Brocade to roadshow two-part deal, market awaits UAL; Visteon vibrant, but NewPage not so much

By Paul Deckelman and Paul A. Harris

New York, Jan. 8 - The high-yield market closed out the first trading week of the new year on a more subdued note Friday, following Thursday's busy session that saw five deals totaling more than $3 billion having priced.

There were no domestic pricings during the session, although one overseas borrower - the French electrical components distributor Rexel SA - did price an issue of senior secured notes as an add-on tranche to its existing 8¼% notes due 2016.

On the domestic front, Brocade Communications Systems, Inc. - already seen by market participants as likely to do a bond deal this month - confirmed and disclosed details of its plans in a regulatory filing, with syndicate sources reporting that the San Jose, Calif.-based high-tech company will hit the road beginning Monday to market its $600 million two-part deal to potential investors.

B&G Foods Inc. meanwhile announced plans for an offering of eight-year notes, with the proceeds slated to fund a tender offer for two issues of the Parsippany, N.J.-based food products company's existing bonds.

Price talk surfaced on United Air Lines, Inc.'s upcoming $500 million senior secured bond issue, which is expected to come to market on Monday.

Among the deals which priced Thursday, Energy Future Holdings Inc.'s new bonds held steady at several points above their par pricing level, retaining the handsome gains which that upsized $500 million of 10-year secured notes notched in initial aftermarket dealings. Kansas City Southern de Mexico SA de CV was also heard by traders to have firmed. Quest Communications International Inc.'s big new issue of eight-year notes, on the other hand, failed to make much headway when they finally began trading in the secondary market.

Among the established issues, Visteon Corp.'s bonds were quoted at sharply higher levels in very active trading, although there seemed to be no fresh positive news out about the Van Buren Township, Mich.-based automotive parts manufacturer, currently reorganizing under Chapter 11.

NewPage Corp.'s bonds - which had rocketed higher over the previous several sessions, apparently on investor hopes for a turnaround in the coated paper business - gave up several points of those gains, although they still ended the week much improved.

One new issue

Paris-based electrical distributor Rexel priced Friday's only deal in the new issue market- a €75 million add-on to its 8¼% senior notes due Dec. 15, 2016 (B1/B+/BB-).

The add-on priced at 102.3332 to yield 7¾%, on top of price talk.

Calyon Securities, RBS Capital Markets and Bank of America Merrill Lynch were the coordinators for the Regulation S only add-on. The other bookrunners were BNP Paribas, HSBC and Natixis Bleichroeder.

Proceeds will be used to repay bank debt.

The original €575 million issue priced at par on Dec. 11, 2009.

Brocade starts marketing Monday

Elsewhere in the primary market, Brocade Communications Systems announced that it will begin a roadshow on Monday for its $300 million offering of eight-year senior secured first-lien notes (existing ratings Ba2/BB+).

The roadshow wraps up on Thursday, with the notes expected to price the same day.

JP Morgan and Goldman Sachs & Co. are joint bookrunners for the debt refinancing deal from the San Jose, Calif., developer and manufacturer of networking technologies.

United Air Lines sets price talk

Meanwhile, United Air Lines set price talk for its $500 million offering of 3.5-year senior secured notes (B3/B+) at the 10¼% area on Friday.

The deal is expected to price midday on Monday.

J.P. Morgan Securities Inc. is the left lead bookrunner for the general corporate purposes deal. Goldman Sachs & Co. and Morgan Stanley & Co. are joint bookrunners.

Eyes on the Icahn deal

The "Icahn" deal, which is expected to come split-rated, is generating a considerable buzz in the market, according to an asset manager from a mutual fund.

Icahn Enterprises LP and Icahn Enterprises Finance Corp. are expected to wrap up their roadshow for a $2 billion two-part offering of senior notes on Monday.

The deal includes tranches of six-year notes, which come with three years of call protection, and eight-year notes, which come with four years of call protection.

The offering, via bookrunner Jefferies & Co., is rated Ba3 by Moody's, but is expected to receive Standard & Poor's investment grade BBB- rating.

Proceeds will be used to refinance the master limited partnership's 7 1/8% senior notes due 2013 and its 8 1/8% senior notes due 2012 and to fund general corporate purposes.

The "general corporate purposes" involve bankrolling Carl Icahn's plays in distressed assets, the money manager contended.

"You're giving the guy money to invest," the manager said.

"But then again you're in the better part of the cycle for distressed assets. And he knows how to invest probably better than a lot of other people."

The deal is attracting attention from players outside the high-yield community, according to the asset manager.

"They're going to listen to this because you don't get too many opportunities to hear what a big distressed player is thinking."

The Icahn deal is expected to come with a yield in the low eights, the manager said.

"A five-B deal should be tighter, but this isn't a traditional use of proceeds.

"And I don't think that's bad financing for someone who is doing distressed debt that is going to make a 50% or 100% return on his money."

Jefferies, a shop best known for small-to-medium sized senior secured deals that tend to come with lots of yield, does not have much of a footprint in transactions this size, the manager said.

"I asked them, 'Why Jefferies?'

"I think Jefferies helped him a lot when he was acquiring a lot of the debt and equity. So it's kind of like payback."

Regardless of who has the books, given its mammoth size the deal will likely trade, the buy-sider reasoned.

"I may play it. But it's blindfold investing."

Qwest's appeal is questionable

A trader saw Qwest Communications International's $800 million offering of eight-year senior notes "traded kind of weakly" in the secondary market Friday. The Denver-based telecom company's 7 1/8% notes due 2018 priced at 98.44 late Thursday to yield 7 3/8%. While they came too late that day for any aftermarket dealings, the bonds were seen on Friday trading not far from their issue price.

The trader said that a late push to take the bonds above 99 "kind of faded away," leaving them at 98¼ - actually below issue - as "even the 98 3/8% bid got hit."

Energy Future bonds hold gains

The star performer of Thursday's nearly $2 billion primary pricing session, Energy Future Holdings' $500 million issue of 10-year senior secured notes, upsized from $300 million, continued to show strength on Friday, when they were seen around 103¼ bid.

"They stabilized, but not up at the high levels," a trader said.

The Dallas-based utility operator and merchant power generator formerly known as TXU Corp. had priced the deal at par to yield 10%, and then proceeded to shoot as high as the 104 level in initial secondary trading before coming off those peak levels to finish north of 103, where they remained on Friday, several traders said.

Kansas City Southern tightens up

A trader saw the new Kansas City Southern de Mexico 8% notes due 2018 get as tight as 99 3/8 bid, 99 5/8 offered, versus the 98.55 level where the railroad company's $300 million bond deal - upsized from $250 million originally - had priced on Thursday to yield 8¼%.

"That was pretty much where we saw them hang during the day, or at least the first part of the day, as the name quieted down."

Ply Gem remains powerful

A trader said that Cary, N.C.-based building products maker Ply Gem Industries, Inc.'s 13 1/8% senior subordinated notes due 2014 were trading up at 102½ bid, well up from their Wednesday pricing at 97.139 to yield 14%.

A second trader said "they did very well." He also declared that "the issue they're taking out performed magnificently," with the company's 9% notes due 2012 having pushed up to the par level over several sessions from pre-deal news levels in the 80s; Ply Gem plans to use the new-deal proceeds to redeem some of those outstanding notes, while holders will contribute the rest to the company for no consideration, considerably improving its balance sheet.

That $150 million offering - upsized from the originally planned $110 million - had begun to move up solidly right out of the box late Wednesday, shooting up to the 101 level shortly after pricing where they did.

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 unchanged on Friday to remain at 100 3/8 bid, 100 7/8 offered, after having eased by ¼ point on Thursday. It thus ended the week up from the 99¼ bid, 99¾ offered level seen at the close of the previous trading week on Thursday, Dec. 31.

The KDP High Yield Daily Index meanwhile rose by 4 basis points on Friday to 72.10, after having gained 11 bps on Thursday. Its yield tightened by 1 bp to 7.81%, after having widened by 5 bps the previous session. The index thus showed gains from its week-earlier levels at 71.19, with a yield of 8.07%.

Advancing issues continued to lead decliners, by a not quite eight-to-five margin.

Overall market activity, as measured by dollar volume levels, fell 26% from Thursday's pace.

A trader called Friday's secondary market "just a hodge-podge - $1 million of this and $1 million of that."

Another trader said that "in general, at the end of the week, it seems like everything has been moving up and some of the things that moved up during the week are settling just off the top [level]." He cited the NewPage 10% notes due 2012: "it just seems like people are selling some of their paper at the end of Friday. It's still higher - but it's not like it was all bid, none offered. They did settle back down a little."

NewPage steps backward

A second trader said that NewPage's notes "probably moved a little bit, but they might have softened up just a little at the close." He saw the 10s going home as low as at 83 bid, 84 offered - well down from the day's highs around 86 or 87 - "in active trading, a lot of volume," although he saw no news out on the company that might have caused the pullback.

The Miamisburg, Ohio-based paper manufacturer's bonds had zoomed over the course of week from the mid-70s on Monday to around 80 on Tuesday and to levels as high as 87 bid by Friday - before the bonds did come down "quite a bit," as another trader put it to closing levels around 83¼ bid - still up around 10 points on the week, apparently on reports some analysts are now more constructive on the coated paper business.

Visteon very strong, active

A trader said that "autos are on fire," with Visteon Corp.'s 7% notes due 2014 and 8¼% notes slated to come due on Aug. 1 each up about 12 points in "all kinds of trading - serious size. And they're still trading crazy."

He saw the bonds get as high as 48 bid during the session, a 12-point gain, before coming slightly off that peak to end in a 47-48 context, "off a lot of volume."

He said he had not seen any news out which might explain the sharp rise, "just the auto parts going [up continuously as a sector].

"It was a pretty big move, on serious volume." He said that the 7s "had the big volume trading," while the company's 81/4s "moved similar to it as well, but on not as much volume as the 7s."

A market source at another desk said that as of mid-afternoon some $43 million of the Visteon 7% paper had traded - by far the busiest junk bond on the day. The 7% bonds finished up more than 12 points at 47½ bid.

Elsewhere in the autosphere, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down ¼ point at 28¾ bid, 29¼ offered.

A second trader said that GM "pretty much stuck at 29-30. They didn't have much volume."

Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 93½ bid, 95½ offered.

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