Market awaits TransUnion, Michael Foods slates; recent new deals steady, energy slides again

By Paul Deckelman and Paul A. Harris

New York, June 9 - The high yield primary market - fresh from its big day on Tuesday, when two junk offerings actually priced during the same session for the first time in three weeks - stepped back a little on Wednesday, getting ready for a big deal expected to come on Thursday, for TransUnion Corp.

That Chicago-based consumer credit reporting agency is shopping a $645 million offering of eight-year notes, in connection for the previously announced leveraged buyout of the company. Price talk on the issue emerged on Wednesday, changes were made in the bonds' covenants and order books were closed ahead of the scheduled pricing early Thursday.

As part of yet another LBO-driven deal - there have been around a half-dozen such offerings in recent weeks alone - new-dealers also heard that Michael Foods Inc. will sell a tranche of bonds as part of the Minnetonka, Minn.-based food products company's transaction financing.

Recently priced offerings from BWAY Holding Co. (one of the LBO deals), Triumph Group, Inc. and Spectrum Brands Inc. held steady around their post-pricing levels.

But ATP Oil & Gas Corp.'s bonds took a renewed drubbing, along with other energy names, notably BP Capital Markets plc and Transocean Inc. and even those names not involved in the disastrous April 20 accident that is fouling the Gulf of Mexico but which might still suffer the consequences of the federal moratorium on new drillings, such as Energy XXI Gulf Coast Inc.

Market indicators soften up

Among measures of overall performance, a trader saw the CDX North American HY Series 14 Index lose 1/8 point on Wednesday to end at 92 5/8 bid, 93 1/8 offered, after having gained 1/8 point on Tuesday, following two sharp declines - one full point on Monday and 1 3/8 points on Friday.

The KDP High Yield Daily Index, meantime, eased by 7 basis points on Wednesday to end at 69.31, after having lost 17 bps on Monday and then another 38 bps on Tuesday. Its yield edged upwards by 2 bps on the day to 9.07%, after having risen by 16 bps over the two previous sessions.

Advancing issues were marginally ahead of decliners after having lagged behind in the three previous sessions, though their margin of victory was literally just a handful of issues out of more than 1,400 tracked, versus the nearly eight-to-five ratio by which they had trailed on Tuesday.

Overall market activity, represented by dollar-volume levels, rose by 11% on Wednesday, after having jumped by 40% on Tuesday from previous levels.

A trader said that outside of the continued carnage among oil and gas names arising from the Deepwater Horizon disaster in the Gulf of Mexico and the continued problems in capping the leaking well that has already spilled millions of gallons of oil, fouling beaches and wildlife across Louisiana and three other Gulf states, "nothing" was going on.

"There's not much to talk about, except for the Gulf stuff."

Stocks, he noted "made a big reversal here," after having posted gains across the board on Tuesday, so that the bellwether Dow Jones Industrial Average ended down 40.73 points, or 0.41% - after having been up for most of the day, until the late side left the market measure at 9,899.25.

Against that kind of weaker backdrop, he projected that "we're going to open up weak" on Thursday, adding that junk will "absolutely" see more mutual fund outflows, a key barometer of overall market liquidity trends. Outflows have been recorded over the past five weeks, with some $4.3 billion more leaving those funds than came into them over that time frame, according to a Prospect News analysis of those figures.

Another trader said that Wednesday was "a long and boring day." He said that the markets in many bonds were just 1/8 point between buyer and seller, "just waiting for someone to blink first."

"We're just sitting here waiting, and trying to get some trades off." But "nobody seems to care" or to want to do anything.

A typical transaction, he said, was General Motors Corp.'s benchmark 8 3/85 bonds due 2033. He said the Detroit giant's issue opened in the morning at 31½ b id, 32 offered, and went out at 31¼ bid, 31½ offered. "So it came in 1/4, or ½ points," he said.

"There's your excitement."

Energy names eviscerated

One of the few areas where anything was going on was in energy, and a trader said that "the energy names are still getting beaten up, with BP leading the way."

He noted that the multinational oil major's shares fell more than 10% on the day to their lowest levels in 14 years on continued investor worries about how much the cleanup and other collateral costs from the April 20 explosion aboard a deepwater drilling rig leased to BP may end up costing the beleaguered company, now the target of widespread public disdain led by the President of the United States.

The market's favorite energy whipping boy among the purely junk-rated issues, ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 "went on a wild ride," seeing them fall as low as a 64ish level, and then move back up a couple of points to around a 65-66 context, which he called a point or two lower on the day, on "a lot of activity."

He said that there were "pages and pages" of ATP trades on Trace, and called it "one of the names of the day.

Another trader declared that while ATP's bonds had opened the session around the 68 bid level at which they had ended Tuesday's session - and that was down a good 2 or 3 points from previous markets - they were "fading hard" by Wednesday's close, falling to 64½ bid, 66½ offered, although the issue "continues to be active."

The bonds "continued to get pounded - completely pounded."

Those bonds, $1.5 billion of which had priced at 99.531 to yield 12%, on April 19 - the day before the oil-rig disaster - fell as low as the mid-60s last week on news that BP had failed to cap the spillage from the runaway well, although they managed to creep back up to the lower 70s in the following days, only to resume their retreat on Tuesday and again on Wednesday.

Although Houston-based oil and gas exploration and production operator ATP had nothing to do with the actual accident, investors were said to be fretting over the government-ordered moratorium on new drilling in the Gulf in the wake of the accident - a potentially severe blow to a company like ATP, which has most of its proven reserves there.

Other energy names affected as well

Elsewhere in the high yield energy sector, a trader said that other bonds were also being pushed lower in line with ATP's continued struggles and generalized investor angst about the sector in the wake of the ongoing environmental debacle in the Gulf.

He saw Energy XXI Gulf Coast Inc.'s 10% notes due 2013 down a point or so around the 95½ bid level, with over $12 million of the bonds having changed hands heading into the late afternoon, making it among the busier issues showing up on Trace.

"There was a little more activity in that - decent activity," but he noted that the issue itself is not that large, about $270 million, versus the $1.5 billion of ATP 11 7/8s. 'So it wouldn't command the same kind of attention" as the ATP paper, "but it did have an active day, for the amount of bonds outstanding."

He said that on his quote page, he saw maybe 10 or 15 line items relating to the Energy XXI bonds "but I had about five or 10 pages of quotes for the other one" - i..e. ATP.

Another trader saw Energy XXI's 10s down a full point to around 95. McMoRan Exploration Co.'s bonds were down ½ point, though he noted that "the market was soft, too."

Among nominally investment-grade issues, a trader saw Deepwater Horizon owner Transocean Inc.'s bonds - nominally still high grade-rated but now trading off junk desks on a dollar-price basis - down about 4 points on the session.

At another desk, a trader quoted its 6.80% bonds due 2038 trading in an 82-84 context - versus Tuesday's levels at 85-86 - although he saw the bonds ending around 84.

He saw the 6% notes due 2018 at 88-90, which he said was "about where they had been."

A trader saw BP's 5¼% notes due 2013 down almost 7 points "on very large volume," last trading around 91¼ bid.

He saw the oil giant's 3 7/8% notes due 2015 down almost 9 points at 86¾ bid, "on large volume, while its 3 5/8% notes due 2015 lost more than 7 points to end at 87.

BWAY holds above par

Looking at recently priced deals, a trader said that BWAY Holding Co.'s 10% notes due 2018 were trading at par bid, 100½ offered, a slight gain from the levels just under par up to which those bonds had moved on Tuesday after their pricing.

"They held their gains," he asserted.

BWAY, an Atlanta-based maker of large rigid metal and plastic containers, priced $205 million of the bonds on Tuesday at 98.658 to yield 10¼%, and they proceeded to firm by a point or more from that issue price, on brisk investor demand.

Triumph anchored around issue

A trader said that Triumph Group's new $350 million of 8 5/8% notes due 2018 traded in a 991/4-99 5/8 context.

That was not far removed from the 99.27 price at which the Wayne, Pa.-based aerospace firm had priced its deal on Tuesday to yield 8 ¾%.

In initial aftermarket trading on Tuesday, the new bonds had been quoted as good as a 99-99½ context.

Spectrum hangs onto gains

A trader said that he did not see Spectrum Brands Inc.'s recently priced 9½% senior secured notes due 2018 on Wednesday, but did characterize the issue as having been "a very strong performer."

Traders said that the bonds continued to trade at a premium to where the Atlanta-based consumer products company's $750 million offering - upsized from the originally shopped $500 million - had priced last Friday.

The bonds were last seen in a 100 1/8-100¼ context - well up from 98.634, where they had priced on Friday to yield 9¾%. That paper had proceeded to gain about a point in its initial aftermarket dealings later Friday to about the 99 5/8 level. They then firmed further in Monday's session and in Tuesday's, holding steady at those levels on Wednesday.

Citgo deal still struggling

A trader said that given the problems in the energy sector in the wake of the massive Gulf of Mexico oil leak, as well as market wariness about Venezuela's unpredictable anti-American strongman, Hug Chavez, it's no big surprise that the upcoming $1.5 billion bond offering for Citgo Petroleum Corp - a wholly owned subsidiary of Venezuela's state-run oil monopoly, Petroleos de Venezuela S.A., which is run by Chavez appointees - is caught in limbo, still on the forward calendar, but considered day-to-day, with no clue as to when the issue will price in sight.

"I think most high yield guys are smart enough to steer clear of that one," he declared, while adding "you never know."

TransUnion price talk

Trailing the two-deal Tuesday session, the high-yield primary put up a goose egg on Wednesday.

No deals priced, and no new offerings were announced.

TransUnion Corp. talked its $645 million offering of eight-year senior unsecured notes (B3/B-) with a yield in the 11½% area.

The deal is expected to price on Thursday morning.

In addition to price talk, TransUnion modified the bond covenants as well as the language of the bond indenture.

Earlier in the week the Chicago-based provider of credit information attached registration rights to the notes which initially came to market as a Rule 144A for life offering.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and Credit Suisse are the joint bookrunners.

Proceeds will be used to help fund the purchase of TransUnion Corp. by Madison Dearborn Partners and to help repay debt.

Apart from TransUnion, one deal remains on the active forward calendar, market sources say.

Earlier in the week TitleMax began roadshowing a $225 million offering of five-year senior secured first-lien notes (B2/B+).

That roadshow is set to conclude on June 17.

Jefferies & Co. has the books for the debt repayment deal.

Cedar Fair a 'logjam'

Apart from TitleMax and TransUnion, the calendar contains several offerings which have been characterized by market-watchers as "day-to-day" deals, meaning that the respective roadshows have concluded, but the deals were not subsequently priced.

Among these day-to-day deals is Cedar Fair, LP's $500 million offering of 10-year senior unsecured notes (B2/B-).

That offering ran its roadshow from May 20 to May 27.

Now it's a "logjam," according to a portfolio manager from a mutual fund.

"We were 50 basis points apart last week and the market has gotten wider," the investor said.

The Sandusky, Ohio-based amusement park operator believes a 10½% yield is a fair price, the investor said.

However the buy-side has an 11% yield in its cross-hairs, the investor recounted.

Now that the market is 25 bps wider than it was during that last conversation, so maybe the buy-side will be looking for 11¼%, the investor said.

"The company is locking in an interest rate for 10 years, so if they think the market will get better in a week or two, maybe they should wait," the manager reasoned.

"But what's more likely is that you get some more headline noise, probably out of Europe, and the market drifts wider."

J.P. Morgan Securities Inc., Wells Fargo Securities and UBS Investment Bank are the joint bookrunners for the bank debt refinancing.

Willbros called a must

Also in the "day-to-day" category is Willbros Group, Inc.'s $250 million offering of six-year senior secured second-lien notes (B3/B+).

On May 27 the Houston-based engineering services provider to the energy sector talked the deal to yield in the 12% area.

Since then there has been no news, market sources say.

However a debt capital markets banker, not in the deal, told Prospect News that he's counting Willbros as "in the market, more or less," because it is a committed acquisition financing that has to get done.

Proceeds will be used to partially fund the acquisition of InfrastruX Group, Inc.

UBS Investment Bank is the left bookrunner. Credit Agricole CIB and Credit Suisse are joint bookrunners.

Bad for both sides

With high yield drifting wider, both the buy-side and the sell-side will be mostly content to remain on the sidelines as far as the new issue market goes, sources said on Wednesday.

Potential issuers looking to refinance debt don't like moving targets, when it comes to pricing, a syndicate official said.

"Maybe you told them a month ago that the price would be 10%," the official said.

"Now the market has backed up, so maybe now it's 10¼%, or even 10½%.

"They will understand that - if you can assure them of the final price.

"But they don't want to bring the deal and watch the market back up some more, and watch the price go even higher."

Meanwhile a portfolio manager, looking from a different angle, saw things pretty much the same way.

"The high yield does not like to price deals in a continually widening market," the buy-sider asserted.

Talecris quoted up on buyout deal

Back in the secondary market, traders reported that Talecris Biotherapeudics Holdings Corp.'s 7¾% notes due 2016 were being quoted at firmer levels Wednesday, apparently buoyed by the news that Spain-based Grifols SA has agreed to purchase the Research Triangle Park, N.C.-based biopharmaceutical company for $3.4 billion in cash and Grifols shares, with assumption of the U.S. company's $600 million of bond debt bringing the total value of the deal to around $4 billion. The deal would make Grifols the world's third-largest plasma-products manufacturer behind Baxter International Inc. and CSL Ltd.

A trader reported that the bonds had recently been around the "98ish" area prior to Monday's announcement of the planned purchase. He estimated that the bonds might go to around the 103 level, considered a likely takeout point, though he had seen no trades there.

Another trader said that the bonds were being quoted around 102-103 bid, which he called a good 3 or 4 points, "but I don't think there's a lot of trading."

The bonds' indenture contains a standard change-of-control provision mandating that the company offer to buy back the bonds at 101, but the first trader said that "the bonds certainly seem to be priced as if the 101 change-of-control is not a factor. It's meaningless - the guys wouldn't put it to them" at that level, figuring that the bonds would be worth more when the deal goes though.

He said "my guess is" that the combined company that would be formed by the combination of the unrated Grifols and the Ba1/BB-rated Talecris "is probably closer to investment grade."

Grifols plans to finance the $2.5 billion cash portion of the transaction by incurring new debt, outlining plans for a combination of term loans and bonds in a Monday conference call.

Covenant Review, a New York-based independent research group which analyzes bond indentures and loan covenants of companies issuing debt or those involved in acquisitions, takeovers or other special situations, said in a research note that "it has not yet been disclosed whether this financing would include guarantees or security from any Talecris entity, but doing so could be restricted" under the covenants of Talecris' existing bonds, forcing Grifols to redeem the notes, which carry provision for a make-whole call at 50 bps over Treasuries until the first call date of Nov. 15, 2012, at which time the bonds could be called at 103.875.

Covenant Review cautioned that in the event such a redemption is required, Grifols "could pay less than the full make-whole premium by using its right to redeem 10% of the notes at 103% and redeeming another 35% through an equity clawback at 107.75%," which is in effect through November of 2012. It said that Grifols could do this since its purchase of Talecris' common stock in the acquisition "would meet the [Talecris bonds'] indenture's loose standards for a Qualified Equity Offering."

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