Split-rated Newfield, DDR deals make up only pricing action; Newfield firms; Choice slates

By Paul Deckelman

New York, June 19 - High-yield primaryside players once again had little to do on Tuesday as would-be junk bond issuers remained scarce in the face of continued uncertainty in Europe and economic anemia in the United States, leavened with hopes that something positive may come out of this week's Federal Reserve meeting.

In the interim, with no new purely junk deals to play around with, the day's activity was dominated by what could best be described as quasi-junk credits.

Two such names priced deals, each split-rated.

Oil and natural gas operator Newfield Exploration Co. brought in a solidly upsized $1 billion offering of 12-year senior notes (Ba1/BBB-/BB+). After those bonds priced at par, junk traders saw them firm smartly in the aftermarket on heavy volume.

However, Newfield's existing paper retreated.

On the other hand, sources reported no activity in real estate investment trust DDR Corp.'s upsized $300 million 10-year transaction.

Choice Hotels International Inc. announced plans for a $400 million bond deal. Although the lodging company's existing bonds carry a barely investment-grade rating, sources heard the new deal will price off the junk desks at the end of the week.

Back among the purely junk names, traders saw that Zayo Group Inc.'s two tranches of new bonds that priced last week continued to trade well, although on somewhat less activity than last week.

They said that the whole market seemed to be up notably, helped by a rise in equities ahead of Wednesday's announcement of what the Fed will do to help strengthen the economy.

Among the names seen on the rise was Bon-Ton Department Stores, Inc., helped by the retailer's announcement of preliminary results for the exchange offer it is currently running for its existing bonds.

Statistical measures of junk market performance were on the upside for the session.

Newfield the name of the day

Traders saw the major activity of the day in the new 5 5/8% notes due 2024 brought to market on Tuesday by Newfield Exploration, an oil and natural gas exploration and production company based in The Woodlands, Texas.

That quickly shopped megadeal - upsized to $1 billion from the originally announced $750 million - priced at par and then was heard to have firmed smartly when it hit the aftermarket, with some participation by junk accounts as well as high-grade crossover buyers of the split-rated (Ba1/BBB-/BB+) issue.

A trader said that the new bonds "have kind of been hugging 102 all afternoon," trading within one-eighth of that on either side.

He said that by far, Newfield was "the big volume" name of the day, with over $80 million of the new bonds seen having changed hands by the final hour of trading.

A second trader also saw the new Newfield paper having "done well" in rising to 102 bid from the par issue price.

Newfield's new deal came to market via bookrunning manager Wells Fargo Securities LLC, pricing just hours after it was announced.

Newfield plans to use the deal proceeds to fund its separately announced cash tender offer and consent solicitation for its $550 million principal amount of outstanding 6 5/8% senior subordinated notes due 2016.

It will also use some of the proceeds to repay a portion of the borrowings outstanding under its credit facility, which had been used to fund the redemption of the company's 6 5/8% senior subordinated notes due 2014, and for general working capital purposes.

Outstanding Newfield slower

Newfield's existing bonds were among the few credits seen bucking the generally positive market trend. A trader saw its 5¾% notes due 2022 down 4 points, to 1013/4, calling them "the big loser on the day."

He noted that at that level, the bonds would yield 5.51%, "so that was just getting re-adjusted to where the new deal priced."

He said that there was "not a ton of trading - maybe $7 million or $8 million."

A second trader also saw those 53/4s down 4 points, to around the 101¾ bid level.

DDR a dud

Junk players saw no aftermarket dealings in the other split-rated offering of the day, from Beechwood, Ohio-based shopping-center real estate investment trust DDR Corp - Developers Diversified Realty Co.

The $300 million offering of 4 5/8% senior notes due 2022 (Baa3/BB+/BB+) - upsized from $250 million originally - priced at 98.104 to yield 4.865%.

Bookrunners on the deal were Deutsche Bank Securities Inc., RBS Securities Inc. and UBS Securities LLC.

DDR plans to use the proceeds from the issue to redeem its $223 million of 5 3/8% notes due this coming Oct. 15 that remain outstanding from the $350 million that it sold in 2005. Some of the proceeds will also go for general corporate purposes

Choice Hotels slates deal

Another quasi-junk name heard bandied around the primary sphere on Wednesday was that of Choice Hotels, a Silver Spring, Md.-based international lodging industry franchisor.

The issuer plans to bring a $400 million offering of 10-year notes to market. High-yield syndicate sources said that the company will begin a roadshow on Wednesday to market the deal to potential investors, and the transaction is likely to price on Friday.

Joint bookrunning managers on the deal are Deutsche Bank, Wells Fargo, Bank of America Merrill Lynch, Goldman, Sachs & Co. and J.P. Morgan Securities LLC.

The market sources said that despite the nominally investment-grade rating (Baa2/BBB), which the company's existing $250 million of 5.7% notes due 2020 carry, the new bonds are expected to price off the high-yield desks of the underwriting banks.

Choice Hotels said in a filing with the Securities and Exchange Commission that it plans to use the proceeds of the bond deal, along with a portion of the proceeds from a planned new senior secured credit facility, to pay a special cash dividend totaling some $600 million to its shareholders.

A market source theorized that increasing leverage in the form of new debt in order to pay a large equity dividend might encourage the ratings agencies to take, or to at least contemplate, unfavorable actions toward the company's current ratings.

The company said that if its board of directors elected to pay a smaller dividend than $600 million, or to pay no dividend at all, proceeds from the financing would go for general corporate purposes.

The new credit facility is expected to consist of a $200 million revolving credit tranche and a $150 million four-year term loan tranche with one-year extension option, pre-payable at any time without penalty. It would use substantially all of the proceeds from the bond deal and from the term loan, plus $50 million drawn from the new revolver, to pay the special dividend.

Choice further plans to use a portion of its cash and cash equivalents to repay the roughly $5.9 million now outstanding under its current $300 million revolver due 2016 and to terminate that revolver in favor of the new revolving credit line.

A dearth of deals

The split-rated deals and the high-grade deal that will come off the junk desks were the only primaryside activity seen in Junkbondland on Tuesday. And for a second straight day, no domestic, dollar-denominated, purely junk-rated deals priced or even surfaced for forward calendar.

The death of deals is a little unexpected, given the predictions of some on the marketplace that last week's new and well-received offering from Zayo Group LLC might jump-start the junk primary, largely moribund in the face of continued angst over the ongoing European debt crisis and the weak U.S. economy.

Zayo bonds continue gains

Zayo's recently priced bonds added to their gains on Tuesday, moving up in line with a generally stronger junk market.

A trader saw the new deal from the Louisville, Colo.-based provider of fiber-based telecom bandwidth infrastructure and network-neutral collocation and interconnection services trading at or above the 104 bid level on both tranches.

He quoted its $500 million of 10 1/8% senior unsecured notes due in July 2020 above 104 bid, while the other half of the deal - $750 million of 8¼% senior secured notes due January 2020 - "was not far off from there," at 103¾ bid, 104 offered.

A second trader saw the Zayos even better than that, quoting the 8 1/;8% notes up 1¼ point on the day at 104¼ bid, 104 5/8 offering, while the unsecured 10 1/8s got as good as 104¾ bid, 105 1.4 offered.

Yet another trader, while seeing the Zayo bonds trading in a 103-104 context, said the paper was "kind of quieting down, as we slowly drift from the new issue 'debutante.' "

He made the analogy that last week, when the huge deal priced and then both tranches moved up smartly in pretty active dealings, Zayo was "the belle of the ball," but now, the potential suitors are starting to lose interest.

Market generally stronger

Away from Zayo, that trader saw most issues higher. For instance, he said, Chesapeake Energy Corp.'s 6 5/8% notes due 2020 gained 2½ points, finishing up at 99½ bid on volume of more than $13 million traded.

"Generally, the market was up, pretty much a quarter [point] to a half [point] today. It's like you come in one day and everybody is buying stuff. Then the next day, every body's selling."

"The market in general is up very strong today," another trader said.

He noted that junk - or partly junk - financial names were better across the board, including CIT Group Inc., Ally Financial Inc., and Springleaf Financial.

"All of that stuff was up 1 point or 2 points," he said.

He also saw the bonds of United Rentals Inc. up by that same 1 to 2 points.

Bon-Ton is better

Bon-Ton's bonds continued to gain ground Tuesday, following the Monday release of early tender results for its planned debt exchange.

A trader called the 10¼% notes due 2014 up over 3 points at 85 1/8.

They were not terribly active, but the bonds are up," he said.

Another trader also deemed the debt better, placing the paper around the 85 mark.

On Monday, the York, Pa.-based retailer said that noteholders holding 71% of its 10¼% notes had tendered their securities by the early deadline on Friday.

The company intends to redeem all of the $464 million of outstanding 10¼% notes and, as of the early deadline on Friday, $329.4 million of the bonds had been validly tendered.

Investors will have until July 3 to participate in the exchange.

In return for each $1,000 of 10¼% notes tendered, investors will receive $970 of new 10 5/8% second-lien notes due 2017.

Those who tendered by the early deadline received $1,000 new notes for each $1,000 of old notes tendered.

Market measurers move up

A trader saw the Markit Group CDX North American Series 18 High Yield Index up by three-quarters of a point on Tuesday, at 95 bid, 95¾ offered, a solid comeback from Tuesday's loss of a quarter-point.

The KDP High Yield Daily Index posted its fourth straight gain, jumping by 28 basis points on Tuesday to end at 72.67, after finishing up 6 bps on Monday. Its yield dropped by 10 bps, to 6.91%, after having come in by 2 bps on Monday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index was up for a fifth straight session on Tuesday, gaining 0.442%, on top of Monday's 0.162% advance.

The latest gain lifted its year-to-date return to 6.025% from Monday's 5.559% reading - its highest level and its first time over the psychologically significant 6% mark since the 6.19% level seen on May 15. However, the year-to-date return remains below its peak level for 2012 so far, the 6.8% set on May 7.

Stephanie N. Rotundo contributed to this report

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