High-yield primary sees first 2011 pricings from Charter, Regal; Rite Aid, Ally bonds better

By Paul Deckelman and Paul A. Harris

New York, Jan. 4 - A day after the high-yield secondary market shook off its year-end torpor and opened 2011 on a strong note, it was the junk primary's turn on Tuesday - and onlookers were not disappointed. Four prospective bond deals were announced, and two of them actually priced, in the form of upsized drive-by offerings.

The honors for Junkbondland's first deal of the new year went to Regal Entertainment Group, which priced a $150 million add-on to a tranche of bonds that the company had priced last summer.

When the issue - upsized from the originally announced $100 million - moved over to the aftermarket, traders heard that it had firmed by more than a point from its issue price.

Charter Communications, Inc. barely missed out on being the first deal of the new year, but it had the distinction of being the first mega-deal to price. It came to market with an upsized $1.1 billion offering of eight-year notes. But those bonds came too late in the session for any secondary dealings.

Also formally announcing a deal was CommScope, Inc. Syndicate sources heard that the Hickory, N.C.-based communications infrastructure company had hit the road to market its $1.5 billion offering, which will support a buyout of the company, while New Zealand-based private equity firm Rank Group Ltd. outlined financing plans, which include a bond offering, for its pending acquisition of Evansville, Ind.-based automotive parts maker UCI International, Inc.

The syndicate sources also heard informally that Oklahoma energy operator Laredo Petroleum, Inc. will likely price $300 million of paper next week.

On the secondary side of the fence, Rite Aid Corp.'s bonds improved as the drugstore chain reported increased December sales versus a year ago. That was also the case for carmakers General Motors Co. and Ford Motor Co.

And traders said the bonds of Ally Financial Inc. - the former GMAC, now out from under GM's long shadow - got a boost on the news that Uncle Sam is taking steps to unwind his multi-billion-dollar investment in the automotive and mortgage lender, a sign that the company's prospects are improving.

Overall, the junk market made it 2-for-2 so far in the new year, posting a second straight advance on sharply increased volume.

Charter massively upsizes

The new year kicked off in earnest on Tuesday. Three junk-rated issuers priced dollar-denominated deals, and two others announced brief roadshows.

The first active session of the new year brought an old familiar name to the primary market.

Charter Communications priced a massively upsized $1.1 billion issue of 7% eight-year senior notes (B2/B+) at 99.246 to yield 7 1/8%.

The yield printed at the tight end of the 7¼% area price talk.

Deutsche Bank Securities Inc., Bank of America Merrill Lynch, Citigroup, Credit Suisse and UBS Investment Bank were the joint bookrunners for the quick-to-market issue, which was upsized from $750 million.

Proceeds will be used to pay down the company's term loan and for general corporate purposes.

The issuing entities were CCO Holdings, LLC and CCO Holdings Capital Corp.

The upsizing took no one on the buyside by surprise, according to a high-yield mutual fund manager who played in the deal.

"They have about $6 billion of term loan debt to pay down, and people were expecting them to lop off as much of it as they could," the investor said.

The book was possibly three times the final $1.1 billion upsized amount of the deal, the buysider reflected, adding that the underwriter could only push the deal size so far, otherwise the bonds would sell off in the secondary. The investor added that the notes were up more than a point on the bid side in early trading.

"Everybody has cash," the manager said, adding that the bigger-than-normal cash positions with which a lot of the high-yield buyside entered the holidays amounted to a recipe for big demand and poor allocations with respect to a deal like Tuesday's Charter transaction.

Cemex prices $1 billion

Elsewhere, Mexico's Cemex SAB de CV priced $1 billion of 9% seven-year notes (expected ratings: /B/B+) at 99.364 to yield 9 1/8%.

The yield printed at the tight end of the 9 1/8% to 9¼% final guidance.

Bank of America Merrill Lynch and J.P. Morgan Securities LLC were the bookrunners for the debt refinancing and general corporate purposes deal.

The deal played to a substantial U.S. high-yield audience, according to a high-yield mutual fund manager who played it.

The allocation was horrible, the source added, spotting the new notes at 100¾ bid, versus the 99.364 issue price.

Regal upsizes add-on

Finally, Regal Entertainment Group priced an upsized $150 million add-on to its 9 1/8% senior notes due Aug. 15, 2018 (confirmed B3/existing B) at 104.5 on Tuesday.

The reoffer price came at the rich end of the 104 to 104.5 price talk.

The pricing renders a yield to worst of 8.107%.

Credit Suisse ran the books for the quick-to-market issue, which was upsized from $100 million.

The Knoxville, Tenn.-based motion picture exhibition company will use the proceeds to repay a portion of its term loan.

Once again, allocations were horrible, according to a high-yield account that put in for bonds.

The deal was heavily driven by reverse inquiry from four to five accounts, the buysider added, noting that the add-on bonds came at nearly a two-point discount to the existing bonds and traded up a point to 1¼ points in the secondary.

CommScope starts roadshow

Two prospective issuers began brief roadshows on Tuesday.

CommScope began a roadshow for a $1.5 billion offering of eight-year senior notes that is set to price early in the week ahead.

JPMorgan will act as the bookrunner.

Proceeds will be used as part of the financing for the leveraged buyout of the company by the Carlyle Group.

Laredo plans $300 million

Also, Laredo Petroleum began marketing a $300 million offering of eight-year senior notes.

That deal is also set to price during the week ahead.

Bank of America Merrill Lynch, JPMorgan and Wells Fargo Securities are the joint bookrunners.

The Tulsa, Okla.-based oil and gas exploration and production company will use the proceeds to repay and retire its term loan, repay its revolving credit facility and for general corporate purposes.

New Regal rises

When the new Regal Entertainment add-on bonds were freed for secondary dealings, a trader said that they firmed to a bid level around 106 to 106 1/8 - well up from their 104.5 pricing level earlier on.

Another trader saw the Regal bonds late in the day off such peak levels, but still up from their issue price, at 105½ bid, 106 offered.

The first trader said that he saw "a small, little piece" trading.

"I don't think we saw much secondary trading in it." He said the bonds largely circulated in a 105¾ bid, 106¼ offered context. "Inside that range, there were a few trades."

Secondary firmness continues

Away from the new-deal arena, a trader saw the CDX North American Series 15 HY index up by 1/8 point on Tuesday to close at 103½ bid, 103¾ after having gained ½ point on Monday.

The KDP High Yield Daily index meantime rose by 9 basis points on Tuesday to go out at 74.67, on top of the 18-bps advance on Monday. Its yield came in by 4 bps for a second straight session on Tuesday to finish at 7.24%.

The Merrill Lynch High Yield Master II index rose by 0.22% on Tuesday following Monday's 0.316% return. That lifted the index's year-to-date cumulative performance to 0.537%. The index had finished 2010 with a total return of 15.190%.

Advancing names topped decliners for a sixth straight session on Tuesday and held a roughly eight-to-five lead for a second day in a row.

Overall activity, represented by dollar-volume levels, jumped by 50% from Monday - when activity, had, in turn, zoomed 17-fold from the extremely low level seen during the shortened pre-holiday session on Friday.

A trader said that "it seemed like stuff started to pick up at the end of the day," presumably helped by the aftermarket strength in the new Regal Entertainment issue.

He said that the secondary, building on the advances with which it opened 2011 trading on Monday, "was starting to gear back up" after its extended layoff.

"There was definitely a better buying tone to the market."

A second trader said that "nothing was jumping out at me," although he allowed that he had spent much of the day in meetings.

As a general observation, he opined that "it seems like the larger names have been trading. I presume that people were just low profile going into the end of the year," a period usually dominated by window-dressing-type transactions aimed at showcasing good returns for the quarter or calendar year, with market behavior reverting closer to normal once that distraction is past.

"They may have tried to put on some inventory or fill in some gaps, but money came in - there were some decent inflows at year-end, and that's probably still going on."

He said that "there's still a 'I'm ready to take risks again' mentality out there, with everybody touting that the economy is supposedly going to be growing again."

Another factor helping to encourage the junk market, he said, was that "there's no noise out there about the PIIGS, or anything," using the unflattering acronym for the perceived economically weaker countries in the European Union - Portugal, Ireland, Italy, Greece and Spain - the stability of whose debt has caused considerable worry among investors over the last several years. However, he qualified that, adding a "for the moment."

With those kinds of favorable factors, "there's a general adding-on to paper."

Sales numbers spur Rite Aid

Among specific names, a market source saw Rite Aid's 8 5/8% notes due 2015 gain over 2 points, closing at 89¾ bid, presumably helped by December's positive same-store sales figures - the retailing industry's key performance metric.

At another desk, those bonds were seen up 2 points on the nose to close at 89½ bid.

A trader elsewhere remarked that he saw "not all that much" trading in the credit, though he deemed the debt up half a point to a point across the board.

He saw about "$25-odd million" of the company's 9 3/8% notes due 2015 change hands at 86¾ bid, 87¼ offered. Another "$10-and-change" million of its 8% notes due 2020 traded at 104½ bid, 105 offered.

At yet another shop, however, a trader called the 9 3/8s "basically unchanged" around 87, though in "pretty active" dealings.

Those gyrations followed the Camp Hill, Pa.-based No. 3 U.S. drugstore chain operator's announcement of its monthly sales results, which showed a 0.6% gain in December in same-store sales - that is, those stores already open a year earlier. Screening out newly opened stores, or stores that had been open the previous year but which since closed, is considered the most accurate method of getting a stable reading on store sales trends. Analysts had been expecting a 1% decline in same-store sales.

While the same-stores figure went up, Rite Aid reported that total drugstore sales for the month dipped 0.5% to $2.08 billion. About 63% of that revenue came from its pharmacy sales.

For the 43 weeks ending Dec. 25, however, same-store sales dropped 1.1%. Total sales came to $20.77 billion, down from $21.22 billion the year before.

Autos advance on sales data

Better December sales also played a role in pushing auto issues like the bonds of the former General Motors and of Ford higher.

A trader said that Motors Liquidation Co.'s benchmark 8 3/8% bonds due 2033 were up ¼ point, trading as high as 36¾%, attributing the rise to news of GM's sales gains in December and for all of 2010 versus the year before.

The bonds had been issued back when the company was still General Motors Corp. - before its profitable car-making operations were skimmed off and reorganized as a "new" GM, General Motors Co., leaving the bonds and other liabilities with the "old" GM, now renamed Motors Liquidation. Traders say that those leftover GM bonds are a proxy for the "new" GM's stock, issued late last year, since Motors Liquidation has been given a 10% stake in the profitable new carmaker for eventual distribution to its bondholders.

The trader meantime said that GM domestic arch-rival Ford's 7% notes due 2013 were "the most active" of the No. 2 carmaker's bonds, seeing them up 1½ points on the day at a 108ish context.

He said that the widely followed and quoted Ford 7.45% bonds due 2031 were "not that active," calling them up ½ point, trading as high as 109 bid.

A second trader said that GM and Ford "were not at the top" of his list of movers, adding, "I didn't see a lot of trades."

He called the GM paper "relatively unchanged," with the longer bonds, like the 2033 benchmarks, looking like "it was up a quarter, down a quarter, that kind of thing." He pegged those bonds around a 363/4-37 context. "They've been up and down a quarter most of the day and are right around unchanged," though with "a fair amount of volume."

He saw GM's 7 1/8% notes due 2013 down ¼ point at 35¼ bid. "There was less volume in the shorter paper, like the 11s," meaning the 7.2% notes set to mature less than two weeks from now, on Jan. 15, and the 9.45% notes due Nov. 1, 2011, which are trading around 35 bid and 32 bid, respectively. "It doesn't really matter," he concluded.

Yet another trader saw the GM benchmark up ¼ point on the day at 36¾ bid, 37¼ offered, while seeing the Ford long bonds down 1 point at 107½ bid, 108½ offered.

For the year, Detroit-based GM sold 21% more vehicles than it did in 2009, according to a company press release. December sales were also better, rising 16% year-over-year. Management attributed the gain in sales to its leaner post-bankruptcy business model.

Dearborn, Mich.-based Ford meantime came in with total domestic sales for the year of 1.94 million units, up 19% versus a year earlier. Its December retail sales were up 17% versus a year ago, while total sales of 190,976 - which includes fleet sales to large buyers like government agencies and rental-car companies - were up 7%.

Ally shows improvement

For a second straight session, traders saw gains in the bonds of Ally Financial - the company formerly known as GMAC but now reconstituted as an automotive and mortgage financing and banking company independent of former corporate parent GM.

A trader said that Detroit-based Ally's 8% notes due 2031 were its most active issue on the day, up 1¾ points at 112¾ bid.

Its 8.3% notes due 2015 rose 3/8 point, the trader said, to 111 7/8.

A market source at another desk saw its 6 7/8% notes due 2012 up ½ point at 105.

However, another source saw Ally give back some of the gains it had notched on Monday, with its 6 7/8% notes slated to come due this September down nearly ½ point at 102¾ bid, while its 5 3/8% notes maturing in June eased by ¼ point to 101 1/8 bid.

The Ally bonds have firmed over the last two sessions, a trader said, because of the news that the federal government - which gained majority control of Ally by investing $17.2 billion of bailout money into the lender over the past several years - had moved to convert some $5.5 billion of its preferred stock holdings, about half of its preferred stake, into Ally common shares.

While the immediate impact of that transaction is to boost Washington's stake to 74% of Ally's common shares from 56% previously, the Treasury Department said that the move, along with the separate planned sale of some trust preferred securities, is "designed to accelerate Treasury's ability to exit its investment."

Analysts and other market-watchers said that the feds laying the groundwork for an eventual sale of their controlling Ally stake represents one more step on the road back to normalcy for the company.

CIT remains actively traded

Also among the junk financials, a trader said that CIT Group Inc.'s 7% notes due 2017 "were actually down on the day," quoting the notes at par bid, down 3/8 point "on some pretty good volume" of over $50 million, putting them way up there on junk's most-actives list for the day.

A second trader saw "some activity" in the CIT paper, with "a lot of trading" in the '17s, quoting them around 100½ bid.

"I'm not sure if that was just guys trying to add and subtract paper," saying the action in the '17s looked like no more than a 1/4-point move from levels seen before Christmas.

Looking at the larger market, he said that "some people," looking to add on to their holdings, "have been taking advantage of the bids for some of the stuff that's kind of low-coupon," citing CIT's 7s as an example of that. "They've been hanging out there and not really moving."

The first trader said the New York-based commercial lender's 7% notes due 2013 were "pretty much unchanged, but it was only a couple of million trading," at 102 bid.

The company announced Thursday that $500 million of the bonds, or nearly a quarter of the total outstanding, will be redeemed at the end of the month at a 102 price. News of the call helped to push those bonds up by more than a point in Friday's thinly traded, abbreviated pre-holiday session and to around the takeout level on Monday. It also caused the company's other bonds to firm to a par-101 bid range.

"The rest of the issues were pretty much within 1/8 to ¼ [point] of where they were [Monday], not on large volume."

NewPage paper pops again

A trader said that NewPage Corp.'s bonds were "active again today," particularly the Miamisburg, Ohio-based coated-paper manufacturer's 11 3/8% senior secured notes due 2014. "That seems to be sort of a mainstay for trading," he added.

He quoted the notes as having firmed for a second straight session, up "a solid point" from Monday's levels around 93½ bid.

"There were a bunch of trades today," starting out at 94½ bid and then printing as high as 95½ going home.

MGM Resorts easier

A trader said there's been "a fair amount of MGM [Resorts International] trading - it looks like it's off a little bit, but was probably up [Monday] on the good news about numbers coming out of Macau in particular," where the Las Vegas-based gaming giant is a joint-venture partner in a big casino with a locally based operator.

At another desk, a trader quoted its 7 5/8% notes due 2017 as having given back a little, ending around 93 bid, which he attributed to position jockeying.

But another trader said the bonds were "down in general," seeing the 7 5/8s losing a point to end around 931/2. The 7½% notes due 2016 dipped almost a point to 94.

A market source saw its 6 5/8% notes due 2015 off ¼ point to 92 bid, while pegging the 71/2s down ¾ points to end at 94 bid.

Stephanie N. Rotondo contributed to this report

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