Studio City, Walter, Pacific Drilling, Thompson Creek price to cap $5 billion primary week

By Paul Deckelman and Paul A. Harris

New York, Nov. 16 - The high-yield primary market saw a quartet of deals collectively worth a little over $2 billion price on Friday, syndicate sources said.

That capped off a holiday-shortened week in which nearly $5 billion of new junk-rated, U.S. dollar-denominated paper came clattering down the chute - well below the more than $13 billion seen the previous week, ended Nov. 9, which was one of the heaviest new-issuance weeks of the year so far.

The biggest deal of the day came from Macau casino operator and developer Melco Crown Entertainment via its Studio City Co. Ltd. unit, which priced $825 million of eight-year notes.

There was a pair of $500 million deals out of the energy sector - deepwater drilling contractor Pacific Drilling V Ltd.'s five-year secured offering, and coal producer Walter Energy Inc.'s tranche of eight-year bonds.

Rounding out the day's pricing, mining operator Thompson Creek Metals Co. Inc. did $350 million of five-year secured notes. It was the only one of the four deals seen in Friday's aftermarket.

Other recently priced deals were seen mostly holding whatever gains they had notched in trading earlier in the week.

But Canadian energy concern Athabasca Oil Corp.'s new five-year secured notes have tumbled as much as 10 points from the levels at which they priced just last week.

Mining company New Gold Inc.'s recently priced deal was also lower on the week.

Away from the new deals, Overseas Shipholding Group Inc.'s bonds remained active Friday for a third consecutive session following the oil tanker operator's mid-week bankruptcy filing. They continued to firm - a sign, traders said, that investors see value in the restructured company.

Overall, statistical indicators of market performance were mixed on the day but down from their week-ago levels.

Primary stays active

The news volume remained high and issuance brisk during the final primary session of the post-Veterans Day week.

However that is apt to change, market sources said, pointing to negative news including a $1.3 billion outflow from high-yield mutual funds for the week to Wednesday, a run of pulled deals which grew on Friday, and the overall shifting fortunes of the asset class, which has given up 0.65% thus far in November, according to the Merrill Lynch High Yield Master Index.

In Friday's dollar market four issuers brought single tranche deals, raising a combined total of $2.17 billion.

However here as well were signs of a market that may be getting a bit long in the tooth.

Three of Friday's four dollar deals priced at the wide end of price talk, and the other priced on top of talk. None were upsized.

Pacific Drilling oversubscribed

Although the dealers delayed closing the order books by two hours, Pacific Drilling V's $500 million issue of 7¼% five-year senior secured notes (B3/B+), which priced at 99.483 to yield 7 3/8%, was well spoken for and two-times oversubscribed, according to an investor.

The yield printed at the wide end of price talk that was set in the 7¼% area.

Goldman Sachs, Deutsche Bank, Citigroup and DNB were the joint bookrunners.

The Luxembourg-based ultra-deepwater drilling contractor plans to use the proceeds to fund the remaining construction payments on the Pacific Khamsin drilling ship and for general corporate purposes.

Walter Energy $500 million

Walter Energy priced a $500 million issue of 9 7/8% eight-year senior notes (B3/B) at 99.302 to yield 10%, at the wide end of the 9¾% to 10% yield talk.

Morgan Stanley, Barclays, Merrill Lynch, Citigroup and Credit Agricole were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Thompson Creek restructures

Thompson Creek Metals Co. Inc. priced a restructured $350 million issue of 9 ¾% five-year senior secured first-priority notes due Dec. 1, 2017 (B1/B) at 99.076 to yield 10%.

The yield printed at the wide end of the 9¾% to 10% yield talk. The reoffer price came in line with discount talk of approximately 1 point.

However early in the roadshow conversations had taken place in the 9% area, according to a buyside source.

In the restructuring, the maturity of the notes was decreased to five years from 5.25 years. Call protection was increased to three years from 2.25 years, and the first call premium was decreased to par plus 50% of the coupon from 75% of the coupon. In addition the 35% equity clawback coverage is extended to three years from 2.25 years.

There were also covenant changes.

Deutsche Bank ran the books for the capital expenditures and general corporate purposes deal.

Studio City comes atop talk

China-based Melco Crown Entertainment subsidiary Studio City priced an $825 million issue of eight-year senior notes (B3/B-) at par to yield 8½%.

The yield printed on top of yield talk which had been revised from earlier talk in the 8¼% area.

However that price upward price talk revision helped attract a crowd, according to a market source who added that the order book ended up at 2.5-times deal size.

Deutsche Bank was the left bookrunner for the deal to fund capital expenditures. ANZ, Merrill Lynch, BOCI, Citigroup, Credit Agricole and UBS.

Care UK taps 9¾% notes

During the Friday European session Care UK Health & Social Care plc priced a £75 million add-on to its 9¾% senior secured notes due Aug. 1, 2017 at 106.25.

The reoffer price, which came at the rich end of the 106 to 106.25 price talk, renders a 7.765% yield to worst.

Joint physical bookrunner Citigroup will bill and deliver. HSBC, ING and Lloyds TSB also joint physical bookrunners.

Proceeds will be used to repay revolver debt, which partially financed the acquisition of HWH Group Ltd., and for general corporate purposes.

Eldorado pulls up stakes

The list of post-Election Day pulled deals grew to six on Friday as Eldorado Gold Corp. withdrew its proposed $500 million offering of eight-year senior notes (Ba3/BB) due to market conditions.

Initial guidance was 6½% to 6¾%, according to a buyside source. However a sellside source who was watching, but was not in the deal, said Eldorado would have likely come higher than that whisper.

Since the company didn't need to do a deal it withdrew.

As if the higher rate wasn't enough, the fact that the price was moving against the issuer for market reasons, as opposed to credit reasons, aggravated the situation, the source said, adding that investors may have still cared at the wide end of the at initial 6½% to 6¾% guidance.

J.P. Morgan, Citigroup, HSBC and Merrill Lynch were the joint bookrunners for the capital expenditures and general corporate purposes deal.

Quieter ahead in the primary

Eldorado became the sixth deal pulled so far in November.

Three of the others were withdrawn on Thursday. These included two tranches totaling $1 billion from Bombardier Inc. and one of two tranches from Sealed Air Corp. which slashed its eventual deal-size to $425 million from the $950 it initially brought into the market.

In addition to Thursday's withdrawn tranches Epicor Software withdrew a $340 million deal on Wednesday. And late in the Nov. 5 week Australia's BlueScope Steel Ltd. postponed its $300 million offer.

Apart for Eldorado withdrawing its deal on Friday, several transactions which were anticipated Friday business were pushed into the week ahead.

These included the Legacy Reserves LP and Legacy Reserve Finance Corp. $300 million offering of eight-year senior notes due 2020 (Caa1/B-), via Merrill Lynch and RBC, and Rex Energy Corp.'s $250 million offering of eight-year notes (B3/B-), via left bookrunner Wells Fargo, and joint bookrunners KeyBanc, SunTrust and RBC.

"There will be action in the new issue market next week," assured a syndicate banker who spoke about the three sessions left to unfold before the market breaks for the four-day Thanksgiving holiday weekend in the United States, which gets underway following Wednesday's close.

However, the official counseled, deal volume is almost certain to be dramatically lower than that to which the new issue market has become accustomed during the phenomenal post-Labor Day run.

Thompson Creek firms

A trader quoted Thompson Creek's new 9¾% senior secured notes at 100½ bid - up from the 99.076 level at which the Denver-based metals mining concern's deal had priced.

Thompson Creek was the only one of the day's four pricings to actually be seen in the aftermarket.

Traders saw no activity in the new deals from Walter Energy, Pacific Drilling V and Melco Crown/Studio City.

Recent deals hang in

A trader said of the recent new deals which were trading around that "everything is still holding in there pretty well. The new deals are being very well-supported [by their underwriters] and they look it.

He said that eventually "there will be some profit-taking, but until then" things would stay firm.

A second trader said that Sealed Air Corp.'s new 6½% notes due 2020 were at 101¼ bid on Friday. The Elmwood Park, N.J.-based provider of food safety and security, facility hygiene, and product protection solutions priced its $425 million deal at par on Thursday, after having chopped its originally announced $850 million size in half to $425 million, dropping a planned 10-year notes tranche. The bonds were quoted late Thursday in a 101½ to 102 context.

The trader saw AK Steel Corp.'s $350 million of 8¾% senior secured notes due 2018 trading at 100¾ bid on Friday. The West Chester, Ohio-based specialty steel manufacturer's bonds had priced on Wednesday at par, and had moved up to 100 1/8 bid, 100 3/8 offered on Thursday.

However, he said that some of the recent deals were no-shows in Friday's secondary market, even though they had been trading around before that, including Denver-based energy exploration and production company Antero Resources Finance Corp.'s 6% notes due 2020 and St. Louis-based coal producer, Arch Coal Inc.'s 9 7/8% notes due 2019.

Canadian energy, miners off

A trader in Canadian energy and mining names noted that some of the new bonds that have recently come from those sectors have been struggling lately.

For instance, he said that Athabasca Oil's 7½% senior secured second-lien notes due 2017 are "down a lot" in secondary trading from where the deal priced a week ago.

The notes were seen at 90 bid on Friday, 10 points lower than their issue price.

"They're very much for sale," the trader said.

The Calgary, Alta.-based based oil sands developer sold C$550 million of the five-year notes at par on Nov. 9, to yield 7½%.

"The deal was too big and the coupon was too low," the trader said.

In a similar vein, New Gold Inc. priced a $500 million dollar issue of senior notes due 2022 at par Nov. 8 to yield 6¼%.

The Vancouver, B.C.-based gold producer's notes had climbed to 101 bid after that, but traded down on Friday to par bid, a trader said.

Among more established bonds out of that same sector, Iamgold Corp.'s 6¾% senior notes due 2020 traded down a couple points since the issue priced in September to 97½ bid, 98 offered, a bond source said on Friday.

The Toronto- based gold mining company sold $650 million of the notes at par in mid-September to yield 6¾%.

Calgary-based Connacher Oil & Gas' Canadian dollar-denominated 8.75% senior notes due 2018 traded 6 points lower at 73 bid on Friday, a trader said.

The company sold C$350 million of the notes on May 20, 2011 at par.

Market pace slackens

This week - shortened by one day due to the market close in observance of Veterans Day this past Monday - not only saw a considerable drop-off in overall issuance levels from the more than $13 billion that came to market in 24 tranches in the week ended Nov. 9, but also saw none of the kind of huge deals which accounted for much of the previous week's volume.

While the previous week had seen mega-deal sized offerings from Clear Channel Outdoor Holdings ($2.725 billion), Sprint Nextel Corp. ($2.28 billion), Vivint, Inc. ($1.305 billion) and E*Trade Financial Corp. ($1.305 billion), as well as other sizable deals from Terex Corp. ($850 million) Perstorp Holding AB ($750 million as part of a $1.09 billion equivalent dual-currency deal), CyrusOne LP ($525 million) and New Gold and Celanese US Holdings LLC ($500 million each), in contrast, none of the deals that had priced heading into Friday's session had been larger than the $425 million offering from Sealed Air, although a few bigger deals - for Melco Entertainment, Walter Energy and Pacific Drilling - finally came to market on Friday.

A trader suggested that the market "was kind of slowing down. We're getting the little bits and pieces before the Thanksgiving Day holiday. Anything big got done right after the election."

Another trader predicted that this coming Monday and Tuesday would likely be busy days as any leftover business gets cleaned up, but on Wednesday, "you'll be coming in only because you have to - and after that, that's it."

Indicators point lower

Among statistical market performance indicators, the Markit Series 19 CDX North American High Yield index rose by 5/16 point on Friday to end at 97¼ bid, 97 3/8 offered, after having lost 3/8 point on Thursday.

However, it was lower on a week-over-week basis from the 97¾ bid, 98 offered level seen at the close the previous Friday, Nov. 9.

The KDP High Yield Daily Index fell by 5 basis points to 73.33, after having plunged by 25 bps on Thursday. Its yield rose by 2 bps to 6.39%, on top of the 8 bps rise seen Thursday.

Those levels compare unfavorably to the week earlier index reading of 74.10, with a 6.16% yield.

And the widely followed Merrill Lynch U.S. High Yield Master II Index lost 0.092% on Friday, following Thursday's 0.404% retreat. Its year-to-date return fell to 12.111% from 12.214% on Thursday.

On the week, the index was down by 0.708% - its second consecutive weekly loss. In the Nov. 9 week, it had fallen 0.24%, with the year-to-date return ending at 12.91%.

OSG bonds get better

Among specific non-new-deal names on Friday, traders saw continued post-filing improvement in the bonds of Overseas Shipholding Group, which sought Chapter 11 protection from its bondholders and other creditors at mid-week from the U.S. Bankruptcy Court in Wilmington, Del.

A trader said that the New York-based oil tanker operator's 8 1/8% notes due 2018 were up about ¾ point Friday to the 37 bid mark. With over $18 million of the notes having changed hands, it was among the busiest junk bond issues.

That mirrors the pattern seen on Wednesday, when more than $50 million of the bonds traded, and again on Thursday, on volume of $25 million - in each case situating the '18s at or right near the top of the Most Actives list.

A second trader pegged the bonds in a 37 to 38 bid context, versus the 36 level seen on Wednesday, "so it was a little bit better today."

Overseas Shipholding's bonds "definitely popped after the bankruptcy news," another trader agreed, noting that the bonds had gyrated around from Wednesday's lows under 20 bid into the lower 30s, and then up to the mid-30s by Thursday and somewhat beyond that on Friday.

"You have the guys buying it" in anticipation of the company's eventual emergence from bankruptcy, presumably expecting to trade their respective stakes in the debt for sizable equity positions in the ultimately restructured company.

"Your distressed players are now the typical buyers and active traders and participants in that name."

Penney's bonds better

A trader saw retailer J.C. Penney Co. Inc.'s lately faltering bonds a little better on Friday.

"There was not a tremendous amount of activity in them - but the bonds were a little bit better."

He saw the Plano, Texas-based department store operator's 2037 bonds trading around 83½ bid, 84½ offered, up from Thursday's levels around 82.

"It just felt like J.C. Penney bonds were a half-point to a point better."

He meantime saw "some activity" in Penney peer Sears Holding Corp.'s 6 5/8% notes due 2018, but no real change in levels, with the bonds holding around 92 bid, after the Hoffman Estates, Ill.-based department store company posted earnings. While Sears' bonds were steady on busy volume of over $11 million, its Nasdaq-traded shares nosedived $10.99, or 18.79%, to end at $47.49 on the numbers. Volume of 6.6 million shares was six times the usual turnover.

Cristal Cody contributed to this report

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