Meritor, Vivent drive by; Ahern shops deal, existing bonds jump; Treasuries retreat hurts market

By Paul Deckelman and Paul A. Harris

New York, May 28 - The high-yield market got back to work on Tuesday after the long Memorial Day holiday break, which included an abbreviated session on Friday and a full market close on Monday.

Primaryside activity was relatively modest, especially in comparison to last week's more than $11 billion of new dollar-denominated, fully junk rated paper from domestic or industrialized-country issuers that was priced.

The day's total came to $478 million in two tranches: an upsized $275 million of eight-year notes from automotive components manufacturer Meritor, Inc. and about $203 million of proceeds from security alarm company APX Group, Inc., which operates under the more well-known Vivent, Inc. name.

Both of those quickly shopped deals were seen to have firmed modestly in the aftermarket.

Syndicate sources also heard that equipment rental company Ahern Rentals, Inc. - currently reorganizing under Chapter 11 - was shopping a $415 million secured notes deal around, with the proceeds to be used to refinance existing debt as the company emerges from bankruptcy. The Friday announcement that the company had reached a consensual reorganization plan with the holders of its existing bonds shot those notes sharply higher.

Several other prospective deals were either formally announced or just emerged onto the radar screen, including a dollar deal from shipping company Ultrapetrol (Bahamas) Ltd. and euro-denominated offerings from France's Novalis SAS and Germany's Stabilus GmbH.

In the secondary market, traders said that weakness in Treasury issues - yields hit their highest levels in over a year - was acting as a drag on the junk market, particularly better-quality, lower-coupon credits like the recent issue from packaging maker Ball Corp., one of the day's busiest junk names.

Overall, statistical indicators of junk market performance were easier across the board for a third consecutive session.

Meritor upsizes

Meritor priced the session's biggest deal, an upsized $275 million issue of eight-year senior notes (B3/B-/B-) which came at par to yield 6¾%.

The deal was upsized from $250 million.

The yield printed on top of yield talk.

Citigroup, J.P. Morgan, BofA Merrill Lynch, RBS and UBS were the joint bookrunners for the quick-to-market deal.

The Troy, Mich.-based auto components maker plans to use the proceeds to refinance its 8 1/8% senior notes due 2015 and for general corporate purposes.

A trader watching the transaction expected a substantial number of the 8 1/8% noteholders to roll into the new 6¾% notes due 2021.

Vivint taps 8¾% notes

Also in Tuesday drive-by action, APX Group, the parent of Vivint, Inc., priced a $200 million add-on to its 8¾% senior notes due Dec. 1, 2020 (existing ratings Caa1/CCC+) at 101.75 to yield 8.347%.

The reoffer price came in the middle of the 101.5 to 102 price talk.

BofA Merrill Lynch, Citigroup, Deutsche Bank, Morgan Stanley, Credit Suisse, Macquarie, Goldman Sachs and HSBC were the joint bookrunners for the general corporate purposes deal.

Ahern second-priority notes

Ahern Rentals announced plans to sell $415 million of five-year second-priority senior secured notes in a sale expected to go down on Friday or Monday.

Jefferies is the bookrunner for the debt refinancing deal.

Ultrapetrol mortgage notes

Ultrapetrol will run a brief roadshow for its $200 million offering of eight-year first preferred ship mortgage notes (expected ratings B3/B-).

The deal, which is being run on the high-yield desk, is expected to play to both high yield- and emerging markets audiences.

BofA Merrill Lynch and Jefferies LLC are the joint bookrunners.

The Nassau, Bahamas-based industrial shipping company plans to use the proceeds to redeem its 9% first preferred ship mortgage notes due 2014 and for general corporate purposes.

Ultrapetrol primarily serves clients in South America.

Euro deals

The market also heard news out of Europe on Tuesday, with a pair of high-yield corporates rolling out five-year secured deals.

France's Novalis is roadshowing a €450 million offering of five-year senior secured notes this week.

Global coordinator and joint bookrunner BNP Paribas will bill and deliver. Deutsche Bank is also a global coordinator and joint bookrunner. Goldman Sachs and JPMorgan are also joint bookrunners.

And Germany's Stabilus is also running a roadshow in Europe this week for its €315 million offering of five-year senior secured notes (expected ratings B2/B/B+).

JPMorgan is the bookrunner.

Stabilus plans to use the proceeds to repay debt and refinance a shareholder loan.

Day's deals seen firmer

In the secondary market, a trader saw the new APX/Vivent 8¾% add-on notes due 2020 in a 101 to 102 bid context.

That followed the 101.75 pricing by the Provo, Utah-based security alarm and home automation company.

A trader also saw Meritor's new 6¾% notes due 2021at 100½ bid, 101½ offered late in the day, up from their par issue price.

Although Meritor will use the proceeds to refinance its 8 1/8% notes, a market source saw no trading in the latter issue on Tuesday.

Those bonds had most recently traded last week around the 111 bid level, although the last round-lot size transaction had taken place around mid-month at 1131/2.

At the Gimme Credit independent market advisory service, senior analyst Evan Mann noted some positives for the company's outlook, including an expected pickup in commercial vehicle demand, as well as balance-sheet improvements over the past several years.

Mann wrote in a research note Tuesday that "thanks to several actions taken in fiscal 2010 to strengthen the balance sheet, the company has no significant debt maturities until its revolver matures in January 2014."

However, the analyst also noted that while the company had posted better-than-expected adjusted EBITDA in its most recent fiscal quarter, it expects slightly negative free cash flow for 2013. Despite the several key positives he mentioned, the Gimme Credit analyst maintained an "underperform" rating on the bonds.

Ahern improves on plan

With Ahern Rentals heard to be shopping a new bond deal around, market attention turned to the bankrupt Las Vegas-based construction equipment rental concern's existing 9¼% notes due 2013 -- and those bonds took off like a rocket, zooming to around the 111 to 11½ bid area. That was well up from last week's levels around 98 and from the most recent previous round-lot levels around 961/2, which were recorded around the middle of the month.

However, most of the day's dealings were in odd-lot transactions, with only a small handful of larger trades.

Market-watchers ascribed the steep jump in the bonds' levels to the company's Friday announcement that it had reached a consensual reorganization plan with bondholders that would allow the company's founder, Don Ahern, to retain ownership.

The $415 million bond deal is a key component of the more than $700 million of exit financing the company has lined up, allowing it to have sweetened its offer to the bondholders in order to win their support.

The amended plan provides a recovery of par plus pre-petition interest for the bondholders. For his part, Mr. Ahern will have to invest $5 million into the company to keep his rights of ownership.

According to papers filed with the U.S. Bankruptcy Court in Reno, Nev., the bondholders would be entitled to $268 million in up-front cash and the chance to receive another $25 million should there be a change of ownership within two years of the company's exit from Chapter 11. The bondholders would also get another $10 million to cover their legal fees arising from the reorganization case.

The $268 million cash payment plus the other extras is superior to the company's earlier plan to give the bondholders $160 million in cash, plus new notes.

The judge will consider the amended plan at a June 5 hearing in Reno.

Treasuries weigh on market

A trader said that overall, "the market felt a little heavy today," especially with some of the exchange traded funds seeing redemptions against the backdrop of sagging U.S. Treasury bonds. The benchmark 10-year issue closed trading on Tuesday yielding 2.135%, its highest since early April 2012.

"I think paper that is still spread-sensitive, that came at the tighter end of the yield curve, is just cheaper.

He specifically mentioned Ball Corp.'s 4% notes due 2023, which the Broomfield, Colo.-based packaging company had priced at par back on May 9. That pricing level equated to a spread over comparable Treasuries of 220 basis points.

"Stuff that's trading at 200 bps off can't ignore Treasury rates going up," he declared.

"Spreads aren't going to tighten much more than 200 off, so you have a little bit of widening, and from a dollar-price standpoint, the price drop on top of that is keeping pace with Treasuries, or a little bit more."

He saw Ball's bonds on Tuesday at 97¼ bid, 97¾ offered, which he said translates to about 215 bps over - actually a little better than their pricing level and in from the 225 bps seen last week. But he added that although the bonds were a little tighter, the government 10-years were down almost 1½ points.

"You can't have junk bonds trading much tighter than they are now and not have a price drop when Treasuries get cheaper," he said, adding that he could "not handicap how much cheaper they'll get, but right now, that's the direction they're headed in."

On the other hand, he said, "higher coupon, lower credit stuff is not doing that bad."

For instance, he suggested that Bon-Ton Department Stores Inc.'s 8% second-lien secured notes due 2021 were trading at 103½ to 1033/4.

The Hoffman Estates, Ill.-based specialty retailer had priced its upsized $350 million issue of the bonds back on May 16 at par - equivalent to 655 bps over Treasuries.

Junk, he said, "is weaker at the rich end of the credit curve and less weak at the cheap end. When you're trading at 220 bps off and Treasuries are out by 30 bps, you can't ignore that. When you're trading at 600 off, and Treasures do that, it's not the same."

Market indicators drop

Statistical junk performance indicators were seen lower for a third consecutive session on Tuesday.

The Markit Series 20 CDX North American High Yield index closed down 3/32 of a point at 105 5/8 bid, 105 11/16 offered, its fourth straight downturn. On Friday, it had lost a half-point.

The KDP High Yield Daily index dropped by 16 basis points on Tuesday to finish at 76.01, its third loss in a row. It had also been down by 3 bps Friday.

The index's yield ballooned out by 7 bps to 5.19% on Tuesday, its third straight widening out, after having risen by 1 bp on Friday.

And the widely followed Merrill Lynch High Yield Master II index lost 0.068% on Tuesday. On Friday, it dropped by 0.062%, its second straight loss. The index recorded a 0.058% upturn on Monday, albeit on extremely thin trading with U.S. fixed-income markets closed.

The latest loss lowered its year-to-date return to 5.02% on Tuesday, versus 5.091% on Monday and 5.03% on Friday. That cumulative return figure was also well down from its peak level for the year of 5.835%, set on May 9.

Stephanie N. Rotondo contributed to this review

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