Inergy, Charter, Targa drive-bys pace $1.9 billion primary; Harry & David swoons on warning

By Paul Deckelman and Paul A. Harris

New York, Jan. 19 - The pace of high yield new issuance picked up on Wednesday from Tuesday's relatively sedate levels, led by a trio of upsized drive-by offerings.

Propane and natural gas company Inergy, LP/Inergy Finance Corp. had the biggest deal of the day - a $750 million offering of 10.5-year bonds.

Out of that same energy sector, Targa Resources Partners LP dropped in with a $325 million 10-year deal.

And familiar junk issuer Charter Communications, Inc.'s subsidiaries CCO Holdings, LLC and CCO Holdings Capital Corp. priced a $300 million add-on to the eight-year mega-deal that the St. Louis-based cable and broadband company sold to investors at the beginning of the month.

Later in the session, Florida East Coast Railway Corp. priced a $475 million six-year secured issue - the only deal of the day that came off the forward calendar rather than appearing opportunistically and being quickly shopped around, but like the other three deals, this too was upsized from originally envisioned levels.

The new Inergy bonds were seen to have moved up a point in the aftermarket, with Targa and Charter showing smaller gains. Florida East Coast pulled into the station too late for any trading activity. Meantime, late Tuesday's upsized 10-year deal from subsidiaries of Crown Holdings, Inc. was seen by traders up more than a point when it began trade around on Wednesday.

Away from the new deals, activity was seen as mostly dull - but specialty retailer Harry & David Holdings, Inc.'s bonds took a nosedive after the company warned that it will have to restructure its debt and announced that it had hired advisors to assist its recapitalization effort.

Going the other way, Biomet Inc. was seen firmer on continued speculation the medical device maker is in merger talks.

Inergy upsize

Four issuers, each one bringing a single tranche of notes, raised $1.85 billion during the Wednesday session in the new issue market.

Three of the four deals were drive-bys.

The executions were uniformly tight ones: one deal priced richer than price talk while the other three priced at the tight end of talk.

And all four were upsized.

Inergy, LP and Inergy Finance Corp. priced an upsized $750 million issue of 10.5-year senior notes at par to yield 6 7/8%, at the tight end of the 6 7/8% to 7% price talk. The amount was increased from $700 million.

Bank of America Merrill Lynch, Barclays Capital, Credit Suisse, J.P. Morgan Securities LLC and Morgan Stanley were joint bookrunners for the quick-to-market issue.

Proceeds, along with funds from a new term loan, will be used to fund a partial redemption on Feb. 4 of $78.75 million of the company's 8¾% senior notes due 2015 and to fund a tender offer for its $425 million of 6 7/8% senior notes due 2014, $146.25 million of the notes due 2015 and $400 million of 8¼% senior notes due 2016.

Proceeds from the upsizing will be used to repay outstanding borrowings under the company's general partnership revolver and its working capital revolver as well as for additional working capital.

Florida East Coast beats talk

Florida East Coast Railway priced an upsized $475 million issue of six-year senior secured notes (B3/B) at par to yield 8 1/8%.

The yield printed 12.5 basis points better than the 8¼% to 8½% price talk. The amount was increased from $450 million.

Bank of America Merrill Lynch ran the books for the only one of Wednesday's deals to have priced following an investor roadshow.

Proceeds, along with a $165 million equity contribution, will be used to repay existing debt and for general corporate purposes.

Targa's $325 million drive-by

Meanwhile, Targa Resources Partners priced an upsized $325 million issue of 10-year senior notes (B1/B+) at par to yield 6 7/8%, at the tight end of the 6 7/8% to 7% price talk. The deal was upsized from $250 million.

Deutsche Bank Securities, Bank of America Merrill Lynch, Barclays Capital, J.P. Morgan Securities LLC and RBS Securities were the joint bookrunners for the quick-to-market debt refinancing deal.

Charter taps 7% notes

Finally, Charter Communications priced an upsized $300 million add-on to its 7% senior notes due Jan. 1, 2019 (existing ratings B2/B+) at 99.50 to yield 7.082%.

The reoffer price came at the rich end of the 99.25 to 99.50 price talk. The size was raised from the initial $250 million.

Deutsche Bank Securities, Bank of America Merrill Lynch, Citigroup, Credit Suisse and UBS Investment Bank were joint bookrunners for the quick-to-market add on.

The issuing entities were CCO Holdings, LLC and CCO Holdings Capital Corp., subsidiaries of the St. Louis-based cable television, internet and telecommunications services provider.

Proceeds will be used to repay the company's B-1 and B-2 term loans.

Charter priced the original $1.1 billion issue at 99.246 to yield 7 1/8% on Jan. 4, a little over two weeks ago. So the 7.082% yield on Wednesday's add-on represents a slight interest savings versus the original issue.

$4 billion to $5 billion weeks

Although the first two sessions of the holiday-shortened Jan. 17 week have been relatively quiet ones, with issuers raising $2.78 billion in seven tranches, the primary market remains on pace to produce a minimum of $4 billion to $5 billion of new issuance per week, according to a syndicate banker.

"You'll definitely see things pick up," the official remarked, adding that drive-by deals - which represent five of the seven tranches seen so far this week - will continue to appear with notable frequency.

"People are definitely reaching for yield right now," the banker added, noting that the drive-by market appears to be opening up for certain issuers with lower credit ratings - low single B ratings, or even issuers with a triple-C rating on one side. Such borrowers might, in a cooler market, have expected to have to run an investor roadshow.

"You are likely to see some lower-rated issuers doing drive-bys, especially those issuers who are well known to the market," the banker said.

New Inergy bonds improve

When Inergy's upsized offering of 101/2-year bonds was freed for secondary dealings, at trader saw those bonds firm to 100¾ bid, 101¼ offered.

That was up from the par level where the Kansas City, Mo.-based propane and natural gas distributor had priced those bonds earlier in the session.

Targa trades slightly better

With the energy sector delivering a double-sized portion of new bonds during Wednesday's session, traders saw Houston-based natural gas operator Targa Resources' new 10-year bonds firm a little from their par issue price.

One quoted the new deal at 100 3/8 bid, 100½ offered.

However, another trader saw the new bonds at a more conservative par bid, 100¼ offered.

Charter add-on up from issue

A trader saw Charter Communications' upsized new 7% add-on issue at par bid, 100½ offered.

That was up from the 99.5 level where the deal priced late in the session.

Florida East Coast unseen

Traders said that Jacksonville, Fla.-based rail cargo service operator Florida East Coast Railway priced its $475 million offering of six-year senior secured bonds too late in the session to trade around versus their par issue price.

Crown bonds hold gains

A trader said that the new Crown Americas LLC/Crown Americas Capital Corp. III bonds priced on Tuesday pushed up to 101¼ bid, 101½ offered.

That was well up from par level where Philadelphia-based corporate parent Crown Holdings priced its $700 million offering - upsized from the originally announced $600 million - of 6¼% notes due 2021 in a quickly appearing drive-by deal.

A second trader saw the Crown bonds at 101 1/8 bid, 101 3/8 offered.

Empire Today seen up

A trader quoted Empire Today's 11 3/8% senior secured notes due 2017 at 99½ bid, although he did not see an offering level.

The Northlake, Ill.-based floor covering company's quick-to-market $150 million issue - upsized from the originally planned $140 million - priced at 98.941 to yield 11 5/8%

Indicators turn mixed

Away from the new-deal arena, a trader saw the CDX North American Series 15 HY index off by 3/8 point Wednesday to end at 103¼ bid, 103½ offered, after having gained 1/8 point on Tuesday.

The KDP High Yield Daily index meantime eased by 1 basis point Wednesday to close at 75.01, after having risen by 5 bps on Tuesday. Its yield was unchanged for a second consecutive session, staying at 7.08%.

But the Merrill Lynch High Yield Master II index continued to hit new highs, strengthening by 0.052% on Wednesday, almost identical to the 0.054% advance seen on Tuesday. That lifted its year-to-date return to 1.507%, a new peak level for 2011 so far, eclipsing the previous high-water mark of 1.454%, set on Tuesday.

Advancing names topped decliners for a 16th straight session on Wednesday, taking a seven-to-six advantage after having led them on Tuesday by just a few dozen issues out of the more than 1,500 which traded.

Overall activity, represented by dollar-volume levels, rose by 30% on Wednesday, after having increased by 6% on Tuesday from the previous session's level.

Even so, a trader said, it was "fairly quiet" in the secondary.

Harry & David gets hammered

Among specific issues, a trader saw a steep slide in Harry & David Operations Corp.'s 9% notes due 2013 - by far the biggest price move on the day in Junkbondland - a day after the Medford, Ore.-based marketer of fruit baskets and other gourmet food gift items warned that based on its latest results it will fall out of compliance with its credit facility covenants and will have to secure new capital and restructure its debt if it is to continue to operate in the longer term, and said that it has hired advisors to explore various recapitalization alternatives.

"There was a lot of rotten fruit there," the trader quipped, seeing the bonds swoon to a 38-40 context going home, after being quoted at wide levels as low as 33 bid, 43 offered in the morning. He noted that on Tuesday, the bonds had been in the 60s and last week the 70s.

He said the company has "nice gifts - but you can see what people think about [its news] today.

"They think they're not going to be able to pay, and they're down 30 points."

Another trader said that the bonds are now trading flat, or without their accrued interest, seeing them at 41 bid, 42 offered - quote a comedown from 71½ bid, 72½ offered levels the bonds held in round-lot dealings prior to Tuesday's announcement.

At yet another desk, a market source saw the bonds bouncing around between lows at 33 and highs at nearly 48, before they settled in around 47 bid - down 18 points on the session. However, on a round-lot basis, the bonds were down more than 33 points to around the 38 level, on volume of $7 to $8 million, putting the bonds among the more active junk names of the day.

On Tuesday, parent Harry & David Holdings announced that it had hired Rothschild Inc. as its financial adviser and Jones Day as legal adviser to explore recapitalization alternatives - this after its preliminary financial results for the quarter ended Dec. 25 fell "significantly below" expectations, according to the company news release.

Harry & David warned that based on the results of operations in that Dec. 25 quarter, it will not satisfy financial covenants under its revolving credit facility and will not be able to borrow on the facility unless it is amended or the non-compliance is waived.

While the company believes its cash on hand is sufficient to fund short-term operations, Harry & David cautioned that it will not be able to finance its continuing operations without securing new capital and restructuring its debt based on its current working capital and anticipated working capital requirements and operational results.

The company said it plans to hold discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize.

Merger buzz benefits Biomet

A trader said that Warsaw, Ind.-based orthopedic devices maker Biomet's bonds were "up pretty strongly" on speculation that the company may acquire British sector peer Smith & Nephew plc to create a powerhouse player in that sector of the healthcare industry.

He said that Biomet's 10 3/8% notes due 2017 "are the one that trades the most," pegging them at 112½ bid, 113¼ offered - up from their levels a week ago around 110-111 and up still further from recent lows around 108 bid earlier in the month, before the grapevine crackled with M&A speculation linking Biomet with Smith & Nephew; ironically, the British firm had attempted to acquire Biomet in 2006, only to lose out to a coalition of private equity firms that ended up buying the company.

While Smith & Nephew has denied British press reports that depict it being pursued by both Biomet and by healthcare products giant Johnson & Johnson - the trader suggested that "there's something there."

Smithfield strong again

A trader said that Smithfield Foods, Inc. "keeps going [higher]," propelled by last week's announcement of a partial tender offer for its bonds.

He saw the Smithfield, Va.-based pork processor and hog producer's 7¾% notes due 2013 trading in a 1091/2-110½ range, while its 10% senior secured notes due 2014 were up around a 117-118 range, and predicted that the bondholders would likely tender their bonds to the company in those ranges under its modified "Dutch Auction" tender offer.

Both series of bonds have risen handsomely on the tender news, up by at least 3 or 4 points from their pre-news trading levels.

The 73/4s, the more actively traded of the two, were seen going home around 109 3/8 bid, 109½ offered.

In its announcement last Wednesday, Smithfield - which has $350 million of the 73/4s outstanding and $850 million of the 10s out - said that it would accept for purchase the maximum amount of the bonds that it could buy for $350 million, excluding accrued and unpaid interest costs and subject to possible increase.

It set total consideration at an acceptable bid range of between $1,075 and $1,110 per $1,000 principal amount for the 73/4s and an acceptable bid range of $1,155 and $1,190 per $1,000 principal amount for the 10s. Those price ranges include a $30 per $1,000 principal amount early participation bonus for holders tendering their bonds by the early tender deadline of 5 p.m. ET on Jan. 26. The tender offer will expire on Feb. 9.

AIG sparks investor interest

A trader said that there was some junk investor interest in American International Group Inc.'s 8.175% nominally investment-grade rated bonds due 2058, with "a whole boatload traded."

He saw the bonds up by perhaps 1 point at 109 bid, 109¼ offered, estimating that "north of $75 million traded."

He suggested that investors may have been motivated to play in AIG by all of the publicity surrounding the Treasury Department's upcoming sale of its 92% stake in the troubled New York-based insurance and financial services company, which was bailed out of its financial distress in 2008 and 2009 with billions of dollars in federal money.

He also saw the 6.40% bonds due 2020 trade to the tune of more than $21 million up around 105¼ bid.

As for the other paper in AIG's capital structure, "pretty much everything was up or down within ¼ point, but those were the two most active issues."

Catalyst retreat continues

A trader said that Catalyst Paper Corp.'s bonds continued to fall, as the Richmond, B.C.-based paper manufacturer's debt moved back to around the levels it held before the intense, but short-lived upside flurry last week following its announcement that it would call a smallish outstanding deal for redemption several months before the scheduled maturity date.

He saw Catalyst's 7 3/8% notes due 2014 "drop a bit" to finish at 811/2, which he called a 1½ point loss from Tuesday's level.

Those bonds had risen last week from around the 81 level to as high as 86 bid after Catalyst said it would redeem the remaining $26 million of its 8 5/8% notes coming due on June 15 about four months ahead of schedule, calling them for a Feb. 11 redemption at par. "That was just a small deal that didn't amount to much," he said in explaining why the bonds finally gave up all of their gains over the last few sessions.

He said that bonds were "mainly quoted down a point, but there was really no trading in it" on Wednesday.

He also saw the larger and generally more active 11% senior secured notes due 2016 down a point in a 100½ -101 bid context, versus 102 on Tuesday.

The trader also saw Catalyst sector peer NewPage Corp.'s 11 3/8% senior secured notes due 2014 unchanged on the day, quoting the Miamisburg, Ohio-based coated-paper company's bonds at 97 bid, 98¼ offered.

Autos spin their wheels

A trader said that Motors Liquidation Co.'s benchmark 8 3/8% bonds due 2033 - issued when the company was still called General Motors Corp., before its 2009 bankruptcy reorganization - were down about a point on the day at 35½ bid, 36 offered. He saw "a decent amount of trading in the name."

At another shop, a trader called the benchmark bonds down ¾ point at 35¼ bid, 36¼ offered. He also saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 likewise off by ½ point to end at 107¼ bid, 108¼ offered.

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