Upsized Spectrum deal prices, trades up; Harrah's gains on cash-infusion plan, ATP steady

By Paul Deckelman and Paul A. Harris

New York, June 4 - Spectrum Brands Inc. successfully priced an upsized $750 million offering of eight-year senior secured notes on Friday - the only new deal to price in Junkbondland this whole week. Market participants noted that the size of the Atlanta-based consumer products company's deal had been upped from the originally announced $500 million to meet demand, and saw also that the new bonds attracted some interest from investors when they hit the aftermarket, moving up by close to a point - a sign, they said, that there may be life in the new deal arena yet, despite the paucity of activity over the past two weeks.

They also noted the fact that several other deals are moving through the pipeline for likely pricing in the upcoming week, including transactions for BWAY Holding Co., TransUnion Corp. and Triumph Group, Inc. Meanwhile, several other prospective issuers - Willbros Group, Inc., Cedar Fair, LP and Citgo Petroleum Corp. - have completed their road shows and their deals remain for now on the forward calendar, regarded as day-to-day, with pricing a possibility - or not - depending on perceived market conditions.

In the secondary market, traders said that junk seemed to begin strongly enough, but the tone turned heavier as the day wore on, taking its cue from equities, which were underwater pretty much all day but particularly towards the close of trading as investors lightened up before the weekend, leaving stocks at their lowest closing level in four months. However, actual cash trading in junk bonds was not nearly as weak as the CDX index, which slid badly.

Harrah's Entertainment Inc.'s bonds, on the other hand, were up solidly, given a boost by news that billionaire investor John Paulson's eponymous hedge fund agreed to exchange debt to acquire a 9.9% equity stake in the world's biggest casino company. Apollo Management and TPG Capital which acquired Harrah's in a January 2008 buyout, will also swap some of the debt they hold for additional equity. The net impact of the transactions will lower Harrah's debt load while providing a half-billion-dollar cash infusion.

Energy names like ATP Oil & Gas Corp., whose bonds have gyrated wildly over the past week on investor hopes and fears related to the Gulf of Mexico oil-rig disaster, were seen generally quiet and steady at the levels to which they had moved after recovering from a sell off on Tuesday.

Upsized Spectrum prices atop talk

The four-session post-Memorial Day week escaped being a shutout in the high-yield primary market, but only by a nose.

Friday saw the week's sole junk deal cross the plate, as Spectrum Brands priced an upsized $750 million issue of 9½% eight-year senior secured notes (B2/B) at 98.634 to yield 9¾%.

The yield printed on top of the price talk. The amount was increased from $500 million.

Credit Suisse, Bank of America Merrill Lynch and Deutsche Bank Securities Inc. were the joint bookrunners.

In conjunction with upsizing the bonds, the Madison, Wis.-based consumer products company downsized its term loan to $750 million from $1 billion.

Proceeds from the notes will be used to help fund the acquisition of Russell Hobbs, Inc., to refinance existing debt of both companies and for general corporate purposes.

Slim calendar stokes demand

The re-jiggering of the bond and bank portions of the Spectrum Brands acquisition financing reflected the greater demand that presently exists in the bond market due to the recent lack of new issuance, an informed source told Prospect News.

The bank deal saw decent demand as well - just not enough to get to the original $1 billion size.

The notes, which came on top of the yield talk, traded up a point in the secondary market, the source said.

"People liked the bonds at the level where they were priced, so there was a decent amount of demand," the official commented.

Initial conversations foresaw the notes pricing at or near par, the source added.

However, given the ongoing capital markets volatility, and given that Spectrum Brands was the week's only deal, the dealers were keen to see that the new notes traded well.

"A little discount helps that," the official said.

2010's second slowest week

Spectrum Brands was the first new issue to price in the junk market since DriveTime Automotive Group, Inc. raised $161 million of proceeds on May 27.

DriveTime was the pre-Memorial Day week's sole new issue, rendering that week the slowest of 2010 to date.

The post-Memorial Day week, with the $739.755 million of proceeds raised by Spectrum Brands on Friday, is the second slowest week of the year so far.

Adding Spectrum Brands to the tally, the year to Friday's close has seen $111.36 billion of junk-rated, dollar-denominated issuance in 265 tranches, according to Prospect News data.

Slow ahead

Trailing two extremely slow weeks straddling Memorial Day, which is the traditional spring-summer boundary in the junk bond market, and five consecutive weeks of outflows totaling $3.2 billion from high-yield mutual funds, sell-side sources are beginning to concede the possibility that summer 2010 will be a slow one in the new issue market.

"Right now investors are making decisions in the primary market much more selectively, on a credit-by-credit basis," a sell-sider said on Friday.

"In March and April investors just needed to get invested, and were not as selective.

"Now we're seeing outflows, so people are rethinking the asset class.

"But there is still demand for the right bonds."

The week ahead

When the first full week of June gets underway on Monday, it will do so with at least a modest active calendar of deals amounting to slightly less than $1.2 billion.

Nearest at hand is BWAY Holding Co., with a $200 million offering of eight-year senior notes (B3/B-), sources say.

That deal is expected to price on Monday or Tuesday, according to an informed source.

No formal price talk has been heard.

However the deal is coming together very well, the source said.

Initial guidance was in the low to mid 10% range. Now it's shaping up in the low 10% range, possibly the 10¼% area, the source added.

The order book is made up of bridge loan buyers and non-bridge buyers, the source added.

"It's always a good thing when you have a little bit of crossover," the official remarked.

The active calendar

Aside from BWAY, the active calendar features a pair of deals that are thought to be business for the week ahead.

Triumph Group has been roadshowing its $350 million offering of eight-year senior unsecured notes (Ba3/B+) via left bookrunner RBC Capital Markets Corp. and joint bookrunner UBS Investment Bank.

Proceeds will be used to partially fund the acquisition of Vought Aircraft.

The deal is expected to price early in the week, possibly on Tuesday.

And TransUnion Corp. is expected to wrap up a roadshow for its $645 million offering of eight-year senior unsecured notes (B3/B-) on Wednesday, with the deal expected to price on the same day.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch, Deutsche Bank Securities Inc. and Credit Suisse are the joint bookrunners.

Proceeds will be used to help finance the purchase of TransUnion's equity as part of the acquisition of the company by Madison Dearborn Partners, LLC and to repay debt.

Day-to-day deals

Meanwhile it has been "radio silence" on several deals which concluded their roadshows a week or more ago, but which were not subsequently priced.

These include:

• Capella Healthcare, Inc.'s $500 million offering of seven-year senior notes (B3/B);

• Cedar Fair, LP's $500 million offering of 10-year senior unsecured notes (B2/B-);

• Citgo Petroleum Corp.'s $1.5 billion two-part offering of first-lien senior secured notes (Ba2/BB+/BB+); and

• Willbros Group, Inc.'s $250 million offering of six-year senior secured second-lien notes (B3/B+).

No hard news surfaced on these deals during the post-Memorial Day week, sources said.

Timing is believed to be day to day, they add.

Announcements possible

Dealers professed visibility on possible new deal announcements for the week ahead, but added that those announcements hinge on market conditions.

"We have a bunch of things ready to go," one conceded. "However these deals are more opportunistic.

"And they are lower quality credits, which you don't want to launch into this market.

"We want to wait to see two or three strong days in a row, where there is a strong bid on the other side."

The only deals that are getting done are the LBOs and the committed acquisitions, the source added, mentioning recent transactions from Hillman Group, Dave & Busters, and American Tire, in addition to Friday's Spectrum Brands and the coming week's BWAY deal.

"These are deals where the underwriters are committed, so they have to go, for fear that the market is going to stay this way, and pricing could gap out even more toward the bridge caps," the official said.

"Nobody wants that."

Meanwhile, the above-mentioned day-to-day deals may have been overtaken by events - capital markets volatility, mutual fund outflows, among them - the source said.

Even if the dealers bring those deals back, levels are not likely to improve from where the books had been shaping up since after the volatility began, the official said.

"I'm sure those levels are higher than the issuers wanted.

"But it's hard to see them tightening back down to the levels where the initial guidance came in late April, when the dealers were pitching them."

New Spectrum bonds move up

When the new Spectrum Brands 9½% senior secured notes due 2018 were freed for trading, the bonds moved up to a range of 99¾ to par, where a trader said "a lot" of the dealings had taken place. That was up from the 98.634 level at which the bonds had priced earlier in the day.

Noting that the deal had been upsized to $750 million from the $500 million that had been originally announced earlier in the week, indicating more demand for the issue than initially estimated, the trader - also noting the aftermarket rise - said that "it's good to see the right deal priced rightly, and that it can stand on its own. That's a good sign, even with the stock market taking a sell off. This one performed very nicely."

Another trader said the bonds "traded up a little bit" to go out bid at 99 5/8. At one point during the session, he said, the Spectrum bonds had gotten as good as 99¾ bid, 100 1/8 offered. But he didn't see "a lot of trading," although he did see the bonds move up.

Market indicators turn mixed

Back among bonds not related to the new-deal realm, a trader saw the CDX North American HY Series 14 Index plummeting by 1 3/8 points on Friday to end at 93½ bid, 93¾ offered, after having gained 1/8 point on Thursday. The index thus ends well under its peak level for the week of 94 7/8 bid, 95 1/8 offered, and even below the weak 93¾ bid, 94¼ to which it fell on Tuesday when the junk market, returning from the Memorial Day break, was dragged lower by falling energy issues. In contrast, the index had closed out the previous week, ended in the abbreviated pre-holiday session on Friday May 28, at 94¾ bid, 95¼ offered.

But while there was definite weakness in the CDX, other market gauges were not so certain. The KDP High Yield Daily Index, for instance, edged upward by 2 basis points on Friday to end at 69.93, after having firmed by 10 bps on Thursday. It thus ended slightly below the week-earlier 70.01 finish. However, its yield was unchanged on the session, after having tightened by 4 bps on Thursday to 8.89% - exactly where it had closed out the previous week as well.

Another market measure, the Merrill Lynch High Yield Master II index, closed the session showing a year-to-date gain of 3.294%, slightly below the 3.346% level at which it had finished the previous week. The average index price in the latest week was 95.198, versus 95.407 a week ago. Its yield to worst rose over the week to 9.239% from 9.07%, while its spread to worst versus comparable Treasuries widened to 714 bps from 694 bps a week ago.

Advancing issues fell back behind decliners by around a six-to-five margin on Friday, after having outpaced them on Thursday by around seven to five.

Overall market activity, represented by dollar-volume levels, plunged by nearly 28% on Friday after having eased by around 7% on Thursday.

Traders noted that away from the excitement generated by the good reception accorded to the new Spectrum Brands issue, "there wasn't a whole heck of a lot of stuff going on."

He said that high yield saw "kind of a slow morning, but then it kind of picked up later on through the day," although final volume totals were well down from even Thursday's relatively sedate pace.

Harrah's heads higher

Harrah's Entertainment's bonds were seen several points higher pretty much across the board, traders said, in response to the news about the debt-swap deals involving Paulson & Co., Apollo Management and TPG Capital.

Its Harrah's Operating Co. Inc. 10% notes due 2018 and 5 5/8% notes due 2015 were each up more than 4 points, one of them said, pegging the 10s at around the 82 level on over $50 million of bonds traded. He said the Harrah's Operating 5 5/8s were also 4 point gainers to around 66½ bid, although he only saw about $10 million of those particular notes changing hands., "not a heck of a lot of volume when you compare it to the other two issues."

One of those was the 11¼% notes due 2017, which were firming by between ¾ and 1 full point to 105¾ bid, on over $20 million of volume.

The trader also saw some $19 million of Harrah's Operating's 10¾% notes due 2016 trading around 80, which he said was about unchanged on the day.

A second trader said he had seen the Las Vegas-based casino giant's bonds up by as much as 6 points on the session early on "but they gave some of that back as the day wore on because of the overall market heaviness."

The bonds firmed on the news that under the investment agreement, Harrah's is exchanging $1.118 billion of debt for up to approximately 15.6% of its common equity.

Specifically, Paulson & Co., along with Apollo Management and TPG Capital, has agreed to purchase approximately $835 million of Harrah's 5 5/8% senior notes due 2015, 6½% senior notes due 2016 and 5¾% senior notes due 2017 for approximately $557 million.

Paulson has agreed to exchange approximately $710 million of notes in a private exchange for equity in Harrah's, and Apollo and TPG have agreed to exchange approximately $408 million of notes for equity on the same terms and conditions as Paulson.

In addition, through this transaction, Harrah's will raise $557 million of cash proceeds, which will be used for general corporate purposes, including further balance sheet optimization and strategic investments.

Las Vegas-based Harrah's expects to close on the exchange in the fourth quarter of 2010 or the first quarter of 2011.

"Upon closing of the transaction, Harrah's will have approximately $3 billion in available liquidity, including $1.5 billion in cash on hand and amounts undrawn under Harrah's revolving credit facility, and upon the closing of the previously announced amendments to Harrah's CMBS loans, no significant debt maturities until 2015," the company said in a press release announcing the news.

"This is an important transaction for Harrah's Entertainment for a number of strategic reasons," remarked Gary Loveman, chairman, president and chief executive officer, in the release.

"We are raising capital for emerging domestic and international growth opportunities, and upon closing of the exchange, will reduce our debt and lower our interest expense. The investment from Paulson, an independent third party and a large sophisticated investor, reflects the strong and resilient performance of our company, particularly as we emerge from a difficult economic climate, and the encouraging prospects for our future. We also are gratified by the confidence in Harrah's demonstrated by our sponsors, Apollo and TPG."

Following the announcement, Moody's Investors Service upped Harrah's speculative grade liquidity rating to SGL-3 from SGL-4.

Energy quiets down

A trader said that the recently volatile energy sector "quieted down " on Friday, seeing Houston-based energy exploration and production operator ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 in a 72-73 context - about the level at which those bonds had been trading over the previous several sessions.

"I don't want to say it's had its run, but it has quieted down. Folks made their bets earlier in the week on which way they think this thing [i.e. the Gulf oil rig mess and the attendant federal moves to throttle back off offshore oil drilling] will play out."

Another trader said that "there wasn't a lot cooking" in ATP, quoting the bonds in a 721/2-74 context.

Those ATP bonds had fallen sharply into the mid 60s as the week opened, from prior levels in the mid-70s, but appeared to come back later in the week to that mid-70s context, with traders surmising that the sell off in the credit had been overdone.

The company had priced $1.5 billion of the 11 7/8s on April 19 at 99.531 to yield 12%. That pricing came the day before the oil drilling rig Deepwater Horizon, owned by Transocean and under lease to international oil major BP plc, exploded, burned and capsized in the Gulf of Mexico, about 40 miles southeast of the Louisiana coast. The mishap killed 11 workers and injured 17 others and started the massive oil leak, which has still not been brought under control more than six weeks later.

Although the TP bonds had initially shrugged off the bad news and had even firmed to the 102-103 region in the days after the pricing, they started to come down in the weeks that followed when it became apparent that the oil-rig explosion and resulting environmental problems had been far more serious than initially thought, leading to a government-ordered moratorium on new drilling in the Gulf - a potentially severe blow to a company like ATP, which has most of its proven reserves there.

While the bonds had rallied just before Memorial Day on investor hopes that BP could cap the well and end the environmental damage, that proved not to be the case, and the bonds slid badly on Tuesday, when the market reopened after Memorial Day, although they did come off those lows later in the week.

On Friday, Moody's changed ATP's credit outlook to negative from its previous positive status. It affirmed the oil explorer's rating at Caa2.

"The move to a negative outlook reflects that the ratings and prior outlook were tied specifically to successfully drilling, completing and tying in three deepwater Gulf of Mexico Telemark Field wells to first production this year, at roughly the projected production rates, and that by year-end 2010 ATP's 2011 drilling program would be adequately capable of supporting the post-Telemark higher production base," Moody's said in a statement. "Telemark is located in approximately 4,450 feet of water and most of ATP's other core prospects are located in [Gulf of Mexico] deep waters."

Additionally, the rating agency said the recent six-month moratorium on offshore drilling played a role in the outlook alteration.

Also on the energy front, a trader said that Transocean Inc.'s 5¼% notes due 2013 were up about ¾ point on the day on "okay volume", trading around the 95¼ level.

The deepwater oil-rig operator's 6.80% bonds due 2038, were also up about ¾ point at 88 bid, on estimated volume of some $50 million, the trader said.

He saw the 6% notes due 2018 pretty much unchanged to maybe up 1/8 point at 93½ bid, on okay volume."

Earlier in the week, the company's still-nominally investment grade notes had began trading around in the junk market, as investment-grade accounts began getting out of the paper and junk players began scooping it up.

At one point earlier in the week, the three series of bonds had been seen down as much as 7½ or 8½ plus points in heavy trading, although eventually, the bonds steadied somewhat to only end down around 6 points from their prior levels. Transocean steadied a little at slightly higher levels on Thursday and Friday,

A trader said energy dominated the secondary market this week, to the exclusion of nearly everything or everybody else, because "when you open up the newspaper and you see birds covered with oil, and the president is talking about it, with everyone else, it's what a lot of people are focused on, because you just don't know which way it's going to go."

-Stephanie N. Rotondo contributed to this report

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