Aleris, Yankee Candle lead late deal surge; OPTI, Kodak extend comebacks; US Oncology a puzzle

By Paul Deckelman and Paul A. Harris

New York, Feb. 4 - After loafing along for much of the day, the high-yield primary market hit the gas late in the session Friday, pricing more than $1 billion of new paper in a trio of transactions from Energy Partners Ltd. ($210 million), Aleris International, Inc. ($500 million) and Yankee Candle Co. ($315 million). Those deals came in addition to the considerably earlier $200 million pricing from GMX Resources Inc.

Besides the dollar-denominated deals, there were also pricings in sterling and in euros from overseas issuers Towergate Finance plc, a British insurance concern, and Praktiker, a German retailer, respectively.

The day's deals lifted the week's dollar issuance total to around the $7 billion mark, although that represented a slowdown from the nearly $10 billion that came to market the week before.

Price talk meantime emerged on ACE Cash Express, Inc.'s $350 million secured deal, which is expected to price on Monday.

J. Crew Group Inc. was heard to have downsized its upcoming junk offering, shifting a portion of it into bank debt.

When they hit the aftermarket, the Energy Partners and GMX bonds were seen firming solidly by traders. Aleris and Yankee Candle appeared too late for trading.

Away from the new-deal realm, the overall junk market continued to firm, with indexes moving up. The recently troubled bonds of OPTI Canada, Inc. and Eastman Kodak Co. were rebounding from their mid-week lows.

But traders said that U.S. Oncology's bonds being redeemed later this month inexplicably took a dive of around 4 points, despite the lack of any fresh news on the company.

Aleris a blowout

A busy Friday session saw four issuers, each one bringing a single dollar-denominated tranche of junk, raise $1.219 billion

Aleris International, Inc. priced a $500 million issue of seven-year senior notes (B1/B+) at par to yield 7 5/8%, at the tight end of the 7¾% area price talk.

The deal was a blowout, according to an informed source

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

Proceeds will be used to fund a distribution of about $300 million to the company' stockholders and for general corporate purposes, including financing for the construction of an aluminum rolling mill in China.

Yankee Candle sells five-years

Elsewhere Yankee Candle Co. priced an upsized $315 million issue of five-year senior notes (Caa1/CCC+) at 98.

The notes will be cash pay provided the operating company has sufficient restricted payment capacity. If that capacity becomes insufficient the company may make PIK payments

The notes feature a cash coupon of 10¼% and a PIK coupon of 11%.

The cash yield is 10.775%. The PIK yield is 11.535%

The cash yield came in towards the tight end of the 10¾% to 11% cash yield talk. The reoffer price came at the rich end of discount talk of 2 points to 3 points.

The size was increased from $300 million.

Barclays Capital Inc. and Bank of America Merrill Lynch were joint bookrunners.

Proceeds will be used to fund a distribution to equity holders.

Energy Partners at tight end

Energy Partners, Ltd. priced a $210 million issue of seven-year senior notes (Caa1/B-) at par to yield 8¼%, at the tight end of the 8¼% to 8½% price talk

Jefferies & Co. was the left bookrunner. BMO Nesbitt Burns was the joint bookrunner.

Proceeds will be used to acquire some shallow-water Gulf of Mexico shelf oil and natural gas interests.

The issuer is an independent oil and natural gas exploration and production company based in New Orleans and Houston.

GMX wide of talk

GMX Resources Inc. priced a $200 million issue of 11 3/8% eight-year senior notes (Caa2/B-/) at 96.833 to yield 12%.

The yield printed 100 basis points beyond the wide end of the 10¾% to 11% price talk.

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

The Oklahoma City-based oil and gas exploration and production company will use the proceeds to repay its revolver, to refinance its convertibles due 2013, to fund an acquisition and for general corporate purposes.

Bond investors wanted more yield from GMX, in part because of a natural gas market that has been soft and volatile, a high yield market source explained.

$7.2 billion week

With Friday's dollar-denominated issuance into the mix, the Jan. 31 week saw $7.2 billion of junk price in 18 tranches.

That extends year-to-date issuance to a whopping $40.7 billion heading into the first full week of February.

The primary market could taper off a bit heading into mid-February as potential issuers are required to post new financial numbers, with 2010 fourth quarter numbers having gone stale, according to some sell-side sources.

However don't expect too much of a slowdown, one syndicate banker warned on Friday.

This is an excellent time for issuers, the source said, adding that the Credit Suisse High Yield Index composite yield is 6.96%, the lowest it has been since early 2005.

There are potential issuers whose numbers are fresh, the banker said, adding that some of those can be counted upon to take advantage of an excellent opportunity to raise cash at great rates during the run up to mid-February.

Towergate's two-part deal

In London, Towergate Finance plc completed a downsized £520 million two-part notes transaction on Friday.

The deal included a downsized £230 million tranche of seven-year senior secured notes (B1//BB) which priced at par to yield 8½%.

The issue, which was reduced from £280 million, priced on top of price talk that was downwardly revised from previous talk in the 8¾% area.

Towergate also priced a £290 million tranche of eight-year senior unsecured notes (B3//B-) at par to yield 10½%.

The unsecured notes also priced on top of price talk, which was also downwardly revised, in this case from previous talk in the 10¾% area.

The deal's overall size was decreased from £570 million, with £50 million being shifted to Towergate's term loan.

J.P. Morgan Securities LLC, Credit Suisse, Goldman Sachs & Co. and Lloyds TSB were the joint bookrunners. J.P. Morgan will bill and deliver.

Proceeds will be used to refinance debt.

Praktiker sells €250 million

And on the Continent, German do-it-yourself retailer Praktiker Holding AG priced its unrated €250 million issue of 5 7/8% five-year senior notes at 99.473 to yield 6%.

The yield printed at the tight end of the 6 1/8% area price talk.

The issue priced at the high end of the €200 million to €250 million range at which the company marketed the offer.

Commerzbank, Deutsche Bank and UniCredit managed the deal.

The company, which is based in Kirkel, Germany, plans to use the proceeds to refinance debt.

Ace Cash sets talk

Looking toward the week ahead, ACE Cash Express, Inc. talked its $350 million offering of eight-year senior secured notes (B3/B) with an 11% area yield on Friday.

The books close at 10 a.m. ET on Monday, and the deal is set to price after that.

Credit Suisse is the bookrunner.

Although the active calendar is somewhat thin, with four deals totaling $1.9 billion, the week ahead is expected to be quite active in the primary market, according to a syndicate banker.

This source has visibility on three to four deals, one of which could be sized up to $2 billion, and another which should top the $1 billion mark.

No names were provided.

New energy bonds trade up

When Energy Partners's new seven-year notes were freed for secondary market dealings, a trader saw the bonds having risen to the 101 bid level. That was up from par, where the independent Houston- and New Orleans-based oil and natural gas exploration and production company had priced its issue.

He also saw Oklahoma City oiler GMX Resources' new eight-year notes at 98¼ bid, although he had not seen any offerings in the bonds up to that point. The bonds had firmed after having priced at 96.833.

A second trader saw the new Energy Partners issue at 101 bid, 101¼ offered, up from par.

The Aleris and Yankee Candle deals priced too late in Friday's session for an aftermarket, the traders said.

Earlier issues hold their own

Looking at some of the bonds which priced earlier in the week, one of the traders noted that Del Monte Foods Co.'s $1.3 billion offering of 7 5/8% notes due 2019 continued to hold in a 101 7/8 bid, 102 1/8 offered context.

That was just below the peak levels around 102 bid, 102¼ to which the bonds had moved after they were freed to trade this past Tuesday.

The San Francisco-based maker of products for both humans and their pets had priced the issue, downsized from the originally planned $1.5 billion, at par earlier Tuesday.

The trader saw the week's other big deal - Ford Motor Credit Co.'s $1.25 billion of 5¾% notes due 2021 - "still" around the 100 1/8-100 3/8 range, "where all of the trading was taking place."

He saw "millions and millions and millions" of the bonds changing hands at levels "pretty much unchanged from the first night" the bonds traded, after having priced at par on Wednesday.

A trader saw Denbury Resources Inc.'s 6 3/8% senior subordinated notes due 2021 as "the big-volume guys" Friday, with over $63 million of the Plano, Tex.-based energy company's notes trading at 101 7/8 bid, 102 1/8 offered.

The $400 million issue, upsized from $350 million originally, had priced at par late Thursday - too late for any kind of an aftermarket.

Hovnanian Enterprises Inc.'s $155 million of 11 7/8% notes due 2015 were seen up at 99 bid, 991/2, offered, well above the 97.453 level at which the Red Bank, N.J.-based homebuilder had priced its offering on Thursday, when it rose to that 99 level in the aftermarket.

Other deals are no-shows

A trader said that other of the recently priced issues were just not seen in Friday's session, including two relatively smallish deals - Midland, Tex.-based oilfield services concern Basic Energy Services, Inc., which priced $275 million of 7¾% notes due 2019 at par late Thursday - upsized from $250 million - and was then heard from no more; and Palo Alto, Calif.-based high-tech manufacturer CPI International Inc.'s $215 million 8% notes due 2010, which priced at par on Thursday, traded around 100 1/8 to 100 5/8 bid immediately afterward, and then likewise disappeared on Friday.

He commented that "especially if it's around or under $250 [million]," as both of those deals were, "you're not gonna see it."

He allowed that a credit like Hovnanian's was the exception to the rule, owing to the familiarity that many high yield investors have with the prolific, long-time junk issuer.

Secondary closes week firmly

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

The index thus gained on the week from the 103¼ bid, 103 3/8 offered at which it had finished the previous Friday, Jan. 28.

The KDP High Yield Daily index meantime gained 3 basis points for a second session in a row on Friday to finish at 75.57. Its yield held steady at 6.84%, after having narrowed by 3 bps on Thursday.

The index thus showed improvement from the 75.31 level at which it had finished the previous week, while its yield tightened from 7.01% a week earlier.

The Merrill Lynch High Yield Master II index continued to add to its gains on Friday, rising by 0.134%, on top of Thursday's 0.097% - its 11th consecutive pickup.

That lifted the index's year-to-date return to 2.567% on Friday - yet another new peak level for the year so far. It had closed on Thursday at 2.43%, the previous 2011 high point.

The index was up by 0.464% on the week, lifting it from the previous Friday's 2.093% reading.

Advancing issues led decliners for an 11th straight session on Friday, widening their lead to about seven to five, after having held a six-to-five edge on Wednesday and again on Thursday.

Overall activity, represented by dollar-volume levels, fell by 10% on Friday, after having risen by that same amount on Thursday from the previous session's level.

A trader declared that "overall, the market had a pretty firm tone."

On the comeback trail

That was seen by the firming trend experienced by a trio of credits that had recently taken their lumps.

A trader saw OPTI Canada's bonds continuing to bounce back from the lows they hit on Wednesday and early Thursday, investors apparently feeling that the huge downturn the Calgary, Alta.-based oil-sands energy company's massive downturn had been overdone.

He quoted OPTI's 7 7/8% notes and its 8¼% notes, both due in 2014 better, with the 7 7/8s last trading at 53¾ bid, and the 81/4s at 54½ - both up from around 52 bid at the close on Thursday, when the bonds had gyrated as low as 44 and as high as 55 before ending up there, up about 4 or 5 points from Wednesday's finish in the upper 40s.

The proximate cause for the slide was the announcement early in the week that OPTI had hired Lazard Freres & Co LLC as a financial advisor to join in its search for strategic options like an investment in the company, an asset sale or even finding a buyer for the whole company. However, OPTI has already had Scotia Waterous Inc. and TD Securities Inc. trying to find a buyer or strategic investor since 2009, so far unsuccessfully. While those two companies will continue their efforts, joined by Lazard, analysts were quoted as 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.

Even so, on Thursday and again on Friday, OPTI "came back," another trader said. "They've stabilized" in the 520-53 range, which he noted "is off the bottoms."

At another desk, a trader saw the OPTI bonds get as good as 55 on the day before ending off that peak. While volume was enough to put both OPTI issues among the most active junk bonds on the day, it fell far, far short of the more than $200 million of the 7 7/8s and nearly $200 million of the 81/4s that traded on Thursday.

Kodak climbs back up

A trader called Eastman Kodak Co. "the other name that's recovering smartly off the bottom" in addition to OPTI Canada.

He saw the Rochester, N.Y.-based photographic products company's bellwether 7¼% notes due 2013 better in the wake of Kodak's meeting with investors on Thursday, during which it issued projections on when various units of the company would return to profitability, and talked about its liquidity and debt situation, causing the bonds to rise both Thursday and Friday.

"They're going to really focus on reducing debt," he said.

He noted that the bonds - which had gotten hammered down from the high 90s into the low 90s starting last week after the company reported a setback in its legal case against smartphone makers who allegedly violated Kodak's digital imaging patents, and then followed that up with disappointing fourth-quarter and full-year 2010 earnings - "bounced back, post-earnings, and after losing that lawsuit, even though they think they're going to win it on appeal."

He saw the 71/4s going home around a 953/4- 96 bid range, well up from levels late in the previous week and early in this week down around 93-931/2. "Now buying is coming in," he said.

He said "people that were on the [conference] call said the company feels their cash position is going to be at least where it was at the end of this [2010] year, which was $1.6 billion, and they are going to concentrate on reducing some debt, which means that people feel they may try and bid for the 71/4s in the open market.

"As an investor, if you're going to play it, you play the shortest maturity and the most liquid - and that's the 71/4s of '13."

A&P shows improvement

And even the 11 3/8% senior secured notes due 2015 of Great Atlantic & Pacific Tea Co. were up Friday in apparent response to the better monthly numbers which the bankrupt Montvale, N.J.-based supermarket operator reported to the federal bankruptcy court overseeing its restructuring, a trader said.

He pegged the bonds at 92½ bid, 93½ offered, up from their recent levels around an 89-91 context.

He did not see any dealings in the company's busted convertible issues, the 5 1/8% notes slated to come due in June or the 6 ¾% notes due 2012, which have lately traded around 33 bid, like regular unsecured junk bonds, following the essential demise of the company's equity.

Puzzling diagnosis for US Oncology

But on the downside, a trader noted that the 9 1/8% senior secured notes due 2017 of US Oncology had fallen to 119 on Friday, after having traded at 123¼ on Thursday, despite there being no negative news out on the Woodlands, Tex.-based healthcare company, which was recently acquired by investment-grade healthcare provider McKesson Corp. in a deal that closed at the end of 2010.

Making the situation even more puzzling is the fact that those bonds have been called for redemption, along with 10¾% senior subordinated notes due 2014, as well as all of US Oncology Holdings, Inc.'s senior unsecured floating-rate toggle notes due 2012.

The trader noted that the 9 1/8s are to be redeemed in less than two weeks, on Feb. 16, and while the redemption price has not been set yet - it will be a make-whole call at 50 basis points above a comparable Treasury issue - he said that "Treasuries did not move 4 points today," so there was no reason that he could see for the US Oncology bonds to move by that much. "With Treasuries down ½ point, maybe you would see a ½ point move in the bonds - but 4 points? It just doesn't make sense."

Sense or not, U.S. Oncology was briskly traded at those lower levels Friday, on turnover of some $40 million.

A second trader also saw those bonds down about 3 or 4 points, and also expressed puzzlement as to the reason.

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