ICON Health prices, trades around issue; other recent deals up; Dynegy slips after downgrade

By Paul Deckelman and Paul A. Harris

New York, Oct. 4 - ICON Health & Fitness, Inc. came to market on Monday with a $205 million issue of six-year senior secured notes. Several traders saw the new bonds bracketing their issue price when the offering was freed for secondary dealings.

The Logan, Utah-based exercise equipment maker's deal was the sole pricing on Monday in Junkbondland - quite an anticlimax after last week's busy deal pace, which accelerated as the week rolled on, finally racking up nearly $8 billion and almost €3 billion of new paper by the week's end.

There also wasn't much going on in the way of forward calendar-building, with syndicate sources having heard of just one prospective deal: for Swiss wireless provider Sunrise Communications AG, which is shopping a multi-tranche offering of Swiss franc- and euro-denominated notes.

Traders meantime saw aftermarket strength in Friday's slew of new deals, most of which did not get a chance to trade immediately after their respective pricings. They said that the big deal from Blue Acquisition Sub, a unit of Burger King Holdings, Inc., initially didn't do very much when it freed - but by the end of the day, they said, the Miami-based burger chain's bonds were sizzling.

So was the new paper from Associated Materials, Inc., GeoEye Inc., and the dollar-denominated portion of Hapag-Lloyd AG's two-part offering. Breitburn Energy Partners LP/Breitburn Finance Corp.'s bonds, which did see some aftermarket action on Friday, held around the gains which they had notched in that initial trading. Other deals from earlier last week, such as TPC Group LLC and Sears Holding Corp. were also seen holding their own on Monday.

Away from the new-deal arena, traders said junk seemed pretty firm, continuing its recent pattern. However, Dynegy Holdings Inc.'s bonds were seen lower as investors fretted over a Moody's downgrade of the company's ratings brought on by concerns about its pending buyout by the Blackstone Group.

ICON at the wide end

The first full week of October got underway in an exceptionally quiet fashion in the primary market.

Just one comparatively small deal priced.

ICON Health priced a $205 million issue of 11 7/8% six-year senior secured notes (B2/B-) at 99.468 to yield 12%.

The yield printed at the wide end of the 11¾% to 12% price talk.

The notes were also subject to a covenant modification.

Bank of America Merrill Lynch and Credit Suisse were the joint bookrunners.

Proceeds will be used to repay a portion of the company's ABL revolver, to repay its term loan in full and to redeem all of its 11¼% senior subordinated notes.

A high yield mutual fund manager, who spoke off the record, was not tempted out of the locker room by the fitness company's notes offer.

"You're in a downslope of capex," the investor remarked.

"Fitness centers and country clubs are struggling to get new members, so wherever possible they're making do with the equipment they already have."

Also the fact that ICON was taking out 11¼% paper with new 12% paper was not to this buy-sider's liking.

In a market that is rallying the way this one is, if you're taking out old bonds with new bonds, you should be reducing your interest expense instead of increasing it, the manager remarked.

Regardless of these sentiments, the bonds were up a point in the secondary market, the buy-sider conceded.

Sunrise marketing starts Tuesday

While Monday's session was a quiet one, the primary is not likely to stay quiet for long, market sources said.

The market heard one new deal announcement.

Switzerland's Sunrise Communications International SA and Sunrise Communications Holdings SA will begin a roadshow on Tuesday in London for a CHF 1.475 billion equivalent multi-currency, multi-tranche offering of high-yield notes.

The deal from the Zurich-based integrated telecommunications services provider features CHF 800 million equivalent of seven-year senior secured notes in Swiss franc- and euro-denominated tranches. The seven-year notes come with three years of call protection.

The company is also offering CHF 675 million equivalent of eight-year senior unsecured notes in a single euro-denominated tranche. The eight-year notes come with four years of call protection.

Deutsche Bank and BNP Paribas are the global coordinators and joint bookrunners.

Proceeds will be used to fund purchase of Sunrise Communications AG from TDC A/S by funds managed and advised by CVC Capital Partners.

Eyes on Reynolds

Given its size and the fact that bond allocations are now routinely the source of much discontent on the buy-side, Reynolds Group's $3 billion dual-tranche offering of 8.5-year notes is getting quite a lot of attention, market sources said on Monday.

As the week got underway the deal kicked off with a roadshow stop in New York.

The offering features a $1.5 billion tranche of senior secured notes (Ba3/BB) and a $1.5 billion tranche of senior unsecured notes (Caa1/B).

The roadshow wraps up on Wednesday, and the deal is set to price thereafter.

Credit Suisse and HSBC are the joint bookrunners for the acquisition financing.

Reynolds existing bonds were going up on Monday, according to one buy-sider.

"That tells you that people are not expecting great allocations," the investor said

"And it also gives the underwriter ammunition to tighten the talk on the new deal."

Hamburgers and hotdogs

"Tightening talk" was the topic du jour for this buy-sider, who recounted that yield conversations about Burger King Holdings Inc.'s new 9 7/8% notes due 2018, which priced at par on Friday in a downsized $800 million issue (Caa1/B-/), began at 10½%.

The buy-sider recounted a succession of calls from the bookrunner, giving notice that the deal was coming richer and richer.

"We finally decided to buy CKE Restaurants in the secondary," the manager said, referring to CKE Restaurants, Inc.'s 11 3/8% eight-year secured notes (B2/B/), which priced in early July in a $600 million issue at 98.085 to yield 11¾%.

CKE, which owns Carl's Jr. and Hardee's quick-service restaurant chains, came out of that deal approximately three-times leveraged, the investor said.

Burger King's leverage moves up to well above five-times, the source contended.

"We think that CKE should be trading inside of Burger King," the manager said.

Nevertheless, Burger King's new 9 7/8% notes have traded higher in the secondary, the investor conceded.

"We're trying to be a little more rational, but it doesn't matter," the buy-sider lamented.

"The bonds go up anyhow."

Meanwhile DineEquity Inc., the owner of Applebee's and IHOP, is due to price its $825 million offering of eight-year senior unsecured notes (B3/CCC+) later this week.

The investor looks for that deal to come inside of Burger King, and added that a rate of around 9½% would not be too surprising.

Bonds, not dollars

A substantial bid from high grade bond investors who customarily focus on six-B names is driving up the prices of higher quality high-yield bonds, the buy-sider said.

"With the 3½% they're getting for triple B paper they're not meeting their bogeys, so they're buying double B paper at 7%, and running it to 5½%," the source contended.

The investment grade players coming into high yield don't anticipate a double-dip recession, the buy-sider recounted.

"They see that the default rate has dropped meaningfully, and they reason that at the better end of the high-yield credit spectrum the default picture is better still."

For example, the Case New Holland, Inc. 7 7/8% senior notes due Dec. 1, 2017 (Ba3/BB+/), which priced at 99.32 to yield 8% in a $1.5 billion issue in early summer, are presently 109 bid, the source said.

"It went from 8% to 6% in three months!" the investor said.

"I can't sell it, of course.

"Your problem, now, is managing cash, because you're getting such horrible allocations.

"I could have sold Case New Holland at 108, and felt like it was a pretty good sale.

"But I would not have had anywhere to go with the cash."

New ICON mostly trades around issue

When ICON Health & Fitness's 11 7/8% senior secured notes due 2016 were freed for secondary dealings, a trader initially saw the bonds offered at 101, without a bid. However, a little later on, he said the bonds come in to 99 3/8 bid, 100 3/8 offered, versus the 99.468 level at which the $205 million offering had priced earlier.

A second trader said that "if you want to be an optimist," you could say the bonds moved up a little, but he described the new paper as "basically wrapped around issue," in the 99½ area. "So it really didn't go anywhere."

Another trader agreed that the new bonds "were hanging around issue" at 99¼ bid, 100¼ offered.

However, a market source at another shop took a contrarian point of view on that, quoting the bonds as high as 100 1/8 bid, asserting that "at the end of the day, they were definitely moving."

Burger King starts slow, picks up

There was also activity in a number of deals which had priced on Friday, most of which had not been seen in aftermarket action on Friday.

A trader said that the new 9 7/8% notes due 2018 from Burger King Holdings' subsidiary, Blue Acquisition Sub, "was trading kind of low this morning, but then it ended trading up" by around 1½ points. He saw those bonds going out trading at 101 7/8 bid, well up from the par level at which the fast-food franchisor's $800 million deal - downsized from the originally expected $900 million - had priced on Friday.

A second trader saw the Burger King bonds even better, ending at 102 bid, 102½ offered.

Burger King, yet another trader opined "was an interesting one. It actually opened up and traded right around issue price, but then kind of exploded later on in the day" to reach the 102 level.

Hapag-Lloyd heads higher

Another Friday deal - for German shipping company Hapag-Lloyd AG - did even better, with a trader seeing the dollar-denominated part of that offering trading "a couple of times" as high as 103¾ bid, before going out at 103½ bid, 104 offered.

The company had priced $250 million of those 9¾% notes due 2017 on Friday at 99.3731 to yield 9 7/8%.

Those bonds came part of a two-part, dual-currency deal, along with €330 million of 9% notes due 2015 - upsized from an expected range of €250 million to €300 million - which priced at 99.5015 to yield 9 1/8%.

Some upside for SIDE

A trader said that Associated Materials' 9 1/8% senior secured notes due 2017 moved up to 102½ bid, 103 offered, well up from the par level at which the Cuyahoga Falls, Ohio-based building products company - known to traders by the catchy symbol "SIDE" because of its production of vinyl and metal siding, among products - priced its $730 million issue on Friday afternoon.

Associated Materials "did well," another trader agreed, also locating them at 102½ bid, 103 offered.

GeoEye gains altitude

GeoEye's opportunistically timed and quickly shopped $125 million of 8 5/8% second-lien notes due 2016 were seen trading in a range between 102¼ and 102¾ on Monday, a trader said. A second sighted them orbiting around 102 3/8 bid, 102 5/8 offered.

The Dulles, Va.-based satellite imaging company formerly known as Orbital Imaging Corp. had priced those bonds on Friday at par.

Breitburn Energy holds Friday gains

A trader said that Breitburn Energy's $305 million of 8 5/8% notes due 2020, upsized from the originally announced $250 million, were trading on Monday at 99¼ bid, 99 5/8 offered.

A second trader quoted the bonds at 99¼ bid, 99¾ offered.

The Los Angeles-based independent oil and gas exploration and production limited partnership had priced its offering on Friday at 98.358 to yield 8 7/8%, and the bonds were heard to have gotten as good as 99½ bid, 99¾ offered in the aftermarket later that same session, hanging onto most of its initial gains on Monday.

Sears is somewhat stronger

Going back a little further, Thursday's mega-deal from retailer Sears Holding Corp.'s 6 5/8% senior secured notes due 2018 was quoted on Monday at 100¾ bid, 101¼ offered, versus the par level at which that $1 billion of bonds - massively upsized from the originally announced $500 million - had priced on Thursday.

The Hoffman Estates, Ill.-based department store operator's bonds had been trading at 100¾ bid, 101 offered on Friday.

A trader said "it was active last week - we only saw it once or twice today."

He further noted that the Sears deal "didn't have a huge pop like all of the others, but it's slowly creeping up.

"Once you get the few guys that want to get out of it, out of it, then the underwriters are able to run the thing up."

TPC trades up

A trader saw TPC Group's 8¼% senior secured notes due 2017 at 102¼ bid, 102¾ offered. That was well up from the 99.35 level at which the Houston-based petrochemical company had priced its $350 million offering - upsized from the originally announced $325 million - on Wednesday, to yield 8 3/8%.

New-issue market seen in upside mode

A trader observed that "they're getting the deals done, and I would say nine out of 10 of them are having a nice 1 to 2 point pop. Some of them are even popping a little higher. So it's putting everyone in a good mood."

A second trader qualified the blanket statement that most new deals are rising by several points, instead theorizing that "it seems like a lot of your higher-coupon new deals are going up like that, yes. A lot of your real higher-quality ones are having a little bit more of a hard time moving up, but definitely, your 9-handle and 10-handle [and] double-digit coupons are doing it, absolutely."

He further said that it "will be interesting what happens [Tuesday] or Wednesday with DaVita coming - a big [$1.45 billion] high-quality deal is a good barometer of the higher-quality interest rate now."

He said that such deals "have less beta to them, so there's less that they can do" in terms of sharp upside moves, "absolutely."

No junk interest in CBS

Traders said that with plenty of their own paper to keep them busy, there was absolutely no junk market interest in the new $600 million two-part offering which New York-based broadcasting and outdoor advertising giant CBS Corp., even though its Baa3/BBB-/BBB ratings are just one small step away from junk territory.

That deal, which came off the investment-grade desks, consisted of $300 million of 4.30% notes due 2021, which priced at 99.732 to yield 4.33%, or 185 basis points over comparable Treasuries, and $300 million of 5.90% bonds due 2040 which priced at 99.733 to yield 5.919%, or 220 bps over Treasuries.

Both tranches were heard to have tightened by around 10 bps in the aftermarket.

Market indicators seen mixed

Away from the new-deal world, a market source quoted the CDX North American Series 15 HY index unchanged Monday at 97½ bid, 97¾ offered, after having gained ½ point on Friday.

The KDP High Yield Daily index meantime fell by 6 basis points Monday to close at 73.24, versus the 20 bps gain recorded on Friday. Its yield edged up by 1 bp to 7.64%, after having come in by 5 bps on Friday.

But the Merrill Lynch High Yield Master II index rose by 0.162% on Monday, after having improved by 0.187% on Friday. Its year-to-date return nosed above 12% Monday for the first time this year and ended the day at 12.155%, establishing yet another new peak 2010 level, versus the old mark of 11.973%, which had been set just on Friday.

Advancing issues led decliners for a seventh consecutive session on Monday, while their advantage widened to around seven to five, versus the roughly six-to-five edge seen on Friday.

Overall activity, represented by dollar-volume levels, fell by 32% on Monday, after having declined by 17% on Friday.

A trader said that things were "pretty slow today," apart from trading in the new deals.

A second called it "a blah day. Names are thin, but everything is inching higher."

Macau news no boost to gaming bonds

The news that gaming revenues jumped 40% in September versus admittedly weak year-ago comps in the Chinese gambling enclave of Macau - which by some estimates has overtaken Las Vegas as the casino capital of the world - boosted the shares of such U.S.-based gaming operators who have a presence there as Wynn Resorts Ltd., Las Vegas Sands Corp. and to a much lesser extent, MGM Resorts International, but it did precious little for their bonds, a trader said.

"The equities did well, both Wynn and Las Vegas Sands, but bonds were basically unchanged in that space, however."

Another market source though did see MGM's 6 5/8% notes due 2015 up ¾ point at 85 bid.

A trader meantime said that Harrah's Entertainment, Inc. - which has a golf course in Macau but no casino - was trading around on Monday, with the Las Vegas-based gaming giant's 10% second-priority senior secured notes due 2018 up ½ point at 81 bid, while its Harrah's Operating Co. Inc. 11¼% second-priority senior secured notes due 2017 were down ¼ point at 110¼ bid, on "some pretty good volume."

A market source at another desk also saw Harrah's 2018s up by ½ point at just over 81.

Dynegy dips on downgrade

A trader said that Dynegy Inc.'s 7¾% notes due 2019 were "hanging out" at 67 bid, 67½ offered, calling that "pretty much unchanged," with "some volume, decent volume" in the credit, as investors reacted to Friday's downgrade of the Houston-based power generating company by Moody's Investors Service, which cut the company's ratings to Caa1 from B3.

However, at another desk, a market source saw those bonds at that level but called them down a deuce on the day.

Yet another source saw the bonds don nearly a point on the day, ending below 67, although seeing the company's 8 3/8% notes due 2016 up more than a point, approaching the 78 mark.

In downgrading Dynegy, Moody's warned that it expects the company's financial profile to be extremely fragile - especially next year and in 2012 - should the previously announced $4.7 billion buyout of Dynegy by The Blackstone Group go through, which seems increasingly likely. Dynegy itself last week in a regulatory filing said that the planned $1.36 billion sale of some of its power plants to NRG Energy Inc. as part of that deal would reduce its revenues and leave it dependent on a smaller asset base and potentially more vulnerable to negative industry or economic factors.

Autos cruise higher

A trader said that the automotive names have "have just gone through the roof." He quoted the longer-dated issues of automotive loan financier Ally Financial - the company formerly known as GMAC - as trading "anywhere from 104 to 110 bid."They have improved," he acknowledged.

Former GMAC parent General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were around 34 bid, though on "not much activity at all. That's where it's been over the last few days," holding at that level.

At another desk, a trader quoted the GM benchmarks down ½ point on the day at 34 bid, 35 offered, while seeing GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 gain ¾ point on the day to close at 106 bid, 107 offered.

A market source elsewhere pegged Ford's longest bond - the 7.70% debentures due 2097 - up more than 4 points on the session to 98 bid.

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