Cable & Wireless, Taminco price to end all-Europe week, trade up; market firm, Sears surges

By Paul Deckelman and Paul A. Harris

New York, Jan. 20 - In what has emerged as a pattern this week in Junkbondland, two more European issuers priced dollar-denominated deals on Friday's market - British telecommunications operator Cable & Wireless Communications plc and Belgium-based Taminco Global Chemical Corp.

Traders said that both new issues firmed smartly when they were freed for secondary market dealings.

Those deals put a cap on a holiday-shortened week that saw $3.2 billion of new junk bonds price, falling somewhat off the pace of the previous week, during which more than $5 billion came to market.

Interestingly, this week was an all-European affair in the new-deal arena; besides the Cable & Wireless and Taminco deals, the week's other borrowers selling dollar-denominated notes were Germany's Fresenius Medical Care AG & Co., Ireland's Ardagh Packaging and Polish telecom company Polkomtel SA. All gained modestly in the aftermarket and were quoted around those levels.

While there were no domestic issuers pricing any deals either during the week or on Friday, syndicate sources did hear that breakfast cereal-maker Post Holdings, Inc., would be hitting the road Monday to begin marketing a $775 million 10-year deal, while builder KB Home will be issuing debt securities to help fund its tender offer for several series of outstanding bonds.

Out of Canada came word that Western Energy Services Corp. priced a C$175 million junk-rated deal, while talk emerged on Cash Store Financial Services Inc.'s upcoming C$125 million issue.

Away from the new-deal universe, traders saw the secondary market continuing its recent firming trend, including statistical performance measures that were higher on both the session and the week.

One notable name was retailer Sears Holdings Corp., whose bonds continued to recover from their recent sales- induced drubbing. The bond rally was in line with its continued stock rebound, which was especially strong on Friday.

Taminco at the tight end

Two Europe-based issuers raised $800 million in Friday's U.S. dollar-denominated primary market. Each issuer brought a single tranche.

Taminco Global Chemical priced a downsized $400 million issue of eight-year senior secured notes (Caa1/B) at par to yield 9¾% at the tight end of the 9¾% to 10% price talk.

Credit Suisse, UBS, Citigroup, Nomura, Deutsche Bank and Goldman Sachs were the joint bookrunners for the LBO deal.

Having achieved better-than-expected pricing on its term loan, the company upsized the loan to $505 million from $452 million and downsized the bond offering to $400 million from $452 million.

Pricing on Taminco's term loan saw the Libor spread drop to 500 basis points from 525 bps, while the original issue discount narrowed to 98 from 97.

Cable & Wireless upsizes

Cable & Wireless Communications priced an upsized $400 million issue of eight-year senior secured notes (Ba2/BB) at par to yield 8¾% at the tight end of the 8¾% to 9% price talk.

JPMorgan, Barclays, HSBC, and Royal Bank of Scotland were the underwriters for the debt refinancing deal, which was upsized from $350 million.

$3.2 billion week

With Friday's two deals in the tally, the holiday foreshortened week of Jan. 17 saw $3.2 billion of issuance in seven junk-rated dollar-denominated deals.

That extends year-to-date issuance to $12.4 billion in 26 tranches.

Western prices C$175 million

In Friday's Canadian dollar-denominated market, Western Energy Services priced a C$175 million issue of seven-year senior notes (B3/B+) at par to yield 7 7/8%.

The yield printed at the tight end of the 8% area price talk. The deal size was originally announced at C$125 million minimum.

RBC Capital Markets Corp. ran the books.

The Calgary, Alta.-based oilfield drilling company plans to use the proceeds to repay debt and for general corporate purposes.

Post starts Monday

Looking to the week ahead, Post Holdings will begin a roadshow on Monday for a $775 million offering of 10-year notes (confirmed B1/expected B).

Barclays is the left bookrunner. J.P. Morgan, Wells Fargo and Credit Suisse are the joint bookrunners.

The proceeds will be used to help fund the spin-off of the company from Ralcorp Holdings Inc. The issuer will not receive proceeds.

Cash Store Financial sets talk

Cash Store Financial Services talked its C$125 million offering of five-year senior secured notes with an 11½% to 12% coupon at a discount of 3 to 5 points to yield 12¾% to 13% on Friday, according to a syndicate source.

The deal, which is being led by joint bookrunners Imperial Capital and Canaccord Genuity, is set to price Monday.

Meanwhile, price talk is expected Monday for Westmoreland Coal Co.'s $130 million offering of 10¾% senior secured notes due Feb. 1, 2018 via Gleacher.

Price talk and final terms are expected on the Summit Materials LLC's $220 million offering of eight-year senior notes (B3/B) via left bookrunner Citigroup and joint bookrunners Bank of America Merrill Lynch, UBS, Barclays, Credit Suisse and Deutsche Bank.

Look for the week ahead to be at least as busy as the past week, market sources advised on Friday.

In addition to $3.25 billion of business parked on the active forward calendar with most deals expected to price by the Friday close, the drive-by market also will be active, say the dealers.

Among those driving through the primary market will be a couple of names from the energy-related sectors.

Friday deals fly

When the new issues from Cable & Wireless and Taminco Global Chemical were freed for secondary activity, traders reported that both new deals booked handsome gains.

"Taminco did well," one said. "And Cable & Wireless did really well."

A trader quoted Cable & Wireless' upsized $400 million issue of eight-year secured bonds as having moved up to 103 bid, 103½ offered, well up from their par issue price.

"Today's deals did very well," said another, who also saw the British telecom operator's bonds in that 103 context.

He also saw Taminco's $400 million secured transaction at 102¼ bid, 102¾ offered, up from its par issue price.

A second trader had the bonds at 102 bid, 102 3/8 offered.

Earlier deals hang in there

Asked about how the deals that priced on Thursday, or even earlier in the week performed, one of the traders remarked that [Thursday] "feels like it was a year ago."

Nonetheless, he quoted Ardagh Packaging Finance's pair of add-on deals as having moved up on the break, after having priced too late in the day Thursday for any kind of an aftermarket.

Ardagh, a Dublin, Ireland-based producer of metal and glass packaging for consumer products, did a $420 million two-part deal, slightly upsized from the original $410 million.

It brought in $160 million of fungible 7 3/8% add-on notes due 2017, pricing them at 100.476 to yield 7¼%, as well as $260 million non-fungible 9 1/8% add-on notes due 2020, which priced at 96.356 to yield 9¾%.

While one trader on Friday said he had not seen either tranche in the aftermarket, a second said that the 7 3/8s had moved up to 102 bid, 103 offered, while the 9 1/8s were around 98 bid.

A trader said that Polkomtel's dollar-denominated 11 5/8% notes due 2020 were at a par bid; on Thursday evening, he saw them at par bid, 101 offered.

The Warsaw-based company - Poland's second-largest wireless service provider - priced $500 million of those bonds earlier Thursday through its Eileme 2 AB unit as part of a €920 million equivalent two-part offering of dollar- and euro-denominated paper.

Polkomtel restructured its deal to drop a third tranche that would have been denominated in Polish zlotys. The deal that finally priced was slightly upsized from the €900 million originally talked around.

The dollar bonds - 11 5/8% notes due 2020 - priced at 98.10 to yield 12%, initially moving up from issue to 99¼ bid, 99¾ offered in European dealings before adding a little more to that in Stateside trading to end Thursday at par bid, 101 offered.

The company also priced €542.5 million of 11½% notes due 2020 on Thursday at 96.628 to yield 12.5%, with that euro tranche rising to 98¼ bid, 98½ offered.

Fresenius stays at 101

A trader on Friday said that he had not seen Fresenius Medical Care, the week's biggest deal and its first one. It was seen only on Thursday, when both tranches of its new bonds were at 101 bid, 101½ offered.

The Bad Homburg, Germany-based worldwide provider of products and services to kidney dialysis patients came to market on Tuesday with a giant-sized drive-by deal through its Fresenius Medical Care US Finance II Inc. unit.

That two-part offering, originally planned at $1.2 billion, was eventually upsized to $1.5 billion, with the company pricing $800 million of 5 5/8% notes due 2019 and $700 million of 5 7/8% notes due 2022 on Tuesday, both at par.

The bonds came too late in the session on Tuesday to trade around.

On Wednesday, they were seen to have pushed up to around 101 bid, 101½ offered, where they remained for the rest of the week.

Another trader on Friday commented on why the bonds seemed to reach that ceiling at 101 and not get any better, despite the fact that Fresenius is a well-regarded long-time high-yield issuer and accounts are flush with cash.

The trader said, "Keep in mind the yield that one came at - you started with 5% handles on that deal. It came at 5 5/8% and 5 7/8%.

"Those bonds are still trading well. It's just that they don't have the upside that companies which come at 9% or 10% have," the trader said.

All Europe, all the time

Several traders noted the unusual fact that the domestic new-issue sphere, after having started out the new year at a healthy pace, just seemed to shrivel up and die. It at least went back on vacation like the primaryside did the last two weeks of last year.

That created a vacuum this week that was amply filled by European issuers.

The domestic dry-up was all the more notable given the market's favorable technical conditions for new-issuance.

Investors are flush with cash they want to put to work - at least that would seem to be the take-away from the seven consecutive weeks of inflows to the junk-bond mutual funds, totaling more than $7 billion, that have been reported by the two major fund tracking agencies, the AMG unit of Thomson Reuters' Lipper/FMI analytical service and rival EPFR Global.

The funds are generally seen as a reliable proxy for overall junk-market liquidity trends.

A trader said, "With all the cash coming in, nobody's selling really selling anything, even though they know they should because they're getting to such high levels. I don't want to call them ridiculous, but at least unrealistic. But what do you do - sell it and then sit on cash and underperform?

"You get that feeling from a lot of guys - that they have more cash coming in. They're saying 'Is there anything for sale that's not absurdly high?' " the trader said.

On top of that giant cache of cash, there's no huge glut of new paper clogging up the issuance pipeline while waiting to be absorbed by the market.

Heading into Friday's session, dollar-denominated, junk-rated issuance totaled more than $10 billion so far this year, running some 52% behind the red-hot pace seen at this time a year ago.

With such favorable technicals, it would seem like the conditions would be ripe for better issuance. "But unfortunately not," the trader said.

Into the breach stepped the Europeans.

A second trader said "There's definitely a big European calendar at this point in time." Issuers include Fresenius, Ardagh, Cable & Wireless and the others doing dollar deals.

"The question is: Are they borrowing because they want to borrow in dollars, or is it just because the situation is so much more stable over here than it is over there?" the second trader said.

He further stated that the dollar issuance "may just be a coincidental side effect or the fact that they're looking for a stable market. And with what's going on in Europe, it's just easier to do it in the U.S."

The first trader said all of this is happening "as we are watching Europe go down in flames."

"We [i.e. U.S. investors] won't loan their governments money - but we'll buy their corporates," the first trader said.

Firming trend continues

Away from the new-deal arena, statistical measures of junk-market performance extended their gains again on Friday and were higher on the week as well.

A trader saw the CDX North American Series 17 High Yield index gain 3/8 point for a second straight session on Friday to finish at 96 3/16 bid, 96 7/16 offered - its highest level since the 96¾ bid, 96 7/8 offered seen last Aug. 4.

It also was well above the 93 11/16 bid, 93 13/16 offered level seen at the close of trading last Friday, Jan. 13.

The KDP High Yield Daily Index was little changed on the day at 73.06, after having zoomed by 26 basis points on Thursday.

Its yield came in by 1 bp to end at 7.16%, after having narrowed by 8 bps on Thursday.

Those levels compare with the previous Friday's 72.71 reading and 7.27% yield.

And the Merrill Lynch High Yield Master II Index rose for a fifth straight session on Friday, adding 0.06% on top of Thursday's 0.336% advance.

That latest gain raised the index's year-to-date return to 1.662% for the year, a new 2012 peak level. That was up from Thursday's 1.601%, which had been the previous peak level for the year so far.

It also was up from the previous Friday's 1.077% year-to-date return. The 0.578% one-week gain was the fifth consecutive weekly rise.

"We had a firm week," a trader said. "Tuesday through Friday, we rallied straight through this week."

While he said that most everything was "definitely up across the board, nothing really stands out that much."

However, he said, "Retailers had a very nice day today," including San Francisco-based children's apparel maker and marketer Gymboree Corp., whose 9 1/8% notes due 2018 gained about 3 points to 87 bid, while Claire's Stores Inc.'s 8 7/8% notes moved up to about the 80 level, also up a few points. "So retailers had a strong showing."

Sears surge continues

Also out of that retailing sector, a trader saw Sears Holdings' 6 5/8% notes due 2018 trade all day long, finishing around 84-85 on Friday, which he called up around 1¼ points. "Really good size traded today," he said.

A market source saw more than $26 million of the bonds having changed hands by late in the day, putting Sears right up there among the junk-bond volume leaders. He pegged the bonds at 84¼ bid, up nearly a point from Thursday, when they had gained more than a point on volume of almost $50 million, which was tops in the junk world.

He noted that the stock jumped up on Friday as well. Its Nasdaq-traded shares zoomed by $5.65, or 13.03%, to end at $49, on volume of 6.6 million shares, over four times the norm.

Sears stock, along with its bonds, had taken a pounding in the immediate aftermath of the Dec. 27 announcement by the Hoffman Estates, Ill.-based operator of the venerable Sears department store chain, as well as another legendary retailer Kmart, that consolidated same-store sales were down 5.2% from a year ago during the crucial two-month selling period heading into Christmas.

Sears then announced that it would close up to 125 underperforming Kmart or Sears stores.

Since then, the bonds, which went from the mid- to high-80s before the announcement down to around 70 bid, have gradually come pretty much all the way back.

Meanwhile, Sears' shares have been Wall Street's hottest ticket of late, gaining more than 50% this past week alone.

Much of the buying was spurred by speculation that majority owner Edward S. Lampert - who took advantage of the stock's drastically lower price to buy another $159 million - may take the company private.

Kodak climbs, a little

Eastman Kodak Co. - whose bonds had fallen sharply on Thursday in response to the news that the once-mighty industrial powerhouse had filed for bankruptcy - seemed to claw its way partly back up on Friday.

A trader saw its busiest issue, the 7¼% notes due 2013, having moved back up to around the 30-bid level after having fallen as much as 5 points on Thursday to the 28-29 region, trading flat, without its accrued interest.

Another trader observed, "It's not like Kodak is going to shock anybody."

"Kodak's been overexposed for the past year," he quipped. "It's not like they shocked anybody [by filing for bankruptcy]."

He said the general public may have been stunned by the demise of the iconic Rochester, N.Y.-based photographic products company.

For decades, it was the world leader in the production of cameras, film and photography supplies until the digital imaging revolution.

But if you've been in the high-yield market, you've known for months that was where Kodak was headed, the trader said.

Connacher rises on review news

In the Canadian junk market, Connacher Oil & Gas Ltd.'s bonds traded up on Friday after the company announced a new strategic review.

Its 8¾% senior notes due 2018 "are up about 2 or 3 points on the news," a trader said.

The bonds, which priced on May 20 at par, rose to 99 bid, par offered over the day.

Connacher announced early Friday that the company's board of directors has started a review of the company's business plan and would consider all near- and long-term strategies, including managerial requirements. Goldman Sachs has been hired to assist the board in the strategic review.

A round of management changes have occurred in the past couple of weeks with the removal of its chief executive officer and three top executives.

The company also said in the statement that it has sufficient liquidity to meet all its current financial obligations, including the repayment of its convertible debentures in June, interest payments on the 8¾% senior notes in February and August and funding its announced 2012 capital program.

In December, Connacher rejected an unsolicited takeover offer.

The integrated oil company is based in Calgary, Alta.

Cristal Cody contributed to this report

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