Constellation Brands megadeal drives by; euro market busy; Penney's, Chesapeake issues jump

By Paul Deckelman and Paul A. Harris

New York, April 30 - The high-yield primary market closed out the month of April on Tuesday with a quickly shopped $1.55 billion two-part bond deal from Constellation Brands, Inc. as part of the wine and spirits manufacturer and importer's deal to buy out its joint-venture partner in a Mexican brewing operation.

But Constellation popped the top on that big deal too late in the day for any kind of aftermarket activity, traders said.

That deal was the sole dollar-denominated, junk-rated pricing from a domestic or industrialized country issuer on the day.

It capped a month that saw some $22.21 billion of new issuance, roughly in line with February's $22.18 billion, but only 63% of March's $35.26 billion, according to data compiled by Prospect News.

On a year-to-date basis, total year-to-date U.S. market issuance of $111.24 billion was running about even with the year-ago Junkbondland activity pace, according to the data.

All of Tuesday's other primary market action took place among issuers doing euro-denominated or sterling-denominated transactions.

There were pricings from Greek oil refiner Hellenic Petroleum Finance plc and from Portugal Telecom International. Swiss chemical producer Ineos Group Holdings SA, Irish telecom operator eircom Finance Ltd. and British appliance, electronics and home furnishings retailer BrightHouse Group plc began shopping deals around to prospective investors. All but BrightHouse were euro-denominated offerings, syndicate sources said.

Away from the new-deal arena, J.C. Penney Co. Inc.'s 2023 notes jumped for a second consecutive session Tuesday - and on heavy trading to boot - as the retailer announced that it would tender for those bonds in order to facilitate a big new bank loan deal it badly wants to get done.

And holders of Chesapeake Energy Corp.'s 2019 notes took that paper higher in very active dealings, anticipating that the company could get an unfavorable court ruling in its effort to call those bonds at just par.

Statistical measures of junk market performance, meanwhile, continued to push higher.

Constellation drives through

Constellation Brands completed Tuesday's sole dollar-denominated deal.

The beverage company priced $1.55 billion of new non-callable senior notes (Ba1/BB+) in two tranches.

In the short-duration tranche, $500 million of eight-year notes priced at par to yield 3¾%. The yield printed 12.5 basis points inside of the 3 7/8% to 4% yield talk.

In the long-duration tranche, $1.05 billion of 10-year notes priced at par to yield 4¼%, at the tight end of the 4¼% to 4 3/8% yield talk.

At the high end of price talk, combined orders came to $14 billion, according to a trader.

BofA Merrill Lynch, J.P. Morgan, Rabobank, Barclays and Wells Fargo Securities LLC were the joint bookrunners for the quick-to-market execution.

Proceeds will be used to fund a portion of the acquisition of the remaining 50% ownership in Crown Imports LLC, Grupo Modelo's Piedras Negras brewery and an irrevocable, fully paid license to produce and exclusively import, market and sell the Modelo brands and certain extensions in the United States.

Portugal Telecom's €1 billion

As was the case on Monday, the preponderance of Tuesday's high-yield primary market news emanated from Europe.

The European junk market is operating at an unprecedented pace because accounts are laden with cash that needs to be put to work, and issuers are keen to get deals done before financial numbers need to be freshened, according to a debt capital markets banker based in London.

Tuesday's biggest euro-denominated deal came from Portugal Telecom, which priced a €1 billion issue of seven-year senior fixed-rate notes (Ba2/BB) at par to yield 4 5/8%.

The yield printed on top of yield talk. Earlier guidance was 4 7/8%.

The deal was transacted on the investment-grade desk, according to a trader.

BofA Merrill Lynch, Espirito Santo Investment Bank, BNP Paribas, Caxia and HSBC managed the sale.

Hellenic Petroleum atop talk

Elsewhere, Hellenic Petroleum priced an upsized €500 million issue of four-year senior notes at par to yield 8%.

The yield printed on top of yield talk that was lowered from 8¼%.

Initial guidance was 8½%, market sources say.

The deal was upsized from €400 million.

Alpha Bank SA, Credit Suisse Securities (Europe) Ltd., Eurobank Ergasias SA, HSBC Bank plc and NBG Securities SA managed the sale. HSBC will bill and deliver.

The deal was more than seven times oversubscribed, with total demand exceeding €3.5 billion, according to a company press release.

Of orders in the book, 60% came from foreign institutional investors, the release stated.

The Greek refiner plans to use the proceeds to refinance debt and for general corporate purposes.

Gestamp sets talk

The Tuesday session also saw developments on some of the deals that comprise the €1.4 billion and £1.6 billion active forward calendar which is expected to clear by the end of the week.

Gestamp Funding Luxembourg SA (Gestamp Automacion SL) set price talk on its €750 million dual-currency offering of seven-year senior secured notes (B1/BB).

Notes in the dollar-denominated tranche are talked with a yield in the 5¾% area, while notes in the euro-denominated tranche are talked in the 6% area. Tranche sizes remain to be determined.

The deal is set to price on Thursday.

Deutsche Bank Securities Inc. will bill and deliver, while BofA Merrill Lynch, Bakia, Barclays, BBVA Securities Inc., Caxia, Commerzbank, Itau, Santander and SG CIB are the joint bookrunners.

INEOS dollar deal

Swiss chemical producer Ineos Group Holdings plans to price $678 million of senior notes (expected Caa1/confirmed B-).

The deal is coming in tranches of 5.25-year notes, which come with two years of call protection and are guided at a yield of 6 5/8% to 6¾%, and seven-year notes, which come with three years of call protection and are guided at a yield of 7% to 7¼%.

Tranche sizes remain to be determined.

Joint global coordinator Citigroup will bill and deliver. Goldman Sachs and UBS are also joint global coordinators. BofA Merrill Lynch, Barclays, ING and Lloyds TSB are the joint bookrunners.

Books close on Wednesday.

INEOS plans to use the proceeds to take out its 8½% notes due 2016.

BrightHouse sterling offer

BrightHouse Group plans to price a £220 million offering of five-year senior secured notes (B2//) on Thursday.

JPMorgan and Lloyds are managing the sale.

The Watford, United Kingdom-based rent-to-own business plans to use the proceeds to repay debt, including shareholder loans.

Full roadshow for eircom

Ireland's eircom Finance plans to conduct a full roadshow for its €310 million offering of seven-year senior secured notes.

The roadshow, which is being led by joint global coordinators JPMorgan and Goldman Sachs, is expected to run until May 9.

Initial guidance on the deal is 9½% to 10%.

Deutsche Bank, BNP Paribas, BofA Merrill Lynch and Morgan Stanley are joint bookrunners.

The Dublin-based telecom plans to use the proceeds to repurchase debt under its existing senior facilities agreement in accordance with a solicitation process.

Elsewhere, Athens, Greece-based bottle-maker Frigoglass SA is meeting with fixed-income investors ahead of a possible bond deal, market sources say.

Citigroup and HSBC are leading the non-deal roadshow.

Constellation deal unseen

In the secondary market, traders said that Constellation Brands' big two-part offering of eight-year and 10-year notes priced too late in the session for any kind of aftermarket action.

They noted that terms on the deal from the Victor, N.Y.-based producer and importer of many well-known brands of beer, wine and whiskey didn't hit the screens until well after 6 p.m. ET, by which time most market participants had long since left.

AES, Regency trade up

A trader said that last week's deals from AES Corp. and Regency Energy Partners LP had moved higher on Tuesday, building on the quarter-point gain that each had posted on Monday.

He quoted Arlington, Va.-based domestic and global power producer AES's 4 7/8% notes due 2023 at 102¼ bid, 102¾ offered, a half-point gain on the session.

AES had priced that quickly shopped $500 million offering of those bonds at par last Thursday. The notes have been gradually firming ever since then.

He also saw Regency Energy Partners' 4½% notes due 2023 as good as 103½ bid, 103¾ offered.

The Dallas-based natural gas and natural gas liquids midstream company, along with co-issuer Regency Energy Finance Corp., priced its $600 million of those notes at par in a drive-by transaction last Wednesday.

Rosetta on the rise

Going back a little further, a market source was quoting Rosetta Resources, Inc.'s 5 7/8% notes due 2021 at 104 9/16 bid at the close on Tuesday, up 9/16 of a point on the session. Round-lot volume was over $10 million, putting the credit high up on the list of most-active issues.

Traders saw no immediate rationale behind the day's activity in the Houston-based energy operator's $700 million deal, which priced at par on April 18, immediately jumped more than 2 points in initial aftermarket dealings and then continued to gradually firm to current levels.

Some recent deals unseen

However, a trader said that from where he sat, there did not seem to be too much activity in a lot of the recent deals.

For instance, he reported having seen no levels in Monday's issue from Rent-A-Center Inc., which priced $250 million of 4¾% notes due 2021 in a quick-to-market transaction on Monday.

The Plano, Texas-based rent-to-own operator's issue had edged up to a 100¼ to 100¾ bid context late Monday.

At his shop, he said, "everyone was one the sidelines watching for the new Apple deal to break" - a reference to the record-huge $17 billion multi-part investment-grade bond deal brought by Silicon Valley technology powerhouse Apple Inc.

"That, and Chesapeake."

Chesapeake churns

The trader said that the Oklahoma City-based natural gas producer's 6.775% notes due 2019 had pushed up to a 109 to 110 bid context, which was well up from around 106 bid earlier. He cited speculation that the company would have to take out those 6.775s at a higher price than it had anticipated.

A market source at another shop also saw the Chesapeake issue going out at 109 bid, calling that up some 2 7/8 points on the day on hefty volume of over $15 million.

The bonds shot northward on afternoon news that the judge who has been hearing the suit pitting Chesapeake against the trustee for those bonds, Bank of New York Mellon Group, said that he would issue a ruling in the contentious case on May 9.

And while federal jurist Paul Engelmayer of the Southern District of New York did not issue an interim ruling in the case, in his reported remarks as the court sessions came to a closed, he appeared to be critical of the way Chesapeake had drafted the language of its indenture for those bonds.

The two companies are at odds over whether Chesapeake, which has called the bonds for redemption at par, was within its rights to do so under the indenture.

Chesapeake said that the language of the indenture allowed it to give notice of redemption at par any time up to March 15, while the trustee said that another provision of that document required that such a redemption actually be completed by that deadline, or else the company would be obligated to call the bonds at a much higher price, should it choose to take them out.

J.C. Penney pops up again

But while those Chesapeake bonds were busy, the volume champ of the session was J.C. Penney's 7 1/8% notes due 2023, with over $39 million of that paper having changed hands, hitting sharply higher levels for a second consecutive day.

The bonds "continued to soar," a trader said as the Plano, Texas-based retailer announced a tender offer for the debt.

The trader called the issue up "another 10 points" at 1443/4.

Another market source quoted the issue at 143¾ bid, 144¾ offered, compared to 134 bid, 135 offered on Monday.

The bonds had jumped 30-plus points on Monday on news of a new loan from Goldman Sachs. Buzz was that the company was going to have to do something with the 7 1/8% notes, as language in the debenture did not allow new debt to be stacked on top of it.

Come Tuesday, J.C. Penney announced the tender and consent solicitation to amend certain parts of the indenture. The proposed amendments would allow for the loan to be inked ahead of the tender expiration.

Under the terms of the tender, holders who participate will receive $1,350 for each $1,000 of notes tendered. The amount includes a $50.00 consent payment.

However, the bonds currently trading well above that amount and there are concerns that the company won't get enough participation, which would result in an attempt to defease the debt.

"Although, as we noted yesterday, these bondholders are in a great bargaining position (now that we know how much cash the company needs to borrow, which is far greater than we had estimated), there is always the risk that the financing deal will fall apart and the downside is huge," wrote Gimme Credit LLC analyst Carol Levenson in a report release Tuesday afternoon.

"We would guess that Penney will sweeten the tender offer somewhat so that everybody can feel like a winner."

Moody's Investors Service downgraded the company during the session. The agency said that while the new $1.75 billion term loan will enhance liquidity, it does nothing to address performance and cash burn concerns and also weakens the overall capital structure.

Indicators up again

Overall, statistical junk market performance indicators were on the upside across the board for a sixth consecutive session on Tuesday.

The Markit Series 20 CDX North American High Yield index was up by 7/16 of a point to end at 106 3/16 bid, 106 5/16 offered, its eighth consecutive rise. On Monday, it had been up 17/32 of a point.

The KDP High Yield Daily index, meanwhile, rose by 11 basis points on Tuesday, its sixth consecutive gain, going home at 76.15. It had been up by 13 bps on Monday.

The yield came in by 5 basis points to end at 5.13%, also its sixth straight narrowing, after having tightened by 6 bps on Monday.

Stephanie N. Rotondo contributed to this review

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