Stackpole prices; new bonds up; overall market firm as 'shutdown' seen as a non-event

By Paul Deckelman and Paul A. Harris

New York, Oct. 1 - Junkbondland opened a new month and moved into the final quarter of 2013 on Tuesday on a decidedly firmer note, following the lead of Wall Street, which largely shrugged off fears about the possible effects of a partial shutdown of the federal government triggered by Washington budgetary gridlock.

Traders said that junk players seemed to regard that as pretty much a non-event, with positive technical factors such as the need to put cash to work carrying more weight.

In the primary arena, industrial manufacturer Stackpole International priced a $360 million issue of eight-year senior secured notes, which were then seen to have moved up solidly when they were freed for aftermarket dealings.

Syndicate sources said that was the day's only pricing, although it represented an improvement over Monday's session, when no dollar-denominated, junk-rated paper had come to market via any domestic or industrialized-country issuers.

The sources meantime heard that two such deals were being shopped around, from Michael Baker International, LLC, a provider of high-end engineering, development, intelligence and technology solutions, and from oilfield services provider U.S. Well Services, LLC.

The firmer tone seemed to carry over to recently priced new issues, particularly the Caesars Entertainment Resort Properties, LLC megadeal, which had seemed to be struggling; on Tuesday both tranches of the gaming giant's bonds had firmed smartly.

Away from the new deals, Edgen Murray Corp.'s bonds were being quoted sharply higher on the news that parent Edgen Group Inc., a provider of steel pipes and tubing to the energy industry, is to be acquired by Japan's Sumitomo Corp. in a deal valued at some $1.2 billion, including debt assumption.

Statistical market performance measures were mostly higher on the day after two straight sessions when they had been on the downside.

Stackpole provides lone deal

The Tuesday primary market session saw one deal price.

Stackpole International priced a $360 million issue of eight-year senior secured notes (B2/B+) at par to yield 7¾%.

The yield printed at the tight end of the 7¾% to 8% yield talk.

The bonds were up 1½ points in the secondary market, according to a high-yield portfolio manager.

Morgan Stanley, Nomura, RBC and UBS were the joint bookrunners.

Proceeds will be used to finance the acquisition of the company by Crestview Partners and to refinance existing debt.

Michael Baker's $350 million

The forward calendar saw a modest build-up on Tuesday, as Michael Baker International, LLC disclosed plans to market a $350 million offering of five-year senior secured notes through the beginning of next week.

Jefferies will be the sole arranger.

Proceeds, along with cash equity from DC Capital Partners, will be used to fund the acquisition of Michael Baker Corp. by Integrated Mission Solutions.

U.S. Well Services tacks on

U.S. Well Services, LLC plans to price a $60 million add-on to its 14½% senior secured notes due Feb. 15, 2017 on Oct. 8, according to a prospectus that the company posted Tuesday on its website.

The Rule 4(2) private placement is being talked to price at 99 to yield 14.869%.

The Houston-based oilfield services provider plans to use the proceeds to acquire one new conventional hydraulic fracturing fleet and one new "clean" hydraulic fracturing fleet.

The original $85 million issue priced at par in February 2012. A previous $12 million add-on was announced in April 2013.

Emma Delta prices €400 million

The European high-yield primary market also generated news on Tuesday.

Emma Delta Finance plc priced €400 million of non-rated four-year senior secured notes in two tranches.

A €250 million tranche of first-lien notes priced at par to yield 8½%, on top of price talk.

A €150 million tranche of 12% second-lien notes priced at 98.2 to yield 12.577%. Price talk for the second-lien notes was 12%.

Jefferies was the bookrunner for the deal to finance the acquisition of a 33% stake in Greek betting consortium OPAP.

Oberthur starts roadshow

France's Oberthur Technologies began a roadshow on Tuesday for its €200 million offering of senior notes due 2020.

Pricing is expected in the early-to-middle part of the Oct. 7 week.

The notes are expected to have a long six-year maturity.

Goldman Sachs, JPMorgan and Lloyds are the active bookrunners. Barclays, HSBC and SG CIB are the passive bookrunners.

The Paris-based manufacturer of chip-based digital authentication products for the payment and telecommunications industries plans to use the proceeds to refinance debt.

The European high yield is open for business, but given headwinds generated by economic struggles in the euro zone and political struggles in the United States, issuers are not rushing to bring deals to market, a senior London-based syndicate banker said on Tuesday.

There is a pipeline of deals, the banker said, but added that it is by no means a massive pipeline.

Stackpole strong after pricing

In the secondary sphere, a trader said that Stackpole International's new 7¾% senior secured notes had moved up to 101 5/8 bid, 102 1/8 offered when the new issue was freed for aftermarket activity.

A second trader initially pegged the bonds at 101¼ bid, 102¼ offered, and then subsequently quoted them at 101½ bid, 102½ offered.

The Ancaster, Ont.-based manufacturer of oil pumps and powder metal components had priced its $360 million issue at par earlier in the day.

Market looks strong

The second trader opined that in general, "the market felt very well bid." He estimated that offers - wanted by potential buyers of bonds outnumbered bids - wanted by potential sellers by around a three-to-one margin.

He said that "there's been cash flowing in the last couple of weeks," including two big inflows each topping the $1 billion mark to junk mutual funds and exchange-traded funds, a key gauge of overall liquidity trends, "and certainly this week is no different, so far."

With those kind of technicals, there was "generally pretty good buying."

Shutdown not a factor

Given all of the publicity about the partial shutdown of the federal government that began on Monday due to congressional failure to agree on raising the government's borrowing limit, "you would have thought that people would be nervous - but that was not the case," the trader said. "I think the technical, like all of the cash on the sideline, and the start of the new [fourth] quarter and heading into the end of the year is all combining to give a very solid bid to the market, regardless of what Washington does. I think everybody's kind of discounting that, and nobody cares."

That also seemed to be the case over in the stock market Tuesday, with the bellwether Dow Jones industrial average up most of the day and ending up 62.03 points, or 0.41, at 15, 191.7. Other, broader market measures were also on the upside, with analysts speculating that investors were betting that the shutdown will be short-lived.

A screaming secondary?

Back in the junk precincts, a trader said that while there was good demand for junk bonds on Tuesday, "the market remains pretty illiquid in the secondary," with not that much existing paper being offered up for sale.

"It's very difficult, very 'hunt-and-peck'" to find anything worth buying. "But there is definitely an underlying firm tone to the market."

He theorized that "the market has a very good tone to it, a very good feel - and if it continues this way, and if you see a little bit of a breather in the [new-deal] calendar, you're really going to see the market come screaming in. If you look at the Treasury note versus high yield, on a spread basis, a lot of this stuff has lagged a little bit, and so it looks cheap on an absolute spread basis. So we've got some room to maneuver.

"The market feels fine."

Caesars seen coming back

Among specific recently priced issues in the secondary market, Friday's new $2.15 billion two-part secured paper offering from Las Vegas-based gaming giant Caesars Entertainment was seen as a major beneficiary of that overall better trend on Tuesday, after having struggled when it was freed for aftermarket trading on Monday.

"Caesars was feeling down a couple of points" when the bonds began trading, a market source said. "People were just not very happy with that execution, I would guess. I think a lot of investors - certainly some of the customers we spoke to about it - didn't participate. It was a tough one."

However, on Tuesday, a trader at another shop said that Caesars' 8% first-lien senior secured notes due 2020 had recovered much of their lost ground. After having fallen to around 98½ bid on Monday from their par issue price, they rebounded on Tuesday to finish at 99 5/8 bid, 100 1/8 offered - up 1 1/8 points on the day.

He saw the same thing occurring with the company's 11% second-lien senior secured notes due 2021, which had done even worse on Monday, dropping to 96½ bid, 97 offered from their par issue price. But on Tuesday, those bonds had also pushed up by more than 1 full point to around 97 5/8 bid, 98 5/8 offered.

Caesars priced both tranches at par on Friday after having increased the size of the overall deal from an originally planned $1.85 billion. The company upsized the 8% notes to $1 billion from an originally planned $500 million, while downsizing the 11% notes to $1.15 billion from $1.35 billion originally.

Others also firmer

Among the other deals that came to market late last week, a trader saw Howard Hughes Corp.'s 6 7/8% notes due 2021 at 100¾ bid, 101¼ offered - up 1/8 point on the day, and around where the bonds had traded after the Dallas-based property developer had priced its $750 million drive-by offering at par.

And he saw Forum Energy Technologies, Inc.'s 6¼% notes due 2021 up ¼ point on Tuesday at 101 bid, 101½ offered. The Houston-based manufacturer of drilling equipment and other products for the energy exploration industry priced its $300 million issue at par on Friday, when the new bonds then moved up to around 100¾ bid, 101¼ offered.

Edgen up on acquisition news

Away from the new deal, several traders heard the bonds of Edgen Murray quoted sharply higher on the announcement that Japan's Sumitomo has agreed to acquire its parent company, Baton Rouge, La.-based Edgen Group, for $12 per share, or about $520 million in cash. Including debt assumption, the overall transaction for the manufacturer of steel pipe and tubing for energy industry is valued at $1.2 billion.

A trader said that those bonds had jumped to a range between 116½ and 118½ on the news.

A second trader said that prior to the announcement of the acquisition, the bonds had been seen trading 1 or 2 points above par.

Edgen Murray sold $540 million of 8¾% senior secured notes due 2020 about a year ago, using the proceeds to fund a tender offer and subsequent redemption of all $465 million of its 12¼% senior secured notes due 2015.

A trader noted that under the terms of that bond deal, the bonds can only be redeemed before Nov. 1, 2015 via a make-whole call at 50 basis points over Treasuries; then, on or after that first call date, they can be taken out at 106.563. He said that a [par plus] mid-to-upper teens level on the bonds was consistent with what a make-whole call would cost, should Sumitomo elect to take the bonds out at any point before their first call date.

Market indicators turn higher

Statistical junk-market performance indicators were meantime mostly higher on Tuesday, after having been down across the board over the previous two sessions.

The Markit Series 21 CDX North American High Yield index gained 13/32 point on Tuesday to close at 104 7/8 bid, 104 15/16 offered, after having eased by 3/32 point on Monday.

The KDP High Yield Daily index failed to follow suit, losing 2 bps to end at 73.4. It was the third straight loss for the index, including Monday's plunge of 24 bps.

However, its yield narrowed by 1 bp to end at 6.14%. The yield had jumped by 8 bps on Monday to 6.15%.

And the widely followed Merrill Lynch High Yield Master II index posted its first gain on Tuesday after six consecutive downturns, as it rose by 0.077%. On Monday, it had fallen by 0.144%.

The gain lifted its year-to-date return to 3.867% from 3.787% on Monday.

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