Junk market ends with softer tone; ArcelorMittal brings new hybrid; commodity credits get cheap

By Stephanie N. Rotondo and Paul A. Harris

Phoenix, Sept. 25 - The high-yield bond market was "heavy towards the end of the day," a trade reported on Tuesday.

"The general tone seems to be a little bit softer," said another trader, who opined that most "on-the-run" names were down a couple points from last week's highs.

The market was not helped by an over 100-point decline in the equities, traders also remarked.

Despite the weaker tone, new issues continued to crank out. But even some of the new issues were slipping by the end of the day.

ArcelorMittal, for instance, saw its newly priced 8.25% hybrids falling. The company's straight bonds were also down on the day.

Generally, commodities like oil and gas, steel and coal were all mostly lower on the day. Penn Virginia Corp., EXCO Resources Inc., Alpha Natural Resources Inc. and ATP Oil & Gas Corp. were all posting losses, though on no credit-specific news.

The decline in commodity names was in line with a dip in oil prices. U.S. crude oil dropped $1.09, or 1.19%, to $90.84 per barrel.

High yield ends heavy

Market indexes were heading lower Tuesday, according to market sources.

The CDX North American High Yield Index fell over a point to 100 1/16 bid, 100 3/16 offered. The KDP High Yield Index meantime closed at 74.77, with a 5.85% yield, versus Monday's reading of 74.61, with a 5.92% yield.

"Things kind of petered out at the end of the day," a trader said.

Lately, some cash has trickled out of the asset class, another source added, specifying that the EPFR Global reported $11 million of daily outflows last Friday and $6 million of outflows on Monday, the most recent day reported.

Elan upsizes

The pace of the primary market fell off a touch on Tuesday, with four issuers raising $1.51 billion as each brought a single tranche of bonds.

In the Tuesday session, Elan Finance Public Ltd. and Elan Finance Corp. priced an upsized $600 million issue of seven-year senior notes (B1/BB-) at par to yield 6¼%, on top of yield talk.

Morgan Stanley was the bookrunner for the quick-to-market debt refinancing, which was upsized from $500 million.

The deal was wrapped around par after the Tuesday close, according to a buyside source, who remarked that it was priced "on the screws."

ADS 10-times oversubscribed

ADS Waste Holdings Inc. priced a downsized $550 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8¼%.

The deal was downsized from $700 million, with $150 million of proceeds shifted to the company's bank loan.

The yield printed at the tight end of the 8¼% to 8½% yield talk.

The order book was more that 10-times oversubscribed long before the book closed, according to a buyside source.

Deutsche Bank, Macquarie, UBS, Barclays and Credit Suisse were the joint bookrunners.

Proceeds will be used to help fund the purchase of Veolia ES Solid Waste Inc. from Veolia Environmental Services North America Corp. in a transaction valued at $1.9 billion.

ADS Waste is a Jacksonville, Fla.-based provider of integrated, non-hazardous solid waste collection, transfer, recycling and disposal services.

Atlas Pipeline at tight end

Atlas Pipeline Partners, LP and Atlas Pipeline Finance Corp. priced an upsized $325 million issue of eight-year senior notes (B2/B) at par to yield 6 5/8%.

The yield printed at the tight end of yield talk in the 6¾% area.

The deal traded up 2 points in the secondary market, according to a buysider, who added that there were $2 billion of orders for the $325 million deal.

Wells Fargo, Bank of America Merrill Lynch, Citigroup, Deutsche Bank and J.P. Morgan were the joint bookrunners for the quick-to-market debt refinancing deal, which was upsized from $300 million.

Nationstar taps 7 7/8% notes

Nationstar Mortgage LLC and Nationstar Capital Corp. priced a $100 million tack-on to their 7 7/8% senior notes due Oct. 1, 2020 (B2/B+) at 100.75 to yield 7.716%.

The reoffer price came on top of price talk.

Credit Suisse and Bank of America Merrill Lynch were the joint physical bookrunners. Barclays, RBS and Wells Fargo were the joint bookrunners.

The Dallas-based mortgage lender plans to use the proceeds for general corporate purposes, including the purchase of mortgage servicing rights.

The original $300 million issue priced at par on Sept. 19, 2012.

Ryerson's $900 million

Ryerson Inc. and Joseph T. Ryerson & Son, Inc. plan to price a $900 million two-part offering of notes late this week.

The deal includes a $600 million tranche of five-year senior secured notes and a $300 million tranche of six-year senior unsecured notes.

Ryerson ran a non-deal roadshow to get investors up to speed on the credit, according to a buyside source, who said that initial guidance on the secured tranche is 9%, while initial guidance on the unsecured notes is 11%.

Bank of America Merrill Lynch, J.P. Morgan, Jefferies, UBS and Wells Fargo are the joint bookrunners for the debt refinancing.

PDC starts roadshow

PDC Energy, Inc. began a roadshow on Tuesday for its $400 million offering of 10-year senior notes (expected ratings B3/B-).

The notes are expected to price on Friday.

J.P. Morgan, Bank of America Merrill Lynch, Wells Fargo, BMO, Credit Agricole, RBS and Scotia are the joint bookrunners.

The Denver-based independent exploration and production company plans to use the proceeds to redeem its 12% notes due 2018, repay bank debt and for general corporate purposes.

Arcelor's new hybrid falls

Luxembourg-based mining and steel company ArcelorMittal issued $650 million of 8.25% $100-par subordinated perpetual capital securities on Tuesday via a Rule 144A offering.

The issue came at par, but was seen offered in a 99 5/8 to 99¾ range, according to a trader.

"That company has had its own woes," the trader said. He said the company's straight bonds were not faring much better, seeing the 7% notes due 2039 losing over 2 points to 92 and the 6 5/8% notes due 2022 declining 1½ points to 981/2.

The hybrid issuance is being touted as an effort by the company to boost its credit rating, as only half of the principal would be considered debt by rating agencies. Agencies have already been reviewing the company's ratings due to weak steel demand.

The decline in demand has further impacted the company, as it has raised questions about whether or not its cash flows can keep up with its debt obligations.

The coupon will reset every five years. The second increase will augment the interest rate by 25 basis points and then by 75 bps 15 years later.

The company can call the issue after five years, again after 10 years and then on subsequent interest payment dates. Additionally, Arcelor can call the paper in the event of certain accounting, tax, rating agency or change-of-control scenarios.

Settlement is expected on Sept. 28.

Citigroup Global Markets Inc., HSBC Securities (USA) Inc., RBS Securities Inc. and BNP Paribas Securities Corp. are the lead managers.

Commodities getting cheaper

A trader said that "coal was again slipping," adding, "Steel was lumped in with them."

He saw AK Steel Corp.'s 7 5/8% notes due 2020 losing 1¾ points to 891/4.

Another market source pegged that issue at 89¼ bid, down 1¾ points.

Among oil and gas explorers, Penn Virginia's 10 3/8% notes due 2016 were called 1¾ points softer at 1041/4.

At another shop, a trader said EXCO Resources' 7½% notes due 2018 were nearly a point heavier, ending at 93¼ bid, 94 offered.

That compared to opening levels around 941/4, he said.

Also, ATP Oil & Gas' 11 7/8% notes due 2015 were quoted at 22 bid, 23 offered by one trader. Another trader echoed that level, but called the paper stronger on the day.

In coal names, Alpha Natural Resources' 6¼% notes due 2021 dipped over 1½ points, a trader said, to end around 86 5/8. Another source saw the issue at 86½ bid, down 1½ points.

But, as was the case on Monday, Patriot Coal Corp.'s 8¼% notes due 2018 continued to inch upward.

One trader gave a 51½ bid, 52½ offered market for the notes. Another source placed the notes at 51 bid, up half a point.

The first trader said that he had heard the company was considering restructuring itself around "non-union mines that don't have as much legacy costs," given that pensions for workers are obligated by mine, not "cross-guaranteed."

Instead, the company could opt to place the pensions at the holdco, which would allow the mines themselves to generate more revenues.

Reynolds declines

Reynolds Group Holdings Ltd.'s debt was following the day's trend, according to traders.

One trader deemed the 9% notes due 2019 down 1¾ points at 1013/4. Another trader echoed that level and also saw the 7 1/8% notes due 2019 falling to 105 from 105¾ at the open.

"People were hitting the bid pretty good at 105," he said.

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