Upsized Interface prices in quiet market; Pinnacle dives as Pilgrim's Pride threatens merger

By Paul Deckelman and Paul A. Harris

New York, May 27 - It was back to work in the high-yield market on Tuesday, with the Memorial Day holiday break now history.

But traders said there wasn't much going on overall, with some participants still out and others just getting re-acclimated after a three-day hiatus - four days, if you want to count Friday's extremely quiet and abbreviated half-session.

There was just one pricing in the dollar-denominated segment of Junkbondland. Interface Security Systems, LLC, an Earth City, Mo.-based provider of physical security and secured managed network services, came to market with an upsized $115 million issue of four-year senior contingent cash-pay notes via its holding company entity. The issue priced too late in the session for any kind of aftermarket.

The rest of the day's primaryside activity came from the non-dollar part of the market. German chemical company CABB Group and Italian building-products company Officine Maccaferri SpA were heard by syndicate sources to have hit the road to market their respective euro-denominated deals, while British gaming concern Ladbrokes plc began shopping a sterling-denominated issue around via a financing subsidiary. Canada's Trevali Mining Corp. priced a smallish offering consisting of five-year secured notes and warrants for the company's common stock.

Back in the domestic sphere, there was a little bit of aftermarket activity in some of the recently priced dollar deals, such as Enova International, Inc., Post Holdings, Inc. and Energy Transfer Equity, LP, though on not much volume.

There was considerably more activity in the existing bonds of Pinnacle Foods Inc., which nosedived along with the packaged consumer foods producer's shares as its pending deal to be taken over by Hillshire Brands Co. - which had given those bonds and shares a big boost earlier this month - was suddenly put in jeopardy by Pilgrim's Pride Corp.'s offer to buy Hillshire, and its demand that the latter company scrap its Pinnacle deal.

Elsewhere, traders saw weakness in the coal space, in names like Walter Energy, Inc. and Alpha Natural Resources, Inc., after a UBS analyst was quoted in Barron's speculating about the likelihood of additional future bankruptcy filings within the underperforming sector - not necessarily anytime soon, since the companies have ample cash for now, but perhaps somewhere down the road.

Statistical market performance measures turned higher across the board after having been mixed over the previous seven sessions.

Interface's cash-pay notes

Nearly all of Tuesday's primary market news came out of Europe, as players in the United States were returning to work following the three-day Memorial Day weekend.

In the dollar-denominated market, Interface Master Holdings, Inc. and Interface Security Systems priced an upsized $115 million issue of contingent cash-pay notes due Aug. 1, 2018 (/CCC/) at 98.

The notes pay a 12½% cash coupon and a 14½% PIK coupon. The cash yield is 13.152%.

The cash coupon came on top of talk. The cash yield came tight to yield talk of 13.2%.

Imperial Capital was the bookrunner for the general corporate purposes deal that was upsized from $100 million.

CABB starts roadshow

Turning to the more active European market, a roadshow began on Tuesday for a €585 million three-part offering of notes backing the leveraged buyout of German chemical company CABB Group.

The €410 million senior portion of the deal, via special purpose vehicle Montichem Holdco 3, comes in the form of two tranches of seven-year senior secured notes, including floating-rate notes that come with one year of call protection and fixed-rate notes that come with three years of call protection. Tranche sizes remain to be determined.

The junior portion of the bond financing, via Montichem Holdco 2, is a €175 million tranche of eight-year senior unsecured fixed-rate notes that come with three years of call protection.

The roadshow is scheduled to wrap up on Friday.

Joint bookrunner Deutsche Bank will bill and deliver. BNP Paribas, Credit Suisse and IKB Deutsche Industriebank are also joint bookrunners.

Proceeds from the Rule 144A and Regulation S deal will be used to finance the buyout of CABB by Permira Holdings Ltd.

Officine Maccaferri roadshow

Italy's Officine Maccaferri began a roadshow on Tuesday for a €200 million offering of seven-year senior notes (B2//B).

The roadshow wraps up on Thursday.

Joint bookrunner Credit Suisse will bill and deliver for the Rule 144A and Regulation S for life deal. Banca IMI, BNP Paribas and UniCredit are also joint bookrunners.

The notes come with three years of call protection.

The Bologna, Italy-based building products company plans to use the proceeds to refinance debt, acquire the real estate of the company's headquarters and pay a special dividend and for general corporate purposes.

Ladbrokes offers 5 1/8% notes

In a deal targeting retail and wholesale investors in the United Kingdom, the Isle of Man and the Channel Islands, Ladbrokes Group Finance plc began a subscription period for a to-be-determined amount of sterling-denominated 5 1/8% senior notes due Sept. 15, 2022 (BB//BB) on Tuesday.

The subscription period runs through June 10, subject to early close at short notice.

Joint bookrunner Lloyds Bank will bill and deliver.

Barclays and Canaccord are also joint bookrunners.

Trevali Mining prices notes, warrants

Trevali Mining priced a C$52.5 million issue of units comprised of C$1,000 of 12½% senior secured notes due 2019 and 123.2 warrants for common shares of the company's stock.

The reoffer price was 98.

GMP Securities was the lead bookrunner for the deal that was marketed as a Canadian private placement.

Proceeds will be used to refinance the RMB Resources limited bridge facility due June 30, 2014, to fund Trevali's asset build-out of the Caribou Mine and Mill in New Brunswick, to repay Trevali's $2 million of convertible notes and for general corporate purposes.

The issuer is a Vancouver B.C.-based zinc-focused base metals mining company with operations in Peru and Canada.

No Interface aftermarket

Traders saw no initial aftermarket dealings on Tuesday in the new Interface 12½%/14½% contingent cash-pay notes due 2018, which priced late in the session after having been increased from the originally shopped $100 million size.

Quiet dealings in Enova

A trader said "we were not really seeing any trading" in Friday's offering of 9¾% notes due 2021 from Enova International.

He noted that the Chicago-based online financial services firm's $500 million issue "was offered all over the place last week." Although he quoted a 98½ bid on Tuesday, he added that "this is one of those issues that probably won't trade that much."

The bonds had priced at 98.762 to yield 10% and were seen having gotten as low as a 97¾ bid level in initial aftermarket dealings, although some market participants quoted them at or above the 98 level.

The trader said that the best bid on Friday had been around 98, "so it's a little bit better - but nothing stellar."

Another trader said that "we didn't see any real trading in that."

However, yet a third market source quoted the bonds as having gotten as good Tuesday as around a 99 to 99½ bid context.

Recent deals a mixed bag

Among some of the other deals that priced earlier last week, there was some activity in TeeKay Offshore Partners LP's 6% notes due 2019, with a market source quoting the bonds up around 101 bid, with more than $7 million traded.

A second trader pegged the bonds at 101½ bid, 102½ offered, calling them up by as much as ¾ point.

The Hamilton, Bermuda-based provider of maritime transportation services to the offshore energy industry had priced its $275 million issue at par on Thursday; when they began trading on Friday, they were seen moving around in a 100¾ to 101½ bid range.

A trader said that St. Louis-based breakfast cereal manufacturer Post Holdings'$630 million of 6% notes due in December of 2022 were down about ½ point, trading between 100¼ and 1003/4, while a second trader saw the issue at around 100¾ bid, 101½ offered.

Those 8.5-year notes had priced at par on Thursday, had traded a little above issue in the immediate aftermarket and then had gotten as high as a 100¾ to 101 bid range on Friday.

A trader saw Dallas-based midstream services provider Energy Transfer Equity's 5 7/8% notes due 2024 up around ¼ point on Tuesday at 103¼ bid, 103¾ offered, while a second saw the bonds in a 103 to 103½ context.

The company brought a quickly shopped $700 million add-on offering of those 10-year bonds to market on Thursday, upsizing that deal from an originally announced $500 million and pricing it at 102 to yield 5.602%. The new bonds initially traded up to around the 103 bid area.

Telecom Italia's 5.303% notes due 2024 were seen around 100 1/8 bid, 100 3/8 offered, which a trader said was up 3/8 point. On Friday, he said, the bonds had eased by ¼ point to around 99¾ bid.

The Rome-based telecommunications company had brought a quickly shopped $1.5 billion of those notes to market on Thursday at par, with the bonds quoted in Thursday's aftermarket at par bid, 100¼ offered.

Telecom Italia's existing 7.175% notes due 2019 were meanwhile one of the more actively traded issues on Tuesday, with over $11 million having changed hands. Those bonds were seen going home at 116 bid, down 3/8 point. Its 6% bonds due 2034 meanwhile eased to 98¾ bid, with about $5 million traded.

Going back a little further, Rosetta Resources Inc.'s 5 7/8% notes due 2024 were seen easier Tuesday, trading in a 101 to 101 7/8 bid context.

The Houston-based oil and natural gas exploration and production company's quick-to-market $500 million of the notes had priced at par on Wednesday after having been upsized from an originally announced $400 million, and the new bonds immediately jumped around the 101½ bid level when they were freed for secondary dealings, with over $79 million having traded.

They continued the upward march Thursday, moving above the 102 bid area, as another $67 million changed hands.

Although that activity dried up on Friday, traders still saw the bonds finishing out the week around 101¾ to 1021/4.

Straggling back in

Traders characterized Tuesday overall as pretty quiet in the aftermath of the Memorial Day holiday weekend that closed financial markets in the United States.

One trader opined that it seemed to him like "nobody came back from the weekend."

Others did come in, but took it slow on the first day back.

"We were struggling to get in this morning," a second trader quipped, "but then again, we struggle every morning."

Pinnacle down from peak

Among specific non-new-deal issues, Pinnacle Foods' 4 7/8% notes due 2021 were probably the most actively traded junk bonds on Tuesday; a market source said that some $24 million had changed hands by the day's end - and they had plummeted to around the 101 3/8 bid level, a drop of more than 5 full points from prior levels around 106¾ bid.

A trader saw the bonds "mostly inside" a 101-to-101½ context.

Those bonds had traded around a 99-to-par range earlier in the month but zoomed to the 107 bid level on May 12, following the announcement that the Parsippany, N.J.-based maker of such well-known consumer food brands as Duncan Hines cake mixes, Birds Eye frozen foods, Vlasic pickles, Mrs. Paul's frozen fish products and Wishbone salad dressing had agreed to be acquired by Hillshire Brands in a cash-and-stock transaction valued at some $6.6 billion.

But they gave up most of those gains on Tuesday as Greeley, Colo.-based poultry producer Pilgrim's Pride announced that it wants to buy Hillshire Brands - the Chicago-based consumer foods company formerly known as Sara Lee Corp. - for $45 per share, or $5.6 billion total; as part of such a transaction, Pilgrim's Pride said that Hillshire would have to terminate its pending deal with Pinnacle Foods, with Pilgrim's Pride saying it would be willing to pay the $163 million break-up fee that Pinnacle would be due from such an event.

The prospect that the deal might be dashed not only hammered down Pinnacle's bonds but its New York Stock Exchange-traded shares as well, which slid by $2.09, or 6.28%, to end at $31.18 on volume of more than 13.2 million shares, nearly 11 times the usual turnover.

A trader meanwhile said he saw Hillshire's investment-grade-rated 4.1% notes due 2020 trading around the 101 bid level. Its NYSE-traded shares jumped by $8.17, or 22.07%, to end at $45.19 on volume of over 41.6 million shares, more than 23 times the norm.

A trader saw Pilgrim's Pride's 7 7/8% notes due 2018 trading between 106¾ and 107¼ , little changed on the day.

Its Nasdaq-traded shares rose by 42 cents, or 1.67%, to finish at $25.52. Volume of over 3.5 million was more than triple the usual activity level.

Coal bonds slip

Elsewhere, a trader declared that "the coal sector was under a little pressure" Tuesday, with a variety of coal names, like Water Energy and Alpha Natural Resources "a little lower."

Birmingham, Ala.-based metallurgical coal producer Walter's 9 7/8% notes due 2020 were seen down 3 3/8 points at 62 1/8 bid, while Bristol, Va.-based producer Alpha's 6% notes due 2019 lost ¾ point to end at 74 bid.

St. Louis-based sector peer Arch Coal Inc.'s 7% notes due 2019 likewise lost ¾ point to end at 77 bid.

Coal-sector shares were meantime also being roiled, likely due at least in part to a Barron's article about the coal sector's woes. It quoted UBS analyst Kuni Chen as having speculated in a research note that, given the sector's many problems, "while there does not appear to be any imminent bankruptcy risk, we want to discuss the potential event path to a next potential liquidity crisis looking ahead 2 to 3 years. Within our coverage universe, the companies with the most financial leverage include Alpha Natural, Arch Coal and Walter Energy."

However, he said that all have enough cash on hand to last for a while - at least a year for Walter and three years for Arch and Alpha - and that they could also issue new debt to meet liquidity challenges.

Indicators turn stronger

Statistical junk performance indicators were seen by market sources as having improved across the board on Tuesday after having been mixed over the previous seven sessions.

The Markit Series 22 index rose by 5/32 point on Tuesday to finish at 108 3/32 bid, 108 1/8 offered. Although the U.S. junk bond market was officially closed for the holiday, the index was published on Monday and edged down slightly after having risen over three consecutive sessions before that, including Friday, when it was up by 1/8 point.

The KDP High Yield Daily index gained 2 basis points to close at 74.89, its first advance after three straight losses, including Friday's 2 bps setback. The index was not published on Monday, due to the holiday.

Its yield, however, which would normally move inversely to the index direction, also rose on Tuesday, by 1 bp, ending at 5.12%. On Friday, it had been unchanged on the day at 5.11%.

The widely followed Merrill Lynch High Yield Master II index recorded its second consecutive gain on Tuesday, improving by 0.056%. The index was published on Monday, showing a nearly identical 0.055% rise. It had been unchanged on Friday after two consecutive downturns before that.

Tuesday's gain lifted the index's year-to-date return to 4.5%, a new peak level for 2014 so far. That was up from 4.442% on Monday, 4.385% on Friday, and the previous year-to-date peak return of 4.443%, recorded last Tuesday.

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