Fortescue, split-rated ILFC mega-deals price, Host, Motor City also; market turns lackluster

By Paul Deckelman and Paul A. Harris

New York, March 14 - Activity picked up in the high-yield primary sphere on Wednesday, with a series of quickly-shopped offerings totaling $2.7 billion, more than double Tuesday's volume and about the same as Monday's.

The big deal of the session was a $2 billion, two-part offering from Australian iron ore miner Fortescue Minerals Group; however, that upsized transaction, consisting of five- and 10-year notes, came too late in the day for an aftermarket.

There was also a giant-sized offering - not considered part of the $2.7 billion - from International Lease Finance Corp., the aircraft leasing arm of insurance giant American International Group. That split-rated (B1/BBB-/BB) issue, consisting of three-year and seven-year paper, initially firmed a little from the tranches' respective issue prices slightly below par, but then later slipped back to around their pricing levels.

Back among the purely junk-rated deals, CCM Merger, Inc. - the operator of Detroit's Motor City casino and hotel - rolled the dice with a $275 million seven-year deal, which was not seen trading around afterward.

Another hospitality industry name - Host Hotels & Resorts, Inc. - did an upsized $350 million issue of 10-year notes, which quietly traded in the aftermarket around their issue price.

Nursing-home operator Aviv Health Care, Inc. brought an upsized $100 million add-on to a series of existing bonds sold last year.

Another medical name - United Surgical Partners International, Inc. - was heard by syndicate sources getting ready to hit the road with a $440 million eight-year bond deal.

Away from the new-issue realm, traders saw junk bonds - which had enjoyed a powerful advance on Tuesday - sitting back on Wednesday, and giving up some of their gains.

Statistical market performance measures accordingly turned mixed.

Fortescue doubles deal size

Four issuers brought a combined five tranches during Wednesday's primary market session, raising a total of $2.73 billion.

In a deal that doubled in size, Fortescue Minerals Group, priced $2 billion of senior notes (expected B1/confirmed BB-/confirmed BB+) in two tranches.

The deal included a $1 billion tranche of five-year notes which priced at par to yield 6%. The yield printed on top of price talk which had been revised from earlier talk of 6% to 6¼%.

In addition Fortescue priced a $1 billion tranche of 10-year notes at par to yield 6 7/8%. The 10-year notes also priced on top of revised price talk. Earlier talk had the notes pricing with a yield in the 7% area.

The overall amount was increased from $1 billion.

J.P. Morgan, Bank of America Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, RBS and UBS were the joint bookrunners for the quick-to-market deal.

Fortescue plans to use the proceeds for equipment financing and general corporate purposes.

Host prices at wide end

Host Hotels & Resorts priced an upsized $350 million issue of non-callable 10-year notes (existing Ba1/confirmed BB+) at par to yield 5¼%.

The yield printed at the wide end of the 5 1/8% to 5¼% yield talk. Host increased the offering size from $300 million.

Goldman Sachs, Deutsche Bank, J.P. Morgan and Bank of America Merrill Lynch were the bookrunners for the quick-to-market issue.

The Bethesda, Md.-based lodging firm plans to use the proceeds to repay the $113 million principal amount outstanding of the 7½% mortgage secured by the JW Marriott in Washington, D.C., to redeem its $150 million of 6 7/8% series S senior notes due 2014 and for general corporate purposes.

MotorCity prices seven-years

MotorCity Casino Hotel priced a $275 million issue of seven-year senior notes (Caa2/CCC+/) at par to yield 9 1/8%.

The yield printed in the middle of the 9% to 9¼% yield talk.

Bank of America Merrill Lynch and Deutsche Bank were the joint bookrunners for the debt refinancing deal, issued through CCM Merger.

Aviv taps 7¾% notes

Aviv Healthcare Properties LP and Aviv Healthcare Capital Corp. priced an upsized $100 million add-on to their 7¾% senior notes due Feb. 15, 2019 (B1/B+/) at 101 to yield 7.498%.

The reoffer price came in the middle of the 100.75 to 101.25 price talk. The amount was increased from $75 million.

Bank of America Merrill Lynch, Morgan Stanley and RBC were the joint bookrunners for the quick-to-market add-on.

The Chicago-based owner of skilled nursing facilities plans to use the proceeds to repay debt outstanding under its acquisition credit line.

The original $200 million issue priced at par in January 2011.

In addition to the above-mentioned junk deals, Cenveo Corp. was expected to price its $450 million offering of senior notes due May 15, 2020 (Caa2/CCC+/) on Wednesday.

However the deal, which was talked to yield 11½% to 11¾% on Tuesday, is now expected to price on Thursday, according to an informed source.

Bank of America Merrill Lynch, Morgan Stanley, Macquarie and Barclays are the joint bookrunners.

ILFC brings split-rated deal

In the crossover sector, International Lease Finance Corp. sold $1.5 billion of split-rated senior bullet notes (B1/BBB-/BB) in two parts on Wednesday.

The $750 million of 4.875% three-year paper priced at 99.65 to yield 5%, at the tight end of price talk that was set in the 5 1/8% area.

A $750 million tranche of 5.875% seven-year notes sold at 99.288 to yield 6%, at the tight end of the 6 1/8% area price talk.

Credit Suisse and J.P. Morgan were active bookrunners. Passives were Barclays and Macquarie.

The split-rated deal was transacted on the high-yield desk.

Proceeds are being used to repay amounts under a $750 million term loan due March 17, 2015 and for general corporate purposes including repayment of debt and aircraft purchase.

United Surgical to roadshow

There was one announcement of a new offer.

United Surgical Partners, in conjunction with its special purpose vehicle USPI Finance Corp., will begin a roadshow on Thursday in New York City for a $440 million offering of eight-year senior notes (expected ratings Caa1/CCC+).

The deal is set to price on Tuesday.

Barclays is the left bookrunner. J.P. Morgan, Goldman Sachs and Morgan Stanley are joint bookrunners.

Proceeds, along with proceeds from a new credit facility, will be used to refinance existing debt and fund a special dividend to equity holders.

ILFC trades near issue

When the new International Lease Finance two-part deal was freed for secondary dealings, a trader saw both tranches of the aircraft-leasing company's $1.5 billion offering at par bid, 100½ offered, "so they did a little better" relative to the three-year paper's 99.65 issue price and the seven-year's 99.28 pricing level.

But another trader later pegged the two tranches at 99¾ bid, 99 7/8 offered.

Host hangs around

A trader saw lodging industry REIT Host Hotels & Resorts' upsized $350 million of 10-year notes initially offered at 1003/4, with no bid side seen. However, he later saw a two-sided market emerge, with the bonds lower at 99¼ bid, 99¾ offered, versus the transaction's par issue price.

A second trader reported the bonds at 100¼ bid, 100½ offered very late in the day, but saw "no real volume" in the new paper.

Motor City a trading no-show

Several traders said during the afternoon that they had not seen any signs of trading in Motor City Casino Hotel's $275 million of new seven-year notes, even though that issue had priced at par relatively early in the day.

There likewise was no aftermarket seen in Aviv Heath Care's upsized $100 million add-on tranche to its 2019 bonds

And the same was true of Fortescue Minerals' $2 billion offering of five-year and 10-year bonds; unlike Motor City but like Aviv, they came to market late in the session.

"So we'll just sit back and wait for the flurry of stuff to pop, shortly", one of the traders said.

Earlier deals slightly off

Among the drive-by deals which priced earlier in the week, a trader saw DJO Global Finance, Inc.'s 8¾% second priority senior secured notes due 2018 at 101¾ bid, 102¼ offered.

That was down slightly from the 102 bid, 102¼ offered level at which those bonds had traded after the San Diego-based orthopedic and prosthetic device maker's quickly-shopped $230 million of those bonds had priced at par on Tuesday.

Air Lease Corp.'s $1 billion offering of 5 5/8% notes due 2017 was quoted on Wednesday at 99¾ bid, par offered.

That was down from the Tuesday closing levels at par bid, 100 3/8 offered that the Los Angeles-based aircraft leasing company's deal held after the issue - massively upsized from an originally announced $500 million - priced at par.

CIT Group Inc.'s new 5¼% notes due 2018 were seen by a trader down about 1/8 point on Wednesday at around 101 1/8 bid. The New York-based commercial lender's $1.5 billion of new paper - which had priced at par on Monday - had initially traded around its issue price, but then had moved up to around 101¼ to 101 3/8 on Tuesday.

A trader saw United States Steel Corp.'s 7½% notes due 2022 trading at 100 5/8 bid Wednesday, while another saw the Pittsburgh-based steel-making giant's levels around 100¾ bid, 101 1/8 offered.

Those bonds had traded as high as 101 bid, 101¼ offered on Tuesday. The $400 million deal priced on Monday at par and firmed slightly to 100 3/8 bid, 100¾ offered in the immediate aftermarket.

Trading activity in both the U.S. Steel and the CIT issues was greatly reduced on Wednesday from what had been seen on Tuesday, when the two new deals topped the high yield most-actives list, with some $92 million of the U.S. Steel bonds traded that session and $43 million of the CIT bonds changed hands.

Traders saw no activity Wednesday in Neuberger Berman Group LLC's $800 million two-part offering, both tranches of which had priced at par on Monday.

The New York-based asset-management firm's deal, consisting of $300 million 8 5/8% notes due 2020 and $500 million of 5 7/8% notes due 2022, priced too late on Monday for any dealings, but began trading around on Tuesday, with the eight-year paper getting as good as 101¼ bid, 101¾ offered, while its 10-year securities were as high as 102¼ bid, 102 3/8 offered.

Junk market calms down

Overall, Wednesday's market was as different from Tuesday's as night and day. Not only was there no repeat of the hyperactive trading in U.S. Steel and CIT, but the broader market away from the new deals - which had firmed smartly on Tuesday as Junkbondland took its cue from surging stocks - seemed to lack focus, with nothing really standing out as a big gainer.

"There was nothing huge today, lopsided volume like that," a trader said.

At another desk, a trader said that Wednesday's session "was a very lackluster day. The market took a deep breath" after the heady gains it notched on Tuesday.

"We're following what's going on in Europe, and we're following the stock market. Today, after a rally like that, you do have to expect a pause."

The first trader meanwhile said that "everyone's been watching the 10-year [Treasury issue] backing up." That bond market bellwether finished the day yielding 2.27%, versus the 2.03% level seen at the start of the week.

"It will be interesting to see," he continued. "Does the cash keep coming into the high-yield market like it has been for the last few months - really, the last year?

"And if that cash starts slowing, or even turns around and goes out, it will be interesting to see where this market goes - and how quickly."

Market signs mixed on day

Statistical measures of junk market performance turned mixed on Wednesday after having been higher across the board for a second consecutive session on Tuesday.

A market source said that the CDX North American Series 17 High Yield index lost 3/16 point on Wednesday to close at 97 7/8 bid, 98 1/8 offered, after having jumped a full point on Tuesday.

The KDP High Yield Daily Index meantime rose by 7 basis points to finish at 74.23, after having gained 5 bps on Tuesday. Its yield declined by 2 bps on Wednesday to 6.53%, after having come in by 1 bp on Tuesday.

And the widely-followed Merrill Lynch High Yield Master II Index notched its sixth consecutive daily advance on Wednesday, gaining 0.046% on top of Tuesday's 0.102% rise.

That lifted the index's year-to-date return to 5.217% on Wednesday, up from 5.168% on Tuesday, although it remained below its peak level for 2012 of 5.361%, which was recorded on March 2.

Edison Mission moves up

Among specific junk issues, a trader said that "the bond that keeps moving up every day now" is Edison Mission Energy's 7½% notes due 2013.

He saw the bonds on Wednesday bid at "86 and change" - up from the mid-70s last week, "so they get stronger every day." Over $12 million of the bonds traded, putting them among the more active junk issues on the day.

He said that the bonds issued by the Irvine, Calif.-based energy company "went down dramatically" last week on market fears that Edison International's unit "may not have enough money to pay off their debt - even after there was an infusion of debt by one of the hedge fund partners.

"They dropped so precipitously last week that it was ridiculous."

He said the bonds had gone from the 90s, to the high 80s, "when they got a strategic partner in there - and then, BOOM., the bottom fell out," dropping the paper down to the mid-70s.

Investors got worried after Standard & Poor's announced at the end of February that it had lowered its corporate credit rating on Edison Mission as well as its subsidiaries, Midwest Generation LLC and Edison Mission Marketing & Trading, Inc., to CCC+ from B- previously, with a negative outlook, citing greater refinance risk in 2013 due to lower cash flow over the medium term and reduced liquidity.

The ratings agency warned that "we think the risk that EME will be unable to refinance its $500 million notes in June 2013 on reasonable terms is greater because of reduced future cash flows driven by low natural gas prices and lower company liquidity," and it put the company's ratings on CreditWatch negative pending further analysis.

S&P also cautioned that the company's decision to terminate its $564 million revolving credit facility, that was scheduled to mature this summer, "worsens its liquidity position, which we already viewed as less than adequate. Other factors negatively affecting liquidity build-up are much higher coal costs at Midwest Gen under new supply contracts and the $185 million refund payment in 2012 from EME to parent Edison International (EIX) under their tax-sharing agreement."

But after bottoming following that pessimistic assessment - and against a backdrop of parent Edison International reporting a loss for the fourth quarter, versus a year-earlier profit, and citing losses racked up as Edison Mission as one factor - the bonds started rebounding once all of the negative news had been aired, the trader said, "and now, they're coming back nicely, in the 86-87 range."

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