New Zayo bonds still firming, Consolidated Container plans deal; Navistar ups on equity stake

By Paul Deckelman

New York, June 15 - The high-yield primary market closed out the week on a quiet note Friday.

There were no deals pricing, but participants continued to bask in the warm afterglow of Thursday's very successful pricing from Zayo Group LLC.

Both tranches of the $1.25 billion deal from the provider of telecommunications network services were heard by traders to have gained another half point, on top of the strong gains seen in both halves of that long-awaited deal after the bonds priced at par Thursday.

The Zayo deal put an exclamation point on the week's new-deal activities. According to data compiled by Prospect News, $2.025 billion of new dollar-denominated junk-rated paper priced in four tranches. That dwarfed the $317 million in two tranches that priced last week, ended June 8, which was the quietest new-issuance week of 2012 so far.

With Zayo now out of the way, junk new-dealers turned their sights ahead to next week's market, which is expected to see pricings from Asian-themed restaurant chain operator P.F.Chang's China Bistro, Inc. and the soon-to-be spun off government contractor Engility Corp. Consolidated Container Co.

Those companies were heard by syndicate sources to be readying a $250 million bond deal for launch several weeks from now. The company, which is being acquired by Bain Capital Partners LLC, also is expected to launch a $495 million loan deal at a bank meeting Monday.

Away from the new-deal arena, traders saw a mostly light market, volume-wise.

Navistar International Corp.'s volatile bonds, which were gyrating all week on speculation of possible good news, were again busy Friday on bad news, actually.

Statistical junk market performance measures ended higher on both the day and versus a week ago.

Quiet close for week

With Thursday's big deal for Zayo Group now one for the books, the high-yield primary market spent a comparatively more quiet session Friday.

No new deals priced and the market closed the week pricing some $2.025 billion in four tranches, according to data compiled by Prospect News. Most of that was attributable to Thursday's $1.25 billion two-part offering from Zayo Group.

That was several times the ultra-anemic $317 million in two tranches that priced last week, ended June 8, which was the quietest new-issuance week of 2012 so far.

It was the first week in the last five that did not see the weekly total fall from the previous week's levels.

On a year-to-date basis, Junkbondland saw $146.339 billion of new dollar-denominated, purely junk-rated paper price in 308 tranches, running about 20% behind the pace set in 2011 when $184.394 billion priced in 411 tranches by this point on the calendar, five-and-a-half months into the year.

New Zayo bonds continue rise

The main focus for the market Friday was trading in the new Zayo bonds, both tranches of which had priced at par Thursday and then moved up smartly when freed for aftermarket dealings.

A trader said the $750 million of 8 1/8% senior secured notes due in January of 2020 were up by another half point, to 103¼ bid, while its $500 million of 10 1/8% senior unsecured notes due in July 2020 also were a half-point better, at 103½ bid.

A second trader saw the 8 1/8s at 103 1/8 bid, 103¾ offered, while the 10 1/8s were going home at 103½ bid, 104 offered.

After their pricing at par Thursday, the 8 1/8s were seen by one market source "wrapped around" 102½ bid, while the 10 1/8s were wrapped around 103.

On Friday, the first trader said the new bonds were "moderately active yesterday [Thursday], and then I would say there was some trading this morning."

However, he added that it "was not a ton" of trading.

He explained that even though the big issue played to great demand, with oversubscription of more than three times the deal's size, there weren't too many sellers.

"Guys that bought it wanted to own it," the trader said, rather than flip out of it, limiting the amount of actual trades in the credits.

"There was definitely some amount of trading yesterday and this morning, but it wasn't crazy," the trader said.

Anatomy of a winner

A market source looking at Thursday's deal said, "Guys already knew it was coming."

That's because even though the offering was formally launched Monday, Zayo was shopping a prospective term loan and revolver deal around the bank-debt market. They also knew that there would be a sizable bond issue going along with that as part of the funding needed for Louisville, Colo. -based Zayo, a provider of fiber-based bandwidth infrastructure and network-neutral collocation and interconnection services, to acquire AboveNet, Inc., a White Plains, N.Y.-based provider of high-bandwidth connectivity solutions for businesses and carriers. The acquisition cost $2.2 billion.

So by Tuesday, he said it was already at subscription of $1.25 billion. Then, after the price talk of 8¼% on the secured notes and 10¼% on the unsecured paper came out Wednesday, "Guys saw that it was definitely getting done, so you saw a lot of accounts come in," leading the bond deal to ultimately be at least 3.5 times oversubscribed, the source said.

"On a $1.25 billion deal, that's quite a bit of demand," he said.

He said the that demand evidenced by investors was reminiscent of the keen interest that junk buyers showed in the greatly upsized $2.825 billion three-part offering from construction and industrial equipment leasing company United Rentals Inc., which priced in late February.

As was the case with those buyers, he said, the Zayo investors didn't have to wait to be asked by the underwriters if they wanted in on the deal. Rather, the investors sought out the banks in search of a piece of the action. That was quite unlike a number of other recent deals, he said, that went right down to the wire.

"I think every bank in the Street is probably going to want to try and trade this name," the source said. "Everybody's going to try and get involved. There's very, very healthy demand out there."

Consolidated deal coming

Away from Zayo, high-yield market sources saw Consolidated Container getting ready to offer $250 million of senior notes as part of the financing for the Atlanta-based plastic packaging manufacturer's pending buyout by affiliates of Bain Capital Partners LLC.

A market source said the bond deal would likely be early-July business, while a second source estimated its launch point sometime in late June.

The sources said Citigroup Global Markets Inc. will be the left-side book-running manager with Bank of America Merrill Lynch, RBC Capital Markets LLC and Credit Suisse Securities (USA) LLC also participating as bookrunners. No other details about the prospective bond deal were yet available.

The same four banks also are leading a planned $495 million bank financing with Bank of America Merrill Lynch listed on the left. That bank deal, consisting of a $370 million seven-year term loan B tranche and a $125 million asset-backed revolving credit facility, is expected to be launched Monday, bank-debt market sources said.

Consolidated Container announced May 30 that it agreed to be acquired by affiliates of Bain Capital, a Boston-based private investment firm. Terms of that transaction were not disclosed. The acquisition is expected to close some time in the upcoming third quarter.

Eyes on P.F. Chang, Engility

In a more immediate timeframe, market participants were eyeing two pending deals for likely pricing in the coming week.

P.F. Change's China Bistro, Inc., a Scottsdale, Ariz.-based operator of Asian-themed restaurants in a number of states, is expected to begin a roadshow Monday for its $300 million offering of eight-year notes, the proceeds of which will go to partially finance the acquisition of the company by Centerbridge Capital Partners.

That deal is expected to price by the end of the week.

The Rule 144A for life deal is being brought to market via Deutsche Bank Securities Inc., Wells Fargo Securities LLC and Barclays Capital Inc.

Engility Corp. - currently a unit of New York-based defense contractor L-3 Communications Holdings Inc. - hit the road in Boston and New York this week to start marketing its $250 million offering of seven-year senior notes.

The proceeds from that bond issue, together with the proceeds of a new senior secured credit facility, will be used to pay a special cash distribution to L-3 as part of Engility's coming spin-off from L-3.

The 144A deal, sold with registration rights, will come to market via Bank of America Merrill Lynch, Barclays, Credit Agricole Securities (USA) Inc. and Sun Trust Robinson Humphrey Inc.

Lightly traded market

Away from the new-deal arena, a trader called the day "an incredibly quiet Friday" as good weather in New York and other Northeastern business centers caused many market participants to make an early exit.

Looking at statistical indicators of market performance, a trader saw the Markit Group CDX North American Series 18 High Yield Index up by a 3/8 of a point Friday, its second straight gain, to end at 94 5/8% bid, 94 7/8 offered. It was up a 1/2-point on Thursday.

It also was up from the 94 3/8 bid, 94 5/8 offered level at which it ended the previous week, ended June 8.

The KDP High Yield Daily Index posted its second straight gain, finishing up 7 basis points at 72.33, on top of the Thursday's 5 bps rise. Its yield narrowed by 8 bps, to 7.03%, on top of the 5 bps narrowing seen Thursday.

The index reading ended unchanged from last Friday, although the yield came in from 7.09% a week ago.

And the widely followed Merrill Lynch U.S. High Yield Master II Index was up for a third straight session Friday, rising by 0.155%, on top of Thursday's 0.067% advance.

The latest gain lifted its year-to-date return to 5.387% from 5.224% Thursday, although it remains still well down from its peak level for 2012 so far, 6.80%, set May 7.

For the week, the index was up 0.394%, its second straight weekly gain.

Navistar gains

Among specific secondary names, a trader said that Navistar International's 8¼% notes due 2011 were fairly active, up a little more than 1 point to around the 97½ mark, on volume of $25 million.

The Lisle, Ill.-based truck-, bus- and diesel-engine maker's bonds were bouncing around all week, falling at mid-week after a federal appeals court struck down an Environmental Protection Agency rule allowing the company to continue selling engines that do not comply with federal pollution standards if it pays a fine.

But on Friday, he said the bonds got a boost as hedge fund MHR Fund Management took a 13.6% stake in the company. That stake was even larger than activist investor Carl Icahn's recently purchased 11.9% stake.

Those machinations were said to have inspired buying on the hopes that the new investors might force changes at the company to turn its fortunes around.

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