Gibson prices add-on, Essar restructures, more deals slate; Forest firms on Sabine merger news

By Paul Deckelman and Paul A. Harris

New York, May 6 - The high-yield primary segment only saw one smallish actual pricing on Tuesday, but there was plenty of action going on behind the scenes, as a barrage of prospective deals were either formally announced or otherwise found their way onto the radar screens. Meanwhile, price talk came out on several deals that were already in the market - one of which was restructured.

The pricing came from Nashville-based musical instrument and audio equipment manufacturer and distributor Gibson Brands, Inc., which brought a $150 million add-on to its existing 2018 secured notes to market. The new notes traded around their issue price.

Price talk emerged on two deals that are expected to price on Wednesday: real estate and energy operator Forestar Group, Inc.'s $250 million eight-year secured offering and iron ore producer Essar Steel Minnesota LLC's $450 million of six-year secured notes; the latter deal was heard to have been restructured.

A slew of fresh deals from Radian Corp., AerCap Ireland Capital Ltd., First Quantum Minerals Ltd. and Kratos Defense & Security Solutions, Inc. meanwhile climbed aboard the forward calendar.

German ball-bearing manufacturer Schaeffler Group was heard to be bringing a super-sized five-part deal that will include a dollar-denominated tranche in addition to tranches denominated in euros.

Away from the new deals, Forest Oil Corp.'s two series of bonds were easily the dominant element, jumping to levels at or above par from their previous positions in the upper 80s, with tens of millions of dollars worth of each trading on the news that the energy producer will merge with sector peer Sabine Oil & Gas LLC.

Statistical indicators of market performance were mixed on the day for a sixth consecutive session.

Gibson taps 8 7/8% notes

In a session that saw a massive build-up of the active deal calendar, only one new dollar-denominated issue priced.

Gibson Brands priced a $150 million add-on to its 8 7/8% senior secured notes due Aug. 1, 2018 (B3/B-) at 104.25.

The execution rendered a 7.36% yield to worst and a 7.67% yield to maturity.

The reoffer price came in the middle of the 104 to 104.5 price talk.

Jefferies was the sole bookrunner for the acquisition financing.

Talking the deals

The Wednesday session gets underway with a $7.5 billion calendar of known dollar-denominated offerings, most of which are slated to price before the weekend.

Dealers set the table for the mid-week session with news on deals that have been in the market since at least the beginning of the week.

Essar Steel Minnesota restructured its $450 million offering of senior secured notes (Caa1/CCC+).

The maturity of the bonds decreased to six years from seven years.

Call protection now covers the entire life of the bond, increased from four years.

There are also covenant changes.

Price talk sets out an 11½% coupon at roughly two points of original issue discount to yield 12%.

Credit Suisse, Morgan Stanley and Jefferies are joint bookrunners for the deal that is set to price Wednesday.

Forestar Group talked its $250 million offering of eight-year senior secured notes (B2/BB-) to yield 8½% to 8¾% in a deal also set for Wednesday.

Goldman Sachs, KeyBanc and J.P. Morgan are the joint bookrunners.

And in a deal that figures to be in the market only overnight, Radian Group Inc. plans to price a $200 million offering of non-callable five-year notes on Wednesday.

Goldman Sachs is the sole bookrunner for the acquisition and debt refinancing deal that was announced late Tuesday.

AerCap $2.6 billion deal

In addition to Radian, other dollar-denominated issuers unveiled offerings on Tuesday - all of them sizable.

Leading the pack was AerCap Ireland Capital and AerCap Global Aviation Trust kicking off a $2.6 billion three-part offering of non-callable senior notes.

The deal is coming in tranches of notes maturing in three years, five years and seven years.

Joint physical bookrunner UBS will bill and deliver. Citigroup is also a joint physical bookrunner.

The Amsterdam-based aircraft leasing company plans to use the proceeds to fund the acquisition of 100% of the common stock of International Lease Finance Corp. from American International Group Inc.

First Quantum refinancing

First Quantum Minerals began a roadshow on Tuesday for a $650 million offering of eight-year senior notes.

Global coordinator Credit Suisse will bill and deliver. BNP Paribas and Jefferies are also global coordinators.

The Vancouver, B.C.-based copper producer plans to use the proceeds to repay bank debt.

Kratos $625 million secured deal

Kratos Defense & Security Solutions plans to start a roadshow on Wednesday for a $625 million offer of five-year first-lien senior secured notes (expected ratings B3/B).

SunTrust is the lead bookrunner.

The San Diego-based high-tech defense contractor plans to use the proceeds to redeem its 10% secured notes due 2017.

IDH taps floater

The European market, regrouping after England's bank holiday on Monday, generated a robust news volume.

United Kingdom-based Integrated Dental Holdings and IDH Finance plc priced a £100 million add-on to their Libor plus 500 basis points floating-rate notes due Dec. 1, 2018 at 101.25.

The reoffer price came at the rich end of the 100.75 to 101.25 price talk.

Global coordinator Credit Suisse will bill and deliver. JPMorgan was also a global coordinator.

The Kearsley, England-based dental services provider plans to use the proceeds to refinance bank debt.

Schaeffler dual-currency deal

Germany-based Schaeffler Finance BV kicked off a €2 billion equivalent offering of high-yield notes with investor conference calls on Tuesday.

The deal, which is coming in dollars and euros, as well as in secured and unsecured notes with three separate tenors, is expected to be in the market until the mid-to-late part of the week, sources say.

An early read on the deal's timeline has price talk coming out on Wednesday, with terms possibly coming on Thursday, according to a London-based sellside source.

The five tranches include

• Euro-denominated five-year senior secured notes (Ba2/BB-), which come with two years of call protection;

• Dollar- and euro-denominated seven-year senior secured notes (Ba2/BB-), which come with three years of call protection;

• Euro-denominated eight-year senior secured notes (Ba2/BB-), which come with three years of call protection; and

• Euro-denominated five-year senior unsecured notes (B1/B), which come with two years of call protection.

Physical bookrunner JPMorgan will bill and deliver for both the dollar- and euro-denominated notes. Physical bookrunner UniCredit will also bill and deliver for the euro-denominated notes.

The Herzogenaurach, Germany-based ball-bearing manufacturer plans to use the proceeds, together with a new term loan E, to repay debt, to pay an antitrust fine and for general corporate purposes.

R&R Ice Cream roadshow

R&R Ice Cream plc plans to run a roadshow for its £315 million offering of six-year senior secured notes (B1//) on Wednesday and Thursday.

Goldman Sachs, Barclays and JPMorgan are the joint bookrunners for the debt refinancing.

Soho House starts roadshow

Soho House Bond Ltd. began a roadshow on Tuesday for a £25 million add-on to its 9 1/8% senior secured notes due October 2018 (Caa1/B-) via sole bookrunner Imperial Capital.

Proceeds will be used to repay debt and for general corporate purposes.

Gibson Brands breaks

In the secondary market, a trader doubted that there would be much activity in Gibson Brands' add-on to its 8 7/8% senior secured notes due 2018, theorizing that the $150 million regularly scheduled forward calendar transaction was just too small.

At another desk, however, a trader said that he had heard the guitar manufacturer's bonds initially quoted offered at 105, though with no bid, and he later quoted them in a 103 7/8 to 104¼ context, versus their 104.25 pricing level.

And a third trader pegged the new bonds at 104¼ bid, 104 7/8 offered.

Berry very busy, again

For a second straight session, some $36 million of Berry Plastics Group, Inc.'s new 5½% second-priority senior secured notes due 2022 were heard by traders to have changed hands.

The Evansville, Ind.-based plastic packaging products manufacturer's Berry Plastics Corp. subsidiary had priced $500 million of those notes at par on Monday in a quick-to-market transaction.

But unlike Monday's aftermarket activity, which had seen those bonds firm by between ¼ point and ½ point, Tuesday saw the Berry bonds in retreat from those modest gains. One trader saw the notes in a par to 100¼ context, while a second had them at 100 1/8 bid, down about 1/8 point from Monday.

Recent deals mixed

Among other recently priced issues, a trader saw Sirius XM Holdings Inc.'s 6% notes due 2024 up by 5/8 point on the day at 101¾ bid, 101 7/8 offered.

The New York-based satellite radio broadcaster had priced $1.5 billion of those notes at par on Thursday in a drive-by offering, via its Sirius XM Radio Inc. subsidiary. They had risen modestly in initial secondary dealings, finished out last week around a 101 bid context, and continued to firm on Monday and Tuesday.

Constellium NV's 5¾% notes due 2024 were quoted down 1/8 point at 102¼ bid, 102¾ offered.

The Amsterdam-based aluminum products manufacturer had priced $400 million of notes last Wednesday at par as part of a regularly scheduled €590 million equivalent two-part transaction that also included a tranche of euro-denominated seven-year notes. They had quickly jumped to the 102 bid level when they were freed to trade and remained at or above that mark during the subsequent sessions.

Going back a little further, Clear Channel Communications Inc.'s new 10% notes due 2018, a trader said on Tuesday, "were still getting thrashed - what a disaster, down below 96."

He said he had heard quotes as low as 95 7/8 bid, 96 3/8 offered - and was at a loss to explain why the bonds continued to get hammered down, particularly given the hefty 10% coupon, almost twice what the average junk bond is yielding these days.

A second trader agreed that the new issue had fallen about ½ point on Tuesday, on top of losses seen on Monday and over last week, to dip below the 96 bid mark, at 95¾ to 961/4.

The San Antonio, Texas-based radio broadcasting and outdoor advertising company had priced $850 million of those notes at par via its CCU Escrow Corp. subsidiary in a quickly shopped offering last Monday that was more than doubled in size from an originally announced $400 million. But those bonds did not hold their issue price for very long, easing to around 99½ bid, 99¾ offered in initial aftermarket dealings, and then getting progressively worse as the week wore on. They had gone home on Thursday at 97¾ bid, 98 offered, were quiet on Friday and slid again in Monday's and Tuesday's dealings.

Forest on fire

For a second day in a row, though, whatever trading was going on in the day's new deal or in other recently priced issues - even the actively traded Berry Plastics bonds - was overshadowed by strong upside movements in a junk credit's existing bonds, driven by merger-and-acquisition news.

On Monday, it had been B/E Aerospace Inc., whose 2022 bonds had strongly gained altitude after the Wellington, Fla.-based aircraft cabin components manufacturer announced that it had hired Citigroup as an adviser and would consider possible strategic transactions up to and including a sale or merger of the whole company or sale or spinoff of one or more of its businesses.

On Tuesday, Forest Oil Corp. bumped BEAV out of the spotlight with its announcement that the Denver-based independent oil and gas exploration and production company will merge with Sabine Oil & Gas. Sabine will be the surviving entity in the all-stock combination; its shareholders will own 73.5% of the combined company, leaving Forest Oil shareholders with 26.5%.

Forest Oil's bonds had been badly battered back in late February and early March after the company reported poor fourth-quarter numbers, with both its 7¼% notes due 2019 and its 7½% notes due 2020 plunging into the 80s over the space of several consecutive sessions from their pre-earnings levels at or above par.

But on Tuesday, they got it all back.

A market source saw the 7¼ notes zooming by nearly 12 points to 100 7/16 bid on volume of over $130 million in big round-lot transactions.

He saw the 7½% notes doing even better, jumping by 16½ points to close at 104 bid, with over $97 million of those notes having changed hands.

"Forest was clearly the thing that took everything today," a trader said.

Noting the huge gain in the battered bonds, he said that "it was like a birthday present" for anyone who had had a strong enough stomach to withstand the February-March carnage and was prescient enough to hang onto the bonds rather than cashing out at that point to cut their losses.

Another trader said that counting the odd-lot dealings, the 7¼% notes saw over $154 million of total volume, while the 71/2s had traded north of $106 million.

The merger news also gave a boost to Forest's New York Stock Exchange-traded shares, which at one point had soared by as much as 39% from Monday's closing levels. The shares ultimately surrendered much of those gains, but still finished up by 24 cents, or 13.41%, at $2.03. Volume of 37.9 million shares was more than six times the norm.

B/E Aerospace's bonds, meantime, continued to hold just a little below the levels to which they had moved to on Monday, although on considerably lower volume than on Monday.

Its 5¼% notes due 2022, which had risen by more than 3 points on Monday to around the 106½ bid level with over $22 million traded, were seen on Tuesday having eased slightly to about the 106 mark. Its 6 7/8% notes due 2020 were at about 108 5/8 bid, 108 7/8 offered versus 108¾ on Monday - which had actually been an erosion of their pre-news levels above 109 bid. Over $9 million traded on Monday, but only a little over $1 million on Tuesday, a trader said.

Indicators stay mixed

Statistical junk performance indicators remained mixed on Tuesday for a sixth consecutive session.

The Markit Series 22 CDX North American High Yield index lost 1/16 point on Tuesday, its fourth straight setback, ending at 106 23/32 bid, 106 25/32 offered. It had been down by 3/32 point on Monday.

The KDP High Yield Daily index eased by 1 bp for a second consecutive session on Tuesday, ending at 74.92. Those small losses on Monday and Tuesday followed a 5 bps gain on Friday, its first advance after three straight losses.

While the index's yield usually moves inversely to the index reading, it was also down by 1 bp on Tuesday to end at 5.17% after having been unchanged on Monday.

But the widely followed Merrill Lynch High Yield Master II index continued to rise unambiguously on Tuesday for a seventh straight session. It gained 0.069%, on top of Monday's 0.039% improvement.

Tuesday's gain raised the index's year-to-date return to 3.917%, its seventh straight new peak level for 2014 so far. The prior high point had been Monday's 3.845%.

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