Upsized NRG megadeal closes out $2.7 billion week; new Icahns up; Sears surges

By Paul Deckelman and Paul A. Harris

New York, Jan. 10 - The high-yield market closed out its first full week of trading for the new year with a quickly shopped $1.1 billion offering from power generation company NRG Energy, Inc.. Those bonds were quoted slightly better in initial aftermarket dealings, while bonds of NRG's wholly-owned GenOn Energy unit slid in heavy trading.

NRG's offering was the day's only pricing of U.S. dollar-denominated, junk-rated paper, bringing to a close a week which saw around $2.7 billion of such paper price in six tranches, according to data compiled by Prospect News.

On a year-to-date basis, the activity seen so far was lagging well behind the pace seen at this time last year, when Junkbondland opened 2013 with a flurry of big deals totaling $6.50 billion in 10 tranches. These included a $2 billion two-part offering from Bombardier Inc., a $1 billion transaction from Mark West Energy Partners, LP, $1 billion of 10-year notes from Crown Americas LLC, divided into the company's original deal and then just a few days later, an add-on, and a $950 million subordinated note offering from HD Supply, Inc., among other issuers.

But 2014's issuance totals could pick up in the coming week, with the announcement that Franklin, Tenn.-based hospital operator Community Health Systems Inc. will shop a $4.58 billion two-part offering around, with pricing seen likely during the coming week.

Among offering that have recently come to market, traders saw solid gains for the new bonds from Icahn Enterprises LP, which priced an upsized, split-rated $3.65 billion three-part transaction at mid-week.

Away from the new-deal arena, traders saw strong gains on active volume in Sears Holdings Corp.'s bonds, despite unimpressive same-store sales numbers for the recent holiday selling season.

Statistical market performance measures were higher across the board for a second straight session, although they were mixed on a week-over-week basis from last Friday's levels.

NRG Energy, upsized and tight

The news flow in the high-yield new issue market remained light on Friday, with just one deal pricing.

NRG Energy, Inc. priced an upsized $1.1 billion issue of 8.5-year senior notes (B1/BB-) at par to yield 6¼%.

The quick-to-market deal was increased from $700 million.

The yield printed at the tight end of the 6¼% to 6 3/8% yield talk.

The deal was well oversubscribed and went well, according to a trader.

Barclays was the left bookrunner. Deutsche Bank, Goldman Sachs, Morgan Stanley, Credit Agricole, Natixis and RBC were the joint bookrunners.

The Princeton, N.J. power generating company plans to use the proceeds to partially fund the acquisition of Edison Mission Energy. If the acquisition is not consummated, proceeds will be used to repay debt and for general corporate purposes.

Community Health's mega-deal

Aside from the Tuesday, Jan. 7 session, which saw $1.02 billion price in three tranches, the past week was a sleepy one, a trader said late Friday.

Next week figures to be different, however, the source warned.

There is a lot of cash waiting to be put to work in junk bonds, and the market is hot, the trader added, noting that most if not all recent issues tend to be trading 2 points or more above their respective issue prices.

One mega-deal for the week ahead was announced on Friday.

Community Health Systems plans start a roadshow on Monday for a $4.58 billion two-part offering of notes.

The deal includes $1,705,000,000 of senior secured notes due 2021 (Ba2/BB/), which come with three years of call protection. Unofficial talk is in the low 5% area.

There will also be $2,875,000,000 of senior unsecured notes due 2022 (B3/B-/B), which come with four years of call protection. Unofficial talk on this tranche is in the low 7% area.

The deal is expected to price before the end of the week.

BofA Merrill Lynch, Credit Suisse, Citigroup, Goldman Sachs, JP Morgan, RBC, SunTrust, UBS and Wells Fargo are the joint bookrunners for the acquisition financing.

Volvo Rents LBO deal

A $720 million offering of five-year second-lien notes backing the LBO of Volvo Rents will be marketed on an investor roadshow during the week ahead.

The deal, via special purpose vehicle BlueLine Rental Finance, is expected to price before the end of the week.

BofA Merrill Lynch, Goldman Sachs, Morgan Stanley and Barclays are the joint bookrunners.

Proceeds will be used to fund the acquisition of the Shippensburg, Pa.-based construction equipment rental company by Platinum Equity.

Forecasts for a big week notwithstanding, apart from Community Health and Volvo Rents, the Jan. 13 week will get underway with a thin calendar.

In a deal that began roadshowing last Monday, CBS Outdoor Americas Inc. is marketing $800 million of senior notes coming in tranches maturing in 2022, which has been guided in the high 5% range, and maturing in 2024, which has been guided in the low 6% range.

And a deal that was announced in December, Camac Energy Inc.'s $300 million offer of five-year senior secured notes via Arctic Securities, remains on the road, an informed source said on Friday.

The Houston-based independent oil and gas exploration and production company is pitching the deal to both high-yield and emerging markets accounts (the EM angle is that proceeds will be used to fund capital expenditures off the Nigerian coast).

The roadshow will stop in Connecticut, Boston, London, Johannesburg and Cape Town in the week ahead.

New NRG firmer

In the secondary market, a trader quoted the new NRG 6¼% notes due 2022 as having firmed a little to 100¼ bid, 100¾ offered, from their par issue price.

The company's existing GenOn Escrow Corp. 9½% notes due 2018 were meantime seen by several market sources to be off by 1½ points at 1101/2. Turnover was over $13 million, putting the credit well up on the day's Most Actives list.

The issue was among those assumed by NRG when it acquired Houston-based GenOn Energy in 2012.

Recent deals little seen

Several traders remarked upon the relative lack of activity in recently priced issues.

One, when asked whether he had seen much going on in that sphere, replied "surprisingly, no.

"We haven't even really seen Icahn," referring to the big $3.65 billion three-part offering which the New York-based diversified holding company had brought to market on Wednesday.

He said that "we saw maybe one quote all day in those," pegging the bonds in a 101 3/8 to 101 5/8 context, "and then that was it - you'd think that you would see a lot more than that," given the issue's size, liquidity and prominence in the market as the first megadeal of the 2014 season.

A second trader - who saw "an overall quiet day" in junk, with "very light overall trading volumes," quoted the Icahn Enterprises 3½% notes due 2017 around 101½ bid, 101¾ offered, "and then it got quiet."

Icahn Enterprises - the main investment vehicle for billionaire financier Carl Icahn - priced $1.175 billion of those notes at par on Wednesday after having downsized that tranche of the three-part deal from an originally planned $1.225 billion.

He meantime saw the company's new 4 7/8% notes due 2019 at 101 5/8 bid, 101 7/8 offered. It had priced $1.275 billion of those bonds at par, after upsizing the tranche from $1.225 billion.

Icahn's 6% notes due 2020 were at 103¾ bid, 103¼ offered. The company had priced $1.2 billion of those bonds as an add-on to its existing issue. It came to market at 102 to yield 5.574%, after the tranche was upsized from an originally planned $1.05 billion.

The first trader said that while his shop was not that active in the new Icahn paper, "we were active the last couple of days in the stuff that's being tendered." Icahn Enterprises and its Icahn Enterprises Finance Corp. announced Monday the start of cash tender offers for their $1.05 billion outstanding 7¾% senior notes due 2016 and $2.45 billion outstanding 8% senior notes due 2018, funding those tender offers with the proceeds from the new bond deal. It set a Jan. 17 early tender deadline for the offer, which expires on Feb. 3.

The trader said that those bonds "had made their move" to the anticipated takeout prices when the tender offers were announced, and now "its trading for just pennies" of difference from where the bonds had been. "It's not moving up or down anywhere, just changing hands. Now it just moves a penny or two, depending on who's buying or selling."

Among other recently priced deals, a trader saw Lamar Media Corp.'s 5 3/8% notes due 2024 off by ¼ point at 100¾ bid, 101¼ offered.

The Baton Rouge, La.-based outdoor advertising company priced $510 million of those bonds at par in a quick-to-market transaction on Tuesday. They moved up to 101 bid in the aftermarket and pretty much stayed there subsequently.

Sears trades strongly

One of the most actively traded issues in the junk world Friday was Sears Holdings' 6 5/8% notes due 2018. The bonds rose some 2¼ points to 88¾ bid, on volume of more than $26 million, a market source said - even though Sears reported disappointing same-store sales for the quarter and year-to-date periods on Friday.

Although the weak numbers pummeled the company's equity, its bonds managed to hold up.

Another trader located the 6 5/8s at 881/2, seeing over $25 million bonds changing hands.

Its term loan was meantime quoted at 99 5/8 bid, par 3/8 offered, down from par ¾ bid, 101¾ offered, another trader said.

But the Nasdaq-traded shares dropped $5.85, or 13.74%, to $36.72.

For the quarter ending Jan. 6, domestic Sears brand stores saw sales fall 9.2% while Kmart brand store sales dropped 5.7%. All told, sales were down 7.4%.

For the year, domestic sales declined 4.2%, with Kmart slipping 3.7%.

That equaled a total same-store sales decline of 3.9% for the year.

The company said the sales decline was across all categories, "suggesting store traffic was quite weak," wrote Gimme Credit LLC analyst Evan Mann in an afternoon comment out Friday.

"We continue to view [Sears] as a struggling retailer in the process of undergoing an orderly liquidation," Mann said. "We remain skeptical regarding the company's longer term credit prospects."

The Hoffman Estates, Ill.-based retailer also said that it is expecting to post a fourth-quarter loss of $250 million to $360 million, or between $2.35 and $3.39 loss per share.

Though those figures likely failed to entice investors, they are still better than the prior year's loss of $489 million, or $4.61 per share.

For the fiscal year ending Feb. 1, Sears is forecasting a loss of $1.3 billion to $1.4 billion, or between $11.85 and $12.88 per share. That would compare to the previous year's loss of $930 million, or $8.78 per share.

As of Jan. 4, the company had $1 billion in cash and $2.3 billion available under its credit facilities.

Sears said it was continuing to evaluate a spinoff of its Lands' End and Sears Auto Center businesses.

Following the company's announcements, Moody's Investors Service cut Sears' corporate family rating to Caa1 from B3.

Market indicators stay strong

Overall, statistical junk-market performance indicators were higher for a second straight session on Friday, after having been mixed over the two sessions before that.

However, those data points were mixed versus where they had finished the previous Friday, Jan. 3, after having been on the upside for two weeks.

The Markit Series 21 CDX North American High Yield Index gained 1/8 point to end at 108 3/16 bid, 108 5/16 offered, after having been unchanged on Thursday.

But the index was down marginally from the previous Friday's 108¼ bid, 108 5/16 offered level.

The KDP High Yield Daily Index gained 9 basis points Friday to end at 74.84, its seventh advance in a row. On Thursday, it had risen by10 bps.

Its yield, meanwhile, came in by 3 bps to go home at 5.47%, its fourth straight decline, following Thursday's 4 bps narrowing.

Those levels compared favorably versus the previous Friday's 74.52 index reading and 5.59% yield.

And the widely followed Merrill Lynch High Yield Master II Index made it 15 gains in a row on Friday, rising by 0.112%, on top of Thursday's 0.024% advance. That 15-session winning streak dates back to Dec. 19.

The latest gain lifted its year-to-date return to 0.662%, its sixth straight new peak level for 2014, passing the previous mark of 0.55%, set on Thursday.

Last week, the index had closed out 2013 with a final cumulative return for the year of 7.419% - less than half of the robust 15.583% return at which the index had finished 2012.

It showed a one-week gain in the latest week of 0.491%, its ninth consecutive weekly improvement. In the week ended Jan. 3, the index had been up by 0.299%, for a year-to-date gain of 0.171%.

The index's yield to worst came in to 5.52%, its low point for the year so far, down from Thursday's 5.552% and from Tuesday's 5.533%, its previously 2014 low.

Its spread to worst widened to 413 bps over comparable Treasuries from Thursday's 408 bps and from Wednesday's 406 bps over, the previous tight.

Stephanie N. Rotondo contributed to this review

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