Quiet end to $4 billion week, market awaits Penn Gaming and spinoff; Chesapeake up on M&A buzz

By Paul Deckelman and Paul A. Harris

New York, Oct. 18 - The high-yield primary sphere saw a quiet end to the week on Friday, with no U.S. dollar-denominated, fully junk-rated paper seen having priced during the session.

But traders saw continued strength in such recently priced deals as Neiman Marcus Group Ltd., Calpine Corp. and Solera Holdings, Inc., all of which were quoted on Friday trading well above the levels at which they had priced earlier in the week.

Thursday's offerings from power generator Calpine and from Solera, a provider of software and services to the automobile insurance claims industry, brought the week's new issuance total to $4.20 billion in eight tranches, according to data compiled by Prospect News. That was down from the $9.13 billion that priced in 14 tranches during the previous week, ended Oct. 11.

On a year-to-date basis, new issuance stood at $266.07 million in 572 tranches at Friday's close, running about 2.2% ahead of the pace seen in 2012, which ultimately turned out to be a record year for new junk issuance. Some $258.24 billion had priced in 535 tranches by this time on the 2012 calendar, the data indicated.

Apart from the issues that have already priced, high-yield syndicate sources reported that price talk had emerged on casino operator Penn National Gaming, Inc.'s upcoming $300 million eight-year deal, and had also surfaced on the $2.05 billion three-part transaction that Gaming and Leisure Properties, Inc. is doing as part of the financing for its spinoff from Penn National. Both of those gaming-sector deals are expected to price on Monday.

Away from the new deals, traders saw brisk upside trading in Chesapeake Energy Corp.'s bonds, helped by news reports that major oil companies may be eyeing the big natural gas producer as a possible acquisition target.

But power producer NRG Energy Inc.'s paper was off on the news that it plans to buy troubled sector peer Edison Mission Energy for $2.6 billion, including the assumption of $1.6 billion of Edison Mission debt.

Statistical market performance indicators were higher for a seventh consecutive session, and were up across the board from their week-ago totals for a second straight week.

Mediaset massively oversubscribed

The only high-yield deal to price Friday came out of Europe.

Mediaset SpA, the company founded by former Italian prime minister Silvio Berlusconi that is Italy's largest commercial broadcaster, priced a €375 million issue of non-rated 5 1/8% senior notes at 99.463 to yield 5¼%.

Initial yield guidance was in the context of 5 3/8%.

The deal, via Banca IMI, BNP Paribas, Mediobanca and UniCredit, played to an order book that topped €3 billion, sources said.

Domestic & General to roadshow

In other high-yield news from Europe, Domestic & General Group Ltd. plans to begin a roadshow on Monday for a £500 million three-part notes offer.

The deal features a £200 million tranche seven-year senior secured fixed-rate notes, which comes with three years of call protection, a £150 million tranche of six-year senior secured floating-rate notes, which comes with one year of call protection, and a £150 million tranche of eight-year senior unsecured notes, which comes with three years of call protection.

Joint global coordinator Goldman Sachs will bill and deliver. Barclays and Credit Suisse are also joint global coordinators. BNP, Morgan Stanley, SG and UBS are joint bookrunners.

Mizuho and Royal Bank of Scotland are co-managers.

Proceeds, together with an equity contribution and cash held by the Domestic & General Group, will be used to finance the acquisition of Domestic & General Group Holdings Ltd. by CVC Capital Partners Ltd. from Advent International Corp., and to repay debt.

Gaming and Leisure sets talk

Although no dollar-denominated deals were priced on Friday, the dollar junk market generated news.

Gaming and Leisure Properties set yield talk for a $2.05 billion three-part offering of non-callable senior notes (Ba1/BBB-).

The deal is coming in tranches of notes with five-, seven- and 10-year maturities.

The five-year notes are talked to come with a yield in the 4¾% area, the seven-year notes are talked to come with a yield in the 5¼% area, and the 10-year notes are talked to come with a yield in the 5¾% area.

Tranche sizes remain to be determined.

BofA Merrill Lynch is the left physical bookrunner for all three tranches.

Penn Gaming talk is 6¼% area

Meanwhile the company which is spinning off Gaming and Leisure, Penn National Gaming, talked a $300 million offering of eight-year senior notes (B1/B+) with a yield in the 6¼% area.

J.P. Morgan, RBS, Credit Agricole, BofA Merrill Lynch, Fifth Third, Goldman Sachs, Nomura, SunTrust, UBS and Wells Fargo the joint bookrunners.

Both the Gaming and Leisure and the Penn National Gaming deals are set to price on Monday.

Dole Food roadshow Tuesday

Dole Food Co. Inc. plans to start a roadshow on Tuesday for a $275 million offering of 5.5-year senior secured notes (Caa1/CCC+).

The acquisition deal is set to price later in the week ahead, via Deutsche Bank, BofA Merrill Lynch and Scotia.

Although market-watchers are expecting an active week, the Oct. 21 week is not anticipated to generate huge issuance numbers, sources said on Friday.

"The high yield does not seem as robust as people were anticipating before Labor Day," a fund manager said on Friday.

The action is in the loan market, manager added, specifying that an additional $50 billion of loan paper is expected to hit that market before year-end.

Halfway back from June

Although rates in high yield are certainly not as issuer-friendly as was the case in April and May of this year, borrowing costs have lately been moving in issuers' direction, the manager said.

Pointing to the JPMorgan high yield composite index, the buysider reckoned that junk has plowed about halfway back to last spring's historic tights, after undergoing a massive amount of widening in June.

The index yielded as low as 5.03% on May 8 and 9, the source said.

Then in late June, trailing the June 19 meeting of the Federal Reserve's Federal Open Market Committee when Fed chairman Ben Bernanke said the central bank would start to cut back its bond buying program later this year and might stop entirely by the middle of 2014 if the economy continued to improve, the JPMorgan composite yield soared.

"It was already widening," the manager recalled, noting that from the early May lows the index yielded 6.13% a week before that FOMC meeting.

Then came the big move, in the wake of the FOMC meeting. The index peaked at 6.95% on June 25, a week after that infamous meeting, the manager said.

Since then it has been a slow grind tighter, with the index at 6.03%, at Thursday's close.

"We have come almost exactly halfway back," the investor said, comparing the early May tights (5.03%) and the late June wides (6.95%).

"You could easily see us tightening to something like 5.98% next week if things continue as they have been," the buysider said, adding that a composite yield as low as 5¾% might even be in the offing.

New Calpine, Solera gain

From the secondary side of the fence, a trader said that Friday was "a strong day in the new-issues world."

He said that Calpine's 6% senior secured notes due 2022 had moved up to 101 5/8 bid, 101 7/8 offered - well above the 99.193 level at which the Houston-based power generating company had priced its $750 million issue on Thursday, after upsizing the quick-to-market deal from an originally announced $570 million.

A second trader pegged the bonds at 101 5/8 bid, 102 1/8 offered, and called that a gain of some 2 5/8% over the 99 bid level at which the issue was being quoted after pricing.

Thursday's other deal, a quickly shopped $850 million two-part transaction from Solera Holdings, also moved up solidly once it was freed for aftermarket dealings early Friday, traders said.

A trader saw the company's add-on to its existing 6% notes due 2021 as having moved up to 102 7/8 bid, 103¼ offered.

On Thursday, its Audatex North America, Inc. unit priced $510 million of the notes at 101.75 to yield 5.631%.

The unit's $340 million of 6 1/8% notes due 2023 priced at par on Thursday and were seen on Friday afternoon at 101 bid, 101½ offered.

Other issues gain

One of the traders said that "the overall marker was pretty firm across the board."

For instance, he said Neiman Marcus Group's $1.56 billion two-part deal "was holding its own very well," quoting both tranches of that transaction in high 102 to low 103 bid context.

At another desk, a trader quoted its 8% cash-pay notes due 2021 at5 102 7/8 bid, 103 3/8 offered, and saw its 8¾%/9½% PIK senior toggle notes due 2021 at 103¼ bid, 103¾ offered.

The Dallas-based upscale department store and online luxury retailer's Mariposa Borrower, Inc. and Mariposa Merger Sub LLC units had priced the $960 million of cash-pay bonds and the $600 million of PIK toggle notes at par on Wednesday, and both tranches had quickly surged up to and even above the 102 bid level when they were freed for secondary market activities.

A trader saw Los Angeles-based residential builder KB Home, Inc.'s 7% notes due 2021 rise by 7/8 point to finish at 101¾ bid, 102¼ offered. The company had priced $450 million of those notes at par on Tuesday, up from the originally announced $350 million size.

"The market had a very positive [tone] overall," a trader said. "I think you're going to get a buildup in the calendar again. You've got the 10-year [yield] coming down, and it looks like it's going to stay down for a while."

Chesapeake churns higher

Away from the new deals, one of the traders said that "there was some secondary trading going on, and it was mostly lifting bonds - people were buying paper here."

One of the biggest movers of the day was Chesapeake Energy's bonds. They got a boost, along with the company's shares, from takeover talk and news reports. For instance, the London-based Daily Mail newspaper reported that international energy majors BP and Royal Dutch Shell "could both be running the slide-rule" over the Oklahoma-based company, which is the second-largest U.S. natural gas producer.

Chesapeake's 5.70% notes due 2023 jumped to 107 bid from prior levels at 103½ and at one point were heard to have gotten as good as 109¾ bid. A market source put round-lot volume in the credit at over $36 million, making it the busiest bond in the junk world.

Its 4 7/8% notes due 2023 gained 1 5/16 points to end just below par, on volume of over $12 million.

NRG weaker

But not all credits were moving up, despite the overall market strength.

Princeton, N.J.-based power generating company NRG Energy's bonds were seen lower on the news that it has agreed to acquire troubled Edison Mission Energy from parent Edison International. The $2.6 billion purchase would include assumption of $1.6 billion of Edison debt.

NRG's 8¼% notes due 2020 fell 1 point to 111 bid.

Edison Mission paper meanwhile popped 5 to 9 points on the day on the news

"There's a lot of bonds going through the system," a trader said of the name. He pegged the notes - which all tend to trade in line with one another - at 72, which he deemed up 9 points.

Another trader said the 7% notes due 2017 opened in a 66 to 68 context and eventually moved up to 72 bid, 73 offered. That was up 5 points intraday, he said, but 8 points from the previous session when the debt ended around 63 bid, 65 offered.

Market up on day, week

Statistical junk-market performance indicators were meantime seen higher across the board on Friday - their seventh straight day on the upside.

They were also higher than where they were the previous Friday for a second consecutive week.

The Markit Series 21 CDX North American High Yield Index 2/32 point on Friday to end at 107 bid, 107 1/16 offered, its third consecutive gain. On Thursday, it rose by 7/16 point.

The index was also up from where it had finished last Friday, Oct. 11, when it had closed at 105¾ bid, 105 7/8 offered.

The KDP High Yield Daily Index notched its sixth consecutive improvement, jumping by 28 basis points to end at 74.11, on top of Thursday's 10 bp rise.

Its yield came in by 10 bps to go out at 5.83%, its sixth decline in a row; on Thursday, it had narrowed by 4 bps.

Those levels compared favorably with the 783.63 index reading and 6.05% yield seen the previous Friday.

And the widely followed Merrill Lynch High Yield Master II Index made it a lucky seven in a row on Friday as it gained 0.27%, after improving by 0.321% on Thursday.

The latest gain lifted its year-to-date return to 5.514%, up from Thursday's 5.23%, which had been the first time the cumulative return figure had moved above the psychologically significant 5% mark since May 28, when it stood at 5.02%.

The index was also up by 0.911% on the week, its third straight weekly gain. It had been up by 0.311% the previous week, going home last Friday quoted at 4.562%

Stephanie N. Rotondo contributed to this report

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