Upsized DaVita, Concho, Penske lead $3.5 billion day; DaVita gains; Graton prices, moves up

By Paul Deckelman and Paul A. Harris

New York, Aug. 14 - Tuesday in the junk market turned out to be not too different than Monday as some $3.5 billion of new paper priced - more than Monday's $2.9 billion. As had been the case on Monday, deals were pricing within hours after having been announced and were upsized left and right from those initially announced sizes.

Kidney-care provider DaVita Inc. had the day's big deal, upsizing its 10-year offering to $1.25 billion. Those bonds firmed when they were freed for dealings.

Native American gaming operator Graton Economic Development Authority's new $450 million of seven-year secured notes were seen by traders having firmed smartly from their par pricing level.

The day's other new deals came to market too late in the session to trade around, including energy company Concho Resources Inc.'s upsized $700 million of 10.5-year notes, cable operator Mediacom Broadband LLC's $300 million of 10.6-year-paper, vehicle retailer Penske Automotive Group, Inc.'s $550 million of 10-year subordinated paper and a $250 million tranche of eight-year bonds from M*Modal Inc., which is a provider of clinical documentation services.

There was little going on in the secondary market, other than trading in new or recently priced deals. Traders thus saw Monday's deals from Continental Resources, Inc., General Motors Financial Co. Inc. and Belden Inc. continuing to trade a little above their respective pricing levels.

Statistical measures of junk market performance remained a mostly easier mixed bag.

DaVita massively upsizes

The new deal throttle remained wide open on Tuesday as six issuers, each bearing a single tranche of bonds, raised $3.5 billion.

As has been typical of the summer 2012 market, most of the day's business took place in the express lane, with four of the six Tuesday issuers doing drive-by deals.

The executions seemed tight, for the most part, with four of the six deals pricing at the tight end of price talk, while three were upsized.

However, appearances could be slightly deceiving, one banker warned.

DaVita priced the biggest deal, an upsized $1.25 billion issue of 10-year senior notes (B2/B) that came at par to yield 5¾%.

It was upsized from $1 billion and launched at 5¾% after having been talked to yield 5¾% to 5 7/8%.

The $1.25 billion deal played to $4.9 billion of demand, according to a buyside source.

J.P. Morgan, Barclays, Bank of America Merrill Lynch, Credit Suisse, Goldman Sachs, Morgan Stanley, SunTrust and Wells Fargo were the joint bookrunners.

Proceeds, together with amended credit facilities and available cash, will be used to finance the acquisition of HealthCare Partners Holdings, LLC. The additional proceeds resulting from the upsizing will be used for general corporate purposes.

Concho drives by

Concho Resources also priced a massively upsized $700 million issue of 10.5-year senior notes (B1/BB+) at par to yield 5½%.

The deal was launched at issue size, with a 5½% yield. Earlier price talk was 5½% area.

J.P. Morgan, Bank of America Merrill Lynch, Barclays and Wells Fargo were the joint bookrunners for the quick-to-market debt refinancing deal, which was upsized from $400 million.

Penske at the tight end

Penske Automotive priced an upsized $550 million issue of 10-year senior subordinated notes (B2/B) at par to yield 5¾%, at the tight end of yield talk which was set in the 5 7/8% area.

Bank of America Merrill Lynch, , RBS, J.P. Morgan and Wells Fargo were the joint bookrunners for the quick-to-market issue, which was upsized from $400 million.

The Bloomfield Hills, Mich.-based automotive retailer plans to use the proceeds to repurchase $375 million of its 7¾% senior subordinated notes due 2016. The remaining proceeds will be used to repay amounts currently outstanding under its U.S. credit agreement and, if additional funds are remaining, its U.S. floor plan borrowings.

Graton seven-year secureds

In one of the two deals completed on Tuesday at the conclusion of roadshows, Graton Resort & Casino priced a $450 million issue of seven-year senior secured notes (B3/B) at par to yield 9 5/8%.

The yield printed at the tight end of price talk that had been set in the 9¾% area.

The deal appeared to go well, according to an investor who played and who saw the par-pricing bonds trading at 102½ bid, 103 offered, shortly after the Tuesday close.

Bank of America Merrill Lynch, Wells Fargo, Deutsche Bank and Credit Suisse were the joint bookrunners for the capital expenditures deal.

Mediacom at the tight end

Mediacom Broadband LLC and Mediacom Broadband Corp. priced a $300 million issue of senior notes due 2023 (B3/B-) at par to yield 6 3/8%, at the tight end of yield talk, which had been set in the 6½% area.

J.P. Morgan, Bank of America Merrill Lynch, Wells Fargo, Deutsche Bank, SunTrust, Credit Suisse, RBC and Citigroup were the joint bookrunners for the quick-to-market deal.

The Middletown, N.Y.-based cable television company plans to use the proceeds to fund the tender offer for its 8½% notes due 2015 and for general corporate purposes.

M*Modal comes wide

Following its roadshow, M*Modal Inc. priced a $250 million issue of 10¾% eight-year senior notes (Caa1/B-) at 98.694 to yield 11%.

The yield printed 50 basis points beyond the wide end of the 10¼% to 10½% yield talk.

Bank of America Merrill Lynch and RBC were the joint bookrunners.

Proceeds, along with proceeds from a $515 million senior secured credit facility, cash on hand and cash and equity investments by One Equity Partners, will be used to finance the proposed acquisition of M*Modal and to repay existing debt.

Pushback

As the wide-of-talk yield infers, the M*Modal deal struggled somewhat, market sources said.

It was evidence of some investor pushback, asserted a sellside source, who had an eye on the deal.

For further evidence, the sellsider pointed to lackluster performance from three deals that priced last week: the Sprint Nextel Corp. 7% notes due August 2020, which priced at par in a $1.5 billion issue, the Sirius XM Radio Inc. 5¼% notes due August 2022, which priced at par in a $400 million issue, and the CCO Holdings, LLC/CCO Holdings Capital Corp. (Charter Communications) 5¼% notes due September 2022, which priced at 99.026 to yield 5 3/8%.

All three are trading around par, the sellsider said.

However, a buyside source, who claimed to have taken part in all of Tuesday's action, maintained that the high-yield market remains in the grip of a formidible technical bid, with cash continuing to pour into the funds.

And it's not just retail cash, the fund manager said, adding that insurance funds and pension funds are active junk bond buyers these days.

Quieter ahead

Notwithstanding Tuesday's mostly notable executions, the primary market is headed into the Dog Days of August, sources said on Tuesday.

Those Dog Days are a little late in arriving, with the new issue bazaar having torn into mid-August in frenzied fashion.

However, issuance volume will almost certainly subside soon and remain comparatively subdued until September, the source maintained.

Indeed, Tuesday's action practically cleared the active calendar.

Only one deal is expected to price on Wednesday, sources said.

Tronox Finance LLC, a unit of Tronox Ltd., is scheduled to conclude a brief roadshow for its $650 million offering of eight-year senior notes (B1/BB-) and could price before the end of the session, an investor said.

Although there is no official price talk, the deal is whispered in the mid-6% range, the source added.

Goldman Sachs, Credit Suisse and UBS are the joint bookrunners.

DaVita is 'da' winner

When DaVita's new $1.25 billion of 5¾% notes due 2022 were freed for secondary market activity, traders saw the Denver-based kidney-care provider's deal move up in brisk trading.

One saw "a lot of trading" at bid levels between 101 and 101¼ offered, versus the bonds' par issue price.

A second trader pegged the bonds at 1011/4, also seeing "a lot" trading there and remarking that "it looks like it's the [ underwriter] making the bid, and he's been hit several times in the street and it's still holding up.

"So the market, depending on when you look," is either 101 1/8-101 3/8, or 101 1 /4 -101 3/8, "or a 101¼ lock," the trader said.

Graton gains

Graton Economic Development Authority's $450 million issue of 9 5/8% senior secured notes due 2015 priced earlier in the session, and there was some activity in it, even though one trader saw the Rohnert Park, Calif.-based Native American gaming outfit's bonds at 102½ bid, up from their par pricing level, but "never saw an offering."

A second trader said those bonds were in a 1021/4-to-103¼ context for "most of the day," although he too did not see a lot of trading in the new paper.

"But I did see them quoted a lot," he added.

Tuesday deals come too late

Aside from those issues, traders did not see any aftermarket in the day's other new deals. Several mentioned that at that time - in the 4:30 p.m. to 5 p.m. ET time period, when most Junkbondland participants were preparing to call it a day - that Concho Resources' 5½% notes due 2023 had just priced but had not yet been freed for the aftermarket.

And the deals from Penske, Mediacom Broadband and Legend Acquisition Sub Inc./M*Modal hadn't gone that far by that time of the day and priced just too late in the session for any kind of dealings.

Monday deals trade near issue

Stepping back to Monday's deals, a trader saw Belden's 5½% senior subordinated notes due 2022 trading at bid levels between par and 1001/4.

A second trader said that Belden "has backed off a little bit."

He saw the St. Louis based electrical cable and wire maker's paper having gone home on Monday at 100½ bid, up from the par level where that $700 million quick-to-market deal had priced after upsizing from an originally announced $550 million.

On Tuesday, he said, the bonds were trading at 100 3/8 bid in the morning, before falling back to that same par-to-100¼ level the first trader saw.

The trader also saw GM Financial's new 4¾% notes due 2017 trading in a 1001/2-to-100¾ context, although he later saw them going home around 100¼ to 100 5/8.

At another desk, the bonds were quoted finishing up Tuesday at levels between 100½ and 1003/4.

The Fort Worth, Texas-based automotive lender's quickly shopped $1 billion of bonds doubled in size from an originally announced $500 million and priced on Monday at par, then moved up in the aftermarket to as high as 100½ and 100¾ on the bid side.

A trader saw Continental Resources' 5% notes due 2022, which priced too late in the day on Monday for an aftermarket, start off Tuesday trading as high as 102¾ bid, before coming off that peak to finish at 102 5/8 bid, 102¾ offered.

"They were wrapped around 1023/4," another trader said.

The Oklahoma City-based energy exploration and production company priced its $1.2 billion add-on to the existing $800 million of those bonds sold earlier this year at 102.375 to yield 4.624% .The drive-by issue had been upsized sharply from the $700 million announced on Monday morning.

Not much in older deals

Going back to last week's deals, a trader said that Charter Communications' 5¼% notes due 2022 "are still trying to get out of the way of their own shadow."

He saw the St. Louis-based cable operator's $1.25 billion quick-to-market issue at 99 1/8 bid.

That's little changed from the 99.026 level at which those bonds - officially sold by Charter subsidiaries CCO Holdings, LLC and CCO Holdings Capital Corp. - priced last Wednesday to yield 5 3/8%. The bonds priced after upsizing from the originally announced $1 billion and traded around after that in a low-99s context.

He saw Advanced Micro Devices Inc.'s 7½% notes due 2022 at 99 bid, 99¼ offered on Tuesday.

The Sunnyvale, Calif.-based semiconductor maker priced its quickly shopped $500 million deal at par last Monday. The bonds had initially been trading at or slightly below par, although they did move up later in the week to a little above the par level - only to drop back down into the 99s on Tuesday.

And he saw Constellation Brands Inc.'s 4 5/8% notes due 2023 at around 101½ bid, 101¾ offered.

The Victor, N.Y.-based alcoholic beverage company priced its $650 million drive-by deal at par last Monday, and those bonds were seen having moved as high as a 102 context, before coming a little off those levels to where they were on Tuesday.

But those three credits were the exception to the rule, the trader said.

Mostly, he said, "these issues trade for a couple of days and then they fade into the background."

New issues still the focus

With the continued torrent of new paper - $6.4 billion already priced with just two days down and three to go - a trader said: "[Clearly,] new issues have been pretty much the focus. That's about it," seeing nothing in the non-new-deal secondary standing out.

However, another market source saw continued activity in the bonds of Visant Corp., down for a second consecutive session following disappointing numbers from the Armonk, N.Y.-based marketing firm.

Its 10% notes due 2017 were down 1 point on the day, going home at 97¾ bid.

On Monday, those bonds were down a deuce or more from their prior levels above par, although trading was light.

Visant, which produces and sells class rings, school year books and related academic products, as well as fragrance, cosmetic and personal care samples for the direct marketing sector, reported second-quarter earnings of $56.6 million, down from $60.6 million a year earlier.

Indicators mostly lower

Statistical indicators of junk market performance were mostly lower on the day, after having been mixed on Monday.

The Markit Group CDX North American Series 18 High Yield Index was down by about 1 or 2 basis points on the session, at around 97¾ bid, 97 7/8 offered, after having lost 3 1/6 points on Monday to finish. It was the second loss in a row for the index.

The KDP High Yield Daily Index posted a third straight loss Tuesday, dipping by 4 bps to 73.81, after having fallen by 12 bps on Monday. Its yield, though, was unchanged on the day at 6.19%, after having widened out for the two previous sessions, including 5 bps on Monday.

However, the widely followed Merrill Lynch U.S. High Yield Master II Index retreated on Tuesday, down 0.039%, after having risen by 0.049% on Monday to break a two-session losing streak.

That left its year-to-date return at 9.744%, down from 9.787% on Monday. It was also off from its peak level for the year of 9.838% set last Wednesday.

But its yield to worst did continue to decline on Tuesday, to 6.833% from Monday's 6.838%. Those numbers remain marginally above its low yield for the year of 6.808%, also set on last Wednesday.

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