Windstream sells add-on, new bonds gain; Rafaella up on buyout; market ends week mostly firm

By Paul Deckelman and Paul A. Harris

New York, Jan. 7 - Windstream Corp. came to market on Friday with a $200 million add-on to the telecommunications company's existing bonds. Traders saw the new bonds move modestly upward when they were freed for secondary dealings.

The Windstream deal - a drive-by offering, like the other new transactions seen so far in 2011 - lifted the new issuance total for the first week of the new year to around the $3 billion mark, with primary side sources still believing that borrowing will pick up and carry issuance for January to well above the $20 billion mark.

High-yield syndicate sources heard Friday that two prospective issuers will begin short road shows in the coming week for deals expected to price later in the week - beauty products maker Elizabeth Arden, Inc. and DirectBuy, a membership buying service, hitting the road on Monday and Tuesday, respectively.

In the secondary market, the news that clothing maker Perry Ellis will acquire Rafaella Apparel Group Inc. from private equity firm Cerberus Capital Management for $70 million plus warrants sent the normally little-traded bonds of women's sportswear producer Rafaella shooting up by more than 20 points to around the par level.

Elsewhere, though, traders said that secondary dealings were largely featureless, although most names and statistical indexes were firm and recent new deals like Charter Communications Inc. held their previous aftermarket gains. Snow falling in New York - which had been hard-hit by last weekend's blizzard - apparently gave many market players an excuse for an early exit.

China South City prices notes

Two issuers, one U.S.-based, one an emerging markets deal, brought dollar-denominated bonds to the Friday primary market, raising a combined total of $449 million.

China South International Industrial Materials City Co. Ltd. (China South City Holdings) sold $250 million of 13½% five-year notes (B2/B/) at 97.381 to yield 14¼%, on top of the price talk.

UBS and BOC International were the bookrunners.

The Shenzhen, China-based shipping firm will use the proceeds for general corporate purposes, and to fund properties under development as well as future developments.

Windstream at the rich end

Also Friday, Windstream priced a $200 million add-on to its 7¾% senior notes due Oct. 15, 2020 (Ba3/B+/BB+) at 103, resulting in a 7.233% yield to worst.

The reoffer price came at the rich end of the 102.5 to 103 price talk.

J.P. Morgan, Bank of America Merrill Lynch, Deutsche Bank Securities, Morgan Stanley, RBS Securities and Wells Fargo Securities were the joint bookrunners for the debt refinancing.

The original $500 million deal came last September at par. So Windstream realized more than 50 bps of interest savings versus the original print.

$3.2 billion week

With Friday's transactions in the mix, the first week of 2011 saw a modest $3.2 billion of dollar-denominated junk-rated issuance in six tranches.

Discounting the post-Christmas week, which saw no issuance, the first week of 2011 put up the lowest weekly total since the week beginning on Nov. 21, 2010, which saw just $1.75 billion price in seven tranches.

The past week's $3.2 billion pales in comparison with the $7.4 billion average weekly issuance since the October-November 2010 crossover week, according to Prospect News data (again discounting the post-Christmas week, during which the primary market was essentially closed).

Although it pales in comparison to weekly averages, the first week of 2011's $3.2 billion tops the first weeks of the two preceding years: the first full week of 2010 saw $2.9 billion in seven tranches, while the first full week of 2009 saw only a single $750 million deal price (Cablevision Systems Corp.'s 8½% senior notes due 2014).

And of course both 2009 and 2010, respectively, went on to see record issuance totals.

Busy week ahead

Some market-watchers anticipated a greater deal volume for the first week of 2011.

When it failed to materialize, some reasoned that players trickled in from the holidays throughout the past week, many completing two-week vacations bordering the holidays.

Also, equity markets were somewhat soft during the middle part of the week, which may have stayed the hands of prospective drive-by issuers, a syndicate banker said.

However, the week ahead will be a different story, sources assert.

It gets underway with a $2.8 billion active forward calendar, and includes one deal announced on Friday and one from very late Thursday.

DirectBuy will begin a roadshow on Tuesday for its $325 million offering of senior secured second-lien notes (B2/B), via J.P. Morgan.

Proceeds will be used to refinance debt.

And Elizabeth Arden will begin a roadshow on Monday for its $225 million offering of 10-year senior notes (B1/B/).

J.P. Morgan Securities LLC, Bank of America Merrill Lynch and Wells Fargo Securities are the joint bookrunners for the debt refinancing.

However, the active calendar doesn't tell the whole story, sources warn.

The week ahead is expected to be alive with quick-to-market transactions.

More than one of those is expected to emanate from the energy exploration and production sector. While declining to name names, sources say that the issuers are ones which are quite familiar to the high-yield universe.

New Windstream bonds move up

When the Windstream add-on was freed for secondary dealings, traders saw the Little Rock, Ark.-based telecommunications company's new deal move up to 103¾ bid, 104¼ offered, versus the bonds' issue price at 103.

Charter holds gains

Charter Communications's new 7% notes due 2019 were being quoted maybe 1/8 point higher on the day at 100¼ bid, a trader said.

The St. Louis-based cable operator had priced $1.1 billion of the bonds on Tuesday - upsized from the originally announced $750 million. The paper priced at 99.246 to yield 7 1/8%, and then moved steadily upward in the aftermarket to current levels about 1 point above issue.

Trading in the bonds the first few sessions after pricing was very active, seen as an indicator of both pent-up demand for new paper on the part of cash-laden accounts and poor allocations on the Charter deal, which was reported to have been at least three times oversubscribed.

Indicators hanging in

Away from the new-deal arena, a trader saw the CDX North American Series 15 HY index down by ¼ point on Friday to end at 102¾ bid, 103 offered, after having lost ½ point on Thursday. While the index hit a mid-week high of around 103½ bid, 103¾ offered, it thus ends the week down slightly from the 102¾ bid, 103¼ offered level at which it had closed out the previous week on Friday, Dec. 31.

However, the KDP High Yield Daily index meantime rose by 6 basis points on Friday to finish at 74.86, on top of the 9 bps gain seen on Thursday. Its yield came in by 7 bps to 7.11%, after having after having tightened by 5 bps on Thursday. The index thus improved from 74.40 at the end of the previous week, while its yield tightened from 7.32%.

The Merrill Lynch High Yield Master II index gained 0.070% on Friday, after having risen by 0.178% on Thursday. That lifted the index's year-to-date cumulative return to 0.872% on Friday from 0.802% on Thursday. Gains were seen in all five trading days of the week, giving the index a strong start to 2011. The index had finished 2010 the previous Friday with a total return of 15.190%.

Advancing names topped decliners for a ninth straight session on Friday, although their advantage narrowed to less than six to five from the seven-to-five edge over they had held for the previous two sessions.

Overall activity, represented by dollar-volume levels, fell by 27% on Friday after having declined by 8% on Thursday from the previous day's level.

A trader said with no small amount of understatement that Friday's session was "a pretty quiet day."

A second trader said there was "not a heck of a lot happening," noting that he had for the most part seen "a lot of one-off trades here and there - it wasn't like you were seeing the same name trade after trade after trade.

"It seemed like a boring Friday."

He raised the possibility that Friday's snowfall in New York - which is still trying to recover from last weekend's blizzard, the fifth- or sixth-biggest in The Big Apple's long and often snowy history - may have given some market participants a perfect excuse to not come to work, or if they did come, to cut out early, holding down activity levels.

"People seemed to be in," he said, "but not doing that much."

"There was not a lot of exciting stuff going on."

Perry Ellis lifts Rafaella

A trader said that "the big one" of the day, at least in terms of the sheer size of the price move, was Rafaella Apparel's 11¼% senior secured notes slated to come due on June 15.

He said that the New York-based women's sportswear maker's bonds - which don't trade very often" - were trading up at par bid, versus previous levels around 88.

"It's a nice day for somebody," he said of the issue, which he described as not very large.

Another trader said that there are only about $71 million of the bonds outstanding - but the news that fashion powerhouse Perry Ellis International has agreed to acquire Rafaella for $70 million plus warrants to buy 106,564 shares of stock had resulted in a number of "decent-sized trades," including some round-lots. He estimated the size of the move as even bigger - at least 25 points on the day - noting that the last serious trading in Rafaella had taken place in the 70s and the bonds were now around par.

Chesapeake chokes on gains

Traders said that Chesapeake Energy Corp. - which announced on Thursday that it would cut its $11 billion-plus long-term debt load by 25% over this year and next by selling off some of the vast property holdings it had accumulated over the last several years, causing several of its bonds to trade higher - gave back some of those gains in Friday's dealings.

One said that there was "not a lot of volume" in the Oklahoma City-based natural gas exploration and production company's paper on Friday, seeing "a couple million" of its 6 5/8% notes due 2020 trading down around ¾ point from its finish Thursday, when the bonds had risen by 3 points to 102 bid in round-lot trading on volume of $12 million; he pegged the bonds going home Friday at 101¼ bid.

The company's 9½% notes due 2015, which on Thursday had been the most active Chesapeake issue, rising 2½ points on the day to 116 bid on $26 million turnover, were unchanged Friday, he said, on considerably less volume.

He also saw Chesapeake's 6 7/8% notes due 2018 unchanged at 102¼ bid. As for the rest of the company's capital structure, "it was like $1 million or less [of each] trading. It was nothing real."

EXCO makes a comeback

Also in the energy sphere, a trader saw "some pretty good trading" in EXCO Resources Inc.'s 7½% notes due 2018. He said the Dallas-based oil and natural gas exploration and production company's bonds had moved up by 3/8 point to 98 7/8 bid.

At another shop, a trader said that EXCO "has very quietly moved back up" to around current levels, from the decline spurred by the proposed management-led buyout of the company by a syndicate that would include EXCO's chairman and chief executive officer, Douglas H. Miller, who announced his intentions in early November.

That trader theorized that the bonds probably fell because Miller's position as both the current and presumably future boss of the company would likely not trigger any change-of-control put options for the bondholders.

Lots of quotes, few trades

Elsewhere around the market, traders were seeing a fair amount of quoting in a variety of names, but not really that much in the way of actual trading. For instance, a trader said that he was still seeing "a lot of quotes" in Clear Channel Communications Inc. paper.

He said that the San Antonio, Tex.-based media company's 10¾% notes due 2016 were at 91 bid, 91¼ offered, which he said was down 1 point. He said that there was "a decent amount of activity, but not a lot of activity."

OPTI Canada Inc.'s 7 7/8 senior secured second-lien notes were pretty much unchanged on the day, a trader said, quoting the Calgary, Alta.-based oil-sands energy company's bonds at 72 bid, 73 offered.

He also saw its 8¼% notes due 2014 likewise steady at 73 bid.

Great Atlantic & Pacific Tea Co.'s 5 1/8% convertible notes coming due in June and its 6¾% converts due 2012 were still in the same 33-34 context they've recently held, on "not much activity,:" a trader said, "just quotes."

He saw the bankrupt Montrose, N.J.-based supermarket company's 11 3/8% senior secured notes due 2015 were also stationary around 92 bid, 93 offered and continuing to trade flat.

A trader saw Catalyst Paper Corp.'s 7 3/8% notes , which had been quoted around 78-79 on Thursday, were trading at 79 on Friday, but on not much activity.

"There was some trading but not a lot," he said.

The company's 11% senior secured notes due 2016 were seen at 971/2. He called them unchanged, "but staying at the upper levels" of their recent trading range.

Auto names little moved

The big benchmark automotive names likewise spent the day mostly idling.

A trader said that Motors Liquidation Co.'s benchmark 8 3/8% bonds due 2033 traded between 36 and 361/2, and ended at 36½ bid, unchanged on the day, on "decent volume."

Another trader saw the bonds - issued when the company was still called General Motors Corp., before its profitable carmaking operations were split off during GM's bankruptcy reorganization - down ½ point at 36¼ bid, 37¼ offered.

He meantime saw GM domestic arch-rival Ford Motor Co. down ¾ point at 107½ bid, 108½ offered.

-Stephanie N. Rotondo contributed to this report

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