Icahn's giant three-parter prices, along with Sabra Health; new Parker bonds rise, MDC busy

By Paul Deckelman and Paul A. Harris

New York, Jan. 8 - Icahn Enterprises LP took the spotlight in the high-yield market on Wednesday as the diversified holding company that acts as billionaire financier Carl Icahn's investment vehicle did an upsized $3.65 billion three-part transaction, consisting of new tranches of three- and five-year notes and an add-on to its existing 2020 paper. The deal came to market late in the session, and no immediate aftermarket activity was seen.

That bond behemoth - the first such megadeal of the fledgling new year - overshadowed the day's other pricing, from nursing home real estate investment trust Sabra Health Care LP, which brought an upsized $350 million seven-year issue to market. Although the latter bonds priced earlier in the session, traders still did not see any initial secondary dealings in them.

They did see activity in some of the new paper that priced on Tuesday - the first deals to come clattering down the chute in 2014.

They saw solid gains in the new 8.5-year issue from oilfield services provider Parker Drilling Co., while outdoor advertising company Lamar Media Corp.'s 10-year deal continued to trade around 1 point above its issue price.

And there was busy trading in the split-rated 10-year deal from homebuilder MDC Holdings, Inc.

Apart from the deals that have actually priced, primaryside participants were anticipating previously announced offerings now being shopped around by construction materials provider Summit Materials LLC, billboard company (and Lamar Media sector peer) CBS Outdoor Americas Inc. and, in the euro-denominated market, a financing subsidiary of German health-care operator Fresenius SE & Co. KGaA.

Away from the new deals, investor concerns over the impact that online gaming might have on traditional brick-and-mortar casino operators led to brisk activity, mostly on the downside, in Caesars Entertainment Corp. paper.

Similar concerns about what impact online e-commerce might have on old-line physical retailers led to some volatility in J.C. Penney Co. Inc.'s bonds - despite the hopeful-sounding statement from the underperforming department store operator professing to be pleased with its holiday-season sales results.

Constellation Brands Inc.'s bonds, though, were the toast of the town for many investors, rising in busy trade after the alcoholic beverage importer, producer and marketer released strong fiscal third-quarter results and vowed to use at least some of its stronger free cash flow for debt paydown.

Statistical performance indicators were seen mixed for a second straight session.

Icahn upsizes to $3.65 billion

The new issue market saw $4.02 billion of issuance on Wednesday. The lion's share, however, came in the form of three split-rated tranches totaling $3.67 billion from Icahn Enterprises LP and Icahn Enterprises Finance Corp.

The company upsized its offer (Ba3/BBB-) to a face amount of $3.65 billion from $3.5 billion.

All three tranches were priced at the tight end and rich end of talk.

The transaction included a $1,175,000,000 tranche of three-year notes, which priced at par to yield 3½%. The tranche was downsized from $1,225,000,000. The yield printed at the tight end of the 3½% to 3¾% yield talk.

The New York-based diversified holding company also priced an upsized $1,275,000,000 tranche of five-year notes at par to yield 4 7/8%. The tranche was increased from $1,225,000,000. The yield printed at the tight end of yield talk that was set in the 5% area.

There was also an upsized $1.2 billion add-on to the issuer's existing 6% senior notes due Aug. 1, 2020, which priced at 102 to yield 5.574%. The add-on was increased from $1.05 billion. The reoffer price came at the rich end of the 101½ to 102 price talk.

The buzz in the market held that the three-year tranche was massively oversubscribed, according to a trader, who added that the word on the Street was that investors were encouraged to become involved in the five-year paper.

Active bookrunner Citigroup will bill and deliver for the deal, which was run jointly on the high-yield and investment-grade desks. Credit Suisse and Morgan Stanley were also active bookrunners. Jefferies and UBS were passive bookrunners.

Proceeds, together with cash on hand, will be used to refinance the outstanding 7¾% notes due 2016 and the 8% notes due 2018.

Sabra Health Care drives by

The day's sole junk-rated deal came in the form of a drive-by from Sabra Health Care LP and Sabra Capital Corp., which priced an upsized $350 million of seven-year senior notes (Ba3/BB-) at par to yield 5½%.

The quick-to-market deal was upsized from $300 million.

The yield printed at the tight end of the 5½% to 5¾% yield talk. Initial guidance was 5¾%.

BofA Merrill Lynch was the left bookrunner for the debt refinancing. Barclays, Citigroup and RBS were the joint bookrunners.

Fresenius talks €750 million

In a generally quiet European session, Fresenius Finance BV set price talk for its €750 million offering of senior notes (Ba1/BB+).

The deal, which is coming in two bullet tranches, features a €250 million tranche of notes due Feb. 1, 2019, talked to yield 2¼% to 2½%, and a €500 million tranche of notes due Feb. 1, 2021, talked to yield 2¾% to 3%.

Pricing is set for Thursday.

Joint bookrunner Deutsche Bank will bill and deliver. Barclays, Commerzbank, Credit Agricole, SG and UniCredit are also joint bookrunners.

Where's the yield?

The Fresenius deal, which could see both junk-rated tranches pricing with yields below 3%, is symptomatic of a new issue market that is churning out paper with yields too low for some investors who have a lot of cash that must be put to work.

"Accounts are looking anywhere they can for yield," a London-based sell-side source said, adding that some are looking at investment-grade corporate hybrids and subordinated debt, which tend to come with more yield than is anticipated for the above-mentioned Fresenius deal.

Meanwhile in the United States, mainstream high-yield investors, known to prize liquidity, are lately more closely scrutinizing smaller deals that are coming with some juice.

One example, now in the market, is the Summit Materials LLC and Summit Finance Corp. $210 million add-on to their 10½% senior notes due Jan. 31, 2020 (expected ratings Caa1/B-), set to price before the end of the week via BofA Merrill Lynch, Citigroup, UBS, Barclays, Credit Suisse, Deutsche Bank and Blackstone, a U.S. investor said.

Although formal talk had not yet surfaced late Wednesday afternoon, the deal is being guided at 108, the buysider said, and added that the existing 10½% notes due 2020 are trading in a context of 110 bid, 111 offered.

Cash inflows steady and heavy

Cash continues to come into the high-yield asset class in flows that have tended to be steady and on the heavy side, the investor said.

Staying invested remains challenging, to say the least.

Aside from the above-mentioned Summit Materials deal, the active dollar-denominated calendar is thin.

CBS Outdoor Americas Inc. is marketing an $800 million two-part offering of senior notes in a deal presently expected to price in the week ahead.

Again, no formal price talk has surfaced.

However a tranche of eight-year notes is being guided in the high 5% range, and a tranche of 10-year notes is being guided in the low 6% range, sources say.

The market is measuring the deal against a transaction from the same sector that priced on Tuesday, an investor said. Lamar Media priced a $510 million issue of 10-year senior notes (Ba2/BB-) at par to yield 5 3/8%, at the tight end of yield talk that was set in the 5½% area.

However, there is a pipeline of deals that should provide some relief to the cash-laden buyside, the investor said Wednesday.

Community Health Systems Inc. is expected to launch a $2,875,000,000 offering of eight-year senior notes on Friday, led by BofA Merrill Lynch (see related story in this issue).

Also, Forest Laboratories Inc. is expected to bring $1.6 billion to $1.9 billion of bonds to help fund the acquisition of Aptalis.

And Fieldwood Energy LLC is expected to sell bonds to help fund its $750 million acquisition of SandRidge Energy Inc., the investor added.

New deals a no-show

While Icahn Enterprises' big new deal seemed to attract a lot of support from buyers jockeying for allocations - certainly at least the well-oversubscribed three-year piece did - how those bonds will do in the secondary market will have to wait till at least Thursday, as the megadeal deal priced too late in the session on Wednesday for any kind of real aftermarket activity.

Several traders meantime said that they had not seen any traces of Sabra Health Care's new 5½% notes due 2021, even though the Irvine, Calif.-based nursing home real estate investment trust company's upsized $350 million drive-by issue had priced around mid-afternoon [ET], several hours before Icahn came to market.

Parker pops up

Among the deals that priced on Tuesday, traders saw healthy gains in Parker Drilling's 6¾% notes due in July of 2022.

One quoted them as having moved up to 102 3/8 bid, 102 5/8 offered - well up from the par level at which the Houston-based energy drilling contractor's quick-to-market $360 million offering had priced, and up as well from the 101 bid level at which those bonds had initially been quoted late Tuesday.

A second trader pegged the bonds at 102 bid, 102¼ offered.

Lamar holds gains

A trader saw Lamar Media's 5 3/8% notes due 2024 at 101 bid, 101 3/8 offered, while a second located them at 101 bid, 101¼ offered.

That was not far removed from the 101-to-101½ bid context at which the bonds had been seen late in the day on Tuesday, after the Baton Rouge, La.-based outdoor advertising company came to market earlier in the session with its quickly shopped $510 million offering, the biggest deal of the day on Tuesday.

A market source meantime saw the company's existing bonds holding around the levels they had reached in somewhat busy trading on Tuesday as investors reacted to the news of the new deal.

He saw Lamar's 5% notes due 2023 going home at 96 bid on volume of about $4 million. That was actually down about 5/16 from where the bonds had finished on Tuesday, also on $4 million of volume, when they had firmed by more than 1 point from previous levels.

Lamar's 7 7/8% notes due 2018 were seen up a little on the day, at 105½ bid, although on only about $1 million of volume; on Tuesday, the bonds had fallen about ½ point, to 105 3/8 bid, on $2 million of volume.

Its 5 7/8% notes due 2022 rose about ¾ point to 103 7/8, on volume of over $2 million.

MDC trades actively

Probably the most active issue among those making their respective debuts on Tuesday was Denver-based homebuilder MDC Holdings' 5½% notes due 2024.

A trader noted that over $17 million of the new bonds changed hands during the session, putting it high up on the Junkbondland Most Actives list.

The bonds were seen down around ½ point on the day, ending the session at par - the same level where that same-day $250 million deal had come to market. It had been quoted around ½ point higher in initial aftermarket dealings, that market source said.

However, it appears that much of the interest in the split-rated (Baa3/BB+/BBB-) credit may have come from high-grade accounts reaching for some yield, rather than from traditional junk players.

Caesars top trader

Away from the new-issue world, a trader noted that Caesars Entertainment's 10% notes due 2018 were the busiest junk name on Wednesday, with over $46 million of the Las Vegas-based casino giant's paper changing hands.

The bonds were off by about 3/16 point to finish around 50 3/8 bid. It was a comedown from Tuesday, when the Caesars' 10s had also been the busiest issue, with over $33 million of turnover; on that occasion, the bonds had actually risen about 5/8 to close at 50½ bid.

A trader said that in recent days "Caesars has been getting banged around, on a lot of activity, and people have been asking about some of the other casino names."

He said the catalyst for all of this sudden interest in the sector may have been a recent Bloomberg news story about the growth of online gaming, "talking about how that's going to dislocate the brick-and-mortar guys," including Caesars, which operates casinos in Las Vegas, Atlantic City and other gaming centers.

Penney is punished

The struggle between old-line operators and online upstarts is also racking the retailing industry.

The latest industry statistics indicate that while retail sales were seen having risen modestly from last year's levels during the just-concluded holiday shopping season, walk-in traffic in stores was off - indicating a consumer shift to online buying.

Major department stores are now hurrying to play catch-up with the online retailers by marketing goods through their own websites.

One traditional retailer under special scrutiny because of its weak performance over the past few years has been J.C. Penney, whose bonds were active on Wednesday, moving to the downside - even though the Plano, Texas-based company said that it was "pleased" with its holiday sales, though it failed to provide any specific details on what that meant.

"Where's the beef?" wrote Gimme Credit LLC analyst Evan Mann in an afternoon comment put out on Wednesday. "We are disappointed by the lack of details in today's press release, especially in light of heightened investor concern regarding this credit."

One trader said the 5.65% notes due 2020 dropped almost 1½ points to 76 7/8. Another market source placed the issue at 77 bid, down 1¾ points.

A third trader said the debt was "weaker, but not super active," calling the 7.65% notes due 2016 down about a point at 80 bid, 80½ offered.

Also in the press release, Penney said it "reaffirmed" its 2014 outlook as set out in a Nov. 20 third-quarter earnings release. In that statement, the company said that it expected to see improvement in same-store sales and gross margin and that year-end liquidity was slated to "be in excess" of over $2 billion.

Constellation's glass is full

On the upside, Constellation Brands' 6% notes due 2022 were seen having gained 11/16 point on Wednesday to end at 107 7/16 bid on volume of over $15 million.

That followed the release of the Victor, N.Y.-based alcoholic beverage producer, importer and marketer's fiscal third-quarter results - which showed strong gains in sales, earnings and free cash flow as a result of last year's big deal that greatly expanded its beer business.

Constellation executives also said on its conference call that the company managed to cut its $7 billion debt load by $166 million in the quarter, and promised further debt reduction using some of its newly increased free cash flow (see related story elsewhere in this issue).

Market indicators stay mixed

Overall, statistical junk-market performance indicators were mixed for a second straight session on Wednesday. On Tuesday, they had turned mixed after having been higher across the board in each of the previous two sessions.

The Markit Series 21 CDX North American High Yield index eased by 1/8 point, its second consecutive downturn, to close at 108 bid, 108 1/8 offered. On Tuesday, it had lost 3/16 point, its first downturn after two straight sessions on the upside.

However, the KDP High Yield Daily index gained 4 basis points to end at 74.65, its fifth advance in a row. On Tuesday, it had risen by7 bps.

Its yield, meanwhile, came in by 2 bps to go home at 5.54%, its second straight decline, following Tuesday's 3 bps narrowing. On Monday, it had been unchanged.

And the widely followed Merrill Lynch High Yield Master II index defied superstitious concerns to notch its 13th consecutive improvement on Wednesday, rising by 0.026%, on top of Tuesday's 0.168% gain. That winning streak dates back to Dec. 19.

The latest gain lifted its year-to-date return to 0.525%, its fourth straight new peak level for 2014, passing the previous mark of 0.499%, set on Tuesday.

Last Tuesday, the index had closed out 2013 with a final cumulative return for the year of 7.419%, less than half of the robust 15.583% return at which the index had finished 2012.

The index's spread to worst recorded its fourth straight new tight level for the year so far on Wednesday, falling to 406 bps over comparable Treasuries from Tuesday's 410 bps over, the previous tight level.

However, its yield to worst, which had started the new year falling in line with the spread, rose to 5.547% from Tuesday's 5.533%, which had been its third straight new tight level for the year so far.

Stephanie N. Rotondo contributed to this review.

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