Primary slate builds with Omnova, Sino-Forest deals; Fortescue hops while J.C. Penney flops

By Paul Deckelman

New York, Oct. 12 - It was back to work for the high-yield market on Tuesday following the long Columbus Day holiday break, which saw the fixed-income markets shuttered on Monday - but activity in both the primary and the secondary spheres seemed sporadic and lackluster.

For the second straight session, no new deals were seen having priced on Tuesday, although there's well over $2 billion in the pipeline from such prospective issuers as Evraz Inc. NA, Air Medical Group Holdings, Inc., Tutor Perini Corp. and Novomatic AG.

While those borrowers stayed on the sidelines, others stepped forward to join the forward calendar.

Omnova Solutions Inc. announced plans for a $250 million offering of eight-year senior notes, and the proceeds are earmarked to help pay for its pending acquisition of French chemical maker Eliokem International SAS. The Ohio-based company expects to hold a roadshow some time next week.

Also announcing new deals were Sino-Forest Corp., a Canadian-Chinese operator of forest plantations in China shopping a $500 million issue of seven-year notes to prospective investors in the United States and Asia via a two-pronged roadshow campaign this week, and Exova Ltd., a British provider of laboratory testing services coming to market with a sterling-denominated issue that is being pitched to investors via a roadshow in England and Scotland.

More details emerged on Clearwater Paper Corp.'s $350 million eight-year deal, which was first announced last week; it's now expected to price around mid-week.

And Gymboree Corp. is expected to do a bond deal as part of its planned buyout by Bain Capital Partners LLC, although that's not expected to happen for some weeks.

Secondary trading was seen relatively quiet and, for the first time in some days, not dominated by recently priced new-deal issues. Fortescue Metals Group Ltd.'s bonds were seen sharply higher on expectations that they will be taken out as part of a refinancing announced by the company.

But retailer J.C. Penney Co. Inc.'s paper was seen under considerable pressure.

Primary pause continues

A trader said that Tuesday was "a quiet day in the market." He said that "everybody is supposedly back from their conferences" - last week's Deutsche Bank Leveraged Finance gathering in Arizona saw a lot of portfolio managers and other buyside decision-makers out for several days - "and back from the holiday break," but there were no new deals priced, and he didn't even see any kind of real trading going on in the bonds of the issues that had priced last week, including Reynolds Group Issuer Entities, Michaels Stores Inc., DaVita Inc. and Dine Equity Inc.

Omnova slates eight-year deal

But there was some calendar-building seen going on.

Omnova Solutions announced plans for selling $250 million of eight-year senior notes as part of the financing for its recently announced $300 million acquisition of French chemical company Eliokem International SAS; the roadshow for the offering is expected to begin "next week sometime," according to Michael E. Hicks, Omnova's senior vice president for finance and chief financial officer, who also told Prospect News on Tuesday that he expects the deal to price and close by the end of the month.

Hicks said that Deutsche Bank Securities, Inc. would be the left-hand lead joint bookrunner for the Rule 144A offering, with Jefferies & Co. Inc. as the other joint bookrunner, while KeyBanc Capital Markets will be the deal's lead manager.

The notes will have four years of call protection, he said.

In announcing the deal, Omnova, a Fairlawn, Ohio-based maker of emulsion polymers, specialty chemicals and decorative and functional surfaces for commercial, industrial and residential end uses, said that it plans to use the proceeds from the bonds and from a new $200 million term loan to fund the Eliokem acquisition, to repay or replace all amounts outstanding under its existing term loan and to pay related fees and expenses.

Sino-Forest slates seven-years

Sino-Forest also announced a new deal and was heard by high-yield syndicate sources on Tuesday to be shopping its $500 million issue of seven-year guaranteed senior notes around to potential investors via twin roadshows featuring presentations in Asia and the United States.

The Rule 144A/Regulation S offering, which is being sold without registration rights, will be brought to market via joint bookrunners Bank of America Merrill Lynch and Credit Suisse Securities (USA) LLC, the sources said.

They noted that the two-pronged roadshow opened in Singapore on Tuesday. It moves to Hong Kong on Wednesday and will remain there through Thursday.

Meanwhile, U.S. marketing of the deal gets under way on Wednesday in New York, shifts to Boston on Thursday and then moves to Los Angeles on Friday. Pricing is expected thereafter.

The bonds will have call protection for the first four years, the sources said. The bonds are expected to carry a Ba2 rating from Moody's Investors Service, a BB rating from Standard & Poor's and a BB+ rating from Fitch Ratings.

The company said that it plans to use the net proceeds from the offering for general corporate purposes, including, but not limited to, the acquisition and replanting of tree plantations in China, its base of operations.

Exova bringing sterling issue

London-based Exova was meantime heard by high-yield syndicate sources Tuesday to be marketing a £155 million issue of eight-year senior unsecured notes to potential investors via a roadshow this week in the British Isles.

That marketing campaign kicked off on Tuesday in London, continues Wednesday in Edinburgh and returns to London on Thursday.

The Regulation S/Rule 144A issue, which will have four years of call protection, will be brought to market via joint bookrunners Barclays Capital Inc., which is handling the billing and delivering, and RBS Securities Inc., the sources said.

The bonds will carry a B3 rating from Moody's and a B- from S&P.

Exova, a provider of laboratory-based testing and related advisory services, said that the proceeds from the offering will be used to refinance a portion of its outstanding debt and to pay fees and expenses in connection with the offering.

Clearwater coming at mid-week

Additional details surfaced about Clearwater Paper's previously announced $350 million offering of eight-year senior notes, with high-yield primary market sources seeing a pricing around mid-week.

The Rule 144A/Regulation S notes, which will be sold with registration rights, will have call protection for the first four years after issue, the sources said.

The net proceeds of the notes will be used by Clearwater, a Spokane, Wash.-based maker of consumer tissue, bleached paperboard and wood products, to help finance its acquisition of Cellu Tissue Holdings, Inc., to refinance some existing Cellu Tissue debt and to pay fees and expenses incurred as part of the notes offering, the acquisition and related transactions.

The notes will carry a Ba3 rating from Moody's and a BB rating from S&P.

Bank of America Merrill Lynch will be the bookrunner for the issue.

Gymboree bonds on the horizon

Gymboree was heard to be planning on getting a new credit facility and bonds to help fund its acquisition by Bain Capital Partners LLC for $1.8 billion, according to a market source - but the bond portion of that deal is not seen happening for a while.

The San Francisco-based specialty retailer's deal with Bain includes a "go-shop" period of 40 days, or until Nov. 20, to beat the bushes for any other potential buyers, and no financing is expected to take place until that finishes up.

A high-yield buyside source heard that a bridge loan might come before the bond portion of the financing, and he guessed the timing on the bonds to be around the November/December timeframe.

Credit Suisse and Morgan Stanley are the lead banks on the financing, with Credit Suisse the left lead on the bank loan and Morgan Stanley the left lead on the notes, a leveraged-loan market source said.

Other funding for the acquisition will come from equity.

Under the terms of the agreement, it is anticipated that Bain Capital will commence a tender offer for all of the outstanding shares of Gymboree shortly.

Market indicators stay strong

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index up 3/16 on Tuesday to end at 99½ bid, 99¾ offered after having been about unchanged on Friday.

The KDP High Yield Daily index meantime gained 6 basis points on Tuesday to close at 74.03 after having tacked on 17 bps on Friday. Its yield came in by 1 bp, to 7.36%, after having declined by 7 bps on Friday.

The Merrill Lynch High Yield Master II index rose by 0.075% on Tuesday after having improved by 0.099% on Friday. Its year-to-date return reached 13.235% on Tuesday, a new peak return for the year, versus the old mark of 13.075%, which had been set just on Friday.

Advancing issues led decliners for a 12th consecutive session on Tuesday, although their winning margin dwindled to just a relative handful of issues - maybe a couple dozen out of the more than 1,500 traded - versus the comfortable bulge of more than six-to-five they had held for a second straight session on Friday.

Overall activity, represented by dollar-volume levels, rose by 17% on Tuesday after having fallen by almost 26% on Friday as activity wound down ahead of the Columbus Day holiday break.

Fortescue flies high

A trader said that Fortescue Metals was "clearly the name of the day in terms of the big moves" after the Australian iron-ore mining company said that it was refinancing $1.65 billion and €315 million of project-based senior secured notes issued by FMG Resources (August 2006) Pty. Ltd. with a $2.04 billion bank facility.

"That was the big driver."

He saw the company's 10 5/8% notes zoom by 24 points on the day to 147 bid, 148 offered, while its 10% notes due 2013 jumped 11 points to 124 bid, 125 offered.

He also saw its floating-rate notes due 2011 up by "a couple of points," although he did not have a level for those bonds.

Those bonds climbed high into nosebleed territory on the news that Fortescue had closed on a new $2.04 billion credit facility and that in refinancing the bonds with the proceeds "is gonna make them whole," he said.

The bonds being bought back under that refinancing efforts include the $250 million of floating-rate notes, the $320 million of 10% notes, €315 million of 9¾% notes due 2013 and the $1.08 billion of 10 5/8% notes.

Penney's paper plummets

J.C. Penney bonds "took a nice beating," a trader said, as investors worried about what recent investments made by Pershing Square Capital Management LP and Vornado Realty Trust could mean for the company.

The trader called the 6 3/8% notes due 2036 5 points weaker around 93 and said the 5.65% notes due 2020 dipped 3 points, ending around 981/2.

Another trader said about $50 million to $60 million of J.C. Penney's assorted bonds changed hands, with the "longer paper down more."

He pegged the 5.65% notes at 97 3/8, 3 points off from Friday levels. The 5¾% notes due 2018 slipped "a couple points" to around 99, and the 6 3/8% notes closed around 941/4.

There is some chatter in the market about what investors Pershing and Vornado intend to accomplish with their recently acquired stakes in the Plano, Texas-based retailer.

Pershing said Friday that it had acquired a 16.5% stake in J.C. Penney. Vornado said it had acquired a 9.9% stake.

Even rating agency Standard & Poor's expressed confusion, specifically about Vornado's stake and what it plans to do with it. S&P said it was considering downgrading the real estate trust because of the investment.

The purpose of the investment is "unclear to us at this time," the agency said last week. As such, the agency intends to meet with Vornado management over the next few weeks in order to get "clarity as to the company's allocation intentions, including the longer-term strategy regarding the J.C. Penney stake."

ATP Improves as drill ban is lifted

A trader saw ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 firm up to 93 bid, which he called up a point "or maybe 2 points."

The Houston-based offshore energy exploration and production company's bonds jumped on news that the federal government has lifted the moratorium on deepwater drilling in the Gulf of Mexico, which it had imposed several months ago during the BP plc oil rig disaster there. ATP - which had no connection to the BP debacle - has the bulk of its proven energy reserves in deepwater sections of the gulf, which had been ruled off-limits in the wake of the massive oil spill from a ruptured undersea well. The bonds, which had fallen as low as the low 60s in the aftermath of the accident, had gradually crept back up to around the 90 level before Tuesday's announcement.

That ban - first announced in late May, but which only took effect in early July after the federal courts weighed in - had been scheduled to expire seven weeks from now, at the end of November. There was no immediate word from the Obama administration as to why the ban was lifted so far ahead of schedule, although the election-year political ramifications of continuing the moratorium - which was unpopular in Gulf Coast states dependent upon the energy industry because of its impact on the local jobs situation - are one possible explanation.

Gaming names gain

A trader said that Harrah's Operating Co. Inc. and MGM Resorts International's bonds "continued to trade well, Harrah's probably a little better than MGM today."

He noted that New Jersey gaming authorities released the September revenue numbers for the casinos in Atlantic City, where both companies have exposure. Overall revenues were down 12% year-over-year.

"They clearly were nowhere near as strong as Las Vegas was last week for August. I don't think that was a surprise given all the gaming you've seen come aboard recently in Pennsylvania," which has licensed slot machine gaming at several race-track venues - which now offer table games - while a new casino opened last month in Philadelphia, traditionally a key feeder market for Atlantic City.

However, even with all of that bad news, "the casino names still traded well today," he said, quoting MGM's "go-go" 7½% notes due 2016 around 89 bid, 90 offered, while its 13% secured notes due 2013 traded at 119 for about a 6% yield.

He said those levels were seen before MGM's late-day announcement that the Las Vegas-based gaming giant would raise more than $500 million by selling stock. The company will sell 40.9 million shares and Tracinda Corp., controlled by MGM's biggest single investor, 93-year old billionaire Kirk Kerkorian, will offer 27.8 million shares, cutting his stake in the company he founded to under 30% from 37% currently.

MGM further announced Tuesday that it has it found a buyer for its half-interest in the Borgata Hotel Casino & Spa in Atlantic City, which it operates as a 50-50 joint venture with Boyd Gaming Corp. That asset sale should bring MGM net proceeds of about $250 million.

TXU gyrations continue

A trader said that the bonds of the company formerly known as TXU Corp. were "all over the place" on Tuesday as traders continued to digest the news of the completion of its exchange offer taking out some of its existing bonds by offering their holders new notes.

He saw the Texas Competitive Electric Holding Co. 10¼% notes due 2015 were trading at 62 bid, 63 offered - up from 60½ bid, 62½ offered earlier - "on size," estimating about $10 million, "decent size."

He meantime saw the Dallas-based power generating company and utility operator Energy Future Holdings Corp.'s 11¼% notes due 2017 at 53½ bid, 54¼ offered.

He saw its 5.55% bonds at 55 bid "and looking - no offerings."

A second trader saw the 111/4s at 53½ bid, 54½ offered while seeing the two issues of 10¼% bonds at 61 bid and 62 bid, respectively.

"On that name, they were very, very active all day long, since there were pages of quotes about them," he said.

He said the 111/4s were "up a couple of points," while the company's 10 7/8% notes due 2017 were ending at 62 bid, 63 offered, which he said was up 1½ points, and the 10% notes due 2020 were unchanged at 101¾ bid, 102¼ offered. He said the 101/4s were unchanged.

"The ones that seemed to move were at the lower end," like the 10 7/8s and the 111/4s.

Investors continued to mull over the impact of the company's news, which hit the market on Friday, regarding its debt exchange. Texas Competitive Electric Holdings issued approximately $336 million of 15% senior secured second-lien notes due 2021 for about $478 million of its 10¼% notes and 10½%/11¼% senior toggle notes.

The exchange offer was completed on Wednesday but was first announced in an 8-K filed with the Securities and Exchange Commission on Friday.

No stopping Ford

A trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down ¼ point at 34¼ bid, 35¼ offered - but saw the recently super-charged 7.45% bonds due 2031 of GM domestic arch-rival Ford Motor Co. jump another 2½ points on the day to end at 110½ bid, 111½ offered, no doubt helped by last week's ratings upgrade for the No. 2 U.S. car manufacturer from Moody's.

Another trader pegged the GM bonds at 34¼ bid, 34¾ offered and saw the Ford paper at 110.

"You might as well say that the Ford bonds were up another point," he said, "because day after day, that's what they've been doing."

Ahern up on no news

From deep in distressed-debt territory, a trader said that Ahern Rentals Inc.'s 9½% notes due 2013 were up 4 points on the session at 52 bid, 55 offered.

He saw no fresh news out about the company that might explain the rise but opined that "the bond world is on fire. It's crazy. Everyone is looking for yield." At current levels, the Ahern bonds are yielding around 38%.

Another trader saw the Las Vegas-based equipment rental company's bonds up even further, quoting them as having had "a big print increase since the last time they traded." He said the bonds, which "traded up a decent amount today for that credit," had moved back up into the 50s; he said the last trade before Tuesday had been around the 42-42 area.

Sara Rosenberg and Stephanie N. Rotondo contributed to this report

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