield 11 3/8%.

The slightly restructured deal doubled in size from $500 million.

The yield was printed at the tight end of the 11½% area yield talk. The issue price came somewhat rich to the 5 points area original issue discount price talk.

J.P. Morgan Securities Inc., Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and Goldman, Sachs & Co. were joint bookrunners.

Call protection was decreased to three years from four. In three years the notes become callable at par plus three-quarters of the coupon, or 107.875.

Proceeds, together with 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 bear interest at 6.29%.

Nalco oversubscribed

Meanwhile Nalco Holding Co. price an upsized $500 million issue of 8¼% eight-year senior unsecured notes (Ba2/BB-) at 97.863 to yield 8 5/8% on Wednesday.

The yield came at the tight end of the 8¾% area yield talk while the issue price came at the rich end of the 2 to 3 points of original issue discount price talk.

Deutsche Bank Securities, Banc of America Securities LLC, HSBC and BMO Securities were joint bookrunners for the deal, which was upsized from $300 million.

Also on Wednesday Nalco upsized its term loan B to $750 million from $500 million.

Both bonds and loans were multiple-times oversubscribed, according to a source close to the deals.

There was $1 billion in the order book for the loan, the source added.

A high-yield mutual fund manager who got into the deal said that allocations were tough, but added that the bonds were up a point on the break.

Proceeds will be used to repay bank debt. The additional proceeds raised from the bond and term loan B upsizings will also go towards debt repayment.

Nalco is a Naperville, Ill.-based provider of water treatment products and services.

Good deal for issuers

The massive Teck Resources $4.225 billion issuance of senior secured notes (Ba3/BB+), which priced Tuesday in three tranches, continued to soar on Wednesday, sources said.

With some of those bonds up more than 5 points from their respective issue prices, Prospect News quizzed market sources as to whether issuers and their underwriters might be leaving too much on the table for investors.

Not on your life, was the unanimous reply from the buy-side and sell-side.

"Rates are much better than they were two months ago," said a banker.

"By historical standards rates may be a little high. A couple of years ago these issuers might have gotten deals done a couple of hundred basis points lower.

"But the executions are still fantastic.

"The market is really rockin'."

The only game in town

Although the leveraged loan market has been flickering to life since late April, it is still not a viable option for some issuers, the banker said.

"The loan market is not there yet, so the fact that high-yield deals are trading to conspicuous premiums represents a certain kind of leverage that bond buyers have because the high-yield is still the only game in town," the sell-sider explained.

"That's one reason why bond buyers can demand much higher premiums.

"Also, credits across the spectrum are still wide."

Teck, a special case

The banker, who was in the Teck deal, said that the bonds traded as much as 7 points higher in the aftermarket.

"That reflects the fact that high-yield was the only game in town for the company, and the bondholders knew it," said the banker.

"When you are trying to raise $4 billion it's the price you pay.

"You could maybe argue that they paid too much. But the bondholders clearly had the leverage in a deal that size."

Buy-side sources readily concurred that the phenomenal performance of the new Teck bonds is a one-off situation, given the deal's size and circumstances.

To recap, the Teck secured notes transaction included $1.315 billion of 9¾% notes due 2014, which yielded 11%, $1.060 billion of 10¼% notes due 2016 which yielded 11 3/8%, and $1.850 billion of 10¾% notes due 2019 which yielded 11 5/8%.

Teck concessions

Teck's existing unsecured bonds, originally a high-grade issue, were trading in the low 10% range on the morning the new secured notes offer was announced, the banker recounted.

In essence, the situation was backwards, where the secured notes priced at a premium to the existing unsecureds.

"Theoretically speaking a secured deal should be tighter than the unsecured bonds," the banker said.

However the backwards Teck situation is largely a function of the size of the transaction, the source explained.

"Technically the company was not a first-time issuer, although this really was the first time that Teck sold bonds directly to high-yield holders.

"The other bonds were issued when the company was investment grade.

"So there was a 'new issuer' aspect to the transaction, which led to a wider new issue concession."

Glad to have access

Issuers are not carping about interest rates, syndicate sources asserted on Wednesday.

Recent issuers, invited to comment, did not immediately return calls from Prospect News.

Nevertheless, sell-siders say, at least the high-yield market is open to some companies for the purpose of refinancing.

"In Teck's case the issuer was glad to get the money to repay that bridge loan," one syndicate official asserted.

"The primary market was closed for so long that issuers got scared that they would not be able to refinance.

"In secret companies probably think that they are paying too much," the source conceded.

"But ultimately they are relieved that they got the capital."

Everything still quick-to-market

While the high-yield market may be "rockin'," as a sell-sider said, the traditional 10-day roadshow is not apt to return any time soon - at least not in a big way.

"We're talking to companies that need to come, and telling them that now is the time," a syndicate source said.

"Everything is still going to be quick-to-market," the source added.

Meanwhile, with the Goodyear and Nalco deals having cleared on Wednesday, only one deal remained on the active forward calendar, heading into Thursday.

The roadshow for Inverness Medical Innovations, Inc.'s $200 million offering of seven-year senior subordinated notes (B3/B-) was scheduled to wrap 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. Goldman Sachs & Co. and Banc of America Securities LLC are joint bookrunners.

No news on the deal was heard during the Wednesday session, market sources said.

New Nalcos move up

A trader said that the new Nalco 8¼% notes due 2017 "traded up to par and kind of stalled," going out around the 993/4-99 7/8 bid level. They had priced earlier in the session at 97.863.

"It traded right up to par, a par lock, right out of the gates," he said, "then traded right around par to 100¼ and was basically trading at par to slightly above for most of the day" before easing slightly from those highs to go out just a touch below par.

Another trader agreed that the new issue closed out the session straddling par, at 99¾ bid, 100¼ offered.

Nalco's outstanding 8 7/8% notes due 2013 were meanwhile seen heading for home down nearly 2 points on the session at 101 bid.

Existing Goodyear firms ahead of new deal

The Goodyear 10½% notes due 2016, which priced at 95.846 to yield 11 3/8%, came to market too late in the day for any secondary dealings. However, the tiremaker's existing bonds were seen trading busily around before that deal priced - and going against the conventional wisdom, they were mostly seen up.

A trader said that its 7.857% notes due 2011 were trading around 97 bid, adding: "I think it was high, I don't know why, trading around 9½%" on a yield basis. That was up from 95 bid, 96 offered on Tuesday.

"I'm not sure why it would be up," he reiterated, "to that 9-and-change [yield] level, when [the new bonds] are going to come at 11½%," the price talk on the deal.

The levels were "generally strong, even going into the new deal, which makes it obvious to me that that [new] deal is going to trade up" when it is freed for secondary activity. He predicted that the rise could bring the yield down to 10½% -- the coupon level at which the deal eventually did price.

He noted that the company's 9% notes due 2015, trading recently around 95, "are trading at [a yield of] about 10% - so there you go. The new deal has got to trade up to 10½% from 11½%.

He also expressed puzzlement as to "why they're bringing it so wide."

Crown Americas firms then stalls

A trader said that Crown Americas LLC and Crown Americas Capital Corp II's new 7 5/8% notes due 2017 "moved right up this morning," trading first from 98 bid to 981/2, then from 98½ to 99, and then 99 bid to 991/2, before the bonds "stalled right around 99," finally going home at 98¾ bid, 99 offered.

Even though it was a little off the peak levels, that finish was still well up from the 97.092 level at which the issuers - subsidiaries of Philadelphia-based packaging concern Crown Holdings Inc. - had priced the $400 million of bonds, upsized from the originally planned $250 million, on Tuesday, to yield 8 1/8%. The notes priced too late in Tuesday's session for any visible aftermarket activity.

Teck rise rolls on

A trader said that the Teck Resources deal that priced on Tuesday finished the session Wednesday having risen further after Tuesday's surge on the break.

"They traded up like 8 points," he estimated - because they brought it [to market] maybe 7 points too low."

He saw the Vancouver, B.C.-based mining and energy company's 10¾% notes due 2019 get as good as 101 bid, 102 offered; the $1.85 billion of bonds had priced at 94.893 Tuesday to yield 11 5/8%, and then had risen to 99½ bid, par offered in initial aftermarket dealings.

He saw its 10¼% notes due 2016 bid at par, up from 98¾ bid, 99¼ offered late Tuesday and up further still from the $1.06 billion tranche's issue price of 94.654, which yielded 11 3/8%.

And he said the $1.315 billion of new 9¾% notes due 2014, which on Tuesday had priced at 95.27 to yield 11% and which then rose to 99 bid, 99½ later Tuesday, had by Wednesday moved up to par bid, 100¼ offered.

"They [all] opened at 99, up 5 [points, approximately, from issue]."

At another desk, a trader saw the five-year notes going out at 99¾ bid, 100½ offered, while the seven-years had firmed to 100½ bid, 101½ offered, and the 10-years to 101 bid, 102 offered.

He also saw the company's established 6 1/8% bonds due 2035 as "very active," with some $18 million changing hands on the session, ending at 69¾ bid, down ¼ point from Tuesday's close at 70.

Cash cache fuels new deals

The brisk pace of new deals in the market - this is the fourth straight week in which new-issuance has topped $2 billion - has been fueled by a surge of liquidity, traders said, exemplified by the continuing onslaught of mutual fund inflows, which have been in the black now for the past seven weeks. With all of that cash coming in and sloshing around, waiting to be put to work, issuers have sensed that the window is now open for bringing their financing transactions, and most have been fairly well received by the market, including Tuesday's Teck deal - thought by some to have been priced way too cheaply - and such sharply performing recent offerings as the deals for Supervalu Inc. and Ingles Markets Inc. Both of those deals, which came to market a week ago, priced in the mid-90s, but had plowed their way up to levels just under par over the next few sessions.

However, a trader cautioned, while the easy liquidity has let accounts increase their risk appetites and play in many of the recent new deals, "you still have to be industry conscious, to a certain extent" - he cited the

lackluster aftermarket reaction for two other deals priced last week, for Calabasas, Calif.-based homebuilder Ryland Group Inc. and for White Plains, N.Y.-based lodging giant Starwood Hotels & Resorts Worldwide Inc.; both issues turned out to be duds in the aftermarket, struggling to barely stay at their respective issue prices.

However, outside of such individual laggards, he said, "the rest of the names that are comin' - they're blowin' out."

Host hangs around

But just as the Starwood and Ryland deals underwhelmed market participants when they reached the secondary side, some of Tuesday's new deals also fizzled even as Teck, in particular, sizzled.

Among the other issues that priced on Tuesday, another trader saw Starwood industry peer Host Hotels and Resorts Inc.'s new 9% notes due 2017 at 96½ bid, 97 offered, "which seems kind of like that's where it was [originally], and kind of how it was all day."

He saw the bonds open at 96, then get above 97 in the middle of the day. After that, he said, it was "kind of trading back and forth around 97."

The Bethesda, Md.-based lodging real estate investment trust company priced its $400 million issue of bonds - upsized from $350 million originally - at 96.599 to yield 9 5/8%, and then went out later Tuesday around their issue price, off their early highs at 96 5/8 bid, 97 5/8 offered.

Silgan mostly silent

The trader also said Silgan Holdings Inc.'s new 7¼% notes due 2016 did not "do a whole lot either," quoting the Stamford, Conn.-based consumer products packaging company's bonds as going home at 97¼ bid, 97¾ offered, "kind of where it was all day," not far from the levels at which they had finished on Tuesday.

The company had priced the $250 million of 7¼% notes due 2016, upsized from $200 million previously, at 97.28 to yield 7¾%. After that, the bonds edged only slightly higher, to around 97½ bid, 98 offered.

In Wednesday's dealings, he said, the bonds had actually gotten as good as the 98 level before dropping back to 97½ bid, 98 offered.

There was, he said, "not a whole lot of action" in the bonds, "nothing like the other ones."

Market indicators gain again

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which had fallen 3/8 point on Tuesday - soar by 1½ points on Wednesday to 80½ bid, 81 offered.

The KDP High Yield Daily Index, which had risen 35 bps on Tuesday, meantime jumped by another 74 bps on Wednesday to 60.22, while its yield tightened by 10 bps to 11.44%.

Advancing issues easily led decliners for a sixth straight session, topping them by a better than seven-to-four margin.

Overall market activity, measured by dollar-volume totals, fell by 6.5% from Tuesday's levels.

A trader said that "everything is strong. The stuff is trading up like a bull." He noted that even though equity futures "were off early, the Dow [Jones Industrial Average] finished up by 100" - actually by 101.63 points, or 1.21%, to close at 8,512.28. The broader Standard & Poor's 500 index leapt by 1.74%, while the Nasdaq composite index managed a 0.28% gain.

"All of the stuff was strong," he continued, "and the bonds were sort of leading the charge."

As an example of that market strength, he quoted First Data Corp.'s 9 7/8% notes due 2015 - often seen as something of a market barometer - as having pushed all the way up to the 70½ level, versus a 67-68 context, "up a couple, so it's a good bellwether."

Another trader also saw the Greenwood Village, Colo.-based financial transaction processor's $2 billion-plus issue as having breached the 70 mark to go to 70½ up nearly 3 points on the day, exclaiming "that's a nice pop," and commenting that with $53 million of the bonds traded on Wednesday, it was the second-most active junk issue, topped only by the Toll Brothers eight-year issue.

Toll is a bell-ringer

Horsham, Pa.-based luxury homebuilder Toll's 8.91% notes due 2017 traded up to 102 bid Wednesday from 100 7/8 on Tuesday, on market-leading volume of $57 million.

"We haven't seen a homebuilder as the most active high yield name in a long time," a trader exclaimed, adding half jokingly, that for a name from that hard-pressed sector to be the focus of such attention must be a sign that "high yield is back, baby!"

At another desk, it was suggested that the issue - which actually priced back on April 13 as a split-rated deal (Ba1/BBB-) at 97.975, to yield 9¼% -- is suddenly becoming popular perhaps because "guys want to add new names to their portfolios."

MGM move continues

A trader saw MGM Mirage's bonds continuing to firm, extending the impressive gains notched Tuesday on the Las Vegas-based gaming giant's first-quarter profit and assertions by its executives that the disastrous downturn in bookings which has knocked the bottom out of the lodging and gaming industries' revenue numbers seems to finally be stabilizing.

He saw the company's 13% secured notes due 2013 at 98¼ bid, 99¼ offered, and suggested that the company's bonds were "up another point across the board," but added "but that's it," with the vast bulk of the movement seen on Tuesday, when some issues rose by as much as 10 points.

Another trader saw the company's 6¾% notes due 2012 move up to 69 bid from 673/4, on volume of $12 million, while its 8½% notes due 2010 firmed a little to 82½ bid, versus 81 7/8 Tuesday, also on volume of $12 million. MGM's 6% notes slated to come due on Oct. 1 were ½ point better at 90½ bid, or a 33% yield to maturity, with $12 million traded.

A market source meantime saw MGM Mirage-owned Mandalay Resort Group's 9 3/8% notes due 2010 gain more than 6 points on the session, ending at 74 bid.

No softening for butter-maker

Elsewhere, a trader said that "some of the stuff just keeps moving up again," even in the absence of firm news developments.

One recently firm issue he's been watching is Land O' Lakes Inc.

The Arden Hills, Minn.-based dairy products producer's investment-grade rated 9% senior secured notes due 2010 have recently held steady in the 101.5 bid range - while its junk-rated 8¾% senior notes due 2011 have also been hovering at bid levels in a 99-101 context.

He noted that the company's quarterly earnings are due out on Thursday, "not that they're moving up," but he said that the bonds were firm on recent news that the company had lined up new, expanded revolving credit financing and "there's rumors that they're going to be taking out the 9s a little early."

Cott Beverage still sparkles

Another recently strong issue, he said, is Cott Beverages Inc., whose 8% notes due 2011 "are just nowhere to be found, and they're up by God knows how much" over the last several weeks. He quoted them at 81.5 bid, with no offered level seen. "That just keeps going up."

Another source saw those bonds - which opened the month in the mid-70s - having jumped to the mid-80s this week and then wildly gyrating between the low 80s and the high 80s in active odd-lot trading, although no real size trading was seen. By mid-afternoon on Wednesday, several small pierces of the bonds were seen trading around the 88 bid level.

He said the Mississauga, Ont.-based soft-drink company, which cans and bottles private-label soda for, among others, the giant Wal-Mart store chain, "is doing a fine job reducing costs and everything else, but the rumors are still there about a takeout, so everybody's looking for those."

Saks almost all the way back

The trader meantime saw Saks Inc. - which is scheduled to release April sales results on Thursday - "almost back to pre-crash levels," with the New York-based upscale department store operator's 9 7/8% notes due 2011 at 94.25 bid, 95.25 offered. Those bonds, which had traded around par until the junk market began its treacherous slide last fall, got down to levels not far from 50 bid when the market cratered in March, before gradually climbing back to current levels.

In March, same-store sales, the retailing industry's key performance metric, slid by 23.6% from year-earlier levels, as overall sales lost 24.2% from the prior-year pace.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.