Primary subdued despite Visant, RAAM pricings; secondary firm but quiet as new issues level off

By Paul Deckelman and Paul A. Harris

New York, September 17 - Nearly $1 billion of new high yield bond debt priced on Friday - but impressive as that was, it seemed to represent a bit of an anticlimax after the frantic pace the junk primary had seen over the first four days of the week, when nearly two dozen deals totaling some $10 billion of new paper had come to market in rapid-fire fashion.

Nonetheless, Visant Holding Corp./Visant Corp., an Armonk, N.Y.-based marketing and publishing company, priced $750 million of seven-year notes at par. That was followed by Lexington, Ky.-based oil and gas exploration and production operator RAAM Global Energy Co., which weighed in with a $150 million offering of five-year notes. Both deals gave investors fat yields in the double digits. The Visant deal was well received in the aftermarket, with the new bonds pushing up by several points after they were freed for secondary action.

However, traders noted that some of the week's other new issues had eased a little from the peak aftermarket levels seen after their pricings earlier; they said that investors exhausted by the nearly non-stop barrage of deals from Monday through Thursday were trying to digest the huge glut of new paper and, in some cases, were spitting some of it up, with a few bonds trading right around their issue price, including Thursday's offerings from Intelsat Jackson Holdings SA and Hertz Corp.

While the secondary was generally firm, little real activity was seen outside the new-deal arena, in keeping with the theme seen throughout most of the week. The Friday evening start of the Yom Kippur holiday was seen as one more factor depressing attendance and activity levels on this last official Friday of the summer.

Visant prices at tight end

The Friday session passed in relative quiet, with only two junk issuers pricing single tranche dollar-denominated deals and raising a combined $899 million.

However, those searching for evidence that the high yield market remains red hot did not have to look very far, sources said.

Visant Corp. priced a $750 million issue of seven-year senior notes (Caa1/B-) at par to yield 10%, at the tight end of the 10% to 10¼% price talk.

Goldman Sachs & Co. was the left lead bookrunner. The joint bookrunners were Credit Suisse Securities, Bank of America Merrill Lynch, Barclays Capital Inc., Deutsche Bank Securities Inc.

The Visant paper shot up 2 points in the aftermarket, according to a variety of sources.

The new Visant 10% notes due 2017 were trading at 102 bid, 102¼ offered away from the bookrunner, a trader said.

Visant's existing 10¼% senior discount notes due 2013, its 8¾% senior notes due 2013 and its 7 5/8% senior subordinated notes due 2012 are being taken out with the proceeds from the new deal.

One investor, who is being taken out of a big position in that existing paper, could not get excited about the new deal at 10%

"They came into this leveraged three times, and after the deal the leverage moves to 5.9 times," the buy-sider remarked.

Should the economy double dip, Visant's class ring business could be susceptible, the investor asserted.

"Slow growth makes for some tough choices.

"At three-times leverage, I don't think that would be a problem.

"At 5.9-times leverage, it could be a different story."

This buy-sider, obviously representing a thin minority in light of the deal's execution and the subsequent trading of the 10% notes in the secondary, might have been interested in the low-to-mid 10% range.

"When I suggested 11% to the dealer they just laughed," said the buy-sider who remained on the sidelines for Friday's Visant deal.

RAAM prices $150 million

Elsewhere, RAAM Global Energy priced a downsized $150 million issue of 12½% five-year senior secured notes (Caa2/B) at 99.10 to yield 12¾%.

Earlier in the week the deal was talked with a 12¼% coupon at 99.291 to yield 12½%.

Global Hunter Securities and Knight Capital Markets were the joint bookrunners.

The Lexington, Ky.-based oil and gas company will use the proceeds to repay bank debt and for general corporate purposes.

The deal initially hit the market in mid-August as a senior unsecured notes offer, sized at $200 million and talked at the 12½% area.

$12.77 billion week

With Visant and RAAM Global added to the tally, the week of Sept. 13 closed having seen a scorching $12.76 billion of new dollar-denominated, junk rated issuance.

That's the second-highest weekly volume thus far in 2010.

The week of Aug. 9 is biggest at $15.4 billion.

Month-to-date, September has put up $16.8 billion. Hence, with nearly two weeks remaining until the end of the month, the all-time record for September issuance, 2009's $20.4 billion, would appear to be in peril.

Meanwhile, on a year-to-date basis the high yield continues to plow deeper into record territory, having thus far turned out $178.24 billion.

The old record, 2009's $161.8 billion, fell during the Sept. 7 week.

GenOn for Monday

GenOn Energy was expected to price its downsized two-part offering of senior notes (B3/B) on Friday as well.

However, the deal is now Monday's business, pushed across the weekend because of Yom Kippur and some awaited documentation, sources said on Friday afternoon.

The bond deal was downsized on Thursday to $1.2 billion from $1.4 billion, with the $200 million of proceeds being shifted to the term loan, upping it to $700 million from $500 million.

Price talk came out on Thursday.

An eight-year bullet tranche is talked at 9½% to 9¾%.

Meanwhile, a tranche of 10-year notes, which come with five years of call protection, is talked 50 basis points behind the eight-year tranche.

J.P. Morgan Securities Inc., Credit Suisse Securities, Deutsche Bank Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co. Inc. are managing the sale.

Proceeds will be used to refinance debt at Mirant Corp. and at RRI Energy Inc. in connection with the merger of Mirant and RRI into GenOn.

Valeant talks two-parter

Valeant Pharmaceuticals International Inc. set price talk for its $1 billion, two-part senior notes deal (B1/B+) on Friday.

A tranche of seven-year notes, which come with four years of call protection, are talked with a 7% yield.

Meanwhile, a tranche of 10-year notes, which come with five years of call protection, are talked with a 7¼% yield.

Tranche sizes remain to be determined.

The order books are scheduled to close at 10 a.m. ET on Monday.

Goldman Sachs, Morgan Stanley & Co. and Jefferies & Co. are leading the merger financing.

Harvest roadshow starts Monday

Harvest Operations Corp. will begin a roadshow on Monday for a $500 million offering of non-callable seven-year senior notes (expected ratings Ba1/BB-).

The roadshow wraps up on Sept. 24, and the deal is set to price on Sept. 27.

Bank of America Merrill Lynch and HSBC are joint bookrunners for the debt refinancing and general corporate purposes deal.

Visant is victorious

When the new Visant 10% notes due 2017 were freed for secondary dealings, traders saw them shoot right up by several points, reminiscent of the big breaks seen in some of the other issues that priced this week, such as Wednesday's gigantic deal from Energy Transfer Equity, LP, which jumped an astounding 4 points right out of the gate after pricing at par, Thursday's somewhat smaller deal for Brigham Exploration Co., which quickly moved out to a 3 point gain from its par issue price, and this past Monday's offering from Chaparral Energy, Inc., which actually priced several points below par, but then rapidly rose more than 2 points in initial aftermarket activity.

The $750 million Visant deal was seen by a trader having tacked on a deuce to stand at 102 bid, 102 5/8 offered, after having priced at par earlier.

A second trader pegged the new bonds at 102 1/8 bid, 102½ offered.

The new RAAM Global Energy 12½% notes due 2015 came too late in the fading session for secondary dealings.

Some earlier deals come in

Away from Visant, a trader declared that that "the new issues have leveled off. Many have come off their highs" seen earlier in the week, although in most cases the retrenchment was only marginal - a fraction of a point here or there, though some retreated a little further, giving up whatever gains they had notched.

A trader said that Intelsat Jackson's 7¼% notes due 2020 "drifted back down" on Friday after having gotten as good as 101 bid, up from the par issue price at which the Bermuda-based communications satellite operator's quick-to-market $1 billion deal - upsized from $900 million - had come to market on Thursday. "Now, they're trading right back around par," he said.

Another issue which has come in was Graham Packaging Co.'s 8¼% notes due 2018, $250 million of which had priced at par on Thursday and then moved up to levels as high as 101¼ bid, 101¾ offered.

But by Friday afternoon, a trader said, the York, Pa.-based packaging products maker's new deal had retreated to 100½ bid, 101 offered.

The trader also saw the Hertz 7½% notes due 2018 trading at par bid, 100½ offered. That was down from the 100½ bid, 101 offered level at which the Park Ridge, N.J.-based vehicle rental company's $300 million drive-by offering had priced on Thursday.

And he even saw some pullback in the best-performing new deal of the week - Dallas-based natural gas operator Energy Transfer Equity's 7½% notes due 2020. That mega-deal - upsized to $1.8 billion from the mere $1 billion originally announced - priced at par on Wednesday and then proceeded to zoom as high as a 104 bid level in the aftermarket, although it went home later that session situated around 103½ bid, 104 offered.

On Friday, he said, the Energy Transfer bonds gave back a little more, easing to 103 bid, 104 offered, in line with the modest retrenchment the new-deal names from earlier in the week were seeing. "They kind of drifted back in," he observed,, although he added that "with a 3 to 3½ point pop, nobody's crying" about their present level.

New Ford Credit climbs again

Bucking the overall trend of the recent new deals giving back some of their gains was Ford Motor Credit Co.'s $1 billion issue of 5 5/8% notes due 2015, which priced at 99.466 on Tuesday to yield 5¾% and then initially firmed modestly at first - but moved above the 101 level on Wednesday on astounding volume of some $161 million, according to a trader, who also saw the bonds moving still higher on Thursday, topping 102 with over $80 million traded.

"That one just continues to inch higher," said a second trader on Friday, quoting the mega-deal at 102 3/8 bid, 102¾ offered.

The new bonds from the Dearborn, Mich.-based automotive financing arm of Number-Two domestic carmaker Ford Motor Co. "are just unbelievable," a trader at another desk marveled on Friday. "I don't know why everyone loves it with that 5 5/8% coupon," considered small by the usual standards of the junk bond world.

"I'd like to know where that bond is going to be a year from now."

Market indicators mostly to the upside

Away from the new-deal world, a trader saw the CDX North American HY Series 14 index firm by ¼ point on Friday to end at 98 1/8 bid, 98 3/8 offered, after having come in by 1/8 point on Thursday. The index thus ends the week up from the 97½ bid, 97¾ offered level seen at the end of the previous week, on Friday, Sept. 10.

The KDP High Yield Daily index meantime rose by 4 basis points on Friday to finish at 72.87, on top of the 7 bps improvement seen on Thursday, while its yield tightened by 1 bp to 7.79%, after having come in by 4 bps on Thursday for a third straight session. The index thus tops the previous Friday's 72.30 reading, while narrowing from 8.05% a week ago.

The Merrill Lynch High Yield Master II index rose by 0.099% on Friday, after having improved by 0.135% on Thursday. It continued to hit successive new year-to-date 2010 peak return levels, ending the day at 10.769%, up from Thursday's 10.659%, the previous zenith for the year. The index gained 0.884% on the week, putting it well up from the 9.798% 2010 return seen the prior Friday.

Advancing issues led decliners for a 12th consecutive session on Friday, holding the same roughly seven-to-five advantage for a fourth straight day.

Overall activity, represented by dollar-volume levels, fell by 12% on Friday, continuing the slide seen over the previous several sessions, including a 13% decline on Thursday and a nearly 17% fall on Wednesday.

"It was pretty dead," one trader opined, joking that some of the people in his office "gave me a hard time because I leaned back and put my feet up on my desk."

"Today was just kind of boring," another said, with activity levels well down from the busy pace seen earlier in the week.

He said that "most of the activity this week has been in trading the new issues - and even that is not as exciting as it was earlier in the week."

Besides the usual excuse of it being "a summer Friday" - actually, the last one on the calendar for this year, even though the summer vacation season had ended for all intents and purposes with the Labor Day holiday break earlier this month - traders noted that the Yom Kippur holiday caused some absences or early departures as well, further limiting market action.

But beyond such chronological factors, a trader noted that "everyone was just drained from all of the new issues" which had maintained a steady drumbeat of high volume activity over the first four days of the week. "It was just impossible to keep up with all of them," he said.

"People are tired, and there's a sense of apathy," although he acknowledged that the pace would likely pick back up in the coming week, given the still-heavy forward calendar as companies look to get their refinancing needs taken care of, and also given the huge flows of money still coming into Junkbondland and needing to be put to work. The Lipper FMI mutual fund flow numbers, considered a reliable barometer of overall market liquidity trends, on Thursday showed a $1.191 billion inflow in the week ended Wednesday; it was the largest such weekly cash infusion seen since mid-July, according to a Prospect News analysis of the figures provided by market sources familiar with the data, and lifted the year-to-date net inflow total to a new peak level above $7 billion.

Auto names on upside ride

Among specific issues, a trader said that "GM was up, Ford was up, they've been up all week long."

He saw top domestic carmaker General Motors Corp.'s benchmark 8 3/85 bonds due 2033 ending around 31½ bid, 32 offered, with the bonds having traded "between 30½ and 32 all week long."

He called them unchanged to up ½ point, on "some volume, not a whole lot really" - certainly not when compared to activity in the benchmarks on Wednesday, when more than $40 million traded and the bonds moved up on the news that the company's new chairman, Daniel Akerson, had expressed confidence that GM would be able to pay back the tens of billions of dollars it owes to Uncle Sam, although he said it would take a couple of years to do so. "It was not active today."

He also saw Ford Motor Co.'s 7.45% bonds due 2031 around 101 bid, "better on the week, too," though on "not a lot of trading..

At another desk, a trader said that GM was "firm," but had "leveled off" after the intense activity at mid-week.

A third trader saw the GM benchmark issue unchanged at 31½ bid, 32 offered, while situating the Ford long bonds at 100½ bid, 101 offered - also unchanged on the session, but up by several points on the week.

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