Hexion, Guitar Center firm on earnings; Nortel weakens on allocation plan; health care active

By Stephanie N. Rotondo

Phoenix, May 13 – Secondary high-yield activity was spurred by fresh earnings and news items on Wednesday.

Hexion Inc., for instance, reported its first quarter results, and despite a wider loss, segment EBITDA showed improvement. Investors reacted positively to the numbers, pushing the paper higher.

Guitar Center Inc. also reportedly came out with earnings, although a trader noted that those figures are private. Like Hexion, bonds were better after the figures were announced to investors.

One trader saw the 6½% notes due 2019 up almost 4 points to 92½. The 9 5/8% notes due 2020 were meantime up “markedly,” improving 9 points to 87½.

Another trader deemed the 2020 paper up 9 to 10 points around 87, while the 2019 issue inched up to 92 from 88 previously.

Meanwhile, Nortel Networks Inc. was called the day’s “most notable” name, as the company’s debt continued to weaken following news out Tuesday regarding the remaining allocation of funds.

A trader said the debt had dropped 20 to 25 points on the heels of that news.

Overall, market indicators turned mixed on Wednesday.

The CDX North American Series 24 index fell a tenth of a point to 106.6 bid, 106.7 offered, according to a market source.

But the KDP High Yield index inched up to 71.46, with a 5.26% yield. That compared to 71.44, with a 5.28% yield, as of Tuesday’s close.

Hexion bonds improve

Hexion posted a wider first-quarter loss on Wednesday, which the company attributed to a stronger dollar.

Despite the bigger loss, the company’s debt was inching higher.

One trader called the 7 7/8% notes due 2018 up “almost 2 points” at 92 7/8. A second trader placed the 9% notes due 2020 at 82, which compared to 78 previously.

For the quarter, the Columbus, Ohio-based resin and specialty chemical manufacturer saw a loss of $34 million, up from $18 million the year before. Sales fell 17% to $1.1 billion from $1.3 billion.

Currency issues aside, sales would have fallen just 9%, the company said.

Segment EBITDA, however, improved 6% to $127 million. The company also saw positive cash flows of $35 million.

Hexion ended the quarter with debt of $3.8 billion and liquidity of $462 million.

JCPenney earnings out

JCPenney Co. Inc. released its first-quarter results on Wednesday as well, but a trader said there was little action in the bonds ahead of the numbers.

The results were posted after the market closed.

The trader said both the 7.95% notes due 2017 and the 7.4% notes due 2037 were bid for, at 103¾ and 81, respectively. The 8 1/8% notes due 2019 were offered at 99¾.

For the quarter ended May 2, the Plano, Texas-based retailer reported net sales of $2.86 billion, up from $2.8 billion the year before.

Same-store sales increased 3.4%.

Net loss was $167 million, or 55 cents per share – better than the 77 cents per share analysts had anticipated and a 52% gain year over year.

EBITDA improved to $168 million from $79 million.

Looking ahead, JCPenney revised its guidance, forecasting a 4% to 5% gain in same-store sales, versus the 3% to 5% projected before. Free cash flow is expected to break even.

Nortel under pressure

Bankruptcy judges from the United States and Canada announced on Tuesday a liquidation formula for Nortel Networks’ remaining $7.3 billion in assets.

Under the formula, divisions in Canada, the U.S. and Europe would receive cash to pay to creditors. Creditors will receive a percentage of their claims as they relate to the overall business.

A trader noted that the news was not taken well on Tuesday, and “the bonds really took it on the chin,” falling about 15 points in that session.

The weakness continued into midweek trading, he noted, seeing the floating-rate notes that matured in 2011 ending at 86 and the 10¾% notes due 2016 at 89.

The former, he said, hit a low of 85 before rebounding. The latter dipped as low as 85.

Nortel filed for bankruptcy in 2009 and ultimately wound down operations. Since then, investors and creditors have been duking it out in court, fighting for the biggest piece of the remaining assets.

Health-care sector busy

The health-care arena was on the busy side in Wednesday trading, according to a trader.

The trader said HCA Inc.’s $1.6 billion add-on to its 5 3/8% senior notes due 2025 – a deal priced May 6 – “traded lots of times,” but ended unchanged at 102 1/8.

The issue came at 103.

Tenet Healthcare Corp.’s 8 1/8% notes due 2022 were meantime a point better at 110, the trader said.

And sector peer Community Health Systems Inc.’s 6 7/8% notes due 2022 ticked up half a point to 106.

In the pharmaceutical realm, Valeant Pharmaceuticals International Inc.’s 6 1/8% senior notes due 2025 were deemed “very active,” closing at 103.

However, the trader said the paper got as good as 103¼ bid, 103½ offered.

For its part, Valeant is slated to hold a lender call on Thursday to discuss repricing its series C and D term loans.

UPC taps 5 3/8% notes

Two issuers, coming with single-tranche drive-by deals, raised a combined total of $528 million on Wednesday.

Amsterdam-based UPC priced a $340 million tack-on to its 5 3/8% senior secured notes due Jan. 15, 2025 (Ba3/BB) at 99.5 to yield 5.438%.

The deal priced on top of talk.

Credit Suisse Securities (Europe) Ltd. was the lead left bookrunner. Credit Agricole and Nomura were the joint bookrunners.

The telecommunications services company, which issued via special purpose vehicle UPCB Finance IV Ltd., plans to use the proceeds to repay debt under its revolver.

Northern Oil & Gas mirror notes

Northern Oil and Gas, Inc. priced a $200 million issue of notes mirroring its 8% senior notes due June 1, 2020 (Caa1/B-) at 95 to yield 9.263%.

The notes, which will not be fungible with the company's existing 8% notes due 2020, came rich to price talk in the 94.5 area.

RBC, BMO and SunTrust were the joint bookrunners.

The Wayzata, Minn.-based independent oil and gas company plans to use the proceeds to repay revolver debt and for general corporate purposes.

Restaurant Brands talk is tight

Restaurant Brands International Inc., the parent of Burger King and Tim Hortons, talked its $1.25 billion offering of 6.5-year first-lien senior secured notes (expected B1/confirmed B+) to yield in the 4¾% area.

The yield talk came tight to initial guidance in the 5% area.

The debt refinancing deal, which kicked off on a Wednesday morning investor conference call, is expected to price on Thursday.

J.P. Morgan, Wells Fargo and RBC are the joint bookrunners.

World Acceptance talk 9% area

World Acceptance Corp. talked its $250 million offering of five-year senior notes (B2/B) to yield in the 9% area.

In addition to releasing price talk, the company extended call protection on the notes to three years from two years; the notes will become callable after three years at par plus 75% of the coupon.

The deal, via left bookrunner Wells Fargo and joint bookrunner BMO, is set to price Thursday.

Spectrum Brands for Thursday

Spectrum Brands, Inc. plans to roll out a $1 billion offering of 10-year senior notes during an investor conference call scheduled to get underway at 10:30 a.m. ET on Thursday.

The acquisition financing deal is set to price Thursday afternoon.

Credit Suisse, Deutsche Bank and Jefferies are the joint bookrunners.

Tuesday saw negative flows

Cash flows of the dedicated high-yield funds were negative on Tuesday, the most recent session for which data was available at press time, according to a market source.

High-yield exchange-traded funds saw $137 million of outflows on Tuesday.

The source, who closely tracks the activities of the ETFs, expects flows to be positive when Wednesday's numbers become available.

There were buyers on Wednesday morning, although there was some selling among high-yield ETFs in the afternoon, the source remarked.

Meanwhile, actively managed funds sustained $20 million of outflows on Tuesday.

Aggregate flows for the week to Tuesday's close were negative $70 million, the source said.

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