Advance Lighting caps $2 billion primary week; market quiet before holiday; Appleton gains

By Paul Deckelman and Paul A. Harris

New York, May 25 - The high-yield primary market closed out a lackluster week during Friday's abbreviated pre-holiday session with one deal pricing, according to syndicate sources - a $167 million issue of seven-year senior secured notes by Advance Lighting Technologies Inc.

That transaction capped off a week that saw $2.06 billion of new paper pricing in eight tranches - down from the $4.747 billion that came to market in 11 tranches the previous week, according to data compiled by Prospect News. It was the second consecutive week in which issuance fell from the week before.

Junkbondland thus heads into the Memorial Day holiday break pricing $139.4 billion of new dollar-denominated, junk-rated paper in 195 tranches, according to the Prospect News data. That's well under the $174.2 billion in 389 tranches that come to market by this time last year but running ahead of the pace set in every-other year since 2001, even the record-setting issuance year of 2010.

Traders saw no aftermarket dealings Friday in the new Advance Lighting bonds.

For that matter, they saw no fresh dealings in any of the other issues that priced this week - even those that came to market as late as Thursday, such as Roofing Supply Group LLC's eight-year deal.

And there wasn't even that much trading in more established bonds, with the junk market operating on a sharply curtailed schedule ahead of Monday's market close for Memorial Day.

About the only name to really rack up any appreciable volume - as was the case all week - was Ford Motor Co. and its Ford Motor Credit Co. LLC loan financing arm, still doing brisk business in the wake of this week's ratings upgrade to investment grade status by Moody's Investors Service.

However, their levels were off from the higher levels seen on Thursday.

Away from Ford, a trader noted continued gains in Appleton Papers Inc.'s bonds, citing the impact of the recent announcement that the company will be acquired and may use the deal proceeds to cut debt.

There were some gyrations in SuperValu Inc.'s bonds, though no fresh news was out on the giant supermarket chain operator.

Statistical measures of junk-market performance were seen mostly higher on the day, though mixed week-to-week.

Advanced Lighting prices

The abbreviated and ultra-quiet Friday session in the primary market, heading into the three-day Memorial Day weekend in the United States, saw a single deal price.

Advanced Lighting Technologies priced a $167 million issue of non-rated 10½% seven-year senior secured notes at 97.50 to yield 11.02%.

The deal was talked in the 10% area.

Cowen and Co., LLC made its debut as a left bookrunner with this deal. CRT Capital Group LLC was the joint bookrunner.

Advanced Lighting Technologies also put in place a $45 million five-year Libor plus 225 basis points ABL facility via Bank of America.

The Solon, Ohio-based manufacturer of lighting materials and finished products plans to use the proceeds to refinance first- and second-lien bank debt and fund a dividend to sponsor Saratoga Partners, L.P.

The deal, which priced at the conclusion of a roadshow that ran for a week and a half, went very well, according to an informed source who said the orders came from typical high-yield buy and hold accounts.

Misys breaks for trading

Misys' $615 million seven-year second-lien term loan (Caa1) broke for trading Friday, with levels quoted at 96½ bid, 97½ offered, according to a trader.

High-yield players were involved in the loan, which resembled a junk deal, with incurrence-based high-yield covenants and a seven-year non-call three structure.

Pricing on the loan is 12% and it was issued with an original issue discount of 953/4, resulting in a yield of 13%.

During syndication, pricing was revised to a 12%-range yield from about 10% before firming at the final terms. The tranche was changed from being unsecured and the maturity was shortened from 7½ years.

The deal, which was led by Bank of America Merrill Lynch, Credit Suisse, Jefferies and Deutsche Bank, came in the form of a loan because it was governed by a credit agreement as opposed to high-yield indentures, a syndicate source said.

The Misys loan went well, according to a high-yield mutual fund manager who participated in both the bridge loan and the second-lien deal, which took out the bridge.

The 13% yield drew a crowd, the buysider said, adding that prior to the selloff in the market it would have yielded in the 10%-range.

This investor feels that the bridge participation played a role in garnering a satisfactory allocation. He added that a lot of accounts that got in late were cut back dramatically.

Concessions to market volatility that are in the neighborhood of 250 basis points have become somewhat commonplace during the past fortnight, the investor said.

On the surface, those issuer concessions seem excessive, given the fact that the index only traded off by 60 or 70 points, the investor said.

However, these seemingly generous executions achieve two things, the manager asserted. They compensate the buyside for taking a risk in a market that is volatile and could conceivably trade off further. And the cheap prices helped these deals outperform in the secondary market, the investor said.

He noted that the new Carrols Restaurant Group, Inc. 11¼% secured notes due in 2018 (B3/B-/), which priced at par in a $150 million issue Thursday, were 101¾ bid Friday morning. At the same time, the new Roofing Supply Group 10% notes due 2020 (B3/CCC+/), which also priced at par Thursday in a $200 million deal, were 101½ bid.

No trading of new deals

When Prospect News called around to various junk-market offices around noon ET on Friday to see how things were going, the standard response at several of those shops was that everybody had already left for the day. This was some two hours before the official "close" at 2 p.m. ET recommended by the Securities Industry and Financial Markets Association, ahead of Monday's full market holiday in observance of Memorial Day.

At those offices, some people were still manning the fort, but those traders said they might as well have left, too, for all of the activity they were not seeing.

There was "very little volume, very little going on," one trader said.

"I would say there were about 15 or 20 'bid-wanted' lists and about the same number of 'offer-wanted' lists - and that was it."

While he did see some dealings in Ford, the session was otherwise a snooze-fest. Ford rival Chrysler Group LLC's bonds also "moved back above par," the trader said.

As for the new deals, he said, "I didn't see any of the new issues we trade today."

Overall, he said, "It was a waste of time going in."

At another shop, a trader said there was nothing going on. "For all intents and purposes, the market is closed now," he said. "Everybody's gone."

He characterized the lack of action overall as "ridiculous."

On the new-deal front, he quoted Roofing Supply Group's 10% notes due 2020 as trading Thursday between 101¼ and 1013/4, with its tightest levels at 101¼ to 1011/2. "That's where they were [Thursday] and where they're being cuffed today - but on no trading," he said.

The Dallas-based manufacturer of building supplies priced its $200 million of the notes Thursday at par. The notes were seen firming to about 101 to 101¾ bid.

He also saw no trading Friday in the new Carrols Restaurant Group 11¼% senior secured second-lien notes due 2018, which he said "did well" after the Syracuse, N.Y.-based chain operator's $150 million deal priced at par. That deal was upsized from an originally announced $140 million and cut down to a six-year deal from the original eight years.

"Yesterday was the last quote," at 101½ bid, 102 offered, he said, "but today's just ridiculous."

Ford ride continues

The only credit really seen trading in any size was Ford and its Ford Credit loan-financing arm, although traders cautioned that the increased activity shown on the Trace system was likely the result of trading in the name by not just junk accounts, but by high-grade investors credits who now view Ford respectable enough to play in since both Moody's and the Fitch ratings services elevated it to investment grade.

Traders also noted that the Trace system is considerably more accurate in tracking volumes of investment-grade credits than it is with high-yield issues. In the latter case, any trades of more than $1 million - whether $1 over or $1 million over - are listed simply as $1 million-plus, while actual transaction sizes above $1 million are given for high-grade credits.

The busiest bond in the Ford fleet Friday was Ford Credit's 5% notes due 2018 with more than $70 million of those bonds seen changing hands. They were quoted at 108 and 7/8, which actually was down about three-eighths of a point from where they traded Thursday.

Parent Ford's benchmark 7.45% bonds due 2031 were about unchanged to perhaps marginally lower at just under 130 bid, on volume of more than $43 million.

Those bonds closed out the previous week around the 124 bid level and rose to 131-132 around mid-week in the immediate aftermath of Moody's elevating the Dearborn, Mich.-based No. 2 U.S. carmaker's bonds ratings to Baa3. That agency joined Fitch, which raised Ford to BBB- several weeks ago. Only Standard & Poor's, which rates Ford's paper at BB+, currently has them at junk status.

Ford Credit's 6 5/8% notes due 2017 at 115½ bid, were seen down about a point with $38 million traded.

Ford rival Chrysler's 8% notes due 2019 also were fairly active for such an otherwise quiet day, turning over about $10 million of the bonds. A market source quoted the Auburn Hills, Mich.-based No. 3 U.S. automaker's paper off slightly from Thursday's levels, but still well above par at 102 bid.

Appleton improvement continues

Away from Ford, a trader said one issue "that keeps moving up in here" is Appleton Papers, the specialty paper and chemical coatings manufacturer based in the Wisconsin city of the same name.

He saw its 11¼% second-lien notes due 2015 "hit their highs," moving up to 105¾ bid from prior levels around 104.

He also saw the company's 10½% senior secured first-lien notes due 2015 move up to 107 bid, 107¾ offered from 106¼ bid, 107¼ offered two days ago.

"So they're up pretty strongly," he said, citing continued positive investor reaction to the company's May 16 announcement that it has agreed to be acquired in a $675 million transaction by Hicks Acquisition Co. II Inc., an entity controlled by Texas leveraged buyout billionaire Thomas O. Hicks Sr.

Company executives explained on a previous conference call that the deal is expected to bring Appleton's leverage ratio of net debt-to-adjusted EBITDA down to 3.1x from current levels of about 3.9x.

They also raised the possibility that $110 million of cash received as part of the transaction, as well as the expected $30 million of incremental earnings generated by a separate long-term supply agreement recently signed between Appleton and Canadian paper manufacturer Domtar Corp., could be used for actual debt reduction.

SuperValu is super

A market source saw SuperValu's 8% notes due 2016 up by as much as 3 13/16 points on the day, ending at 104 5/16, while a second quoted the Eden Prairie, Minn.-based supermarket chain operator's bonds around par bid, on volume of more than $5 million.

One of the sources said that while the bonds did finish around par overall - well down from Thursday's close - on round-lot basis, the exact opposite prevailed and they finished around 104 bid, well up from Thursday's levels around par.

There was no fresh news out about the company, although some posters on financial-themed internet bulletin boards raised the possibility that with the stock's price falling below $5 per share, it could be an attractive takeover target for deep-pocketed investors willing to look beyond the company's debt to see the value in its strong cash flow and sizable portfolio of real estate and other saleable assets.

Indicators mixed on week

Statistical indicators of market performance were generally better on Friday for a second straight session.

The Markit Group CDX North American Series 18 High Yield Index rose by ¼ point for a second straight session on Friday to end at 93½ bid, 94 offered.

That left it well above the 91 5/8 bid, 91 7/8 offered reading seen at the end of the previous week, ended May 18.

The KDP High Yield Daily Index meanwhile was mostly inconclusive, ending Friday little changed at 72.38 bid, after rising by 7 basis points Thursday. Its yield rose by 1 bp Friday to 7.09%, after declining the day before.

A week before, the index stood at 72.66 with a yield of 6.98%.

And the widely followed Merrill Lynch U.S. High Yield Master II Index posted its second consecutive gain Friday, rising 0.046%. On Thursday, it edged up by 0.006%.

The gain lifted its year-to-date return to 4.851%, up from 4.803% a week ago, though still well down from the peak level for 2012 so far, 6.80%, set May 7.

The index lost 0.249% on the week, its third consecutive weekly loss.

© 2015 Prospect News.
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