Beazer plans deal, Warner Chilcott is fall's 'big one'; DirecTV active, Asarco zooms on ruling

By Paul Deckelman and Paul A. Harris

New York, Sept. 1 - With the junk market moving one day closer to the upcoming Labor Day holiday break, the anticipated post-Labor Day forward calendar continued to take shape on Monday, with Beazer Homes USA Inc. announcing plans to issue an as-yet undetermined amount of eight-year senior secured notes, intending to use the proceeds to repurchase existing notes.

Meanwhile, primaryside participants were pretty much in agreement that barring the unexpected, the upcoming $1.4 billion mega-deal from Irish drugmaker Warner Chilcott plc will most probably be the "big deal" that will capture imaginations and dominate new-deal activity for at least the early part of this month - which many players expect will see a quick ramp-up of issuance once we get past the three-day holiday.

In the absence of any recent new high yield issues, quasi-junk offerings like drug sector peer Watson Pharmaceuticals Inc. continue to trade around in Junkbondland as well as in the high-grade world, despite its mostly high-grade split rating (Ba1/BBB-/BBB-) and its relatively low coupons, by traditional junk standards.

And with the secondary market largely becalmed, some junk players are turning to split-rated established bonds, like DirecTV Holdings LLC, whose three issues of notes (rated Ba2/BBB- and, by Fitch, either BBB- or BB) placed prominently on the day's Most Actives list.

Traders also noted several seemingly freakish bond price movements, including in bankrupt copper miner Asarco LLC, one of whose bonds was being quoted up more than 30 points on the day in fairly busy round-lot trading following a court ruling awarding one of two would-be buyers priority, and a pretty big jump in one issue of Freescale Semiconductor Inc.'s bonds, although a trader seeing that climb had his doubts.

The high-yield market softened a little on Tuesday, according to a trader from a mutual fund, who added that the session was very quiet.

Meanwhile there were rumblings in the primary market, including a deal that could be priced before the end of the pre-Labor Day week.

Country Garden price talk

Chinese property developer Country Garden Holdings Ltd. set 11¾% to 12% price talk for an offering of five-year senior unsecured notes (Ba3/BB-), on Tuesday. Pricing is expected later this week.

The size of the deal remains to be determined.

JP Morgan is the bookrunner.

The Hong Kong-based company will use the proceeds to repay debt, to fund property projects and for general corporate purposes.

While junk rated and being offered to U.S. investors, Country Garden is being viewed basically as an emerging markets play, according to high-yield market sources in the United States.

Early September's big deal

Warner Chilcott plc's $1.4 billion of senior unsecured notes to help fund its acquisition of Procter & Gamble Co.'s pharmaceuticals business is expected to grab the primary market spotlight during the first half of September, according to a trader from a high-yield mutual fund.

"It will be early September's big deal," said the source.

The acquisition financing is backed by a bridge loan commitment from JP Morgan, Morgan Stanley, Barclays Capital, Bank of America Merrill Lynch, Citigroup and Credit Suisse.

The financing also includes a $2.75 billion bank loan.

Informa to sell bonds

Elsewhere Informa Global Markets is expected to bring an offering of high-yield notes (Ba2/BB) in early September, pending market conditions.

The size of the deal remains to be determined.

Once again, JP Morgan will run the books.

The prospective issuer is a London-based real-time capital markets information services provider.

Beazer announces

Beazer Homes USA, Inc. proposes to issue 12% senior secured notes due 2017, according to a press release that went out late Tuesday.

The size of the deal and its timing were not disclosed. Nor did the Atlanta-based single-family homebuilder indicate which investment banks would lead the deal.

Proceeds will be used to fund - or replenish cash that has been used to fund - open-market repurchases of its outstanding senior notes that it has made (or has agreed to make) since April 1, 2009.

Busy, but not crazy

When the new issue market rolls into fall, one week hence, it will likely be busy but not crazy, a syndicate banker said on Tuesday.

"I think some people are going to wait until everybody is back in, and to see how things are when the volume starts to pick up," the banker said.

The first couple of days back following the Labor Day weekend, are apt to be rather slow, the banker said.

However things could pick up late that week, and especially during the following week, the source added.

Watson bonds stay strong, popular

Among the recently priced names, a trader said that "there's still a lot of Watson Pharmaceuticals traded," even while adding that "that's a high-grade bond; I don't know why they should be that active" among junk accounts.

He saw the Corona, Calif.-based drugmaker's 5% notes due 2014 trading at 101 5/8 bid, 101¾ offered, observing that "every time they trade, something like $5 million bonds get traded." The company priced $450 million of those bonds on Aug. 18 at 99.589 to yield 5.095%. The bonds quickly firmed in the aftermarket to levels above par, and have either continued to creep higher, or at least have held their own, since then.

He also saw the other part of that $850 million dual-tranche offering, Watson's 6.125% notes due 2019, at the equivalent to 103.40 to 103.60, although for that issue, he said, "it was only one $5 million trade, so I guess it's not as active as I thought." That $400 million of bonds, which also priced on Aug. 18, at 99.796 to yield 6.153%, also immediately began firming to above-par levels right out of the box, and has also gradually added to that bulge.

Market indicators continue softer

Back among the established bonds, a market source trader saw the CDX Series 12 High Yield index - which had lost 1/8 point on Monday - dropping another 5/8 point on Tuesday to 87 3/8 bid, 87 7/8 offered.

The KDP High Yield Daily Index, which had lost 5 basis points on Monday, meanwhile picked up 4 bps on Tuesday to firm to 66.21, although its yield widened by 8 bps to 9.46%.

In the broader market, advancing issues - which had led decliners for a 10th straight session on Monday, albeit by a relatively small margin of a couple of dozen issues - threw in the towel and surrendered the lead, trailing the losers by a six-to-five ratio.

Overall market activity, reflected in dollar-volume totals, surprisingly jumped by 39% from Monday's subdued pace.

Even so, a trader said that things will probably only get worse on Wednesday, Thursday and culminating with Friday, because "outside of Christmas, this is usually the quietest week" in the junk precincts.

A second trader said that Tuesday "definitely felt like there was more activity than Monday, although the market still remained fairly quiet by objective standards. "Possibly because of the weakness in equities, maybe some more guys are trying to lighten up and raise some cash."

Monday, he said "was extremely quiet, like a half-day kind of feeling."

Yet another trader summed things up by saying the market Tuesday was "a lotta blah."

DirecTV dominates actives lists

Among specific issues, a trader said "it looks like the market was dominated by some financials and quasi-high-grade items. He noted that "a lot of DirecTV has been trading, although we don't pay too much attention to it, because it's got a BBB- on it."

He saw the 8 3/8% notes due 2013 trading around a generic 103 bid, up from 102½ last week. "It was not terribly different," he said. "Maybe it was trading with Treasuries."

He further opined that "there's probably something going on - but I'm not aware of what it is."

Another trader said that the El Segundo, Calif.-based satellite broadcasting industry leader's 8 3/8s were the day's most actively traded junk or quasi-junk credit.

He said $44 million of the notes had traded hands by late afternoon, although there was not very much price movement - the bonds were perhaps ½ point higher at 103.

He was unaware of any news development that might have spurred such buying.

The trader also saw DirecTV's 6 3/8% notes due 2015 firm to 102 5/8 from 102 previously, on $11 million of volume.

And its 7 5/8% notes due 2016 were seen unchanged at 105 7/8, on volume of $17 million.

Asarco big mover after ruling

A market source saw Tucson, Ariz.-based copper producer Asarco's 7 7/8% notes due 2013 power all the way up to the 138 bid level from its prior position around 102 bid, where it had last traded a number of weeks ago.

Nearly $10 million of the bonds were seen having traded.

The gains followed Monday's news that a U.S. Bankruptcy Court judge overseeing the company's restructuring, had ruled that Asarco's former owner, Mexican mining concern Grupo Mexico SAB, should be allowed to regain control of the U.S. unit by giving Asarco's creditors almost $2.5 billion. He ruled that the plan was better than a rival plan put forward by India's Sterlite Industries Ltd.

Asarco's 8½% notes due 2025, which last month had jumped in brisk trading to 121 bid from July levels around 101, were not seen trading on Tuesday.

Freescale up - but why?

A trader saw a sharp rise in Freescale Semiconductor Inc.'s 8 7/8% notes due 2014, pegging the bonds up 19 points on the day, though on no news about the Austin, Tex.-based semiconductor maker. He was inclined to dismiss it as "a typographic error, or a freak trade."

Another market source did see a pair of sizable trades late in the day lifting those bonds as high as the 87 level, well up from the levels around 68 at which those bonds had traded, in size, at the end of last week.

The first trader, insisting those trades must have been outliers, noted that the company's 9 1/8% senior PIK toggle notes due 2014 were little changed around the same 571/2-58 context at which they have recently traded.

Texas utility bonds sag

A trader said that the former TXU Corp.'s bonds "have been trading down for a couple of days now," quoting its 10¼% notes due 2015 as having fallen to 64 bid from levels at 68 about a week ago," so they got hit pretty well."

He wondered aloud whether it was "just the market," with the TXU paper going down in line with a generally easier trend for everything else. He dismissed the idea that it was reacting to company plans somewhere down the line to issue as much as $4 billion of secured debt, noting that "everyone already knows that." He also noted Standard & Poor's announcing a negative outlook on the company Monday, saying "that didn't help - that's probably what's hurting those guys."

AIG gyrates as stock gets clocked

A trader noted that American International Group Inc.'s stock "got crushed, down 9 and change points," but saw its bonds, such as the 6.90% notes due 2017, pretty much unchanged in the lower 60s.

However, another said AIG's paper was "all over the place," with the 4 5/8% notes due 2010 trading between 85½ and 891/2, which he called "screwy."

"How is that possible?" he demanded to know. He quoted the bonds ending at 86½ - down from 89½ on Friday.

"It seems bizarre," he said of the credit's movements, just a weird bond."

But he also saw AIG's 8.175% bonds due 2058 having recorded "25 trades on the day, all in the 40s" - versus trading levels around 50 on Monday.

Yet another trader saw that latter bonds at 44½ bid, down from 46 on Monday, on busy volume of some $20 million, making it one of the more active credits on the day.

A market source saw the company's 4.95% notes due 2012 fall by more than 4 points to the 82½ bid range, although also seeing AIG unit American General Finance Corp.'s 6.90% notes due 2017 up more than a point at 62½ bid. The latter's 4.875% notes due 2010, which finished around 90, and its 4 5/8% notes due 2010, which closed at 871/2, were both seen fairly active on the day, each showing turnover of around $12 million at mid-afternoon.

AIG's New York Stock Exchange-traded shares nosedived $9.33, or 20.58%, to end at $36, on volume of 86.9 million shares, more than three times the norm.

The stock swooned, and took the bonds along for the downside ride, after Sanford C. Bernstein & Co. urged investors to sell the shares, downgrading them to "underperform." Bernstein analyst Todd Bault cautioned in a research note that the company's current stock price - which had risen sharply over the past two weeks on investor optimism that new CEO Robert Benmosche will be able to turn things around - "allows very little chance for uncertainty and fails to incorporate considerable downside risk."

The analyst also warned of "a very real possibility that the government [which gave the company over $70 billion in several dollops as part to its financial industry bailout] reduces support once AIG is no longer deemed a systemic risk."

Foxwoods follies continue

Traders saw little additional activity Tuesday in Mashantucket (Western) Pequot Tribal Nation's 8½% notes due 2015, which slid into the 20s last week on news that the operator of the Foxwoods casino in Connecticut is looking to restructure its big debt load and which have stayed there so far this week, though up a little from their recent 18-20 area lows.

One trader, noting the bonds "are still quoted in the 20s, around 24-26" said that he had heard the Native American gaming authority had made a scheduled Sept. 1 interest payment on its debt - "people weren't sure they were going to pay it," he said - although there was no official word from the authority confirming this.

While there was no fresh official news relating to the tribe's efforts to avoid defaulting on a $700 million credit line, as well as its larger efforts to restructure a $2.3 billion debt load -- there was plenty of news on Tuesday of internal tribal politics which could play a major role in that restructuring effort.

The chairman of the council which governs the tribe, Michael Thomas, was stripped of his official powers and ordered placed on administrative leave by the other six members of that seven-person body, who said that Thomas had overstepped his authority in acting unilaterally regarding the debt situation. The other council members also called for his resignation from that post, and have the power under tribal by-laws to remove him from office should he not resign by Sept. 10 and call a special vote among the tribe's 800 members to replace him.

In clipping Thomas' wings, the other council members charged that he had "betrayed" their trust, and said they were "appalled" by an e-mail he sent to the membership last week, outlining the "dire" financial situation which the tribe faces due to declining gaming revenues from Foxwoods - hurt by a combination of the overall gaming industry downturn as well as competition from in-state rival Mohegan Sun as well as from the expansion of

Native American and race-track slot-machine gambling in neighboring New York State, a key "feeder" area for the Connecticut casinos. The e-mail bombastically pledged to put tribal interests before those of "Wall Street," raising investment community fears of a default or even a possible bankruptcy filing. Since no Native American casino has yet defaulted or gone bankrupt, financial and legal experts say creditors and the courts would be in uncharted waters Both Standard & Poor's and Moody's Investors Service lowered the Foxwoods ratings

In an effort to calm those fears, the tribe put out a statement after Thomas' e-mail was reported by the local New London Day newspaper and later, other news media, saying they were seeking a consensual restructuring that would be beneficial to all parties. On Monday, it said in a statement that Mashantucket remains in compliance with its covenants and is current on its debt obligations.

Thomas does not intend to go quietly into the night - The Day, quoting an anonymous senior advisor close to Thomas, said that the ousted leader would submit petitions seeking to have his "expulsion" from the council put to a referendum vote of the tribe's electors and to have a special election to recall the six other council members, as well as calling a special meeting of the council and tribal members a week from now at which he could present his case.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.