No junk prices, but United Rentals shops big deal; split-rated Methanex offer draws interest

By Paul Deckelman and Paul A. Harris

New York, Feb. 21 - The high-yield market attempted to get back to work on Tuesday, but activity was seen as relatively sparse coming off the long Presidents' Day holiday break, which saw the U.S. debt markets shut on Monday.

There were no pricings in the Junkbondland primary sphere, but one very big deal from a well-known issuer surfaced, as United Rentals Inc. unveiled plans for a massive three-part offering of senior secured and unsecured paper.

That $2.2 billion behemoth of a deal will be quickly marketed to investors, with pricing seen by the end of the week.

With no actual junk-rated paper pricing, investors looked to the crossover space, with some junk players getting involved in split-rated Methanex Corp.'s $250 million 10-year offering. Those bonds were quoted up by nearly 2 points when they began trading.

Traders said that recently priced junk paper, such as last week's issues from MMI International Ltd. and Chesapeake Energy Corp., hung onto the gains those bonds had notched in the aftermarket, MMI's coming quickly on Friday while Chesapeake's was hard-won over the space of several sessions last week.

Chesapeake's existing bonds were meantime fairly heavily traded on the session.

The traders didn't see much doing in the non-new-deal secondary. But statistical indicators of junk-market performance were seen mostly higher on the day.

United Rentals kicks off deal

United Rentals began a roadshow on Tuesday for its $2.2 billion three-part notes offer.

The secured tranche is a $650 million offering of senior secured notes due July 2018, non-callable for three years.

The deal also includes $1.55 billion. which is coming in two unsecured tranches, one maturing in May 2020 and non-callable for four years, the other maturing April 2022, non-callable for five years.

An investor call is scheduled for 10:30 a.m. ET on Wednesday.

The deal is set to price on Friday.

Morgan Stanley, Bank of America Merrill Lynch and Wells Fargo are the joint bookrunners.

Proceeds, together with an ABL facility and/or cash on hand, will be used to pay the cash consideration for the proposed acquisition of RSC Holdings, Inc. and to refinance RSC's existing senior secured debt.

Afren roadshow

Pan African energy producer Afren plc (/B/B) mandated BNP Paribas, Deutsche Bank AG and Goldman Sachs International to lead an international roadshow ahead of a possible offering of seven-year senior secured notes (/B/), according to market sources.

Initial meetings will take place on Thursday and Friday in London.

The company and its investment bankers plan to subsequently meet with investors on the West Coast of the United States on Feb. 27, in Boston on Feb. 28 and in New York on Feb. 29.

Proceeds will be used to pay bank debt and for general corporate purposes.

Based in London, Afren conducts its oil and gas exploration, development and production operations in African countries including Nigeria, Gabon, Republic of the Congo, Ivory Coast and Ghana.

Banro whispered at 10% area

Toronto-based gold mining firm Banro Corp. is expected to price a $125 million of offering of five-year notes with warrants before the end of the week.

The deal unrated deal is whispered in the 10% area, and has modest room to grow.

GMP Securities LP and BMO Capital Markets Corp. are the bookrunners.

Methanex split-rated deal

In Tuesday's crossover market, Methanex priced a $250 million issue of 5¼% 10-year senior notes (Ba1/BBB-/) at 325 basis points over Treasuries.

The deal came at the tight end of guidance set in the 337.5 bps area.

BNP Paribas and RBS were the bookrunners for the debt repayment, working capital and general corporate purposes deal from the Vancouver, B.C.-based methanol company.

Despite the small deal size, Methanex was playing to an enthusiastic crossover crowd because of the company's low leverage, good liquidity and excellent market position, according to a trader from the crossover space.

Investors failed to conceal that enthusiasm from the dealers, who initially were whispering the deal with a spread in the "high 300s," but then clamped down hard as the book for the modest-sized offering kept getting fuller and fuller.

The trader saw the deal as a fair value between 325 and 350 bps, and of course it came at the tight end of that range.

Away from the deal, a sellside source, noting that it priced on the high-grade desk, said that Methanex did not generate a lot of chatter among the high-yield accounts on Tuesday.

Back to work - sort of

As is usually the case when the junk bond market tries to get back on track after a long holiday weekend, traders said that the first session back produced little that was truly noteworthy.

One - noting that it was the calendar's traditional "Fat Tuesday" - suggested, tongue-in-cheek, that maybe investors "didn't come back from their Mardi Gras festivities yet," adding that things were "a little blah."

Another said flatly: "I don't have a lot to tell you."

One of the traders said that even Caesars Entertainment Corp.'s normally busy 10% notes due 2018, considered a market bellwether "were not that active today.

He quoted the Las Vegas-based casino giant's bonds at about 75 to 75½ bid, on just $5 million to $6 million.

While the trading level was about unchanged from where the former Harrah's Entertainment Corp. bonds had gone home at the end of last week, he said the activity level "was down a lot. "Normally there are a lot of these things trading."

Methanex moves up

A trader said that in the absence of any new junk paper to trade on Tuesday some high yield players were "grabbing onto" the new Methanex5¼% notes due 2022.

He said that the Vancouver-based methanol alcohol manufacturer's split-rated (Ba1/BBB-) deal priced off the investment-grade desks, but "you definitely had the crossover audience involved, no question."

He quoted the bonds at 101½ bid - well up from the 99.615 level at which the company had priced its quickly shopped $250 million issue earlier in the session to yield 5.3%.

Asked if there were any junk investors playing the deal, he said "absolutely. Some guys were trading it on spread and some in dollars, producing "definite" crossover activity.

Recent deals hold their own

Away from Methanex, a trader said that recently priced junk deals that were trading around "all held their gains, but nothing really changed from where they were."

He saw MMI International's 8% senior secured notes due 2017 trading around 101½ bid, 102 offered - about the level at which the Singapore-based precision engineering company had traded on Friday after having priced earlier that session at par.

He also saw Chesapeake Energy's new 6.775% notes due 2019 trading at 100 bid, 100 ½ offered, also around their Friday trading levels.

A market source at another desk actually quoted the new Chesapeakes as having been as good as 103 bid at one point during the day on smallish odd-lot trades before coming off those peaks to end near the par level. He estimated volume at nearly $40 million, meaning Chesapeake is continuing last week's pattern of heavy aftermarket trading, even with relatively minimal price movement.

Chesapeake, an Oklahoma City-based natural gas producer, came to market with its $1.3 billion same-day drive-by offering last Monday. The deal - upsized from the initially announced $1 billion - priced at 98.75 to yield 7%, and then went on to become the most heavily traded issue in Junkbondland, with an astounding over $450 million knocked down on Tuesday and $150 million on both Wednesday and Thursday.

The new deal had initially clung to trading levels at or just slightly above where it had priced, despite the great volume, leading traders to wonder why anyone was playing in it since it would be difficult to make money that way.

However, by Thursday, the bonds had pushed up to around the 99¾ bid area, and by Friday, had actually cracked the previously unbeatable par barrier.

It was still heavily traded, with over $57 million recorded on Trace Friday, according to a market source - brisk activity which continued on into Tuesday.

Existing Chesapeakes churning

While the new Chesapeake bonds continued to dominate the junk most-actives lists, its existing paper was also being busily traded, following the pattern set last week.

A trader saw more than $21 million of Chesapeake's 6 5/8% notes due 2020 having changed hands. While the bonds were being quoted about a point lower on the day, counting all trades on a round-lot basis and screening out the smaller unrepresentative transactions, the bonds actually firmed about a half-point, to the 102¾ bid level.

Chesapeake's 6 1/8% notes due 2021 were seen by a market source having gained 1¾ points on the session to end around 99½ bid, with over $15 million of turnover.

And Chesapeake's 6 7/8%notes due 2020pushed up by 1½ points to close at 103½ bid, on volume of more than $10 million.

Station again a no- show

Several traders said on Tuesday that they still had not seen any kind of markets in Station Casinos Inc.'s $625 million issue of senior step-up notes due 2018, which had priced on Friday at a deeply discounted 61.5 level, for a yield of 14.942%, producing $384.3 million of gross proceeds.

The Las Vegas-based gaming company's unusually structured deal starts out with a coupon of 3.65%, but that interest rate then steps up annually - gently at first, then more robustly as time goes on - until it is paying 9.54% at maturity .

Station, which operates smaller casinos specialized for local gamblers in downtown Las Vegas, restructured last year and emerged from Chapter 11 in June. The current deal is related to the financing from the company's exit from bankruptcy.

Other issues not much traded

Away from the new deals, traders said there was only sporadic activity.

A trader said Ford Motor Co.'s benchmark 7.45% bonds due 2031 were up three-quarters of a point, at 126¾ bid, 127¾ offered.

A trader said that ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 were "sticking around 63-65," with the last trade of the day at 64 bid, which he called unchanged to up a little bit on a "pretty decent amount" of volume, about $8 million to $10 million.

Clear Channel Communications Inc.'s 10¾% cash-pay notes due 2016 "have been all over the lot today," a trader exclaimed.

He saw the San Antonio, Texas-based media company's paper starting the day at 78 bid, 78½ offered, but came off those early highs, dropping as low as around 75 bid, before going out around 76 bid, 77 offered, "which is still 2 points higher than last week.

"So they went on a wild ride today and a lot traded."

He meantime saw the company's 11% payment in kind toggle notes due 2016 traded between 75 and 75½ bid, "all day long, and that's unchanged."

And a trader saw the AMR Corp. 6¼% notes due 2014 pretty much unchanged, despite a general softening in airline stocks on Tuesday, including Fort Worth-based AMR, driven by investor fears about the impact of higher fuel prices on the carriers. He saw those bonds at 30-31 on "not much volume."

He saw the bankrupt airline giant's 7½% notes due 2016 finishing at 84 bid, 85½ offered, but he said her did not see much activity in the credit.

He saw AMR's 9% debentures scheduled to come due on Aug. 1 and its 6¼% convertible notes due 2014 both trading right around a 30-33 context.

"I can't say that I've seen much activity in it," he said."-

Market data firms up

Statistical measures of junk market performance were mostly firmer on Tuesday.

A trader said that the CDX North American Series 17 High Yield index gained eased by 1/8 point to close at 97 bid, 97¼ offered, after having been about unchanged on Friday. However, another source saw the index edge up slightly, to 97 1/16 bid, 97 5/16 offered.

The KDP High Yield Daily Index rose for a second consecutive session on Tuesday, adding on 6 basis points to end at 74.16 after having gained 5 bps on Friday. Its yield declined by 4 bps, to 6.67%, after having come in by 1 bp on Friday.

And the widely-followed Merrill Lynch High Yield Master II Index marked its third consecutive daily advance Tuesday as it moved above the psychologically potent 4% mark for the first time this year, gaining 0.108% to bring its year-to-date return up to 4.147%.

While there was no formal trading in the U.S. debt markets on Monday due to the Presidents' Day holiday, Merrill Lynch tabulated the index for that day as having risen 0.065%, bringing the cumulative return figure to 4.035%. During the last previous actual trading session on Friday, the index rose by 0.214% to finish at 3.967% on a year-to-date basis.

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