ConvaTec mega-deal, TransDigm add-on end $4.7 billion primary week; A&P up more, OPTI rebounds

By Paul Deckelman and Paul A. Harris

New York, Dec. 17 - ConvaTec Healthcare priced a $1.48 billion equivalent three-part dollar- and euro-denominated deal on Friday - almost certainly the last such big deal of the waning year and just possibly the last junk bond deal of any size, period, in 2010, barring an unexpected drive-by offering, with no other transactions being actively shopped around the market for imminent pricing at this time.

When the dollar-denominated seven-year portion of the Skillman, N.J.-based medical technology company's new bonds were freed for trading, they were heard to have moved up a little from their par issue price in a brief flurry of aftermarket activity, which subsided just as quickly as it had begun and left them marginally higher on the day.

The primaryside also saw a quickly-shopped $50 million add-on tranche to the more than $1.5 billion of eight-year notes which Cleveland-based aircraft components company TransDigm Inc. had sold at the beginning of this month.

Those two issues closed out a nearly $5 billion week in the junk bond primary market, the last full trading week of the year. That brought total issuance for 2010 to just under $300 billion - approaching twice the roughly $160 billion of new high-yield paper which had priced last year, the previous record.

Junk deals which priced earlier in the week and then moved up in the aftermarket, including Wednesday's transactions from Atkore International, Inc. and Thursday's offerings from Syniverse Holdings, Inc. and ResCare Inc., were seen holding their own on Friday.

Away from the new issues, secondary market statistical indicators remained mixed on the day. Great Atlantic & Pacific Tea Co.'s bonds made it a clean sweep on the week, firming again on Friday and thus in all five days of the week since the troubled supermarket operator filed for Chapter 11 protection.

Meanwhile, OPTI Canada Inc.'s bonds, which had been soundly beaten down for much of the week after Standard & Poor's downgraded the Canadian energy company, appeared to have rebounded a little Friday.

Two new deals

The primary market saw two issuers raise a combined $1.53 billion equivalent with four tranches of high-yield notes on Friday.

ConvaTec Healthcare priced $1.48 billion equivalent of high-yield notes in three tranches.

The deal included a €300 million seven-year senior secured notes (Ba3/B+) which priced at par to yield 7 3/8%, at the tight end of the 7½% area price talk.

ConvaTec also priced a $745 million tranche of eight-year senior unsecured notes (Caa1/B) at par to yield 10½%, on top of the price talk.

In addition, the company priced a €250 million tranche of eight-senior senior unsecured notes (Caa1/B) at par to yield 10 7/8%. The euro-denominated senior unsecured notes priced in the middle of price talk which had them yielding 25 to 50 basis points behind the dollar-denominated senior unsecured notes.

The total size was decreased from $1.87 billion equivalent. In addition to the downsizing there were covenant changes.

J.P. Morgan Securities LLC and Goldman Sachs & Co. were the joint bookrunners for the debt refinancing deal.

TransDigm adds $50 million

In drive-by action, TransDigm priced a $50 million add-on to its 7¾% senior subordinated notes due Dec. 15, 2018 (B3/B-) at par to yield 7¾% on Friday.

UBS Investment Bank, Credit Suisse, Barclays Capital and Morgan Stanley were the joint bookrunners for the quick-to-market deal, according to market sources.

Proceeds will be used for general corporate purposes.

The original $1.55 billion issue priced at par on Dec. 1, slightly more than two weeks ago, in a deal that was massively upsized from $780 million.

$4.68 billion week

With Friday's two dollar-denominated tranches added to the total, the Dec. 13 week closed having seen $4.68 billion in 16 junk-rated, dollar-denominated tranches.

Friday's action likely brings the curtain down on the 2010 primary market, syndicate officials say.

No issues are in the active market. However the "shadow calendar" of early 2011 deals is vast and growing, they add.

And although there is no primary market business scheduled in the two remaining weeks of 2010, no one would absolutely rule out a small, quick-to-market transaction such as Friday's TransDigm add-on.

At Friday's close, year-to-date issuance stood at $292.6 billion in 657 junk-rated, dollar-denominated tranches, according to Prospect News data.

Even if that amount comes to actually represent the final total for 2010, as market sources forecast on Friday, it massively eclipses the previous record yearly issuance, 2009's $161.8 billion.

New ConvaTec firms from issue

When ConvaTec Healthcare's new dollar-denominated notes were freed for secondary dealings, a trader quoted that issue as having traded as high as 100¾ bid, versus the bonds' par issue price.

A second trader said that the deal "seemed to have a flurry for about 15 minutes, but then that was the end of it as far as I saw." He said that the bonds traded in a 100¼ - 100½ context "and it just died there around 1:30 [p.m. ET]."

He said that "much later" in the day, he saw a 101¼ offering, but with no bid side, leaving him to believe that 100¼ bid, 100½ offered "is the right level."

Other deals hold their own

A trader said that Thursday's new issue from Syniverse seemed to be holding its own, quoting the 9 1/8% notes due 2019 from the Tampa, Fla.-based provider of technology and services to the communications industry at 102¼ bid, 102 7/8 offered around mid-day.

That $475 million bond offering had priced at par Thursday and then moved up in initial aftermarket trading to 102¼ bid, 103¼ offered.

He said that he "really didn't see much" in the new 10¾% notes due 2019 priced Thursday by ResCare, a Louisville, Ky.-based provider of home healthcare services to the elderly. He noted that the $200 million offering, after having priced at par had moved up in the aftermarket - one trader Thursday quoted the new notes as high as 102¾ bid, 103 offered, but saw "nothing showing" on Friday. A second trader also said that the Re-Care deal was missing in action on Friday.

A trader said that Swift Transportation's new 10% senior second-priority notes due 2018 "did better today," seeing them at 102 bid, although he said that he never saw an offering on them.

"We traded bonds lower [Thursday].," he said, quoting the Overland Park, Kan.-based trucking company's $500 million deal - upsized from the originally shopped $490 million - as having traded the previous session at 101¼ bid.

Then "they did better late in the day" Thursday, going home at 101½ bid, setting the stage for Friday's rise to current levels. The bonds had priced at par on Wednesday. In Friday's dealings, he said they got as good as 102¼ at one point in the day.

Atkore International's new $410 million of 9 7/8% seven-year senior secured notes had traded as high as the 103 level in Thursday's trading, well up from Wednesday's par issue price. On Friday, a trader said, he saw them bid at 102 7/8, with no offering. A second saw the Princeton, N.J.-based industrial manufacturer's issue at 103 bid, "or better."

Indicators still mixed

Away from the new-deal realm, a trader saw the CDX North American Series 15 HY index down by 1/16 point on Friday to end at 102 1/8 bid, 102 3/8 offered, after having gained 3/16 of a point on Thursday. However, the index closed up on the week from its reading of 101 5/8 bid, 101 7/8 offered at the close the previous Friday, Dec. 10.

The KDP High Yield Daily index meantime eased by 3 basis points on Friday to close at 73.81, after having fallen by 11 bps on Thursday, while its yield edged up 1 bp to 7.50%, on top of the 4 bps rise Thursday. The index thus closed below its week-earlier level of 73.92, while its yield widened out from the previous week's 7.42%.

The Merrill Lynch High Yield Master II index gained 0.050% on Friday, after having lost 0.013% on Thursday. That left its year-to-date return at 14.185%, up from 14.128% on Thursday, although the index remains down considerably from the 2010 peak level of 15.602% recorded on Nov. 9. For the week, the index showed a 0.022% gain versus the prior week's closing level of 14.159%

Advancing names overtook decliners on Friday, after having trailed them for the previous four straight sessions. However, the difference was just a few dozen issues out of the almost 1,300 that traded on Friday.

Overall activity, represented by dollar-volume levels, nosedived by 44% on Friday, after having risen by 16% on Thursday from the previous session's levels.

A trader characterized Friday's session as "at least trading-wise, really quiet."

A second said that the new ConvaTec deal was "pretty much it" as far as definite activity went. Otherwise, it was "really pretty much a non-event, with thinly staffed desks". He added that "everyone is out doing their Christmas shopping."

OPTI Canada bounces back

Among specific non-new-deal secondary names, a trader said that OPTI Canada's bonds "were still busy" on Friday. As had been the case on Thursday, he said that "a lot" of the Calgary, Alta.-based oil-sands energy company's securities were moving around, with its 7 7/8% second-lien secured notes due 2014 "a little more active" than the company's other issues - its 8¼% senior unsecured notes, both due 2014, and 9% first-lien senior secured notes due 2012.

He saw those 7 7/8s trading between 65½ and 66 bid, calling that up smartly from Thursday's bid levels between 64 and 65.

He saw no fresh news out on the company, but acknowledged that its bonds had been beaten down over the previous several sessions following Tuesday's ratings downgrade from Standard & Poor's and may have just been snapping back from the overdone withdrawal.

A&P on the rise - again

A trader said that the upside, a trader said that Great Atlantic & Pacific Tea's bonds were up for a fifth consecutive session following the troubled Montrose, N.J.-based supermarket operator's bankruptcy filing last weekend.

"God only knows why," he said, quoting its 11 3/8% senior secured notes due 2015 trading as high as 96 bid and going out left offered at 95 7/8 - up from levels between 93 and 93¾ on Thursday.

'They just keep getting stronger and stronger," he marveled. "People like A&P for some reason" - perhaps because now that the company is in bankruptcy, he suggested, it will have leeway to unilaterally break bad leases on unprofitable stores and otherwise slash its expenses. Analysts have suggested that the company could close as many as 100 of its more than 300 A&P, Pathmark and Waldbaum's stores in its Northeastern United States.

The trader saw the company's convertible issues - its 5 1/8% notes due 2011 and 6¾% notes due 2012 get as high as 33 bid Friday, though mostly on odd-lot trades.

All of the bonds are trading flat, or without their accrued interest. All three issues had fallen sharply ahead of the bankruptcy filing, with the converts - which trade like regular junk bonds now that the underlying equity is considered almost worthless - having dropped by as much as 45 points into the mid-to-upper 20s a week ago in anticipation of the filing, and the 11 3/8s having traded down into the 80s from prior levels in the low 90s.

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