Datatel, Charter, upsized MGM price deals, new Datatels move up; Sears gains, SuperValu off

By Paul Deckelman and Paul A. Harris

New York, Jan. 11 - The high-yield primary arena saw its first $2 billion session of the new year on Wednesday, as familiar issuers Charter Communications Inc. and MGM Resorts International priced sizable drive-by deals. Cable operator Charter came to market with a $750 million offering of 10-year bonds, while gaming giant MGM brought an upsized $850 million of seven-year notes.

There was also a pricing off the forward calendar, from higher education technology provider Datatel, Inc., which came in with a $530 million seven-year transaction.

The latter deal proved to be the star of the aftermarket, firming smartly from its par issue price, while MGM and Charter eked out more modest gains when their new bonds began trading around.

Tuesday's new bonds from Level 3 Communications, Inc. and BreitBurn Energy Partners LP meantime held around the levels slightly above their respective issue prices which both credits had moved up to shortly after their pricings.

Away from the new deal arena, secondary traders saw solid improvement in Sears Holdings Corp.'s bonds, which once again dominated the most-actives list.

There was also a fair amount of dealings in SuperValu, Inc.; the supermarket operator's bonds and shares were lower after it reported a wider fiscal third quarter loss from a year ago.

The overall market was a little firmer, with major statistical indicators continuing to point northward.

MGM massively upsizes

In another session dominated by drive-by action, the Tuesday primary market saw a trio of issuers, each with a single tranche of bonds, raise $2.13 billion.

MGM Resorts International priced a massively upsized $850 million issue of non-callable seven-year senior notes (B3/B-) at par to yield 8 5/8%.

The yield printed on top of yield talk while the amount was increased from the original $500 million.

Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank and Wells Fargo were the joint bookrunners for the quick-to-market debt refinancing deal.

A provision that would have enabled the company to redeem the notes at par three months prior to maturity was removed.

The deal was received very well, according to a syndicate source.

There was some push back on the par redemption three months prior to maturity which is why it was removed, the source added.

"There were some very chunky orders at the top of the book," the sellsider remarked, adding that the deal broke above par and continued to trade wrapped around 101 bid well after the Wednesday close.

A buy-side source who owns existing MGM paper and who was in the Wednesday deal said that big inflows piled on top of the already higher-than-average cash positions of the accounts are turning every new deal into a feeding frenzy - MGM being a case in point.

Charter drives by

Two of Wednesday's three transactions were drive-by deals.

In addition to MGM, Charter Communications priced a quickly shopped $750 million issue of 6 5/8% 10-year senior notes (B1/BB-) at 99.5 to yield 6.694%.

The yield came in line with the 6 5/8% to 6¾% yield talk.

Credit Suisse, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, UBS and J.P. Morgan were the joint bookrunners.

The notes were issued via CCO Holdings, LLC and CCO Holdings Capital Corp.

The St. Louis-based cable operator and broadband communications company plans to use the proceeds to tender for the CCO 8% notes due 2012 and 10 7/8% notes due 2014, and the CCH II 13½% notes due 2016.

The Charter deal played to a book that contained between $2.1 billion and $2.2 billion, according to a mutual fund manager who was in the deal.

Before pulling the trigger on a deal such as Wednesday's $750 million drive-by Charter typically canvasses the big accounts that already hold its bonds, the investor said, adding that a considerable amount of reverse inquiry is a strong likelihood.

Datatel prices atop talk

Datatel brought the only Wednesday deal which had been marketed via an investor roadshow.

Datatel priced a $530 million issue of seven-year senior notes (Caa1/CCC+) at par to yield 9¾%.

The yield printed on top of price talk.

J.P. Morgan, Bank of America Merrill Lynch, Barclays, Citigroup and Credit Suisse were the joint bookrunners for the merger financing.

The deal could have played to a book that was four-times to five-times oversubscribed, according to an investor who played.

This source, who also participated in the Datatel bridge loan, recounted that prior to the launch there was an expectation that the deal could come with a yield of 10½%.

However yield erosion came swiftly, the buy-sider lamented, recounting that earlier this week the dealer sent around word that a double-digit yield was no longer in the cards.

As the Datatel yield continued its descent this buy-sider even received warning that a 9 5/8% yield was not out of the question.

Hence, with the new Datatel bond ultimately printing at 9¾%, things could have been worse, the investor reasoned.

The rest of the week

No new issues were announced on Wednesday.

However the active calendar contains a trio of offerings which are expected to price before the Friday close.

No official price talk has surface on any of those deals, as of Wednesday's close, sources said.

Atwood Oceanics, Inc.'s $400 million offering of eight-year senior notes (Ba3) are being discussed in a low 6% yield context, according to a buy-side source who added that the deal - which is being led by Credit Suisse, Barclays and Wells Fargo - is going well.

Physio-Control International, Inc. is in the market with a $315 million offering of seven-year senior secured notes (B2/B+) via left bookrunner Citigroup and joint bookrunner RBC. That deal could come with a yield in the low- to mid-10% range, the buysider added.

Also expected to price before the end of the week is AAR Corp.'s $175 million offering of 10-year senior notes via Bank of America Merrill Lynch and Morgan Stanley.

Building cash balances

In a note to its clients, J.P. Morgan estimated that cash balances of high-yield accounts are presently over 6.5%.

That's up from 5.8% at the end of last year.

For historical context, cash balances were 3.2% at the end of 2010 and 2.4% at the end of 2009.

J.P. Morgan also noted that exchange-traded funds have represented a much higher portion of the weekly fund flows reported by AMG Data Services than historical averages.

In the most recent week reported ETFs represented 80% of the inflows.

For the week to Wednesday's close, results of which will be reported on Thursday, ETFs represent 52% of the inflows, heading into the Wednesday session.

Historically ETFs make up 30% to 40% of the AMG high-yield fund flows, the J.P. Morgan note added.

New deals take center stage

With so much new paper having come to market in the past two days - most of it from big, familiar, well-liked issuers - traders said that aftermarket dealings in those new notes was the dominant theme in the secondary realm Wednesday.

"It was pretty much new deals," said one, who saw MGM Resorts' new issue trading around 100¾ bid "a bunch of times."

A second trader saw the Las Vegas-based gaming kingpin's upsized $850 million tranche of bonds at 100 5/8 bid, 100 7/8 offered, while yet another located them at 100 5/8 bid, 101 1/8 offered near the end of the day.

MGM's existing 6 5/8% notes due 2015 were seen up ½ point at 97½ bid.

The day's other big drive-by offering by a well-known junk issuer, that of St. Louis-based cable operator Charter's CCO Holdings, moved up to the par level, or a little bit above, after the $750 million issue priced at 99.5.

"A lot" traded between par and 100¼ bid, a trader said, with "most" of those anchored at 100 1/8 bid.

Another trader saw them at 100 1/8 bid, 100 3/8 offered.

A trader said that one of the most- active non-new deal issues in the secondary market was Charter unit CCO Holdings' 6½% notes due 2021, which racked up over $28 million of volume. A market source saw them off by ¾ point at 100¾ bid.

There was no reported trading in the three issues Charter is tendering for using the proceeds of its new deal - the Charter Communications Operating LLC 8% notes slated to come due on April 30, its 10 7/8% notes due 2014 and CCH II's 13½% notes due 2016.

Datatel does well

But clearly the best performer among the day's new issues, once they got to the aftermarket, was Datatel's seven-year notes, which are being issued through Sofia LP.

Traders saw the Fairfax, Va.-based education technology provider's $530 million forward calendar deal as having risen solidly after pricing at par.

A trader quoted it up around 101 3/8 bid, 101 5/8 offered, although another trader later in the session said it had slipped back a little to 101 1/8 bid, 101 5/8 offered.

Other deals hold steady

Several traders said that other recent new deals were pretty much at the same levels they had been seen on Tuesday.

A trader said that Level 3's 8 5/8% notes due 2020 were ending around 100½ bid, 101 offered, "kind of where they were" on Tuesday after the Broomfield, Colo.-based telecommunications network company priced its quickly shopped deal - massively upsized to $900 million from an originally announced $350 million - at par.

A second trader said that the new notes - brought to market by the company's Level 3 Financing Inc. subsidiary - moved as high as 100¾ bid, before dropping back to 100¼ bid, 100½ offered, "and then that was it."

That trader also saw BreitBurn Energy Partners' 7 7/8% notes due 2022 at 100¼ bid. Earlier, he said, the bonds "traded up at 100¼ [bid], but then left them offered."

He said "it looked like there was a par bid for a while after that - but it kind of went away."

Another trader said he had not seen any sign on Wednesday of the Los Angeles-based oil and gas exploration and production company's quickly-shopped $250 million deal, which had priced at 99.154 to yield 8%.

Those bonds were seen having gotten as good as 100 3/8 bid, 100 7/8 offered in Tuesday's aftermarket before coming down from there.

One of the traders said that "APU" - AmeriGas Partners LP - "was active again."

He saw "a fair amount" of the Valley Forge, Pa.-based retail propane distributor's 7% notes due 2022 trading between 101 3/8 and 101 7/8, before going out at 1011/2.

He said that on Tuesday night, the bonds were trading at 101 7/8 bid, 102, "so they were off the top a little."

AmeriGas, though its AmeriGas Finance LLC and AmeriGas Finance Corp. units, priced $1 billion of those bonds at par a week ago, on Jan. 5, and they moved above 101 bid in initial aftermarket dealings

At the same time, it priced $550 million of 6¾% notes due 2020 at par. On Wednesday, those bonds were seen at 101¼ bid, 101½ offered, about in line with where they had finished the previous session. However, the trader saw them having eased a little further to around 101 bid going home.

Indicators point upward

Away from the new-deal universe, statistical measures of junk market performance - which turned positive on Tuesday after three sessions before that of mixed results - were again seen better.

A trader saw the CDX North American Series 17 High Yield index up by 1/8 point to end at 94 bid, 94¼ offered, after having gained 3/8 point on Tuesday.

The KDP High Yield Daily edged up by 3 basis points Wednesday to end at 72.88, after having gained 12 bps on Tuesday. Its yield declined by 1 bp to 7.21%, after having come in by 5 bps on Tuesday.

And the widely followed Merrill Lynch High Yield Master II Index continued to dazzle on Wednesday, as it recorded its 19th consecutive gain on Tuesday - an amazing streak that dates back to the middle of December.

It gained 0.038%, which followed Tuesday's 0.193% advance.

The gain lifted the index's year-to-date return to 1.12%, another new high, versus Tuesday's 1.081%, the previous peak level, which had also been the first time this year that the index had finished above the 1% mark.

Sears seen better

Among specific issues, a trader said that Sears Holdings' equity "rallied nicely" and saw the Hoffman Estates, Ill.-based department store operator's 6 5/8% notes due 2018 back up around the 80 bid level, from prior levels in the upper 70s.

A second trader saw very busy activity in the Sears bonds, also seeing them reach the 80 bid level from between 77 and 78 earlier, when they were "all over the lot.

"But certainly, it was up on the day."

He said the bonds had gone home Tuesday around the 771/2-77¾ level. He agreed with the notion that the bonds have improved in recent days simply because they had been smacked down so hard since Dec. 27, when the company announced a fall in same-store sales numbers versus a year ago during the crucial two-month period ending Dec. 25, and then said it planned to close between 100 and 125 underperforming stores. Same-store sales are the retailing industry's key performance metric.

At another desk, a market source called the '18s the busiest Junkbondland issue of the day, with over $41 million having changed hands by the close. He said the bonds had risen to just over 80 from 77½ bid on Tuesday, when only around $8 million traded - an unusually subdued day compared to the busy activity that the operator of the iconic Sears and Kmart department store chains has mostly seen recently.

Sears' Nasdaq-traded shares jumped as much as 13.7% during the session before finally finishing up $2.44, or 8.01%, at $32.90. Volume of 3.5 million shares was over three times the norm.

SuperValu steps down

Elsewhere, SuperValu's 8% notes due 2016 were seen down ½ point at 103¾ bid on volume of over $13 million, making the Eden Prairie, Minn.-based supermarket operator's issue one of the busier junk credits of the day.

Its New York Stock Exchange-traded shares lost $1.05, or 12.51%, to close at $7.34, on volume of 17.1 million shares, nearly three times the norm.

The bonds and shares dipped after the company reported lower revenues and a wider net loss for the fiscal third quarter ended Dec. 3, 2011, although adjusted earnings were unchanged year-over year.

Company executives also told investors on SuperValu's conference call that it was poised to accomplish its previously announced goal of cutting debt for the full fiscal year by between $525 million and $550 million (see related story elsewhere in this issue).

Residential Capital rallies

Residential Capital LLC's 8½% notes due 2013 jumped to 67 1/8 bid on volume of $4 million. One market source called this a better than 12 point rise, although another said that was up perhaps 7 points from where the troubled Minneapolis-based mortgage lender had last traded, before the end of last year.

There were no prior recent round-lot transactions to compare Wednesday's dealings with.

Although ResCap's bonds were also seen improved on Tuesday, they have recently been roiled by investor angst over the possibility that the company's corporate parent - Detroit-based automotive and residential lender Ally Financial Inc. - might be looking to put ResCap into bankruptcy in order to restructure its debt. Holders of some $800 million of its secured bonds have banded together to attempt to oppose any such move, should it come. Although the law firm the bondholders retained did not specify who the investors are, published reports say their ranks include such financial heavyweights as John Paulson of Paulson & Co. and David Tepper of Appaloosa Management LP

Overseas Shipholdholding gains

A trader said that Overseas Shipholding Group Inc.'s 8 1/8% notes due 2018 gained 2 to 3 points on the session, going out at 63 bid, 65 offered.

He was not aware of any news about the New York-based oil tanker operator, but noted that its NYSE-traded shares jumped nearly 10 points on the day, gaining $1.07 to close at $12.68.

Earlier in the week, Wells Fargo - citing valuation and tanker supply growth concerns - downgraded the shares to "market perform" from "outperform" previously, and lowered its target range for shares to $10-$12 from $17-$19.

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