Sirius, Regency, Manitowoc drive by on $2.2 billion day; Ervaz drops out; ATP Oil gyrates

By Paul Deckelman

New York, Oct. 13 - After two straight sessions which saw no deals pricing - wrapped around a three-day holiday break - the high yield primary market finally got its act back together on Wednesday, bringing more than $2.2 billion of new paper to market, the first pricings seen in five days.

Three of those deals were opportunistically timed, drive-by deals, from New York-based broadcaster XM Satellite Radio Inc., which priced $700 million of eight-year notes, and a pair of $600 million issues from Dallas-based natural gas operator Regency Energy Partners LP/Regency Energy Finance Corp. and Wisconsin-based machinery manufacturer Manitowoc Co., Inc.

There was also one forward calendar deal pricing, from Clearwater Paper Corp., which showed up with a $375 million issue of eight-year senior notes. All four of those pricings were upsized to one degree or another.

The new-deal arena also heard price talk emerge on Air Medical Group Holdings, Inc./AMGH Merger Sub, Inc.'s $545 million offering of eight-year senior secured notes, which will help fund the coming leveraged buyout of the medical helicopter service provider by Bain Capital LLC. That deal is expected to price on Friday morning.

But for the first time in several weeks, the primaryside lost a deal, as Ervaz Inc. NA and Ervaz Inc. NA Canada were heard by market sources to have decided not to go through with their $650 million offering of seven-year notes.

In the secondary market, traders reported a fairly quiet session; there were no dealings in the new paper, which uniformly priced late in the day.

And they said there was not much trading happening in established paper, because, as has been the case for some weeks now, there just hasn't been a lot of it offered around. One of the few names seen actually doing anything was ATP Oil & Gas Corp., whose bonds gave up some of the gains notched on Tuesday.

However, the market's recently firm tone continued, with indexes seen on the upside.

Drive-bys dominate the day

Three out of the four new deals which came to market were drive-by offerings that priced just hours after they were first announced, as canny borrowers shrewdly decided to take advantage of the favorable market conditions to get their financing or refinancing needs taken care of in an environment where investors are sitting on cash and want to put it to work.

The day's biggest deal came from XM Satellite Radio, which priced an upsized $700 million offering of eight-year senior unsecured notes (B3/CCC+) at par to yield 7 5/8%.

That quick-to-market deal priced at the wide end of price talk in the area of 7½%. It had been increased from the originally announced $550 million.

J.P. Morgan Securities LLC was the bookrunner for the issue.

Morgan Stanley & Co. Inc. Bank of America Merrill Lynch and UBS Investment Bank acted as co-managers.

XM - a subsidiary of New York-based satellite broadcaster Sirius XM Radio Inc. ever since the merger several years ago of the formerly bitter rivals XM and Sirius - plans to use the net proceeds from the offering to repurchase its roughly $526 million of outstanding 11¼% senior secured notes due 2013 via a tender offer and related consent solicitation which the company separately announced on Wednesday.

A trader said that those old bonds, meantime, were "perhaps up ¼ point at 104 7/8, around the projected takeout level.

But he said that "everybody seems to know about these things in advance," and the bonds had been "wrapped around" their call price around the 105 mark ever since mid-September in anticipation of a repurchase.

Manitowoc upsizes

Another rapidly appearing deal came from Manitowoc, which brought an upsized $600 million offering of 10-year senior notes (B3/B+) to market, upsizing the deal from the original $500 million.

The 8½% bonds priced at 99.165 to yield 8 5/8%, which a source said was inside of price talk in a range of 8¾% to 9%.

Deutsche Bank Securities, Inc, J.P. Morgan and Bank of America Merrill Lynch were joint bookrunners on the issue.

Manitowoc - a producer of industrial machinery based in the eponymous Wisconsin city - plans to use proceeds from the offering to repay outstanding term loan borrowings.

Regency at tight end

Also chiming in with an upsized $600 million drive-by deal was Dallas-based natural gas company Regency Energy Partners LP and Regency Energy Finance Corp., who priced their eight-year senior notes (expected ratings B1/B+) at par to yield 6 7/8%.

That was at the tight end of price talk envisioning a yield of between 6 7/8% and 7%. It was upsized from the originally announced $500 million.

Bank of America Merrill Lynch, RBS Securities Inc., Citigroup Global Markets, Inc., Credit Suisse Securities (USA) LLC, Morgan Stanley and Wells Fargo Securities, LLC were joint bookrunners on the issue.

Regency plans to use the proceeds to fund a tender offer for its $357.5 million of outstanding 8 3/8% senior notes due 2013, as well as to repay borrowings under its revolving credit facility and pay fees and expenses associated with the bond issue.

Clearwater upsizes

Away from the drive-bys, Clearwater Paper priced an upsized $375 million offering of eight-year senior notes (Ba3/BB) on Wednesday at par to yield 7 1/8%, junk bond primary market sources said.

Like the quick-to-market transactions, the forward calendar deal was increased from the originally announced $350 million.

Bank of America was the bookrunner for the issue.

The 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 certain existing Cellu Tissue debt, and to pay fees and expenses incurred as part of the notes offering, the acquisition and related transactions.

Talk out on Air Medical

Apart from deals which actually priced on Wednesday, price talk came out on Air Medical Group Holdings, Inc. and AMGH Merger Sub, Inc.'s $545 million offering of eight-year senior secured notes (B2/B), which are expected to price on Friday morning, high yield syndicate sources said.

They heard that price talk on the deal envisions a yield in a 9¼% to 9½% range.

They said that the books on the deal are scheduled to close at 3:30 p.m. ET on Thursday, except for West Coast accounts, with the pricing then to take place on Friday.

The deal will be brought to market via joint bookrunners Barclays Capital Inc., Bank of America, Citigroup and Morgan Stanley.

It is being marketed to investors via a roadshow which began last Thursday and which is scheduled to conclude in Los Angeles on Thursday.

The proceeds from the deal are to be used to help finance the roughly $1 billion leveraged buyout of the West Plains, Mo.-based provider of emergency air medical services - it claims to be the largest independent provider in the world - by Bain Capital LLC, which was announced in late August. A Bain Capital affiliate will lead a recapitalization of the company in partnership with management and AMGH's current investors, the private equity firms Brockway Moran & Partners and MVP Capital Partners.

Evraz exits

High yield syndicate sources meantime heard that Evraz Inc. NA and Evraz NA Canada have withdrawn their planned $650 million offering of seven-year senior notes (/B/), citing what one source called "pricing sensitivity," rather than the usual culprit, market conditions.

There was no official confirmation that the deal had been pulled by the company, a Portland, Ore.-based unit of Russian steel giant Evraz Group SA.

The North American unit, which has steel-making operations in the United States and Canada, had planned to use the proceeds from the bond sale to refinance existing intercompany debt owed to its corporate parent.

The deal was to have been brought to market via joint bookrunners Credit Suisse and Barclays.

The apparent withdrawal from the market by Evraz, was the first such pullback since LodgeNet Interactive Corp. decided in late September to put its $435 million offering of six-year senior secured second-lien notes on hold so the company could seek other financing alternatives.

Market indicators remain firm

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index up 3/16 on Wednesday for a second consecutive session, to end at par bid, 100 ¼ offered.

The KDP High Yield Daily index meantime gained 15 basis points on Wednesday to close at 74.18, after having risen by 6 bps on Tuesday. Its yield tightened by 5 bps to 7.31%, after having edged downward by 1 bp on Tuesday.

The Merrill Lynch High Yield Master II index rose by 0.298% on Wednesday, after having improved by 0.075% on Tuesday. Its year-to-date return rose to 13.572% on Wednesday, yet another new peak return for the year, versus the old mark of 13.235%, which had been set just on Tuesday.

Advancing issues led decliners for a 13th consecutive session on Wednesday, their advantage widening out to better than four to three, versus the relatively meager winning margin seen on Tuesday of just a relative handful of issues - maybe a couple dozen out of the more than more than 1,500 traded.

Overall activity, represented by dollar-volume levels, jumped by 60% on Wednesday, after having risen by 17% on Tuesday, as activity pickled up a little following the just-completed Columbus Day holiday break.

While traders said that most issues which actually saw trading were up on Wednesday - some of them by multiple points - overall, as one put it, "the bottom line is that there's not a lot of paper out there for sale."

Another said that "people are just sitting on cash."

He said that they were "stumbling all over each other" to try to buy bonds, when there wasn't that much paper being offered around.

He likened it to "walking through a grocery store where all of the shelves are empty - and the only stuff you can buy is stale."

He said there was "no one theme or sector" to the market these days - unlike say a week or two ago when dealing in the new bond issues dominated the aftermarket. "It's just all kinds of random stuff - a mish-mash of names. People are coming out of the woodwork and looking for any names they can buy."

He said the overall surge in bond prices has helped even lesser-quality names trade at very rich levels, "crappy bonds being thrown out there at 98" and having people buy them.

"A rising tide lifts even the leaky boat with holes in it."

Crossover buying a factor

With prices overall continuing to rise - for instance, the price of an average issue tracked by the Merrill Lynch HY Master II moved above 102 for the first time this year, well up from the 95 level at which it began the year - people seem to be hanging onto their paper in anticipation that prices will go even higher still.

Apart from that, a trader opined that "people are clearly buying into the story of low defaults, the Fed keeping low funds rates, and low Treasury rates, and this is a decent alternative for yields."

Helping exacerbate the secondary supply crunch, he said, is crossover buying by nominally high-grade investors and accounts looking to get better yields than their own market can offer them.

"You definitely get the impression, particularly in the BB part of the world, that you're seeing some traditional high-grade guys step over into high yield.

"That's definitely helped drive the train here a little bit as well."

In commenting on the relatively low high-grade yields which make junk seem more attractive by comparison, he noted that with the 5-year Treasury notes yielding 1.12%, "if you're 200 bps off that, that puts you around 3% - and that might even be a little wide." He noted that the new Raytheon Corp. 5-year deal, which priced Wednesday at 60 bps off Treasuries, was yielding 1.717%

"Clearly, there is some yield gain to be had, still, going into BB paper at a 5% or 6% kind of thing."

He said that Raytheon, rated Baa1/A-/A-, "is not a credit on the cusp. I'm sure there's more yield somewhere else in high grade than Raytheon - but it illustrates the discrepancy in yields" between high grade and high yield.

Gaming gains continue

A trader said that one of the stronger areas in Wednesday's dealings was in the bonds of gaming companies, particularly such big players as Harrah's Operating Co. Inc. and MGM Resorts International.

"Casinos were the biggest story," he said, with both Las Vegas-based giants up anywhere from 2 to 3 points.

He said they were helped by investor reaction to MGM's late-Tuesday announcement that the company will raise more than $500 million by selling stock.

That, he said, helped to counterbalance the lingering market worry left over from Tuesday's release of bad revenue numbers for September for the dozen casinos in Atlantic City, which is facing stiff increased competition from the proliferation of slot machine-equipped "racinos" in nearby Pennsylvania and Delaware and the recent opening of a full-scale casino in Philadelphia, where a lot of the Atlantic City gaming palaces' customers come from.

He saw Harrah's 10% notes due 2015 get as high as 88 bid, and then finish at 87 bid, which he said was "still up a couple" of points.

MGM's 7½% notes due 2016 were seen up more than a point at 91 bid, while its 11 3/8% notes pushed upwards to 1031/2.

Other sector names also benefitted, including Borgata Hotel Casino & Spa's notes, which got as good as 101 bid, 102 offered, before ending still on the upside at 100½ bid, 101½ offered.

And he saw Mohegan Tribal Gaming Authority's several series of notes trading around 87 bid, well up from recent levels at 83.

Penney pops back up

J.C. Penney Co. Inc. "actually came back" on Wednesday, a trader said, after the Plano, Tex.-based retailer's bonds had gotten got clobbered on Tuesday as investors worried about what recent investments made by Pershing Square Capital Management LP and Vornado Realty Trust could mean for the company.

Another trader said that "true junk guys don't seem to be involved in it."

He quoted the company's 5.65% notes due 2020 up 5/8 point at the 98 level, on $20 million traded, making it one of the day's more active issues.

However, he saw the 7.65% notes due 2015 down 3/8 point at 108½ bid.

"About half were down a little bit and half were up a little bit," he said.

ATP follows stock down

On the downside, a trader said that ATP Oil & Gas - whose bonds had firmed as much as 2 points on Tuesday on the news that the government had ended its deepwater drilling moratorium imposed in the wake of the BP oil rig disaster - "settled down" on Wednesday.

After initially moving as high as 94 bid, 94½ offered, up a point from Tuesday's finish at 93, the Houston-based energy concern's 11 7/8% second-lien senior secured notes due 2015 dropped down as low as 91. However, it came off that low to end at 92 bid, 93 offered, still down more than a point on the session.

"It took a wild ride," a trader said, "on decent activity - it was one of the more active names."

He noted that the company's shares had also fallen - they ended up down more than 5% - citing alleged investor angst about the company's presentation at an energy conference in San Francisco. The stock site theflyonthewall.com reported a "rumor" that concern about what was being said by the company's CFO was causing, or at least contributing to the stock's weakness, but others in the market disputed that thesis, noting the shares had begun falling even before the presentation was underway. They instead attributed the retreat in the stock to hedge-fund selling not connected with anything that might be said at the San Francisco conference.

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