United Refining, Goodrich Petroleum price to end quiet week; new United Refining notes jump

By Paul Deckelman and Paul A. Harris

New York, Feb. 25 - An abbreviated, not-so-busy week in Junkbondland came to a close on Friday as United Refining Co. and Goodrich Petroleum Corp. each priced upside bond deals. United Refining had a $365 million issue of seven-year secured notes while Goodrich came in with a $275 million offering of eight-year notes.

But even with those deals and a $120 million transaction from Swedish metals mining company Dannemora Mineral AB, total new issuance for the week only ended up around the $1 billion mark - well below the previous week's $4.7 billion tally, which itself was less than half of what was priced two weeks ago.

As it was, the latest week, which lost a session due to the Presidents' Day holiday, was the quietest in terms of new issuance since the start of the year.

While only a modest amount of pricing was going on, the forward calendar continued to grow, with Virginia shipbuilder Huntington Ingalls Industries Inc. heard by syndicate sources to be hitting the road to market a $1.175 billion two-part offering of seven- and 10-year notes.

Ohio metal tubing manufacturer JMC Steel Group, Inc. was meanwhile shopping around a $725 million tranche of seven-year notes, the sources said, with pricing expected late in the coming week.

When the new United Refining notes were freed for secondary dealings, traders saw the bonds up sharply from their issue price, which was several points below par. However, the new Goodrich Petroleum bonds were only marginally better than their issue price. Nexeo Solutions, LLC's recent issue of seven-year subordinated notes was meantime heard to be holding onto, or even extending, the gains the paper notched in trading after pricing on Wednesday.

The overall secondary was generally firmer, traders said, more or less in tandem with rebounding stocks.

Market statistical indicators of performance were up on the day, but lagged on a week-to-week basis.

United Refining oversubscribed

In the primary, two companies from the energy space issued into the dollar-denominated market, raising a combined total of $627 million

United Refining priced a $365 million issue of 10½% seven-year first-priority senior secured notes (B3/B) at 96.444 to yield 11¼%.

The yield printed on top of the yield talk. The reoffer price comes in line with discount talk of 3.5 points.

Credit Suisse Securities ran the books.

The face amount of the issue was increased from $350 million, and the deal generated $352 million of proceeds.

The Warren, Pa.-based refiner and marketer of petroleum products plans to use the proceeds to fund the tender offer for its 10½% senior notes due 2012.

The deal went well, according to an informed source, who pointed out that, lately, paper with a coupon over 10% is not easy to find.

"There's not a lot in the market right now," the official said, adding that deal was a couple of times oversubscribed, with a lot of big names in the order book.

The notes ran up to 99 bid in the secondary market, with investors attempting to add to their positions, the official said.

Goodrich Petroleum upsizes

Meanwhile, Goodrich Petroleum priced an upsized $275 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8 7/8%.

The yield printed at the wide end of price talk that was set in the 8¾% area.

J.P. Morgan Securities LLC, Jefferies & Co., BMO Nesbitt Burns, BNP Paribas, RBC Capital Markets, Wells Fargo Securities and Bank of America Merrill Lynch were the joint bookrunners for the issue, which was upsized from $225 million.

The Houston-based oil and gas company plans to place a portion of the bond proceeds into escrow to be used to redeem $175 million of its 3¼% convertible senior notes due 2026 in December or to repurchase the notes prior to redemption.

Any remaining proceeds would be used for general corporate purposes, including funding a portion of 2011 capital expenditures.

Meager issuance in week

With Friday's two dollar-denominated deals into the tally, the Feb. 21 week came to a close having put up a rather meager issuance total.

Reasons for the past week's the low primary market volume include vacations, as market players synced up their schedules to coincide with a break week in New York schools.

Also, mid-February represents a quasi-blackout period in the high yield, as issuers must refresh the financial numbers put up for the fourth quarter of the previous year, which go stale on Feb. 15.

Taking a look at that blackout period, the primary market has seen $5.13 billion price in 10 junk-rated dollar-denominated tranches since Feb. 15, remarkably close to the $5.12 billion pricing in 11 tranches from Feb. 15 through the end of the month in the record-setting year of 2010.

Turning back to 2011, the total year-to-date issuance came to $56.88 billion in 131 tranches at Friday's close.

South Africa's Foodcorp

Although it was chiefly seen as an emerging markets play, some high-yield players were watching a Rule 144A and Regulation S deal from South Africa's Foodcorp Ltd.

The company priced a €390 million issue of seven-year senior notes (B2/B-/) at par to yield 8¾%, at the tight end of the 8¾% to 9% price talk.

J.P. Morgan Securities LLC and Barclays Capital were the bookrunners.

Proceeds will be used for general corporate purposes and to refinance existing senior secured notes, to settle existing hedging arrangements and to fund the repurchase or redemption of certain securities issued by parent company New Foodcorp Holdings Ltd.

Foodcorp was the second South African issuer to raise cash in the high-yield market during the past week.

On Tuesday, dry goods retailer Edcon Pty. Ltd. priced €317 million and $250 million of notes due March 1, 2018 at par to yield 9½% via Goldman Sachs, Deutsche Bank, Barclays Capital and Morgan Stanley.

Huntington Ingalls deal

The week ahead figures to at least double the past week's issuance total.

On Friday, the active forward calendar took aboard two hefty deals.

Huntington Ingalls Industries plans to conduct an investor roadshow for its $1.175 billion two-part offer of senior notes (Ba3/B+/BB) during the week ahead.

The deal is structured into tranches of seven-year notes and 10-year notes.

Credit Suisse Securities, J.P. Morgan Securities LLC, RBS Securities and Wells Fargo Securities are the joint bookrunners.

Proceeds will be used to capitalize the company, as well as to fund a cash transfer to Northrop Grumman, which is spinning off Huntington Ingalls, Northrop's shipbuilding business.

Proceeds will also be used for general corporate purposes.

JMC Steel $725 million

Meanwhile, JMC Steel began marketing a $725 million offering of seven-year senior notes (B3/B/) on Friday.

The Rule 144A for life deal is expected to price on March 4.

J.P. Morgan Securities LLC has the books.

Proceeds will be used to help fund the Zekelman family's acquisition of a controlling stake in the company from the Carlyle Group.

The active new issue calendar came to $3.48 billion for the week ahead at Friday's close.

And the dealers professed knowledge of pending offering announcements for the February-March crossover week.

United Refining does fine

A trader said that "the star today" was United Refining's upsized offering of seven-year senior secured notes.

He saw the bonds move up to 99 5/8 bid, 99 7/8 offered, after having come to market earlier at "a huge discount" versus par at 96.444.

He acknowledged that the bonds were priced so cheaply to begin with that a sizable aftermarket bump was likely, but noted that "they had some doubting people, believe it or not" that forced the Warren, Pa.-based petroleum products refiner and marketer to price its deal down where it did.

Several traders' queries a little later on in the day saw the company's deal do even better, with one quoting the bonds going home at 99 7/8 bid, 100 3/8 offered and a second pegging the bonds at 99¾ bid, 100¼ offered.

A fair break for Goodrich

A trader said that Goodrich Petroleum's new eight-year notes traded as high as 100½ bid after the Houston-based independent oil and gas exploration and production company's upsized deal priced at par earlier in the day.

However, by late in the day, he saw the bonds having come off their peak but still trading a little above where they had priced, quoting them at 100 1/8 bid, 100 3/8 offered.

Another trader saw the new bonds at around 1001/4.

Nexios builds on gains

A trader said that Nexios Solutions' 8 3/8% senior subordinated notes due 2018 "are hanging right in there" after having priced at par on Wednesday. "As a matter of fact, it's even firmer today, even as we speak."

He saw the $175 million issue, which had been downsized from the originally planned $200 million, having moved up to 101¾ bid, 102 offered, up from the 101-101½ bid aftermarket seen right after pricing.

Up till now, the Dublin, Ohio-based distributor of chemicals, plastics and composite raw materials has been the chemical distribution business of Ashland, Inc., which sold the unit to TPG Capital Partners. The deal proceeds, along with at least $325 million of bank debt, will be used to fund the TPG acquisition of the now-renamed company.

Baker & Taylor better

A market source said that Baker & Taylor Acquisition's current bonds were "shocking everybody" ahead of the Charlotte, N.C.-based book distributor's upcoming deal to sell $240 million of five-year notes and use the money to pay down debt. The deal is currently on a roadshow that is scheduled to end on March 2.

The source said that the company's 11½% notes due 2014 were trading in a 97 bid, 98 offered context on news of the refinancing versus levels in the mid-80s earlier in the month and levels around 70 at the beginning of the year, he said.

"It's surprising," he said of the refi. "It's a very tough business."

The source noted that the company was "probably in a cyclical decline" and that the company has "a little bit of leverage.

"It's a bit of a stretch," he said.

Secondary signposts up on day

Away from the new deal world, a market source saw the CDX North American Series 15 HY index up by ¼ of a point on Friday to end at 103 ¾ bid, 104 offered, after having edged up a little on Thursday.

On the week, however, the index was off from the 104 5/8 bid, 104 7/8 offered level at which it had closed on Feb. 18.

The KDP High Yield Daily index meantime gained 14 basis points on Friday to finish at 75.91, after having lost 11 bps on Thursday. Its yield came in by 7 bps on Friday to 6.66%, after having risen by 4 bps on Thursday. 6.60%.

The index was still down on the week from its 76.12 reading and its yield was wider than the 6.60% at the end of the Feb. 18 week.

The Merrill Lynch High Yield Master II index moved up by 0.079% on Friday to end with a year-to-date return of 3.307%. This was after having fallen for a second consecutive session on Thursday, by 0.091%, to finish with a 3.226% cumulative gain.

Friday's close remained down from the 2011 peak level of 3.441% recorded on Tuesday. The index also showed a one-week loss of 0.06%, leaving the year-to-date return below the 3.369% reading seen the previous Friday.

Advancing issues topped decliners for a fourth straight session on Friday, although their six-to-five margin was in a little from the better than seven-to-six advantage seen over the previous two sessions.

Advancing issues moved back out in front of decliners on Friday by a better than six-to-five margin, after three straight sessions during which the losers led the winners.

Overall market activity, as measured by dollar-volume levels, fell by 35% on Friday, after having gained 4% on Thursday from the previous session's activity level.

A trader characterized Friday's market as "a little firm, obviously, because our market is very fickle and it seems like [the economic and political worries that weighed on the junk market earlier in the week] are not as big a concern right now.

"So we followed the stock market and the [junk] market has bounced back a little bit" after having been under pressure earlier in the week, he added.

Stocks were seen mostly better as oil prices stabilized and industrial bellwether Boeing Co. scored a massive $35 billion contract from the Pentagon to build a fleet of new tanker planes. The Dow Jones Industrial Average rose 61.95 points, or 0.5%, to close at 12,130.45, the index's first rise after three days of losses.

Earlier in the week, he said, "we got weaker, with the equity markets, but they really regained their composure today."

He further said that "a lot of people were scrambling, looking for names today."

A second trader who saw the rise of the new deal issues predicted, "Everybody is going to do well in this market place."

He said that while there had been "a little weakness in the marketplace" earlier in the week, it was "not enough" to overcome the positive pull of continued flows of fresh money into the junk market, as illustrated by the latest numbers showing a $492 million inflow to high-yield mutual funds

"The market is still strong," he declared. "There are still accounts with cash on the sidelines. I continue to see the new-issue calendar keep building and being very well received, just like it's been truckin' along."

Looking ahead, he noted that the upcoming week will see the J.P. Morgan high-yield & leveraged finance conference - one of the major annual events in the junk bond community - for three days down in Miami. The always well-attended conference, he said, "will be just another excuse for accounts not to do anything."

No smooth sailing ahead

The trader does not believe that the current junk market will be able to sustain the kind of very robust primary activity combined with brisk secondary strength seen so far this year.

"I'm waiting for the weakness to occur. I saw a few situations, but nothing crazy, not a huge sell-off.

"This is it - we're waiting to pop. This market is just way too rich."

He added that right now, the market is "very situational. It doesn't help us try and trade bonds when it's like that."

Graphic Packaging up on plan

A trader said that Graphic Packaging Holding Co.'s 9½% notes due 2017 firmed a bit on the news that the Marietta, Ga.-based packaging products company plans to redeem its remaining 9½% notes due 2013/

"It's not that they gapped up, because they were trading pretty high already" - in excess of 111 bid. He saw the '17s up more than ½ of a point on the day at 111¾ bid.

Stephanie N. Rotondo contributed to this report

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