Connacher, JBS, Kindred lead $2 billion-plus day to close out very busy week

By Paul Deckelman and Paul A. Harris

New York, May 20 - The high-yield primary market had another big Friday - the third in as many weeks - to close out one of the busiest weeks of the year in Junkbondland.

Well over $2 billion of new dollar-denominated paper came to market. That was on top of the more than $11 billion which had already priced during the week, headlined by Chrysler Group LLC's massive two-part deal which came on Thursday, clocking in at more than $3 billion.

Those Chrysler bonds, which came too late in the session on Thursday for any kind of dealings, began trading around on Friday, notching small gains.

Meanwhile, Friday's new deals came clattering down the chute, led by Canadian energy operator Connacher Oil & Gas Ltd., which brought a $911 million equivalent two-part offering, consisting of bonds denominated in U.S. and Canadian dollars.

There was also a downsized and restructured $650 million offering of 10-year notes from JBS USA, LLC, the U.S. arm of international meat processing giant JBS SA. A planned tranche of eight-year bonds was dropped and the deal was reduced from the original $1 billion.

Hospital operator Kindred Healthcare, Inc. delivered $550 million of eight-year notes, while paper industry name Xerium Technologies, Inc. came with a $240 million seven-year deal. Energy service company Vantage Drilling Co. priced a $225 million add-on to its existing 2015 notes.

Recent new deals continued to trade in the secondary market, including Thursday's issues from El Dorado Resorts LLC and the split-rated offering from International Lease Finance Corp. The latter deal, which attracted some junk interest as well as high-grade accounts, was trading at a solid premium over its issue price.

The non-new-deal secondary market continued to take a back seat, amid the deluge of primaryside paper. Statistical measures were mixed on the day but mostly lower on the week.

A trader called the session "another new-issue-packed day," but said that aside from primary market dealings, it was "pretty quiet."

JBS downsizes deal

A busy Friday saw issuers bring to market a combined $2.225 billion face amount of dollar-denominated junk.

JBS USA, LLC and JBS USA Finance, Inc. priced a downsized, restructured notes transaction.

The company sold $650 million of 7¼% 10-year senior notes (B1/BB/BB-) at 98.26 to yield 7½%.

A proposed tranche of eight-year senior notes was withdrawn, and the size of the issuance was reduced from $1 billion.

The yield on the 10-year notes had been talked to yield 25 basis points beyond the withdrawn eight-year notes, which had been talked to yield 6 7/8% to 7%.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Banco do Brasil, Barclays Capital Inc. and Morgan Stanley & Co. Inc. were the joint bookrunners.

JBS USA, LLC intends to use the proceeds to make an intercompany loan to JBS USA Holdings, Inc., which will further transfer the funds to Sao Paulo-based JBS SA, which expects to use proceeds to repay short- and medium-term debt.

Connacher spans the border

Connacher Oil & Gas priced $911 million equivalent of senior secured notes (Caa2/BB-) in Canadian- and U.S. dollar-denominated tranches.

The deal included a $550 million tranche of notes due Aug. 1, 2019 which was priced at par to yield 8½%.

The yield printed 12.5 basis points beyond the wide end of the price talk, which had been set in the 8¼% area.

Credit Suisse Securities (USA) LLC was the left lead bookrunner.

Connacher also priced a C$350 million tranche of notes due Aug. 1, 2018 par to yield 8¾%.

Again the yield printed 12.5 bps beyond the wide end of price talk, which was set in the 8½% area.

RBC Capital Markets was the left lead bookrunner for the Canadian dollar-denominated tranche.

Credit Suisse and RBC were the global coordinators and joint bookrunners for the deal, the overall size of which was slightly increased from $900 million equivalent.

The Calgary, Alta.-based integrated oil company plans to use the proceeds to refinance its existing first-lien and second-lien notes.

Kindred prices inside of talk

Kindred Healthcare priced a $550 million issue of eight-year senior notes (B3/B) at par to yield 8¼%.

The yield printed 12.5 basis points inside of price talk that had been set in the 8½% area.

J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Morgan Stanley & Co. Inc. were the joint bookrunners.

Proceeds will be used to help fund the acquisition of RehabCare Group, Inc. and to repay debt.

Xerium brings refinancing

Xerium Technologies priced a $240 million issue of seven-year senior notes (B3/B) at par to yield 8 7/8%.

The yield printed at the wide end of price talk set in the 8¾% area.

Citigroup Global Markets Inc. was the left lead bookrunner for the debt refinancing. Jefferies & Co. was the joint bookrunner.

Vantage Drilling drives by

Offshore Group Investment Ltd., a subsidiary of Vantage Drilling, priced a $225 million add-on to its 11½% senior secured first-lien notes due Aug. 1, 2015 (B3/B-) at 107 to yield 8.094%.

The reoffer price came on top of the price talk.

Jefferies & Co., Inc. was the left bookrunner for the quick-to-market tap. Citigroup Global Markets, Inc. was the joint bookrunner.

Proceeds will be used to acquire all of the equity interests of P2020 Rig Co., and Vantage Holdings Malaysia I Co., and for general corporate purposes.

The original $1 billion issue priced at 96.361 to yield 12½% in July 2010.

Sunstate starts roadshow

Sunstate Equipment Co. LLC and Sunstate Equipment Co. Inc. began a roadshow on Friday for a $170 million offering of six-year senior secured second-lien notes (expected ratings Caa2/CCC+).

Bank of America Merrill Lynch is the bookrunner.

Proceeds, together with funds from a new credit facility, will be used to refinance the company's 10½% second-lien notes due 2013 and to repay a portion of its existing credit facility.

Xella starts Monday

Meanwhile Germany's Xella will start a roadshow on Monday in London for a €300 million offering of seven-year senior secured notes.

Goldman Sachs International, JP Morgan and Credit Agricole CIB are managing the sale.

The Duisburg, Germany-based building materials manufacturer plans to use the proceeds to repay debt.

Connacher holds around issue

The day's big deal of the day was Calgary, Alta.-based energy operator Connacher Oil & Gas, although its $911 million equivalent deal was divided into U.S.-dollar and Canadian-dollar pieces.

Traders did not see any activity in the latter tranche, but did see trading in its new U.S.-denominated notes.

The $550 million eight-year senior secured issue was seen by one trader at par bid, 100¼ offered just after the break, versus its par pricing.

A little later, another trader pronounced the company's bonds at 99 7/8 bid, 99 3/8 offered.

Kindred climbs in aftermarket

Also bringing a $550 million deal to market was Louisville, Ky.-based hospital operator Kindred Healthcare, which priced its eight-year notes at par - with traders then seeing those new bonds firming smartly in the aftermarket.

A trader saw those bonds at 101 1/8 bid, 101 3/8 offered.

A second pegged them at 101¼ bid, 101½ offered.

Xerium comes off highs

A trader said that Xerium Technologies' new seven-year notes got as good as 101 bid, 101½ offered after the Raleigh, N.C.-based maker of disposable products for the paper industry priced its $240 million offering at par.

However, "they faded a little bit after that," down to about 100 7/8 bid, "so it was not terribly different."

A second trader saw the bonds around 100½ bid, 100¾ offered.

But at another desk, a trader said late in the day that he had seen the bonds at 101 bid, 101¼ offered.

Vantage moves up

Traders saw Vantage Drilling's $225 million add-on to the Houston-based offshore oil and gas drilling company's existing 2015 bonds trading better in the aftermarket.

One quoted the add-on at 110½ bid, 111 offered, while a second had the bonds going home at 111 bid, 112 offered, with both levels well up from the 107 level at which the tap had priced.

Traders meanwhile did not see any aftermarket dealings with JBS USA's $650 million 10-year issue, owing to the lateness of the hour at which the Greely, Colo.-based beef and pork processor's restructured and downsized deal priced.

Chrysler cruises a bit higher

Looking at some of the deals which came on Thursday or earlier, traders saw the new Chrysler two-part issue slightly higher, with its $1.5 billion of 8% notes due 2019 quoted Friday at 100¼ bid, 100¾ offered, while its $1.7 billion of 8¼% notes due 2021 traded at 100½ bid, 101 offered, both up from their par issue price.

The Auburn Hills, Mich.-based third-biggest U.S. carmaker's deal was originally being shopped around at a $2.5 billion size, but then at mid-week, syndicate sources heard that it had been massively upsized to $3.5 billion. However, word then began circulating that the deal was once again re-sized, this time to the $3.2 billion which eventually priced.

Alpha, EchoStar trade up

Going back a little further Tuesday's quick-to-market two-part offering from EchoStar Corp., an Englewood, Colo.-based communications satellite operator and provider of set-top satellite TV broadcast receiver boxes and associated products, continued to orbit well above the upsized $2 billion deal's issue levels.

The upsized $1.1 billion tranche of 6½% senior secured notes due 2019, which had priced at par was ending the week around the same 101 5/8 bid, 101 7/8 offered level to which the bonds had risen in initial aftermarket dealings.

And the other half of that deal, the upsized $900 million tranche of 7 5/8% senior unsecured notes due 2021 - increased from the original $800 million - which priced at par, were doing even better, at 102¾ bid, 103.

Wednesday's $1.5 billion two-part offering from Alpha Natural Resources Inc. - an Abingdon, Va.-based coal mining company tapping the capital markets to finance its pending acquisition of fellow Virginia coal operator Massey Energy Co. - was also seen ending the week above its issue price, especially its 10-year notes tranche.

The $800 million of 6% notes due 2019 priced at par and then were seen in the aftermarket on Thursday, when they were freed, at 100½ bid, 101 offered, while its $700 million tranche of 6¼% notes due 2021, which also priced at par, were trading at 101½ bid, 102 offered.

On Friday, a trader saw the eight-years going home at 100 5/8 bid, 101 offered, while the 10-years were at 100 5/8 bid, 102 offered.

Noting the phenomenon that all three of the big deals, split in two, saw the longer-tenured part trading above the shorter bonds, he said the quick explanation is that "people are just reaching for yield," going for the higher coupon as excuse enough to go further out on the curve, maturity-wise.

But on closer examination, he said, only the EchoStar deal really fit that paradigm - the 10-year bonds 1 1/8 points above the eight-years, enough of a difference, he said, to justify going for the longer issue.

However, he pointed out, both the Chrysler deal and the Alpha Natural Resources issue had just a 25-bps difference in the coupons, which he said really wasn't big enough to justify, in particular, the Alpha Natural Resources longer issue trading as much as a point above its shorter companion.

Market mixed, off on week

Away from the new deals, traders dismissed the market as quiet.

Statistical measures of market performance meantime stayed mixed on Friday, but were generally lower on the week.

A trader said "the market struggled," and saw the CDX North American Series 16 HY index fall by 5/16 point on Friday to end at 102¼ bid, 102¾ offered, after having gained 1/8 point for a second consecutive session on Thursday.

The index thus finished the week well down from the 102 15/16 bid, 103 1/16 offered level at which it had closed out the previous week, ended May 13.

The KDP High Yield Daily Index was meantime up 2 basis points on Friday to close at 76.16, after having eased by 4 bps on Thursday. Its yield declined by 1 bp to 6.44%, after having risen by 2 bps on Thursday.

The index finished below its week-earlier closing level of 76.25, with a yield of 6.39%.

However, the Merrill Lynch High Yield Master II Index posted a second straight gain on Friday as it continued to rebound from a mid-week slump. It gained 0.012% on Friday, on top of Thursday's 0.048% advance.

That lifted its year-to-date return to 6.071%, a new peak level for 2011 so far. That was up from 6.058% on Thursday, the previous high point for the year.

The index showed a one-week return of 0. 130% - its ninth consecutive week-over-week gain - lifting it above the 5.933% cumulative return with which it ended the previous week.

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