Zayo sells $1.25 billion deal; Navistar gyrates; ATP falls; market easier as stocks slide

By Paul Deckelman

New York, June 11 - The high-yield primary market continued along in the doldrums Monday as yet another day passed with no new dollar-denominated issuance.

The only development in the new-deal arena was the widely expected launch of telecommunications company Zayo Group LLC's $1.25 billion two-part issue of secured and unsecured notes in support of its pending acquisition of AboveNet, Inc. The Zayo mega-deal is expected to come to market Thursday.

That could be a big "if" since prospective bond deals have been falling left and right lately due to market conditions. The most recent to falter was American Casino & Entertainment Properties LLC, which officially announced Monday that it will postpone its planned bond deal.

In the secondary realm, traders saw a generically weaker junk market in light of the big slide that equities took after a planned bailout of Spanish banks dissolved, leaving continued fears about possible toppling European dominoes. Statistical indicators of junk performance were mixed on the day.

Among specific issues, there were more gyrations in Navistar International Corp.'s bonds, which got hammered last week on an unexpected quarterly loss. The bonds seemed to be coming back as the week ended. On the downside, ATP Oil & Gas Corp.'s bonds continued to get drilled in the wake of Friday's surprise resignation of newly appointed chief executive officer Matt McCarroll.

Energy Solutions Inc.'s bonds and shares were positively radioactive after the provider of nuclear waste disposal services announced reduced guidance and a management shake-up.

Zayo gets started

Zayo Group was heard by high-yield syndicate sources Monday to be shopping around a $1.25 billion two-part offering of senior secured and unsecured notes with pricing on the Rule 144A deal expected Thursday.

Zayo - a Louisville, Colo.-based provider of fiber-based bandwidth infrastructure and network-neutral collocation and interconnection services - plans to sell $750 million senior secured notes (B1/B) maturing in January 2020 and $500 million unsecured senior notes (Caa1/CCC+) due in July 2020.

The secured notes have three years of call protection, while the unsecured notes will not be callable for the first four years after issue.

The secured notes will be brought to market by joint book-running managers Morgan Stanley & Co. Inc., Barclays Capital Inc. and UBS Securities LLC, along with co-managers Goldman Sachs & Co., RBC Capital Markets Corp. and Sun Trust Robinson Humphrey Inc.

The unsecured notes will come to market via bookrunners Morgan Stanley, Barclays and Sun Trust Robinson Humphrey, along with co-managers Goldman Sachs, RBC and UBS.

While junk players have known for quite some time that a new deal was in the works, formal marketing of the bond offering began Monday with a morning investor conference call followed by a New York luncheon with potential investors, the syndicate sources said.

Zayo is selling the bonds through its Zayo Escrow Corp. unit as part of the financing for its pending $2.2 billion acquisition of AboveNet, Inc., a White Plains, N.Y.-based provider of high-bandwidth connectivity solutions for businesses and carriers. Zayo Escrow Corp. is to be merged with and into parent Zayo Group and Zayo Capital, Inc. at the time the acquisition closes.

That came one step closer to fruition a week ago when AboveNet shareholders approved the transaction at a special meeting.

Besides the bond deal, financing also will include a $1.75 billion senior secured bank facility currently being shopped around to potential lenders. Bank-debt market sources said that commitments are due by Thursday.

First in a while

Junk-market watchers will be cautiously tracking the progress of the Zayo deal, since it would represent the first really big junk deal in almost a month, assuming the pricing comes off as scheduled.

The last time such a large issue was seen in Junkbondland was May 15 when Inmet Mining Corp., a Toronto-based global metals mining concern, priced an upsized $1.5 billion of 8¾% notes due 2020 - the same tenor as the Zayo deal.

Inmet's big deal priced at 98.584 to yield 9%, generating proceeds of $1.478 billion. The deal was upsized from an originally announced $1 billion.

The biggest deal since then has been Molycorp Inc.'s $650 million of 10% notes due 2020. The Greenwood Village, Colo.-based miner of rare-earth oxides priced its deal at par May 18.

Another one bites the dust

In the interim, market conditions have soured, causing a number of potential issuers to delay their planned offerings or scrub them altogether.

That list includes such names as Generac Power Systems, Inc., Univar Inc., Harland Clarke Holdings Corp. and HudBay Minerals Inc., as well as the most recent drop-out, American Casino & Entertainment Properties LLC.

Syndicate sources heard last week that the Las Vegas-based gaming operator decided to fold its hand and walk away from the table rather than gamble on trying to bring its planned $310 million secured notes deal to market in the current environment.

The company, and its ACEP Finance Corp. unit, made that official Monday, announcing they had indeed postponed the pricing of the deal due to market conditions.

They also said that their previously announced tender offer for their outstanding 11% senior secured notes due 2014, which was to be funded using the new-deal proceeds, has been terminated since that tender was dependent upon satisfaction of a financing condition, among other requirements.

The company said that any existing notes that holders tendered to the company under the tender offer will not be purchased. Rather, they will be returned to the holders.

American Casino and ACEP Finance said that they will continue to monitor market conditions in connection with the pricing of the offering.

Market softens up

Away from the new-deal realm, a trader said, "It was pretty slow here today. Everybody's trying to figure out the news from over the weekend." He was referring to news that beleaguered Spanish banks would be bailed out by as much as €100 billion.

That news initially caused stocks to rise, but they reversed their course by mid-morning and proceeded to slide as that seemingly good news quickly was brushed aside by renewed investor angst over the European debt situation and broader fears of a deepening economic slowdown in the United States and abroad.

The bellwether Dow Jones Industrial Average snapped a four-session winning streak and fell by 142.97 points, or 1.14%, to end at 12,411.23. The broader Standard & Poor's 500 index lost 1.26% and the Nasdaq Composite retreated by 1.70%.

"Everybody thought it was positive," the junk trader said of the news about Spain. "But then everybody realized it's not really good if we bail out over across the pond. If we bail out Spain, we're going to have to bail out Italy and then there's a sliding domino effect."

He said that led the junk market to have "a definitely softer tone, down about an eighth of a point or a quarter point on very light volume."

"No names specific, here it was just better sellers across the board," the trader said.

Junk signs turn mixed

Statistical indicators of market performance meantime turned mixed Monday after having been higher across the board for the previous three sessions for the first time in several weeks.

A trader saw the Markit Group CDX North American Series 18 High Yield Index down by ¾ point, at 93 5/16 bid, 93¾ offered, after rising by a half-point on Friday, its fourth straight gain.

The KDP High Yield Daily Index came in by 4 basis points Monday to end at 72.30, snapping a three-session winning streak, including Friday when it had firmed by 7 bps. Its yield was unchanged, though, at 7.09%, after coming in by 2 bps on Friday.

But the widely followed Merrill Lynch U.S. High Yield Master II Index was up for a fourth straight day Monday, gaining 0.199%, on top of Friday's 0.066% advance.

The latest gain lifted its year-to-date return to 5.183%, versus Friday's 4.974%. That marked the first time since May 29 that the year-to-date level was been above 5%. However, it remains still well down from the peak level for 2012 so far, 6.80%, set on May 7.

Navistar navigates higher

Among specific names, Navistar International - whose 8¼% notes due 2021 got hammered into the mid-90s last week from prior levels above par when the company stunned Wall Street by reporting a slide into the red in the latest quarter - gyrated around versus Friday's levels, first down but then up later.

It ended the session at 98 bid, up about three-quarters of a point on a round-lot basis, on volume "north of $33 million," a trader said, making the Lisle, Ill.-based manufacturer's bonds the busiest purely junk-rated credit.

Navistar's New York Stock Exchange-traded shares, which also got beaten down last week on the surprising quarterly loss, were up as much as 8.9% on an intra-day basis Monday, although they finished well off that peak, at $28.74, up 38 cents, or 1.34% on the day. Volume of 6.4 million shares was more than three times the norm.

The bonds and shares climbed amid market speculation that was fueled by a weekend story in the Financial Times Deutscheland. The article said Volkswagen, looking for a leg-up on rival Daimler-Benz AG, might be considering an acquisition of Navistar to gain a foothold in the U.S. heavy truck market. Daimler's Freightliner brand competes with Volvo's Mack Truck brand, Navistar's International brand, and Paccar's Kenworth and Peterbilt trucks.

A Volkswagen spokesman had no comment.

"Of course, rumors are not facts," said senior analyst Vicki Bryan of the Gimme Credit independent advisory service said Monday in a research note. "Navistar has given no indication that it might be for sale."

But, she added that Navistar "might not be adverse" to such a transaction, if VW can give it a guarantee of operational autonomy.

The analyst also said investors bidding up its stock on hopes that someone else would come in and run it is "not exactly a vote of confidence" in current management.

ATP angst continues

Traders saw ATP Oil & Gas' 11 3/8% second-lien senior secured notes due 2015 continuing to lose ground Monday, extending the big slide seen Friday when they fell about 10 points on the surprise news that newly hired CEO Matt McCarroll resigned after being unable to negotiate a satisfactory employment contract with the Houston-based offshore energy company.

"They continued to slide," and were down another 4 points on the day to around the 44½ level, a trader said. Volume was an active $28 million, one of the busiest credits on the day.

Energy Solutions swoons

But the big loser on the day was Energy Solutions, a Salt Lake City provider of waste management services for spent nuclear fuel and other radioactive by products; a trader saw those bonds plunge by 7¾ points to about the 93½ bid level, on volume of more than $9 million.

He speculated that the bonds were down largely because "nothing traded in [the past] month in them."

Another possible scenario, a market source said, was that the bonds fell in line with a terrible showing by the company's NYSE shares, which nosedived by $1.97, or 54.87%, to end at $1.62. Volume of 32 million shares was almost 40 times the usual turnover.

The shares collapsed after the company was forced to slash its adjusted EBITDA forecast to a range of $130 million to $140 million, well down from its May prediction of between $150 million and $160 million. It also announced the replacement of several key executives by the board of directors.

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