Upsized Iron Mountain, Ally deals price; Community Health slates $1.25 billion; Chesapeake up

By Paul Deckelman and Paul A. Harris

New York, Aug. 7 - The high-yield primary continued to percolate on Tuesday, pricing another $1.6 billion of new paper in two deals from familiar issuers.

Iron Mountain Inc. did a quickly shopped, upsized $1 billion offering of 12-year notes - a relatively rare tenor. The document storage and information technology company's new deal came too late in the session for any secondary dealings.

Earlier, Ally Financial Inc. brought an upsized, quick-to-market $600 million add-on to the three-year megadeal that it priced back in June. The automotive and residential lender's new bonds were seen having firmed a little from their issue price.

Traders saw continued activity in Monday's new issues. Constellation Brands Inc.'s paper held on to the smart gains it notched in initial aftermarket trading, while MarkWest Energy Partners LP improved and SandRidge Energy, Inc. firmed a little. Advanced Micro Devices, Inc. struggled.

Away from the deals which actually priced, familiar borrower Community Health Systems Inc. unveiled plans for a $1.25 billion transaction that's expected to price on Wednesday. M*Modal Inc. and Graton Economic Development Authority also joined the forward calendar.

Outside of the new-deal realm, Chesapeake Energy Corp.'s bonds rose in active trading after the natural gas operator reported better second-quarter results and executives said the company was making progress on asset sales that will pay for further debt cutting.

The junk market had a generally firm tone, with statistical performance indicators mostly higher.

Iron Mountain: a record print

A primary market full of drive-by deals continued to crank on Tuesday, with two quick-to-market issuers each bringing a single tranche, raising $1.62 billion.

Iron Mountain priced an upsized $1 billion issue of 12-year senior subordinated notes (B1/B+) at par to yield 5¾%.

The yield, which printed at the tight end of the 5¾% to 6%, is the tightest ever for a single B rated issue, according to the source, who cited information provided by Standard & Poor's and Dealogic.

"There is too much money chasing this space right now," one investor exclaimed, but quickly added that high-yield appears to still have a good way to run.

The Iron Mountain deal was two-times oversubscribed before being upsized from $950 million in the middle of the New York morning, the buysider said, adding that the par-pricing deal was trading at par 3/8 bid, par ¾ offered, in the secondary market.

Morgan Stanley, J.P. Morgan, Bank of America Merrill Lynch, HSBC, RBS, Scotia and Barclays were the joint bookrunners.

The Boston-based provider of information management services plans to used the proceeds to redeem all of its outstanding 6 5/8% senior subordinated notes due 2016 and 8¾% senior subordinated notes due 2018, repay existing debt under its revolver and for general corporate purposes, including funding a portion of the costs it expects to incur in connection with its proposed conversion to a real estate investment trust.

Ally taps 4 5/8% notes

Ally Financial priced an upsized $600 million fungible add-on to its 4 5/8% senior guaranteed notes due June 26, 2015 (expected ratings B1/B+/BB-) at 102.875.

The reoffer price, which came rich to the 102.75 price talk, rendered a yield of 3.564%.

Citigroup, J.P. Morgan, Morgan Stanley and RBC were the joint bookrunners for the quick-to-market issue, which was upsized from $500 million and was run on the investment grade desk.

The original $1 billion priced at 99.31 to yield 4 7/8% on June 21, 2012 as part of $1.5 billion two-part deal that also included a $500 million add-on its 5½% senior guaranteed notes due Feb. 15, 2017.

Stork returns

After postponing a secured notes offer in mid-July, Netherlands-based Stork Technical Services Holdco BV returned to the market on Tuesday to price a €272.5 million issue of 11% five-year senior secured notes (B3/B-) at 96.255 to yield 12%.

Timing on the revived deal was moved ahead. A brief roadshow began on Monday, at which time the deal was set to price on Wednesday.

The yield printed on top of yield talk. The reoffer price came toward the cheap end of discount talk of 3 points to 4 points.

Joint lead bookrunner Goldman Sachs will bill and deliver. Jefferies was also a joint lead bookrunner.

The Utrecht, Netherlands-based services provider to the oil and gas industry plans to use the proceeds to refinance debt related to the restructuring of the company.

Relative to the July deal, Tuesday's transaction was downsized and restructured. In July, Stork marketed €315 million of seven-year senior secured notes.

That deal was delayed on July 18, 2012 due to difficult conditions in financial markets.

The reduced amount of proceeds in Tuesday's transaction will be made up in part with an equity contribution.

The deal, which Stork pulled in July, had been talked at 11½%.

The smaller size, extra yield and shorter maturity of the revived deal, as well as a reduction in super senior debt positioned on the capital structure above the new secured notes, all factored into a warmer reception than the one that Stork garnered earlier in the summer from the buyside in the European market, a London-based debt capital market banker explained.

CHS for Wednesday

The torrid drive-by new issue market will continue to roar on Wednesday, sources say.

One sellside source professed visibility on three quick-to-market deals expected to clear by the Wednesday close, one of them likely from the telecommunications space.

Those, the source specified, are in addition Community Health Systems' $1.25 billion offering of six-year senior secured notes, which was announced on Tuesday and is set to price Wednesday.

Credit Suisse, Bank of America Merrill Lynch, Citigroup, Credit Agricole, Goldman Sachs, J.P. Morgan, Morgan Stanley, RBC, SunTrust and Wells Fargo are the joint bookrunners for the debt refinancing deal.

Graton Resort & Casino

In addition to Tuesday's drive-by business, there were also roadshow announcements.

Graton Resort & Casino plans to price a $450 million offering of seven-year seven-year senior secured notes early in the July 13 week.

Bank of America Merrill Lynch, Wells Fargo, Deutsche Bank and Credit Suisse are the joint bookrunners.

Proceeds, together with borrowings under the term loan, will be used to fund the costs associated with designing, developing, constructing and opening a casino and to repay certain debt owed to the developer.

M*Modal starts Wednesday

Elsewhere, M*Modal will begin a roadshow on Wednesday for its $250 million offering of eight-year senior notes (Caa1/B-).

The deal is expected to price on Aug. 14.

Bank of America Merrill Lynch and RBC are the joint bookrunners for the acquisition and debt refinancing deal.

Primary set to rock

Cash is gushing into the high-yield asset class at a record pace, according to a high-yield mutual fund manager.

That cash is driving a forward calendar that figures to be robust during the run-up to Labor Day, whereupon the floodgates are expected to burst open, the buysider said, adding that LBO and merger and acquisition activity are expected to pick up in the autumn.

"The post-Labor Day calendar is full," the source asserted.

The Lipper High Yield Index, which had been floundering at 4% in the wake of the Facebook IPO in mid-May, posted an 8.93% year-to-date return, to Monday's close, the manager said.

"After today, that return is easily over 9%," the source said.

New Ally bonds better

When Ally Financial's 4 5/8% add-on notes due 2015 were freed for secondary dealings, a trader saw the Detroit-based automotive and residential lender's new paper at 103 bid, 103¼ offered.

A second trader quoted the upsized and quickly shopped new deal as "bracketing" levels around 103 bid, anywhere in a 103 1/8 to 103¼ context, up a little from the 102.875 level at which that $600 million transaction had priced.

Boston-based document storage and information technology provider Iron Mountain's new $1 billion of 5¾% senior subordinated notes due 2024 priced too late in the session for an aftermarket.

AMD struggles

Among the deals that priced during Monday's busy $3 billion session, traders saw Advanced Micro Devices' new 7½% notes due 2022 treading water.

One said that those bonds were trading in a range of par-to-1001/4, after having priced on Monday at par, "but they had been a little higher in the morning."

A second trader declared that the Sunnyvale, Calif.-based semiconductor company's upsized $500 million deal "did not fare well."

He saw the bonds open at 100¾ bid, but after that, they fell as low as a 99 7/8-to- par context during the day, before coming off their lows to end around a par-to-100¼ range.

"That was probably the weakest one of the bunch," he said.

That quick-to-market pricing took place after the deal had been upsized from an originally announced $300 million.

Constellation still shines

But while AMD fizzled, Constellation Brands' new issue sizzled, holding onto the handsome gains the Victor, N.Y.-based alcoholic beverage maker, importer and distributor's deal had notched in the secondary market after pricing at par on Monday.

Those 4 5/8% senior notes due 2023 were quoted by a trader around the same 101¾ bid, 102 offered level at which he had seen the quickly shopped $650 million deal go home on Monday.

A second trader also saw the bonds hanging right in around that context.

He said that he was "surprised the Constellation Brands [bonds] were as active as they were today because, usually, they kind of come, price, trade up, get rich really quick and go away.

"There are usually big aftermarket buyers on that, and it's hard to find them after all."

Other Monday deals firmer

Among the other deals that priced on Monday, MarkWest Energy Partners' 5½% notes due 2023 were sewn by a trader to have firmed to the 102 bid area, up from the 100½ bid, 100¾ offered realm where those bonds had been seen late Monday after the Denver-based oil and gas master limited partnership had priced its $750 million deal.

A second trader also saw the bonds at that level, as high as 102, with the day's low at 100¾ bid - still well up from 99.015, where the quickly shopped deal had priced to yield 5 5/8% after being upsized from an originally announced $500 million.

He said, "They were the hardest one to find [among Monday's deals] for some reason."

MarkWest's existing 6¾% notes due 2020 were quoted having gained more than a full point on the day to go out at 108½ bid.

Out of that same energy sector, Oklahoma City-based SandRidge Energy's $1.1 billion two-part deal was seen trading a little above its tranches' respective issue prices.

A trader said that the deal was "kind of hanging in there," quoting its 7½% notes due 2021 - a $275 million add-on to its existing $900 million of those notes - as trading in a 1013/4-to-102 context. That opportunistically timed and rapidly marketed deal, upsized from an originally announced $250 million, priced on Monday at 101.625 to yield 7.241%, but came too late in the day for any aftermarket dealings.

He saw the outstanding bonds, which had been sold back in March of last year, at 102¼ bid.

He also saw the other half of that new deal - the $825 million of 7½% notes due 2023 - around a 1001/2-to-100¾ context. Those bonds priced at 99.5 to yield 7.57% on Monday, after they were upsized from $500 million originally.

At another desk, a trader saw the 2023 bonds at 100¾ bid, 101 offered, while the add-on 2021 bonds were at 101¾ bid, 102 offered.

New issues dominate secondary

One of the traders characterized Tuesday's market as "more of the same - accounts are scrambling to buy new issues because they're still heavy in cash, and there's not a lot of aftermarket trading."

"In most new issues, once the underwriter cleans up whatever short he might be running in the syndicate book, or the aftermarket buyer cleans up what he has to do, it pretty much takes the float out of the marketplace," he added.

A second trader said that the new deals were "pretty much 'it' " in Junkbondland on Tuesday.

"You've got your new-issue trading, where you see everyone else, and there's nothing for sale. Bonds keep going higher, people get more cash and nobody wants to sell anything."

Indicators point higher

Statistical indicators of junk market performance notched their third consecutive session of overall gains on Tuesday.

The Markit Group CDX North American Series 18 High Yield Index edged up by 1 basis point on Tuesday to end at 97¾ bid, 97 7/8 offered, its third straight day on the upside. It had risen by 1/8 point on Monday.

The KDP High Yield Daily Index, meantime, scored its ninth straight advance on Tuesday, gaining 15 bps s to go home at 74.06, after having gained 7 bps on Monday. Its yield narrowed for a third straight session, declining by 8 bps to close at 6.09%, after having come in by 4 bps on Monday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index racked up its ninth consecutive gain on Tuesday, rising by 0.132%, on top of Monday's 0.194% advance.

The latest gain lifted its year-to-date return to 9.806%, a new peak level for 2012, from Monday's 9.661%, the previous high point for the index.

Those recent levels are the strongest they've been in 19 months, since the end of 2010, when the market measure returned 15.19%.

The index's yield to worst fell to 6.814% on Tuesday, its low point for the year, down from Monday's 6.853%, the previous low.

Chesapeake churns higher

Among specific non-primary issues, traders saw Chesapeake Energy's bonds better across the board, after the big Oklahoma City-based natural gas producer reported better quarterly numbers and put on a bullish-sounding conference call.

A trader said that its 6.775% notes due 2019 gained a point to close at 99½ bid, its 6 5/8% notes due 2020 were up 2 points at 1011/2, its 9½% notes due 2015 ended three-quarters of a point ahead at 108½ bid and its 6 1/8% notes due 2021 jumped 3½ points, "and all had good volume."

A market source at another shop estimated that over $24 million of the 6 5/8% notes had traded, moving up 1 3/8 points to 101 7/8 bid, while over $23 million of the 6.775% paper had changed hands, rising a point to 99½ bid.

He said that over $13 million of the 6 1/8s had traded, gaining nearly 3 points on the day to end just below par, while over $10 million of the 91/2s had moved around, up a deuce at just over the 109 market.

Chesapeake's New York Stock Exchange-traded shares meantime rose by $1.67, or 9.44%, to end at $19.37, and volume of 41 million shares was more than a third above normal.

The bonds and shares traded up after Chesapeake posted net income of $1.037 billion, or $1.29 per diluted share, on revenues of $2.117 billion - nearly double the year-earlier net earnings of $510 million, or 68 cents per share, on $1.792 billion of revenue.

However, it must be noted that the vast bulk of those earnings came from one-time factors, such as a net after-tax gain on investments of $584 million, primarily related to the sale of all of the company's interests in Access Midstream Partners, LP and unrealized non-cash after-tax mark-to-market gains of $490 million.

Excluding such unusual items, adjusted income in the latest quarter was $3 million, or 6 cents per share, in line with, or maybe even slightly behind, analysts' average expectations.

On the company's conference call on Tuesday, Chesapeake executives said that the company's plan to sell assets to generate liquidity and use some of the money for debt cutting was working, having completed $2.7 billion of asset sales during the quarter ended June 30, bringing the total amount of asset sales to $4.7 billion in the first half of this year. Further, there is at least another $7 billion of asset sales slated for the current quarter.

Executives also said that they would achieve their goal of bringing long-term debt down to a target level of $9.5 billion at the end of the year.

A trader said that Chesapeake's paper was "generally better."

He opined: "With the market in the state that it's in, every time some news comes out about Chesapeake that's bad or negative, it trades off because they're large, liquid issues." All four of the bonds quoted top the $1 billion mark.

"But at the end of the day," he said, "everyone looks around, says 'I need to put cash to work - what's gotten cheaper?' And they buy 'em back up again."

He said there is "a knee-jerk reaction to sell them on bad news, then it seems like everyone is forced to take them up because they're cheaper to the rest of the market.

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