SRA International deal closes out week, jumps in aftermarket; Petrohawk pops on BHP buyout

By Paul Deckelman and Paul A. Harris

New York, July 15 - SRA International Inc. came to market on Friday with a $400 million offering of eight-year notes. After the Fairfax, Va.-based government contractor's deal priced at par, traders saw the new bonds rise smartly in aftermarket dealings.

That offering closed out a nearly $3 billion week, which was busier than the holiday-shortened preceding week ended July 8, one of the slowest weeks in 2011 so far.

Besides the SRA transaction, the week saw deals come from such issuers as Warner Music Group Corp., which brought in an upsized, billion-dollar-plus three-part offering on Thursday, the same day that longtime junk market mainstay Level 3 Communications, Inc. priced a solidly upsized add-on to an offering which the internet network operator sold in May.

There were also deals during the week from SRA sector peer Kratos Defense & Security Solutions, Inc., the entertainingly named restaurant operator El Pollo Loco, Inc. - i.e. the "crazy chicken" - from healthcare credit ExamWorks Group. Inc., manufacturer Dynacast International LLC and oil and gas operator RAAM Global Energy Co. However, traders only saw aftermarket activity in Warner, Level 3, ExamWorks and Dynacast. All traded up, in some cases by multiple points.

Away from the new issues, the secondary market saw Petrohawk Energy Corp.'s bonds zoom in heavy trading on the news that Australian mining concern BHP Billiton Ltd. has agreed to buy the Houston-based oil and gas exploration and production company for $15 billion, including debt assumption.

Overall, traders said that the session had a firm tone to it, although on relatively quiet activity - but statistical performance indicators showed a loss for the week, after two straight weeks of gains.

SRA prices on top of talk

The Friday session saw one deal completed.

SRA International priced a $400 million issue of senior notes due Oct. 1, 2019 (Caa1/CCC+) at par to yield 11%, on top of price talk.

Bank of America Merrill Lynch, Citigroup Global Markets Inc. and Goldman Sachs & Co. were the joint bookrunners for the buyout deal.

Belgian cable operator Coditel Holding SA had been expected to price its €260 million offering of seven-year senior secured notes (B3/B/B+) before the Friday close.

However that deal, via global coordinator and joint Morgan Stanley and joint bookrunner ING, has been moved into the week ahead, according to an informed source.

$1.8 billion week

With SRA included in the tally, the July 11 week saw $2.85 billion of junk-rated dollar-denominated issuance in nine tranches.

July to the mid-month mark saw just $6.1 billion of issuance in 17 tranches.

Compare that to the $23.2 billion that priced in 49 tranches between May 1 and May 15.

Counting Friday's SRA deal, the week ended with the primary market approaching the $200 billion mark for the year so far - and with 5½ months of 2011 left to play out.

At Friday's close 2011 issuance stood at $197.9 billion in 449 tranches.

A Sterling performance by SRA

When the new SRA International eight -year notes were freed for secondary dealings, a trader exclaimed that the defense contractor's bonds - sold via Sterling Merger Inc. to help fund SRA's leveraged buyout - a trader proclaimed that the new deal was "really rockin' and rollin'," shooting up to 103 bid, 103½ offered after having priced at par earlier in the session.

"They did quite well," another trader agreed, pegging the $400 million deal at 103¼ bid, 103½ offered.

'The bid is back'

A trader opined that "the bid is back," in noting that most of the week's new issues which actually made it to the aftermarket had traded up by several points from the levels at which they had priced.

For instance, he saw Warner Music Group's 11% notes due 2018 trading at 99 3/8 bid, 99 7/8 offered. That was well up from the 97.673 level at which the New York-based music publishing and recording giant had priced that $765 million tranche of bonds on Thursday - upsized from the originally planned $695 million - to yield 12%, a quarter-point wide of the pre-deal price talk of 11½% to 11¾%.

Friday's level was also a little firmer than the 99¼ bid, 99 3/8 level to which those new bonds had jumped in their initial aftermarket dealings on Thursday.

The trader also saw the Level 3 Communications' $600 million add-on to its 8 1/8% notes due 2019 at 100¼ bid, 100½ offered. That was up solidly from the 98.545 level at which the Broomfield, Colo.-based internet backbone network operator had priced its quickly-shopped deal - doubled in size from the original $300 million - on Thursday to yield 8 3/8%, in line with price talk. Friday's level was also a little better from the par bid, 100¼ offered at which the new tranche traded later Thursday.

However, not everything was up - he saw the Warner Music 13 ¾% notes due 2019 actually off slightly from their Thursday pricing levels, offered at par but with no left side; the $150 million tranche, downsized from the original $200 million, had priced at par, in line with price talk projecting a yield 1¾ points behind the seven years, and had traded at par bid, 100¾ offered when they were freed for dealings late Thursday.

He also saw Warner's 9½% senior secured add-on notes due 2016 holding steady at 104¾ bid, 105½ offered. That was little changed from the $150 million tranche's issue price at 104.75, rich to the price talk of 104 to 104.5, to yield 8.053%. The tranche had not been seen trading around in Thursday's aftermarket.

Another trader quoted the Warner 11½% notes due 2018 hanging in there at 99 bid, 99¾ offered, holding their gains, while seeing the 13¾% notes holding around their issue price, at 99½ bid, 100¼ offered.

He saw Level 3 having moved up slightly from Thursday's closing levels, firming to 100 1/8 bid, 100 5/8 Friday morning, and then having firmed further by the afternoon to 100 3/8 bid, 100½ offered.

And he saw ExamWorks Group's 9% notes due 2019 at 101½ bid, 102¼ offered. That was not too far removed from the bonds' late-Thursday levels of 101¾ bid, 102 offered, but well up from par, where the company - an Atlanta-based provider of medical examinations and bill reviews for the healthcare insurance industry - had priced its $250 million deal earlier Thursday.

Going back a little earlier in the week, the trader saw Dynacast's 9¼% senior secured second-lien notes due 2019 at 102¼ bid, 103 offered. The Charlotte, N.C.-based manufacturer of die-cast metal products had priced its $350 million offering of the bonds, downsized from the originally planned $375 million, at par on Tuesday, and they had moved up to 102 bid, 102½ offered when they were freed for aftermarket activity.

A market source saw Equinix, Inc.'s 7% notes due 2021 on Friday trading busily at 102½ bid. Volume of around $20 million made it the biggest non-Petrohawk bond to trade in Junkbondland on Friday, although there was no news out on the Redwood City, Cal.-based data centers operator, which priced its $750 million deal - upsized from the originally announced $500 million - as a same-day drive-by deal at par July 6. The bonds were quoted going home at the end of that session at 102 bid, 102½ offered, and continued to holder gains on into this week as well.

Petrohawk pops powerfully

Away from the new-deal realm, the big name in the junk market on Friday was Petrohawk Energy, whose bonds soared on the news that Australian mining giant BHP Billiton has agreed to buy the U.S. energy producer for $12.1 billion, a transaction valued at $15 billion when assumption of Petrohawk's debt is thrown in.

One piece of that debt is the company's $825 million of 7¼% notes due 2018. The bonds jumped from Thursday's closing level of 105½ bid to end on Friday at 115. But throwing out all of the smaller trades as non-representative and just considering round-lot transactions, the bonds closed even higher, at 117 bid, up more than 13 points on the session. Volume was over $50 million.

One trader said he saw those bonds trading as high as 119 in the morning, before coming in a little to the still vastly-improved levels at which they ended. He noted that BHP Billiton is an A1/A+ credit - well above Petrohawk's B3/B+ status.

He saw Petrohawk's 6¼% notes due 2019 having likewise jumped to 116½ bid, 117 offered, versus 99½ bid, 100½ offered pre-news, "and that says it all."

Market up on day, off on week

Apart from the excitement generated by the Petrohawk deal, which also shot the Texas oil and gas company's New York Stock Exchange-traded shares higher by $14.68, or 62.49%, to $38.17, right around BHP's offer price for the shares - junk traders saw a pretty firm market, but quietly so.

"You woke me up," quipped one trader, who also described junk, away from the new deals and Petrohawk, as "kinda comatose," explaining that lots of market participants were away on vacations, stilling the activity levels.

"We thought we would be busier - but we aren't."

Market statistical indicators, which were mixed on Thursday, were seen mostly firm on Friday - but they were lower for the week, breaking a two-week stretch of Friday-to-Friday improvements.

A trader saw the CDX North American Series 16 HY Index down by 1/8 point on Friday to finish at 100 5/8 bid, 100 7/16 offered, after having been unchanged on Thursday. That left the index down more than a full point on the week from the 101 11/16 bid, 101 13/16 offered level seen the previous Friday, July 8.

The KDP High Yield Daily Index jumped 21 basis points on Friday to end at 75.33, with most of the gain coming fairly late in the session; during the morning, it had only been up by 4 bps. On Thursday, it lost 2 bps. Its yield moved down by 9 bps to 6.84%, after having been unchanged on Thursday.

On a week-by-week basis, the late surge left the index off only slightly from the 75.35 at which it ended the previous week, while its yield was also only a little wider than the prior week's 6.73%.

The Merrill Lynch High Yield Master II Index showed its third consecutive gain on Friday, up by

0.089%, on top of Thursday's 0.038% rise.

The latest gain lifted its year-date return to 5.726% on Friday from 5.632% on Thursday, though it remains down from its year-to-date peak level of 6.071%, which was reached back on May 20.

However, on a weekly basis, the index fell by 0.055%. That broke a two-week winning streak, including the prior week's 0.668% gain - which had, in turn followed a skid of five consecutive weeks before that, dating back to early June.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.