Burger King heard cooking up junk deal; NewPage up again; Mariner Energy easier on Gulf mishap

By Paul Deckelman and Paul A. Harris

New York, Sept. 2 - The newly awakened high-yield primary market, after having been asleep for weeks, showed more signs of life on Thursday.

Burger King Holdings Inc. was heard by syndicate sources to be preparing an issue of junk bonds as part of the financing for the $4 billion acquisition of the Miami-based fast-food giant by 3G Capital, which includes the assumption of about $750 million of debt. News of Burger King's buyout produced some slight activity in the bonds of competitor Wendy's/Arby's Restaurants, LLC, which firmed a bit.

The new-deal arena saw a big transaction from German tire and automotive components maker Continental AG, which came to market with a quickly shopped, upsized €1 billion issue of seven-year bonds.

Also pricing was a $300 million issue of 2016 notes from Renhe Commercial Holdings Co. Ltd., a Chinese developer of underground shopping malls.

Away from the new-deal doings, traders saw another strong session for NewPage Corp.'s bonds, building on gains notched on Wednesday after the paper company unveiled bullish guidance for the remainder of the year.

There was a little bit of early downside activity in Mariner Energy Inc.'s bonds, triggered by news of a fire on a Mariner drilling platform in the Gulf of Mexico off Louisiana. However, trading died down and the bonds came off their lows when it became evident that the incident was far less severe than the BP plc oil rig disaster in the Gulf back in April. Another Gulf energy driller, ATP Oil & Gas Corp., was seen a little lower on the session.

Renhe prices $300 million

Two companies issued junk bonds on Thursday.

Chinese commercial developer Renhe Commercial Holdings priced $300 million of 5.5-year notes at par to yield 13%, on top of the price talk.

BOCI Asia Ltd., Bank of America Merrill Lynch and UBS were the bookrunners.

Proceeds will be used to finance existing projects, to acquire and develop new projects and for general working capital.

Conti upsizes to €1 billion

Meanwhile in Europe, Conti-Grummi Finance BV, a financing unit of German tire manufacturer Continental, priced an upsized €1 billion issue of 7½% seven-year senior secured notes (B1/B) at 99.3304 to yield 7 5/8%.

The yield printed at the tight end of the 7¾% area price talk.

The order book contained approximately €2 billion of orders, according to a syndicate source.

Deutsche Bank, BNP Paribas, Bank of America Merrill Lynch, Credit Agricole, DZ Bank and HSBC were the joint bookrunners for the quick-to-market deal, which was upsized from €750 million.

The Hanover, Germany-based company will use the proceeds to repay debt.

Continental's most recent visit to the high-yield primary market came on July 9, when it priced a €750 million issue of 8½% senior secured notes due 2015 (B1/B/) at 99.004 to yield 8¾%.

Wendy's wiggles on BK buyout

The news that Burger King had agreed to be acquired in a leveraged buyout transaction worth some $4 billion, including debt assumption, to be partially funded via a new junk bond issue caused a few investors to take a look at one of The King's sector peers - Wendy's/Arby's Restaurants LLC, operator of Wendy's Old-Fashioned Hamburgers, the world's third-biggest quick-service burger chain behind No. 2 Burger King and industry top dog McDonald's Corp.

Wendy's 10% notes due 2016 were "a little higher on the day," said a trader who quoted the paper at 105¼ bid, 106¼ offered.

A market source saw the Atlanta-based fast-food franchisor's bonds ending just a little below the 106 bid level, versus prior levels around 104 in busy dealings, although culling out the smallish odd-lot trades and just looking at round-lot transactions, the day's gain was smaller, about 3/8, to about the 105¾ level.

Wendy's /Arby's 6.2% notes due 2014 actually ended down slightly on the day around 100½ bid, but with no significantly sized trades recorded and only a couple of odd-lot transactions, the source said. There was no activity seen in the company's 7% notes due 2025, which have recently been anchored around 85 bid.

There was no activity seen in other names in the high-yield restaurant space like Sbarro Inc. and O'Charley's Inc.

Abitibi off as new deal looms

The market talk that AbitibiBowater Inc. is bringing a new bond deal, likely sometime this month, seems to have not impressed holders of its current bonds; a market source saw the company's 6½% notes due 2013 quoted as low as 23, calling that down a whopping 8½ points from prior levels.

At another desk, the bonds were quoted at 22, but that was seen in line with recent levels, though down from levels in the upper 20s they held in early August.

However, another trader said that he "never sees" Abitibi. "The last time I saw Abitibi, they were in the 20s, and then there was the stuff that was quoted in the single-digits." But he said he long ago stopped following the day-to-day moves in the bonds of the Montreal-based paper company - currently in bankruptcy but hoping to emerge soon, with the rumored upcoming new $750 million junk bond deal to help fund the company's exit financing.

Market indicators keep rising

Away from the new-deal world, a market source saw the CDX North American HY Series 14 index gain 5/16 point on Thursday to end at 97¼ bid, 97¾ offered, on top of the full 1-point rise recorded on Wednesday.

The KDP High Yield Daily index meantime rose by 13 basis points Thursday to end at 71.78, building on the 12-bp gain seen on Wednesday. Its yield came in by 4 bps, to 8.30%, following the 3 bps decline on Wednesday.

The Merrill Lynch High Yield Master II index advanced by 0.187% on Thursday after having risen 0.15% on Wednesday. It ended the day with a year-to-date return of 8.907%, up from Wednesday's 8.704%. However, the index remains a little below its peak level for 2010 so far, the 9.085% recorded on Aug. 9.

Advancing issues beat decliners for a second consecutive session on Thursday, holding a six-to-vie margin, a little narrower than the seven-to-five edge they held on Wednesday.

Overall activity, represented by dollar-volume levels, fell by 23% on Thursday after having risen by 14% on Wednesday, on top of the 35% increase seen Tuesday, as action appeared to be winding down ahead of the upcoming Labor Day holiday break, which will see all U.S. financial markets shuttered on Monday.

As for Friday, while it is ostensibly just a regular day, technically speaking - the Securities Industry and Financial Market Association did away with the traditional early pre-Labor Day close recommendation several years ago - traders said the reality is that most desks will likely be thinly staffed on Friday and largely by relatively junior personnel without the clout to get the whole day off.

"Anyone who can take that day off, will take it off," one trader intoned.

A trader called Thursday's session "a quiet, ugly day.

"It's been pretty boring," he said. "Sitting here all day, I did not see a whole bunch of names coming across that were in my world."

He added, though, that "people are happy about stocks," which finished higher. "At least the mood is nice for ending the week."

A trader at another shop said that even though Friday's session will for all intents and purposes be abbreviated, all eyes will be on the August non-farm payroll numbers that the Labor Department will release at 8:30 a.m. ET, along with the unemployment rate and other labor data.

"Tomorrow's employment report will be kind of telling," he said, with analysts predicting a 100,000-jobs decline for the month. He noted that there has been some recent positive data coming out - "the stronger manufacturing numbers that we've gotten in the last couple of days, the stronger overseas numbers - they're stronger, but they're only marginally stronger. The consumer confidence number was a little better than anticipated, but it was only marginally better."

He also cautioned that "these are government numbers. They put them out - and then they revise them down dramatically. You look at the revisions in the jobless number in the last couple of months.

"The economy," he opined, "is just kind of bumping along the bottom here."

New Page pop continues

Among specific names moving around on Thursday, a trader said that NewPage Corp. "was the active one again," although trading volume was down considerably from the levels seen on Wednesday, when the bonds jumped multiple points in heavy dealings after the Miamisburg, Ohio-based coated-paper manufacturer released unexpectedly strong guidance for the current third quarter and for the fourth quarter.

Besides being active again Thursday, "they kept going [up]," he said. "Even the subs went up."

He saw the company's 10% notes due 2012, which on Wednesday had gained between 8 and 10 points to finish in the lower 40s on volume of more than $40 million, firm to around 46 bid, 48 offered, "so that's up a few more points," while its 11 3/8% guaranteed senior secured notes due 2014 ended up at bid levels in an 89 to 90 range, up from around 88 on Wednesday when nearly $100 million changed hands.

He said NewPage "wasn't really active - but it was more active than other things." He saw the 10s start off the day at 42½ bid, while the 11 3/8s opened at 87.

A market source estimated volume in the 10% notes at around $15 million and the 11 3/8s at $12 million - well down from Wednesday's very heavy tally, but still enough to put both bonds on the Junkbondland most actives list.

Another trader also saw the NewPage bonds "a little bit firmer," adding that the rise in its paper over the past two sessions was "kind of surprising. I think there are still a lot of questions to be answered. Even with the updated and improved [adjusted] EBITDA for the rest of the year, there's still a bit of a shortfall."

He said at his shop "we're sort of questioning why." He said that if the subordinated bonds "get any higher," it might be a good idea to short them again.

On Wednesday, NewPage predicted in a Securities and Exchange Commission filing that adjusted EBITDA for the current third quarter will likely come in somewhere between $90 million and $100 million - down from $149 million in the year-ago third quarter, but well up from the $10 million of adjusted EBITDA seen in this year's second quarter. And in the fourth quarter, NewPage said that adjusted EBITDA is expected to jump to between $145 million and $165 million, which would represent a near-doubling of $88 million seen in the year-earlier fourth quarter.

NewPage said that its net loss will likely fall to between $75 million and $85 million in the third quarter, versus $174 million in the second quarter and $138 million a year ago. In the fourth quarter, it sees the red ink shrinking to between $10 million and $35 million, which is also down from the $55 million net loss posted in last year's fourth quarter.

The trader said the more bullish projections "are good news, obviously - but how does that longer term play out?"

He also noted that sector peer AbitibiBowater is supposed to ring a new deal, "but it all depends, I guess, on how strong the environment is come mid-September."

Mariner mishap knocks bonds lower

News of an explosion and fire onboard a Mariner Energy drilling platform about 80 miles south of the Louisiana coast gave some market players an uneasy sense of deja vu, harkening back to the April 20 accident on board the Deepwater Horizon in the Gulf of Mexico that caused a BP plc undersea well to massively rupture - a disaster whose impact is still being felt.

But unlike that even, none of the 13 workers aboard the platform was killed, all were eventually recovered by the Coast Guard, and while what is described as a "sheen" of oil spread out from the site of the stricken platform, it is not expected to be an environmental disaster anywhere near that which followed the BP incident.

A trader said that "it looks like they were doing maintenance on it and the fire broke out, so it wasn't like the rig blew," the way Deepwater Horizon did.

"My sense was that the stock and the bonds sold off - at least the bid on the Mariners dropped - but it filled right back in. There were guys who were buyers at lower levels.

A market source saw Mariner's 8% notes due 2017 ending at 109 bid, up from its low point of the session at 108, but still off from the 110½ levels at which the bonds had last been seen trading in mid-August, there having been no trades in them between that time and Thursday morning.

He saw the 7½% notes due 2013 fall as low as 101 5/8 bid from mid-August levels around 103½ before coming back up to around 103¾ - although on a round-lot basis, the bonds did stay near their lows for the day. And Mariner's 11¾% guaranteed senior notes due 2016 dipped to around 122 bid from mid-August levels at 125.

Another trader saw the company's bonds "lower by just a little bit" on the day, pegging the 8s at 108½ bid, the 71/2s at 102 and the 113/4s at 122.

The first trader said also that "the stock sold off and came right back. It was down 60 cents - but it was down quite a bit at one point and it came back most of the way." The Houston-based energy company's New York Stock Exchange-traded shares were at one point down $3.73, or almost 16%, but ended the day down 60 cents, or 2.57%, at $22.75. Volume of 48.8 million shares was nearly 10 times the norm.

"So there was a lot of talk and not a lot of action - a lot of smoke, not a lot of fire."

In that same energy sector, a trader said that the bonds of another Houston-based energy exploration and production company, ATP Oil & Gas Corp., were trading at lower levels, in line with the retreat from recent highs seen in the Mariner bonds following the drilling platform accident.

The trader said that ATP's 11 7/8% second-lien senior secured notes due 2015 "saw a little bit of activity," with ATP easier "for a little bit, the bids [were] pulled for a little bit, but then it came back."

He saw the bonds starting the day right around 81 bid, but then "they drifted lower" on the Mariner news to a low of around 79. "They've been between 79 and 80 all day, sometimes trading at 81, then 79-80, there might have been some trades there." He saw the bonds finish the day around 80 bid, which he called down a point on the day.

Skilled Healthcare seen stronger

A market source saw some activity in Skilled Healthcare Group Inc.'s bonds following the news that a court hearing in the giant class-action legal case against the Foothill Ranch, Calif.-based nursing home operator had been postponed an additional day, to Friday from Thursday. An earlier postponement, to Thursday from Tuesday, had sent the company's shares soaring and caused its bonds to trade for the first time in several weeks, on investor speculation that the delay was a sign the company and its critics, who have been in negotiations for some weeks, might be nearing a settlement of the suit against the company alleging inadequate staffing. That suit produced a staggering $677 million judgment against Skilled Healthcare earlier in the summer and sparked fears that it could be forced into bankruptcy if that award were allowed to stand.

On Thursday, the company's 11% senior subordinated notes due 2014 were seen having moved up to just over 91 in late trading, a gain of about ½ point on the day, on a modest amount of large-sized trading.

GM, Ford, largely idle

A trader said that General Motors Corp.'s bonds were unchanged, with the benchmark 8 3/8% bonds due 2033 at 31¾ bid, 32 offered, on "not a lot of activity."

With the bonds trading around "31-32, you might say they're down a point on the day - but who really knows? There's so little activity, you can't even tell."

At another shop, GM's 7.4% notes due 2025 were seen down 1 point at just under 29 bid.

A trader said that GM's movements are "strictly a function of, first, the equity market and the car-sales numbers, which were basically weak across the board."

He noted that the carmaker is planning to do an initial public offering of shares sometime this fall to raise cash to begin paying down its huge bailout debt to Uncle Sam - but he opined that "unless things turn in the economy, they're not going to do the IPO. The government's not going to do it and lose money - they have to show that 'it was a success, we took over, we did an IPO and everybody got made whole,' etc. If they do it at a loss, it's going to look bad. So politically, I don't think they can spend that kind of capital. They're going to wait - that's our sense here - that they'll wait until they get their price, which I don't think they're going to get right now."

GM rival Ford Motor Co.'s 7.45% bonds due 2031 were meantime steady around 98 bid, 99 offered.

Bon-Ton bopped on sales number

A trader said that Bon-Ton Stores Inc.'s 10¼% notes due 2014 were down around a point at 92 bid, 92½ offered on poor same-store sales data for August, a key retailing industry performance metric.

Another trader saw those bonds having eased to 91¾ bid, 92¼ offered.

A source at another shop estimated them down 1 1/8 points at 92¼ bid.

That followed the announcement by the York, Pa.-based department store operator that sales last month at stores open at least one year fell by 4.6% - while Wall Street had been looking for a basically flat number.

Bon-Ton's total sales for the four weeks ended August 28 fell 5% to $187.2 million.

Market awaits fund-flow numbers

Market participants waited - in vain, as it turned out - for the Lipper/FMI statistics on high-yield mutual fund flows that generally circulate around junk shops on Thursday afternoons, as the flow of funds in to or out of the weekly reporting funds is considered a key barometer of overall high-yield market liquidity trends.

The numbers had still not surfaced as of press time late Thursday.

Last week, participants familiar with the numbers said that in the week ended Aug. 25, $315 million more came in to the funds than left them - a seventh straight week of inflows, demonstrating continued investor interest in junk bonds and appetite for risk. On a year-to-date basis, net inflows rose to $5.162 billion, according to a Prospect News analysis of the figures provided by market participants.

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