JMC prices quick add-on, new Chesapeakes again busy, Rite Aid too; Creative Casinos ahead

By Paul Deckelman and Paul A. Harris

New York, Feb. 15 - The high-yield primary market saw just a single, smallish new deal price on Wednesday - a quickly shopped $150 million-add-on offering from metal pipe and tubing manufacturer JMC Steel Group, Inc. The new bonds were quoted a little bit higher after pricing, but no real trading was seen.

There was, however, plenty of trading going on in another new deal, as Chesapeake Energy Corp.'s seven-year mega-deal was again easily the most active credit in Junkbondland, although the natural gas operator's new issue once again stayed in a narrow range near its issue price, despite its great volume.

There was also sizable trading in Rite Aid Corp.'s new deal, which the drugstore-chain operator had brought to market on Tuesday.

And while there were some brisk dealings in some of Rite Aid's existing paper, the bonds did not move up solidly the way they had on Tuesday on the news Rite Aid was doing the deal in order to refinance some existing bonds.

On the forward calendar front, price talk was heard on Creative Casinos Inc.'s downsized $355 million issue of seven-year secured notes, with pricing expected as early as Thursday morning.

Scandinavian iron ore miner Northland Resources SA's upcoming issue of secured notes was heard to have been downsized to $350 million equivalent.

There was once again little activity away from the new deals or the existing bonds of companies bringing such deals. Statistical market measures all pointed lower.

But ATP Oil & Gas Corp.'s bonds rose in apparent reaction to news the energy company is seeking an expansion to its term loan facility.

JMC taps 8¼% notes

The primary market took a breather on Wednesday, with just one issuer raising $155 million with a drive-by add-on.

JMC Steel priced a $150 million face amount add-on to its 8¼% senior notes due March 15, 2018 (B3/B) at 103.25 to yield 7.466%.

The reoffer price came at the rich end of the 102.75 to 103.25 price talk. The yield printed at the tight end of the 7.466% to 7.58% yield talk

J.P. Morgan and Jefferies were the joint bookrunners.

The Beachwood, Ohio-based steel pipe and tubing manufacturer plans to use the proceeds for general corporate purposes including acquisitions.

The original $725 million issue priced at par on March 4, 2011, so the company realized 78 basis points of interest savings relative to the yield printed on the original issue.

Creative Casinos talks notes

Creative Casinos talked its $355 million offering of seven-year senior secured notes (expected ratings Caa1/CCC+) with a yield in the 12½% area.

The deal is set to price on Thursday morning.

The Las Vegas-based gaming, lodging and entertainment company downsized and restructured the deal earlier in the week.

The secured notes tranche was reduced from $365 million and the call structure was modified so that the notes will become callable in three years at par plus three-quarters of the coupon; previously the notes were to have four years of call protection.

Jefferies, Morgan Stanley and Capital One Southcoast are the joint bookrunners for the secured notes.

The $445 million two-part debt offering also includes a downsized $90 tranche of 7.5-year senior redeemable perpetual preferred stock, which is non-callable for two years. The preferred offering was decreased from $103,093,000.

Jefferies and Morgan Stanley are the joint bookrunners for the preferred stock offering.

The overall two-part transaction size was decreased from $468.1 million.

Proceeds from will be used to fund construction of a new casino and hotel located in Lake Charles, La.

Northland Resources downsizes

Northland Resources announced in a Wednesday press release that it downsized its offering of senior secured bonds to $350 million equivalent from $450 million equivalent, and added that the deal is fully subscribed.

Meanwhile Northland upsized its concurrent equity offering to a range of $325 to $330 million equivalent from $250 million equivalent.

Pareto Securities AS is acting as global coordinator and bookrunner. Haywood Securities Inc. is acting as Canadian lead agent.

Ocean Equities Ltd. and Arctic Securities ASA are co-lead managers.

Proceeds will be used for financing various costs, capital expenditures and working capital in connection with the development of the company's Kaunisvaara Project, and to fund the debt service reserve accounts.

Northland is a Luxembourg-listed development-stage mining company with a portfolio of iron ore projects in northern Sweden and Finland.

The company's Kaunisvaara Project will exploit two magnetite iron ore deposits in Sweden.

Quiet ahead for the primary

Wednesday's quiet session could serve as a precursor for what lies ahead, a New York-based syndicate banker said.

Once the $2.6 billion of issuance now parked on the active forward calendar clears - and some of it may not clear, sources say - high yield could see something of a pause from the torrid pace of $46.68 billion of dollar-denominated issuance in 89 junk-rated tranches seen since the beginning of the year.

That pace lags the $53.07 billion in 123 tranches which priced during 2011 to the Feb. 15 close.

However 2012's $46.68 billion in 89 tranches dramatically eclipses the $26.92 billion in 67 tranches which priced up to the Feb. 15 close in the record-setting year of 2010.

All of the $2.6 billion presently parked on the active calendar is expected to price by Friday's close, market sources say.

At least one deal, a small add-on, is expected to be announced on Thursday, to price either Thursday afternoon or Friday.

However beyond Friday's close the calendar is empty.

And the Feb. 20 week is expected to be a comparatively quiet one, the New York-based syndicate banker said.

JMC quoted higher

A trader said that the new add-on deal from JMC Steel Group was quoted marginally higher on the day.

He pegged the Chicago-based steel tubing products maker's quickly-shopped, fungible tranche of 2018 bonds at 103½ bid, 104, up a little from the issue's 103¼ pricing level, but with little real dealings seen.

Chesapeake again the busiest

For a second straight session, Chesapeake Energy's new bonds easily topped the junk market's most-actives list.

A trader said the Oklahoma City-based natural gas company's 6.775% notes due 2019 "seemed to be the big volume again today."

He said that over $128 million of the bonds had traded. That represented a considerable slowdown from Tuesday, when traders said that according to the Trace system, volume in the new deal topped the $450 mark. However, it was still well over twice the volume of the next busiest bonds.

He saw "virtually all" of the trades that went down on Wednesday taking place between 98¾ and 99.

That's also about where the bonds had traded on Tuesday, when they moved into the secondary realm after the $1.3 billion drive-by deal - upsized from the initially announced $1 billion - had priced late in the day on Monday at 98¾ to yield 7%.

A second trader said the new issue traded at 98 7/8 bid, 99 1/8 offered, "pretty tight."

The first trader said that "we're kind of sitting here, scratching our heads over this - you see over $100 million of these things trading each day, but it's like they are not going up and they're not going down. What are people doing with these things? It's like a revolving door.

"A lot of people are trading it - but who's making any money in it?"

Chesapeake's existing 6 1/8% notes due 2021 were again among the busiest outstanding bonds trading, with a market source seeing over $22 million having traded by mid-afternoon, with the likelihood of more trading later on. Some $32 million traded in round lots on Tuesday.

He quoted the bonds at just under the 99½ bid level, well up from 97¼ at the close on Tuesday.

Rite Aid trades actively

A trader said that Rite Aid's new 9¼% senior guaranteed notes due 2020 were trading between 100 1/8 and 1003/8 on Wednesday, estimating that "a gazillion" of the Camp Hill, Pa.-based Number-3 U.S. drugstore chain operator's bonds traded.

"You really can't tell because it's 144A" - but he said that one large firm his company deals with sent out 38 messages on it, "so here's one big shop that had its 38th run on it, and every run is a market. So I'm sure it was a lot of trading."

Rite Aid had priced $481 million of the bonds at par in a drive-by deal on Tuesday, and they had traded as wide as 99 7.8 bid, 100 3/8 offered in the immediate aftermarket late Tuesday.

A second trader said on Wednesday that "they were a little better, and I don't mean a lot better, trading at par today - last night they were offered at par, so go figure."

He said that at one point during the session the bonds had firmed a little to a 100 1/8 to 100¼ context, before dropping back to their issue price.

"They really haven't taken off," he declared.

He used the expression "a weird vibe" to describe the recent aftermarket behavior of Rite Aid - and the Chesapeake deal, as well as some other issues which also budged little from their respective issue prices, such as Pembroke Pines, Fla.-based specialty retailer Claire's Stores Inc., whose quickly shopped $400 million offer of 9% senior secured notes due 2019 priced at par on Monday, and then just hung in at or a little under that point subsequently.

"People are calling us to ask, what's going on."

He wondered whether the lack of any real price movement in the new deals represented "a tipping point" marking the end of the junk market's heretofore strong acceptance of new-issue paper, or alternatively, whether it's "just a funky week," with the situation likely to reverse itself in the next big batch of new deals.

Existing Rite Aids hold gains

Among the company's existing bonds - which had firmed on the news Rite Aid was doing the new deal in order to take out some of its existing debt - a trader said that the drugstore giant's 7.70% notes due 2027 "did a lot more volume" on Wednesday than they did on Tuesday, when they jumped as much as 5 or 6 points on the day, though only on a few million traded.

On Wednesday, he saw $17 million of the bonds having traded, noting that "it could be a lot higher than that" since some of the trades were "$1 million-plus" transactions - the plus could be anything from $1 more to $10 million more, he said. He saw the bonds last trading 85½ bid, 85¾ offered, saying that was up 4 points from Tuesday "and last week. They were in the 70s. So they're lovin' life."

A second trader quoted the 7.70s at 85¾ bid, calling that a 1 point gain from Tuesday's late levels.

The first trader saw Rite Aid's 8 5/8% notes due 2015 - which on Tuesday had firmed by 1½ to 2 points on brisk round-lot volume of over $30 million to the 102½ level, since Rite Aid is using the new-deal proceeds to fund a tender for these bonds - little changed on Wednesday, quoting them at 102 5/8, on "very small activity, just one round-lot trade," the bonds presumably having made their move the session before.

Endeavour shows improvement

One recent new deal which seems to have moved up a little since moving into the aftermarket has been Endeavour International Corp.'s 12% senior secured notes due 2018.

A trader quoted the Houston-based oil and gas exploration and production company's new bonds at 98¾ bid, comparing it to Tuesday, when they were at 98½ bid.

"So they're slowly creeping up - but I'm just not seeing a flurry of activity, or even offers in it."

Endeavour priced that $500 million deal on Monday, after restructuring it from a one- to a two-tranche deal, by creating a second, slightly junior tranche of secured notes.

It priced $350 million of 12% first-priority senior secured notes due 2018 at 96 to yield 12.975%, and also priced $150 million of 12% second-priority senior secured notes due 2018 at 96 to yield 9.54%.

Trading still new-deal fixated

Away from the new issues, a trader called the market "terrible," with so much of the attention focused on the new issues.

Even so, he said, "All of this stuff that's high-dollar coupons, trading at a high dollar price, is still being bought, so people can still clip a coupon.

"It seems like cash is still being put to work, and I don't see that ending any time soon, and I don't see a shortfall of cash" - recent high-yield fund-flow numbers from the two major fund-tracking services, AMG Data Services and EPFR Global, bear that out, with inflows, some of them as much as $1 billion or $2 billion or even more, having been seen over the last 10 consecutive weeks.

He said that "last week was really new-issue dominant, followed by this week - going into the holiday week next week," with the market slated to be closed for Presidents' Day this coming Monday, Feb. 20.

"So everyone's cruising into the holiday week," when at least some market participants are expected to be absent for a few days vacations. Then after that, he pointed, "you've got the J.P. Morgan conference down in Florida," which should further reduce market attendance and focus.

ATP up amid loan news

Among specific secondary issues, a trader said that ATP's 11 7/8% senior secured notes due 2015 were at 64 bid, 64½ offered, which he called up 1 point on "decent volume" of $25 million to $30 million.

"That's up a little bit - the last couple of days, they were 63 to a half."

The Houston-based offshore energy exploration and production company said it would seek a $140 million increase in its first-lien senior secured term loan facility; that facility, which is based on the value of the company's proved reserves, currently stands at $208 million, but the company said it expects its end-of-year data to show that its reserves have grown, allowing for more borrowing.

Market data on the downside

Statistical measures of junk market performance turned lower Wednesday after having been mixed for the two prior sessions.

A trader said that the CDX North American Series 17 High Yield index saw its second consecutive loss on Wednesday, falling by 5/8 point to end at 96¼ bid, 96½ offered, after having dropped by ½ point on Tuesday.

The KDP High Yield Daily Index notched its fourth straight loss, off by 6 basis points on Wednesday to end at 74.14. The index had gone down by 4 bps on Tuesday. Its yield moved up by 1 bp to 6.69%, after having been unchanged at 6.68% on Tuesday.

And the widely-followed Merrill Lynch High Yield Master II Index eased by 0.007% on Wednesday after having been up the previous two sessions, including Tuesday's 0.042% rise.

That loss dropped the index's year-to-date return to 3.877%, down from Tuesday's 3.885%, its peak for 2012 so far.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.