Upsized Equinox, European offerings price; Blockbuster again hit as disappointing week ends

By Paul Deckelman and Paul A. Harris

New York, Jan. 22 - Equinox Holdings, Inc. priced an upsized offering of senior secured notes on Friday, closing out a week which saw the high yield primary market ratchet down its activity level considerably from the previous week, when an astounding total of over $9 billion of new paper was priced.

Besides Equinox - a New York based health and fitness club operator - Friday's pricings all came from European issuers, which are becoming an increasing presence in a junk market which so far this year has already seen recent successful offerings from such overseas borrowers as Heidelberg Cement AG, Virgin Media Secured Finance plc, UPCB Finance Ltd. and Fresenius Medical Care AG & Co. KgaA. In Friday's session, legendary U.K. soccer powerhouse Manchester United's financial arm, MU Finance plc, brought a somewhat upsized two-part secured paper deal denominated in both dollars and sterling, while U.K. chemical maker Kerling plc and Italian telephone directory publisher SEAT Pagine Gialle SpA weighed in with euro-denominated transactions, both also for secured notes.

U.S. glassware manufacturer Libbey Glass Inc. meantime announced plans for a $400 million offering of secured notes, with high yield syndicate sources hearing that the Toledo, Ohio-based company would roadshow the deal to potential investors in the coming week, with pricing likely by this coming Friday.

While the primary market kept humming along, albeit at a much-reduced pace from the frenetic previous week, the junk bond secondary sphere was coping with its first serious setback of the new year, as major statistical indexes showed sizable downturns for a second consecutive session and ended well below their week-earlier levels.

As was the case on Thursday, Blockbuster Inc.'s bonds were badly bashed around by investors disappointed by the bearish guidance which emanated from the Dallas-based movie-rental company.

NewPage Corp.'s paper also kept backsliding - a retreat which has gone on all week - in apparent continued reaction to the abrupt resignation of the company's president and chief financial officer, as well as negative numbers.

Rite Aid Corp.'s bonds were seen ailing after the Camp Hill, Pa.-based drugstore chain operator announced an executive personnel shakeup of its own.

Equinox upsizes

In Friday's primary market, Equinox Holdings, Inc. priced an upsized $425 million issue of 9½% six-year second-lien senior secured notes (B2/B) at 98.881 to yield 9¾%.

The yield printed on top of the yield talk. The issue price came within the context of the 1 to 2 points of discount talk.

Morgan Stanley & Co. and Citadel Securities were joint bookrunners for the debt refinancing deal.

Kerling tight to talk

Much of Friday's primary market action unfolded in Europe.

Kerling plc priced €785 million of 10 5/8% seven-year first-lien senior secured notes (B3/B-) at 99.393 to yield 10¾%.

The yield printed at the tight end of the 10¾% to 11% price talk.

Barclays Capital and Bank of America Merrill Lynch were joint bookrunners.

Ahead of pricing, the U.K.-based chemical company modified the deal's change-of-control language and covenants.

Proceeds will be used to finance the acquisition of Ineos ChlorVinyls, to refinance debt related to the acquisition of Norsk Hydro's polymer business and to refinance Ineos ChlorVinyl's debt.

SEAT Pagine downsizes, restructures

Italian yellow-pages publisher, SEAT Pagine Gialle SpA priced a downsized, restructured €550 million issue of 10½% seven-year senior secured notes (B+) at 97.5998 to yield 11%.

The yield printed at the wide end of the 10¾% to 11% price talk.

The deal was reduced from €650 million, and a proposed floating-rate tranche was withdrawn.

Deutsche Bank, BNP Paribas, JPMorgan and RBS Securities managed the debt refinancing deal.

Manchester United restructures

From England, MU Finance plc, a financing vehicle for Manchester United, priced approximately £513 million equivalent of seven-year senior secured notes in two restructured tranches, on Friday.

The English soccer franchise priced an upsized $425 million of 8 3/8% notes at 98.065 to yield 8¾%. The dollar-denominated tranche was increased from $325 million, and it priced on top of price talk.

Manchester United also priced a downsized £250 million of 8¾% notes at 98.089 to yield 9 1/8%. The sterling-denominated was lowered from £300 million, and also priced on top of price talk.

JPMorgan, Bank of America Merrill Lynch, Deutsche Bank Securities, Goldman Sachs & Co. and RBS Securities are joint bookrunners for the debt refinancing deal.

Credit Acceptance talks notes

Looking to the week ahead, Credit Acceptance Corp. talked its $225 million offering of seven-year first-priority senior secured notes (B1) at 9 ½% area.

The order books closed on Friday, except for West Coast accounts.

The deal is set to price on Monday, via bookrunner Credit Suisse Securities.

Libbey Glass starts Monday

Libbey Glass Inc. will conduct an investor roadshow during the week ahead for its $400 million offering of five-year senior secured notes, according to an informed source.

The deal is expected to price on Friday morning.

Barclays Capital and Bank of America Merrill Lynch are joint bookrunners.

Proceeds will be used to refinance debt.

The primary week ahead

Elsewhere in the week ahead, Coleman Cable, Inc. is expected to price $235 million of eight-year senior notes (expected ratings B3/B+) via Bank of America Merrill Lynch and Wells Fargo Securities early in the week.

Ryerson Holding Corp. plans to raise $200 million of proceeds via the sale of five-year senior discount notes due 2015 (expected ratings Caa3/CCC), a dividend deal via Bank of America Merrill Lynch and UBS Investment Bank - also early-week business.

Greece's Fage USA Dairy Industry, Inc. is expected to complete its $150 million 10-year senior notes deal on Monday, via Citigroup.

And Regent Seven Sea Cruises wraps up its roadshow on Thursday for a $200 million offering of seven-year second-lien senior secured notes, via Barclays Capital Inc., HSBC Securities and Deutsche Bank Securities Inc.

New Equinox bonds trade up - or not

When the new Equinox Holdings bonds were freed for secondary dealings after having priced late in the session, a trader quoted the 9½% second-lien senior secured notes due 2016 as high as 99¼ bid, 99¾ offered, versus the 98.881 level at which the issue had priced.

However, he pointed out that away from the underwriters, the deal was circulating more in a 981/4-99¼ context.

Market indicators clobbered again

Among the established bonds with no new-deal connections, a trader saw the CDX Series 13 index plunge by 1¼ points on Friday to finish at 96¾ bid, 97¼ offered - this on top of the 1 3/8 points slide seen on Thursday and smaller downturns earlier in the week. All told, the index ended the session, and the week, 3 points down from the 99¾ bid, 100¼ level at which it had closed out the previous week, ended Friday, Jan. 15.

The KDP High Yield Daily Index was in free fall, plummeting 48 basis points on Friday to end at 71.26, after having fallen by 16 basis points on Thursday. Its yield, meantime, ballooned out to 8.11%, a gain of 15 bps. Both represent a marked deterioration from the previous week, when the index closed at 72.03, with a yield of 7.86%.

Advancing issues remained behind decliners for a fourth straight session on Friday, by around an eight-to-five margin.

Overall market activity, as measured by dollar volume levels, was up 2% from Thursday's pace.

'The caution flag is up'

A trader said Friday that it was "not at all" a good session.

The market, he said "was a little nervous," especially with stocks continuing to slide - the bellwether Dow Jones Industrial Average fell another 216 points on Friday, or 2.1%, and over the past three sessions is down 552 points, or 5.2%, just between Wednesday and Friday alone, as investors have been rattled by president Barack Obama's populist-tinged rhetorical assaults on the banking industry and other negative news.

After a bracing first two weeks of 2010 which saw the junk market race out to a cumulative gain of over 2% - theoretically putting it on pace to challenge or even match last year's amazing 50%-plus advance - while new-deal issuance heated up to red-hot levels, "I think, finally, the caution flag is up here a little bit," he said.

The continued troubles of Blockbuster were certainly a drag on the market, although the company's subordinated note issue that has been taking the brunt of the punishment that investors have doled out over the past two sessions is actually not very large - just $300 million - and by itself does not swing very much weight in the market. But just the sheer magnitude of Thursday's big nosedive, combined with Friday's continued retreat, kept the issue front and center.

A trader said that "the rest of the market," on average, "was probably down ½ to ¾ [point] in most areas.

"Other than Blockbuster, there's no specific issue that stands out - just some weakness across the board.

He said that the high yield mutual funds, "even though you had the inflow" reported on Thursday of some $554 million during the most recent week - the third such cash infusion this year, against no outflows, and the 22nd straight inflow, going back to last August, "will just become pretty cautious in here."

With the prospect that some of the funds could see redemptions, rather than cash just continuing to blithely cascade in, come what may, as has been the case pretty much for the past year, "you may have some postponements in deals. There's a caution flag definitely up, no question about it."

Rest stop or retreat?

A trader at another shop said that the there have been a couple of negative influences on the market over the last few days, besides just the big fall in Blockbuster's bonds. "You had Obama doing his thing, and all this news kind of hitting."

He stopped short of saying it drove the junk market down, "but you're starting to see bids getting hit, whereas we've grown accustomed to seeing offerings being lifted, left and right - nine times out of 10, an offering was being lifted, but today, it was probably just the opposite most of the time when trades were taking place - the bid was getting hit, across the board."

He said it wasn't so much that this was "driving things down dramatically - it's just kind of a different mindset is settling into the market."

So is what we have been seeing of late - the gradual easing over the last several sessions of the previous week and the first two of the most recent week, combined with more sizable corrections on Thursday and Friday - the start of a major pullback signaling the end to the more than year-long bull market in junk, or just a temporary breather?

The trader said that it was too soon to tell.

"It's the new year - everybody's starting from zero. Do they really want to be long in this market, to the extent of where they were on Dec. 31?"

He reiterated that "You don't see things being driven down - but it's a kind of different mentality now. I don't know if this is just the tip of the iceberg, or if this [retreat] is just a one- or two-day event. Is this a breather - or is the tide changing? It's still too soon to tell."

A more sanguine view

While the whole holiday-shortened week turned out to be was what one trader would call "sort of blah" and the last two days of the week were definitely no picnic, another trader - even while noting that the market has gotten heavy and players seemed to be hitting bids, declared that "it doesn't feel to me like it's going down - [the setback] seems like a head fake."

He cautioned against "reading too much into" Thursday's announcement by Dallas-based natural gas and pipeline operator Energy Transfer Equity LP that it was postponing its scheduled $1.75 billion two-part notes deal due to market conditions - this just a day after the company had announced that it would be in the market.

He was not terribly perturbed by Obama's shot across Wall Street's bow in his Thursday address, noting that "even the congressional guys are coming out and saying that any kind of a law like that" - sharply restricting the kind of financial dealings banks can have in order to reduce risk to stockholders, bondholders and, ultimately, the taxpayers, and cut them down to size so they are no longer "too big to fail" - "it's not going to be immediate action - it's going to be phased in over many years. The president can't make unilateral decisions like that, anyway." He said that it "could be looked at in a larger context, with this regulatory re-do."

The bottom line, he said was that "I believe the [financial] markets overreacted - I think our market overreacted. It was way too high to begin with, so a good sell-off would be very constructive, but I don't think we're going to get there, to be honest with you - it's too early in the year."

He asserted that any sell-off in Junkbondland "would be met with buying [by bargain hunters], not [additional] selling."

He continued that "we've seen some of our fast-money guys, like the hedge funds, and mutual funds that have had yield-to-call and super-premium-type paper on the pad to sell not interested in lower levels. So I think people generally feel that even if the market is off a couple of points here in the last couple of days, the last week, that it's just a blip."

Blockbuster beat-down continues

The first trader said that Blockbuster's bonds were "weaker again," this on top of Thursday's breathtakingly bloody carnage.

He saw its 9% subordinated notes due 2012 falling to a close of 25½ bid, 26 offered, well down from the 31-32 context at which the bonds had ended trading on Thursday, when they plunged about 30 points in heavy trading on company projections of poor full-year results.

He also saw the Blockbuster 11¾% notes due 2014 - which on Thursday had nosedived 20 points to the 79-80 area - retreating another 6 or 7 points to a 72-74 range.

However, the company's Friday volume was far less than that seen on Thursday, when volume in the 9% paper had reached at least $77 million of the $300 million outstanding.

Blockbuster's 9s, another market source said, finished down more than seven points on the session at 24¾ bid.

NewPage pounding continues

A trader said that NewPage Corp.'s 10% notes due 2012 were easily the most actively traded bonds, seeing over $41 million of the notes having changed hands by mid-afternoon - about twice the turnover in the next closest issue.

He quoted the 10s as having dropped to about 62¼ bid, down from the mid-60s on Thursday, completing a week-long slide probably triggered by the surprise announcement earlier in the week by the Miamisburg, Ohio-based coated paper manufacturer of the resignation of its president and chief executive officer, which took effect immediately. The company also announced preliminary fourth-quarter and full-year results which were seen by some in the market as disappointing.

Another market source saw the bonds ending at just above 61, which he called about a 3½ point loss, after the bonds had gyrated between 58 on the low end and a high point at 66.

Rite Aid remedy roils bonds

A trader saw Rite Aid Corp.'s 8 5/8% notes due 2015 having fallen more than 2 points on the day to the 85½ bid level.

That downturn followed the Number-Three U.S. drugstore chain's Thursday announcement that its long-time chairwoman and chief executive officer, Mary Sammons, will give up the latter job, effective in June, handing the position off to the company's president and chief operating officer, John Standley, who will assume the CEO duties on top of his current responsibilities.

Sammons, who had been CEO since 2003 and chairwoman since 2007, will remain in the latter position until the company's 2012 annual meeting.

Autos drive into a ditch

Elsewhere, a trader saw General Motors Corp,'s 8 3/8% benchmark bonds due 2033 ending down 1½ points at 26¼ bid, 27 offered. Even GM domestic arch-rival Ford Motor Co., in considerably better financial shape, couldn't outrun the market downturn, as its 7.45% bonds due 2031 lost 1¼ points to end at 88 bid, 89 offered.

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