Junk primary back to life as two deals slate, secondary up broadly; NewPage gyrates on filing

By Paul Deckelman and Paul A. Harris

New York, Sept. 7 - The high-yield primary sphere stirred on Wednesday after weeks of inactivity, with two announcements of dollar-denominated deals which could actually price this week.

German healthcare provider Fresenius Medical Care AG unveiled plans for a sizable dollar- and euro-denominated offering, which would include $300 million of seven-year senior notes, as well as three-year and seven-year euro-denominated paper.

At the same time, domestic chemical manufacturer Calumet Specialty Products Partners, LP, said it would bring a $200 million tranche of eight-year notes to market, with terms exactly mirroring the company's $400 million issue from earlier in the year. Syndicate sources said that deal could price as early as Thursday.

The return of primaryside activity was noted by secondary traders, who saw it as an indication that there is still some strength in Junkbondland, despite the horrendous pounding that high yield took through most of August. September has so far turned out better - Tuesday's setback, the first of the new month, came after several consecutive sessions of upside, albeit on thin Labor Day holiday break-type volume.

On Wednesday, volume again picked up, and the junk market definitely showed improvement, in terms of both secondary statistical performance indicators, and gains posted by familiar big-name issuers like Caesars Entertainment Operating Co., Ally Financial Inc. and HCA Inc.

But the big name of the day in the trading pits was NewPage Corp. after the troubled paper manufacturer filed for Chapter 11 protection, touching off wild gyrations in active trading in its bonds, which ended nominally higher, but trading flat.

Fresenius plans dollars, euros

Trailing a two-week dormancy, the primary market sparked to life on Wednesday with two deal announcements.

Neither is expected to be in the market for long, as they are both scheduled to price before the end of the week.

Germany-based dialysis products and services company Fresenius Medical Care AG began marketing a cross-border multi-currency deal on Wednesday.

It includes €300 million of seven-year fixed-rate senior notes (Ba2/BB/) and €100 million of floating-rate senior notes due 2014 (Ba2/BB/).

Credit Suisse is the lead left bookrunner for the euro-denominated tranches, in a syndicate which also includes joint bookrunners JP Morgan, Morgan Stanley and SG CIB.

Both euro-denominated tranches are being issued by Fresenius' wholly owned subsidiary, FMC Finance VIII.

The deal also includes $300 million of seven-year fixed-rate senior notes (Ba2/BB/).

J.P. Morgan is the lead left bookrunner for the dollar-denominated notes. Credit Suisse, Barclays and Morgan Stanley are the joint bookrunners.

The dollar-denominated notes are being issued via Fresenius Medical US Finance, another wholly owned subsidiary of Fresenius.

The deal is expected to price late this week.

Proceeds will be used to refinance debt and for general corporate purposes.

$3 billion book

The Fresenius dollar notes are being priced to sell, market sources say.

They are being discussed in the context of a 7¼% yield.

With existing Fresenius notes trading at a 6.4% yield, the whisper on the new dollar notes represents more than a 75 basis point concession to the levels of the existing paper, according to a high yield mutual fund manager.

As a result of this hefty concession, the order book for the $300 million tranche has already built to $3 billion, the buy-sider added.

"Of course it's a new world now, but had they brought this deal in the spring it could have been done in the high fives or low sixes," the investor said.

Meanwhile the euro-denominated tranches are both being discussed with a yield in the context of 7%, according to a trader from a mutual fund who spoke to Prospect News early Wednesday afternoon.

Later in the afternoon another buy-side source heard the euro notes whispered as low as 6¾%.

"It's unusual that the euro notes are being discussed tighter than the dollar notes," the buy-sider remarked.

The right deal

Launching the Fresenius deal into the long dormant high-yield primary market is an intuitive play on the part of the dealers, said the trader from a high-yield mutual fund.

Fresenius is a familiar name to investors, the trader said. It's a quality credit, with all three tranches rated Ba3 by Moody's and BB by Standard & Poor's.

"It's a good company from a good sector and the deal should go well," the trader remarked.

Nevertheless, a good execution on the Fresenius deal will not necessarily signal that the primary market has reopened, the trader warned.

However a portfolio manager suggested that a good execution on Fresenius could raise the shutters on the primary market.

"It looks like it will come cheap, and should trade up a couple of points," the manager said.

"That's going to make everybody feel a little better.

"If it goes as planned we should see the calendar start to fill out."

Calumet for Thursday

Late in the session Calumet Specialty Products Partners, LP and Calumet Finance Corp. disclosed plans to price a $200 million offering of 9 3/8% senior mirror notes due May 1, 2019 (existing ratings B3/B) on Thursday.

Bank of America Merrill Lynch, Barclays Capital Inc. and J.P. Morgan Securities LLC are the joint bookrunners for the acquisition deal.

The original $400 million issue priced at par on April 15.

More deals to come?

A secondary market trader meantime declared that "well, we had a little activity today, with a couple of deals announced," against a backdrop of a generally firmer market.

A second trader opined that "that's to be expected, particularly when you have some strength in the market as well - you have everyone getting back to work, as well as some strength in the market, two things that definitely argue for some new issuance to come through pretty soon."

Yet another trader said that "we'll see if we can get the calendar to come back, it'll get a little more exciting as we go along."

Indicators back on track

Secondary statistical measures of market performance, which had definitely plunged on Tuesday, the first day back after the holiday break, rebounded nicely on Wednesday.

A trader saw the CDX North American Series 16 HY Index up 1¼ points on Wednesday, to close at 93½ bid, 93¾ offered, after having lost ¾ point on Tuesday.

The KDP High Yield Daily Index zoomed by 29 basis points on Wednesday to finish at 72.43, after having plummeted by 50 bps on Tuesday. Its yield tightened by 10 bps on Wednesday, to 7.73%, after having ballooned out 16 bps on Tuesday.

And the Merrill Lynch U.S. High Yield Master II Index rose on Wednesday, its 0.322% advance at least partially reversing the effects of Tuesday's 0.777% fall, which had been the first downturn after six consecutive sessions on the upside. Wednesday's gain lifted the year-to-date return to 1.902% from Tuesday's 1.575%, although the year-to-date return remained well below the peak level for the year of 6.362%, set on July 26.

In step with stocks

A trader said that "the overall market followed the stock market" on Wednesday, as equities moved higher.

The bellwether Dow Jones Industrial Average - which on Tuesday had plunged by nearly 300 points intraday on investors angst over continued European debt woes before finally finishing Tuesday down around 100 points - more than made that back on Wednesday, helped by the news that a German court had rejected a lawsuit to prevent that nation from participating in European Union bailouts, strengthening confidence that a eurozone meltdown can be avoided. The U.S. market measure jumped by 275.56 points, or 2.47%, to end at 11,414.86. Broader indexes like the Standard & Poor's 500 and the Nasdaq Composite, which had also gotten hit on Tuesday, finished Wednesday up by 2.86% and 3.04%, respectively.

Helping things along were some technical factors. A trader said that in recent days, such as the sessions last week which saw market advances, "the Street was actually pretty light in inventory, and you kind of feel that again today.

"On down days, it's not as obvious. But when you get days like today, it's still rather difficult to find a lot of paper. So that's going to help - on these up days, it's going to exacerbate the move a little bit.

"I still think the Street is relatively light inventory right now."

The first trader did say that even as the market rose, "mentally, people are still on post-holiday leave."

However, Wednesday's activity level, as measured by dollar-denominated activity, was up by around 43% from Tuesday's post-holiday level.

NewPage the name of the day

A sizable chunk of that activity came from one issuer - Miamisburg, Ohio-based coated-paper manufacturer NewPage Corp., whose bonds went on a wild ride on the news that the troubled company had sought Chapter 11 protection from its bondholders and other creditors while it attempts to restructure its heavy debt load via a Wednesday filing with the U.S. Bankruptcy Court in Wilmington, Del., and a separate filing with the Canadian courts coving its operations in that country.

A trader said that NewPage was "the one big name" in the market, and given the company's well-publicized troubles, its slide into bankruptcy came as "no big surprise."

He said the bonds were heavily traded - "I can't tell you how many millions" - and were "up pretty good" on the day.

He saw the company's 11 3/8% first-lien senior secured notes due 2014 "obviously trading flat," or without their accrued interest, following the filing.

He said that when the news of the filing first broke during the early morning, the bonds - which on Tuesday had moved around in an 83-85 context before finally going out around 85 bid, though still with their interest - had traded as low as 80 bid, while Wednesday's high trade was around 871/4-871/2, about where they went home.

"That was the big play of the day," he exclaimed.

A market source at another desk said that some $76 million of the NewPage 11 3/8s had changed hands during the session, moving up to 87¼ bid, a gain of 2¾ points on the day, following their early weakness.

The source also saw NewPage's 10% second-lien secured notes due 2012, which had recently languished in a 10-12 context, having moved up to 13 bid, with $11 million traded. Like the more senior bonds, the 10s were trading flat.

Another trader saw the bonds trading even below the 80 mark "first thing out of the chute this morning, and they were obviously flat, but they moved higher the rest of the day" to finish between 87 and 88, "actually a dollar-price better than [Tuesday], but they are trading flat."

He also saw the 10% notes closing out at 13 bid, 14 offered.

The company was heard to be lining up some $600 million of debtor-in-possession financing to tide it over while it restructures.

NewPage - beset by continued softness in the marketplace for its coated paper, used in glossy magazines and catalogs, and carrying a heavy debt load, including nearly $1.7 billion of the 2014 notes - had warned the market weeks ago when it filed its most recent quarterly 10-Q report with the Securities and Exchange Commission in mid-August that such a step might become necessary.

The company has been facing issues with the maturity of its revolving credit facility, since it did not refinance the $1.03 billion 10% notes and its floating-rate notes due 2013 by a July 4 deadline set forth in the loan agreement.

Because the notes were not taken out, $30 million of the company's $500 million revolver is set to mature on Oct. 3, and if the notes are not refinanced by Dec. 2, 2011, the maturity on the remaining $470 million revolver would be accelerated to March 1, 2012 from Dec. 21, 2012.

Also, if the notes are not repaid by Jan. 31, 2012, the maturity of the 11 3/8% notes - nominally due in 2014 - would be moved up to March 31, 2012.

Big names show gains

Away from NewPage, a trader said that it was "absolutely" true that the market felt better on Wednesday, as borne out by movements in large, liquid, normally well-traded issues.

"You can look at the normal ones - Harrah's, Ally Financial, MGM [Resorts International], HCA - they'll all show you that strength." He said "your high-beta names, like Harrah's, led you to the upside today, instead of leading you to the downside."

He said that HCA "doesn't qualify as high-beta, but obviously, it's firm on firm days, and you can see a good amount of volume in that name, because people use it as kind of a go-go [issue]."

A market source saw the 10% notes due 2018 of Harrah's - the former, and more familiar name of the Las Vegas-based casino giant now known as Caesars Entertainment - at 74¾ bid, up about ¾ on the session, with over $11 million of the bonds having been traded.

However, its busiest issue - atypically, since the 10s are usually the most actively traded - was the 12¾% notes due 2018, which knocked down more than $17 million of transactions during the session, putting it high up on the junk market's most-actives list for the day. Those bonds were also quoted up ¾ point on the day at 82½ bid.

Harrah's Las Vegas Strip rival MGM Resorts' 6 5/8% notes due 2015 moved up a point to 92 bid.

Apart from the gaming sphere, Detroit-based automotive and residential lender Ally Financial's bonds showed some spirit, a trader said, quoting its 8% bonds due 2031 up 1¾ points to just over 96 bid. Its 7½% notes due 2002 gained 1½ points to end at 97½ bid, while its 6¾% notes due 2014 were up nearly ½ point at 99 3/16 bid.

However, a source at another desk saw Ally's 6 7/8% notes due 2012 down nearly 2 points, going home at 102 bid.

Nashville-based hospital operator HCA's 6½% first-lien senior secured notes due 2020 gained 1¾ points on Wednesday to close at exactly par bid.

HCA sector peer Community Health Systems, Inc., based in near-by Franklin, Tenn., firmed to 100¾ bid, 101½ offered, from Tuesday's par bid, 101 offered level.

Rite Aid rallies

A trader said that "the name that keeps trading a lot" is Rite Aid Corp., the Camp Hill, Pa.-based Number-3 U.S. drugstore chain operator, which last week reported a solid 2.5% year-over-year gain in the important same-store sales figure for August, and whose bonds have been firming since then.

He said there was "just a lot of activity" Wednesday in the company's paper, with the 8 5/8% notes due 2015 trading at 89¾ bid on a round-lot basis, versus 88¼ on Thursday.

"So that's up like a point-and-change," he continued. "People like it."

He said Rite Aid's 7.70% bonds due 2027 had moved up to 65½ bid, 66½ offered, versus Tuesday's levels between 63 and 64.

He also said that another retailer - Columbus, Ohio-based Limited Brands Inc. - "keeps beating numbers every day, and those bonds keep going up. So even though you talk about the economic recession, there are certain exceptions."

Stephanie N. Rotondo contributed to this report

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