VimpelCom, Fresenius, Casella price in $2.3 billion session; DirectBuy down, Kodak gets killed

By Paul Deckelman and Paul A. Harris

New York, Jan. 26 - Russian telecommunications operator VimpelCom Communications OJSC came to market Wednesday with a two-part $1.5 billion offering of dollar-denominated paper, high yield syndicate sources said - one of two big two-part dollar deals brought by European issuers during the session.

The sources also saw German healthcare provider Fresenius Medical Care price an upsized $650 million offering of 10-year bonds, in tandem with a €300 million tranche of 10-years.

On the domestic front, Casella Waste Systems, Inc. weighed in with a late-pricing $200 million issue of eight-year senior subordinated notes.

When the Fresenius dollar bonds were freed for secondary dealings, traders saw them trading slightly above their discounted issue price. The traders did not see any activity in the VimpelCom bonds, while Casella came too late in the day for aftermarket activity.

Among other recent bonds, traders saw Hertz Corp.'s new issue continuing to grind higher, just as the car-rental giant's bonds had done after their Tuesday pricing.

But although those Hertz bonds, and most of the other new paper priced Monday and Tuesday continued to either firm or at least hold their initial gains, members-only retailer DirectBuy's six-year bonds continued to lose ground on Wednesday, despite being a secured piece of paper with a nice fat coupon.

In the secondary market away from new issues, Eastman Kodak's bonds were being battered around for a second straight session, hurt by both poor quarterly numbers released Wednesday and continued investor angst over the camera and imaging company's legal setback in its action against smartphone makers which Kodak said had poached one of its patents.

VimpelCom prices $1.5 billion

The primary market saw three issuers price four tranches of dollar-denominated notes, raising a combined total of $2.344 billion.

Russia's VimpelCom Communications priced $1.5 billion of five- and 10-year loan participation notes (Ba2/BB+) at mid-swaps plus 425 bps, on top of the price talk.

The deal included $500 million of 6.493% five-year notes and $1 billion of 7.748% 10-year notes. Both tranches priced at par.

The Moscow-based telecommunications company will use the proceeds for general corporate purposes and to fund a merger with Wind Telecom.

Because the issuer was Russian, the deal was largely perceived as an emerging markets play, according to a high-yield syndicate banker in London.

Fresenius upsizes dollar debt

Moving from Moscow to Bad Homburg, Germany, Fresenius Medical Care completed a two-part placement of 10-year senior bullet notes (Ba2/BB) in a deal helmed by global coordinator Bank of America Merrill Lynch.

Fresenius Medical Care US Finance, Inc. priced an upsized $650 tranche of 5¾% notes at 99.06 to yield 5 7/8%.

The tranche, which was increased from $500 million, priced on top of talk.

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

Meanwhile, FMC Finance VII SA priced €300 million of 10-year senior notes at par to yield 5¼%.

The euro-denominated tranche also came on top of price talk.

Deutsche Bank, Commerzbank and Credit Agricole CIB were the bookrunners for the euro-denominated deal.

Proceeds will be used to refinance short-term debt and to fund acquisitions.

As late as Wednesday morning, London time, discussions on the euro tranche were taking place in the 5% context, according to a syndicate banker in the United States.

Meanwhile, discussions on the dollar tranche were in the 6% context around the time of the New York open, the banker added.

Hence, the upsized dollar tranche came tight relative to those early Wednesday discussions, while the euro tranche came a bit wider.

Casella at the tight end

On the Western shores of the Atlantic Ocean, Rutland, Vt.-based Casella Waste Systems priced a $200 million issue of eight-year senior subordinated notes (Caa1/B-) at par to yield 7¾%, at the tight end of 7¾% to 8% price talk.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC and Credit Agricole were the joint bookrunners for the debt refinancing deal.

Talking the deals

Setting the stage for a busy Thursday in the primary market, BI-LO, LLC and BI-LO Finance Corp. talked their $285 million offering of eight-year senior secured notes (B2/B) with a 9% to 9¼% yield on Wednesday.

Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. are the joint bookrunners.

Realogy Corp. talked its $700 million offering of eight-year senior secured notes (/CC/) with an 8% to 8¼% yield.

J.P. Morgan Securities LLC, Barclays Capital Inc., Credit Suisse Securities and Goldman Sachs & Co. are the joint bookrunners.

London-based Afren plc gave guidance of 12% on its dollar-denominated offering of non-callable senior secured notes (/B-/B).

That deal is set to price this week.

BNP Paribas, Deutsche Bank Securities and Goldman Sachs & Co. are the joint bookrunners.

Priory talks two-parter

Meanwhile Priory Group Ltd. set price talk for its £600 million two-part offering of high-yield notes.

The Leatherhead, United Kingdom-based provider of mental health care facilities talked a £425 million tranche of seven-year senior secured notes with a 7% to 7¼% yield, and its £175 million tranche of eight-year senior unsecured notes with a 9% area yield.

Deutsche Bank, the Royal Bank of Scotland and Credit Suisse are the joint bookrunners.

Flavor of the week

As with the U.S. market, the European high-yield market has been seeing a strong technical bid, with a considerable amount of cash pushing into the asset class, according to a London-based syndicate banker.

That means the European primary market is going to remain active, the source added.

However, in the near term this source sees more sterling-denominated issuance than euro-denominated issuance.

"It seems to be the flavor of the week," the banker said.

Among the deals, Towergate Finance plc is expected to return quite soon with a £665 million equivalent multi-tranche offering of notes that it pulled last May due to market conditions.

JPMorgan and Credit Suisse were the physical bookrunners for the postponed deal.

Proceeds were to be used to refinance bank debt and a portion of the company's preferred shares as well as to fund an acquisition.

Also, off-track betting and gaming firm Gala Coral is expected to soon bring at least a portion of the £600 million it means to raise by selling senior notes with a minimum seven-year tenor, the London-based syndicate banker said.

Goldman Sachs & Co. and the Royal Bank of Scotland are expected to be involved in that debt refinancing deal.

Both Towergate and Gala Coral could come as early as the week ahead, the banker added.

Reynolds for Thursday

The Wednesday session featured some new deal announcements.

Reynolds Group Issuer Entities announced plans to price $1 billion of 10-year notes in two tranches on Thursday.

The deal features an even split between $500 million of senior secured notes and $500 million of senior unsecured notes.

Credit Suisse is the bookrunner for the debt refinancing.

Del Monte plans $1.5 billion

The session also turned up announcement of deals that will be marketed via investor roadshows.

Del Monte Foods Co. began a roadshow for a $1.5 billion offering of eight-year senior notes (B3/B-).

The joint physical bookrunners are Bank of America Merrill Lynch, which will bill and deliver, and Morgan Stanley.

Barclays Capital Inc. and J.P. Morgan Securities LLC are the joint passive bookrunners.

Proceeds will be used to help fund the leveraged buyout of Del Monte by Kohlberg Kravis Roberts & Co. LP, Vestar Capital Partners and Centerview Partners.

MedImpact starts roadshow

Finally, MedImpact Holdings, Inc. started a roadshow on Wednesday for a $225 million offering of seven-year senior secured notes (Caa2).

Credit Suisse, Bank of America Merrill Lynch and Jefferies & Co. are the joint bookrunners.

The San Diego-based pharmacy benefits management company will use the proceeds to repay third party claims and revolver debt, as well as for general corporate purposes and to fund a dividend.

But it could be busier

Agreeing in principal that the primary market is reasonably busy at present, a high-yield syndicate official in the United States asserted that given the circumstances - namely a huge amount of cash now chasing yield in the form of junk bonds - the primary market could be busier.

One constricting force on the high-yield bond market lately has been the bank loan market, which has also attracted a lot of buy-side cash that issuers are able to access at rates which are generally lower than those which come with a junk deal.

For example, Axcan Intermediate Holdings Inc., now on the road with a $225 million offering of seven-year senior secured notes (/BB/) via Bank of America Merrill Lynch, Barclays Capital, RBC Capital Markets and HSBC, is also doing a $340 million bank deal.

However, the syndicate banker said, when the Mont-Saint-Hilaire, Quebec-based pharmaceutical company originally contemplated the debt financing, it was an all-bond scenario that was being envisioned.

Another constricting force on the primary market that has yet to surface, but which soon will, is the need for issuers to refresh their financial numbers.

For many, those numbers will go stale on Feb. 11, the banker said.

Fresenius firms slightly

When the new Fresenius Medical Care dollar-denominated 10-year bonds were freed for secondary dealings, a trader saw them bid at 991/4, up a little from the 99.06 level at which that upsized issue had priced earlier in the session.

However, he said the bonds "got hit a couple of times" and were left at 99 1/8 bid, 99 3/8 offered.

Another trader saw the bonds trading between 99 1/8 and 993/4.

VimpleCom, Casella unseen

Although VimpleCom's new VIP Finance Ireland Ltd. two-part mega-deal priced around mid-afternoon ET, several traders said that they had not seen any activity in those five- and 10-year bonds, both of which had priced at par.

Casella Waste Systems' new eight-year senior subordinated notes came to market too late for any kind of dealings, they added.

Hertz in the driver's seat

Traders meantime saw Hertz's new eight-year paper continuing to edge higher for a second consecutive session.

On Tuesday, the Park Ridge, N.J.-based vehicle-rental company, a well-known junk market name, priced an upsized $500 million drive-by issue of 6¾% notes due 2019 at par, and after a slow start in the aftermarket, trading around issue, the new bonds had gotten as good as a 100 3/8 to 100¾ context, on "some size."

A trader said Wednesday that the Hertz bonds "just inched up," improving on their Tuesday aftermarket to end at 100¾ bid, 100 7/8 offered.

A second trader saw the issue - which had been solidly upsized from the originally announced $300 million size to meet investor demand - having gotten up to 100 5/8 bid, 101 offered.

Yet another trader saw Hertz "doing pretty good," with the new bonds trading around 100¾ bid, 101¼ offered.

Dana does well

A trader said that Toledo, Ohio-based automotive systems manufacturer Dana Holdings Corp.'s upsized new two-part offering "got steadily better" on Wednesday, after having priced Tuesday and moved up in the secondary market.

He said that both its $400 million of 6½% notes due 2019 and its $350 million of 6¾% notes due 2021 advanced to 101¾ bid, 102 offered and traded around those levels "all day," up from Tuesday's 101¼ bid levels, "so they did well." Both tranches had priced at par on Tuesday before moving up.

A second trader pegged the 2019 bonds at 101 5/8 bid, 102¼ offered, while the 2021 bonds stayed around 101¾ bid, 102½ offered.

Great Lakes swims along

A trader saw Great Lakes Dredge & Dock Corp.'s new 7 3/8% notes due 2019 trade around 101¾ bid, 102 1/8 offered, around the same 102ish area at which the Oak Brook, Ill.-based dredging and demolition services provider's $250 million issue had traded late Tuesday, after pricing at par.

Packaging Dynamics pop continues

A trader said Packaging Dynamics Corp.'s upsized issue of 8¾% senior secured notes due 2016 "hung in there nicely today," quoting the bonds as being left in a 102 3/8 to 102 5/8 range.

The Chicago-based flexible packaging materials company had priced the $425 million of bonds - upsized from the originally planned $400 million - at par on Tuesday, and they had moved up to 102½ bid, 103 offered.

DirectBuy debacle continues

While those other issues were continuing to firm, a trader said "the bond that still got clocked" was DirectBuy's 12% senior secured second-lien notes due 2017.

On Monday, the Merrillville, Ind.-based members-only showroom and home design center had priced those bonds - upsized from the originally shopped $325 million to $335 million - at 97 bid, to yield 12.721%, and they had been seen in Monday's aftermarket dealings anchored around their issue price.

But on Tuesday, they were being quoted as low as a 95 to 95¾ context.

In Wednesday's dealings, the trader said, they traded at 95¼ bid, but he saw the bonds left at 94½ bid, 95½ offered.

He said he could not figure out why investors had taken such an intense dislike to DirectBuy, considering the bonds' fat coupon and its status as a senior secured second-lien piece of paper.

A second trader heard the bonds quoted as low as 93½ bid, 94½ offered, although he did see them come off those lows to finish up around 95 bid, 95½ offered.

But yet another trader quoted them going home around a 941/4-94½ bid context.

Most indicators solid

Away from the new-deal sphere, a trader saw the CDX North American Series 15 HY index off by 1/16 point on Wednesday, closing at 103 13/16 bid, 103 15/16 offered. On Tuesday, the index had been unchanged.

But the KDP High Yield Daily index meantime gained 9 basis points Wednesday to close at 75.24, on top of Tuesday's 8-bps advance. Its yield only came in by 1 bp on Wednesday, to 7.03%, after having tightened by 11 bps on Tuesday.

The Merrill Lynch High Yield Master II index continued to push higher on Wednesday, rising 0.083%, on top of Tuesday's 0.147% gain.

As of Wednesday's close, that left the index's year-to-date return at 1.915% - the latest new peak level for 2011, up from Tuesday's year-to-date return of 1.831%, the index's previous high point.

Advancing issues led decliners for a fourth straight session on Wednesday, by around the same roughly seven-to-six advantage seen on Tuesday.

Overall activity, represented by dollar-volume levels, rose by 8% on Wednesday, after having increased by 27% on Tuesday from the previous session's level.

Kodak gets kicked around

Among specific issues, Eastman Kodak's bonds lost major ground for a second consecutive session on Wednesday, hurt by bad quarterly earnings and investor unease after the Rochester, N.Y. -based photographic products company lost a preliminary round in its patent-infringement case against two well-known smartphone manufacturers.

A trader said that this was "the bond that got hit in the [junk] secondary" on Wednesday, although he did see the notes coming back a little late in the day from their earlier lows.

He said that before the earnings came out, the 7¼% notes due 2013 were trading around 97½ to 98 bid, but then slid on the numbers down to 94½ bid, 95 offered. He said that while other Kodak bonds were also lower, the 71/4s are "the one that really trades the most" in the Kodak capital structure. "Everyone thinks they're going to take them out anyway because the company's got $1.3 billion in cash," way more than enough to redeem the $500 million issue. "I think we could all live with that."

He said that when the patent infringement news came out - too late in the session for much trading on Monday, but definitely a factor in Tuesday's dealings - those bonds had dropped to 97½ bid from 98 7/8 pre-news. "Then after the earnings today, they really dropped."

He did not see much dealings Wednesday in Kodak's 7% notes due 2017, declaring that they "very rarely trade" - although on Tuesday, the bonds had slid to around 97½ bid from Monday's pre-news levels around 104 bid, on round-lot volume of about $8 million, actually more active Tuesday than the 71/4s.

He did see its 9¾% notes due 2018, which "do trade a lot," go down to 98¼ bid, 99 offered Wednesday, versus 1001/2-bid, 101 offered on Tuesday.

At another desk, a trader saw the Kodak 7¼% notes drop to 93½ bid, 94½ offered from its previous levels in the higher 90s, while seeing its 93/4s at 98¾ bid, 99¾ offered, calling them down a deuce.

A market source said that throwing out the numerous small-sized trade in the credit - "pages and pages of them on Trace" - the 71/4s were down by as much as 3½ points on the day at one point, bottoming around 94 bid, but went home at 953/4, off by not quite 2 points, on big-block volume of about $12 million.

Kodak on Wednesday reported fourth-quarter net income of $33 million, or 12 cents per share, down from $430 million, or $1.36 per share, a year earlier, as revenues slid 25% year-over-year to $1.93 billion. The company posted an adjusted fourth-quarter loss of 37 cents a share - considerably worse than Wall Street's expectations that it would earn about a nickel per share after factoring out charges and other unusual items.

For the year, the company suffered a net loss of $58 million, or 22 cents per share, as revenues fell 6% to $7.19 billion, although the full-year net loss figure represented a considerable improvement from 2009's red ink of $232 million, or 87 cents per share.

Kodak once completely dominated the photographic film and camera industry but has struggled to re-invent itself in recent years as a digital photography company, as relatively low-priced digital cameras made by such rivals as Sony and Canon essentially made Kodak's traditional film and the cameras which use it obsolete, at least in the vast consumer market.

Its unexpectedly poor showing for the fourth quarter followed closely the news which circulated in the financial markets late Monday and on Tuesday that the federal government's International Trade Commission had issued a preliminary ruling in Kodak's suit against Apple Inc. and Research In Motion Ltd., denying the validity of the camera company's claim that Apple's iPhone and RIMM's Blackberry had violated Kodak's patent for previewing images "in a digital camera-enabled device."

However, Kodak - which was able to previously prevail in similar suits brought against smartphone makers Samsung and LG Electronics - is hopeful that Monday's ruling by the ITC's administrative law judge will be overturned when the full ITC meets to consider the case later this year.

Kodak's New York Stock Exchange-traded shares - which on Tuesday had plunged more than 13% on more than five times their normal daily volume in response to the preliminary ITC ruling - swooned by another 81 cents, or 17.92% on Wednesday, to close at $3.71. Volume of nearly 71 million shares was more than eight times the norm.

OPTI Canada carnage continues

Also on the downside, a trader said that OPTI Canada Inc.'s bonds continued to slide on Wednesday, although there was no fresh news out about the Calgary, Alta.-based oil-sands company that might explain its recent extended weakness, which has hammered its two series of 2014 notes down into the low 60s from recent peaks above 70 bid.

On Wednesday, a trader saw OPTI's 7 7/8% notes due 2014 at 62¼ bid, 63¼ offered, down from bid levels just under 64 on Tuesday. He saw its 8¼% notes due 2014 at 62½ bid, 63½ offered, down from a 64 bid level on Tuesday.

As was the case on Tuesday, OPTI's bonds were among the busier issues seen in Junkbondland, with a market source estimating over $12 million changing hands in round-lot trades. He called the bonds down a deuce points on the day on that basis, at 62 bid, and also saw OPTI's 81/4s lose 1¾ points to finish at 62¾ bid, on volume of over $13 million.

Auto names improve

A trader saw Motors Liquidation Co.'s benchmark 8 3/8% bonds due 2033 - issued when the company was still called General Motors Corp., before the Detroit giant's 2009 bankruptcy reorganization - up ½ point on the day Wednesday at 36¾ bid, 37¼ offered.

GM "was up today," another trader said, although he saw no fresh news out. However, The Wall Street Journal reported Wednesday that the U.S. Treasury - which rescued the top domestic carmaker from insolvency in 2008-2009 with a $50 billion bailout, accumulating a 61% ownership stake - could divest itself of the remaining 26% equity position it now holds in the restructured General Motors Co. following last fall's successful initial public equity offering, with such a transaction seen possible sometime within the next 12 months, considerably quicker than originally expected.

The first trader also saw GM U.S. arch-rival Ford Motor Co.'s 7.45% bonds due 2031 unchanged at 109¼ bid, 110¼ offered, although a market source at another desk who saw the Ford long bonds at that level called them up a point, possibly helped by Dearborn, Mich.-based Ford's reported sale on Tuesday of $1.137 billion of new auto loan-backed debt.

Ally up as IPO progresses

A market source saw Ally Financial's 8% bonds due 2031 at 113¾ bid, up 2¾ points on the day.

Another source saw the Detroit-based residential and automotive loan provider - a former GM subsidiary, back when it was still GMAC - topping the 114 mark, up nearly 3 points on the day.

Ally was thought to have gotten a boost from news that its effort to put together an IPO were moving right along.

Reports said that several major banks are expected to meet with Ally executives on Thursday to pitch them about allowing one of those banks to take a leading role as an underwriter for the IPO. The offering is aimed at lessening the government's ownership stake in the bailed-out Ally, which currently stands at 74%.

Paper still on fire

Paper sector credits continued to firm in response to the news out earlier this week regarding RockTenn Co.'s acquisition of Smurfit-Stone Container Corp.

A trader said Catalyst Paper Corp.'s 7 3/8% notes due 2014 were better by a couple points at 87½ bid, 88 offered, while NewPage Corp.'s's 10% notes due 2012 were "maybe up a little bit" around 65.

Another trader said the Catalyst notes "traded a bunch," closing "up a good 2 points," also around that 88 level.

The trader also said NewPage was busy, with about $20 million to $25 million of the 10% notes turning over at 65.

"They grinded all the way down into the 50s, now they are grinding back up," he said.

At the beginning of the week, RockTenn said it had entered into a definitive agreement with Smurfit to take the business over for $35-per-share, a 27% over Smurfit's Jan. 21 closing share price. The consideration will be paid half in cash and half in RockTenn stock and the total value of the deal is estimated around $3.5 billion, with RockTenn to also assume $700 million of net debt and $1.1 billion of pension obligations.

-Stephanie N. Rotondo contributed to this report

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