Upsized Ply Gem issue prices, firms smartly, new Level 3 up; Paetec, TXU, Videotron slate deals

By Paul Deckelman and Paul A. Harris

New York, Jan. 6 - Ply Gem Industries, Inc. came to market on Wednesday with a quickly shopped, upsized offering of senior subordinated notes, part of the Cary, N.C.-based building products company's two-part plan to wipe $360 million of existing bonds maturing in 2012 from its balance sheet - continuing the trend in Junkbondland of using new debt to take out the old and in the process, extend maturities and cut overall leverage and interest costs.

Almost from the moment that the new Ply Gem bonds hit the aftermarket, they began moving up solidly, reflecting investors' hunger for new paper after the long primaryside layoff during the last two weeks of 2009. The other new deal in the market, for Level 3 Financing Inc. -- another drive-by deal, which priced on Tuesday - was also seen having pushed well above issue.

With the junk primary shaking off the rust and starting to heat up, other prospective deals emerged, with Paetec Holding Corp. announcing plans for a $275 million add-on to an existing tranche of senior secured notes, and Energy Future Holdings Corp. weighing in with a $300 million deal, also secured.

Montreal-based cable operator Videotron Ltee. was meantime heard to be wooing investors for a Canadian-dollar denominated offering of 10-year bonds, which is expected to price on Thursday. Market sources said the company was out with price talk on the deal late Wednesday.

Existing bonds of companies bringing new deals, such as Ply Gem and Energy Future Holdings, were seen having improved in busy trading ahead of those deals.

Away from the new-deal arena, traders said investors were on a secondary market buying binge, which one said had everything going "up, up and away," as volume levels continued to heat up. NewPage Corp.'s bonds were up notably for a second session in a row.

Another gainer was Nortel Networks Corp., helped by court rulings clearing the way for an auction of more of the bankrupt telecommunications equipment manufacturer's assets.

Ply Gem upsizes

Ply Gem Industries completed the year's second junk bond deal.

The Cary, N.C.-based building products company priced an upsized $150 million issue of 13 1/8% 4.5-year senior subordinated notes (Caa3) at 97.139 to yield 14%.

The yield printed on top of price talk. The deal was increased from $110 million.

UBS Investment Bank was the left bookrunner. Credit Suisse was the joint bookrunner.

Proceeds will be used to redeem the company's 9% senior subordinated notes due February 2012.

As with the Level 3 Financing $640 million issue, which priced on Tuesday - the only other deal to price thus far in 2010 - Ply Gem came in an a.m.-to-p.m. drive-by.

Shortly after terms circulated, the bookrunner had the new Ply Gem 13 1/8% notes due July 2014 at 99 bid, par offered, up from the 97.139 issue price, according to a high-yield mutual fund manager.

Talking Thursday's deals

A trio of deals came into view on Wednesday. All three are expected to price on Thursday.

Energy Future Holdings Corp. set price talk for its $300 million offering of 10-year senior secured notes at 10% to 10¼%.

Citigroup, Goldman Sachs & Co., JP Morgan and Credit Suisse are joint bookrunners for the offering, which is expected to price on Thursday morning.

Proceeds will be used for general or other corporate purposes, which may include working capital, investment in business initiatives, capital expenditures and debt repayment.

Paetec Holding Corp. talked a $275 million add-on to its 8 7/8% senior secured notes due June 30, 2017 (confirmed B1/expected B) to yield in the 8¾% area, and to be issued at a reoffer price of about 100.5.

Bank of America Merrill Lynch and Deutsche Bank Securities are joint bookrunners for the debt refinancing deal.

The original $350 million issue priced at 96.549 to yield 9½% on June 18, 2009.

And Videotron Ltee. set price talk for its C$200 million offering of 10-year senior notes (Ba2/BB-) at the 7¼% area.

The company had been the subject of a non-deal roadshow which wrapped up on Tuesday.

RBC Capital Markets, Scotia Capital and TD Securities are joint bookrunners for the Rule 144A offering from the Montreal-based communications company.

The Videotron deal is playing to a growing community of Canadian investors eager to gain exposure to Canadian dollar-denominated assets, according to a source familiar with that market.

Approximately 60 Canadian accounts are involved in high yield, the source added.

Since the beginning of 2009 six companies have issued Canadian dollar-denominated junk bonds, the source said.

Slower than expected

With the first three sessions of 2010 having seen just two deals price, the U.S. high-yield market is off to a slower than expected start to the new year, an investment banker said, late Wednesday.

Don't worry, the banker added, there are plenty of deals soon to come.

Various sell-side sources professed visibility on deals set to hit the market in the near-to-intermediate term - i.e. during the remainder of this week or next week.

However no issuer names were supplied.

Brocade Communications Systems, Inc., which announced a $600 million offering of senior secured notes on Monday, came into the conversation again on Wednesday.

The deal, via Bank of America Merrill Lynch, should appear soon, and will run a full roadshow, a source said.

New Ply Gem pops after pricing

When the new Ply Gem Industries 13 1/8% senior subordinated notes due 2014 were freed for secondary market dealings, a trader said the bonds had moved steadily upward to 101 bid from the 97.139 level at which the issue had priced earlier to yield 14%.

"I can't figure it out," he said of the rise.

"I guess [investors believe] this company is going to make it," even in the face of continued softness in the housing market - Ply Gem makes vinyl and metal doors, windows, siding and other residential exterior products -- and the low opinion in which it is held by the ratings agencies; Moody's Investors Service rated the new deal Caa3, while Standard & Poor's and Fitch Ratings did not rate it at all.

Another trader noted that in quickly rising to 101 from their pricing level, the new bonds' yield had fallen to 12.82% from 14% at the pricing.

"That's a nice tightening - a 14% yield down to 12.82% in, like, five minutes."

He also saw that the deal had been upsized - but only to $150 million from the originally announced $110 million, to meet investor demand. "That's probably something you don't want to be short in this marketplace - that would leave you in a pickle, being short a hot issue that is very small."

Ply Gem's existing bonds, meantime, strengthened ahead of the deal's pricing, helped both by the buzz generated by the new issue, and the positive aura produced by the news that the company would use the new-deal proceeds to take out some of its existing 9% senior subordinated notes due 2012 and had made arrangements to get the rest of those notes off its balance sheet.

A trader said that the Ply Gem 11¾% notes due 2013 were the busiest of the company's bonds - "a bunch traded," he said, totaling over $40 million, most of that in large round-lot trades. He called the bonds up 1½ points on the day as they pushed up to above the 106 level, from their prior close on Tuesday just a little below 105.

However, he saw "no volume" in the 9% notes, the issue being partially tendered for. "They were quoted higher - but there was no trading."

Another market source said the latter bonds had firmed to around the 88 level, where they stayed for most of the day, about a 4½ point pickup - but all of it in smallish, odd-lot trades.

However, late in the session, there were several larger-sized transactions that pegged the 9s at around the par level, where the bonds are to be taken out.

Ply Gem announced in the morning that it would do the bond deal and then use the proceeds to buy back $102.7 million of the $360 million of outstanding 9% notes at par plus accrued interest. As for the other $257.3 million of the 9% paper, the bulk of those notes are held by Caxton-Iseman (Ply Gem) III, LP and Caxton-Iseman (Ply Gem) IV, LP, which are affiliates of Ply Gem Holdings' indirect stockholders. Those notes will be tendered for no consideration, as a capital contribution to Ply Gem, and will be cancelled prior to Feb. 16.

New Level 3 is well-liked

Traders saw the new 10% notes due 2018 priced late Tuesday by Level Three Financing Inc. -- a unit of Broomfield, Colo.-based telecommunications infrastructure company Level 3 Communications Inc. -- as having firmed markedly from the 97.982 level at which the $640 million of new bonds had come to market, yielding 10 3/8%.

Those bonds had priced too late in Tuesday's session for any aftermarket activity at that time, but a trader said that early Wednesday, they had moved to par bid, 100½ offered, and at one point had gotten as good as 100¾ bid, 101½ offered. However, he said that peak level was "very brief. The bonds drifted in by a half point" later on in the day to finish at 100¼ bid, 101 offered.

A second trader punned that the company's bonds "leveled off" after having pushed as high as 100¾ bid, finishing the day at 100 1/8 bid, 100½ offered.

"They finished a little off their highs [for the day], but were still pretty impressive. "

But yet another market source estimated the bonds at 99¾ bid, par offered.

TXU debt climbs ahead of deal

With Energy Futures Holdings - the company formerly known as TXU Corp. - shopping a new deal around, the Dallas-based utility operator and merchant power producer's existing bonds were seen having improved.

A trader saw its 11¼% toggle notes due 2017 "trade up a couple of times" around the 75½ mark on "a lot of volume" - more than $20 million - with most of the day's trading in a 74-75¾ range, before going home at 751/2, in "pretty good size."

He said the 111/4s are trading at a discount and "they look cheap if the new issue prices around 10¼%, the wide end of price talk on the deal.

He meantime saw the company's 10 7/8% notes due 2017 trading firmer on the day in a range of 85-86 3/8, with the last trade seen at 851/4. Volume, he said, was north of $25 million.

Another trader said the TXU bonds were "all a point better," the 10 7/8%s at 85 bid, 86 offered, the 111/4s at 75 bid, 76 offered and the company's 10¼% notes due 2015 at 85½ bid, 86 offered.

But yet another trader saw even bigger gains - up 3 points on the day - quoting the 10¼% notes "around 86," and the 11¼% notes and the 10½% notes due 2016 at 75½ bid, 76 offered.

Market indicators stay strong

Back among statistical measures of market performance not related to the new-deal market, a trader saw the CDX Series 13 index about unchanged on Wednesday, to end at 100 7/16 bid, 100 15/16 offered. It had gained ¼ point on Tuesday.

But the KDP High Yield Daily Index, meanwhile, jumped by 35 basis points on Wednesday to 71.95, after having soared some 29 bps on Tuesday. Its yield narrowed by 13 bps, to 7.77%, after having tightened by 12 bps the previous session.

Advancing issues led decliners by a better than two-to-one edge for a second straight session.

Overall market activity, as measured by dollar volume levels, continued to heat up, gaining almost 20% from Tuesday's pace.

"Everything is moving," a trader said. "There's a lot of action - credit stuff. Yields are dropping. The new issues are all coming and getting put away. It really doesn't seem like dealers have much inventory, so if it trades, it's coming out of clients.

"Obviously there's a lot of two-way flow in names."

People, he said, "came into this year with buying on their minds." He further opined that with gains so widespread, "if something is going down in this market - watch out. It's got to be a real problem."

A second trader said that Wednesday's market "continued the quiet, but stronger, buying trend. Folks are still reaching for yield."

A third trader exclaimed that the market "is unbelievable, ridiculous. Things are up, up and away." He said that people "are almost throwing all caution to the wind."

NewPage pushes further upward

A trader said that NewPage Corp.'s bonds continued to rise, with a trader saying that he had heard that the bonds were better amid some reports that analyst opinion on the coated paper industry was turning more favorable, "but nobody's substantiated anything."

He said that the company's 12% notes due 2013 had traded at 63½ bid, 64 offered on Wednesday, well up from 60 bid on Tuesday. "There are all kinds of rumors" out there, "but I couldn't find anything substantial.

"We're in a market where any little positive rumor - VOOOM!"

A second trader saw the company's 10% notes due 2012 - which had firmed smartly on Tuesday to around the 80 bid level from the lower 70s before that, on very active volume - trading on Wednesday in an elevated range of 81 on the low end to 84 3/8 on the high side, with the bonds seen last traded at 84 3/8%.

However, he saw no traces of its 11 3/8% notes due 2013.

At another desk, a trader located the 10s at 84 3/8, up nearly 4 points on the day, on "a lot of volume."

He also saw the 12% notes of 2013 up 3 points at 64 bid, also on "a lot of volume in the name."

There were no announcements out of the Miamisburg, Ohio-based coated paper manufacturer, nor was any hard news seen that might explain the two-day rally.

Nortel heads north

A market source saw active trading in Nortel Networks' 10¾% notes due 2016, pegging them up nearly 3 points at 76½ bid. Trading was busy, with over $25 million traded at mid-afternoon.

The bonds got a boost on the news that the U.S. and Canadian courts overseeing the company's bankruptcy had approved a $282 million "stalking horse" bid for the company's carrier VoIP and application assets from Texas electronics manufacturer Genband, and set an auction date of Feb. 25, with bids from other interested buyers due Feb. 23.

Nortel is in the process of selling off various assets to raise funds to repay its bondholders and other creditors.

Autos motor higher

A trader said that General Motors Corp.'s benchmark 8 3/8% bonds due 2033 was "where we saw most of the action today" in the automotive sector, estimating that over $50 million of those bonds had traded in a range of 283/4-301/2, with most of the dealings in a 29-29½ context. He saw a closing level of 29.

A trader saw continued firming in Visteon Corp.'s bonds, with its 8¼% notes due 2010 up 4 points at 35 bid, 36 offered and its 7% notes due 2014 "up about the same."

The auto names, he said. "are lovin' life."

-Stephanie N. Rotondo contributed to this report

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