European car rental names dominate primary; ATP bonds up on loan news; market mostly steady

By Paul Deckelman and Paul Harris

New York, June 25 - The junk bond market closed out the week on Friday with euro-denominated pricings from not one but two car rental companies based on the continent: an upsized €400 million offering of senior secured five-year notes from Hertz Holdings Netherlands B.V., an arm of the U.S. car rental giant Hertz, and a €250 million issue of seven-year senior secured notes due 2017 from France-based EuropCar's EC Finance plc unit.

Those deals concluded a week which saw the high-yield primary market come back to life after the previous week, when just two dollar-denominated deals with an aggregate principal amount of $550 million priced.

The week just ended saw more than $2.5 billion of new dollar-denominated junk come to market, including a massively upsized mega-deal from Case New Holland Inc., a back-from-the-dead offering from Capella Healthcare Inc. after weeks in limbo on the forward calendar, and more regular offerings from Michael Foods Group Inc. and El Paso Pipeline Partners Operating Co., LLC, the latter deal an add-on drive-by transaction.

There was also considerable activity during the week out of Europe, including issues from HeidelburgCement AG, SPCM SA and Renault SA, in addition to Hertz Netherlands and EuropCar.

Back in the secondary market, traders saw a pretty quiet market on a typical summer Friday, although they reported some gains for ATP Oil & Gas Corp.'s recently hard-hit bonds. The bonds got a lift from news that the embattled energy company - hurt by the fallout from the Deepwater Horizon oil-rig disaster in the Gulf of Mexico - had lined up new bank loan financing.

Meanwhile, the company at the center of the mishap and the cleanup fiasco, BP plc, was seen on the downside on investor angst over a new problem - the chance that a big storm forming in the western Caribbean could make its way into the Gulf and disrupt BP's efforts to siphon oil off from its ruptured undersea well and eventually close it down.

Hertz prices upsized €400 million

Hertz priced a €400 million issue of 8½% five-year senior secured notes (B1/B) at 99.477 to yield 8 5/8%.

The yield printed at the wide end of the 8½% area price talk.

The deal was upsized from €275 million.

Barclays Capital and JPMorgan were the physical bookrunners. BNP Paribas, Credit Agricole CIB and Natixis Bleichroeder were the joint bookrunners.

Proceeds will be used to refinance international fleet debt facilities and the Belgian fleet financing facility and for general corporate purposes.

The deal went well, according to a syndicate source.

The order book, which was more than two-times oversubscribed, was dominated by European accounts, as expected.

However, U.S. accounts represented roughly one-third of the book, the source said.

Europcar at the wide end of talk

Also pricing a deal at the wide end of price talk was EC Finance, the financing unit of Europcar International.

Europcar priced €250 million of 9¾% seven-year senior secured notes (B2/B+) at 98.732 to yield 10%, at the wide end of the 9¾% to 10% price talk.

JPMorgan and Deutsche Bank Securities were the physical bookrunners for the bank debt refinancing deal. Credit Agricole CIB and SG CIB were the joint bookrunners.

€1.89 billion week

With the two rental car company deals into the mix, the June 21 week saw nearly €1.89 billion of euro-denominated issuance, the largest amount of euro issuance in well over two months - the week of April 26 saw slightly more than €2.39 billion, including €1.2 billion from Dutch cable operator, Ziggo.

Year to date, euro-denominated issuance now totals €15.53 billion in 36 junk-rated tranches, according to Prospect News data.

The week saw nearly $2.65 billion of proceeds raised in the dollar-denominated market, as five separate issuers each brought a single tranche.

The week ended with the primary market having now generated slightly more than $117 billion of proceeds in 277 dollar-denominated, junk-rated tranches.

Entertainment Properties split-rated

Although no dollar-denominated junk priced on Friday, Entertainment Properties Trust sold $250 million of split-rated 7¾% 10-year senior unsecured notes (Baa3/BB+/BBB-) priced at 98.29 to yield 8%, on top of the price talk.

Barclays Capital Inc., J.P. Morgan Securities and RBC Capital Markets ran the deal.

Although only a couple of high-yield accounts played, their orders were big ones, according to a source close to the deal, who estimated that those junk accounts may have taken down half the bonds.

Looking ahead

Despite anemic junk issuance over the past six weeks, Barclays Capital expects 2010 total issuance to still come to between $175 billion and $185 billion, Barclays strategists said at Friday's Q3 Global Bond Market Outlook presentation in New York.

At Friday's close, Barclays total year-to-date high-yield issuance total came to nearly $133 billion, a syndicate source said.

A debt capital markets banker from a different syndicate, hearing the $175 billion to $185 billion forecast, said, "Why not?!" This source's year-to-date junk issuance tally is now around $125 billion.

Although summer is apt to be slow, the primary market should continue to remain open despite the backdrop of ongoing volatility in the global capital markets, the source said, adding that the volatility that rocked the markets through late spring is not likely to disappear any time soon.

There are LBO-, acquisition- and sponsor-related deals that have committed financings, the banker pointed out. The onus will be on issuers and dealers to get those deals done.

Also, to this banker, the $1.4 billion of inflows to the high-yield mutual funds for the week to Wednesday, as reported on Thursday by Lipper-AMG, reflects a perception that over the past six weeks, junk has gotten cheap and people are coming back off the sidelines.

In addition, people seem relieved that Federal financial regulatory reform legislation appears to not be as onerous as some industry watchers had anticipated, the banker added.

Phibro for Monday

The Friday session saw one new deal announcement: Phibro Animal Health Corp. plans to price a $270 million offering of eight-year senior notes on Monday.

Price talk is expected early in the Monday session, the source added.

Bank of America Merrill Lynch has the books for the debt refinancing deal.

Phibro joins DynCorp. International Inc., which is expected to wrap up the roadshow for its $455 million offering of seven-year senior unsecured notes (/B/) on Monday.

Earlier in the week, a trader from a high-yield mutual fund said that the deal had been whispered as coming in the high 10% range or possibly as high as 11%.

On Friday, however, a syndicate source said that the deal appears to be shaping up at a better rate for the issuer.

DynCorp could happen in the mid-10% range, the source said.

Citigroup Global Markets Inc., Bank of America Merrill Lynch, Barclays Capital Inc. and Deutsche Bank Securities Inc. are the joint bookrunners for the LBO-related debt refinancing deal.

Meanwhile, Bankrate, Inc. is presenting its $280 million offering of five-year senior secured notes (B2/B) to investors on a roadshow that wraps up on Wednesday.

Jefferies & Co. and RBC Capital Markets Corp. are the joint bookrunners for the acquisition financing.

And CKE Restaurants, Inc. also expects to price its $600 million offering of eight-year senior secured second-lien notes (B2/B) during the week ahead.

Morgan Stanley & Co. Inc., Citigroup Global Markets Inc. and RBC Capital Markets Corp. are the joint bookrunners for the LBO-related debt refinancing deal.

In addition to those, the pre-Independence Day week could see at least two or three new deal announcements, the dealers say.

One of those is likely to be from a health care credit, with Bank of America Merrill Lynch in the lead and Barclays Capital involved, sources said on Friday.

As is customary, those sources declined to identify the prospective issuer, but said that the deal could roll out as early as Monday.

New deals ease a bit still hold most gains

A trader saw the recently priced Case New Holland 7 7/8% notes due 2017 at around 101 bid -- off slightly from their opening levels, but still well up from the 99.32 level at which the Lake Forest Ill.-based construction and agricultural equipment maker's $1.5 billion deal - upsized from $1 billion originally - priced on Tuesday to yield 8%.

He also saw Minnetonka, Minn.-based foods distributor Michael Foods' new $430 million of 9¾% notes due 2018 at 102 3/8 bid, 102 5/8 offered - off 1/8 on the day, but still up from their par issue price on Tuesday.

Market indicators are mixed

Back among issues having no new-deal connections, a trader saw the CDX North American HY Series 14 Index up ¾ of a point on Friday to 95¾ bid, 96¼ offered, after having moved down by the same margin on Thursday. The index thus finished out the week still below the 96 7/8 bid, 97 3/8 offered level at which it had closed out the previous week ended June 18, although it was up from its low for the week seen on Thursday.

The KDP High Yield Daily Index, gained 5 basis points on Friday to end at 70.75, after having dropped by 23 bps on Thursday, while its yield rose tightened by 1 bp on Friday, to 8.60%, after having widened by 6 bps on Thursday. The index thus closed the week somewhat under the 70.85 close seen the previous Friday, while its yield was out slightly from the previous week's 8.56%.

Another market measure, the Merrill Lynch High Yield Master II index, closed the session showing a year-to-date gain of 4.916%, up from the 4.645% level at which it had finished the previous week.

The average index price in the latest week was 96.242 versus 96.148 a week ago. Its yield to worst narrowed over the week to 8.88% from 8.93%, although its spread to worst versus comparable Treasuries widened to 697 bps from 688 bps a week ago as Treasuries strengthened and their yields declined.

Advancing issues trailed decliners for a third straight session on Friday, although the difference between the groups was literally just a handful of issues out of the more than 1,300 tracked.

Overall activity represented by dollar-volume levels fell by 26% on Friday on top of Thursday's 18% drop from the previous session's pace.

A trader said overall, it was "a pretty quiet day," seeing much of what activity there was centered in the energy names.

He chalked it up to a typical summer Friday, especially with excellent beach weather prevalent in the New York area, no doubt causing many absences at Wall Street trading desks.

He also noted the ongoing distraction caused by the World Cup soccer matches currently being televised. Even though the U.S. team wasn't on the tube, awaiting a scheduled second-round match with Ghana on Saturday, "Some guys were watching Spain versus Chile and Portugal versus Brazil."

He saw no big wave of buying in response to Thursday's bullish news of a $1.4 billion inflow to weekly reporting high-yield mutual funds in the week ended Wednesday - one of the biggest of such cash infusions on record. Money coming into or going out of the mutual funds is seen as a reliable proxy for overall junk market liquidity trends, and a big inflow is seen as a sign of renewed investor confidence in the junk and appetite for risk.

ATP advances on bank loan news

Among specific issues, a trader said that ATP Oil & Gas "had some news out, and there was a lot of heavy trading in that," seeing the Houston-based energy exploration and production company's 11 7/8% second-lien senior secured notes due 2015 had moved up to 75 bid after having started the day around 73½ to 74.

He said that the bonds were being given a boost by the news that the company had reached an agreement with its lenders on a $150 million term loan facility due 2014 to replace its undrawn $100 million revolving credit facility.

ATP also got an option to increase its first-lien loan by up to an additional $350 million at some point in the future, for a total size of $500 million.

The trader said that "it was not like they raced up, but there was a decent amount of volume in the name," going home at 75 bid.

Asked about the importance of an implied vote of confidence from the banks in ATP - whose bonds have cascaded down as far as the lower 60s from their issue price just under par on April 19, the day before the Deepwater Horizon explosion and the subsequent rupturing of BP's well in its Macondo Prospect exploration area 40 miles off the Louisiana coast - he said: "A good hint, even for our bonds, is that their stock has been stable" recently before the nearly 12% rise in ATP's shares on Friday on the favorable bank loan news.

Those Nasdaq-traded shares gained $1.30, or 11.9% on Friday, to finish at $12.22. Volume of 6.3 million shares was about 50% above the norm.

"They seem to have pretty good market cap," he continued, "and people do think the bonds are covered - but these things can go on a little bit of a trading ride."

ATP had nothing to do with the Deepwater Horizon disaster, but its bonds have suffered on investor worry that the six-month moratorium on deepwater drilling in the Gulf may prove a serious negative for the company, which has most of its reserves in undersea fields there.

A New Orleans federal judge this week overturned the federal ban, saying it was overly broad and would harm the economy, but the White House quickly announced that it would appeal that ruling.

BP beaten down on storm fears

A trader said that BP's stock was down - its New York Stock Exchange-traded shares fell $1.72, or 5.98%, to $27.02, on volume of 93 million shares, almost double the norm.

"And the bonds followed it down as well," the trader said, noting, "They have issues with the [sic] hurricane." Actually, a storm is brewing in the Caribbean that could force the shutdown of BP's oil-recovery efforts from its ruptured undersea oil well, should that storm start to generate gale-force winds.

"It's just not helping things, it seems."

He saw the beleaguered British oil giant's 3 1/8% notes due 2012 going home at 90½ bid versus 92½ at the beginning of the session, while its 5¼% notes due 2013 dropped to 89½ bid from 91 and its 3 7/8% notes due 2015 retreated to 82 bid, 83 offered from opening levels around 84 bid.

"It was a very active day in that name," he said, "with pages of issues on Trace."

BP, the 65% owner of the ruptured well, said on Friday that its effort to drill a relief well through 2½ miles of rock to stop the Gulf spill - considered the best hope for plugging the massive undersea leak - is on target for completion by mid-August .

However, investors on both the stock and the bond sides continued to worry about the ever-mounting costs of the cleanup, BP's legal liabilities as a result of the massive environmental damage from the blown-out well and now the possibility that a coming storm may further hinder efforts to stop the spill.

The Coast Guard said on Friday that BP's oil-collection efforts would have to be suspended as many as five days before the forecast onset of gale-force winds. That storm is currently in the western Caribbean, near Mexico's Yucatan Peninsula, packing sustained winds of 35 mph. That's just 4 mph the 39 mph mark used by the National Hurricane Center to signal the onset of gale-force winds. Although by other standards, about 45 mph to 46 mph constitutes a gale-force storm.

The Coast Guard said that should such a storm be forecast, all oil siphoning operations would have to cease some 120 hours ahead of the forecast time of arrival of the storm since the ships currently working on siphoning the oil would have to disengage from fixed pipes going down to the ruptured well and then sail out of the endangered area.

Anadarko extremely active

A trader said that Anadarko Petroleum Corp. - a 25% partner in BP's blown-out, oil-spewing well - "dominated" Trace activity on Friday, its various bond issues accounting for a total handle of about $400 million out of the overall $1.5 billion of trading recorded.

He saw its 5.95% bonds due 2016 as the most active Anadarko issue, falling to 85½ bid from Thursday's level at 86½ bid, 86¾ offered.

He noted that Anadarko - which was downgraded to junk-bond status a week ago by Moody's Investors Service amid concerns about its possible liability in the Deepwater Horizon disaster, but which for now retains investment-grade ratings from the other major services - was attracting trading from both the investment-grade and the high yield side of the fixed-income world.

Another trader also saw the 5.95s "very active all day," calling them down half a point at 851/2, while the Woodlands, Tex.-based energy E&P company's 7 5/8% notes due 2014 started the day at 96 bid, 97 offered, but ended at 95½ bid, 96 offered. He saw its 7½% bonds due 2031 losing 1½ points on the session to end at 85 bid.

There was, he said, "a lot of activity that sector."

Broader market little changed

A trader said that Community Health Systems Inc.'s benchmark 8 7/8% notes due 2015 opened on Friday at 103 bid, 103¼ offered, calling the Franklin, Tenn.-based hospital operator's $3 billion issue - considered a junk market bellwether because of its huge size and widespread distribution - little changed on the day.

Rite Aid Corp.'s bonds - recently gyrating around both before and then after the mid-week release of the Camp Hill, Pa.-based drugstore chain operator's first-quarter results - were slightly firmer, continuing the up-and-down zig-zag that's been going on all week . A trader called its 10 3/8% notes due 2016 "maybe up 1/8 on the day, in a 1011/2-101 7/8 area."

However, he noted the bonds were off their mid-week peak levels around 102. There was, he said, "not too much cooking there."

A trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 - which on Thursday had fallen more than a full point - regain about ¼ of a point on Friday to end at 33 bid, 34 offered.

He also saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 unchanged for a second straight session at 90 bid, 91 offered.

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