A.M. Castle prices, moves up; Vulcan buoyed by takeover news; coupon miss fells Sino-Forest

By Paul Deckelman and Paul A. Harris

New York, Dec. 12 - The high-yield market began the final full trading week of 2011 on Monday with one pricing, as A.M. Castle & Co., a global distributor and processor of specialty metals and industrial plastic products, brought in a $225 million offering of five-year senior secured notes.

After that forward-calendar deal priced at a steep discount to par, the new bonds were heard by traders to have firmed by a point or so when they reached the aftermarket.

The traders saw little or no activity in names that priced last week, such as Friday's pair of quickly shopped add-on offerings from fuels refiner CVR Energy Inc. and aircraft-leasing outfit Aircastle Ltd.

And there wasn't even that much trading in last week's signature new-deal issue, Ford Motor Credit Co. LLC's $1 billion add-on to the 10-year bonds it sold earlier in the year. Trading dwindled from last week's intense volume and the auto-loan provider's deal was quoted as having lost some ground from recent highs.

Traders said that much of the market's focus was on the bonds of building-products producer Vulcan Materials Co., which shot up as much as 10 points on one of its issues in fairly heavy dealings on the news that industry rival Martin Marietta Materials, Inc. made an unsolicited hostile takeover bid for Vulcan.

Out of the distressed-debt realm came news that troubled timber plantation operator Sino-Forest Corp. plans to skip an interest payment on its bonds that comes due in a couple of days, pushing its levels down about 10 points.

Overall, a trader said the market was weaker and that was borne out in the previously mixed statistical performance measures, which fell on Monday across the board.

One deal for quiet primary

During the quiet Monday primary market session, A. M. Castle priced the day's only deal, a $225 million issue of 12¾% five-year senior secured notes (B3/B+).

The notes priced at 96.50 to yield 13.741%.

The coupon printed at the tight end of the 12¾% to 13% coupon talk. The reoffer price came on top of price talk.

Jefferies ran the books for the acquisition and debt-refinancing deal, which generated $217 million of proceeds.

The order book was in good shape, according to an informed source who spotted the new A.M. Castle 12¾% bonds at 98½ bid, 99½ offered, well after the Monday close.

"The market was quiet, but the deal got done," the source added.

New deals subject to climate

With A.M. Castle having cleared, two deals remain in the market.

99¢ Only Stores has been roadshowing a $250 million offering of eight-year senior notes (Caa1/CCC+) that is expected to price during the middle part of the week. RBC is the left bookrunner. BMO and Deutsche Bank are the joint bookrunners.

And Expert Global Solutions, Inc. was due to wrap up the roadshow on Monday for a $300 million offering of eight-year senior notes (Caa1/) via Deutsche Bank, Barclays, J.P. Morgan and RBS.

However, no price talk was available, according to an informed source who added that dealers are aiming to price the bonds later in the present week.

Apart from those two deals, there are some possibles, a syndicate official said on Monday.

"We have one sizable deal that is prepped and ready to go and it could happen this week," the source remarked.

"But the market is not helping it," the official added, noting that cash and synthetics both finished lower on Monday, with the CDX 17 HY index down 7/8 of a point at 91½ bid.

Roadshow starts for deals set to price before the end of the year are becoming less and less likely with each advancing day, another debt capital markets banker said on Monday.

The final days to get deals done could be Monday, Dec. 19 or the following day, the sellsider added.

Some of those with the ability to do so are planning to take days off ahead of the Dec. 23 close, which will be the practical terminus of 2011 primary-market activity, sources said on Monday.

With the year winding down - and many players not unhappy to see it go - the primary market should remain generally quiet during the run-up to the holidays.

A.M. Castle bonds climb

When A.M. Castle's new five-year senior secured notes were freed for secondary market dealings, a trader at first said that the only thing he saw in new issue was 97½ bid - up from the 96.5 level at which the $225 million transaction had come to market.

But he initially saw no offerings in the deal.

Subsequently, he said he saw that improve to 98¼ bid, though still without an offering. Later it dropped back to 97½ bid, 98½ offered.

A second trader also saw the new bonds bid at higher levels, though not being offered. He said he saw them anywhere from 97 to 99, before settling in at 98¼ bid.

However, another trader opined that the new Castles "were trading well," pegging them at 98½ bid, 99½ offered.

Little recent-deal activity

Several traders said they saw no activity in some of the new deals that priced last week - even Friday's two offerings: the $200 million add-on offering to CVR Energy's 9% senior secured notes due 2015 and Aircastle's $150 million add-on to its 9¾% notes due 2018.

One trader noted that both deals were smallish by typical junk-market standards and were add-ons, so were unlikely to trade much after their respective initial post-pricing flurries.

Sugar Land, Texas-based fuels refiner CVR's quickly shopped fungible add-on to the $275 million of notes that priced in March of 2010 priced Friday at 105 to yield 7.261%. That is well under the original deal's 9 1/8% yield and was quoted Friday at 106 bid, 107 offered.

Stamford, Conn.-based aircraft leasing company Aircastle's same-day addition to the $300 million original deal it brought to market in July 2010 priced on Friday at 102.769 to yield 9.179%, inside of the original tranche's 10% yield. Traders saw it late Friday at 103¾ bid, 104¼ offered.

Even Ford Motor Credit's $1 billion of new 5 7/8% notes due 2021 - by far the busiest bond last week in Junkbondland - was relatively sedate on Monday.

The loan-financing arm of Dearborn, Mich.-based automotive giant Ford Motor Co. had priced its drive-by transaction last Monday at 101.80 to yield 5 5/8% versus the 5 7/8% yield on the $1 billion original tranche when it was sold this past August.

After pricing, the new bonds quickly shot above 102 bid. They moved all the way up to quoted levels as high as 103 by last Thursday, before starting to come down off of those peaks.

Volume in the well-received new deal totaled an astounding $100 million-plus both last Monday and last Tuesday and was still up around $43 million by mid-week, dominating the most-actives lists.

By the end of last week, it came down significantly, but was still a respectable $15 million.

However, on Monday that dwindled down to about $6 million on a round-lot basis, pushing the issue well down the actives list.

A trader said that with all of the busy activity in Ford Credit last week, "Everyone was done doing whatever they needed to do" in the new issue, which he said was down about a half point.

Another market source said the bonds dropped by ¾ point, closing at 101¾ bid - the first time those bonds had traded below their issue price.

Vulcan volume is tops

A trader said that instead of focusing on the new-deal market, market attention was largely centered on Vulcan Materials' several bond issues, which were given a big boost, along with the company's stock, on the news that competitor Martin Marietta had launched a hostile $4.8 billion takeover bid for Birmingham, Ala.-based Vulcan. The company produces construction materials such as concrete, cement and asphalt.

A trader noted that Vulcan's 7½% notes due 2021 "shot up over 9 points - you had a lot of paper trading between 111 and 112."

He saw the 6½% notes due 2016 up some 5 points on the day to about 105 bid. The company's 7% notes due 2018 moved up to 103 bid, a gain of about 5 points.

He saw the 7½% notes and the 6½% notes holding down the two top spots on the high-yield most-actives list Monday.

A second trader said that the Vulcan bonds "traded up by 8 to 10 points, then they sold off and closed up about 5 to 7 points."

However, after that there was additional market activity, particularly in the most volatile and heavily traded of the three issues, the 7½% notes. By the end of the day, those notes moved back up to the 112 level from about 107½ earlier, closing at 112 - a full 10-point gain on the day - with round-lot trading totaling more than $30 million.

A market source saw the 6½% notes ending at 105, pronouncing that was a better than 6 point gain on the session with more than $18 million traded.

There was less activity in the 7% notes with only about $2 million of large-block trades having taken place.

Those bonds were last quoted at almost the 105 level, a better than 6 point advance, though on a round-lot only basis, they were up 4½ points to end at just under 103.

Vulcan's New York Stock Exchange-traded shares jumped by as much as 34% during the session, hitting a high of $45, before ending up $5.19, or 15.47%, at $38.74. Volume of 10.6 million shares was nearly seven times the norm.

Raleigh, N.C.-based Martin Marietta said that it has been holding fruitless talks for more than a year with its larger rival on a possible combination, which would create the world's largest producer of sand, gravel and other construction materials.

Seeing nothing coming from those negotiations, Martin Marietta decided to go over the heads of Vulcan's management and take its all-stock bid, valued at an estimated $36.69 per share, directly to the target company's shareholders.

Martin Marietta declared that combining the two companies could produce as much as $250 million of annual cost savings. Its chief executive officer, Ward Nye, said in a statement that "this is too much shareholder value ... to walk away from in good faith."

But while Martin Marietta's board and senior management see making such an offer as a no-brainer, others are not so sure.

Analyst Carol Levenson of the Gimme Credit independent investment advisory service cautioned that there are "plenty of potential hurdles for such a combination, both regulatory and financial."

Levenson noted that the Martin Marietta bid represents just a "paltry" 9% premium over where Vulcan stock has recently traded.

"Well below what one would expect for a hostile offer to succeed," she said.

Levenson, who serves as Gimme Credit's director of research, said that Vulcan likely "does not really have the financial flexibility to launch a leveraging defensive action."

But she added, "That does not mean it wouldn't try something."

She said it seems highly unlikely the current terms will be the final terms. She said she expects Martin Marietta to come back with some cash and a much higher offer if it wishes to prevail.

Martin Marietta is a high-grade credit. Its bonds are rated Baa3/BBB+/BBB against Vulcan's Ba2/BB ratings.

But Levinson asserted that "it would be a stretch to consider the combination of investment-grade credit quality even at the current terms."

Market heads lower

Away from the excitement generated by the Martin Marietta-Vulcan news, a trader said that "the market was weaker - but nothing really stood out."

Statistical measures of junk-market performance, which were mixed on Thursday and Friday, breaking a six-session winning streak - turned negative on Monday.

A trader saw the CDX North American series 17 High Yield index lose 13/16 point on Monday to end at 91 3/8 bid, 91 5/8 offered, more than erasing all of the 11/16 point gain recorded on Friday.

The KDP High Yield Daily index was down by 13 basis points Monday, closing at 71.68 after having been up by 2 bps on Friday.

Its yield rose by 4 bps to 7.72% after having declined by 2 bps on Friday.

And the widely followed Merrill Lynch High Yield Master II Index suffered its second consecutive loss on Monday after having risen before that over seven straight sessions.

Its 0.075% loss on Monday followed Friday's 0.081% downturn.

The latest loss lowered the index's year-to-date return to 3.221% from Friday's 3.298%.

Year-to-date returns remain below the recent peak level of 4.28% recorded on Oct. 28 and are well below its high-water mark for the year of 6.362%, which was set on July 26.

However, they are still well up from its 2011 low point, a 3.998% deficit recorded Oct. 4.

Sino-Forest chopped down

Out of the distressed-debt precincts came word that Sino-Forest's debt was quoted lower Monday after the company said it was not going to pay the Dec. 15 $9.78 million interest payment on its 4¼% convertible notes due 2016.

"They were a good bit lower," a trader said. "I don't know if there was really any trading."

He said the notes, including the 10¼% notes due 2014, were quoted in the mid-20s, down from previous markets in the high-30s.

Another trader said the paper was down "about $10 or so," deeming pretty much all of [the notes] in the 25 to 27 context.

The forest products company, which has domiciles in China and Canada, will now enter a 30-day grace period. If the payment is not made in that time or another agreement cannot be reached, the notes can be accelerated.

Sino-Forest also said it is in talks with stakeholders and advisors will consider all of its strategic options.

The company already breached covenants under its notes. Its ability to continue is a going concern and is contingent upon talks being successful.

"This is a real company with real assets and devoted employees," vice chairman and chief executive officer Judson Martin said in the release. "We will do everything within our power to maximize the return to our stakeholders and complete any work that is required."

Sino-Forest came under scrutiny in June when Hong Kong-based Muddy Waters Research - an outfit run by known short-seller Carson Block - alleged that the company fraudulently misrepresented land holdings in China. The company has since investigated the claims and concluded that the allegations were false.

AMR gains altitude

Elsewhere, trading in AMR Corp. bonds was "still in vogue," a trader reported Monday.

He saw the 6¼% notes due 2014 hanging in the 22 to 22½ range.

"I believe they are settling the CDS in a few days," he added.

Another trader said the company's American Airlines Inc. 10½% notes due 2012 were better, though he "didn't see any particular news."

He called the issue up "probably 2 points" at 94½ bid, 95 offered.

Another trader said the issue was "up a shade" at 94.

Fort Worth, Texas-based AMR is the parent company of American Airlines, the largest U.S.-flag passenger carrier. The company filed for Chapter 11 protection on Nov. 29 to deal with its high cost structure and debt burden.

MF off ahead of testimony

A trader said that MF Global Holdings Ltd.'s bonds were "down a couple of points," quoting the failed New York-based future brokerage's 6¼% notes due 2016 trading down to around a 31 to 32 context, though on "not a lot of volume."

He said that 32 bid would be down about 2 points on the day.

A market source said the bonds actually traded higher early in the session, gaining about 2 points to hit the 36½ bid level on a series of relatively small trades. But toward the end of the day, larger trades brought the bonds back down to around the 32 level, a loss of 2 points on the session on volume of about $3 million.

The company's pink sheets-listed and nearly worthless penny-stock shares lost value as well, closing down 1 cent, or 11.50% on the day, at an even dime, although volume of 1.8 million shares was only a fraction of the usual turnover.

The bonds and shares fell against a backdrop of company executives - taking their cue from last week's congressional testimony by resigned former chairman and chief executive officer Jon Corzine - saying that they also do not know what happened to as much as $1.2 billion in missing funds that disappeared around the time the company collapsed and slid into bankruptcy in late October.

The company's chief operating officer Bradley Abelow and its chief financial officer Henri Steenkamp are due to testify on Tuesday before the Senate Agriculture Committee, one of several congressional panels investigating the company's implosion.

Corzine - himself a former U.S. Senator -also will be testifying before his former Senate colleagues.

He is expected to repeat the testimony that he gave last week to the House Agriculture Committee in which he denied any knowledge of the missing $1.2 billion and also denied news reports that said that he had pushed for risky big bets on the European sovereign debt of such struggling countries as Greece and Portugal, resulting in massive losses that brought the company down.

Stephanie N. Rotondo contributed to this report

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