Junk continues mostly lower, but four deals price to cap $2.7 billion week, firm in trading

By Paul Deckelman and Paul A. Harris

New York, Jan. 24 - The high yield market was taking its lumps for a second consecutive session on Friday as markets for risky assets generally, including junk, equities and emerging markets investments moved lower on investor jitters.

Most junk names were seen down anywhere from ½ point to 1 full point, and some fell even more than that. The recently busy bonds of NII Holdings, Inc. - which had run up solidly over the past two weeks - were among the hardest-hit credits Friday, in very active dealings. Also active, at lower levels, were the notes of gaming giant Caesars Entertainment Corp.

In the new-deal arena, syndicate sources reported the pricing of nearly $1.5 billion of new paper from a quartet of issuers - Northern Blizzard Resources Inc., Nesco, LLC, Intrepid Aviation Management LLC and Waterjet Holdings, Inc. All of those bonds moved up when they were freed for secondary trading, with Waterjet showing particular aftermarket strength and Intrepid and Nesco also notching solid gains.

Those deals brought issuance of new fully junk-rated, U.S. dollar-denominated paper from domestic or industrialized-country borrowers up to some $2.72 billion in seven tranches for the holiday-shortened week, although that was well down from the $9.52 billion of new bonds that priced in 14 tranches the week before, ended Jan. 17, according to data compiled by Prospect News.

The deals also raised year-to-date new issuance from such borrowers to roughly $15 billion in 27 tranches - although that lagged the year-ago new-issuance pace by some 30%, according to the data. Issuance totaled $21.48 billion in 44 tranches by this time last year.

Statistical measures of junk market performance were down across the board for a second consecutive day, after having been mixed over the five previous sessions. And those market gauges were down all around versus where they had gone home at the end of last week, after having been mixed over the previous two weeks.

Nesco upsizes

The dollar-denominated high-yield primary market saw four issuers complete single-tranche deals to raise a combined total of $1.48 billion during a busy Friday session.

Despite volatility in the markets, Friday's executions appeared brisk.

Three of the four deals were upsized.

Two came at the tight end of price talk. One came on top of talk. And one came at the wide end.

None of Friday's deals were drive-bys.

Nesco priced an upsized $525 million issue of seven-year senior secured second-lien notes (Caa1/B-) at par to yield 6 7/8%.

The deal was increased from $500 million.

The yield printed on top of yield talk.

Morgan Stanley and Barclays are the joint bookrunners for the LBO deal.

Northern Blizzard at wide end

Northern Blizzard Resources priced a $425 million issue of eight-year senior notes (B3/B-//DBRS: B (low)) at par to yield 7¼%.

The yield printed at the wide end of the 7% to 7¼% yield talk, but at the tight end of the 7¼% to 7½% early guidance.

The timing of the deal was moved ahead. Previously the deal was scheduled to price on Monday.

J.P. Morgan, TD Securities, CIBC, RBC, Scotia and Wells Fargo were the joint bookrunners for the debt refinancing deal.

Intrepid upsized, tight

Intrepid Aviation Management priced an upsized $300 million issue of non-rated five-year senior notes at par to yield 6 7/8%.

The deal was increased from $250 million.

The yield printed at the tight end of yield talk that had been set in the 7% area.

BofA Merrill Lynch and Jefferies were the joint bookrunners.

The Stamford Conn.-based commercial aircraft leasing company plans to use the proceeds for general corporate purposes, including the purchase of aircraft.

Waterjet upsizes

Waterjet Holdings priced an upsized $225 million issue of six-year senior secured notes (B2/B) at par to yield 7 5/8%.

The deal was increased from $200 million originally.

The yield printed at the tight end of yield talk that was fixed in the 7¾% area.

Goldman Sachs and Morgan Stanley were the joint bookrunners for the merger financing and debt repayment deal.

Talking the deals

Dealers began setting the stage for Monday's session, with price talk and updates on deals launched earlier in the week.

North Atlantic Drilling Ltd. talked a $600 million offering of non-callable five-year senior notes to yield 6% to 6¼%.

Goldman Sachs, Credit Suisse and Morgan Stanley are the bookrunners.

Harland Clarke Holdings Corp. downsized its two-part offering of high-yield notes to $815 million from $865 million, and shifted $50 million of proceeds to its term loan.

The company also set price talk and made covenant changes.

The San Antonio-based company is offering a downsized $540 million of seven-year senior unsecured notes (Caa1/B-) which are talked with a yield in the 9¼% area. The tranche was reduced from $590 million.

The size of the secured tranche remained unchanged at $275 million; the six-year senior secured notes (B1/B+) are talked with a yield in the 7% area.

Credit Suisse, BofA Merrill Lynch, Citigroup, Deutsche Bank, PNC and Union Bank are the joint bookrunners.

Play upsizes

The Friday session came with news out of the European high-yield primary.

Warsaw-based mobile telecommunications operator Play priced three tranches of high-yield notes on Friday, in a transaction that was upsized to €900 million equivalent from €870 million equivalent.

Subsidiary Play Finance 2 SA priced €630 million equivalent of five-year senior secured notes (B1/B+).

A €600 million tranche of fixed-rate notes priced at par to yield 5 ¼%, at the tight end of the 5 ¼% to 5 ½% yield talk.

A PLN 130 million (€30 million equivalent) tranche of floating-rate notes priced at par to yield Wibor plus 350 basis points, wide of the Wibor plus 325 bps spread talk.

Meanwhile in a single unsecured tranche, Play Finance SA 1 priced an upsized €270 million amount of 5.5-year senior unsecured notes (B2/B-) at par to yield 6½%, at the tight end of the 6½% to 6¾% yield talk. The unsecured notes tranche was raised in size from €240 million.

The overall three-part transaction was increased from the original €870 million equivalent.

The deal generated a modicum of interest among emerging markets accounts, but about 90% of the euro-denominated notes went to high-yield investors, according to a London-based debt capital markets banker.

The zloty-denominated tranche largely went into the hands of local investors in Poland, the source added.

BofA Merrill Lynch and JPMorgan were the joint physical bookrunners. Credit Suisse was the joint bookrunner.

Alpha Bank, Bank Zachodni, Eurobank and Piraeus Bank were the co-managers.

Proceeds will be used to refinance debt and to fund a distribution to shareholders.

HSS Hire starts Monday

HSS Hire, issuing via HSS Financing plc, plans to start a roadshow on Monday in London for a £200 million offering of 5.5-year senior secured notes.

The roadshow wraps up on Wednesday.

JPMorgan, Barclays and HSBC are the joint bookrunners.

Proceeds will be used to repay borrowings under its senior credit facility and revolver and to repay part of a shareholder loan.

HSS Financing is a subsidiary of HSS Hires Services Group, a Heathrow, United Kingdom-based tool and equipment rental company which operates in Ireland and the United Kingdom.

New bonds trade well

In the secondary realm, although junk was generally lower pretty much across the board for a second straight day on Friday in sympathy with the stock market selloff, one notable exception was in the aftermarket behavior of the four new deals that priced during the session.

A trader said that "Flow bonds were by far" the best performer of the group, doing "really well."

He was referring to the Water Jet Holdings 7 5/8% senior secured notes due 2020, which will be used by Baxter Springs, Kan.-based waterjet industrial cutting technology company KMT Group AB to help finance its pending merger with sector peer Flow International Corp. of Kent, Wash.

He saw the new bonds shoot up to 102¾ bid, 103 offered from their par issue price. A second trader saw them at 102 5/8 bid, 102 7/8 offered.

Also doing well, a trader said was Intrepid Aviation Management's 6 7/8% notes due 2019, which priced at par and which then moved up to around 100 7/8 bid, 101¼ offered.

A second trader pegged those bonds even better, at 101¼ bid, 101¾ offered.

Traders saw the new Nesco LLC 6 7/8% senior secured second lien notes due 2021 get as good as 101 bid, 102 offered, although one trader had them at 100¾ bid, 101½ offered. The Fort Wayne, Ind.-based fleet equipment rental company's deal had earlier priced at par.

A trader said that Northern Blizzard Resources' 7¼% notes due 2022 "were quoted for a while earlier, and then they went quiet." He saw them in a par to 100 1/8 bid context, not far at all from their par issue price. After that early activity, "they didn't do anything," although he noted "given how sloppy the market was," the bonds did well to reach that level.

A second trader saw the Calgary, Alta.-based oil and gas exploration and production company's bonds initially trading around 99¾ bid, before moving into that same par to 100 1/8 context, while a third had them a little better, somewhere between par and 100¼ bid.

Recent bonds fall back

But while the new deals were holding their own, traders reported that recently priced issues were easing, in line with the overall lower tone in Junkbondland.

One saw Icahn Enterprises LP's 5 7/8% notes due 2022 dipping to 99 bid, 99¼ offered, from Thursday's levels between 99 5/8 and 99 7/8.

The New York-based diversified holding company priced $1.35 billion of the notes at par on Wednesday, after upsizing the deal from $1 billion initially.

He also saw Ally Financial Inc.'s 3½% senior guaranteed notes due 2019 falling to 98½ bid, 98 7/8 offered.

The Detroit-based automotive financing and online banking company priced $750 million of those notes Wednesday at 99.095 to yield 3.7%. The bonds traded in the mid-99s, a little above their issue price, later Wednesday and on Thursday, although another trader opined that given the coupon - considered very low even by the new standards prevailing in the junk market - "Ally has been all investment-grade" in terms of those playing in the issue, despite its nominally high-yield rating.

NII leads plunge

Away from the new deal arena, traders saw junk bonds mostly lower by between ½ point and 1 full point on the day Friday, on top of Thursday's ¼ to ½ point slide, with many issues considerably lower than that.

One of the worst performers on the day - and one of the biggest volumes - was NII Holdings' recently robust NII Capital Corp. 10% notes due 2016. A market source saw those bonds plunge by as much as 4¼ points on the day to go home at 62¼ bid, on volume of over $22 million, making it one of the busiest bonds in the market on the day.

A trader noted that the bonds had gotten as high as a 66 to 67 context earlier in the week, "so they're down 4, 5 points on the week."

He also saw the company's 7 5/8% notes due 2021 among the Most Active issues, with over $12 million having traded. The bonds lost nearly 2 ½ points on the session, to close at just under 42 bid. Earlier in the week, they had gotten as high as 46 or 47 bid.

The bonds had recently gotten a boost by several news announcements coming from the company, which sells Nextel wireless service, including its popular push-to-talk function, in Mexico and several other Latin American countries.

On Monday, it said that its PRIP Push-to-Talk app would be available on iPhones in the United States, where push-to-talk - formerly offered by Sprint Corp., which bought Nextel several years ago - was discontinued when Sprint abolished the legacy Nextel platform and migrated its former customers over to its own operating system. NII, meanwhile, already has a version of the app out that is compatible with the popular Android wireless phones.

That was the third significant announcement in the past 10 days from NII - on Friday it declared that it has entered into an agreement with Apple Inc. that will allow NII to offer the two Apple iPhones 5S and 5C to its Nextel customers in Brazil as early as the end of this month.

And last Monday, NII said it had inked a pact with Spanish telecom company Telefonica SA that will let it use Telefonica's existing 3G networks in Mexico and Brazil, saving itself the necessity of a costly infrastructure build-out to reach remote customers.

Caesars slide seen continuing

A trader said that another very busy issue was Caesars Entertainment's 10% notes due 2018, which were down about 7/8 point on the session, closing at 50 bid, on volume of over $23 million.

The notes - issued by the Las Vegas-based gaming giant's corporate predecessor company, Harrah's Entertainment Inc. - have been coming in of late, down from levels close to 60 bid earlier in the month, though on no firm news about the company.

Market indicators weaken again

Statistical junk-market performance indicators were lower across the board for a second consecutive session on Friday, after having been mixed over the five previous sessions.

They were also lower all around versus where they had finished at the end of the previous week on Friday, Jan. 17.

The Markit Series 21 CDX North American High Yield Index plunged by 1 full point on Friday, to close at 106 11/32 bid, 106 13/32 offered, the index's seventh consecutive loss. It had been down 15/32 on Thursday.

The index also closed well down from its week-earlier levels of 107 7/8 bid, 108 offered.

The KDP High Yield Daily Index suffered its second consecutive loss, nose-diving some 21 basis points to finish at 74.77, after having eased by 3 bps on Thursday.

Its yield shot up by 7 bps to 5.47%, its second consecutive increase, after having edged up by 1 bp on Thursday.

Those levels also compared unfavorably with its week-earlier index reading of 74.93 and its 5.43% yield.

And the widely followed Merrill Lynch High Yield Master II Index lost 0.335% on Friday, its second straight setback. It had also been down by 0.072% on Thursday, snapping an amazing 23-session winning streak, dating back to Dec. 19.

The latest loss dropped its year-to-date return to 0.722% from 1.111% on Thursday and down as well from Wednesday's 1.185%, its high point of the year so far.

For the week, the index lost 0.283% - its first weekly loss after 10 consecutive weekly gains before that, dating back to last November. It had been up by 0.393% last week, for a year-to-date return of 1.058%.

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