Greif unit prices euro deal to finish quiet week; secondary rebounds more, Nortel busy again

By Paul Deckelman and Paul A. Harris

New York, July 8 - Greif Luxembourg Finance SCA , a division of U.S.-based packaging products maker Greif, Inc., came to market on Friday with a €200 million issue of 10-year notes, high-yield syndicate sources said. Those new bonds traded higher in the aftermarket.

The Delaware, Ohio-based company's deal was the only issue priced during the session, bringing to a close one of the quietest weeks this year for the high-yield primary, with only $1.8 billion of new dollar-denominated paper having come clattering down the chute, although it should be noted that the week was abbreviated by Monday's July 4th market close and the lazy, holiday-like session which immediately followed that break. The week saw new dollar deals price from Equinix, Inc., Cemex SAB de CV, Saratoga Resources, Inc. and INC Research, Inc., as well as euro offerings from Greif, Fiat SpA and Grupo Corporativo ONO SA.

In the secondary market, traders saw continued activity in the new Equinix bonds, with the California data center operator's deal remaining well bid for and trading at a premium to Wednesday's par issue price. However, the traders did not see any activity Friday in the other new deals.

Away from the new deals, Nortel Networks Corp. was again the most prominent name - the bankrupt Canadian communications technology manufacturer's various issues have dominated the Junkbondland most-actives lists all week - although this time, the bonds were seen easier on the day, versus the solid gains seen over several sessions earlier in the week.

The overall secondary market was seen having pretty much retained Thursday's positive tone, although leading statistical indicators, which heretofore had been positive over several sessions, turned mixed. However, they showed Friday-to-Friday gains for a second consecutive week.

Grief debuts in euro market

Friday's sole primary transaction came from Greif Luxembourg Finance, which completed its first-ever euro-denominated junk deal, a €200 million issue of non-callable 10-year senior notes (Ba2/BB/) that priced at par to yield 7 3/8%.

The yield printed in the middle of the 7¼% to 7½% price talk.

Joint bookrunner Bank of America Merrill Lynch was the global coordinator and will bill and deliver. J.P. Morgan Securities LLC and RBS Securities Inc. were also joint bookrunners.

Proceeds will be used to repay non-U.S. borrowings under the company's revolving multi-currency credit facility and for general corporate purposes, including the financing of acquisitions.

The issuing entity is a Luxembourg-based financing unit of Greif Inc., a Delaware, Ohio-based producer of steel, plastic, fiber, flexible and corrugated containers and container board.

The deal saw strong demand from core European high yield buyers, a syndicate source said.

European primary market activity is expected to see a meaningful pickup during the week ahead, added the London-based syndicate source.

$1.81 billion week

With no dollar-denominated issuance on Friday, the dollar market closed the four-session post-Independence Day week having seen $1.81 billion price in four junk-rated tranches.

In terms of dollar-amount of issuance, it was the slowest week since the week of June 11 which saw $1.45 billion in six tranches.

At Friday's close the year-to-date issuance total stood at $193.62 billion in 436 junk-rated dollar-denominated tranches.

The European market, on the heels of its full five-session week, put up bigger numbers than the U.S. primary. European issuance totaled €2 billion in four tranches.

That is the biggest weekly euro-amount of issuance since the week of May 9, which saw €2.12 billion in eight tranches.

The biggest week for euro-denominated issuance thus far in 2011 was the week of March 7 which saw €3.7 billion in four tranches. As with the most recent week, Italian car-maker Fiat loomed large in the issuance total: during the March 7 week Fiat Industrial Finance Europe SA priced €2.2 billion in two tranches, whereas during the past week Fiat SpA priced €1.5 billion in two tranches.

At Friday's European close year-to-date euro issuance stood at €24.73 billion in 70 tranches, according to Prospect News data.

Main St. sets talk

Aside from Greif, the primary market remained ultra-quiet on Friday, as once again volatility rocked the global capital markets.

The only other news came from an off-the-run issuer which is in the market with comparatively small transaction.

Main St. Personal Finance, Inc. talked its $95 million offering of eight-year senior secured notes (B3/B-) with a 13% to 13½% yield.

The deal, via sole bookrunner Cortview Capital, is expected to price in the week ahead.

Cortview makes its debut in the high-yield bond market leading this transaction.

Also, El Pollo Loco, Inc. is expected to price its $105 million offering of 6.5-year senior secured notes (expected ratings Caa2/CCC) during the July 11 week, an informed source said.

The deal, which is in the market as a Regulation D private placement but will settle as a Rule 144A security, comes with coupon talk of 12½% cash plus and 4½% PIK. The notes are offered at a price of 97, and are expected to yield in the 17.8% area.

Jefferies & Co. Inc. is leading the private placement.

When activity resumes on Monday, investors will be looking at a $3.2 billion calendar of deals.

Dealers who were canvassed on Friday gave mixed forecasts of the expected level of activity in the primary market during the July 11 week, with some expecting a significant increase in deal volume.

However one syndicate banker, reached after the curtain had come down on Friday's weak performance in the stock market, said that a meaningful pick-up in primary activity likely remains at least a week away.

Greif gets grabbed up

In the secondary market, a U.S.-based trader saw some activity in the Greif Luxembourg Finance bonds, quoting those 10-year notes having firmed to 101¾ bid, 102¼ offered, well up from the par price at which the packaging products company's €200 million deal, announced Tuesday, had priced.

Equinix holds its own

In the dollar-denominated market, secondary players had no fresh new deals to occupy them and so they had to content themselves with trading in the new deals which made their debut earlier in the week, and traders said the only one of these really seen out and about was Equinix's 7% notes due 2021.

The Redwood City, Calif., company had priced $750 million of those bonds - upsized from the originally announced $500 million - on Wednesday at par late in the session, and subsequently they had firmed smartly, first to 102 bid, 102½ offered, and then on Thursday to levels as high as 102¾ bid, 103 offered, with over $120 million of the new issue having changed hands.

With Friday being a considerably quieter day than Thursday had been, market participants saw good, though not great, volume in the credit.

One estimated the turnover in the bonds on Friday at around $20 million - a respectable enough level by usual junk market standards, though well less than Thursday's frantic pace, which a trader said had been driven by accounts dissatisfied with their initial allocations in the deal.

The first trader said that after hitting the $20 million mark, activity in the new credit "pretty much dwindled." He saw the bonds going out in a 102-102 3/8 context, versus Thursday's late levels around 102½ bid.

Equinix "is hanging right in there," a second trader declared. He had seen the bonds get as good as 102 5/8 bid, 102¾ offered in Thursday dealings, and on Friday, he saw them trade between 102 1/8 and 102 3/8, "so that's not such a precipitous drop. So they hung in there pretty well."

Neither that trader nor any of the others who spoke to Prospect News saw any dealings going on Friday in the new 9% senior secured add-on notes due 2018 of Mexican cement producer Cemex, the 12½% senior secured notes due 2016 of Houston-based oil and gas operator Saratoga Resources, Inc., or, - for the most part - the 11½% notes due 2019 of Raleigh, N.C.-based contract medical testing and research provider INC Research.

In the latter bond, a trader saw a level Friday of 100¼ bid, 100¾ offered, versus the par issue price seen in the upsized $300 million deal on Thursday.

Market signposts turn mixed

Away from the new deal arena, traders saw statistical measures of market performance, which had been solidly higher on Thursday, going back to the more mixed profile seen earlier in the week.

A trader saw the CDX North American Series 16 HY Index down by ½ point on Friday to finish at 101 11/16 point bid, 101 13/16 point offered, after having gained 9/16 of a point on Thursday. That left the index down about ½ point on the week from the 102¼ bid, 102 3/8 offered level seen the previous Friday, July 1.

The KDP High Yield Daily Index eased 5 basis points on Friday to end at 73.35, after having shot up by 15 bps on Thursday. Its yield edged up by 2 bps to 6.75%, after having come in by 7 bps on Thursday.

However, on a week-by-week basis, the index was up from the 75.15 at which it ended the previous week, while its yield was lowered from the previous Friday's 6.85%.

And the Merrill Lynch High Yield Master II Index showed its eighth consecutive gain on Friday, up by 0.09%, on top of Thursday's 0.234% rise.

The latest gain lifted its year-date return to 5.784% on Friday from 5.69% on Thursday, though it remains below its year-to-date peak level of 6.071%, which was reached back on May 20.

On a weekly basis, the index rose for its second straight week, tacking on 0.668%, versus the 0.726% advance seen the previous week - the largest one-week rise seen since early January, and which followed five straight weeks on the downside going back to early June.

Traders universally categorized Friday's session as a snoozer. One noted that apart from the movement in Equinix deal, trades were "few, fair and slim." He called it "a typical summer Friday."

"I'd say it was a big, blah day," another opined.

Junk shrugs off jobs data

A trader said that the high-yield market "shrugged off" the negative June jobs numbers the government reported on Friday morning, even though that data helped to throw stocks for a big loop.

He said that upon hearing that only 18,000 non-farm jobs had been created in the U.S. in June - the smallest figure in at least nine months, and just a fraction of the roughly 100,000 jobs analysts were expecting, "maybe we lost ¼ point" - but stocks were a lot more emotional," with the bellwether Dow Jones Industrial Average falling by as much as 105 points during the session before going home still down 62.29 points, or 0.5% to end at 12,657.20. If anything, he said the bad news "brought in some buyers who wanted to buy at lower prices and bids were filled in."

He said there was "no overreaction" to the negative macroeconomic data.

Nortel knocks around

Among specific names, a trader said that Nortel Networks' bellwether 10¾% notes due 2016 were down ½ point to ¾ point on Friday from the levels to which they had risen on Thursday, closing at 108. There was "just a lot of trading" in the issue all week, he said, "and today there was a ton too."

He said those bonds had gotten as good as good as 109 on Thursday, before falling back a point. They had been on the rise throughout the week, gaining multiple points on both Wednesday and Thursday in heavy dealings, along with other paper in the bankrupt Canadian telecommunications technology producer's capital structure in response to a more successful than expected auction of its valuable patent portfolio,

"But the volume was just astronomical," he said.

Market has a Kodak moment

A trader said that "the one that the [market's] eyes are on is [Eastman] Kodak," following the inconclusive International Trade Commission ruling in the Rochester, N.Y.-based photographic products and imaging technology manufacturer's patent-infringement case against Apple, Inc. and Research In Motion Ltd., the makers of the iPhone and Blackberry smartphones.

He said that the company's 7¼% notes due 2013 "keep getting weaker, even though the company seems to have enough cash to pay for them. That's the nervous one in the Street right now."

He said that the bonds traded at a high of 98-98¼ some months ago, before the company's legal action got an unfavorable ruling from an ITC administrative law judge, who ruled that Apple and RIM were not violating Kodak's patent. They lost points gradually after that, and are now trading at 881/2, he said.

Kodak was hoping the full panel would over-rule that finding, and the bonds even rose into the lower 90s in anticipation of a favorable ruling, but last week's decision only partially overruled it and partially supported it, pushing off a final decision till the end of August, causing the bonds to give up their short-lived gains.

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