Sealed Air mega-deal closes out $2 billion week, busiest since July; new bonds push higher

By Paul Deckelman and Paul A. Harris

New York, Sept. 16 - The high-yield market closed out the week on Friday getting all pumped up over a giant new deal from Sealed Air Corp., which priced $1.5 billion of paper, evenly split between eight- and 10-year notes, late in the session.

The long-anticipated deal from the plastic packaging products maker was the biggest transaction Junkbondland has seen since HCA Inc.'s two-part behemoth of a bond deal back in late July - and helped make this the busiest week in the junk new-deal market since that week at the end of July when HCA was among $10 billion of new paper coming to market in one of the year's busiest weeks. This week was well below that, but at $2.15 billion from three issuers - Sealed Air, Omnicare, Inc. and El Paso Pipeline Partners Operating LLC - it still topped all of the weeks since the week ended July 26, combined.

Traders who had waited all day for the Sealed Air pricing said that the new bonds firmed solidly during the relatively short amount of aftermarket trading that followed its pricing as the session, and the week, ran down.

They also saw Thursday's add-on issue from Omnicare having firmed a little, continuing the upside momentum seen after the healthcare company's deal first priced.

Away from the new deals, not much was seen going on in the junk market, except for busy dealings in Dynegy Holdings Inc.'s bonds after the power generation company announced a debt-swap deal for up to $1.25 billion of its existing bonds.

Statistical measures of junk market performance were mixed with a slightly stronger bias on the day, but mixed to lower versus a week ago.

Sealed Air prices $1.5 billion

In a deal that the market had been anticipating since mid-summer, Sealed Air Corp. priced $1.5 billion of senior notes (B1/BB) in two tranches on Friday.

The deal included a $750 million tranche of eight-year notes which priced at par to yield 8 1/8%. The yield printed on top of price talk that had been lowered from initial talk of 8¼% to 8½%.

Sealed Air also priced a $750 million tranche of 10-year notes at par to yield 8 3/8%. The yield on the 10-year notes also printed on top of revised price talk. Initial talk specified that the yield on the 10-year notes would come 25 basis points behind the yield of the eight-year notes, which, based on the original talk on the eight-year notes would have had them coming in a range of 8½% to 8¾%.

Citigroup Global Markets Inc., Bank of America Merrill Lynch, Morgan Stanley & Co. and RBS Securities Inc. were the bookrunners for the eight-year notes tranche.

Citigroup, Bank of America Merrill Lynch, BNP Paribas Securities Corp., and Credit Agricole CIB were the joint bookrunners for the 10-year notes tranche.

Proceeds will be used to help fund Sealed Air's acquisition of Diversey Holdings Inc. from the Johnson family and Clayton, Dubilier & Rice LLC and to refinance Diversey debt.

'Safe yield'

Sealed Air played to very strong demand, sources said.

There were $4 billion of orders across both tranches prior to price talk being downwardly revised, according to a syndicate banker.

Also, tightening price talk failed to thin the crowd appreciably, according to an investor who played in both tranches.

"Sure we would have liked to see the eight-year notes come at 8 3/8% and the 10-year notes come at 8 5/8%, but the deal is already up 2½ points in the secondary market" the investor said.

"Everybody wants to get in a deal like this because it's safe yield. It's a good business that's not very highly leveraged. They claim they'll realize $50 million of synergies with this acquisition, but I think that's a low-ball figure. I think they will realize a great deal more than $50 million."

Also, this investor, who participated in the fully syndicated bridge loan, felt reasonably well-treated by the allocation, specifying that the account's allocation exceeded 40% of the order, whereas the allocation would likely have been less than 10% without the bridge participation.

Euro tranche abandoned

The original structure of the Sealed Air bridge loan backing the bonds implied that the deal could include up to €500 million of notes, as part of an overall $1.5 billion equivalent size.

However the euro-denominated tranche failed to materialize because while the high-yield market in the United States is open the European market remains relatively untested since the sell-off which got underway in late July, a London-based syndicate banker said.

Although in better market conditions a euro-denominated tranche would have made sense, given the fact that Johnson Diversey does business in Europe, in the end there was no real effort to sell the bonds in Europe, the London-based banker said, adding that the deal play to a classic U.S. high-yield book.

$2.15 billion week

With Friday's mammoth Sealed Air deal in the tally, the Sept. 12 week saw a total of $2.15 billion of issuance in four junk-rated dollar-denominated tranches.

It's the biggest week in the primary market in seven weeks - since the week of July 25 which saw $10.5 billion in 11 tranches - and it extends year-to-date issuance to $215.39 billion in 477 tranches.

The week ahead

The Sept. 19 week will get underway with an extremely thin calendar.

Avis Budget Group is marketing $250 million of senior notes due in March 2020 (B2//). The bookrunners are Morgan Stanley, Citigroup, Credit Agricole, RBS and Scotia Capital.

The timeline announced during the past week would have the deal pricing late in the week ahead.

However it could come as early as Monday, according to a trader from a high-yield mutual fund.

Early yield guidance is in the 10% area, the trader added.

Both the bond deal and the concurrent $420 million seven-year term loan are going well, market sources say.

Thin though the active calendar may be, primary market activity could see a meaningful pickup in the week ahead, sources said on Friday.

No one had any issuer names to volunteer.

Kinetic Concepts Inc. has been in the wings with $2.15 billion of notes backing the LBO of the company by Apax Partners, Canada Pension Plan Investment Board and the Public Sector Pension Investment Board.

As with Friday's Sealed Air deal, Kinetic is a committed financing.

Unlike Sealed Air, the Kinetic bridge has not been widely syndicated and remains on the dealers' balance sheets, sources say.

Hence, if the rally that took shape during the past week maintains its legs, the Kinetic deal could appear in the week ahead, a buy-side source reasoned, noting that the dealers are unlikely to hesitate should they see an opportunity to sell the bonds.

Bank of America Merrill Lynch, Credit Suisse and Morgan Stanley are the joint bookrunners.

New Sealed Air moves up

A trader in the secondary market said that much of the day had been spent "just waiting for Sealed Air to price," with not much else going on in the interim. "Hopefully it will come this afternoon - because otherwise, you'll have a lot of people just sticking around."

He need not have worried.

The much-anticipated pricing from the Elmwood Park, N.J.-based manufacturer of bubble wrap and other forms of plastic packaging finally did appear, not long before the market close. While Friday afternoons generally mean an early rush for the exits to get a jump on the weekend, this time people did in fact stay around, in hopes of getting a piece of the deal that many junk players hope will get the market back on track.

A trader, who estimated that the deal may have been at least eight times oversubscribed, saw both the eight-year and the 10-year tranches trading at 101¾ bid, 102¼ offered, up from the par issue prices for both.

A second trader pegged the new bonds at 101½ bid, 102½ offered, for the pair.

Omnicare firmer

A trader said that Omnicare's 7¾% notes due 2020 had moved up to 102 bid, 102½ offered, versus the 100.25 level at which the Covington, Ky.-based pharmaceutical services company priced its $150 million add-on issue on Thursday to yield 7.698%.

The issue - upsized from the $100 million originally planned - had moved solidly higher in Thursday's relatively thin immediate aftermarket dealings, up to around 100½ bid, 102½ offered.

Dynegy dominates secondary

One of the traders opined that apart from the session-long anticipation about the pricing of the Sealed Air deal, "there was nothing huge [in the secondary market] today except Dynegy being up 3 or 3½ [points]."

He quoted the Houston-based power generation company's 7¾% notes due 2019 as up 3 points at 64.75 bid.

A second trader said Dynegy bonds were up 1 to 2 points on "a lot of activity," following the company's announcement late Thursday night that it plans to exchange a mixture of newly issued debt, plus cash for up to $1.25 billion face amount of the 73/4s and a number of other bonds in its capital structure.

Included in the exchange are $1.1 billion of the 7¾% notes, $175 million of the company's 7 5/8% notes due 2026, $175 million of 7 1/8% notes due 2018, $1.05 billion of 8 3/8% notes due 2016, $785 million of 7½% notes due 2015, $88.5 million of 8¾% notes due 2012 and $200 million of the 8.316% series B subordinated capital securities due 2027.

However, bondholders who participate in the offer, which runs through Oct. 13, but which has an early tender deadline of 5 p.m. ET on Sept. 28, will only receive a fraction of the existing bonds' $1,000 par value.

For example, holders of the 7¾% notes will receive $120 in cash and $565 in new 10% senior secured notes due 2018 if they tender their old bonds by the early deadline. Otherwise, holders will receive $635 in new notes.

Some traders expressed the belief that the exchange deal's terms might have to be tweaked.

"People don't think this is going to be the final word," one said. "They're going to have to make another pass to get people on board."

The trader saw the 7¾% notes pushing up to around 64, versus 61 bid, 62 offered previously. The 8 3/8% and 7½% notes, however, fell to 64 and 66½ bid, 67½ offered, respectively.

Another trader said the 7¾% notes were up "almost 3 [points]" at 641/2, calling the issue the "most active bond" of the day. The 7½% notes were deemed down about a point to 67, while the 8 3/8% notes slipped a half-point to 643/4.

A market source at another desk saw the Dynegy bonds topping the most-actives list, with more than $37 million of the 7 ¾% paper having changed hands, easily the busiest high-yield issue of the day. He saw the bonds going out at 64 bid.

He also saw over $20 million of the 7½% notes having traded, at 65 7/8, and over $14 million of the 8 3/8s, which ended at 671/2.

Market a mixed bag

Away from Dynegy and the new deals, traders said that the things were sort of hit and miss.

For instance, West Chester, Ohio-based metals producer AK Steel Holding Corp.'s 7 5/8% notes due 2020 were "up slightly, on a little bit of volume," said a trader, who quoted that issue at 92¼ bid.

Another trader said that utility names, even apart from Dynegy, "got better," with Energy Future Holdings Corp.'s 10% notes due 2020 having moved up over the 102 mark, versus par bid, 101 offered on Thursday and recent lows at 97 bid, 98 offered.

Ford Motor Co.'s 7.45% bonds due 2031 were unchanged at 113¼ bid, 114¼ offered.

Community Health Systems Inc.'s 9 7/8% senior secured notes due 2015 gained ¼ point to 101 bid, 101½ offered.

Market indicators mixed

Overall, statistical measures of market performance, after strong showings on Wednesday and Thursday, were mixed on the day Friday and ended mixed versus their levels of the previous Friday, Sept. 9.

A trader said the CDX North American Series 16 HY Index eased by 1/8 point on Friday to 93½ bid, 93¾ offered, in contrast to Thursday's 1 1/16 points gain.

But for the week, it was solidly better, rising from the previous Friday's 91 3/8 bid, 91 5/8 offered level.

The KDP High Yield Daily Index rose by 3 basis points on Friday to end at 72.09, after having zoomed by 21 bps on Thursday. Its yield edged downward by 1 bp, to 7.84%, after having come in by 7 bps on Thursday. However, the results compared unfavorably to the previous Friday's 72.24 reading and 7.78% yield.

The Merrill Lynch U.S. High Yield Master II Index gained 0.176% on Friday, its third straight advance, following its 0.097% gain on Thursday. The gain lifted its year-to-date return to 1.651% from Thursday's 1.472%, although it remains well below the peak level for the year of 6.362%, set on July 26. On the week, however, the index lost 0.297% on the week, its second straight weekly decline.

Stephanie N. Rotondo contributed to this report

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