Fresenius sells euro notes as its new dollar bonds rise; JBS, PetroBakken slate; market firms

By Paul Deckelman and Paul A. Harris

New York, Jan. 18 - FMC Finance VIII SA, a unit of German kidney dialysis company Fresenius Medical Care AG & Co. KgaA, came to market on Wednesday with a euro-denominated tranche of 7.5-year bonds, completing the big three-part drive-by deal that began on Tuesday when another unit of the company, Fresenius Medical Care US Finance II Inc., priced $1.5 billion of 7.5-year and 10-year notes at par.

Those dollar bonds were meantime heard by junk traders to have moved up by at least a point on the session.

The Fresenius euro deal and a Norwegian kroner-denominated offering from Teekay Offshore Partners LP, a unit of oil tanker operator Teekay Corp., were the day's only pricings, although the forward calendar continued to grow nicely with announcements of several dollar-denominated deals - meat packer JBS USA LLC's $400 million of eight-year notes and Canadian oil exploration and production operator PetroBakken Energy Ltd.'s $750 million of eight-year paper. Both hit the road on Wednesday and are expected to price next week.

The primaryside also heard talk that Eastern European telecom company Polkomtel SA had restructured its three-part multi-currency offering of eight-years, leaving just the dollar- and euro-denominated pieces intact, while dropping a tranche denominated in Polish zlotys.

Away from the new deals, traders saw the junk market mostly better, in line with an equity surge. Among the gainers were the recently hard-hit bonds of Chesapeake Energy Corp., which led the high yield most-actives list as they snapped back from recent lows.

There were also gains seen in what has probably been the busiest credit over the past several weeks, retailer Sears Holdings Corp.

Fresenius at tight end

Although the dollar-denominated high yield market saw no new issues on Wednesday, German dialysis company Fresenius Medical Care priced a €250 million issue of 7.5-year senior notes (Ba2/BB) at par to yield 5¼%.

That was the tight end of price talk which had been set in the 5 3/8% area.

The notes were issued via special purpose vehicle FMC Finance VIII SA.

Deutsche Bank, Bank of America Merrill Lynch, Credit Agricole and UniCredit Bank were the joint bookrunners.

The €250 million deal played to €2 billion of orders, half of which came from German retail investors, according to an asset manager who focuses on European high yield.

The deal was trading around the re-offer price not long after the Wednesday European close, the buy-sider added.

The euro-denominated deal came one day after Fresenius successfully placed $1.5 billion of dollar-denominated notes.

That deal, which was upsized from $1.2 billion, included an $800 million tranche of 5 5/8% notes due July 31, 2022 and a $700 million tranche of 5 7/8% notes due Jan. 31, 2022, both of which were priced at par.

Proceeds from all three senior notes tranches will be used for acquisitions, including the company's acquisition of Liberty Dialysis, and to refinance debt, including term loan debt.

Polkomtel sets price talk

As was true of the Tuesday session, much of Wednesday's primary market news emanated from beyond the borders of the United States.

Poland's Polkomtel set price talk for its restructured €900 million equivalent two-part eight-year notes offer.

A $500 million minimum tranche of notes is talked with a yield of 12%.

The remainder of the overall €900 million amount will be comprised of euro-denominated notes which are talked to yield 12¼% to 12½%.

A planned Polish zloty-denominated tranche has been abandoned.

The books close at 4 a.m. ET on Thursday.

Deutsche Bank and Credit Agricole are the global coordinators and joint bookrunners. Royal Bank of Scotland and SG are the joint bookrunners.

Proceeds will be used to take out bridge financing backing the $5.5 billion equivalent acquisition of Polkomtel, Poland's second-largest mobile-phone company, by investor Zygmunt Solorz-Zak.

As previously reported, the deal was originally slated for early to mid December 2011 but was sidelined when volatility related to the credit crisis in the euro zone adversely impacted yield discussions.

The order book for the Polkomtel $500 million minimum dollar tranche was twice the size of the deal prior to the emergence of price talk, according to a buy-side source.

PetroBakken plans $750 million

Canada's Petrobakken Energy began marketing a $750 million offering of eight-year senior notes (expected ratings Caa1/CCC+) on Wednesday.

The deal is expected to price in the mid-to-late part of the week ahead.

Bank of America Merrill Lynch and Credit Suisse are the global coordinators and joint bookrunners. RBC Capital Markets is a joint bookrunner.

The Calgary, Alta.-based light oil exploration and production company plans to use the proceeds to fund a tender for up to $450 million of its convertible notes maturing in 2016 and to repay a portion of its revolver.

JBS starts roadshow

JBS USA LLC and JBS USA Finance Inc. began a roadshow on Wednesday for a $400 million offering of eight-year senior notes (expected ratings B1/BB). The deal is expected to price during the week ahead.

J.P. Morgan, BB Securities, Bradesco BBI, Banco Santander and Wells Fargo are the joint bookrunners.

The Greeley, Colo.-based meat processor plans to fund a distribution to its parent, Brazil-based JBS SA, as well as to repay debt at the parent company, and for general corporate purposes.

2012 is 'risk on' so far

Cash continues to flow into the high-yield asset class, according to a fund manager whose portfolio includes both junk bonds and leveraged loans.

AMG Data Services will likely report a sizable weekly inflow on Thursday, the buy-sider added.

All of the cash is driving investors into the riskier segments of high yield as the market rallies, the investor said.

Bonds rated triple C by both Moody's and Standard & Poor's are the outperformers, year-to-date, having returned 2.6%, five times the 0.53% year-to-date return on double B bonds.

That's the sign of a market that is rallying, the investor said.

"The stock market has been supportive of the high yield," the buy-sider remarked.

"The news of European credit downgrades last week would have likely caused a lot of volatility had it come six weeks ago.

"But now people seem to have the sense that governments and central banks are going to figure out how to re-liquify Europe.

"Europe will continue to be a negative drag but they're going to figure out how to contain it."

New Fresenius bonds firmer

When the new Fresenius Medical Care US Finance II bonds which priced on Tuesday were freed for secondary market activity Wednesday, a trader saw both tranches of bonds - the $800 million of 5 5/8% notes due 2019 and $700 million of 5 7/8% notes due 2022 - trading at 101, up a point from the par issue price where the Bad Homburg, Germany-based healthcare company's deal had come to market.

That two-part offering, which had been upsized to a total of $1.5 billion from the originally planned $1.2 billion - priced too late in the day on Tuesday for an aftermarket at that time.

The trader said he saw those quotes "first thing in the morning," and didn't hear anything after that.

A second trader, who quoted both tranches at 101 1/8 bid, 101 3/8 offered, though, said that there had been "a lot of trading" in the new deal, owing to its great size.

However, another trader, who also saw both halves of the new issue around the 101 bid level, said that he had seen "no real trading - guys that didn't get bonds don't care about it. Guys that did play, for the most part, are holding on to what they've got and not adding to it."

He said that "they priced it pretty tight, so unless you get the crossover guys involved, it's really not going anywhere."

Market moves up

Away from the new-deal sphere, statistical measures of junk market performance - which had improved across the board on Tuesday after having fallen on Friday - mostly stayed on the upside on Wednesday.

A trader saw the CDX North American Series 17 High Yield index gain 1 full point to finish at 95 3/8 bid, 95 5/8 offered - its highest level in months - after having gained 9/16 point on Tuesday.

The KDP High Yield Daily was unchanged at 72.82, after having gained 11 basis points on Tuesday, while its yield was also unchanged, at 7.25%, after having declined by 2 bps Tuesday.

But the Merrill Lynch High Yield Master II Index - whose amazing 20-session winning streak came to an abrupt end last week - continued to rebound on Wednesday, as it posted its third straight gain, rising by 0.071%. That followed Tuesday's 0.035% advance.

That gain raised the index's year-to-date return to 1.261%, up from Tuesday's 1.189% mark. Wednesday's figure also took over as the index's high point for the year so far, eclipsing the old mark, set just the day before.

Junk seemed to follow the lead of a buoyant equity market, which firmed for a second straight session on Wednesday on hopes the International Monetary Fund might be able to help the troubled European debt situation, as well as better-than-expected quarterly earnings from banking powerhouse Goldman Sachs.

The Dow Jones Industrial Average gained 96.88 points, or 0.78%, while the broader Standard & Poor's 500 index rose by 1.11% and the Nasdaq composite tacked on 1.53%.

Back in Junkbondland, a trader said that "in general, the market seemed a little stronger today, especially as the day dragged on. You heard from a handful of accounts that potentially wanted to sell one or two names last week, are now looking to add, because they had an influx of cash last week.

"So you've just seen a lot of offerings, whether they were good or bad, kind of evaporate."

Invoking a shipping metaphor, he said "the tide lifts all boats - except those with holes in them."

At another desk, a trader characterized Wednesday's session as "another 'risk-on' day, with money being put to work."

For instance, he saw bellwether issuer Community Health Systems Inc.'s move "just a little bit, just a tad higher, up a quarter to a half point, but with not a lot of volume there."

The Franklin, Tenn.-based hospital operator's benchmark 8 7/8% notes due 2015 moved up to just below the 104 bid level, while its smaller and more recent 8% notes due 2019 ended at 98 7/8 bid.

With investors coming into the market in dribs and drabs, he said, "we were 'sneaky-busy'." He had stuff going on and we had people putting money to work, and there was enough supply in some of the names that we got trades done."

However, he added that other names "just continued to be bid-without - which is a pain in the ass."

Chesapeake churns back up

Two most active credits of the day both belonged to Chesapeake Energy, whose bonds have recently been hard hit amid falling prices for natural gas, the Oklahoma City-based company's main product.

Its 6 1/8% notes due 2021 saw trading volume of more than $53 million and went home at 99¾ bid, according to a market source, while the company's 6 5/8% notes due 2020 saw over $33 million changing hands at a print of 101½ bid, up about ½ point.

Chesapeake's 9½% notes due 2015 went out at 112½ bid on volume of over $16 million.

A trader said that "the big story seemed to be a mid-day recovery in prices on things like Chesapeake." characterizing the bonds as up 1 point to 1½ points.

With natural gas prices already under $3 per thousand cubic feet against a backdrop of new drilling technology increasing supply and the currently mild winter weakening demand, Chesapeake has recently been a market punching bag.

The trader noted that on Wednesday, there was another potentially bearish indicator, as Bank of Montreal put out a report predicting that gas prices could fall still further, maybe even to the $2 mark for a thousand cubic feet.

While that would seem to militate against any recovery for a name like Chesapeake - "I would think so too," he said, "as soon as everybody starts predicting that it's going to go lower, sometimes it doesn't. "

He suggested that "they're due for a bounce" after getting clobbered around, especially during Tuesday's session.

He also saw other energy-related names like NRG Energy Inc. and Newfield Exploration, which have also been under pressure lately, getting better on Wednesday.

"There was a bit of a bounce - not a lot, a lot of these things were down 10 points [in recent days] and now they're only up a point, or 11/2. But they were due for a bounce."

Yet another trader saw the Chesapeake 6 1/8s up 1 ½ points, pegging the bonds at 971/2, the 6 5/8s at 100¼ bid, up 1 1/8, and the 91/2s up 1 point at 112.

"So they were bouncing back from [Tuesday's] gas leak."

Chesapeake's New York Stock Exchange-traded shares meantime were also on the rise, up 64 cents, or 3.08%, to end at $21.45. Volume of 20 million shares was 66% above the usual turnover.

Sears show strength

Elsewhere, Sears Holdings' 6 5/8% notes due 2018 were trading at 80¾ bid, a trader said, up around ¾ point from prior levels around 80.

Another market source saw the bonds move above the 81 level, up around 1½ points, on busy volume of nearly $15 million, putting the Hoffman Estates, Ill.-based retailer on the junk market's most-actives list.

There was no fresh news out on Sears, whose bonds and shares have struggled since the Dec. 27 announcement by the operator of the iconic Sears and Kmart department store chains that same-store sales - the retailing industry's key performance metric - had declined a consolidated 5.2% from year-ago levels during the all-important eight-week selling season ended Dec. 25. Sears followed that bad news up with the announcement that it will close up to 125 underperforming Sears and Kmart outlets.

The bonds, which fell to around the 70 level from the mid to high 80s pre-news, have since bounced back, sometimes in heavy trading - to current levels just a few points where they were before the slide began.

Sears' Nasdaq-traded shares meantime were up $2.74, or 7.46% on the session, to $39.49. Volume of 3.1 million shares was about 1½ times the usual level.

Also in the retailing space, York-Pa.-based Bon-Ton Department Stores Inc's 10¼% notes due 2014 were trading at 54¼ bid. A market source called that down a point or two from recent levels, on brisk volume of more than $14 million.

MF Global moves up

In distressed territory, as trader said that MF Global Holdings Inc.'s issue of 6¼% notes due 2016 "was a little busy today - they weren't too busy, but you did see those bonds up."

He saw the failed New York-based futures broker's paper up 1¾ points on Wednesday, going home at 37¾ bid.

There was no fresh news out on the company, which slid into bankruptcy at the end of October after placing risky big bets on European sovereign debt. As much as $1.2 billion in customer money went missing, leading to allegations that the company once headed by former Goldman Sachs chairman and New Jersey senators and governor Jon Corzine had improperly raided those supposedly sequestered funds and mingled them with the company's own as it fought to stay solvent.

Corzine and other MF Global executives denied any wrongdoing when they testified before Congress late last year.

MF's shares, now trading over-the-counter since their de-listing by the NYSE, were up more than 5% on the day in Wednesday's dealings, though at well below their average volume.

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