Petrohawk prices upsized add-on, new CityCenter mega-deal up; activity wanes ahead of holiday

By Paul Deckelman and Paul A. Harris

New York, Jan. 14 - Petrohawk Energy Corp. was heard by high yield primaryside sources to have priced a quickly shopped, upsized $400 million add-on to an existing series of bonds on Friday, the only pricing of the day in a domestic new-deal junk market still exhausted from the dizzying pace seen on Thursday when over $5 billion of new paper came clattering down the chute in a dozen deals.

When the Houston-based oil and gas operator's enlarged new issue was freed for secondary dealings, traders saw the bonds firm from their issue price, in line with the overall trend seen throughout the week of new issues trading up in the aftermarket to meet investor demand.

On Friday, those new deals were still holding their own or, in some cases, even adding to gains notched earlier in the week. CityCenter Holdings, LLC/CityCenter Finance Corp. - the biggest and the last of the deals that priced during Thursday's hectic session - was seen by junk traders to have moved up solidly when the $1.5 billion two-part issue was freed for secondary dealings.

However, the only real underachiever among the more than $12 billion of new junk bonds that priced during the week, Level 3 Communications Inc.'s $305 million issue priced on Tuesday, continued to puzzle traders by its inability to rise above its deeply discounted issue price.

Looking ahead, high yield syndicate sources heard Constellation Enterprises LLC, a metal products manufacturer, shopping around a five-year secured bond deal for likely pricing in the upcoming week.

Greek shipping operator Excel Maritime Carriers, Ltd. was hitting the road with a $250 million eight-year deal.

European junk marketeers meantime saw French scientific firm Labco SAS price a €500 million issue of seven-year senior secured notes.

On the secondary side, trading in the new deals was still the dominant theme. However, bonds of Smithfield Foods Inc. rose sharply on news of the meat processing company's Dutch auction tender offer for its 2013 and 2014 paper.

Statistical measures of market performance showed gains on the day and for the week.

Petrohawk upsizes add-on

The Friday primary market session saw Petrohawk Energy price an upsized $400 million add-on to its 7¼% senior notes due Aug. 15, 2018 (expected ratings B3/B+) at 101.875, according to an informed source.

The reoffer price came in the middle of the 101.75 to 102 price talk and resulted in a 6.837% yield to worst. The amount was increased from $300 million.

Barclays Capital ran the books for the quick-to-market add-on.

The Houston-based independent energy company will use the proceeds to redeem its 7 1/8% notes due April 2012.

$14.23 billion week

Petrohawk put the cap on the biggest week in the new issue market in five months.

Issuers raised $14.23 billion in 28 junk-rated dollar-denominated tranches, rendering the past week the biggest by dollar amount of issuance since the week of Aug. 9, 2010, which saw $15.4 billion in 31 tranches

Labco prices €500 million

Also on Friday, France's Labco SAS priced a €500 million issue of seven-year senior secured notes (B3/B+) at par to yield 8½%, on top of the price talk.

Credit Suisse, Deutsche Bank, Natixis Bleichroeder and UBS were the joint bookrunners.

The Paris-based clinical laboratory operator will use the proceeds to refinance existing debt.

Excel roadshow starts Tuesday

The new issue calendar is thin, heading into the three-day holiday weekend in the United States, with Monday's national holiday commemorating Dr. Martin Luther King, Jr.

Two new offerings surfaced on Friday.

Excel Maritime Carriers will begin a roadshow on Tuesday for a $250 million offering of eight-year senior notes (Caa1/B-/).

The deal is set to price on Jan. 24.

Deutsche Bank Securities and Citigroup are the joint bookrunners for the Greek shipping company's debt refinancing and general corporate purposes deal.

Constellation plans deal

Elsewhere, Constellation Enterprises will begin a roadshow on Tuesday for a $130 million offering of five-year first priority senior secured notes, which are expected to price before the end of the week ahead.

Credit Suisse is the bookrunner for the debt refinancing deal from the specialty manufacturer of engineered metal products.

Heavy volume ahead

In spite of the thin calendar heading into the three-day weekend, market sources look for heavy deal volume ahead.

The last two weeks of January could easily produce more issuance than the first two weeks, said a high-yield mutual fund manager, who looks for the week ahead to be replete with plenty of drive-by deal action.

In a market that is rallying as hard as high yield presently is, no one wants to be holding on to cash, the buy-sider said.

In addition to coupon payments which are due on Jan. 15, cash continues to pour into high yield, the investor added.

During the most recent week the high-yield mutual funds saw $967 million of inflows, according to a report from Lipper-AMG, the investor recounted.

That report traced cash flows up until Wednesday's close.

Meanwhile in the two ensuing sessions cash continued to come in, the manager said, adding that the stage is set for another big inflow to be reported during the week ahead.

The good, the bad, the ugly

Parsing the past week's deals, the mutual fund manager spotlighted Exide Technologies' $675 million issue of senior secured notes due in 2018 (B2/B/) which priced at par on Thursday to yield 8 5/8%, at the tight end of the 8¾% area price talk.

Those bonds subsequently traded above 104½ bid, the manager said.

So even those whose allocations were crummy - which this investor's was - and who rapidly chased the bond in the secondary, grabbing it at 103 bid (which this investor did), still saw excellent price appreciation as the price traveled higher.

Polymer pushes terms

In the case of Thursday's deal from Polymer Group, Inc. an upsized $560 million issue of eight-year senior secured notes (B1/B/) which at par to yield 7¾%, the issuer recognized the technical strength of the market along with a book that the source estimated to be $5 billion to $6 billion, and used it to extract extremely favorable terms.

The yield printed on top of the revised 7¾% price talk, which had been lowered from earlier talk in the 8% area.

However, initial conversations came in the context of 8¼%, the buy-sider added.

Also the buy-sider saw a little aggressiveness in the use of the upsize proceeds.

The initial proceeds were earmarked to help fund the buyout of the company by the Blackstone Group.

However, the additional proceeds are to be used to reduce the sponsor's equity contribution by $30 million, to $260 million from $290 million, bringing the equity contribution to 32%.

"You could look at that as a backdoor dividend," the investor suggested.

The return of the PIK toggle

Another measure of how hot the high-yield market is can be had by looking at CityCenter Holdings, LLC's $600 million tranche of six-year senior secured second-lien PIK notes (Caa2/CCC/), which priced Thursday at par, the investor said.

The second-lien notes pay a cash coupon of 10¾% and a PIK coupon of 11½%.

Although the notes were not officially called "PIK toggle" notes, that is what they are, essentially, the buy-sider asserted.

Level 3 traded lower

At least one of the week's deals was conspicuous for its poor performance in a secondary market that seemed to be lifting all boats, the investor recalled.

Level 3's $305 million issue of 11 7/8% senior notes due in 2019 (Caa3/CCC/) priced at 98.173 to yield 12¼% on Tuesday.

The bonds subsequently traded down as low as 97½ bid, the buy-sider said.

By Friday's close they were either side of 98.

The money manager declined to fault the way that the deal was priced, but suggested that not enough of the bonds went into strong hands.

The Broomfield, Colo.-based provider of fiber-based communications services will use the proceeds to redeem its outstanding 5¼% convertible senior notes due 2011 and for general corporate purposes.

Some investors who were being taken out of the convertible put in for the new bonds, the source alleged.

However, the intentions of some who were rolling out of the convertible into the junk bond may have been to help get the junk bond deal to critical mass, thus ensuring the redemption, and to subsequently get out of the new junk bond as quickly as possible.

"If you made 3 or 4 points on the convert, you could live with losing half a point flipping the bond," the buy-sider reasoned.

Having laid out this scenario, the buy-sider put forth the expectation that the new Level 3 11 7/8% notes due 2019 will likely plow their way toward par sooner than later.

"In a market where Exide prices at par and shoots to 1041/2, people are bound to be looking at that Level 3 paper, wrapped around 98, and wondering whether it represents a bargain," the manager said.

Inviting the flip

This buy-sider did take the dealers to task for setting in train Thursday's session which saw 11 issuers raise $5.33 billion in an even dozen tranches.

With deals coming so quickly - either as drive-bys or following a day or two of marketing - it is difficult to do meaningful work on the credit, the source asserted.

Hence people find themselves playing some deals for a flip, or staying out of the book altogether.

Petrohawk pops up

A secondary market trader said that dealing in the new issues "was still dominating."

He saw Petrohawk Energy's add-on bonds trading at 102¼ bid, 102 3/8 offered. That was up from the 101.875 level at which the bonds had priced earlier in the day.

A second trader saw those bonds at 102¼ bid, 102¾ offered.

A market source, however, while seeing the Petrohawk bonds at 102 3/8 bid, said that was actually down by 7/8 point from recent levels.

The source meantime estimated Petrohawk's existing 7 7/8% notes due 2015 at 106 bid, calling them up ¼ point on the day.

CityCenter rises

Among the multitude of deals which priced on Thursday afternoon, both halves of Las Vegas-based commercial, residential and gaming development CityCenter's new $1.5 billion behemoth of a bond deal were seen having firmed from the respective issue prices.

He saw the upsized $900 million 7 5/8% first-lien senior secured notes due 2016 having firmed to 101½ bid, 101 5/8 offered, versus their par issue price late in the day Thursday, while the $600 million of 10¾% second-lien PIK notes due 2017 did even better, advancing to 103¼ bid, 103½ offered from par on Thursday.

Another relatively late deal from Thursday, RSC Equipment Rental Inc.'s 8¼% notes due 2021, was quoted Friday at 102¼ bid, 102¾ offered.

That was up from the par level at which the Scottsdale, Ariz.- based heavy equipment rental firm's $650 million deal - upsized from $450 million originally - priced earlier Thursday.

Level 3 still a puzzle

While most of the new deals seen during the week were still trading up solidly from their issue prices, mostly at par, traders still expressed amazement that Level 3 Communications' $305 million issue of 11 7/8% notes due 2019 was still having trouble even breaking its issue price.

"I was surprised," one said. "I thought it would move up just because of the [fat] coupon."

Yet on Friday, he saw the bonds not only not improving, but actually trading down into a 97½ bid. The bonds had priced Tuesday at 98.173 to yield 12 1/8%.

Indicators firm anew

Away from the new-deal realm, a trader saw the CDX North American Series 15 HY index up by ¼ point on Friday to 103½ bid, 103¾ offered, after having dipped by ¼ point on Thursday. The index thus closed up nearly 1 point from the 102½ bid, 103 offered level at which it had finished the previous week, ended Jan. 7.

The KDP High Yield Daily index meantime rose by 4 basis points on Friday to end at 74.97, after having gained 6 bps on Thursday. Its yield narrowed by 2 bps to 7.08%, after coming in by 4 bps on Thursday. The index showed a moderate gain on the week from the previous Friday's finish at 74.86, although its yield was fairly stable compared with 7.11% the week before.

The Merrill Lynch High Yield Master II index gained 0.068% on Friday, after having risen 0.153% on Thursday. Its year-to-date return increased to 1.333%, a new peak level for 2011 so far, eclipsing the previous high-water mark of 1.264% set on Thursday. On the week, the index gained 0.456% to lift it above the previous Friday's cumulative return figure of 0.872%.

Advancing names topped decliners for a 14th straight session on Friday, holding a not-quite seven-to-five advantage over them.

Overall activity, represented by dollar-volume levels, declined on Friday, traders said, with some participants seen out the door earlier than usual to stretch the upcoming three-day holiday break, with fixed-income markets in the United States slated to close Monday for the Martin Luther King Jr. day commemoration.

A trader said that liquidity levels were light because "a lot of the people we were dealing with looked like they were headed out. So it was really pretty boring."

Another trader said "it really got quiet in the afternoon," probably reflecting people leaving early, even though officially, it was still ostensibly a regular session with no early close actually scheduled or recommended by the Securities Industry and Financial Markets Association.

However, while acknowledging that the three-day weekend was somewhat of a factor, "without a doubt," he added that even though "there could be less people around, there are still plenty of big shops that really whip stuff around. It's more a function of activity of what's going on in the market, and what clients are doing."

He allowed that with so much of the secondary market's activity this week focused on trading new issues, activity away from the new-deal aftermarket was restrained all week long, which in turn could motivate shops and investors that don't usually go in much for new-issue plays to take something of a hiatus.

Going hog-wild for Smithfield

But there was brisk upside activity Friday in the bonds of Smithfield Foods, following the mid-week announcement that the Smithfield, Va.-based pork processor and hog producer - the world's largest - has begun a modified Dutch auction tender offer for its 7¾% senior unsecured notes due 2013 and its 10% senior secured notes due 2014.

A trader said that the 7¾% notes, which had been trading around a 106½ to 107 range pre-news, had moved up to a range of 109 to 109½ on Friday.

Meanwhile, the 10% notes "were up substantially," he declared, seeing them get up to 116½ bid, 117½ offered, up from around 114 before the tender news. Shortly after that, he saw the bonds at 117½ bid, 118 offered, "so they still keep going up."

A market source at another desk saw the 73/4s among the busiest junk bonds of the session.

In its announcement on Wednesday, Smithfield - which has $350 million of the 73/4s outstanding and $850 million of the 10s out - said that it would accept for purchase the maximum amount of the bonds that it could buy for $350 million, excluding accrued and unpaid interest costs and subject to possible increase. It set total consideration at an acceptable bid range of between $1,075 and $1,110 per $1,000 principal amount for the 73/4s and an acceptable bid range of $1,155 and $1,190 per $1,000 principal amount for the 10s. Those price ranges include a $30 per $1,000 principal amount early participation bonus for holders tendering their bonds by the early tender deadline of 5 p.m. ET on Jan. 26. The tender offer will expire on Feb. 9.

"It's a Dutch auction, so you still run the risk" that the company might not buy an investor's particular bonds, based on what other participants say they are willing to accept from the company, the trader cautioned.

Paper names mixed

Elsewhere, a trader saw NewPage Corp.'s 11 3/8% senior secured notes due 2014 ending around a 971/2-98¼ bid range, up from Thursday's finish around 97.

"They're up, though I don't know how much traded" in the Miamisburg, Ohio-based coated-paper manufacturer's bonds.

He meantime said sector peer Catalyst Paper Corp.'s 7 3/8% notes due 2014 "gave a little back" after the solid gains notched over the last few sessions by the Richmond, B.C.-based paper manufacturer. He saw them in an 83-84 context versus 84-85 on Thursday, estimating them off ½ point.

He said that the company's 11 % senior secured notes due 2016 continued to hang in above par at 101½ bid, 102½ offered, which "we've seen in a couple of spots."

Auto names steady

A trader said that Motors Liquidation Co.'s benchmark 8 3/8% bonds due 2033 issued by the "old" General Motors Corp. before its 2009 bankruptcy reorganization traded at 37 bid, 37½ offered, which he called unchanged on the day.

A second trader called the bonds likewise unchanged at 36½ bid.

The first trader meantime saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 up ¼ point at 108 bid, 108½ offered.

Sbarro bounces back

From deep in distressed-debt territory, a market source pegged Sbarro Inc.'s 10¾% notes due 2015 as high as 47 bid - a gain of as much as 5 points from the low levels that the troubled Melville, N.Y.-based Italian-style quick-service restaurant chain's bonds traded at on Thursday, when the bonds fell by around that same amount on the news that the company had hired the law firm of Kirkland & Ellis LLP to advise on restructuring options, including a potential bankruptcy filing.

Separately, investors digested public reports indicating that with a bankruptcy reorganization a possibility, Sbarro may soon try to get out some burdensome lease obligations by shuttering some company-owned stores, particularly in expensive cities like New York, where it has 14 such outlets, six in high-priced Manhattan, and faces sharply increased rent costs.

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