Palace Entertainment prices, moves up; recent deals hold; activity dwindles ahead of break

By Paul Deckelman and Paul A. Harris

New York, Feb. 18 - Palace Entertainment priced a $430 million offering of six-year senior secured notes on Friday, high-yield syndicate sources said.

When the amusement and water park operator's new issue moved into the secondary arena, traders saw the bonds firm smartly from their par issue price.

Palace's deal put the cap on a relatively lackluster week, by recent junk-market standards, with issuance running at less than half the previous week's $10 billion-plus level.

Elsewhere in the new-deal arena, the syndicate sources heard that clothier J. Crew Group, Inc. will be hitting the road in the upcoming week to market its $400 million offering of eight-year notes.

Among recently priced issues, the new Burlington Coat Factory Warehouse Corp., Claire's Stores, Inc. and Clear Channel Communications, Inc. bonds were seen hanging on to most of the aftermarket gains they notched, but retailer Burlington, in particular, had come off a little from its strong initial trading levels.

Away from the new deals, Thursday gainers Rite Aid Corp. and NewPage Corp. continued to move up on Friday.

But while the general secondary market tone was firm, overall activity levels were anemic, and some shops were on reduced staffing, particularly in the afternoon, as some participants left early ahead of the three-day Presidents' Day holiday weekend.

Palace matches revised talk

The Friday session saw a single transaction take place in the primary market.

Palace Entertainment priced a $430 million issue of six-year senior secured notes (B2/B-) at par to yield 8 7/8%.

The yield printed on top of yield talk which had been revised downward from initial talk of 9% to 9¼%.

Morgan Stanley & Co. Inc. and Credit Suisse Securities were the joint bookrunners for the debt refinancing.

The notes were issued via Palace Entertainment Holdings, LLC and Palace Entertainment Holdings Corp.

Proceeds will be used to repay debt.

One institutional investor was told that the deal was 10-times oversubscribed.

The buy-sider was not expecting happy news with regard to allocations.

Before the final terms were circulated the new Palace Entertainment 8 7/8% notes due 2017 were 102 bid in the gray market, the investor said.

$4.7 billion week

Including the Palace Entertainment transaction, the new issue market saw issuers raise $4.7 billion in eight tranches in the week to Friday's close.

That is the second-lowest amount of weekly issuance thus far in 2011; the lowest weekly amount, $3.2 billion, came during the year's first week of market activity which commenced on Jan. 3.

The pre-Presidents' Day week came to a close with the primary market having cranked out $55.8 billion of year-to-date issuance in 127 tranches.

The total is more than double the $27 billion amount that came in 67 tranches during the run-up to Presidents' Day (Feb. 15) in the record-setting year of 2010.

More active week ahead

The week ahead will feature a more vigorous amount of activity than that of the muted pre-Presidents' Day week as issuers with refreshed financial numbers head back into the market, sources say.

However the final week of February might not produce the level of primary market volume that has rendered $7.9 billion of weekly average issuance thus far in 2011, a couple of syndicate bankers predicted.

On Friday a meager forward calendar grew by just one deal, an LBO transaction from J. Crew Group, Inc.

The New York-based clothing retailer will conduct an investor roadshow during the week ahead for its $400 million offering of eight-year senior notes (Caa1/CCC+), via Goldman Sachs & Co. and Bank of America Merrill Lynch.

Friday's only other primary market news came in the form of rating information on a deal that has been sidelined since late January.

Moody's Investors Service withdrew the B3 rating assigned to Maxum Petroleum Operating Co.'s proposed $250 million offering of senior notes due 2019, following Maxum's cancellation of the transaction.

Maxum is expected to resurface with a restructured deal, according to an informed source.

The $250 million senior notes offer had been in the market via Credit Suisse, Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Goldman Sachs & Co. and Citigroup Global Markets Inc.

The company had been planning to use the proceeds to repay its revolver and for general corporate purposes.

Moving towards risk

Despite the fact that Merrill Lynch High-Yield Master II Index recently posted a composite yield of 6.84%, its tightest yield since December 2004, high-yield remains the place to be, a money manager maintained on Friday.

A massive technical rally is forcing investors to shoulder bigger risks in order to get a return.

"As an absolute, 6.84% looks terrible, no argument," the manager said.

"But that number does not exist in a vacuum. You have to consider it in light of the kinds of returns you can expect from high grade corporate bonds or government bonds.

"In that context 6.84% looks pretty good."

Money continues to move into riskier assets, the manager asserted, citing numbers from Lipper-AMG.

Taxable bonds are up $29.7 billion year-to-date, with the biggest winners being global bonds, high-yield bonds and bank loans.

Eclipsing that amount is the $47 billion of year-to-date inflows to equities, the manager said.

Also commodities have seen $7 billion of year-to-date inflows.

The losers are money markets and municipal bonds, both of which have seen year-to-date negative flows, the money manager said.

New Palace paper pops

When Palace Entertainment's new six-year secured bonds were freed for secondary dealings, a trader saw the paper shoot all the way up to 103¼ bid, 104 offered, versus its par issue price.

But he said that the Newport Beach, Calif.-based amusement park operator's bonds were "pretty much it for today."

A second trader said that the Palace bonds "traded up pretty quick." He saw them get as good as 103½ bid, 104 offered, before easing slightly to end at 102½ bid, 103¼ offered.

Yet another trader pegged the new bonds at 103 bid, 103½ offered.

Burlington bonds back off

Among the recently priced issues, traders saw the new 10% senior notes due 2019 from Burlington Coat Factory Warehouse come down a little from the solid gains which they had notched on Thursday after the upsized $450 million issue priced at par.

One of them saw the bonds - which had been upsized from the originally envisioned $400 million - trading at 102¾ bid, 103 offered. That was in contrast with Thursday's late levels around 103 bid, 103 3/8 offered.

The Burlington bonds, another trader acknowledged, "came off the top" to around the 102¾ level, "but it was nothing dramatic."

Claire's little changed

A trader saw Claire's Stores' new 8 7/8% second-lien senior secured notes due 2019 at 101 bid, 101½ offered - little changed from the 101 1/8 bid, 101 3/8 offered level at which the retailer's $450 million of bonds traded Thursday after they priced earlier in the session.

Clear Channel climb continues

Clear Channel Communications' new $1 billion of 9% priority guarantee notes due 2021 continued to firm on Friday, a trader said. He saw the bonds at 102½ bid, 103 offered, up a little from Thursday's closing level at 102 bid, 103 offered, and well up from the levels seen Tuesday, when the San Antonio, Tex.-based media company's deal priced at par, and then began to slowly move up.

Indicators mostly better

Away from the new-deal world, a market source saw the CDX North American Series 15 HY index up off by 1/8 point Friday to end at 104 5/8 bid, 104 7/8 offered, after having gained ¼ point on Thursday.

On the week, the index was virtually unchanged from the levels seen the previous Friday, Feb. 11.

The KDP High Yield Daily index meantime gained 7 basis points on Friday to finish at 76.12, on top of the 6 bps gain seen on Thursday. Its yield came in by 3 bps on for a second day in a row on Friday, to 6.60%.

The index thus improved on the week from its 75.87 reading and 6.70% yield in the Feb. 11 week.

The Merrill Lynch High Yield Master II index posted its sixth consecutive gain on Friday, firming by 0.098%, on top of Thursday's 0.175% advance.

That lifted the index's year-to-date return to 3.369% - yet another new peak level for 2011 - from Thursday's finish at 3.268%, the previous high for the year so far.

The index showed a one-week gain of 0.477%, lifting it from the previous Friday's 2.878% finish. It was the 12th straight week of gains, dating back to early December.

Advancing issues topped decliners for a fourth straight session on Friday, although their six-to-five margin was in a little from the better than seven-to-six advantage seen over the previous two sessions.

Overall activity, represented by dollar-volume levels, slid by30% on Friday, after having risen by 6% on Thursday for a second straight session.

With the looming holiday throwing an early damper on things Friday, traders said that apart from specific credits or names such as NewPage or Rite Aid, "there was nothing really jumping out at you."

Even though the market was officially in session up till the close, the trader said it was "still kind of the day before a three-day weekend," with little or no real trading seen once the clock had passed the noon hour.

The afternoon "got really, really quiet," a second trader said.

The first trader, in response, said that the fact that "some people will be off Tuesday," as they extend their three-day weekend to four days, also helped to hold volume levels down.

NewPage a busy name

Among specific names, a trader said that NewPage's 10% issue due 2012 "was the big volume winner today," with over $31 million of the bonds changing hands. He saw them up 1 point at 66 3/8 bid.

The bonds had also risen on Thursday in brisk trading to around 65 bid, 65½ offered, up from around the 64¾ level seen late Wednesday and the 64-64¾ context observed Tuesday, given an apparent boost by the fourth-quarter earnings data which the Miamisburg, Ohio-based coated-paper manufacturer released at mid-week.

NewPage reported net sales of $946 million for the fourth quarter, a 10% increase year over year. For the full year, sales came to $3.6 billion, up 16% from 2009. The gains were due, in part, to an increase in printing paper demand in 2010.

However, NewPage posted a wider fourth-quarter loss at $240 million, compared to $55 million the year before. Full-year net loss came to $656 million, up from $308 million the previous year.

As of Dec. 31, NewPage had $149 million of liquidity, consisting of $8 million of cash and equivalents and $141 million available under its revolving credit facility.

Rite Aid remains well-bid

Elsewhere, Rite Aid's bonds "were still strong," a trader said, quoting the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator's 6 7/8% notes due 2013 "up a little" at 97½ bid, 98½ offered.

Another trader saw Rite Aid's 9½% notes due 2017 up 1¾ point, going home at 93¼ bid, while its 7.7% bonds due 2027 were up a deuce on the day at 72.

Rite Aid's bonds were apparently getting a boost from the company's financing activities in the bank debt market; it launched a $353 million tranche of five-year term-loan financing on Thursday, planning to use the money to repay about $321 million in existing term loan borrowings due in 2014.

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