Valeant, Denbury drive-bys pace primary; new Ford busy; OPTI Canada rebounds; funds gain

By Paul Deckelman and Paul A. Harris

New York, Feb. 3 - Valeant Pharmaceuticals International and Denbury Resources, Inc. came to market on Thursday with a pair of opportunistically timed, quickly shopped 10-year junk deals.

High-yield syndicate sources said that Canadian drugmaker Valeant's $650 million issue along with oil and natural gas explorer Denbury's upsized $400 million issue of subordinated notes were the two biggest deals of the day in Junkbondland.

Also pricing was oilfield services company Basic Energy Services, Inc.'s upsized $275 million eight-year offering, high-tech systems manufacturer CPI International, Inc.'s $215 million of seven-year notes and familiar junk homebuilder Hovnanian Enterprises, Inc.'s $155 million of 43/4-year notes.

The latter bonds were heard by traders to have firmed smartly after pricing at a steep discount to par, while the Valeant and CPI issues moved up more modestly. Basic Energy and Denbury appeared too late in the day to trade around.

Wednesday's big new deal from Ford Motor Credit Co. was busily traded in the aftermarket, although its price levels were little changed.

Price talk meantime emerged on several deals expected to price during Friday's session: Yankee Candle Co., energy operator GMX Resources Inc. and aluminum producer Aleris International Inc.

Away from the new deals, it was another volatile day for OPTI Canada Inc.'s bonds, but unlike the last few sessions, the Canadian energy company's paper managed to pull out of an early slump and actually end the day several points higher on unusually heavy volume.

Secondary market indicators were firmer.

And high-yield mutual fund flows - considered a good barometer of overall junk market liquidity trends - showed their fifth inflow of the year in the latest week, against no 2011 outflows, and their ninth weekly straight gain overall.

Junk funds gain $421 million

After the session's activity had wound down, participants familiar with the weekly AMG high-yield mutual fund flow statistics generated by Lipper/FMI said that in the week ended Wednesday, some $420.9 million more came into those funds than left them.

As has been the case since the start of the year, the inflow was generally expected by market participants, given the strength seen in junk's performance since the start of the year.

It was the ninth consecutive cash infusion, on top of the $466 million injection seen the week ended Jan. 26.

In those nine weeks dating back to Dec. 8, $4.417 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 $3.364 billion, according to the analysis, with cash infusions seen in each of the year's five weeks against no outflows yet.

That extends 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.

Cumulative fund-flow estimates 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 successive record new deal borrowing binges seen in both 2009 and then in 2010. This was in addition to the robust secondary market seen both years, with those trends continuing on in 2011 so far.

Valeant $650 million drive-by

A busy primary market saw five issuers, each bringing a single dollar-denominated tranche of junk, raise $1.69 billion on Thursday.

Valeant Pharmaceuticals International priced a $650 million issue of 10.5-year senior notes (B1/BB-) at par to yield 6¾%, at the tight end of the 6 7/8% area price talk.

Goldman Sachs & Co. ran the books for the quick-to-market issue.

The Mississauga, Ontario-based specialty pharmaceutical company plans to use the proceeds to finance the acquisition of PharmaSwiss SA, a privately owned branded generics and over-the-counter pharmaceutical company based in Zug, Switzerland. Valeant also plans to use proceeds to fund the acquisition of all U.S. and Canadian rights to non-ophthalmic topical formulations of Zovirax from GlaxoSmithKline and for general corporate purposes.

Denbury at the tight end

Meanwhile Denbury priced an upsized $400 million issue of 10.5-year senior subordinated notes (B1/BB-) at par to yield 6 3/8%, at the tight end of the 6½%.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Credit Suisse, UBS Investment Bank, RBC Capital Markets and Wells Fargo Securities were the joint bookrunners for the quick-to-market debt refinancing deal, which was upsized from $350 million.

Basic Energy upsized

Basic Energy Services priced an upsized $275 million issue of eight-year senior notes (B3/B-) at par to yield 7¾%, once again at the tight end of the 7 7/8% price talk.

Bank of America Merrill Lynch and Wells Fargo Securities were the joint bookrunners for the issue, which was upsized from $250 million.

Proceeds will be used to fund the tender and consent solicitation for the company's 11 5/8% senior secured notes due 2014.

CPI 25 bps through talk

CPI International priced a $215 million issue of seven-year senior notes (B3/CCC+) at par to yield 8%.

UBS ran the books for the acquisition financing deal.

Heavy subscription enabled CPI to print the yield 25 basis points through the 8¼% to 8½% price talk, a source close to the deal commented.

Hovnanian 4.5-year deal

Elsewhere, Hovnanian Enterprises priced a $155 million issue of 11 7/8% 4.5-year senior notes (Caa2/CCC-) at 97.453 to yield 12 5/8% on Thursday, according to an informed source.

The yield printed at the tight end of the 12¾% area yield talk. The reoffer price came in line with discount talk of 2 bps to 3 bps.

Credit Suisse Securities, Citigroup Global Markets Inc., Deutsche Bank Securities Inc. and J.P. Morgan Securities LLC were the joint bookrunners for the debt refinancing deal.

Vermilion C$225 million

In the Canadian market, Vermilion Energy sold an upsized C$225 million issue of five-year senior notes (/BB-/DBRS: BB) at par to yield 6½%.

The deal was upsized from C$200 million and priced at the tight end of the 6½% to 6 5/8% price talk.

Scotia Capital Inc. and CIBC World Markets Inc. were the lead managers.

The proceeds will be used for repayment of existing debt and for general corporate purposes.

Talking the deals

Looking to the Friday session, Aleris International talked its $500 million offering of seven-year senior notes (B1/B+) with a 7¾% area yield on Thursday.

Bank of America Merrill Lynch is the lead left bookrunner. Barclays Capital Inc., Deutsche Bank Securities Inc., J.P. Morgan Securities LLC and UBS Investment Bank are the joint bookrunners.

Elsewhere, Yankee Candle talked its $300 million offering of five-year senior notes with a 10¾% to 11% cash yield, including 2 points to 3 points of original issue discount.

Barclays Capital and Bank of America Merrill Lynch are the joint bookrunners.

GMX Resources talked its $200 million offering of eight-year senior notes (Caa2/B-/) with a 10¾% to 11% yield.

Credit Suisse Securities and Morgan Stanley & Co. Inc. are the joint bookrunners.

In the euro-denominated market, German do-it-yourself retailer Praktiker talked its unrated €200 million to €250 million offering of five-year senior notes to yield in the low 6% range.

Commerzbank, Deutsche Bank and UniCredit are the leads.

Towergate downsizes, sets talk

In the sterling-denominated market, England-based Towergate has downsized its two-part notes offer to £520 million equivalent from £570 million equivalent, shifting £50 million to its term loan on Thursday.

Meanwhile, the company talked a downsized £230 million-equivalent tranche of seven-year senior secured notes (expected ratings B1//BB) with an 8¾% area yield. The secured notes come with three years of call protection. The tranche was downsized from £280 million equivalent.

Towergate talked its £290 million equivalent tranche of eight-year senior unsecured notes (expected ratings B3//B-) with a 10¾% area yield. The unsecured notes come with four years of call protection.

The mix of currencies in which the bonds will be offered remains to be determined, market sources said.

J.P Morgan Securities is a joint bookrunner and will bill and deliver. Credit Suisse, Goldman Sachs and Lloyds TSB are the joint bookrunners.

American Commercial PIK notes

ACL I Corp., the parent of American Commercial Lines Inc., will host a global investor call on Friday for its $225 million offering of five-year senior PIK toggle notes, according to an informed source.

An investor roadshow will also get under way on Friday.

The deal is expected to price during the week ahead.

Bank of America Merrill Lynch, UBS Investment Bank and Wells Fargo Securities are the joint bookrunners for the Rule 144A with registration rights offer.

The Jeffersonville, Ind.-based shipping and transportation services provider plans to use the proceeds to fund a special dividend to redeem equity advanced in connection with the acquisition of American Commercial Lines by certain affiliates of Platinum Equity LLC.

New Hovnanians head higher

When Hovnanian Enterprises' new 2015 bonds were freed for secondary dealings, a trader said that the Red Bank, N.J.-based homebuilder's deal "did pretty well" by having moved up to 99 bid, par offered from their 97.453 pricing level, adding a "wow" for emphasis.

Modest gains for Valeant, CPI

Another two of the day's new deals that made it into the aftermarket Thursday, Valeant's 10-year notes and CPI International's seven-year transaction firmed modestly, traders said.

A trader saw the Mississauga, Ont.-based pharmaceuticals company's quickly shopped $650 million offering trading at 100 1/8 bid, 100 3/8 offered, "up 1/8 to 1/4, somewhere in that neighborhood," after the Valeant deal had priced at par.

A second trader quoted them at 100¼ bid, 100½ offered, but a bit later on in the day, yet another market source said the bonds had firmed a little more, to around 100 3/8 bid. 100 7/8 offered.

Palo Alto, Calif.-based high-tech systems manufacturer CPI's $215 million issue was meantime seen by a trader at 100 1/8 bid, 100 5/8 offered, up a little from their par issue price.

A second trader said that he had not seen the bonds, while a third who had seen them said that by mid-afternoon, CPI "seems like ancient history already."

While he saw the new bonds get as good as 100 7/8 bid at one point, they moved back down to levels around 100½ bid, 101 offered "and then kind of just died there."

Energy operators too late

The day's other two issues - Plano, Tex.-based oiler Denbury Resources' 10-year senior subordinated notes due 2021 and the 7¾% notes due 2019 of Basic Energy Services, a Midland, Tex.-based provider of drilling and other services to the energy industry - priced too late in the day for any kind of aftermarket, traders said.

New Ford bonds busy

The big deal from Wednesday's session - Ford Motor Credit Co.'s 5¾% notes due 2021 - was one of the biggest-volume issues of the day on Thursday, a trader said. The more than $60 million of that paper traded was well under the several hundred million dollars of trades racked up by OPTI Canada, but was still busy enough to place high up on Thursday's most actives list.

He saw the Dearborn, Mich.-based Ford Motor Co. financing arm's bonds at 100 1/8 bid, 100 3/8 offered - up marginally from the $1.25 billion "drive-by" transaction's par issue price on Wednesday, though off a little from the 100 3/8 bid, 100 5/8 offered level at which those bonds had traded after pricing.

Another trader said that "a lot of Fords traded earlier in the day" in a range between par and 100 3/8 "all day." He saw the last trade of the day go off around 100¼ bid.

A market source said that given the sheer size of the mega-deal and the fact that most investors got the allocations they wanted, there was really not a lot of impetus to push the bonds much beyond those trading levels.

Kraton holds gains

The other deal from Wednesday that was actually seen around in the aftermarket; Houston-based chemical company Kraton Performance Polymers Inc.'s upsized $250 million offering of 6¾% notes due 2019 was seen by traders hanging onto the 2-point gain notched after the notes had been freed for aftermarket activity on Wednesday.

A trader saw those bonds trading at bid levels between 102 and 102½ all day, finally going out at 102 1/8 bid, 102 3/8 offered.

Kraton "did pretty well," a second trader said, pegging them at 102 1/8 bid, 102¾ offered - well up from the par level at which that offering, upsized from the originally announced $200 million, had priced on Wednesday.

Del Monte still trading

A trader saw Del Monte Foods Co.'s 7 5/8% notes due 2019 around 101¾ bid, 102 offered during the morning, though not after that.

While that was up from the par level at which the San Francisco-based producer of canned fruit and vegetable products and pet food had priced its $1.3 billion offering on Tuesday - downsized from $1.5 billion originally - it was down from the 102-102¼ context at which the bonds had traded in the aftermarket on Tuesday, though about in line with where they had gone home on Wednesday.

Secondary indicators up again

Away from the new deal arena, a trader saw the CDX North American Series 15 HY index up by 3/8 of a point on Thursday to close at 104 1/16 bid, 104 5/16 offered, after having been unchanged on Wednesday.

The KDP High Yield Daily index meantime gained 3 basis points on Thursday to finish at 75.54, after having jumped by 13 bps on Wednesday. Its yield came in by 3 bps to 6.84%, after having narrowed by 7 bps on Wednesday.

The Merrill Lynch High Yield Master II index continued to add to its gains on Thursday, rising by 0.097%, on top of Wednesday's 0.128% advance - its 10th consecutive pickup.

That lifted the index's year-to-date return to 2.43% on Thursday, yet another new peak level for the year so far. It had closed on Wednesday at 2.331%, the previous 2011 high point.

Advancing issues led decliners for a 10th straight session on Thursday, holding the same roughly six-to-five advantage seen on Wednesday.

Overall activity, represented by dollar-volume levels, rose by 10% on Thursday, after having slowed by about 4% on Wednesday from the previous session's level.

But rather than being broad-based, much of the activity, a trader said, was concentrated in just two names - a rebounding OPTI Canada and the new Ford Motor Credit issue.

OPTI up as slide stops

Among specific credits, a trader said that "you can guess" what was the most active high-yield name on Thursday - OPTI's 7 7/8% notes due 2014 and 8¼% notes, also due 2014, which had seemingly been in free-fall over the past several sessions, sliding down into the upper 40s by Wednesday evening.

On Thursday, though, the bonds bounced "quite a bit, actually" from lows in very heavy dealings. With the 7 7/8s as the more active of the two - there was, he said, "a lot of lot of trading in those" - the bonds continued to slide in the early going, falling as low as 44 bid, then bouncing around between that nadir and a peak level on the day of 55, a volatile range, which he termed "nuts."

He last saw both issues going out around 52 bid, reiterating that "a lotta, lotta bonds" had changed hands.

He said: "Obviously, they've had some operational issues" with the big Long Lake, Alta. Oil-sands energy facility, which Calgary-based OPTI owns jointly with Nexen Inc. in a 35-65 relationship. "I don't think Moody's expects them to pay [their next coupon], so they're going to have to sell the operation to somebody that's better-heeled."

He said in that scenario, the bondholders "figure whoever does that, these things are worth at least 50 [cents on the dollar]."

Another trader said that OPTI's bonds "were the big-volume guys today" and were "starting to move back up" after having taken a continual pounding over the previous few sessions, he said, pegging them just below 52 bid, calling that a rise of 2½ to 3 points on the session "on huge volume."

He estimated that some $200 million of the 7 7/8s had traded and $100 million of the 81/4s moved, allowing that the turnover was probably even more than that given the limitations of the Trace system in accurately tracking the size of any high-yield trades of as little as $1 above the round-lot floor of $1 million.

Yet another market source quoted the 81/4s at 52¼ bid, calling them up 3 points on the day, while seeing the 7 7/8s up 2½ points on the day at 51¾ bid.

OPTI Canada - which recently hired Lazard Freres & Co LLC as a financial advisor to join in on its search for strategic options like an investment in OPTI, an asset sale or even finding a buyer for the whole company - held an investor call on Thursday to discuss its recent developments, but a trader brushed off that tactic as "useless and meaningless," though he did find it interesting that at least 300 people were on the call.

"There's no better game in town," he said.

Yet another trader suggested that the wild roller-coaster activity in the bonds on Thursday came about because "one guy tried to dump out all his paper," and others swooped in.

OPTI Canada's already-weakened bonds began sliding anew earlier in the week on news of the Lazard hiring. OPTI has already had Scotia Waterous Inc. and TD Securities Inc. trying to find a buyer or strategic investor since 2009 - so far unsuccessfully. Those two companies will continue their efforts, joined by Lazard, but analysts were quoted warning that the Lazard hiring - far from a positive for OPTI - sends a message to investors that no deal is currently in the offing and one is not expected any time soon.

Kodak up despite projection

Eastman Kodak Co.'s bonds were seen a little bit better Thursday - even though its stock was not - following the Rochester, N.Y.-based photographic products company's investor meeting.

A market source said that its 7¼% notes due 2013 were quoted up more than a point, a bit over 95 bid, versus Wednesday's going-home level around 94 bid.

During its presentation, Kodak forecast a 2011 loss from continuing operations in the range of $100 million to $300 million on revenue of between $6.4 billion to $6.7 billion - well under the roughly $6.9 billion that Wall Street had been expecting.

However, it said that its important digital photography business - currently a money-loser as Kodak scrambles to compete with upstart digital rivals like Canon and Sony - would show a profit by 2013, while its consumer inkjet and commercial inkjet printing businesses will both turn a profit during 2012.

And of special interest to bondholders, Kodak said that it would have a 2011 year-end cash balance of $1.5 billion to $1.6 billion, after taking into account all cash actions, including what it termed "modest" debt payments due this year.

Mohegan more active

Mohegan Tribal Gaming Authority's debt has "certainly been getting a little more notice of late," a trader said.

He said that about $15 million of the 6 1/8% notes due 2013 turned over at 88 5/8, which he deemed "up a bit."

Another trader said the notes were "up about a point," also at 88 5/8.

Last week, the Connecticut-based gaming authority said it had hired Credit Suisse Group AG to aid in a restructuring effort. Mohegan had engaged an advisory unit of Blackstone Group LP back in November.

Nortel extends gains

Nortel Networks Corp.'s 10¾% notes due 2016 rose for a second consecutive session, pushed up by investor reaction to Wednesday's report in The Wall Street Journal that the Toronto-based telecommunications systems manufacturer was close to selecting a stalking-horse bidder for the upcoming auction of its vast portfolio of valuable patents.

The bonds, which on Wednesday had risen by at least 2 points on the day, were seen up another 1¾ points Thursday to around the 92¾ area.

Meanwhile, the bankrupt company's nearly worthless stock - it trades via the Pink Sheets between a nickel and a dime per share - saw heavy activity on the report, at one point doubling in price to 8 cents per share before going home at a fraction over 5 cents, up about 1¼ cents, or 30.54%. Volume of 58.7 million shares was 42 times the usual activity level.

The Journal had reported on Wednesday that Nortel, which filed for bankruptcy in 2009 and has been liquidating its far-flung assets - expects to select an initial bidder for its massive portfolio of some 4,000 patents, probably within three weeks. Among the companies reported to be among the pool of at least five potential buyers are such high-tech heavyweights as Apple Inc. and Google Inc.

The patents are expected to go for at least $1 billion, with the proceeds to be distributed among Nortel's various creditors.

Stephanie N. Rotondo contributed to this report.

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