Steel Dynamics prices upsized add-on; Solo gains on upgrade; airlines mixed on Delta-Northwest deal

By Paul Deckelman and Paul A. Harris

New York, April 15 - Steel Dynamics Corp. - which came to the high yield market less than three weeks ago with a well-received offering of eight-year notes - was back for another drink at the well on Tuesday, pricing an upsized add-on tranche to that issue. The new notes were heard to have firmed in initial aftermarket dealings.

Elsewhere on the primary scene, high yield syndicate sources heard price talk for Berry Plastics Corp.'s upcoming offering of seven-year secured notes.

In the secondary arena, Solo Cup Co.'s bonds were seen to have firmed up after Standard & Poor's upgraded its ratings for the Highland, Park, Ill.-based maker of disposable paper and plastic cups, plates and utensils.

Traders saw healthcare credits being just what the doctor ordered for investors wishing to get a little defensive about their positions, but said that the odds against the casino operators remain pretty long.

Delphi Corp.'s bonds were seen lower - although there was not much trading in them - after the company's chairman, Robert S. "Steve" Miller, said that the bankrupt Troy, Mich.-based automotive parts maker might have to remain in Chapter 11 for additional months, rather than weeks, while it gets its exit financing problems worked out.

A money manager was marking some bonds lower as the Tuesday session was winding down.

"The market looks quiet," said the buysider, spotting Isle of Capri Inc. paper lower on the day at 69¾ bid, 703/4.

The source also saw "a little tech nervousness," despite upbeat earnings reported by Intel Corp.

Bonds of Seagate Technology and Freescale Semiconductor, Inc. were both down a point on the day, the investor said.

Steel Dynamics upsizes tap

The investor took part in Steel Dynamics' upsized $125 million add-on to its 7¾% senior notes due April 15, 2016 (Ba2/BB+) which priced at par to yield 7¾% on Tuesday, on top of price talk.

Banc of America Securities, Morgan Stanley and Goldman Sachs ran the deal.

The buy-sider was also involved in the $375 million original issue - also upsized, from $300 million - which priced on March 27.

Proceeds from the tap will be used for general corporate purposes including financial capital expenditures, acquisitions or share repurchases.

Proceeds from the original issue were used to repay bank debt and for general corporate purposes.

"They had reverse inquiry after the original deal," the investor said, adding that there were 35 accounts in the book for the add-on.

The buy-sider professed the belief, however, that neither the original deal nor the tap were massively oversubscribed.

"Before they priced the add-on at par the existing bonds were trading 101 bid, 101½ offered, so you're getting a free gift of at least a point," the money manager remarked.

"In spite of all the uncertainty and risk avoidance, there is tremendous demand for a strong company with a leading market share in a stable-to-improving industry, doing a refinancing," the investor commented.

"There is always demand for the good stuff.

"Of course you can't give away the bottom stuff."

Berry Plastic price talk

Berry Plastics set price talk for its $530.6 million offering of first priority floating-rate senior secured notes due 2015 (expected ratings B1/BB-) with a coupon of Libor plus 475 basis points at an original issue discount of 94 to 94.

Market sources were expecting to hear the terms of the deal on Tuesday evening, however none had been heard as Prospect News went to press.

Banc of America Securities, Goldman Sachs and Lehman Brothers are joint bookrunners for the bridge refinancing deal.

Casino deal launches

Elsewhere on Tuesday FireKeepers Development Authority began a roadshow for its $325 million offering of seven-year senior secured notes (B), a project financing via Merrill Lynch.

The issuer is the tribal gaming authority of the Nottawaseppi Huron Band of Potawatomi Indians.

Halfway point in sight

The money manager said that the credit markets may be drawing nigh unto their low point.

"I don't think there is a lot of downside from here, except in the financial space," said the investor.

Over the course of the past three weeks this buy-sider's macro outlook improved a little.

"From here out we'll recognize the losses that have already been created on the part of the banks and the brokerages' balance sheets; $200 billion of write-offs is a good start.

"Housing prices will go down approximately another 10%.

"By the end of the summer things should start to look pretty good, although there will still be some write-offs, and housing prices may continue to soften somewhat.

"But by that point we will be well into the second half of this correction."

Steel Dynamics up in trading

A trader saw the new Steel Dynamics 7¾% notes due 2016 trade up to 101 bid, 101.5 offered on the break, up from their par issue price earlier in the session.

Another trader saw those bonds a little later in the day left at 100.75 bid, 101.25 offered.

Market indicators point upward

Back among the established issues, a trader saw the widely followed CDX index of junk bond market performance up ¼ point Tuesday to 94¼ bid, 94 9/16 offered. The KDP High Yield Daily Index was meantime up 6 bps to 74.29, while its yield narrowed by 2 bps to 9.60%.

In the broader market, advancing issues led decliners by a five-to-four margin, while activity, as measured by dollar volumes, jumped almost 31% from Monday's levels.

A trader said that overall, the market was "better on the day" in line with firmer equities, which advanced even in the face of worrisome inflationary signs - crude oil surging to a record $114 per barrel, and government data showing an unexpected acceleration of consumer prices in March. These were somewhat offset by the New York Federal Reserve Bank's report signs of a pickup in manufacturing in its district, as well as by unexpectedly good earnings from healthcare products maker Johnson & Johnson. Later in the day, tech bellwether Intel Corp. reported earnings pretty much in line with expectations. The Dow Jones Industrial Average closed up 60.41 points, or 0.49%, at 12,362.47, and broader indexes like the Nasdaq and the S&P 500 were up as well.

Another trader said it was his impression that "some of the bigger guys are still doing stuff out there - moving deckchairs and positions - but accounts are kind of hanging low." However, he said that there was more activity on Tuesday than on Monday and on Thursday and Friday of last week.

He characterized that trading as "pretty much issue-specific," rather than being any kind of across-the-board trend. "As we move into earnings season, I think a lot of accounts are kind of taking a step back. They have cash already from things they've already sold. They're not really in a rush to add [to their positions] - they're not diving in, but they really see no reason to sell right now" either.

Meantime, he said, "the primary market is heating up again."

Healthcare more robust

The trader said that "some of the healthcare names had a better bid today," including Tenet Healthcare Corp., HCA Inc. and Community Health Systems Inc.

"I think it's kind of a defensive play ahead of earnings," which will be starting to pour in with a vengeance. "Maybe there's some short-covering ahead of earnings, as they've pushed up recently."

He saw Tenet Healthcare's 9 7/8% notes due 2014 going out at 99 bid, 99.25 offered, up nearly a point from Monday's close, while Community Health's 8 7/8% notes due 2015 - he noted that the $3 billion issue acts as "kind of a benchmark" for the whole sector - were finishing at 102.25 bid, 102.5 offered, which he said was "up just a little." The bonds "were at 102 bid, looking [for offers]" during Monday's session but "were pretty active today in that context."

At another desk, the Community Health notes were seen up about ¼ point at 102.375, while HCA's 5¾% notes due 2014 were also up slightly at 84.5 bid, while its 9 1/8% notes due 2014 edged up to 104.5. Tenet's 7 3/8% notes due 2013 ended at 90.25.

Gaming still a risky bet

The trader also said that gaming issues remain "a little on the weak side."

A second trader concurred, attributing Tuesday's weakness to MGM Mirage's announcement that the Las Vegas-based casino giant will immediately eliminate 440 middle management jobs, most of them at the company's 10 resorts in the Nevada gambling capital, in hopes of saving $75 million annually in the face of an industry-wide downturn.

He saw the MGM 7 5/8% notes due 2017 off a point at 90.5 bid, 91.5 offered, while in-city rival Las Vegas Sands Corp.'s 6 3/8% notes due 2015 and Boyd Gaming Inc.'s 7¾% notes due 2012 were also each 1 point down at 88 bid, 89 offered and 90.75 bid, 92.75 offered, respectively.

Isle of Capri Casinos Inc.'s 7% notes due 2014 lost more than 2 points, dipping below 70 bid, while Pinnacle Entertainment Inc.'s 8¼% notes due 2012 eased slightly to end at 96.25.

Solo Cup is up

Among other issues, Solo Cup's 8½% notes due 2014 were seen having moved up nearly 2 points on the session to 84.75 in busy trading, most of it in round lots.

That followed the news that S&P had upgraded the company's ratings by one notch across the board, including a rise to B- from CCC+ for its corporate credit. The agency also removed the credit from CreditWatch and said its outlook was stable.

The upgrade "reflects management's successful turnaround of operations via various initiatives and significant debt reduction with asset sale proceeds," S&P analyst Cynthia Werneth wrote in her upgrade message.

S&P believes that "with improving operating performance and continued modest debt reduction, the company has a reasonable chance of remaining in compliance with increasingly restrictive covenants in its bank credit facilities during the next several quarters. We also note that the improving financial trends are likely to facilitate a more favorable renegotiation of these covenants, if necessary," the analyst added.

Werneth estimated that Solo's total adjusted debt as of this past Dec. 30 stood at about $965 million, including some $200 million of capitalized operating leases and $10 million of after-tax unfunded post-retirement liabilities. While Solo's debt leverage has declined, it still "remains aggressive, above 6x on an adjusted basis," she concluded.

Delphi down on Miller musings

Delphi Corp.'s bonds were generally seen lower by a point or two as the market digested company chief Miller's not-so-bullish projection that while the company would, in time emerge from Chapter 11, where it has spent the past several years, it will come later rather than sooner, in a matter of months rather than just weeks.

A trader saw Delphi's bonds "a little lower" at 37 bid, 39 offered, which he called "probably a point lower," and he said he "didn't see a whole lot of trading in it."

Another trader saw the 6.55% notes that were to have come in 2006 having dropped to 36.5 bid, 38.5 offered, down from prior levels in the upper 30s, while the 6½% notes due 2009 ended at 38.5, down from about 40 bid previously. He said that for the most part, the Delphi bonds "haven't traded in a week - but they're "lower than where they were by a couple of points."

A market source saw Delphi's 7 1/8% bonds due 2029 down a point at 39 bid.

Miller, speaking to automotive reporters at an event connected with the release of a book he's written about his life as a corporate turnaround specialist for Delphi and before that a number of other troubled companies, acknowledged that given the current conditions in the capital markets, the company could not emerge right now. It was supposed to have come out of bankruptcy on April 4 - but those carefully laid plans were ruined when an investor group led by Appaloosa Management LP pulled the plug on $2.55 billion of financing it was supposed to have provided, claiming that a separate loan agreement with former corporate parent General Motors Corp violated the terms of Delphi's deal with the Chatham, N.J.-based hedge fund and other would-be investors, something Delphi denies.

Miller said that Delphi would head back to the drawing board to put together a new exit-financing strategy, and that "sooner or later the capital markets will get aligned with what we need to do to exit from bankruptcy and we'll get it done."

Linens up, though trading flat

Elsewhere, a trader saw Linens 'n Things Inc.'s floating-rate notes due 2014 trading at 41 bid, 41.5 offered, trading flat with due bills attached, versus their previous levels in the upper 30s "with" interest.

That followed the announcement by the Clifton, N.J.-based housewares retailer that it would defer the scheduled $16.5 million interest payment on the bonds and instead invoke the usual 30-day grace period. It further said that its lenders and other creditors had granted forbearance on legally enforcing any of their default rights, giving the company time to negotiate with its creditors on a capital restructuring.

In other credits, Sabine Pass LNG, LP's 7½% notes due 2016 were seen off 3½ points at 93 bid, 95 offered, although a trader said there was "no news" out on the Louisiana energy terminal operator.

Also in the energy sphere, Arlington, Va.- based power producer AES Corp.'s 8% notes due 2017 "benefited from [market] rumors that they'll invest in Brazilian wind [power operations]," which blew the bonds up by a point to finish at 102 bid, 103 offered.

© 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.