Digicel brings upsized $1 billion eight-year deal; Station Casinos shops $500 million offer

By Paul Deckelman and Paul A. Harris

New York, Feb. 19 - The high-yield market got back to work on Tuesday following the three-day President's Day holiday weekend with just one deal pricing, albeit a pretty big one.

Digicel Ltd., which provides wireless service to customers in the Caribbean and in Central America as well as some of the island nations of the Pacific, did an upsized, quick-to-market $1 billion offering of eight-year notes.

Those bonds came to market fairly late in the session, but were quoted having firmed a little from their issue price.

The only other new activity in the primary came from gaming operator Station Casinos LLC, which was heard to have kicked off a $500 million eight-year offering, for likely pricing later on in the week.

Away from those two developments, primaryside activity was heard to have been quiet. There was not much going on with the new deals that priced last week, and traders said that names such as RSI Home Products, Inc. and American Axle & Manufacturing Inc. held pretty much to the levels at which they had gone home on Friday.

In the secondary market, traders said that market activity was pretty restrained, as participants continued to straggle back in after having been off for three days. Most of the big-volume movers were split-rated "crossover" names, such as CenturyLink Inc. and Ford Motor Credit Co.

Back among the purely junk-rated names, there was a fair amount of activity in Exide Technologies' bonds despite a lack of fresh news about the storage battery-maker.

From deep in the distressed-debt precincts, the news that Reader's Digest's parent company, RDA Holding Co., filed for bankruptcy barely three years after having emerged from a previous Chapter 11 reorganization pushed the magazine publisher's bonds sharply lower versus recent levels, although volume was minimal.

Traders saw a firm tone to the market, with statistical performance indicators reading higher across the board.

Digicel eight-year notes

Kingston, Jamaica-based Digicel priced an upsized $1 billion issue of eight-year senior notes (B1//B) at par to yield 6%.

The yield printed on top of yield talk.

In part, the company brought the deal to redeem its 12% notes due 2014 and walked away with a yield exactly one-half that of the notes it is taking out.

More to the point, the company paid just a 25 basis points concession to its existing 7% senior notes due Feb. 15, 2020, according to a source close to the deal, who added that last week those notes were trading at 105½ bid.

In return for that concession, the company got a maturity that was 14 months longer than that of the 7% paper.

A buyside source who declined to get in the deal remarked that Digicel chairman Denis O'Brien has a great sense of timing when it comes to bringing a high-yield deal.

Citigroup Global Markets was the left bookrunner for the quick-to-market deal, which was upsized from $700 million and was run on the high-yield desk in coordination with the emerging markets desk.

J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC, Barclays, Deutsche Bank Securities Inc. and J&E Davy were the joint bookrunners.

Proceeds will be used to redeem the company's 12% senior notes due 2014 and for general corporate purposes.

Additional proceeds, resulting from the $300 million upsizing of the deal, will be used for general corporate purposes, which could include capital expenditures, acquisitions, debt repayment or dividends.

Station Casinos roadshow

Station Casinos set early guidance for its $500 million offering of eight-year senior notes (/CCC+/)) in the low 7%-range, according to a market source.

The deal, which kicked off on Tuesday, is expected to price late in the present week, following a roadshow.

Deutsche Bank Securities Inc., BofA Merrill Lynch, J.P. Morgan Securities LLC and Goldman Sachs & Co. are the joint bookrunners.

The Las Vegas-based provider of gaming and entertainment plans to use the proceeds, along with cash on hand and borrowings under a new credit facility, to purchase or redeem all of its outstanding senior notes due 2018 and to repay all amounts outstanding under its senior secured credit facility and the NP Opco LLC and Station GVR acquisition credit facilities.

Trading thin, players absent

Apart from Digicel and Station Casinos, the primary market news-flow was thin on Tuesday, as players returned from the three-day holiday weekend.

School children in New York and Massachusetts will be on winter holiday through the week, and many participants are coordinating vacations around the school break, sources said.

Other than Station Casinos, only one deal is parked on the forward calendar as business expected to clear by the end of the week.

England's Arqiva Broadcast Finance plc is roadshowing a £600 million-equivalent offering of seven-year senior notes, which it intends to issue in dollar-denominated and sterling-denominated tranches.

The U.S. roadshow was scheduled to wrap up on Friday.

A roadshow now under way in Europe is scheduled to conclude on Thursday.

The sterling tranche could come to as much as £400 million, according to an investor, who added that the tranche is coming together in the 9½% area.

Official price talk should surface on Wednesday, and the deal is expected to price on Thursday, the investor said.

Deutsche Bank, J.P. Morgan Securities LLC and Royal Bank of Scotland are the physical bookrunners. JPMorgan will bill and deliver for the dollar-denominated notes, while Royal Bank of Scotland will bill and deliver for the sterling-denominated notes.

BofA Merrill Lynch, Barclays, HSBC, Lloyds TSB and UBS are joint bookrunners.

Proceeds will be used to refinance bank debt.

Upsized Digicel firms

Digicel's new megadeal-sized drive-by offering of 6% notes due 2021 came to market fairly late in the session.

But before the deal priced at par, after having been upsized from an originally shopped $700 million, a trader said that he heard that "demand was excellent," causing the offering to be upsized to $1 billion.

Another trader pegged the new bonds at 100¼ bid, 100½ offered.

Quiet for existing bonds

Although Digicel said it will use the proceeds of the new offering to redeem its outstanding $510 million of 12% notes due 2014, there was no activity seen in the latter issue on Tuesday.

A market source said that those bonds had last traded on Thursday around the 107 bid level - just above the 106.8 price at which the company will take out those bonds under the tender offer announced on Tuesday.

Elsewhere in the company's capital structure, its 8¼% notes due 2020 were trading around 108¼ bid, about the same level as their most previous round-lot dealings a week ago. Tuesday's round-lot volume in the credit was over $4 million.

Digicel's 7% notes due 2020 edged up to around 106¼ bid on Tuesday, a gain of a quarter-point from Friday's level. But while there were several sizable trades taking place, none rose to the $1 million minimum requirement for round-lot dealings.

Station jumps on deal news

The news that Station Casinos will bring a new $500 million bond deal to market later this week and will use proceeds from the offering to redeem its existing 2018 notes sent the latter bond up sharply on Tuesday, although volume was light.

The company's 3.66% step-up notes due 2018 were quoted by a market source as having jumped to levels just below par - a gain of nearly 10 points from the levels around 90 bid seen last week.

However, volume in those notes was only around the $2 million mark.

Recent deals hold steady

Among the new deals in Junkbondland, a trader said that RSI Home Products' 6 7/8% senior secured second-lien notes due 2018 were trading at 100¾ bid, 101¼ offered.

That was about unchanged from where they were in initial aftermarket dealings on Friday, after the Lincolnton, N.C.-based maker of kitchen cabinets, bathroom vanities and medicine chests had priced its $525 million issue at par.

He also saw American Axle's 6¼% notes due 2021 at 100½ bid, 100¾ offered, about unchanged from the levels at which those bonds traded late last week after the Detroit-based maker of wheel axles and other automotive drivetrain components had priced its quick-to-market $400 million transaction at par this past Thursday.

Axle's established 7 5/8% notes due 2017 saw over $5 million trading around 103 1/8%, down very slightly from Friday's 103.145 level.

After round-lot trading died down, there still was a considerable amount of trading in the name, although mostly in smaller pieces. The last several trades of the session were seen by a market source to have gone off at about 102-to-102¼ bid, around a point below where the bulk of Tuesday's dealings earlier had taken place.

Virgin Media seen better

Going back a little bit further, Virgin Media's dollar and sterling bonds sold earlier in the month are up more than 2 points from their respective issue levels in secondary trading, a source said on Tuesday.

The £1.1 billion tranche of 6% senior secured notes due 2021 were better on the day at 102 5/8 bid, the source said. Those bonds were brought to market at par on Feb. 7 by Lynx I Corp., a special financing vehicle of New York-based Virgin, which provides television, broadband, fixed-line telephone and mobile telephone services in the United Kingdom.

The companion $1 billion dollar-denominated tranche of 5 3/8% notes due 2021, which priced at par, traded higher at 102 5/8 on Tuesday, the source said.

He also saw Lynx II Corp.'s £250 million tranche of 7% senior unsecured notes due 2023 rise to 102¾ bid in trading. Those notes had also priced at par in the Feb. 7 offering.

No immediate activity was seen in the $530 million dollar-denominated tranche of 6 3/8% notes due 2023 that Lynx II also sold.

A trader at another shop quoted the dollar-denominated 2021 bonds at 102 bid, 1021/4, while seeing the 2023 dollar notes at 103 3/8 bid, 103¾ offered.

However, he said that both of those series of bonds had been holding around those levels for quite some time and really haven't moved much in recent days.

Firm secondary tone seen

Away from the new deals, secondary activity felt "pretty quiet" on Tuesday, as the U.S. markets returned from the big holiday weekend and other market participants were out for winter breaks, a bond source said.

"The markets overall are buying today, there's just not much going on," the source said.

A second trader agreed that the new deals and established issues alike "were just about where they were. The market's still in a vacation mode here right now, but it's ready to digest some more [new paper]. Overall, the market feels pretty good. It's got some strength here."

Market indicators higher

Statistical junk market performance indicators were higher across the board on Tuesday, after having been mixed on Friday.

The Markit Series 19 CDX North American High Yield index ended up by 11/32 of a point on Tuesday, closing at 102¾ bid, 103 offered, after having finished down 3/32 point on Friday.

The KDP High Yield Daily index rose by 6 basis points for a second consecutive session on Monday to end at 75.31. It was the index's fourth consecutive gain. The yield came in by 3 bps to finish at 5.67%, its third consecutive narrowing.

And the widely followed Merrill Lynch High Yield Master II index, meanwhile, notched its seventh straight gain on Tuesday, as it rose by 0.042%. That followed a 0.06% increase reported by Merrill Lynch on Monday, when U.S. financial markets were officially closed, most domestic market participants were inactive and what little activity there was came on extremely light volume.

And that small gain, in turn had followed the 0.052% rise recorded on Friday.

The latest increase raised the index's year-to-date return to 1.472% on Tuesday, up from 1.43% on Monday and 1.369% on Friday, although it still remained well down from its peak level for 2013 so far of 1.991%, set on Jan. 28.

Exide trades actively

Among specific non-new-deal junk credits, a trader saw Exide Technologies' 8 5/8% notes due 2018 trading between 82-and-83 bid.

He saw no news out on the Milton, Ga.-based maker of lead-acid storage batteries for automotive and other industrial applications, but noted, "Well, they did trade over $10 million today." He put the bonds high up on the list of most-active purely junk-rated credits.

Reader's Digest tumbles

From the really distressed segment of the market, a trader said that Reader's Digest Association's floating-rate notes due 2017 had "just a couple of trades" on Tuesday following the news that the Pleasantville, N.Y.-based publisher of the iconic Reader's Digest monthly magazine and other titles had filed for Chapter 11 in order to restructure its finances.

The marked company's second trip to the bankruptcy courts in four years, having originally restructured between August 2009 and February 2010.

The trader said he saw "two or three transactions" in the notes down around the 30-30½ range.

However, he noted that while the bonds were down 20 points from their previous recent trading levels, "in the last three months, these things have traded maybe six times. So it's not very active."

A second trader said, "They've almost stopped trading this to see where it comes out - it's very sensitive."

A market source at another desk said that the bonds had most recently traded in small pieces last week at levels just under 50 cents on the dollar, but swooned to around the 31 mark and then 30 on Tuesday on the bankruptcy news.

Round-lot volume topped more than $3 million, with the bonds down at least 10 points on that basis from previous round-lot levels seen at the end of January.

Overseas Shipholding treads

A trader said that Overseas Shipholding Group Inc.'s bonds "have really been on a ride" of late, with its 8 1/8% notes due 2018 having fallen into the 30s from prior levels in the 40s, hammered down last week by the news that the Internal Revenue Service is pressing a $463 million claim against the bankrupt New York-based oil tanker operator.

He quoted the bonds at 37½ bid, 38 offered on Tuesday, which he said was "pretty much where they already were, about the same as on Friday."

Last Wednesday, the bonds swooned by as much as 10 points during the session, dropping to a low print of 30 bid on the news that Uncle Sam is claiming the company owes some $435.1 million in taxes and another $27.9 million in interest on that sum - a claim to which the company has not yet publicly responded.

The bonds bounced off that low point to end that session around 34 or 35 and have firmed slightly since then, but are still a few points below where they were when the tax claim surfaced.

Cristal Cody contributed to this review

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