Primary again quiet, but calendar grows; new Heinz stays busy; Caesars slides on court ruling

By Paul Deckelman

New York, Jan. 28 – The high-yield primary market was quiet for a third consecutive session on Wednesday, with no new deals seen having priced in either the domestic dollar market or the Eurobond market, according to syndicate sources.

However, the forward calendar for both markets continued to grow.

Citgo Holding, Inc., a special-purpose subsidiary of Citgo Petroleum Corp., was heard to be preparing for a roadshow, scheduled to start on Thursday, for a $1.5 billion offering of 5.5-year senior secured notes; the proceeds, along with those from a concurrent $1 billion bank debt deal, will fund a distribution to Citgo’s ultimate parent, the Venezuelan state oil company PDVSA.

In the European bond market, meanwhile, Viridian Group FundCo II Ltd., an affiliate of the Northern Irish electric service provider Viridian Group plc, was also heard to be getting ready to hit the road to market a bond deal, in this case a €600 million offering of five-year senior secured notes. Proceeds will go to repay debt, including the company’s existing 2017 notes and borrowings under its revolving credit agreement.

For a second straight session, Monday’s megadeal from packaged foods giant H.J. Heinz Co. was the busiest issue in Junkbondland, although those new notes continued to hover only slightly above their issue price.

There was also robust activity in last week’s big deal from pharmaceuticals and medical devices maker Endo International plc, whose notes continued to firm.

Away from the new deals, United States Steel Corp.’s bonds were solidly higher – though on not a lot of volume – after the big metals manufacturer reported better-than-expected earnings. Sector peer AK Steel Holding Corp.’s bonds were better for a second day after that steelmaker posted better earnings.

Caesars Entertainment Corp.’s unsecured and second-lien notes were lower after a federal bankruptcy court judge ruled that its main operating division’s Chapter 11 case should be heard in Chicago rather than in Wilmington, Del. – a victory for the gaming company, but a setback for those junior bondholders, since Illinois corporate laws offer more protection to the company and its principal sponsors against legal action by investors unhappy with the terms of the planned reorganization.

Overall, traders said that the market remained relatively quiet in the aftermath of weather-related disruptions earlier in the week in the northeastern United States, and with many market participants waiting for the latest word on the economy and interest rates from the Federal Reserve, which concluded its first monthly meeting of the year. However, the central bank said pretty much what it was expected to say, and some traders called it a non-event.

Statistical market performance indicators were mixed for a second straight session on Wednesday after having been higher across the board over four consecutive sessions before that.

Two goose eggs in a row

In the primary market, participants noted the lack of any new dollar-denominated pricings for a second consecutive session Wednesday, while also seeing no pricings come out of Europe – unlike Tuesday, when one smallish offering of €125 million from Belgian heavy equipment provider Sarens Group got done.

They attributed the relaxed pace to the aftermath of weather-related disruptions in the northeastern part of the U.S. – with New York just getting back to normal and Boston and other parts of New England still digging out after getting walloped by a giant snowstorm – as well as the usual wariness ahead of pronouncements from the Fed.

But the central bank pulled no surprises. As expected, it noted continued progress being made by the U.S. economy in key areas, such as employment, but continued to maintain that it would be “patient” when it comes to finally beginning to raise interest rates, as it is expected to do later this year.

Citgo hits the road

Although there were no pricings, the forward calendar was seen continuing to build.

Syndicate sources said that Citgo Holding will begin a roadshow on Thursday for a $1.5 billion offering of senior secured notes (Ca1/B-/B+) maturing in 2020, for a 5.5-year tenor.

Pricing is expected in the middle of next week.

The Regulation S/Rule 144A offering, which is being sold with no registration rights, will be brought to market via sole bookrunning manager Deutsche Bank Securities Inc.

Brazil-based BTG Pactual, who often participates in investment banking activities involving Latin American companies, will be the joint lead manager on the offering. Citgo Holding is a newly created affiliate of Citgo Petroleum Corp., a Houston-based refiner, marketer and transporter of gasoline, diesel fuel, jet fuel, lubricants, petrochemicals and other petroleum-based industrial products, and Citgo Petroleum is, in turn, owned by Petroleos de Venezuela, SA, the state-owned national oil company of Venezuela.

Proceeds from the bond deal, along with proceeds from a pending $1 billion five-year senior secured first-lien term loan B now being shopped around the bank loan market, will be used to fund a distribution to ultimate corporate parent PDVSA.

Viridian shops secured deal

Out of Europe came word that Viridian Group FundCo II, a special-purpose funding subsidiary of Northern Irish electricity provider Viridian Group plc, plans to sell €600 million of senior secured notes due 2020 (B1/ /B+).

The notes will be marketed to potential investors via a European roadshow that will begin on Thursday and run through next Wednesday.

Credit Suisse Securities will be the left side joint global coordinator and joint bookrunner and will handle billing and delivery, with Deutsche Bank Securities also a joint global coordinator and joint bookrunner.

RBS Securities Inc. will also be a joint global coordinator.

Other bookrunners on the Regulation S/Rule 144A offering will be Barclays, Commerzbank Capital Markets Corp. and J.P. Morgan Securities LLC.

Belfast, Northern Ireland-based Viridian was last in the high-yield market in March of 2012, when it sold €313 million and $250 million of 11 1/8% senior secured notes due 2017.

It plans to use the proceeds from the new bond deal to redeem all of those outstanding bonds, including prepayment premiums and accrued but unpaid interest, and to repay expected drawings under its existing revolving credit facility.

The company also said that it will repay a portion of the amount outstanding under a subordinated shareholder loan, the proceeds of which will be used by Viridian Group Holdings Ltd. to repay a portion of the amounts outstanding under its junior credit facility, and will use some of the proceeds to make payments in relation to the settlement of certain cross-currency swaps.

Amira on the road

Back in the dollar-denominated segment of the market, the syndicate sources said that Amira Natural Foods Ltd. – a global distributor of packaged India-grown rice – is marketing a $225 million issue of five-year second-lien senior secured notes (B3).

It will begin a roadshow for its offering on Friday, with marketing to run through next Thursday. This will include an investor call on Monday.

The deal is expected to interest both emerging-market and high-yield investors.

Deutsche Bank Securities, JPMorgan, Barclays, Jefferies & Co. and KeyBanc Capital Markets Inc. will be the joint bookrunners on the Rule 144A/Regulation S deal.

Amira, based in Dubai in the United Arab Emirates, plans to use the new-deal proceeds to support the development of its international operations, to reduce short-term debt, to purchase land for its new manufacturing facility and for general corporate purposes.

Altice anticipated

Investors were meantime looking forward to the giant-sized, dual-currency, multi-tranche offering now being shopped around by Luxembourg-based telecommunications and cable company Altice International.

That $4.57 billion equivalent bond behemoth is expected to price at the end of the week.

It will consist of $1.755 billion of 10-year senior notes from Altice SA (expected ratings B3/B); $2.06 billion of eight-year senior secured notes from Altice Financing SA; $385 million of 10-year unsecured notes from Altice Finco SA; €500 million of 10-year unsecured notes from Altice SA and €500 million of eight-year secured notes from Altice Financing SA.

Primaryside sources said that the big deal was playing to brisk demand, with at least $4.5 billion of orders for Altice SA’s 10-year dollar notes, and Altice Financing SA’s eight-year dollar notes were at least 2.5 times oversubscribed as of earlier in the week – levels which have likely intensified since then.

The Rule 144A/Regulation S deal is being brought to market via a hefty roster of bookrunners, including Goldman Sachs & Co., JPMorgan, Credit Suisse, Deutsche Bank, Morgan Stanley & Co. Inc., BNP Paribas Securities Corp., Credit Agricole CIB ING, Banka IMI, Citigroup Global Markets Inc., HSBC Securities (USA) Inc., Nomura Securities, RBC Capital Markets Corp., SG CIB and UniCredit.

The proceeds from the big bond sale will be used to back the acquisition of Portugal Telecom assets by Altice from Brazil's Grupo OI.

Heinz again highest volume

In the secondary market, Monday’s new deal from H.J. Heinz was again the busiest bond of the day, same as Tuesday.

A trader said that those 4 7/8% senior secured second-lien notes due 2025 “were again the volume leader,” with over $80 million having changed hands by the close.

“But we didn’t see a lot of movement in them,” another market source said, locating the notes at a 100¼-to-100 3/8 bid range.

At another desk, a trader pegged them at 100¼.

The Pittsburgh-based packaged foods giant priced $2 billion of the bonds at par in a quick-to-market deal that came too late in the day Monday for any real trading that session, but made up for it on Tuesday, with over $100 million of the notes traded.

Heinz’s existing 4¼% notes due 2020 were once more seen trading around at 101 bid, where they had been on both Monday and Tuesday. Volume was $8 million.

Those existing bonds had lost about ½ point or so Monday ahead of the big new secured deal, with over $13 million traded. Volume had shrunk to around $6 million on Tuesday.

Endo ends higher

Among other recent new deals a trader saw Endo International’s new 6% notes due 2025 “a little higher, on pretty good volume,” with more than $25 million of those notes having traded by the day’s end.

He saw the bonds at 101¾ bid, 102 offered.

A second trader saw them going home at 101 7/8 bid, up ¼ point.

Endo, a Dublin-based maker of specialty pharmaceuticals and medical devices, priced $1.2 billion of those notes at par on Jan. 20 via its Endo Ltd. subsidiary.

That drive-by deal was upsized from an originally announced $1 billion.

The new bonds traded up from the get-go, rising to 100¾ bid when they were freed for trading the following day and continuing to firm over the next few sessions – sometimes on very active volume – until they reached their current levels.

Steels show some strength

Away from the new deals, favorable earnings reports were the catalyst behind movement in the bonds of steelmakers United States Steel and AK Steel.

Pittsburgh-based U.S. Steel came in with better-than-expected fourth-quarter numbers on Wednesday, pushing its 7 3/8% notes due 2020 up to 103 bid, a 3-point gain, although volume was a sedate $9 million.

Its 7½% notes due 2022 rose to 101 5/8 bid, a 1¼-point gain, with around $7 million of the notes having changed hands. Both of those round-lot volume figures were supplemented, however, by brisk trading in odd-lot pieces.

West Chester, Ohio-based AK Steel reported favorable numbers on Tuesday, causing its bonds to rise, and they rose again on Wednesday.

Its 7 5/8% notes due 2020 jumped to 87¾ bid on volume of over $12 million, a gain of 1½ points on Wednesday, on top of Tuesday’s 1¾ point rise.

Its 7 5/8% notes due 2021ended at 86½ bid, up 2 points on the day, although a trader said that “only a couple of million of those were moving around.”

Caesars’ case Chicago-bound

On the downside, Caesars Entertainment Corp. second-lien bonds fell in midweek trading as a bankruptcy judge said the company’s case – in regards to its Caesars Entertainment Operating Co. unit – could be heard in Chicago.

Creditors had tried to push the company into an involuntary filing in Delaware. The parent company followed with a voluntary filing in Chicago.

The decision to hear the case in Illinois was seen as a win for company, as the state has stronger laws protecting the company’s owners from lawsuits.

Additionally, U.S. Bankruptcy Judge Kevin Gross said in his Wilmington, Del.-based courtroom that given the debtors had made the filing in Chicago, allowing the creditors to get their way would be a “bad precedent.”

A trader said the 10% notes due 2018 declined over 3 points to a 17 handle, while the 12¾% notes due 2018 fell nearly 3 points to 17¼.

The second-lien creditors are looking to fight a prepackaged bankruptcy plan that would re-create the opco as a real estate investment trust. That group of debtholders says the plan treats them unfairly, especially as they believe the company engaged in fraudulent activities in order to strip their creditor class of assets.

Indicators stay mixed

Statistical indicators of junk market performance were mixed for a second consecutive session on Wednesday after having been higher across the board for the previous four consecutive sessions.

The KDP High Yield Daily index rose by 11 basis points to close at an even 71 after having eased by 1 bp on Tuesday to end at 70.89, its first loss after four straight gains.

Its yield meanwhile came in by 4 bps to end at 5.5%, after having been unchanged at 5.54% on Tuesday. That had followed three straight sessions during which it had narrowed, including Monday’s 1 bp tightening.

The Markit Series 23 CDX North American High Yield index saw its second straight loss after four advances in a row, retreating by 13/32 point on Wednesday to end at 105 9/16 bid, 105 19/32 offered. On Tuesday, it had been off by 5/16 point.

But the Merrill Lynch U.S. High Yield Master II index notched its eight straight improvement, rising by 0.212% after having edged up by 0.001% on Tuesday.

The latest gain lifted its year-to-date return to 0.662%, its fourth consecutive new high point for the year, up from the previous peak, Tuesday’s 0.45% % reading.

Paul A. Harris and Stephanie N. Rotondo contributed to this review.

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