Reynolds megadeal, Realogy lead $3.6 billion session; snow chills secondary; funds gain

By Paul Deckelman and Paul A. Harris

New York, Jan. 27 - The high-yield primary arena saw its busiest day of the week so far - and one of the busiest of the new year - with over $6.6 billion having priced in around a half-dozen deals

The big deal of the day came from consumer packaging products maker Reynolds Group Issuer Entities, which sharply upsized its original $1 billion two-part offering to make it a $2 billion transaction, the biggest of the year.

Another notable deal emerged from Realogy Corp., a provider of real estate and relocation services, which priced $700 million of eight-year secured notes.

British energy operator Afren plc had a late-pricing $450 million secured deal. Supermarket operator BI-LO, LLC checked out with a $285 million issue, also secured. Aviv Healthcare priced $200 million of eight-year notes, while Peninsula Gaming, LLC rolled the dice on a $50 million add-on to its existing bonds.

Away from the dollar deals, U.K. mental health, educational and rehabilitative services provider Priory Group Ltd. priced a two-part sterling-denominated deal.

Price talk emerged on three deals expected to price Friday: Oasis Petroleum, Inc., National Mentor Holdings, Inc. and Bakkavor Group HF, the latter a sterling-denominated issue for the Icelandic food producer, seen pricing during the European morning.

Secondary activity was seen largely disjointed and featureless, with traders blaming the overnight blizzard that dumped another foot of snow on an already-saturated New York, causing many market participants to work from home rather than coming into the office and thus diluting the market's focus somewhat.

The new deals dominated what activity there was. For the most part, the deals firmed convincingly when they were freed to trade, although Afren came too late in the day and Peninsula was just too small for any aftermarket activity. Unusually, given the recent rash of quickly shopped drive-by deals, Peninsula was the only same-day pricing Thursday, although the Reynolds behemoth did price just a day after hitting participants' radar screens. Statistical indexes were mostly firmer.

And high-yield mutual funds - whose ups and downs are seen as a viable barometer of overall junk market liquidity trends - notched their fourth straight weekly net inflow of the year and eighth overall, as some $466 million more was seen coming into the funds than leaving them in the week ended Wednesday.

Funds gain $466 million

As activity was wrapping up for the day, participants familiar with the weekly AMG high yield mutual fund flow statistics generated by Lipper/FMI said that the inflow was widely expected, given the strength seen in junk's performance since the start of the new year.

It was the eighth consecutive cash infusion, following on the heels of the $738.7 million injection seen the week ended Jan. 12.

In those eight weeks dating back to Dec. 8, $4.996 billion of net inflows have come into the junk market, according to a Prospect News analysis of the figures.

On a year-to-date basis, 2011 net inflows have totaled some $2.915 billion, according to the analysis, with cash infusions seen in each of the year's four weeks against no outflows yet.

That continues the strong inflow trend seen in 2010, when some $10.67 billion more came into the funds then left them, and inflows were seen in 37 weeks, against just 15 weeks experiencing outflows.

EPFR $995 million inflow

Another fund-tracking service - Cambridge, Mass.-based EPFR Global, whose methodology differs somewhat from AMG - meantime reported a $995 million inflow in the latest week, which followed the previous week's $1.2 billion gain.

Reflecting the difference between the ways AMG and EPFR calculate their respective fund-flow totals - although the two services' numbers generally point toward the same trends - EPFR includes results from certain non-U.S. domiciled funds as well as the domestic funds, and its year-to-date net inflow total now stands at $4.68 billion.

Cumulative fund-flow estimates, whether from Lipper/FMI or EPFR, may be revised upward or downward or be rounded off and could include unannounced revisions and adjustments to figures from prior weeks.

Analysts say the continued flow of fresh cash into junk - and the mutual funds represent but a small, though quantifiable, percentage of the total amount of money coming in - fueled the record new-deal borrowing binges seen in both 2009 and then in 2010, as well as the robust secondary market seen both years.

Reynolds prices $2 billion

The torrid primary market saw six issuers price a combined $3.685 billion face amount of bonds in seven tranches on Thursday.

Reynolds Group Issuer Entities doubled the size of its two-part 10-year notes transaction to $2 billion, multiplying the sizes of both the secured and unsecured tranches by two.

The Chicago-based food packaging company priced an upsized $1 billion tranche of senior secured notes (Ba3/BB) at par to yield 6 7/8%.

The secured tranche-size was doubled from $500 million, and the yield printed at the tight end of the 6 7/8% to 7% price talk.

Reynolds also priced an upsized $1 billion tranche of senior unsecured notes (Caa1/B) at par to yield 8¼%.

The unsecured tranche was also upsized from $500 million and also priced at the tight end of price talk, which was 8¼% to 8 3/8%.

Credit Suisse was the bookrunner for the quick-to-market deal.

The company will use the proceeds to pay down its existing term loan D.

The deal was a blowout, an informed source said, adding that investors were eager to get hold of paper from such a well-known high-yield name.

Orders poured in from everywhere, so that the company had no difficulty whatsoever placing the doubled $2 billion amount, the source added.

The deal saw some play from bank loan accounts, which were being taken out of the term loan paper and wanted to retain exposure to the name.

Realogy prices through talk

Elsewhere, Realogy priced a $700 million issue of eight-year senior secured notes (Caa1/CC) at par to yield 7 7/8%.

The yield printed 12.5 basis points through the 8% to 8¼% price talk.

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

Afren prices $450 million

London-based Afren priced a $450 million issue of 11½% five-year senior secured notes (/B-/B) at 99.077.

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

The independent oil and gas exploration and production company plans to use the proceeds of the offering to repay debt and for general corporate purposes.

BI-LO prices at the wide end

BI-LO, LLC and BI-LO Finance priced a $285 million issue of eight-year senior secured notes (B2/B) at par to yield 9¼%, at the wide end of the 9% to 9¼% price talk.

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

Proceeds will be used to repay the outstanding balance under the company's existing $200 million senior secured term loan due 2015 and to fund a $74 million cash distribution to the sponsor.

Aviv at the tight end

Aviv Healthcare Properties Partnership and Aviv Healthcare Capital Corp. priced a $200 million issue of eight-year senior notes (B1/B+) at par to yield 7¾%, at the tight end of the 7 7/8% area price talk.

Bank of America Merrill Lynch was the left bookrunner. Morgan Stanley & Co. Inc. and RBC Capital Markets were the joint bookrunners.

The Chicago-based owner of skilled nursing facilities plans to use the proceeds to repay drawings under its acquisition credit line and to partially repay its mortgage term loan.

Peninsula taps 10¾% notes

Peninsula Gaming priced a $50 million add-on to its 10¾% senior notes due Aug. 15, 2017 (Caa1//) at 108, resulting in an 8.888% yield to worst.

The reoffer price came on top of the price talk.

Credit Suisse was the sole bookrunner for the quick-to-market add-on.

The Dubuque, Iowa-based gaming company will use the proceeds to fund the development of the Kansas Star Casino.

Priory prices £600 million

In the sterling-denominated high-yield market Priory Group Ltd. completed a £600 million two-part high-yield notes transaction on Thursday.

The deal included £425 million of seven-year senior secured notes (Ba3/BB/BB+), which priced at par to yield 7%, at the tight end of the 7% to 7¼% price talk.

Priory also priced £175 million of eight-year senior unsecured notes (B3/B/BB) at par to yield 8 7/8%, at the tight end of the 9% area price talk.

Deutsche Bank, the Royal Bank of Scotland and Credit Suisse were the joint bookrunners for the LBO deal.

Steelcase crossover

In the crossover market, Steelcase Inc. sold $250 million of split-rated 6 3/8% 10-year senior notes at 300 basis points over Treasuries.

The notes (Ba1/BBB-) priced at 99.953 to yield 6.381%.

Bank of America Merrill Lynch and J.P. Morgan Securities Inc. were bookrunners for the debt refinancing.

High-yield play in the deal was extremely limited, a source said, adding that crossover accounts were the biggest presence in the Steelcase book.

Talking the deals

Setting the stage for what figures to be a busy Friday session, Oasis Petroleum talked its $300 million offering of eight-year senior notes (Caa1/B-) with a 7¼% to 7½% yield on Thursday.

J.P. Morgan Securities LLC, Wells Fargo Securities, BNP Paribas Securities Corp. and UBS Investment Bank are the joint bookrunners.

Meanwhile National Mentor Holdings talked its $275 million offering of seven-year senior notes (Caa2/CCC+) with a 12½% area yield.

UBS Investment Bank is the left lead bookrunner. Barclays Capital Inc. and Jefferies & Co. are the joint bookrunners.

Iceland's Bakkavor Group hf and Bakkavor Finance talked their £350 million offering of seven-year senior secured notes (B2/B) with an 8¼% area yield.

Barclays Capital and the Royal Bank of Scotland are the physical bookrunners. Bank of America Merrill Lynch and HSBC are the passive bookrunners.

Canadian primary comes to life

From the Canadian dollar-denominated market, Vermilion Energy will roadshow a C$200 million offering of five-year senior unsecured notes (DBRS: BB).

Scotia Capital Inc. and CIBC World Markets Inc. are the lead managers for the debt refinancing and general corporate purposes deal.

And Paramount Resources Ltd. plans to reopen its 8¼% senior unsecured notes due Dec. 13, 2017 (Caa2/B+) to sell C$50 million to C$75 million at 103 via lead manager RBC Capital Markets.

Proceeds will be used for capital expenditures and general corporate purposes.

New BI-LO bonds better

When Greenville, S.C.-based supermarket operator BI-LO's new issue of eight-year senior secured notes was freed for secondary dealings, a trader quoted those bonds as having opened around a par bid, 101 offered context, but said that after that, the notes "shot up" to bid levels around 1021/2.

A second trader quoted the bonds at 102¼ bid, 102¾ offered, up from their par issue price earlier.

However, another trader said that he personally "hasn't been trading it, and I don't know anybody going into it; I haven't seen it."

Reynolds rallies

A trader saw both halves of Reynolds Group's big offering of 10-year notes firmer by more than a point, locating both the secured notes and the unsecured notes at 101½ bid, 102 offered - well up from their respective par issue prices.

Aviv bonds healthy

A trader said that Aviv Healthcare's new 10-year notes "did pretty well" when they moved into the secondary realm, quoting the facilities operator's new notes at 101½ bid, 102½ offered, up from par at their pricing.

Realogy stays near issue

A trader said that Realogy's new eight-year secured notes were "wrapped around 1001/2," after the Parsippany, N.J.-based real estate services company's deal priced at par.

Another trader later in the day quoted the bonds at 100¼ bid, 101¼ offered.

Hertz holds on

Among the issues priced earlier in the week, Hertz Corp.'s new eight-year paper was "pretty much holding its own," a trader said, seeing the Park Ridge, N.J.-based vehicle-rental company's upsized $500 million drive-by issue of 6¾% notes due 2019 at 100 7/8 bid, 101¼ offered, unchanged on the day.

Those bonds had priced Tuesday at par, but then began to edge up later that session and on Wednesday to reach present levels and then stayed there.

Fresenius flops around

While most of the new deals have firmed at least respectably, or even better, once they got to the aftermarket, there have been some exceptions to the rule.

A trader said that Fresenius Medical Care's $650 million issue of 5¾% notes due 2021 "is still having a hard time getting out of its own way." He saw those bonds going home at 98¾ bid, 99 1/8 offered versus the 99.06 level at which the issue priced on Wednesday to yield 5 7/8%, as part of a larger two-part deal that also included a euro-denominated tranche of 10-year bonds.

A second trrader said: "There was very little" going on in the German kidney dialysis services provider's new bonds.

"Very few people I know were quoting them. I didn't even get an order in those things today."

DirectBuy battered again

Doing even worse in the aftermarket were DirectBuy's 12% senior secured second-lien notes due 2017.

A trader saw them Thursday "continuing to get leaned on at this point in time," quoting the issue as having fallen as low as 92½ bid, 93½ offered.

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, they were quoted left at 94½ bid, 95½ offered and continued to get hammered down during Thursday's session.

A busy day ahead

A trader said that in his opinion, "we're going to see a lot of drive-bys [Friday] morning."

However, he cautioned, "I think we're at the point where we're starting to get a little spotty in the new issues. I think the bankers are trying to get a little bit too pushy where they're pricing the deals these days."

But he added: "The buyside is still flush with cash. Everybody we spoke to is looking for new ideas. You can't make any money being in cash these days, can you?"

Secondary indicators hanging in

Away from the new deal sphere, a trader saw the CDX North American Series 15 HY index unchanged at 103 13/16 bid, 103 15/16 offered on Thursday, after having eased by 1/16 of a point on Wednesday.

But the KDP High Yield Daily index meantime gained 6 basis points on Thursday to end at 75.30, on top of its 9 bps gain on Wednesday. Its yield came in by 4 bps on Thursday to 6.99%, after having tightened by 1 bp on Wednesday.

The Merrill Lynch High Yield Master II index continued to push higher on Thursday, rising by 0.122%, on top of Wednesday's 0.083% gain.

The index's year-to-date return nosed above the psychologically potent 2% mark for the first time this year on Thursday, closing at 2.04%, marking the latest new peak level for 2011, up from Wednesday's 1.915%.

Advancing issues led decliners for a fifth consecutive session on Thursday, although their advantage came in slightly to around six to five versus the roughly seven-to-six bulge seen on Tuesday and again on Wednesday.

Overall activity, represented by dollar-volume levels, plunged by nearly 37% on Thursday, after having risen by 8% on Wednesday from the previous session's level.

A trader characterized Thursday's session as "a little blah - everybody's scattered" in the wake of an overnight snowstorm, which dumped another foot of snow throughout the New York metropolitan area, causing many market participants to either work from remote locations such as their homes or not come in entirely.

The storm also wreaked havoc as far south as Washington and as far north as New England.

He himself was working from what he called "an off-site" location. He said overall activity seemed duller and without much focus, apart from the new deals.

"Today was a waste of a clean shirt for me," he opined.

Another trader said the storm - originally forecast as a moderate six-to-eight inch event - "crept up on a lot of people, and next thing you know, you had 20 inches in Central Park."

Coming on the heels of several other recent negative weather events, he said that helped to dilute attendance and focus in the junk market. "A lot of accounts we talked to today were working from home. We were looking for some offerings on some bonds and everybody was like 'Listen, I'd love to [do it], but I'm stuck at home' - everybody's signed on remotely."

"There was volume," he continued, "but it was very spotty with the weather."

On top of that, he noted, "it was a huge earnings day," with junk issuers like Deluxe Corp., Kansas City Southern, Ball Corp., Ryland Group, D.R. Horton Inc. and many, many others weighing in with their quarterly and, in many cases, full-year results.

"It felt like everybody was reporting today," and some market participants were glued to conference calls. "Now we're into full-fledged earnings season on top of new issues. It's still new-issues focused and earnings-focused."

But, "the Street was very, very slow today," he added.

Rite Aid rallies on sales

Among specific names, the news that Rite Aid Corp. had reported a rise in its all-important same-store sales metric for January - the second such gain in a row, after previously seeing the key retailing performance measure fall of 18 consecutive months through last November. This gave both the bonds and the shares of the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator a boost.

A trader saw Rite Aid paper "better by about a point," seeing its 9½% notes due 2017 finishing at 86½ bid, 87 offered, calling them up a point on the day.

A second trader saw those 91/2s finishing at 86 bid, 86½ offered, on "decent volume - a lot of activity," calling the bonds up ½ of a point on the session.

However, he said that the company's 8 5/8% notes due 2015 "seemed unchanged" around an 89-89½ context.

Rite Aid's New York Stock Exchange-traded shares moved up in tandem with its bonds, zooming by 17 cents, to close at its high for the day of $1.27. Volume of 26.3 million shares was over eight times the norm.

Rite Aid - struggling to hold its own against larger and better-capitalized investment-grade pharmacy operators Walgreen's and CVS - said that sales at stores open at least one year rose 1.1% in the four weeks ended Jan. 22, improving upon the 0.6% same-store sails gain it had in December. Same-store sales data excludes stores that were formerly open, but which have since closed or sold, or those which were recently opened or acquired and are thus seen as the retailing industry's best measure of performance at a company's core stores.

For the January period, Rite Aid reported just a 0.6% gain in pharmacy revenues, but saw "front-end" sales of non-pharmacy items like cosmetics, gifts, books and magazines and food jump by 2.2%.

Kodak settles in lower

A trader saw Eastman Kodak Co.'s bonds continuing to trade around the lower levels to which the Rochester, N.Y.-based photographic products company's paper had fallen over the previous two sessions, done in by a toxic combination of worse-than-expected fourth-quarter results and a legal setback in Kodak's efforts to stop makers of smartphones that have built-in digital cameras from infringing upon its patents.

He said that Kodak's 9¾% notes due 2018 were trading around a 99-par context, while the 7¼% notes due 2013 were languishing at 93-94, calling the latter issue down by several points from where it had been before the double-dose of negative news. They were trading in "decent volume," he said.

He also saw Kodak's 7% notes due 2017 trading at 89 bid, 89½ offered, also well down from those pre-news levels.

A second trader saw the 71/4s at 94-95, well down from their pre-news levels around 98 bid.

At another desk, a trader said he "saw a little bit more pressure today," seeing the 71/4s going out as low as 93½ bid, 94½ offered, calling that down another half-point to a full point from where the bonds had been on Wednesday.

On Wednesday, Kodak 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.

The unexpectedly poor showing for the fourth quarter followed news 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."

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 using it obsolete - at least in the vast consumer market.

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