DJO, Stewart, Aramark, Pernod drive-bys pace $2 billion day; DryShips, AEP, Masonite slate

By Paul Deckelman and Paul A. Harris

New York, April 4 - The new week in Junkbondland began Monday on a busy note as over $2 billion of new paper priced in a series of quickly shopped drive-by offerings from their opportunistic issuers.

The biggest deal of the day originated with French spirits-maker Pernod Ricard, which priced a $1 billion offering of 10-years. Although both major agencies rated the megadeal as technically junk, the pricing was an investment-grade-style execution on a spread-versus-Treasuries basis and attracted crossover interest.

Back among the purely junk names, food and uniform service provider Aramark Holding Corp. priced $600 million of five-year payment-in-kind toggle notes at a point under par.

Deathcare provider Stewart Enterprises Inc. came with a $200 million offering of eight-year paper, while orthopedics manufacturer DJO Global Inc. issued $300 million of seven-year notes.

When the latter bonds were freed for secondary dealings, a trader saw them jump solidly, before backing off their early high point to finish just up modestly on the day. The Stewart bonds were quoted better, while Pernod Ricard was also seen having notched secondary gains. Aramark came to market too late for any kind of secondary dealings.

A slew of deals meantime were either formally announced like AEP Industries, Inc. and Builders FirstSource, Inc., or else word just circulated that they were being shopped around, including Masonite Inc., American Rock Salt Co. LLC, Pittsburgh Glass Works LLC and DryShips Inc.

In the secondary sphere, market indicators were firm. Nortel Networks Corp.'s bonds rose on news about the company's bankruptcy asset auction. Friday's big-volume leader by far, the former TXU Corp. was active again on Monday, but at closer-to-normal activity levels.

Pernod, high-grade style

A feverishly paced Monday session in the primary market saw four issuers, each one bringing a single tranche of junk, raise $2.08 billion.

Pernod Ricard priced a $1 billion issue of 5¾% 10-year senior notes (Ba1/BB+) at 245 basis points spread to Treasuries.

The spread came on top of spread talk.

The deal came in a quick-to-market investment-grade-style execution.

The notes priced at a 99.065 reoffer price, resulting in a 5 7/8% yield to maturity.

Goldman Sachs & Co., Merrill Lynch, BNP Paribas and J.P. Morgan Securities LLC were the active bookrunners for the debt refinancing.

Aramark atop tightened talk

Elsewhere, Aramark priced a $600 million issue of 8 5/8% five-year senior PIK/toggle holdco notes at 99 to yield 8.874%.

The cash coupon is 8 5/8%. The PIK coupon is 9 3/8%.

The deal priced on top of the 8 5/8% cash coupon talk, which had been downwardly revised to 9% from 8¾%. The reoffer price came on top of the original price talk.

J.P. Morgan Securities LLC, Goldman, Sachs & Co., Barclays Capital, Merrill Lynch and Wells Fargo Securities were the joint bookrunners for the dividend deal.

Aramark's deal represents the biggest issue of PIK-toggle notes to hit the market thus far in 2011, according to a market source.

DJO's $300 million

DJO Finance LLC and DJO Finance Corp. priced a $300 million issue of seven-year senior notes (B3/B-) at par to yield 7¾%, also on top of the price talk.

Credit Suisse Securities, Wells Fargo Securities and Macquarie Capital were the joint bookrunners.

The Vista, Calif.-based medical device manufacturer plans to use the proceeds to fund its acquisition of Dr. Comfort.

The deal went well, according to a syndicate source who added that investors are comfortable with the credit.

Stewart at the tight end

Finally, Stewart Enterprises priced a $200 million issue of eight-year senior notes (B1/BB-) at par to yield 6½% on Monday.

The yield printed at the tight end of the 6½% to 6¾% price talk.

Merrill Lynch and J.P. Morgan Securities LLC were the joint bookrunners for the quick-to-market debt refinancing deal.

Priory Group sets talk

England's Priory Group Ltd. talked a £206 million add-on to its 7% senior secured notes due Feb. 15, 2014 to price at 101.0.

The deal is set to price on Tuesday via bookrunner Deutsche Bank.

The mental health care facilities and services provider plans to use the proceeds to refinance debt related to its acquisition of Craegmoor Healthcare.

The original £425 million issue priced at par on Jan. 27, part of an overall £600 million-equivalent two-part deal, which also featured a £175 million issue of 8 7/8% senior unsecured notes due Feb. 15, 2019.

Sappi two-parter

Sappi Papier Holding GmbH is planning a two-tranche offering of $680 million-equivalent senior secured notes (Ba2/BB/).

The deal is expected to include euro-denominated notes due 2018, which will be non-callable for four years, and 10-year dollar-denominated notes that will be non-callable for five years.

Citigroup, Credit Agricole, JPMorgan, KBC, RBS and Unicredit are the bookrunners for the debt refinancing.

Sappi Papier Holding is the European subsidiary of a Johannesburg-based producer of coated fine paper.

For the remainder of this week through the week ahead, the European primary market should be notably active, according to a London-based debt capital markets banker who added that activity figures to slow during the week approaching Easter.

iGate starts $770 million

The forward calendar for deals in the United States saw a purposeful buildup on Monday.

iGate Corp. began a roadshow on Monday for its $770 million offering of five-year senior notes (expected ratings B1/B+).

Jefferies & Co. and RBC Capital Markets are the joint bookrunners for the acquisition deal.

Pittsburgh Glass roadshow

Elsewhere, Pittsburgh Glass Works plans to conduct an investor roadshow during the present week for its $300 million offering of five-year senior secured notes.

Credit Suisse Securities, Merrill Lynch and UBS Investment Bank are the joint bookrunners.

Proceeds will be used to refinance debt, pay a dividend to shareholders and for general corporate purposes.

Masonite 10-year deal

Masonite International plans to price a $250 million offering of 10-year senior notes late in the present week.

Merrill Lynch, Wells Fargo Securities, Deutsche Bank Securities Inc. and RBC Capital Markets are the joint bookrunners.

The Mississauga, Ont.-based door manufacturer plans to use the proceeds for general corporate purposes, which may include funding future acquisitions and a return of capital to shareholders.

AEP Industries $200 million

AEP Industries also plans to conduct an investor roadshow for its $200 million offering of eight-year senior notes during the present week.

Merrill Lynch is the bookrunner for the debt refinancing.

DJO does well

When the new DJO Global seven-year notes were freed for secondary dealings, a trader saw the quickly shopped bonds from the Vista, Calif.-based company having firmed a little to 100 3/8 bid, 100 5/8 offered from their par issue price earlier.

A second trader meantime said that the new deal "actually shot up pretty nicely," getting as good as 102 bid. After that, he said, "it kind of faded down - closing okay, but not at the highs."

He saw that paper going out late in the day at 100½ bid, 100¾ offered.

Stewart seen firmer

Jefferson, La.-based cemetery operator Stewart Enterprises' new eight-year issue showed a few signs of life after having priced at par.

A trader said he heard the new deal was breaking around 101 bid, 101½ offered, although he acknowledged that he had not actually seen any trades at that higher level.

Pernod pops up

French alcoholic drinks maker Pernod Ricard's $1 billion of new 10-year paper was the heavyweight deal of the day, and a trader quoted the bonds as having gained 1 to 1½ points in the aftermarket from their 99.065 issue price.

However, he noted that with ratings just a shade away from high grade at Ba1/BB+, a coupon and yield below 6% and the investment-grade-style pricing at a spread over comparable Treasuries, "there was a lot of crossover interest from the high-grade guys" in the new deal and just limited play in the junk precincts.

Claiborne, Ameristar hold gains

Looking back at several of the deals from late last week, a trader said that he saw Liz Claiborne, Inc.'s 10½% senior secured notes due 2019 trading "a couple of times today," quoting the bonds at a 102 bid level in the morning.

A second trader in the afternoon called the Claibornes 102 bid, 103 offered.

The New York-based apparel company had priced $205 million of those bonds at par on Friday, and the bonds had been as good as 102¼ bid, 102¾ offered in aftermarket dealings later that session.

Another deal from last week doing well in the secondary was Ameristar Casinos Inc., which priced $800 million of 7½% notes due 2021 on Thursday at 99.125 to yield 7 5/8%, and by Friday's close had drifted up to 100½ bid, 100¾ offered.

In Monday trading, the Las Vegas-based gaming company's bonds were seen hovering around 100½ bid, 101 offered.

CNL Lifestyle still lags

The one deal from last week that clearly underperformed remained underwater on Monday. A trader quoted Orlando, Fla.-based real estate investment trust CNL Lifestyle Properties Inc.'s bonds as having inched up a little to 98 bid, 99 offered, up from last week's aftermarket lows around 97½ bid, 98½ offered.

This was still well below the 99.249 level at which the $400 million deal had priced on Thursday to yield 7 3/8%.

Traders did not know why investors had taken a dislike to that particular company, which owns an extensive portfolio of properties ranging from ski resorts, golf courses, marinas and amusement parks to senior-living facilities.

Possible problems ahead?

A trader noted the heavy new-issue pace seen in the just-ended first quarter, which saw a record $94.23 billion of new paper brought to market, according to data compiled by Prospect News. The trader marveled at the seemingly unending flood of new junk bonds.

Issuance as of the end of the quarter was running about 37% ahead of the pace set at the same time last year, and 2010 turned out to be the biggest junk year ever, with almost $300 million having come down the chute and into the hands of investors.

Even so, he worried that "when this market turns or cracks or shifts - whatever you want to call it - who's going to buy all of this stuff? It's a huge amount of growth in the last couple of years in the size of the total market."

Noting the fact that even last year, bears were warning that at some point the junk market would run out of juice, leaving an enormous glut of new paper to be swallowed, he allowed: "You would have thought this would have ended last January." But it did not.

Even with the market sort of living on borrowed time, he said, new issuance is likely to continue apace since so many companies still have refinancing needs to be met. The celebrated "Wall of Maturities" in 2013, 2014 and 2015 is coming up for many companies.

With nobody really knowing how long the new-issue party is going to be able to go on and with no one wanting to get caught without a chair when the music ultimately stops, as happened when things quickly headed south in late 2007 and 2008, "borrow when you can - not when you have to" seems to be the creedo that a lot of issuers are following, the trader said.

"But when the momentum shifts - watch out!"

Secondary indicators firming

Away from the new-issue realm, a trader saw the CDX North American Series 16 HY index up 3/8 of a point on Monday to end at 102 5/8 bid, 102 7/8 offered, after having risen by 5/8 of a point Friday.

The KDP High Yield Daily Index meantime rose by 7 basis points on Monday for a second consecutive session to end at 75.89. Its yield came in by 2 bp, also for a second straight session, to finish at 6.6%.

The Merrill Lynch High Yield Master II index rose by 0.183% on top of Friday's 0.158%, the fourth consecutive session-over-session rise. That lifted its year-to-date return to 4.258% - a new peak for 2011, up from Friday's 4.067% level, the previous high for the year.

Advancing issues held their lead over decliners for a fourth straight session on Monday, holding the same roughly six-to-five edge they had enjoyed over the previous three sessions.

Overall market activity, as measured by dollar-volume levels, fell by 5% on Monday, after having slid by 16% on Friday from the prior session's levels.

Nortel heads north

Among specific issues, a trader said that Nortel Networks Corp. was "an active name" on Monday on news related to the bankrupt Toronto-based telecommunications equipment company's upcoming auction of its patents portfolio.

He saw the company's 10¾% notes due 2016 up at much as 3 points during the session before finishing at 92½ bid, 93 offered, which he called up 2½ points "at least, on decent volume in the name."

He said that Nortel's busted convertible issues like its 1¾% notes due 2012 and 2 1/8% notes due 2014 were active trading up a couple of points at 88 bid.

Another trader said that the company's bonds were "up a point or two on their announcement," pegging the 103/4s at 92 bid, 93 offered.

Nortel, which is in the process of liquidating its assets in order to be able to pay back its creditors when the failed company finishes winding down, said on Monday that Google Inc. will bid some $900 million for Nortel's package of patents and applications when the bankruptcy auction is held, probably in June.

The internet giant's offer is considered a stalking-horse bid that establishes a minimum value for those assets. Other bidders could also submit offers above that, and Google can come back with a still-better offer in that event. Should another bidder win the auction, Nortel said that it would pay Google a $25 million break-up fee - a necessary concession in order to get Google to agree to be the lead bidder.

TXU calms down a little

A trader said that "some of the issues" of the company formerly known as TXU Corp were up between ½ of a point to 1 point on Monday, building on the big gains seen on Friday on the news that the Dallas-based utility operator and merchant power company now known as Energy Future Holdings Corp. and its Texas Competitive Electric Holdings Corp. unit were in talks with its creditors on amending the terms of its credit agreements and extending the maturity dates on nearly $20 billion of debt.

He said that Friday's "big volume one," the Texas Competitive Electric Holdings' 10¼% notes due 2015, which on Friday had jumped between 6 and 7 points on volume of about $50 million, "is the one issue that was actually down" on Monday, pegging it off a point near the end of the day, at 66½ bid, with some $26 million having changed hands. On a round-lot basis, however, he said the bonds were about unchanged at 671/2.

"The rest of 'em" in the capital structure, which had mostly gained about 4 or 5 points on Friday, were up ½ to ¾ of a point, the trader said.

A second trader characterized the TXU complex's volume levels on Monday as "decent, but for the most part not as rampant as on Friday. This was just normal, heavy volume." He called the levels on the bonds "pretty much unchanged."

He saw the parent company's 6½% notes due 2024 at 52 bid, 53 offered, while its 10 7/8% notes due 2017 traded at 88½ bid, 89 offered.

"It was not as crazy [as Friday]," he declared. "They held their levels from Friday, with a decent amount of trading in some of them, but I'd say they were pretty much unchanged."

Horror for Horizon holders

On the downside, a trader said that Horizon Lines, Inc.'s' 4¼% notes due 2012, which had been going down on Friday, "just kept going" on Monday, dropping as much as 5 points on the day to finish around a 71ish context. He said there was "decent volume" in the issue.

On Friday, the bonds had retreated about a point in fairly brisk trading to end at around 761/2-77.

The bonds had fallen to those levels over the course of the several sessions before that from around the upper 80s to around 90 the week before, hurt by the Charlotte, N.C.-based shipping company's announcement earlier in the week that it is likely to violate terms of debt agreements and may be forced to seek bankruptcy protection.

DirectBuy still down

A trader saw DirectBuy Holdings' 12% notes due 2017 finishing Monday around 77½ bid, which he called ½ to a point higher from where the Merrillville, Ind.-based members-only showroom and home-design center's bonds had previously traded at the end of last week.

Just about two months earlier in late January, the $335 million issue had priced at 97 bid to yield 12.721% and had still been in the low 90s through mid-March. But the paper had quickly been beaten down from the low 90s to as low as the upper 60s after a March 22 conference call on which the company told investors that new memberships had declined in the most recent quarter and that its chief financial officer, Mark Boggess, had abruptly quit.

GM idle, but Ford firms

A trader saw Motors Liquidation Co.'s 8 3/8% bonds due 2033 at 30 bid, which he called unchanged on "no volume" other than a couple of small trades. "Not a whole lot" was happening in the bonds of the former General Motors Corp.

A second trader called the bonds off ½ of a point at 30-bid, 31 offered.

He meantime saw GM domestic archrival Ford Motor Co.'s 7.45% bonds due 2031 up ¾ of a point at 108¾ bid, 109¼ offered, helped by delayed market response to positive March sales figures released on Friday that showed the No. 2 domestic carmaker's sales jumping 19% from March 2010 levels - and rising on a company-wide basis to about 212,000 vehicles, actually beating larger rival GM by around 6,000 units.

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