Duane Reade, Jabil deals price, jump in secondary; new Ford Credit bonds busy, little changed

By Paul Deckelman and Paul A. Harris

New York, July 31 - Drugstore operator Duane Reade Inc. and electronic manufacturing services provider Jabil Circuit, Inc. brought the month of July - as well as a very busy week which saw more than $5 billion in new junk pricing - to a rousing close on Friday, each pricing a new deal which then was seen by traders to have moved solidly higher in the aftermarket. Jabil's pricing, in fact, came as a bit of a surprise, since market participants were generally not expecting the seven-year deal to come to market until Monday at the earliest.

While Duane Reade and Jabil were setting terms on the final deals of the week, the biggest transaction - Thursday's drive-by offering of three-year notes from Ford Motor Credit Co. - was actively trading around, although the new bonds were seen having pretty much given up their early gains to end little changed.

The bonds of Ford Credit's corporate parent, Ford Motor Co., meanwhile continued to firm, as they had for most of the week - and even bankrupt Ford arch-rival General Motors Corp.'s paper was better, in the context of an overall stronger market.

Another name feeling a little more robust was Rite Aid Corp. - whether due to overall market strength, or that of sector peer Duane Reade, in the midst of the latter's bond deal and its good quarterly numbers released this week.

Energy Future Holdings Corp. and its corporate cousin, Texas Competitive Electric Holdings Co., were seen stronger, as the Dallas-based utility operator and merchant power producer - the former TXU Corp. - takes steps to address its upcoming debt maturities and strengthen its balance sheet.

Jabil upsizes

Friday's primary market session saw a pair of deals in the $300 million range price, capping a $4.76 billion week.

July saw $12.53 billion of issuance in the primary market. That's the second-biggest July in the book, so far, according to Prospect News data.

First place goes to July 2003, at $14.3 billion.

Jabil Circuit priced an upsized $312 million issue of 7¾% seven-year senior notes (Ba1/BB+/BB+) at 96.143 to yield 8½%.

The notes priced at the tight end of the 8½% to 8¾% price talk.

The issue was upsized from $200 million, and pricing was moved forward from the previously expected pricing date of early in the week ahead.

JP Morgan, Citigroup and RBS Securities Inc. were joint bookrunners.

Proceeds will be used to redeem the St. Petersburg, Fla.-based electronics manufacturing services provider's existing 5 7/8% notes due 2010 via a tender offer.

Restructured Duane Reade prices

Also on Friday Duane Reade priced a downsized, restructured $300 million issue of 11¾% six-year senior secured notes (Caa1/B-) at 97.417 to yield 12 3/8%.

The yield came tight to the 12½% yield talk.

Goldman Sachs & Co. was the left lead bookrunner for the debt refinancing deal, which was downsized from $325 million. Banc of America Securities LLC/Merrill Lynch & Co. was the joint bookrunner.

In restructuring the deal, the New York City-based drugstore chain company upsized the secured notes tranche to $300 million from $215 million, and eliminated the proposed $110 million subordinated seven-year notes tranche.

Quiet ahead

Summer may finally be taking hold in the high-yield primary market, a syndicate official said, two hours after the market closed on Friday.

"Fatigue" as a factor in any eventual deceleration, cannot be discounted, this official insisted.

Friday closed with only two offerings on the active forward calendar.

Global Aviation Holdings, Inc.'s roadshow for its $165 million offering of senior secured first-lien notes due 2013 (expected Ba3/confirmed BB-), was scheduled to conclude on Friday.

The debt refinancing deal, led by Jefferies & Co., could price in the week ahead.

Meanwhile, CPM Holdings, Inc. is on the road with a $200 million offering of five-year senior secured notes (B2/B+), also via Jefferies.

That debt refinancing deal, however, is not expected to price until the Aug. 10 week.

A syndicate banker about to depart on vacation, biding time as rain delayed flights out of the New York area airports on Friday evening, expected three deals, representing $1 billion to $3 billion, to surface during the first week of August.

Jabil jumps after pricing

When the new Jabil Circuit 7¾% notes due 2016 were freed for secondary dealings following their surprise pricing, "they did really well," a trader said, seeing the bonds having moved up to 98¼ bid, 99¼ offered, a solid gain from their pricing level earlier in the session at 96.143.

Two other traders also saw the St. Petersburg, Fla.-based company's $312 million issue move up to that same aftermarket level.

Duane Reade on the rise

One of the traders also saw Duane Reade's new 11¾% senior secured notes trade strongly in the secondary.

He quoted the New York-based pharmacy chain operator's $300 million issue as having gotten as good as 102½ bid, 103 offered - well up from the 97.417 level at which the restructured deal had priced earlier in the session.

New Ford flies, then flops around

A trader said that Ford Motor Credit Co.'s issue of new 7½% notes due 2012 "was very active - probably my most active thing this morning."

He saw the bonds trade as high as 92 5/8 "before they drifted down later to around 92 1/8 bid, 92 3/8 offered, so they went a point to the upside and then gave a lot of it back by the end of the day."

Ford's automotive financing arm had priced the mammoth quickly marketed $1.75 billion offering on Thursday at 91.589 to yield 10 7/8, and the new bonds had gotten as good in initial aftermarket trading as Thursday's going-home level in a 92-92 1/8 context.

With the issue having surrendered most of Friday's gains, the trader said that it was difficult to tell whether there was "a lack of liquidity, with no one around to make a bid that caused the downdrift." He suggested that "when we come in on Monday, people may run them back up again, but [at the end of the day on Friday afternoon], it just felt like there was no one around to make a bid or sell anything to, and I think everyone just wanted to square up before the weekend."

A trader meantime saw parent Ford Motor Co.'s 7.45% notes due 2031 down ½ point at 73½ bid, 75½ offered.

Another trader, however said the Ford long bonds "did move higher as well," getting as good as 76 bid. But he added that he had "not seen much trading" in it. He estimated the bonds were a point higher on the day, and had risen "almost 5 or 6 points" on the week, "though on not a lot of activity/"

Elsewhere in the autosphere, a trader said that General Motors "did do well" - he saw the benchmark 8 3/8% bonds due 2033 at 15 bid, 16 offered, "up a couple of points."

He said that there was "not a lot of volume - but [it was] bid up, quoted up."

At another desk, a trader confirmed that the benchmarks had risen 1½ points on the day to end at 15 bid, 16 offered.

Market indicators keep moving up

Back among the more established issues, the CDX Series 12 High Yield index - which jumped 1 1/8 point on Thursday - was up about another point on Friday, a market source said, finishing the day and the week at 90.661 - up solidly from the previous Friday's finish at 87¾ bid, 88¼ offered.

Meantime, the KDP High Yield Daily Index, which gained 35 basis points on Thursday, added another 33 bps on Friday to end at 66.23, while its yield tightened by 10 bps to 9.23%. At the end of the previous week, on Friday, July 24, the index stood at 64.83, with a yield of 9.77%.

In the broader market, advancing issues - which had led declining issues for a tenth straight session on Thursday - remained on top Friday, maintaining their better than seven-to-five margin.

Overall market activity, measured by dollar-volume totals, rose about 12% from Thursday's level.

A trader described Friday's session as a little quiet, and said that while he had seen some quotes on various things, there was far less than that when it came to actual trading in those credits.

A second trader shrugged off the "typical Friday" in mid-summer.

At yet another shop, a trader said that apart from the solidly higher dealings in the new issues, "it was a pretty quiet day, pretty much across the board." However, he noted, "the market continues to just push higher."

He said that "a lot of accounts" have been actively participating over the last few days because "they have cash they wanted to put to work before the month's end."

With "no one really looking to sell things," he said, "it left a real vacuum in terms of supply - which is why I think most of these new deals have done fairly well."

With July now having come to a close, he continued, it will be interesting to see how the market fares "once we get over the hump of the month's end, and on the backside of earnings. We've come so far so fast. If they continue to bring new issues for supply, and feed the cash on the sidelines, we may see some people start to move out of old holdings and into new issues."

For now, he noted, "there's just so much cash there" - a fact underscored by the latest junk market mutual fund statistics released Thursday by AMG Data Services and by competitor EPFR Global, which each reported big additional inflows and year-to-date cumulative net inflows in the $13-$14 billion area.

With so much cash sloshing around in Junkbondland - and the mutual funds only represent a small, though identifiable and measurable portion of the total amounts coming in - "even at these crazy levels we've gotten to, people are still just looking for anything to put money to work."

Rite Aid rallies on

Among specific issues, a trader said that Rite Aid's 9½% notes due 2017 "keep moving up." He quoted them at 76¼ bid, saying there were "not a lot trades - but it's still at the higher levels," in line with the drugstore company's generally strong performance all week.

The 91/2s for instance, were up about ½ to 1 point on the session, and "have done pretty good this week," gaining 5 points on the week, the trader said.

Still, he said, there was "some activity - not a lot."

At another desk, Rite Aid's 7.70% bonds due 2027 were up more than 3 points on the day to the 49 level. The company's 9 3/8% notes due 2015 - perhaps its most actively traded issue, with over $10 million changing hands on an essentially lackluster day - likewise firmed to a little over 76 bid.

The Rite Aid bonds have been firming in the absence of any positive news about the Camp Hill, Pa.-based Number-Three U.S. pharmacy chain operator that might explain the strengthening; around mid-week, traders were in fact crediting the relatively positive quarterly results reported by competitor Duane Reade with having boosted the Rite Aid bonds, on the theory that those numbers point to better times ahead for the whole drugstore industry, including Rite Aid.

The latest news out of Camp Hill, meantime, was not reassuring to investors, as Rite Aid announced Friday that its same-store sales - the retailing industry's key performance metric- slipped 0.6% in July, as the ongoing recession put a damper on sales of things like cosmetics, candy, toys, food items and other non-pharmacy "front-end" items, which account for about a third of the company's sales.

Rite Aid said that at its stores which have been open for at least a year - giving the best year-over-year comparisons - pharmacy sales actually rose 1.4% in the four weeks ended July 25 - but front-end sales slid by 4.7%.

The company said total sales at all of its more than 4,800 stores fell 2.4% to $1.93 billion versus $1.98 billion a year earlier.

TXU successor bonds move up

A market source saw strong gains in the bonds of Energy Future Holdings Corp. and its sister company, Texas Cooperative Electric Holdings.

Energy Future's 11¼% notes due 2017 were up more than 6 points on the day to the 74 level, while Texas Competitive's 10¼% notes due 2015 gained more than 3 points to finish at 77.

The bonds were among the most busily traded junk issues of the day, with around $20 million of each having changed hands at those higher levels, another source said. The source saw the Texas Competitive bonds get as good as 78.

The stronger trading in the companies' bonds comes against a backdrop of Energy Future Holdings moving to shore up its balance sheet. News reports indicated that the company - the old TXU Corp., until it was taken private by KKR & Co. and TPG Inc. in a $45 billion leveraged buyout transaction two years ago - is asking its lenders for permission to issue as much as $4 billion of secured debt.

Observers say the company is looking to take advantage of favorable conditions in the very liquid junk bond market to get rid of some of its more than $20 billion of loan debt coming due in 2014.

CIT inches up

A trader said that CIT Group Inc. - whose bonds had been the dominant features in the junk universe for more than two straight weeks earlier this month - were "a little higher" - maybe 1 to 2 points - on "not a lot of activity."

He saw the floating-rate notes coming due on Aug. 17, which the New York-based commercial lending company has been trying to buy back via a cash tender offer - up 2 points in a 78-80 range. Friday was the early-tender deadline for that offer, by which time CIT was hoping to have lined up a clear majority of the $1 billion of outstanding bonds.

However, the trader said, there was no activity in its 7 5/8% notes due 2012, which had last been seen trading around 53 bid.

Most activity was in the 2009 and 2010 maturities, notably the August floaters, he said.

© 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.