NRG, Landry's price, NRG firms; Rock Holdings drops out; Harrah's bonds see heavy trading

By Paul Deckelman and Paul A. Harris

New York, Aug. 17 - NRG Energy Inc. priced a solidly upsized, quickly shopped offering of 10-year notes on Tuesday, high-yield syndicate sources said. When the Princeton, N.J.-based power generating company's new deal was freed for aftermarket activity, traders said the bonds moved up between ½ and 1 point.

The only other deal coming to market during the session was Landry's Restaurants Inc.'s slightly upsized offering of 2014 senior secured notes, which like NRG also priced just a few hours after market participants became aware that a deal was in the works. The Houston-based restaurant and gaming company's new issue was not seen trading in the secondary.

Meanwhile, Rock Holdings, Inc. withdrew its planned $300 million offering of five-year senior secured notes in order to seek more attractive financing terms elsewhere.

The new $350 million issue of six-year senior secured bonds from Toys 'R' Us Inc. - Delaware, Inc. held steady around the levels to which the new paper had risen right after pricing on Monday.

Away from the new-deal arena, the secondary saw a tremendous amount of trading - well over $100 million by several estimates - in Harrah's Operating Co. Inc.'s 10% secured notes due 2018; market sources suggested that one or more large bondholders had sold out their positions in that particular credit in order to pocket handsome gains that have accumulated since they acquired the bonds in an exchange offer last fall.

Dynegy Holdings Inc.'s bonds were seen firming for a second consecutive session as the Houston-based power generating company's paper moved back up to, or even above, the levels it had held before last Friday's news of the company's pending buyout by Blackstone Group LP drove those prices down by multiple points in active trading.

Traders said the secondary market was generally stronger Tuesday, both anecdotally and according to major statistical indicators.

NRG massively upsizes

Two high-yield issuers raised $1.199 billion of proceeds on Tuesday. Each one brought a single tranche of bonds.

NRG Energy, Inc. priced a massively upsized $1.1 billion issue of 10-year senior unsecured notes (B1//) at par to yield 8¼%, according to an informed source.

The yield printed at the wide end of the 8 1/8% to 8¼% price talk. The amount was increased from $750 million.

Citigroup was the left bookrunner for the quick-to-market deal. Bank of America Merrill Lynch and Deutsche Bank Securities were the joint bookrunners.

The Princeton, N.J.-based power generating company plans to use the proceeds for general corporate purposes, including working capital, investment in business initiatives and capital expenditures, and potentially to prepay or repurchase outstanding debt or to fund recently announced acquisitions.

The par-pricing deal traded up to 101 bid, according to an investor, who received an allocation that was reasonable in proportion to the small order which the source put in.

This investor, who had already turned around and sold the modest allotment of NRG 8¼% notes due 2020 by the time the market closed on Tuesday, heard that the deal had been significantly oversubscribed.

Landry's brings LBO deal

Elsewhere, Landry's Holdings, Inc. priced a $110 million issue of 11½% senior secured notes at 90.00, resulting in a 15.069% yield.

The coupon, reoffer price and yield came in line with price talk.

Jefferies & Co. ran the books for the quick-to-market deal.

Proceeds will be used to help finance the acquisition of Landry's by Tillman J. Fertitta, and for general corporate purposes, which may include investments in Landry's or other restaurant or hospitality companies.

Rock Holdings postpones

Rock Holdings, Inc., the parent of Quicken Loans and Title Source, withdrew its $300 million offering of five-year senior secured notes, opting for what it considers more attractive financing alternatives, an informed source said on Tuesday.

Credit Suisse Securities and J.P. Morgan Securities Inc. were the joint bookrunners.

The San Diego-based online lender had intended to use proceeds from the bond sale to fund a dividend and for general corporate purposes.

Thin calendar

Aside from Tuesday's two drive-by deals, there were no new deal announcements on Tuesday.

Although a substantial - some say "massive" - pipeline of post-Labor Day deals is said to exist, no names have been heard, according to a high-yield mutual fund manager who spoke to Prospect News late Tuesday.

Meanwhile there is a pair of offerings on the active forward calendar.

RAAM Global Energy Co. is expected to price a $200 million offering of five-year senior secured second-lien notes during the middle part of the present week.

The deal is talked at the 12½% area.

Global Hunter Securities and Knight Libertas are joint bookrunners.

Also Mueller Water Products, Inc. is roadshowing its $225 million offering of 10-year senior notes, which is set to price on Thursday.

Bank of America Merrill Lynch and Goldman Sachs & Co. are joint bookrunners for the debt refinancing deal.

New NRG energetic

A trader said that NRG Energy's new 8¼% notes due 2020 were "well-received." Right on the break, he saw the bonds moving as high as 100¾ bid, 101¼ offered, and later on, he said, they were at 101 bid, 101¼ offered, versus their par issue price earlier in the day.

Another trader saw them initially trading up to 100½ bid, 101½ offered.

Yet a third trader pegged the bonds at 100¾ bid, 101 offered.

Toys seen steady

A trader said the new 7 3/8% senior secured notes due 2016 issued by Toys 'R- Us- Delaware "haven't moved," quoting the bonds at 101¼ bid, 101½ offered - about where the Wayne, N.J.-based specialty retailer's $350 million deal had ended up on Monday after pricing earlier in that session at par.

A second trader quoted the new bonds at 101¼ bid, 102¼ offered, while seeing the company's existing 8½% senior secured notes due 2017 steady at 104¾ bid, 105¾ offered.

Market indicators head higher

Away from the new-deal sector, a trader saw the CDX North American HY Series 14 index gain 5/8 point on Tuesday to 97 3/8 bid, 97 5/8 offered, after having lost ¼ point on Monday.

The KDP High Yield Daily index meantime rose by 18 basis points Tuesday to end at 71.93, after having declined by 6 bps on Monday. Its yield came in by 8 bps Tuesday, to 8.24%, after having increased by 4 bps Monday.

The Merrill Lynch High Yield Master II index finished higher for a second straight session on Tuesday, starting to bounce back after having been down for the previous four sessions last week. Its year-to-date return rose by 0.082% to end the day at 8.476%, up from 8.387% on Monday. However, it still remains below its peak level for 2010 so far, the 9.085% recorded on Aug. 9.

Advancing issues led decliners for a second straight session on Tuesday, their seven-to-six winning margin having widened from just the relative handful of issues - just a couple of dozen out of more than 1,400 tracked - which had separated the two groups on Monday.

Overall activity, represented by dollar-volume levels, jumped by 69% on Tuesday, after having fallen by 14% on Monday.

However, a trader said, clearly, "you can see what dominated today," with most of the increased trading volume attributable to the heavy dealings in one name - Harrah's.

A hectic day for Harrah's

Easily the busiest credit of the day in Junkbondland on Tuesday was Harrah's Operating Co.'s 10% senior secured second-lien notes due 2018, with the Trace system showing at least $100 million of the notes having changed hands during the day, and traders estimating that the actual volume was considerably higher.

Those bonds had closed out trading on Monday at 82 bid, and on Tuesday traded just a little below that on the high side, and a little above 80 at the low end, finally going out, a market source said, at 80½ bid, for a 1½ point loss on the day. At another desk, the bonds were pegged going home around 811/2, down about ½ to ¾ point on the day.

There was no obvious fresh negative news out about the Las Vegas-based gaming giant that might explain the heavy activity at easier levels, although one theory mentioned in some quarters was investor unease over Harrah's plans to register a portion of its shares - the nearly 10% held by billionaire investor John Paulson - with the Securities and Exchange Commission, one of the conditions of the acquisition deal back in June which saw his New York-based hedge fund, Paulson & Co. Inc. take that ownership stake, in exchange for $710 million in Harrah's debt Paulson held. In its filing last Thursday, Harrah's told the SEC that Paulson & Co. intends to sell its 9.9% stake as soon as possible.

Paulson's deal was part of a larger transaction which saw Harrah's two principal owners - Apollo Global Management LLC and TPG Capital LP - take an additional 5.7% equity stake in Harrah's in exchange for $408 million in debt, bringing their combined holding in the company to 89.3%.

Big bondholder(s) cashing out?

Another possible cause for the heavy activity in the 10% bonds was a rumored sale of a big chunk of the $3.7 billion issue by one or more major bondholders - likely the aforementioned equity owners, who also hold much of Harrah's debt - looking to reap some solid profits on such a transaction.

A trader said that he had heard talk that Apollo had "sold all of their [10% 2018] bonds through the Citigroup syndicate desk," estimating the total size of that transaction at $350 million. Then, he said, "the desk was moving them out, on the Street, going to the customers," causing the run up in volume.

Both Apollo and Citigroup declined comment.

"The price didn't really change," the trader said, as the 10s stayed in a low-80s context, "but a lot of guys have been trading them, so there was probably a couple of hundred million changing hands."

A market source cautioned that the Trace figure of slightly over $100 million was probably not accurate as it would be too low, since any trade of more than $1 million is classified only as "1 MM+" - $1 million-plus, whether it is for $2 million, $5 million or even more.

A market participant at another desk said it was his understanding that while Apollo was, in fact, selling a block of bonds on Tuesday, they were "not alone," meaning not the only large holder to be doing so, although he had no specifics as to the overall amount of bonds which were being offered for sale or how much anyone in particular may have been selling.

He noted that the bondholders had acquired those 10% secured notes, among other debt, about a year ago, for a price around 37 cents on the dollar, and opined that unloading the bonds at their current level around 80 cents was "a good transaction" for them, and suggested that that particular piece of debt was likely no longer "a strategic holding" and probably represented a relatively small portion of the total Harrah's debt held.

So this was, he surmised, "an opportunistic" transaction and a chance to get "a great return - almost two-and-a-half times what they paid" in the space of less than a year.

Paulson deal not a factor

A spokesman for Harrah's told Prospect News that TPG and Apollo had acquired several series of Harrah's bonds, including more than $300 million of the 10% 2018 secured notes, via an exchange offer last year, at which time Harrah's filed a registration statement with the SEC to allow for the holders to publicly resell those bonds. The registration statement has since been updated several times with amended prospectuses, "so these are bonds that they are selling in the market." He said such sales were being undertaken by those bond holders, not by Harrah's itself, which gets no proceeds from such bond re-sales.

He did not have any information about the exact size of the block or blocks of bonds being offered for sale on Tuesday, and declined comment on the likely motivation for the sale. "The company [i.e. Harrah's] really doesn't have anything to do with this, other than just putting out the prospectus," he reiterated.

He did say, however, that the sale of the bonds by their holders was not connected with the prospective Paulson stock transaction. "They're independent transactions," he said. "They just happen to be around the same time."

A trader said that the 10% notes "were the only ones that really saw that much activity. He said the company's other issues "obviously, were down in sympathy." But Harrah's "dominated the market."

A look at the tape shows that Harrah's other paper was also easier, but on considerably lower volume; for instance, a market participant said that the next most active traded Harrah's issue after the 10s were the 10¾% notes due 2016 - which saw only about $12 million changing hands. Those bonds at one point firmed up to around the 84 mark, a gain of a couple of points, but only on several smallish, unrepresentative trades. By the end of the day, they had sunk back down to around the 81 level where the bonds had traded for most of the day, off by a point from Monday's finish.

Dynegy rebound continues

Elsewhere, a trader said that Dynegy's bonds were bouncing back smartly for a second straight session, as investors apparently became more comfortable with the big deal announced on Friday which will see Blackstone Group acquire Dynegy for $543 million in cash and assume more than $4 billion of debt, bringing the total value of the transaction up to about $4.7 billion.

Dynegy's bonds swooned on Friday in the wake of that news, with the 7¾% notes due 2019 falling to around 64 bid from pre-news levels at 70, and its other bonds, like the 7½% notes due 2015 and the 8 3/8% notes due 2016 dropping to about 76 from prior levels around 80, investors apparently spooked by the fact that there is no change-of-control provision in the bonds' indentures to force Blackstone to buy them back, and worried about the prospect Blackstone may add to Dynegy's already considerable leverage.

But after regaining their footing on Monday, the bonds continued to come back on Tuesday. A trader saw the 73/4s trading all day in a range of 67 bid to 68 bid, seeing them going out at 68½ bid, which he called up a point on the session, on "good volume."

He also saw the company's 7½% notes due 2015 firm to about 801/2, up 1 to 1¼ points, "also on good volume, so they were bouncing back up." He said that Dynegy has "a bunch" of other bonds out there, "but they're all going to be around the same thing."

At another shop, a market source was quoting the 73/4s as high as just over 70 bid intraday, before they went out at about the 68 5/8 level, still up nearly 1 3/8 points, while the 8 3/8s gained 1¾ points to end around 77.

ATP Oil seen better

A trader said that ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 "were moving up," after a couple of days absence from the market.

The Houston-based independent energy exploration and production company's paper were seen up 1 to 1½ points at 80½ bid, 81½ offered.

There was no fresh news out on the company that might explain the gains.

ATP's bonds have managed to claw their way back to around the 80 level from recent lows in the 60s, to which those bonds had been hammered down in the aftermath of the BP oil well disaster in the Gulf of Mexico, since investors worried that tough new federal restrictions on deepwater drilling there could hurt the company, which has the bulk of its proven reserves in deepwater sectors of the Gulf.

Unisys gains on upgrade

Among other issues, a trader said that "there are a lot of defensive buyers out there," and said that Unisys Corp. was "one of the names that stands out," benefitting from a ratings upgrade on Friday by Moody's Investors Service.

He said that the Blue Bell, Pa.-based information technology company's 12½% notes due 2016 traded up around the 110½ bid, 111 offered range, calling that better by around ¼ to ½ point.

He said "It's all short paper, so it's defensive," adding that "there are better buyers out there of that defensive paper, and there were definitely buyers of Unisys today."

On Friday, Moody's upgraded Unisys' corporate family rating and probability of default rating to B1 from B3 previously, raised its senior secured first-lien notes due 2014 to Ba1 from Ba3 and its senior secured second lien notes to Ba2 from Ba3. The agency meantime raised its several issues of senior unsecured notes to B2 from Caa1 and left the outlook for the company at "stable."

Moody's said the upgrades reflect Unisys' improved recent operating performance, including reduced balance sheet debt and improved liquidity and credit metrics. It said Unisys had "positioned itself to generate consistent levels of profits and cash flow."

© 2015 Prospect News.
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