Sealy prices as surprise 'sleeper' deal; Regency brings deal too; First Data falls on numbers

By Paul Deckelman and Paul Harris

New York, May 15 - Sealy Mattress Co. - which had generally not been expected to price its announced bond issue until the beginning of the upcoming week - surprised many junk bond market denizens by pushing up the timetable for its $350 million offering of seven-year secured notes and coming to market with the deal on Friday. When those bonds were freed for secondary dealings, activity was anything but sleepy, with the new Sealy paper shooting up from a mid-90s issue price to above par, and going home that way.

The sudden emergence of Sealy overshadowed the day's other pricing - this one expected - from Regency Energy Partners LP. The Dallas-based midstream national gas services company's deal priced in the mid-90s - and went no further than that.

Elsewhere in the primary arena, another energy operator - Denver-based Berry Petroleum Co. - announced plans for a $300 million offering of secured notes and was heard by syndicate sources to be preparing to hit the road on Monday to market the deal to investors - becoming the latest member of a growing club of prospective issuers that have decided to market their deals via the traditional roadshow, a process which seemed to have fallen from favor among junk issuers during the earlier part of the year.

Thursday's giant two-part deal from MGM Mirage meanwhile continued to trade well, with both tranches of those secured bonds staying at levels above par, a 2 to 3 point improvement from where they had priced. However, traders noted considerably more interest in its five-year issue than they were in the eight-and-a-half-year piece of the deal, for whatever reason. MGM's existing bonds, meantime - which had firmed smartly across the capital structure when the troubled gaming company first announced its bond deal and a package of other financial measures on Wednesday, only to surrender some of those gains on Thursday - were seen as a mixed bag on Friday.

Back among credits having no new-deal connections, First Data Corp. - thought by some market participants to be a proxy for the overall junk sphere, because of its large size and widespread distribution, was down sharply in heavy trading - it was, in fact, the most actively traded high yield issue on the day - on disappointing numbers from the Greenwood Village, Colo.-based financial transactions processor. Lackluster quarterly results also brought down the curtain on movie-rental industry leader Blockbuster Inc.'s bonds, as well as its shares.

Another active mover - this one to the upside - was Rite Aid Corp., benefitting from apparent market scuttlebutt about possible refinancing moves by the Camp Hill, Pa.-based Number-Three U.S. drugstore operator.

The cash bond market traded sideways on very little volume Friday, a high-yield syndicate official said.

$600 million Friday issuance

The primary market remained active, with two issuers pricing a combined face amount of $600 million.

Sealy Mattress moved up timing on its $350 million issue of 10 7/8% seven-year senior notes (Ba3/BB), pricing the deal on Friday afternoon at 95.976 to yield 11¾%.

Previously pricing was expected early in the May 18 week.

The yield came inside of the 12% area yield talk, and the issue price came in line with the "approximately 4 points of OID" discount talk.

J.P. Morgan, Citigroup and Goldman Sachs ran the books for the debt refinancing and general corporate purposes deal.

Also on Friday Regency Energy Partners priced a $250 million issue of 9 3/8% seven-year senior notes (B1/B) at 94.496 to yield 10½%.

The yield was printed on the wide end of the 10¼% to 10½% price talk.

In the secondary market the notes traded to 95¼ bid, 95½ offered, said a source close to the deal.

Wachovia Securities, Barclays Capital and Morgan Stanley were joint bookrunners for the debt refinancing deal.

Past two weeks see $12.3 billion

The Sealy and Regency issues put the cap on a $4.7 billion week in the new issue market, a high-yield sell-side source said.

What's more, it put the cap on a two-week period that has cranked out a $12.3 billion face amount of issuance.

That is more by dollar amount than the entire first quarter of this year, and more than the entire second half of 2008, the source added.

A busy week ahead

The pre-Memorial Day week promises to be even busier than the week that just ended, sources said Friday.

The active high-yield new issue calendar contains five offerings totaling $2.275 billion.

The most recent addition rolled out Friday.

Berry Petroleum will begin a roadshow on Monday for a $300 million offering of senior secured notes due 2014 (B2/B).

The roadshow is scheduled to wrap up Thursday, with pricing to follow on the same day.

Wachovia, RBS Securities, BNP Paribas, SG Americas and Calyon are joint bookrunners for the debt refinancing deal.

Berry Petroleum joins four previously announced deals set to price before Friday's early close.

Cellu Tissue Holdings, Inc. expects to price a $230 million offering of five-year senior secured notes (B2/B) on Tuesday or Wednesday, via JP Morgan

Gibson Energy ULC and GEP Midstream Finance Corp. aim to price their $545 million offering of five-year first-lien senior secured notes on Wednesday. UBS Investment Bank is the left bookrunner. RBC Capital Markets and RBS Capital are joint bookrunners.

Apria Healthcare Group Inc. is expected to wrap up the roadshow for its $600 million offering of senior secured notes due Nov. 1, 2014 (Ba2/BB+) on Thursday. Banc of America Securities, Wachovia Securities and Barclays Capital are joint bookrunners.

And the roadshow for Ashland Inc.'s $600 million offering of eight-year senior notes (expected ratings Ba3/BB-) ends Tuesday, with pricing expected after that. Banc of America Securities LLC and Scotia Capital are joint bookrunners.

That is just the announced action.

There will be plenty more, syndicate sources assured on Friday.

One syndicate official who fielded a call from Prospect News well after the week's close expected to spend a good deal of the weekend in the office preparing for the busy pre-Memorial Day sessions.

Deals yet to be announced include ones from the energy and media sectors, the source added.

New Sealy secureds soar

Clearly the star in Friday's secondary was Sealy Mattress' new issue of 10 7/8% senior secured notes due 2016. The pricing caught some in the market asleep at the switch, since the Trinity, N.C.-based bedding maker had just begun a roadshow for its deal on Thursday, and as of the close on Thursday, it had not been expected to actually come to market until early next week.

However the company opportunistically struck on Friday, and the results, a trader said, made for "sweet dreams for people who bought the deal" at the deeply discounted level at which it had priced, 95.976, and saw those bonds course up to around par bid, 100.5 offered.

A trader who quoted the bonds at 100½ called it "a great deal," while another said the new issue was "going like gangbusters" at 100½ bid, 101 offered. "People really like it," he said, quipping: "I guess they want to go to sleep."

The first trader suggested that the deal's result might meanwhile provoke some "sleepless nights" for the company and its underwriters, who apparently priced the issue way too cheaply, causing the intense aftermarket upturn as buyers sought to grab the money left on the table.

A trader - who saw the bonds at par bid, 100¾ offered, versus the 95.976 issue price - noted the difference between the $350 million face amount and the $335.916 million proceeds that Sealy will receive and declared that "obviously, they got clipped."

The Sealy deal was only the latest of several recent deals in the market which priced at substantial discounts to par, touching off an aftermarket feeding frenzy that than carried those bonds up to around the par level, only to see them come off those peaks when the buyers took their money and went home by flipping out of the deals.

Issues which some traders have said behaved this way have included the $1 billion May 6 offering by Goodyear Tire & Rubber Co. and Teck Resources Ltd.'s three-part $4.225 billion leviathan of a deal, which priced on May 5. It should be noted that while some in the trader community chalk the phenomenon up to a combination of issuer ignorance and naivete and underwriter incompetence, or even under-handedness, others in the market just as vehemently assert that it's been no such thing and say those pricings, and the resultant market moves, were merely a reflection of the realities of the current market, with power to demand lower initial prices and higher yields from the vulnerable borrowers clearly in the hands of the buyers.

Regency deal not very energetic

In contrast to the spectacular gains seen when the heavily discounted new Sealy bonds hit the aftermarket, traders said that the new Regency Energy Partners 9 3/8% notes due 2016 were, as one put it, "not going anywhere."

The $250 million issue priced at 94.496 to yield 10½%, and a trader said it was trading at 94¼ bid, 94¾ offered.

"They're not screaming away like the new deals last week," he said. Another trader agreed, putting the new bonds in a 94ish context.

At another desk, a trader pegged the bonds at 94 5/8 bid, 94 7/8 offered. A market source said the underwriter was quoted the paper as high as 95½ bid, 95¾ offered.

MGM deal still a winner

Thursday's $1.5 billion two-part offering for MGM Mirage - both tranches of which priced around 97 and then moved smartly up to levels at or above par going home - was seen continuing to hold to those higher levels on Friday.

A trader saw its 10 3/8% notes due 2014 at par bid, 100¾ offered, and said he had seen no trace at all of the other part of the deal, the $850 million of 11 1/8% notes due 2017. "No one quoted it," he said of the latter credit, invoking a bit of hyperbole as he added "there must have been about a million quotes in the 10 3/8s." He estimated that the longer bonds were still holding around the 101½ bid, 102½ area around which they had been seen trading on Thursday.

Another trader put the $650 million five-year issue at par bid, 100¾ offered, while the 11 1/8s hovered at 101 bid, 102 offered.

Existing MGMs seen mixed

While the new MGM issue - heavily oversubscribed even before it priced - remained popular with investors, the gaming company's existing bonds, which have been gyrating around since Wednesday, were seen as mixed on Thursday, with a market source seeing MGM's 8½% notes due 2010 down more than 7 points on the day to around the 84 level. Another downsider was MGM'S 6 ¾% notes due 2012, which lost nearly 3 points to end at 65 bid.

However, at another desk, the MGM-owned Mandalay Resort Group's 9 3/8% notes due 2010 were seen 3 points better on the day at 93.

While some of the company's bonds were retreating from the gains they posted after the company announced its series of transactions aimed at cleaning up its balance sheet and giving it more financial stability, the issues slated to be taken out - MGM's 6% notes coming due in October and Mandalay's 6½% notes maturing in July - were seen continuing to hold to the levels just below par to which they had jumped after the initial announcement. And the 7¼% notes due 2017 of the old Mirage Resorts Inc., which are to be called for redemption, continued to hold to levels above 125 to which they had initially moved on Wednesday's news.

Market indicators keep sliding

Back among the established issues with no new-deal connections, a trader saw the CDX Series 12 High Yield index - which had lost ¾ point on Thursday - down by a like amount on Friday, finishing at 78 bid, 78½ offered. The widely watched market measure finished well below the 81 3/8 bid, 81 7/8 offered level seen at the close the previous Friday.

The KDP High Yield Daily Index, which fell by 45 basis points on Thursday, gave up another 5 bps on Friday to end at 59.80, while its yield widened out by 2 bps to 11.48%. At the close the previous week, the index had stood at 60.84, while its yield was 11.14%.

Advancing issues continued to trail decliners for a third consecutive session, by around a 10-to-nine margin. Overall market activity, measured by dollar-volume totals, fell nearly 38% from Wednesday's levels.

Apart from the excitement generated by the Sealy and MGM deals, a trader said, "there was nothing new. Nothing was really dominating the secondary."

Another called Friday's market "pretty boring" and said it was "blah - I did not notice a whole lot of activity."

First Data falls on numbers

A market participant said that First Data Corp.'s issue of 9 7/8% notes due 2016 "was the most active," with some $40 million of bonds traded by the mid-afternoon - about three times the next most active issue, for Ford Motor Credit Co. He saw the First Data bonds fall some 2 3/8 points to just under the 64 level in response to unfavorable financial results.

For the first quarter, First Data saw a net loss of $231.3 million, compared to a net loss of $221.7 million in the prior year's first quarter. Revenues for the quarter were $2.076 billion, down 2% from $2.127 billion in the comparable period last year. And, EBITDA for the quarter was $490.5 million, down 15% from $574.7 million in the first quarter of 2008.

"Our revenue base held steady in the quarter as we added new merchant and bank customers," said Michael Capellas, chairman and chief executive officer, in a press release. "We will continue to invest in new product development to fuel long-term growth while driving cost efficiencies to sustain profitability."

Bad reviews for Blockbuster

Another loser on the session was Dallas-based video-rental king Blockbuster, whose 9% notes due 2012 fell more than 5 points to just under the 47 mark, on top of a 3 point slide on Thursday after it reported narrower net income of $27.7 million for the first quarter. That compared to income of $45.4 million in 2008.

Rite Aid rises

A trader said that Rite Aid's "long stuff was in the mid 30s," its 6 7/8% bonds due 2028 at 34 bid, 35 offered.

Its short bonds, he said, like the 9½% notes due 2011 and 9 3/8% notes due 2015, were in a 59-61 context, while its 10 3/8% secured notes due 2016 stayed at 84½ bid, 85½ offered, all unchanged on the day.

However, at another desk, a trader said that Rite Aid's 9½% notes due 2017 were up 6 points to 51 bid. Its 8 5/8% notes due 2015 were also 6 points better at 61 bid.

One trader attributed the gains to what he called "refinancing chatter, citing news that the company was considering refinancing its revolving credit facilities that mature next year, accounting for the gains.

But another trader said he had no idea why the drugstore chain's debt has been trading so actively

Stephanie N. Rotondo contributed to this report.

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