InterGen, SemGroup, Jack Cooper price in $3.3 billion week; new bonds trade up; tone firms

By Paul Deckelman and Paul A. Harris

New York, June 7 - The recently struggling high-yield market seemed to regain at least a little bit of its old swagger on Friday, according to junk market participants.

They saw three new deals price for a total of $1.26 billion, the largest of them from InterGen NV, a global power generation company, which did $750 million of 10-year senior secured notes as part of a two-part offering that also included a euro-denominated tranche of bonds. Traders quoted the new bonds higher when they were freed for aftermarket activity.

SemGroup Corp., a provider of various services to the energy industry, priced $300 million of eight-year notes, while Jack Cooper Holdings Corp., which transports cars and light trucks from their assembly plants to car dealers, came to market with $225 million of seven-year secured notes. Both of those deals were also seen having some aftermarket pop.

The three deals brought to nearly $3.3 billion the amount of junk-rated, dollar-denominated paper from domestic or industrialized-country issuers that priced in 11 tranches this week, according to data compiled by Prospect News. That was up from the nearly $2.4 billion that had priced in eight tranches in the holiday-shortened previous week ended Friday, May 31.

It also raised the total amount of such bonds issued so far this year to $163.21 billion, pricing in 353 tranches, according to the data - running about 22.5% ahead of the volume that had been recorded at this time last year.

Besides the deals that priced on Friday, traders saw some good upside in two deals Thursday for specialty retailer Hot Topic Inc. and energy operator Approach Resources, Inc.

Traders said that the junk market - which had been getting pushed around recently on investor fears of a possible end soon to the Federal Reserve's bond-buying program that has kept financial system liquidity plentiful and rates near historical lows - seemed to catch a bid, despite continued weakness in Treasury issues on fears of a tapering off of the program. In that, a trader said, junk seemed to be linked more to the day's solid rise in equities following May's jobs and unemployment numbers.

Statistical indicators of market performance were higher across the board on Friday after having been mixed on Thursday and on the downside for several sessions before that. However, they were still well down on a week-by-week basis from the previous Friday's various data points.

Three deals price

The high-yield primary saw $1.26 billion of Friday issuance in three dollar-denominated tranches from three issuers.

Amid the widespread price talk revisions presently afoot in high yield, two of the deals priced atop upward revisions while the third came at the wide end of original talk.

"Everything is in play right now," a trader said, heading into Friday's New York close.

"None of the deals we saw at the end of the week came at the original guidance.

"It's amazing how the market has changed," the source added. "Two weeks ago, every deal that came was multiple-times oversubscribed. But lately you're hearing that the books are finishing around deal-size."

InterGen's multi-currency deal

InterGen, which brought Friday's biggest deal, shifted proceeds to its dollar-denominated tranche from its sterling-denominated tranche before priced the two-part offering of senior secured notes (B1/B+).

The deal included an upsized $750 million tranche of 7% 10-year notes that priced at 98.23 to yield 7¼%. The dollar tranche was increased from $600 million. The yield printed on top of talk that was revised upward from the earlier 7% area.

In addition to the dollar tranche, the Burlington, Mass.-based power generator also priced a downsized £175 million tranche of 7½% eight-year notes at 98.52 to yield 7¾%. The sterling tranche was reduced from £260 million. The sterling notes had been talked to yield 25 basis points behind the dollar notes, but instead came 50 bps behind.

Deutsche Bank was the global coordinator. Barclays, BofA Merrill Lynch, Credit Suisse, Mitsubishi and RBC are the joint bookrunners.

Proceeds, along with funds from new bank debt, will be used to fund a tender offer for the company's 9½% senior secured notes due 2017, 9% senior secured notes due 2017 and 8½% senior secured notes due 2017 as well as to repay bank debt and for general corporate purposes.

SemGroup downsizes

SemGroup priced a downsized $300 million issue of eight-year senior notes (B3/B+) at par to yield 7½%.

The deal was cut from $350 million.

The yield printed at the wide end of the 7¼% to 7½% talk.

Citigroup, BMO, Deutsche Bank, RBC, RBS, Scotia and UBS are the joint bookrunners.

Proceeds will be used to fund the acquisition of Mid-America Midstream Gas Services, LLC and for general corporate purposes.

Jack Cooper comes at par

Jack Cooper Holdings priced a $225 million issue of seven-year senior notes (B2/B-) at par to yield 9¼%.

The yield printed on top of talk that had been revised upward from the earlier 8¾% area.

Wells Fargo Securities, LLC and Barclays are the joint bookrunners.

Proceeds will be used to refinance debt and preferred stock.

Something on the table

With Thursday's news that high-yield funds saw a record $4.6 billion of outflows for the week to Wednesday, and with the dramatic widening in high-yield indexes that has been underway since mid-May, issuers have undergone a transformation from price-makers into price-takers, market sources say.

Yet in spite of market volatility, deals that priced on Thursday and Friday have performed well in the secondary market, a buysider said late Friday.

That's because beginning in the second half of the past week, issuers unmistakably began leaving something on the table for investors, the source added.

For example, the above-mentioned Jack Cooper deal went well and was up a point on the break, the source said, citing the new Jack Cooper 9¼% notes due 2020 at 101 bid, 102 offered.

However, pricing on the deal widened dramatically while it came into the market, the source said, noting that when the deal rolled out, it was guided in the low-to-mid 8% range.

The downsized SemGroup deal, also mentioned above, did OK as well, the buysider said, spotting the bond in the secondary trading at 101½ bid, 102 offered.

But SemGroup made a substantial concession to the rugged market conditions, the source added, noting that initial yield conversations had the deal yielding in the mid-to-high 6% range, whereas it priced Friday at par to yield 7½%.

The week ahead

The process of price discovery that took place late in the opening week in June is apt to continue into the week ahead, sources say.

The past week got underway with a precipitous deal calendar buildup sparked by a spate of Monday roadshow announcements.

Some of those deals that had been expected to clear by Friday's close have been pushed into the week ahead.

Only one of those had official price talk at Friday's close.

On Thursday, Warren Resources, Inc. talked its $200 million of eight-year senior notes (Caa1/CCC+) to yield 8¼% to 8½%.

That deal, via bookrunner BMO, has been moved into the June 10 week.

Day's new issues improve

In the secondary market, a trader said that InterGen's 7% senior secured notes had moved up to 100¼ bid, 100½ offered when they were freed for trading - well up from the 98.23 level at which the power generating company had priced the dollar portion of its big dual-currency offering.

He also saw Jack Cooper Holdings' 9¼% senior secured notes as having moved up by at least ¾ point on the bid side after the Kansas City, Kan.-based light vehicle transport company's deal priced at par, "and that could have been even more."

He opined that after the recent market turmoil seen in Junkbondland "what's happening is now people wanted to get their deals done - so if anything, they were making them more comfortable for the buyers, for a change."

In fact, all of the deals that came to market on Friday and in other recent sessions have had considerably more generous, more investor-friendly coupons in traditional junk bond market sizes - 6% and above - than did the slew of deals that priced before the market slowdown had really taken effect. Those deals had coupons of below 6% at the maximum, some of them were at 5% or below and there even a few at 4% or under, including packaging maker Ball Corp.'s $1 billion offering of 4% notes due 2023, which priced at par on May 9, but which were gradually beaten down since then to current levels around 95 bid. The most recent deal coming in under 6% was theater operator Regal Entertainment Group's 5¾% notes due 2023, $250 million of which priced at par on May 29. Rival movie theater chain company Cinemark USA Inc. had the most recent deal carrying a coupon of less than 5% - its $530 million of 4 7/8% notes due 2023, which priced on May 21.

A second trader saw the InterGen dollar notes at par bid, up from its heavily discounted price when it came to market, "so that one popped quite a bit."

He said that he had not seen the new Jack Cooper bonds.

But yet another trader pegged those notes solidly higher, at 101 bid, 101½ offered, versus their par issue price.

Thursday deals seen better

The deals that came to market on Thursday were also seen better on the day, and solidly so.

A trader said that Hot Topic's offering of 9¼% senior secured notes due 2021 "was definitely a little bit better," having pushed up to 102 bid by Friday from its Thursday issue price of 98.618 for a yield of 9½%.

He said that the City of Industry, Calif.-based specialty retailer's $355 million issue "priced when the market was on its heels. The market rallied late in the day [Thursday], but they'd already probably priced it."

He added that "the way the market felt today, if they hadn't priced that deal until today [Friday], it probably would have priced at par, instead of at a discount."

He also saw Approach Resources' 7% notes due 2021 at 102½ bid, 103 offered, "so that one popped as well." The Fort Worth, Texas-based oil and natural gas exploration and production company had priced $250 million of the notes at par.

Has downturn bottomed?

The trader said that overall, "the market really turned the corner [Thursday] afternoon, when the equity market really rallied, and today you had some follow-through, because you had such a strong equity market.

"We were more in line with the equity market than with Treasury rates," the junk market's recent bugaboo.

The bellwether Dow Jones Industrial Average, after having bounced off its intraday lows on Thursday to finish that session up by 80 points on the day, tacked on another 207.50 points Thursday, or 1.38%, to close at 15,248.12.

Meanwhile, Treasury yields continued to go up Thursday on investor angst that the Federal Reserve might taper off its established program of buying about $85 billion of mortgage-backed securities and other investment instruments. That speculation got new legs Friday morning on a higher-than-forecast employment growth picture in May, with the improvement seeming to indicate that the Fed's measure could be throttled back.

Market indicators turn upward

Away from the new-deal realm, statistical junk performance indicators turned improved on Friday, after having turned mixed on Thursday. Before that, they had fallen across the board over the previous four sessions.

However, despite the rebound, they remained below the levels they had held at the end of the previous week on Friday, May 31.

The Markit Series 20 CDX North American High Yield index posted its second consecutive gain on Friday, rising by 7/16 point to end at 104 7/32 bid, 104 11/32 offered. On Thursday, it had rebounded solidly from recent weakness, snapping a four-session losing streak by gaining 5/8 point.

For the week, though, it remained down from the previous Friday's 104 11/16 bid, 104 13/16 reading.

The KDP broke a 10-session skid, jumping by 29 basis points on Friday to end at 74.59. That was in stark contrast to Thursday, when it had plunged by 21 bps to 74.30, marking its third consecutive new low for the year.

The KDP index's yield meantime declined by 10 bps on Friday to 5.76%, its first such narrowing after 10 consecutive sessions in which it had risen. That included Thursday, when the yield had increased by 9 bps.

Friday's readings, while a marked improvement over Thursday's still compared unfavorably with the previous Friday's 75.43 index reading and its 5.43% yield.

And the widely followed Merrill Lynch High Yield Master II index rose by 0.499% on Friday, its first gain after eight straight losses, including Thursday's 0.11% easing.

The rise brought its year-to-date return back up to 3.413% from Thursday's 2.899% - the first time that the cumulative return figure had fallen below 3% since April 1, when it stood at t 2.948%.

However, on a one-week basis, it was down by 0.802%, its fourth consecutive week-over-week drop.

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