Covanta, American Media price; CMS, El Paso Partners hold little junk interest; broad market lower

By Paul Deckelman and Paul A. Harris

New York, Nov. 16 - Covanta Holding Corp. and AMO Escrow Corp./American Media Operations Inc. priced new deals on Tuesday, high-yield syndicate sources said. Those transactions traded at or slightly above their respective issue prices when they were freed for trading.

The day's other two domestic pricings - quickly shopped offerings from CMS Energy Corp. and El Paso Pipeline Partners Operating Co. LLC - also came to market, but they got pretty much zero interest from junk bond players; both borrowers' new bonds were instead being quoted on a spread-versus Treasuries basis, and high-grade accounts were heard to have emerged as the buyers.

Belgium's Telenet NV meantime priced a euro-denominated offering of six-year notes.

Among the deals that priced in Monday's busy session, Dunkin' Brands, Inc.'s $625 million of eight-year notes continued to show considerable strength in the secondary market after having priced at a discount to par. But Ally Financial Inc., which also priced below par, continued to struggle.

Away from issues that actually priced, talk emerged on Burlington Coat Factory Warehouse Corp.'s $500 million offering of eight-year notes, which is expected to come to market on Wednesday.

Meanwhile, Murray Energy Corp. hit the road to market a $150 million tranche of seven-year notes. Canada's Newalta Corp. began shopping a C$125 million seven-year deal.

Away from the primary market, traders saw continued weakness in the secondary sphere, extending the negative trend that had been seen over the past few sessions. Even "old" General Motors Corp.'s bonds - about the only major name to weather Monday's market downturn - were backtracking, despite the carmaker being reported to have solidly upsized its pending initial public offering of stock while at the same time raising the target price of those shares, both developments that auger well for holders of the company's legacy bonds.

Statistical performance measures meantime remained on the slide.

El Paso Pipeline drive-by

The Tuesday primary market session saw a pair of highly rated companies in the energy space issue notes in drive-by deals.

El Paso Pipeline Partners priced $750 million of senior notes (Ba1/BB/BBB-) in two bullet tranches.

The Houston-based company priced a $375 million tranche of 4.1% five-year notes at a spread of 262.5 basis points over Treasuries, on top of the spread talk.

The notes were sold at a reoffer price of 99.92, resulting in a yield of 4.12%.

The company also priced a $375 million tranche of 7½% 30-year notes at Treasuries plus 325 bps, also on top of price talk.

The 30-year notes were sold at a reoffer price of 99.34, resulting in a yield of 7.56%.

RBS Securities, BNP Paribas, Deutsche Bank Securities and J.P. Morgan Securities LLC were the joint bookrunners.

Proceeds will be used to partially fund the acquisition of the remaining 49% member interests in both Southern LNG Co., LLC and El Paso Elba Express Co., LLC and an additional 15% interest in Southern Natural Gas Co. from El Paso Corp., to repay the Elba Express project financing term loan and to pay down the revolving credit facility.

A proposed 12-year tranche was abandoned.

CMS Energy, atop price talk

Meanwhile, CMS Energy priced a $250 million issue of 5.05% senior notes due Feb. 15, 2018 (Ba1/BB+/BB+) at Treasuries plus 295 bps.

The spread came on top of the spread talk, a market source said.

BNP Paribas, RBS Securities, Scotia Capital, UBS Investment Bank and Wells Fargo Securities were the joint bookrunners.

The Jackson, Mich.-based electrical and gas utility will use the proceeds to refinance its 3 3/8% convertible notes due 2023 and to partially refinance its 6.3% notes due 2012.

Mostly high-grade play

Both the El Paso deal and the CMS deal were run predominantly, but not exclusively, off the high-grade syndicate desks, a source close to both transactions said on Tuesday evening.

As much as 90% of the El Paso and CMS paper was taken down by accounts that are mainly focused on the high-grade corporate bond market, the source added.

Covanta, at the wide end

Apart from those drive-bys, Covanta priced a $400 million issue of 10-year senior notes (Ba3/B) at par to yield 7¼%.

The yield printed at the wide end of the 7% to 7¼% price talk, a market source said.

JPMorgan, Bank of America Merrill Lynch, Barclays Capital Inc. and Citigroup were the joint bookrunners for the debt refinancing and general corporate purposes deal.

American Media notes price

AMO Escrow and American Media Operations priced a $385 million issue of non-rated seven-year first-lien senior secured notes at par to yield 11½%.

The yield printed 37.5 bps beyond the wide end of price talk.

JPMorgan ran the books.

The proposed $475 million two-part offering was also going to include a $90 million tranche of second-lien senior secured notes.

That $90 million is no longer expected to be raised in the high-yield market, a debt capital markets banker said late Tuesday.

The company is now expected to raise those proceeds in the mezzanine or private placement markets, the source added.

The New York-based magazine publisher will use the proceeds to finance its exit from bankruptcy.

Burlington sets talk

Burlington Coat Factory Warehouse talked its $500 million offering of eight-year senior notes (B3/CCC) with a 10% area yield on Tuesday.

The deal is set to price on Wednesday.

Goldman Sachs & Co. is the left lead bookrunner. JPMorgan, Bank of America Merrill Lynch and Wells Fargo Securities are the joint bookrunners.

The Burlington, N.J.-based department store retailer will use the proceeds to repay its term loan, to repurchase or redeem its 11 1/8% senior notes due 2014 and the parent company's 14½% senior discount notes due 2014, to make a distribution to the company's equity holders and for general corporate purposes.

Murray Energy starts roadshow

Only one new roadshow start was announced on Tuesday.

Murray Energy began a roadshow for its $150 million offering of seven-year senior notes.

Jefferies & Co. is the left bookrunner. Goldman Sachs is the joint bookrunner.

The Pepper Pike, Ohio-based privately owned coal company will use the proceeds for general corporate purposes including the expansion of production capacity and preparation of plant processing capacity at some mining complexes.

Apart from that deal, sellside sources are not looking for much more buildup on the forward calendar of deals that are intended to be priced before the four-day Thanksgiving holiday weekend begins on Nov. 25.

However, absent any buildup, the market already expects $6.05 billion and €3.73 billion to clear in the six sessions that remain before Thanksgiving break.

Tuesday's volatility in the high-yield market - and in the capital markets in general - does not change the outlook that this $11 billion equivalent amount of bonds can clear before Thanksgiving, syndicate bankers said.

However, rates may back up a bit, one official remarked.

"We've seen a huge amount of issuance since Labor Day," the banker said. According to Prospect News data, that amount is $98.3 billion in 209 tranches.

"Lately yields have gotten tighter and tighter.

"You take that, along with some negative headline news, and there is bound to be some indigestion.

"But right now there nothing to suggest that this calendar can't get done."

Covanta trades around issue ...

When the new Covanta Holding 10-year notes were freed for secondary dealings, a trader quoted the Fairfield, N.J.-based renewable energy company's new paper straddling its par issue price, at 99 7/8 bid, 100 1/8 offered.

Another trader saw the bonds at par bid, 100¼ offered.

... along with American Media

A trader meantime saw American Media's seven-year secured notes trading at 100¼ bid, 100¾ offered.

That was up from the par level at which the supermarket tabloid publisher had priced its deal fairly late in the session.

Junk ignores CMS, El Paso

The day's other two pricings - CMS Energy and El Paso Pipeline Partners - went virtually unnoticed by junk bond players, several traders said, although they noted there was some interest among investment-grade accounts. Appropriately, the bonds were being quoted on a spread-versus Treasuries basis, and both deals tightened in the aftermarket.

A trader said that Jackson Mich.-based power generator and utility operator CMS' eight-year notes - carrying a very un-junk-like 5.08% yield - tightened to a spread of 287 bps bid, 284 bps offered, versus the 295 bps at which the deal had priced.

He also saw split-rated (Ba1/BB/BBB-) El Paso Pipeline Partners, a Houston-based energy pipeline company, in that same boat. Its five-year bonds - with an even more un-junk-like 4.118% yield - tightened to 259 bps bid, 254 bps offered after having priced at 262.5 bps over Treasuries.

Its 30-year bonds, meantime, came in to 321 bps bid, 318 bps offered from a pricing spread at 325 bps over.

New issues 'brutalized'

Away from Tuesday's deals, a trader exclaimed that most of the recent new deals were being "brutalized" in the secondary market, and few stories were more brutal than Ally Financial's $1 billion offering of 6¼% notes due 2017

The Detroit-based automotive and residential lender formerly known as GMAC had priced its drive-by deal on Monday at 98.602 to yield 6½% - but the bonds immediately began falling in the aftermarket and were seen ending Monday's session quoted around 97 bid, 97 5/8 offered.

On Tuesday, the bonds were seen a little better, though not by much, with one trader seeing them at 97¾ bid, 98 offered, and a second pegging them at 97½ bid, still a point under issue.

A third trader said he saw the Ally bonds offered at 971/2. "There was a bid at 971/4, but then that disappeared."

Yet another trader saw the bonds going out at 97 1/8 bid, 97 5/8 offered.

An even uglier tale was told by traders watching the 6 5/8% notes due 2020 that Dallas-based pre-paid wireless telecommunications operator MetroPCS Communications Inc. priced at par on Nov. 5. With no small degree of understatement, a trader called the offering "another deal that's not doing well," seeing it dipping "another point" to 951/2.

"Holy smokes!" exclaimed a second trader looking up the PCS deal's levels on Trace. "Did that one ever get pasted!" He saw the bonds having been hammered down to 94 bid, 94¾ offered.

Giving MetroPCS a run for its money as worst-performing recent deal was Norwalk, Conn.-based marketing and consumer loyalty program operator Affinion Group Inc., which priced $475 million of 7 7/8% notes due 2018 on Nov. 8 and then saw those bonds struggle from the get-go and trade well below their issue price of 99.247, which yielded 8%.

On Tuesday, a trader said that he was seeing no sign at all of the bonds, but noted that they had traded on Monday at 94½ bid, 96 offered.

Not all of the new deals were being decimated quite so much. A trader saw Stone Energy Corp.'s recent $100 million 8 5/8% 2017 add-on falling to 99½ bid, par offered; the Lafayette, La.-based oil and gas exploration and production company's deal had priced on Friday at 100½ to yield 8.49% and had managed to trade a little above par after that before finally coming in, though modestly, on Tuesday amid the general market downturn.

A trader saw the new Ball Corp. 5¾% notes due 2021 continuing to trade "below par most of the time," quoting them at 99¼ bid, 99 3/8 offered, versus the Broomfield, Colo.-based packaging company's par issue price.

However, another trader said Monday's upsized $500 million offering traded at 99 3/8 bid, 99¾ offered and traded "all day long above 99." He opined that given the overall weakness in the new-deal market - brought on, he suggested, by "trying to stuff a bowling ball through a garden hose" - the Ball deal didn't do that badly.

No downturn for Dunkin'

The one new deal seen still staying strong and hanging on to most of the gains that it notched in the aftermarket was Dunkin' Brands' 9 5/8% notes due 2018. One trader said the Canton, Mass.-based restaurant franchisor's $625 million issue was "the only thing that remained above [new issue price]" at 99¾ bid, par offered; the bonds had priced on Monday at 98.5 to yield 9.9%. "That's one of the few things that could say that," he said.

Another trader saw the bonds at 99½ bid in the morning, up a point from issue, although he said that activity "just went away - maybe after the morning coffee rush."

Secondary indicators struggle

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index ending down 7/16 point on Tuesday to close at 99 5/16 bid, 99 7/16 offered - the first time the index has closed below the psychologically significant par level since Oct. 22. The retreat comes on the heels of Monday's 5/8 point downturn.

The trader said that it could have been worse - the index, he declared "rallied back," after having earlier been down by as much as 7/8 point, to close with just half that loss.

The KDP High Yield Daily index meantime nosedived by 64 bps Tuesday to end at 73.88 after having plummeted 28 bps on Monday. Its yield ballooned upward by 18 bps on Tuesday, to 7.38%, after having risen 10 bps on Monday.

And the Merrill Lynch High Yield Master II index lost ground for a third consecutive session Tuesday, backtracking by 0.57% after having fallen by 0.172% on Monday. That pushed its year-to-date return down to 14.085% from Monday's close at 14.739% - both well down from last Tuesday's reading of 15.602%, its peak level for 2010.

Advancing issues trailed decliners for a fourth straight session on Tuesday, by an eight-to-five margin, widening out from better than seven-to-five in each of the previous two days.

Overall activity, represented by dollar-volume levels, rose by 28% on Tuesday, on top of Monday's 27% gain from the previous session's volume level.

A trader saw the market "definitely a little weaker."

A trader said, "We might be coming to the end of the line - the flood [of new paper] may have to slow down."

"You've got Europe, you've got Treasuries. Seems like people are definitely a little nervous," he said.

He said that in many cases, "stuff ISN'T getting crushed - but it seems like a lot of the high-yield accounts in general have gone through the buffet three or four times and are now getting pretty full. Their appetite is starting to get maxed out."

He said that at his shop, "we've noticed that since the end of summer until just recently, it's been impossible to buy anything, to find stuff to buy. But the last couple of days, we've been busy finally able to start buying crap, because people are starting to sell."

While some investors have made considerable money, especially playing in new deals - "when you look at some of these new issues, they're up 6 points in one month. Some of them are up that in a week. That's a pretty damn good return" - the trader cautioned that "that cycle may be slowing down."

Echoing what several other traders have recently told Prospect News, he added that "it's almost year-end - people are locking in their profits. They're saying 'why take more risk? Let's sell our winners,' - which tend to be everything.

"Over the last few months, everything has been 'bid, bid, bid,' and now there's a lot of stuff for sale."

GM eases despite good IPO news

Among specific names, a trader saw the Motors Liquidation Corp. - i.e., "old" General Motors Corp. - benchmark 8 3/8% bonds due 2033 trading between 36 and 37 on Tuesday, observing that "they went on a little ride today" and were "pretty good today." He called them down perhaps ½ point to close at 36½ bid, with "most of the trades" taking place between 36 and 37.

A second trader saw the benchmark bonds down 7/8 point at 35 3/8 bid, 36 3/8 offered.

The GM bonds had been about the only major name in Junkbondland showing upside on Monday, when everything else was down anywhere from half a point to a full point or more, pretty much across the board.

One of the traders suggested that even the recently robust GM credits - pushed upward by investor optimism about the company's mid-week initial public offering of shares, which will in turn help to determine the company's valuation and the recovery the bondholders will ultimately receive - could not withstand forever the generally negative tone in the overall market.

But at another desk, a trader saw the GM bonds get as good as a 37 to 37¼ range late in the day, citing news reports that the "new GM" - the profitable carmaking operations that emerged from bankruptcy last year, offloading their debt and other unwanted assets onto Motors Liquidation - will raise the size of Thursday's IPO as much as 30%, to 478 million shares from the originally planned 365 million, and if banks underwriting the deal exercise an over-allotment option, the IPO could even grow to 550 million shares.

GM also was reported Tuesday to have decided to raise the price range for the IPO to $32 to $33 per share from the previous $26 to $29 range. GM is also upping the size of a planned sale of preferred stock to $4 billion from $3 billion originally. The moves come in response to stronger-then-expected demand for shares in the automaker.

At the top end of the price range and with the rise in the number of shares, the IPO could conceivably generate proceeds of $18 billion - far in excess of the roughly $10 billion to $11 billion originally bandied about.

"Bonds are tied to the stock price," the latter trader said, "so they went up.

"If the stock is doing well, these things should do well."

The company's 7.7% notes due 2016 were up by 5/8 point at 35¾ bid.

GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were meantime seen having slid 2½ points on Tuesday to 107½ bid, 108½ offered; the No. 2 U.S. carmaker's long bonds had recently been seen trading as high as the 115-plus area, but they have come steadily down in recent sessions.

Dynegy takes a hit

Elsewhere, Dynegy Inc. bonds dropped a couple points, even as Blackstone Group upped its takeover bid to $5 per share ahead of a shareholder vote on Wednesday.

One trader saw the 7¾% notes due 2019 falling 2 points to end around 68, while another market source called the paper just over a point weaker at 68¾ bid.

Another trader called the bonds down "1½ points, roughly" at 681/4, with about $15 million changing hands.

Shareholders will vote on the proposed takeover on Wednesday. Though Blackstone had previously said it would not raise its bid, many market players believed it would in reaction to objections from billionaire investor Carl Icahn and Seneca Capital. Icahn even went so far as to offer a $1 billion line of credit so that the Houston-based power producer could deal with its near-term liquidity issues.

Still, Dynegy's management has remained adamant that the Blackstone path is the way to go in order for the company to continue as a going concern. It has repeatedly struck down claims by Icahn and Seneca that the deal was undervalued, pointing to the fact that it had searched for a buyer for two years before receiving the bid from Blackstone. During a 40-day "go-shop" period after the bid was announced, no other potential bidders stepped up.

Stephanie N. Rotondo contributed to this report

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