Quadra FNX, upsized Solera deals price to close out not-so-busy week; more secondary slippage

By Paul Deckelman

New York, June 10 - Quadra FNX Mining Ltd. and Solera Holdings, Inc. priced a pair of new deals on Friday to close out a week in the high yield primary market which, if it was somewhat busier than the week before - shortened by the Memorial Day holiday observance - was still well below the several weeks before that, which were marked by brisk new-issue activity.

Quadra FNX, a Canadian copper mining company, priced $500 million of eight-year notes.

Meanwhile, Solera, which provides software and other service to the automotive insurance claims processing industry, came to market with an upsized $450 million issue of seven-year notes.

Secondary traders meantime said that the new deals did not wander far from their respective par issue levels.

Out of Europe came word that British luxury sports car manufacturer Aston Martin Lagonda Ltd., had priced a sterling-denominated offering of senior secured notes.

While the new Quadra FNX and Solera deals were not much moved from issue in the aftermarket, the same could not be said for Clear Channel Communications Inc.'s big deal, which had priced on Thursday as an add-on to the media company's existing bonds and which had moved up smartly when the new issue was freed to trade - although traders opined that it probably was more due to the deal being priced cheaply than from any affection the market may have for Clear Channel.

The traders meantime saw the week's big deal - the $2 billion two-part offering from Arch Coal Inc. - continuing to trade around or slightly above both tranches' par issue price.

They saw the secondary market continuing to struggle, as formerly bold investors were suddenly starting to get cold feet. Statistical measure all pointed to the downside for both Friday's session and the week.

Modest end to a modest week

High yield syndicate sources said that two deals totaling $950 million, each consisting of one tranche, priced in the domestic market on Friday.

That brought the week's new-deal total to somewhat over $5 billion - nothing on Monday, $1.25 billion on Tuesday, led by Freescale Semiconductor Inc.'s $750 million drive-by offering of 8.5 year notes, the big deal of the week leading the way on Wednesday with Arch Coal's $2 billion two-tranche calendar issue, and then on Thursday, Clear Channel's quickly-shopped $750 million add-on deal.

The latest week, though somewhat restrained, did represent a clear improvement over the previous week, ended June 3, which had only seen issuance of not even $4 billion come clattering down the chute, although it should be noted that that previous week had begun with the market closed on its Monday for Memorial Day, which threw the market for a loop for the whole rest of the week. That prior week was one of the slowest weeks of 2011 so far - a year which otherwise has been booming along at a record pace.

Heading into Friday's session, overall high yield issuance for the year so far totaled $181.01 billion in 406 deals, running about 61% ahead of the pace seen a year ago, when $112.37 billion in 268 deals had priced by this point on the calendar, according to the Prospect News data.

Some $145.61 billion of the latest total figure came from issuers in industrialized countries - chiefly U.S. borrowers - versus $96.72 billion by this time last year.

But the red-hot numbers for the year so far mask the slowdown seen in the last two weeks. The week leading up to the Memorial Day weekend had produced around $10 billion of new paper, and the week before that - ended May 20 - saw more than $13 billion priced, making it one of the biggest weeks of the year.

Market participants pointed to the sagging equity markets and overall continued economic uncertainty as factors in suddenly throwing something of a damper on the new-deal market, as well as pushing the secondary market lower over the past three weeks.

Solera deal upsizes

One of the two deals seen Friday was actually issued by Audatex North America Inc. a subsidiary of Dallas-based Solera Holdings, a provider of software and services to the automobile insurance claims processing industry.

It priced $450 million of seven-year senior notes (Ba2/BB-) at par to yield 6¾%, a high yield market source said, at the tight end of pre-deal market price talk for a 6 7/8% yield.

The issue was upsized from the originally announced $350 million.

Goldman Sachs & Co. was on the left side, while Bank of America Merrill Lynch was also a joint bookrunner.

The company plans to use the deal proceeds to finance the acquisition of Explore Information Services, LLC by Claims Services Group, Inc., a wholly owned subsidiary of Audatex.

Quadra comes to market

Also pricing on Friday was Quadra FNX Mining, a copper mining company which has corporate offices in Vancouver and Toronto.

It priced $500 million of eight-year senior notes (B1/BB-) at par to yield 7¾%, a junk market participant said, beyond price talk of a 7½% yield.

J.P. Morgan Securities LLC and Credit Suisse Securities (USA) LLC were the joint bookrunners.

The company plans to use the new-deal proceeds, together with cash on hand, to finance the development of its Sierra Gorda mining project in Chile.

Aston Martin fills up

Away from the domestic junk market, Aston Martin Capital Ltd., a unit of British luxury carmaker Aston Martin, priced £304 million of seven-year senior secured notes (B2/BB-).

The notes priced at 98.7186.

Deutsche Bank AG, Credit Suisse and UBS were the joint bookrunners, with Deutsche Bank in charge of billing and delivering for the deal.

The Gaydon, England-based manufacturer of luxury sports cars - the auto made famous as James Bond's preferred mode of transportation in the fictional spy's many movie adventures - plans to use the deal proceeds to refinance a £200 million bank loan.

It will also purchase £52 million of preference shares held by Ford Motor Co. - which owned Aston Martin from 1994 to 2007, when it sold all but a small stake in the company for £479 million. The sale was part of Ford's dismantling of its money-losing Premier Auto Group, the umbrella under which it also grouped such other iconic European car brands as Jaguar, Land Rover and Volvo until they too were sold. Aston Martin also plans to pay a £30 million dividend to its equity holders.

New deals putter around

When the Quadra FNX and Solera deals were freed for aftermarket dealings, market participants did not see much movement in those bonds away from their issue price, in either direction.

A buyside source, for instance, noted that Solera's seven-year senior notes got as good as 100 5/8 bid, 101 1/8 offered, up from their par issue price earlier in the session.

However, shortly after that, a trader said that the bonds had settled into a range of par to 100¾ bid.

And another trader pegged them at 100 3/8 bid, 101 offered.

As for Quadra FNX's new bonds, a trader saw them straddling their par issue price, at 99¾ bid, 100¼ offered.

Another trader had them even tighter, at 99 7/8 bid, 100 1/8 offered.

And a third saw them at par bid, 100½ offered.

At another shop, a trader said he "heard [the day's two new deals] were not that well received."

He opined that "they stayed where they were - but it was more a matter of the underwriter holding them up - they made a stabilization bid."

He said that "it wasn't the pricing" that caused such a tepid aftermarket response to the bonds - he declared that "everybody pulled back their horns today for the first time in a long time."

The retrenchment, he said, he said "started happening last week, and today I was getting phone-calls [asking] 'Is the bid still good? We've got to raise cash.'

"That was the nervousness in the market today."

Arch hangs in, Clear Channel up

Among the deals which priced earlier in the week, a trader said that Arch Coal's two part offering was pretty steady, with both tranches around a tight par to 100 1/8 range.

The St. Louis-based coal operator priced $2 billion of new paper on Wednesday - $1 billion of 7% notes due 2019 and $1 billion of 7¼% notes due 2021. Both priced at par.

Another trader saw Arch's bonds at par bid, 100¼ offered, across the board.

Arch's par trading level "wasn't so bad," a third trader said, noting that the entire market was softer.

Meanwhile, Clear Channel's 9% priority guarantee notes due 2021were being quoted at around 95½ bid, 96¼ offered - well up from the 93.845 level at which the San Antonio-based media company's $750 fungible add-on had priced on Thursday to yield 10%.

Those bonds had firmed to around the 95 level in their initial aftermarket dealings, and then just kept getting better on Friday.

"They priced it cheap enough" to get the job done and sell the deal, on trader said.

A second trader agreed that "people feel that it really priced on the cheap side."

He added that "a lot of people [didn't expect] to see Clear Channel price as cheaply as it was," and so they jumped on the deal when it came.

He further opined that "you're going to see underwriters pricing things now, as long as the stock market remains nervous, to sell, and not on the tight side. In other words, the discussion must be "OK, let's just get this deal done - not that we're going to quibble over 10 basis points or 20 basis points."

Secondary is softer

In the secondary market, meantime, a trader said "things seem to be coming in. There has been selling each day - not panic selling, but selling anyway."

He said that "while before, things had been going up each day, day after day, now they go down each day."

"We've gone from one extreme to another, "a second said.

A major account told his shop "don't show me any offerings."

Market signs still struggle

On a statistical basis, indicators remained under pressure as the week closed.

A trader said that the CDX North American Series 16 HY Index lost 3/8 point on Friday to end at 99 5/8 bid, 99 7/8 offered, down from 99 7/8 bid, 100 1/8 offered on Thursday.

On the week, the index was down about 1½ points.

The KDP High Yield Daily Index lost 5 basis points on Friday to end at 75.27, after dropping by 8 bps on Thursday. Its yield rose by 5 bps to 6.79%, after having widened out by 4 bps Wednesday. It also ended the week well down from 75.81, with a 6.53% yield, only recorded a week earlier.

And the Merrill Lynch High Yield Master II Index was lower for a seventh consecutive session, retreating by 0.065%, following Thursday's 0.186 loss. That dropped the index's cumulative return to 5.174% from Thursday's 5.242%. It was down 0.533% on the week from the previous Friday's 5.738% - the third consecutive week on the downside.

The reading was also well down from its year-to-date peak level of 6.071%, reached on May 20.

Sino-Forest still fluctuates

Among specific issues, a trader saw the battered bonds of Sino-Forest Corp. continuing to gyrate on Friday, more than a week after the Canadian-Chinese timber company's bonds and shares were rocked by a harshly critical research report put out by Muddy Waters LLC, an investment firm headed by short-seller Carson Block.

In Friday's dealings, the trader said that the company's 10¼% notes due 2014 were down 1 point on the day at 65 bid, although its 6¼% notes due 2017 were up 3 points to end at 591/4.

He also saw its shortest-dated issue - the $87 million of 9¼% notes slated to come due on Aug. 17 - trading at 92, an extremely low price for a piece of paper that is scheduled for redemption so soon. "If you own that [issue], it's going to be a sweaty next two months," he observed.

The 2017 bonds were trading around 94 and the other paper above par as recently as June 1, before the devastating report from Muddy Waters was made public, alleging all kinds of financial chicanery and even at one point invoking the name of disgraced financier Bernard Madoff as a comparison.

Management of the company vehemently denied the allegations and noted that Block and his company stand to make substantial amounts of money by driving the company's share price down. Sino-Forest has called for authorities in Canada, where the company has headquarters in Mississauga, Ont., and where its shares trade on the Toronto Stock Exchange, to investigate Muddy Waters.

Those shares, along with the bonds, have shown wild volatility, hammered down by investor reaction to the initial report, then recovering some of those losses after a detailed company rebuttal of the charges and commissioning an independent assessment of its finances by PriceWaterhouseCoopers, only to fall again after Moody's Investors Service warned that it was considering a downgrade in the company's credit ratings.

On Friday, the shares - which have lost more than three-quarters of their value from the C$18.21 level they stood at on June 1, the day before the report surfaced - were down another 68 Canadian cents on the day, or 13.20%, to close at C$4.47, their lowest level of the session. Volume of 18.6 million shares was more than five times the norm.

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