Lantheus prices, calendar thins, recent deals seen near issue; Japan still weighs on secondary

By Paul Deckelman and Paul A. Harris

New York, March 16 - High-yield primary market activity remained at a low pitch on Wednesday, as financial markets were once again roiled by the continuing onslaught of bad new out of stricken Japan, particularly in terms of the so-far unsuccessful efforts to contain radiation from nuclear power stations damaged by last week's earthquake and tsunami.

One deal was heard to have priced - healthcare company Lantheus Medical Imaging, Inc., which brought a quickly shopped $150 million add-on to its existing 2017 bonds to market. Traders did not see the new bonds in aftermarket dealings.

Terms also emerged on a private placement transaction for K-V Pharmaceutical Co., which priced an upsized $250 million of five-year secured notes at a steep discount.

Syndicate sources in Europe meantime heard that Scandinavian Airlines Systems Denmark had priced a large issue of three-year notes denominated in euros and Swedish kroner.

Traders saw little real movement from their respective issue prices in the deals that priced earlier in the week for MEG Energy Corp., Windstream Corp. and Griffon Corp.

Away from the new-deal arena, traders said the secondary market's early attempt to turn upward after Tuesday's downturn ran out of gas as equities again weakened under the weight of the continued bad news from Japan, leaving junk names about split and statistical performance measures mixed.

The traders speculated that the Thursday afternoon mutual fund numbers that indicate overall junk bond liquidity trends will likely post their first outflow of the year, reflecting the softer market of the past few sessions.

Lantheus taps 9¾% notes

Despite continued volatility in stocks and softness in the high-yield secondary, the primary market remained modestly active on Wednesday.

Lantheus Medical Imaging priced a $150 million add-on to its 9¾% senior notes due May 15, 2017 (B3/B+) at 101.50.

The reoffer price, which came on top of the price talk, renders a 9.418% yield to worst.

Jefferies & Co. ran the books for the quick-to-market deal.

The company intends to use the proceeds to pay a dividend to its sponsor, Avista.

In addition to the add-on, there was a consent solicitation for existing note-holders, who were driving the bus, with respect to Wednesday's add-on, according to a sell-side source not in the deal.

The company was a price-taker on the deal, the source added, noting that the existing bonds were trading north of 107 bid, whereas the tap was done at 101.50.

Going ahead

Although it's fair to say that the primary market presently faces significant challenges that were not even on the radar screen a week ago - the catastrophic earthquake that struck Japan did so well after last Thursday's close - the dealers appear to be pushing ahead nevertheless.

At least some of the business that was expected to price during the present week was still on track to do so at Wednesday's close.

Price talk is due out Thursday on EV Energy Partners LP's $250 million offering of eight-year senior notes via left bookrunner RBC Capital Markets and joint bookrunners J.P. Morgan, Wells Fargo and BNP Paribas.

The deal is going well despite the capital markets volatility, an informed source said.

The notes have been discussed in the context of a yield in the 8% area, sources say.

Meanwhile, Boart Longyear Management Pty. Ltd.'s $250 million offering of 10-year senior notes is expected to price on Friday via Goldman Sachs.

The deal is roundly reported to be doing very well.

Discussions have taken place in the context of 6½% to 7%. However, given that the market has backed up over the course of the week it will most likely come in the sevens, according to a high yield mutual fund manager who is looking at the deal.

Elsewhere, books are set to close Thursday for Hyva Global BV's $375 million offering of five-year notes (B1/B+/BB-).

Discussions on that deal have taken place in the high 8% range to 9%, according to market sources.

The deal is pricing off the investment-grade desk, according to an informed source.

It is playing to a substantial emerging markets following owing to the fact that the company has operations in Asia, and one of the sponsors, Unitas Capital, is based in Hong Kong.

Proceeds from the bond deal will be used to fund the acquisition of Hyva by Unitas Capital and NWS Holdings from 3i Group plc.

Lantheus, K-V skip secondary

A trader said that from where he sat the new Lantheus Medical Imaging six-year add-on deal "looks like it came really cheap to where the outstandings were," but he said he saw no aftermarket in the new issue.

"I think people got a really nice execution, whoever was able to participate in that add-on, quite honestly."

Several other traders also said they had not seen any sign of the new bonds in the secondary.

And most were not even aware of the quietly done four-year private-placement issue from K-V Pharmaceutical. "We didn't hear about the deal or see the deal," one declared.

Recent deals stay near issue

A trader said that at his shop, "we traded a bunch" of MEG Energy's 6½% notes due 2021 in a 100½ to 100¾ context, just a little above the par level at which the Calgary, Alta.-based oil-sands energy company had priced its $750 million deal - upsized from the originally announced $500 million - on Monday.

A second trader saw the bonds at 100½ bid, 101 offered.

Windstream Corp.'s 7¾% notes due 2021, which had priced on Monday at 99.116 to yield 7 7/8% were seen by a trader Wednesday at 99 bid, 99½ offered.

A second trader said that the Little Rock Ark.-based telecommunications company's $450 million drive-by deal - downsized from the originally announced $500 million - was about unchanged around its issue price. "There wasn't a ton of them trading," he said.

A trader called New York-based industrial manufacturer Griffon Corp.'s 7 1/8% notes due 2018 pretty much unchanged around the same par level at which the $550 million deal, upsized from the originally planned $500 million, had priced on Monday.

Kodak holds lower levels

A trader saw Eastman Kodak Co.'s 7¼% notes due 2013 around 96½ bid, 97½ offered, unchanged on the day, although he "did not see a lot of activity in the name. Obviously, the activity was in the new issue."

He saw the Rochester, N.Y.-based digital photography, film and imaging products maker's $250 million of 10 5/8% senior secured second-lien notes due 2019 at 97 bid, 98 offered. That deal, upsized from the originally announced $200 million, priced last Thursday at 98.686 to yield 10 7/8%, but then proceeded to trade below that issue price and stay there.

Meanwhile, the existing bonds - which had begun last week around a 91-92 level - had moved up strongly over the next several sessions on news of the new deal to eventually peak at above 99 bid as last week came to an end. But in trading this week, they had gradually come back down to the mid-90s, in line with a generally easier overall market.

Secondary turns mixed

Away from the new-deal world, a market source saw the CDX North American Series 15 HY index slide by ¾ point on Wednesday to a close at 101 5/8 bid, 101¾ offered, on top of Tuesday's drop of 9/16 point.

But the KDP High Yield Daily index meantime rebounded by 5 basis points on Wednesday to close at 75.41, after having swooned by 32 bps on Tuesday. Its yield came down by 3 bps, to 6.82%, after having gapped upward by 13 bps on Tuesday.

The Merrill Lynch High Yield Master II index rose by 0.105% on Wednesday, in contrast to its 0.438% downturn on Tuesday. That lifted its year-to-date return to 3.162% from Tuesday's reading of 3.053% - its lowest level in nearly a month. However, that new cumulative return remained behind the 2011 peak level of 3.73%, set last Wednesday.

Advancing issues trailed decliners Wednesday for a fifth straight session, although the margin of difference narrowed to just a relative handful of issues out of the nearly 1,400 that traded, versus the decliner's bulge of nearly two to one seen on Tuesday.

Overall market activity, as measured by dollar-volume levels, rose by 5% on Wednesday, after having shot up by 45% on Tuesday from the previous session's activity level.

A trader opined that "the market tried to do a little better to start this morning, but then as equities went, so did the market." The bellwether Dow Jones Industrial Average was under water all day and ended down 242.12 points, or 2%, at 11,613.30.

He meanwhile saw junk generally down ¼ to ½ point.

A second trader said "you turn the page and there's nothing positive going on - Libya, Saudi Arabia, oil and the 5,000-pound gorilla in the room, Japan.

"There's not a lot of good news out there."

He described the overall geopolitical and macroeconomic climates as "scary as hell," and rhetorically asked whether a lot of people would be going out on a limb in such a climate to buy anything risky, with the answer being fairly obvious.

The first trader said that "it feels like the Street is long a good amount of paper and I think accounts are concerned about the potential for outflows, even though we haven't really seen it, I think accounts are trying to set themselves up so they're ready to absorb that. Those two things in combination create a fairly heavy high yield market."

That trader, and a second, agreed with the proposition that Junkbondland - which has been riding high this year on an unbroken surge of liquidity, as exemplified by week after week of inflows to high-yield mutual funds going all the way back to early December - is likely to finally see an outflow in that key measure when the numbers are released on Thursday afternoon.

"I have to believe [that's the case] if for no other reason than just from the amount of participation in our market from the Far East," likely disrupted by the Japanese earthquake, "and the equity tone tends to spill over some. So I think it's a fairly safe bet, absolutely."

Homebuilders heavier

Among specific names, U.S. homebuilders' bonds stumbled and their shares tumbled after the Commerce Department reported that February new-home construction fell to its lowest level since April 2009 - and the second-lowest level on record - reflecting weak demand amid consumer uncertainty.

Fort Worth-based D.R. Horton, Inc.'s 6½% notes due 2016 were seen off 1 point at 104 bid, 105 offered, while the 6¼% notes due 2015 of its Los Angeles-based rival, KB Homes, ended just under par, also down around a point.

Horton's shares were meantime down more than 2%, as was the equity of sector peer Lennar Corp., while KB Home's stock price dropped by nearly 4% on the day.

Utilities power up

Despite the continued flow of bad news out of Japan regarding the damaged nuclear reactor and the problems getting the situation there under control, bonds of U.S. power companies - which had initially dropped starting Friday over fears about what the Japanese accident might mean to domestic nuclear operators - were seen better on Wednesday, including paper from companies with nuclear operations like Energy Future Holdings Corp. and Edison International.

EFHC's Texas Competitive Electric Holdings Co. LLC's 10¼% notes due 2015 were seen ending around 49 bid, 50 or 51 offered, which a trader called up ½ point, with "good volume in that issue."

He also saw the 6½% notes due 2024 issued by the company's corporate parent, Dallas-based utility operator and merchant power generator EFHC - the company formerly known as TXU - pretty much unchanged on the day at 42½ bid, 43½ offered.

He saw Energy Future's 10 7/8% notes due 2017 at 78½ bid, 79½ offered, but he said it was only quoted higher, "but there was really no volume, it wasn't an active one."

At another shop, the Texas Competitive Electric 101/4s were up 1 7/8 points to just under 51 bid - although that was still below the 53ish levels seen last week.

A trader meantime said Edison Mission Energy was "very active today," calling the bonds up 2 or 3 points. He saw its 7½% notes due 2013 trade up to 98½ bid from Tuesday levels at 96½ bid, 97½ offered, while seeing its 7% notes due 2017 rise to 78 bid from 75½ on Tuesday.

Counterintuitively, he attributed the gains in the unit of Rosemead, Calif.-based utility operator and merchant power generator Edison International to news that the federal Environmental Protection Agency had proposed rules regulating emissions from coal-fired power plants - even though those regulations aimed at reducing power-plant emissions of such toxins as mercury, lead, arsenic and acid gas starting in 2014 will likely mean greater expenses by utility operators trying to bring their facilities into compliance.

But at another desk, Edison Mission paper was also seen higher, with the 7 5/8% bonds due 2027 pegged at 74¼ bid, up more than 3 points on the day, although its 7¾% notes due 2016 did slip by ¼ point to the 83 area.

Houston-based Dynegy Holdings' 7¾% notes due 2019 were seen up 2 points at 74 bid.

Autos are off

A trader saw Motors Liquidation Co.'s 8 3/8% benchmark bonds due 2033 quoted lower at 29 bid, 30 offered. He called that down ½ point, though on "not much volume."

A second trader saw those bonds - issued by the former General Motors Corp. and then left at the newly renamed Motors Liquidation entity after the "old GM's" bankruptcy reorganization split its profitable carmaking lines off into a separate and unrelated "new GM' - unchanged at 29½ bid, 30 offered.

He also saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 down ¼ point at 107¼ bid, 108¼ offered.

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