DPL brings $200 million; high-yield bonds lose ground; Sears declines; coal sector takes hit

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Sept. 25 – DPL Inc. priced the Thursday session's sole deal, a $200 million issue of non-callable five-year notes.

The high-yield bond market was “pretty weak throughout the afternoon, then it just died,” a trader said Thursday.

“The whole market was weaker,” another trader said.

That was evidenced by declines seen in recently priced deals such as Burger King Worldwide’s $2.25 billion of 6% second-lien notes due 2022, which came Wednesday at the wide end of talk.

The new notes (Caa1/B-/) were 99 1/8 bid, 99½ offered late Thursday morning.

Away from recent deals, Sears Holdings Corp. dipped on word the company might be having trouble securing participation in a new $400 million loan the company needs to continue to limp along.

Meanwhile, the price of metallurgical coal hit a new low Thursday, putting pressure on coal companies like Cliffs Natural Resources Inc. and Walter Energy Inc.

DPL comes wide of talk

In Thursday's primary market, DPL priced $200 million of non-callable five-year senior notes (Ba3/BB/BB) at par to yield 6¾%.

The yield printed 37.5 bps beyond the wide end of yield talk in the 6¼% area.

BofA Merrill Lynch and Morgan Stanley & Co. LLC were the joint bookrunners.

The Dayton, Ohio-based energy company plans to use the proceeds, along with cash on hand and/or the proceeds of other debt, to finance the tender offer for up to $280 million of its 6½% senior notes due 2016 and for general corporate purposes.

Keepmoat talk is 9% area

Keepmoat Group talked its £260 million offering of five-year secured notes to yield in the 9% area.

The roadshow is set to wrap up on Friday.

Joint physical bookrunner Lloyds TSB will bill and deliver. JPMorgan is also a joint physical bookrunner. RBC is also a bookrunner.

The Doncaster, England-based homebuilder plans to use the proceeds, along with equity and cash on its balance sheet, to finance the acquisition of the company by TDR Capital and Sun Capital and to repay debt.

Zebra launches $1.25 billion

Zebra Technologies Corp. was scheduled to launch a $1.25 billion offering of eight-year senior notes (B2/B) with a mid-morning investor conference call on Thursday, according to a syndicate source.

Morgan Stanley and JPMorgan are the joint bookrunners.

The Lincolnshire, Ill.-based printing technologies company plans to use the proceeds, together with a new term loan and cash on hand, to help fund the acquisition of Motorola Solutions, Inc.’s enterprise business.

The massive Dynegy Inc. acquisition financing bond deal, expected to be sized at between $4.9 billion and $5.1 billion, may still be several weeks away, a debt capital markets banker said Thursday.

A syndication effort for the bridge backing the bonds just concluded, with about a third of the bridge being taken down, the source added.

In the run-up to Labor Day, the deal was expected to be early September business.

And with respect to fund flows, numbers for the week ended Wednesday were not available at press time.

Indexes, new deals weaken

As global concerns continued to pressure the equity markets, the high-yield bond market was following suit.

The KDP High Yield index hit a new 52-week low on Thursday, coming in at 72.23 with a yield of 5.63%. On Wednesday, the index closed at 72.57 with a 5.49% yield.

The previous 52-week low was 72.53.

The Markit CDX Series 22 index was off half a point at 106 bid, 106 1/8 offered, according to a market source.

The day’s weakness was evidenced in declines seen in recent new deals such as Burger King’s 6% notes due 2022.

A trader said well over $200 million of the bonds changed hands, ending the day “sub-par” at 99 3/8.

Another trader said the issue was “trading very actively,” dipping to 99 before coming back to end at 99½.

Tenet Healthcare Corp.’s $500 million of 5½% notes due 2019 were meantime down nearly half a point at 99 7/8, on “tons of trades.”

And RSP Permian Inc.’s $500 million of 6 5/8% notes due 2022 were initially “holding” at par ¼, a trader said, but then the notes fell to 99½.

However, FLY Leasing Ltd.’s $325 million of 6 3/8% senior notes due 2021 bucked the day’s trend, finishing the session up over half a point at par ½.

Sears debt dips

Sears might be struggling to get investors to participate in its new $400 million loan secured from ESL Investments, a hedge fund controlled by Sears chairman and chief executive officer Eddie Lampert.

Bloomberg reported Thursday that talks between Sears shareholder Fairholme Funds Inc. and its affiliate St. Joe Co. failed to bring about a deal.

“The St. Joe Co. was unable to agree on terms for such a participation in light of its investment criteria and has declined the opportunity to participate,” Fairholme said Thursday in a regulatory filing.

On the news, the Hoffman Estates, Ill.-based retailer’s 6 5/8% notes due 2018 “cracked 90,” a trader said, seeing the issue close at 89 7/8.

While St. Joe declined to participate, Fairholme said it is continuing to discuss a smaller level of participation.

Toys ‘R’ Us retreats

Among other retailers in the news, Toys ‘R’ Us Inc.’s debt gave back some gains it had incurred on Wednesday when the company announced a refinancing plan.

A trader said the 10 3/8% notes due 2017 dropped 3 points to 80 and the 7 3/8% notes due 2016, an issue that will be called under the refinancing plan, dipped to par.

The Wayne, N.J.-based company intends to redeem the 2016 paper on Oct. 24 at 101.844 plus accrued interest.

To redeem the notes, as well as refinance $646 million of secured term loans due fiscal 2016 and a significant portion of the $583 million of incremental secured term loans due 2018, Toys ‘R’ Us is looking to ink a new $1.38 billion credit facility via Goldman Sachs & Co.

A bank meeting is set for Monday.

Also in the retail realm, Gymboree Corp.’s 9 1/8% notes due 2018 were deemed down 2¾ points at 29, according to a trader.

Another trader pegged the issue in a 28 to 29 context.

Coal sector tanks

The price of metallurgical coal hit a six-year low on Thursday, putting even more pressure on the coal and mining space.

Cliffs Natural Resources’ 6¼% notes due 2040 dropped nearly 6 points to 73¾, a trader said, while the 3.95% notes due 2018 lost almost 4 points to 87.

The 4.8% notes due 2020 declined just over 3 points to 80¼.

Walter Energy was also again weaker. A trader saw the 9 7/8% notes due 2020 losing over 2 points to close around 28¾.

Another trader said the 9½% notes due 2019 traded down to 89, while the 11% notes due 2020 fell into the mid-40s.

Also suffering were Peabody Energy Corp.’s bonds.

One trader deemed the 6¼% notes due 2021 down nearly a point at 92¼. Another source placed the 6½% notes due 2020 at 91¼, down over 3 points on the day.

Metallurgical coal fell to $119 per metric ton for the fourth quarter, down $1 from the third quarter. Coal companies are already dealing with declining prices as well as dwindling demand. Recently, Goldman Sachs released a report on the sector speculating that the price of the commodity has yet to hit a floor.

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