AES brings mega-deal, existing bonds off; Diversey jumps on buyout; Catalyst climbs

By Paul Deckelman and Paul A. Harris

New York, June 1 -The month of June opened up on Wednesday with a quickly-shopped $1 billion offering of 10-year notes from AES Corp. While the Arlington, Va.-based global power generating company's new deal arrived on the screens too late for any real aftermarket activity, its existing bonds were seen off by as much as a point on the news.

That was the only domestic pricing seen during the day in Junkbondland.

Elsewhere on the primaryside, medical device maker Teleflex Inc. was heard to be hitting the road to market a $250 million senior subordinated bond offering. Some whispers were heard out on where European paper manufacturer Norske Skogindustrier ASA's €300 million 5-year issue will price. And Integra Telecom Holdings, Inc. was heard by syndicate sources to have withdrawn its planned $260 million bond issue, which never did seem to catch on with potential investors.

Recently priced new deals such as Tuesday's Cinemark USA Inc. offering and last week's General Motors Financial Co. Inc. bond issue, were seen holding their own.

Away from the new-deal realm, bonds of industrial cleaning products manufacturer Diversey Holdings Inc. pushed sharply higher on the news that the company will be acquired by Sealed Air Corp. in a transaction valued at $4.3 billion.

Catalyst Paper Corp.'s bonds were up by multiple points on the news that the paper manufacturer and its lenders had agreed on changes to its credit facility terms, including extending the loan agreement's expiration date by nearly three years.

AES drives by

As turbulence took hold of the stock markets in Europe and the United States, the high-yield primary market appeared not to break its stride, beginning the month of June with a $1 billion session.

That amount, in its entirety, came from a single drive-by issuer.

AES priced $1 billion non-callable 10-year senior notes (B1/BB-) at par to yield 7 3/8%.

The yield printed at the wide end of the 7¼% to 7 3/8% price talk.

Against the backdrop of volatility in the stock market, investors managed to move the conversation about the AES interest rate into the context of 7 3/8% to 7½%, according to a mutual fund manager who did not get in the deal.

Hence, AES actually got its deal done at the low end of the unofficial yield conversation which ensued after official price talk came out, the buy-sider said.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC and Morgan Stanley & Co., Inc. were the joint bookrunners.

The Arlington, Va.-based generator and distributor of electricity plans to use the proceeds for general corporate purposes, including helping finance its acquisition of Dayton Power and Light Co.

Teleflex roadshow Thursday

Elsewhere, the forward calendar continued to build.

Teleflex will begin a roadshow on Thursday for a $250 million offering of 10-year senior subordinated notes.

The public deal is expected to price in the middle part of the week ahead.

Bank of America Merrill Lynch, Goldman Sachs & Co. and J.P. Morgan Securities LLC are the bookrunners.

The Limerick, Pa.-based medical device company plans to use the proceeds to prepay $125 million of its existing credit facilities and for general corporate purposes which may include capital expenditures, acquisitions and additional debt repayment.

Strong demand for bonds

The buy-side continues to have a great deal of cash to put to work, one syndicate banker commented on Wednesday.

"We saw one account take a massive piece of a recent deal, and told one another 'That guy won't be back for a while,'" the banker said.

"But guess what - he's already back.

"People have cash to put to work."

Norske Skog roadshows

In Europe, Norway's Norske Skogindustrier, now in the market with a €300 million offering of five-year senior notes, seeks to get the deal done with an interest rate in the range of 11% to 12%, according to a debt capital markets banker in Europe.

The debt refinancing deal was the only high-yield bond offering being actively marketed in Europe on Wednesday, the banker added.

The joint bookrunners are Citigroup, DnB NOR, SEB and Nordea.

The same banks have also committed to a €140 million revolver as part of the Norske Skog refinancing.

Investor presentations for the bonds took place on Wednesday in London, and the deal could price before the end of the week, said the banker.

A European pipeline is expected to begin taking shape in the week ahead, the banker said, noting that much of Continental Europe will take off work on Thursday because of the Ascension Day holiday.

British automaker Aston Martin Lagonda Ltd. is doing a pre-deal roadshow, via Deutsche Bank, that is expected to result in new high-yield bonds, the banker said.

And French optical engineering firm Spie, which is the object of a buyout being led by Clayton Dubilier & Rice, is expected to sell bonds as part of the €1.5 billion of debt financing backing the LBO.

The banks include HSBC, Morgan Stanley, SG CIB, Credit Agricole CIB and Deutsche Bank AG.

However the size of the bond deal is expected to be much smaller - likely in the vicinity of €300 million - than the size of the bank loan, the sell-side source said, and added that the bond deal is probably at least a couple of weeks away.

New AES comes too late; existing notes off

The new AES 10-year notes came to market too late in the day for any meaningful aftermarket.

A trader predicted that when the new bonds do begin trading, they likely will firm by about ¼ to ½ point from their par issue price.

Meanwhile, market participants said that the power generating company's existing bonds were moving around, mostly to the downside, on the news that the company was taking on another $1 billion of debt.

Its 8% notes due 2017 were seen closing the session down 1/8 point at 107½ bid.

However, two separate market sources said that throwing out all of the smallish trades and just looking at round-lot transactions the bonds fell by 1¾ points, ending at 106¾ bid.

Volume was more than $10 million, making it one of the busier issues of the day.

Cinemark, GM hold gains

Among recently priced deals, trader said that Cinemark USA's new 7 3/8% senior subordinated notes due 2021 were trading at 101½ bid, 102 offered - about the same level that the Plano, Tex.-based movie-theater company 's $200 million offer had traded up to on Tuesday, after having priced at par earlier in that session.

A second trader though, saw that quickly-shopped offering more in a context of 101 1/8 to 101 5/8.

He also saw Puget Energy Inc.'s 6% senior secured first-lien notes due 2021 at par bid, 100½ offered.

The Bellevue, Wash.-based electric utility operator's drive-by offering of $500 million of the bonds - upsized from the originally planned $350 million - priced at par on Tuesday, although it was not seen in the aftermarket at that time.

However, another trader said on Wednesday that he had, in fact, not seen the Puget bonds trading around during that session either.

A trader saw General Motors Financial's 6¾% notes due 2018 trading at 101 bid, 101½ offered.

The $500 million offering from the Detroit auto giant's finance arm had priced at par on Thursday, and had moved up to 101-101½ when the bonds were cleared for secondary dealings, and had held those levels ever since.

Going back a bit further - though also in the automotive realm - a market source quoted Jaguar Land Rover plc's 7¾% notes due 2018 at 102¼ bid, up 7/8 point on the day.

The iconic British luxury carmaker had priced $410 million of those bonds at par on May 12, as part of a $1 billion equivalent dollar and sterling three-part offering, the other two parts of which were not seen trading around on Wednesday. After having priced at par, the bonds of all three tranches had firmed smartly to levels approaching 103 bid, although they had since come in a little; the 73/4s had been quoted last week gyrating around the 101½ bid level.

International Coal bonds heat up

International Coal Group Inc.'s bonds were seen having firmed solidly in Wednesday's dealings, likely helped by Tuesday's news that Arch Coal Inc., which has agreed to acquire Scott Depot, W. Va.-based sector peer International, is planning a $2 billion junk bond issue as part of the financing for that $3.4 billion deal, which was announced about a month ago.

International Coal's 9 1/8% notes due 2018 were seen up 2¾ points, ending at 124½ bid, on round-lot volume of over $4 million.

Arch Coal's 7¼% notes due 2020 were lower on the day, losing about 1¼ points to close at 104½ bid. Volume was about $9 million.

The St. Louis-based coal operator's 8¾% notes due 2016 were down by about 7/8 point at 110 5/8 bid, although volume was much lighter than the 71/4s, and included no large block trades.

Arch's cross-town industry competitor, Peabody Energy Corp.'s 6½% notes due 2020, gained nearly a point end just below the 109 level.

Diversey bonds dominate

Away from the new-deal arena, merger-mania was also playing a role in secondary activity, with a trader noting the sharp rise in the bonds of Diversey Holdings - the Sturtevant, Wis.-based industrial cleaning and sanitation supplies company more familiarly known by its former name, JohnsonDiversey - on the news that the company will be acquired by Sealed Air Corp. in a $4.3 billion transaction that includes a $2.9 billion total equity component and the rest assumption of debt and other liabilities.

"Today's story was JohnsonDiversey," he declared, quoting the company's 10½% notes due 2020 up anywhere from 16 to 20 points on the session. Those bonds had not traded for more than a week, and had last been seen previously around 110 bid. But they opened on Wednesday having jumped to 133 bid in round-lot trading, before coming off that peak level to end at 126 bid, still up 16 points on the session. Round-lot trading volume was about $5 million.

Diversey's 8¼% notes due 2019 had been trading in late May somewhere below 110; they opened at 110 on Wednesday and then jumped on the takeover news to a closing level around 122 bid, on volume of more than $2 million.

Catalyst climbs on loan amendment

Elsewhere in the junk market secondary, a trader said that Catalyst Paper's bonds "were up nicely" on news of the Richmond, B.C.-based paper company's amend-and-extend agreement with its credit facility lenders.

He quoted its 7 3/8% notes due 2014 having gained 5 points on the session to finish at 58 bid, 59 offered.

He also saw the company's 11% senior secured notes due 2016 up about 2 points on the session at 91 bid, 92 offered.

Catalyst was one of the most actively traded junk bonds on the day, with a trader seeing over $28 million of the notes having changed hands, easily putting it among the top five most active issues. He quoted the bonds as having risen more than 6 points on the day to 59 1/8 bid.

Catalyst announced the extension and amendment of its current $330 million asset-based loan facility maturing August 2013 to a C$175 million ABL facility maturing May 31, 2016.

The reduction in the amount of the ABL facility to C$175 million reflects reduced working capital levels due to the permanent closure of the company's Elk Falls mill last year.

A trader meantime said that Catalyst sector peer NewPage Corp.'s bonds were pretty much unchanged, with the Miamisburg, Ohio-based coated-paper manufacturer's debt getting no real lift from the Catalyst surge.

He saw its 10% notes due 2012 at 42 bid, 43 offered and its 11 3/8% first-lien senior secured notes due 2014 at 96 bid, 97 offered, which "might even be down a half point."

He said that there was "some decent volume" in the 10s, although he allowed that it was "nothing near what Catalyst did," activity-wise.

Gap goes south

In the crossover world, a trader said that Gap Inc.'s 5.95% notes due 2021 "continued to go down" on Wednesday.

A market source said that according to the Trace system, turnover of $48 million was tops among issues carrying either a fully junk rating or, like Gap, a split rating (Baa3/BB+/BBB-) Much of that volume, though was seen having come from high-grade accounts reaching down to get a little yield, rather than from pure junk accounts, which regard the issue's coupon as being on the small side.

The first trader noted that the paper had priced back in April at 245 basis points over the 10-year Treasury notes, and after pricing had tightened to a spread of 231 bps over - but on Wednesday, they were trading at 325 bps over. He said that the spread widening was more a function in the bonds' own price deterioration rather than any downturn in Treasury rates in the nearly two months since the bonds priced.

On a dollar-price basis, the bonds, which had come to market at 99.65 to yield 5.997%, in a $1.25 billion deal that came to market on April 7, were seen on Wednesday trading at 98¼ bid.

"They've widened quite a bit," the trader said. He noted that after pricing in early April, the San Francisco-based apparel retailer - corporate parent of its eponymous The Gap store chain, as well as the Banana Republic and Old Navy outlets - "came out two weeks later with bad numbers. They missed their numbers, and the bonds started down and have continued down."

He said that if an investor had shorted the Gap deal right after issue and had bought sector peer Limited Brands Inc.'s 6 5/8% notes due 2021, an upsized $1 billion of which priced at par on March 22, "you probably would have had 10 points in the trade." He said that the Columbus, Ohio-based retailer "is a better credit" than Gap. The Ba1/-/BB+ bonds are currently trading at 104 bid. On a spread basis, they tightened from 329 bps over at the pricing - around where Gap is now - to current levels around 305 bps.

Market signs are mixed

Statistical measures of market performance, which had firmed a little bit on Tuesday after having eased during Friday's abbreviated pre-holiday session, were seen further mixed on Wednesday.

A trader saw the CDX North American Series 16 HY Index down by 5/8 point on Wednesday, falling to 101 9/16 bid, 101 11/16 offered, after having gained 1/8 point on Tuesday.

The KDP High Yield Daily Index eased by 1 bp Wednesday to 75.94, after having risen by 4 bps on Tuesday, although its yield came in by 2 bps on Wednesday to 6.47% after having been unchanged on Tuesday.

However, the Merrill Lynch High Yield Master II Index posted its second consecutive gain on Wednesday, rising by 0.062%, on top of Tuesday's 0.056% advance.

That lifted the index's cumulative return to 6.063% from Tuesday's 5.997%. However, its year-to-date return remains a little below the 2011 peak level of 6.071%, reached on May 20.

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