PolyOne does quick 10-year deal; new Flextronics trade, NII keeps climbing; OSG bonds sink

By Paul Deckelman and Paul A. Harris

New York, Feb. 13 - High-yield primaryside activity continued to slow on Wednesday, as just one dollar-denominated, fully junk-rated deal from a domestic or developed-country issuer priced - chemical manufacturer PolyOne Corp.'s $600 million quick-to-market 10-year offering.

Traders said those new bonds initially firmed before falling back to end with more modest aftermarket gains.

They also reported that Tuesday's only deal - contract electronics manufacturer Flextronics International Ltd.'s $1 billion two-part offering - had begun trading in the secondary realm, after appearing too late in the day on Tuesday. The new bonds traded in a narrow range not far above their issue prices.

On the other hand, wireless provider NII International Telecom SCA's newly priced 6.5-year notes continued to add to their already handsome secondary market gains.

There was also more upside movement in automotive electronics maker Delphi Corp.'s 10-year notes, which, like NII, priced on Monday.

Besides the one deal that priced, syndicate sources also heard just one other bit of news, as Italian building products company Italcementi SpA began shopping a €350 million of five-year notes around.

In the secondary market, one of the more notable names came out of the distressed world, as Overseas Shipholding Group, Inc.'s already badly battered bonds hit some new rough seas, on reports the Internal Revenue Service has a huge tax bill for the bankrupt tanker operator.

Statistical market performance indicators were pretty much higher across the board.

PolyOne prints at 5¼%

PolyOne priced Wednesday's sole high-yield deal, a $600 million issue of non-callable 10-year notes (Ba3/BB-) which came at par to yield 5¼%.

The yield printed on top of yield talk.

The drive-by deal went well, according to a trader.

BofA Merrill Lynch and Wells Fargo ran the books.

Proceeds will be used to fund a portion of the company's acquisition of Spartech, to make a $50 million contribution to PolyOne's U.S. defined benefit plan, to repay the company's term loan in its entirety and for general corporate purposes.

Italcementi could upsize

Italcementi SpA is expected to price a €350 million minimum offering of five-year senior notes on Thursday.

Early in the New York session the deal was whispered with a yield in the high 6% context.

Later, however, a buyside source on the East Coast of the United States said that it could price yielding as little as 6½%.

And the size is expected to grow.

The deal is being sold as Regulation S only, and thus is playing to European accounts and offshore money, the buysider said.

Banca IMI, BNP Paribas, Credit Agricole CIB, Natixis and UniCredit are the leads.

The Bergamo, Italy-based cement company's corporate credit ratings are Ba2 from Moody's Investor Service and BB+ from Standard & Poor's.

February...big or small?

The Italcementi deal was Wednesday's sole new announcement, as the pace of the primary market continues to lag that seen during run-up to the new the year.

Six and a half weeks into 2013, the market is cranking out a $7.7 billion per week rate of issuance, nearly $1 billion less than the $8.5 billion per-week volume seen in the last six working weeks of 2012, covering the period Nov. 5 to Dec. 21, excluding the Thanksgiving week.

Although deal volume has been muted, the market is lately dominated by sizable drive-by deals. Sixty-four percent of issuance year-to-date has come in the form of quick-to-market deals.

The present week is a case in point, having seen big drive-by's from Delphi Corp. ($800 million) on Monday, Flextronics International Ltd. ($1 billion) on Tuesday and the above-mentioned PolyOne $600 million deal on Wednesday.

Deal size notwithstanding, as the market nears the mid-way point of February there is the possibility that the torrid issuance pace of the history-making year of 2012 may finally be slackening.

Last month saw $31.6 billion of deals, making it the biggest January in the history of the new issue market. The present month, having posted $10.6 billion to Wednesday's close, has a row to hoe in order to keep up the 2012 pace: February 2012 came in at $36.4 billion.

With 10 market sessions remaining until the end of the month, factoring in the upcoming Presidents Day holiday in the United States, the primary market needs to average $2.6 billion per day in order to match February 2012.

LBO deal prospects

Since the beginning of 2012's fourth quarter, 40% of the deals that have come into the market came strictly for refinancing purposes, while only 13% have been LBO and acquisition-related, according to Prospect News data.

That debt rollover represented by that 40% amount of refinancing business - taking investors out of old paper and replacing it with new, and lately lower-paying paper - translates into an ongoing challenge to put cash to work, buyside sources say.

That problem could be solved if only LBO and acquisition financing grew to a bigger portion of overall new issuance, they point out.

"You keep hearing about an LBO pipeline but it certainly hasn't materialized yet," one investor lamented.

Initially there was excitement about debt headed for the market backing the transaction to take Dell, Inc. private, even though the preponderance of that debt, $7.5 billion, is headed to the bank loan market, while the high-yield market expects only $3.25 billion.

However the initial luster has given way to some uncertainty, as two of Dell's major shareholders have asserted that the $13.65 tender price for shares undervalues the company.

"Dell won't be coming soon," the investor said, adding that, shareholder headwinds notwithstanding, there is a 45-day go-shop period before the deal can proceed.

Another acquisition-related financing the market began watching for in late 2012 is the spin off of McGraw-Hill Cos.' education unit to Apollo Global Management LLC. That transaction is expected to generate $550 million of new high-yield issuance.

However the buy-side isn't exactly licking its chops yet, the investor said.

That's because McGraw-Hill's Standard & Poor's unit - which contributed 70% of McGraw-Hill's operating profit in 2012 - is entangled in a federal lawsuit alleging that Standard & Poor's gave falsely high ratings to mortgage investments during the middle-to-late parts of the last decade, helping to kindle the financial crisis.

If the government prevails, a lot of investors are apt to attempt to bring class-action lawsuits claiming that the Standard & Poor's rating actions caused them to lose money, the investor said.

PolyOne pop fades

In the secondary arena, a trader said that PolyOne's new 5¼% notes "started up a little bit" when the deal moved into the aftermarket, getting as good as 100 5/8 bid on the break after pricing at par.

After that, however, he said the bonds "faded a little bit," ending in a 100 1/8 to 100½ bid context going home.

However, a second trader quoted the Avon Lake, Ohio-based chemical manufacturer's new issue late in the session around 100½ to 100 7/8.

Flextronics finally trades

The first trader said that Flextronics's new deal, which had priced too late in Tuesday's session for an aftermarket "traded today for the first time."

He said "that one really didn't go anywhere either," quoting both tranches of the $1 billion two-part drive-by offering as trading in a par to 100 3/8 bid context.

The Singapore-based contract electronics designer and manufacturer had priced $500 million each of 4 5/8% notes due 2020 and 5% notes due 2023, both at par.

NII continues to strengthen

Among other recently priced deals, NII International's new 11 3/8% notes due 2019 remained unstoppable in the secondary market, rising for a third consecutive session.

A trader said that the bonds were up another ½ point on Wednesday to go home at 104 3/8 bid, 105 1/8 offered.

He said that after the Reston, Va.-based provider of Nextel-branded wireless service to Latin America priced its $750 million deal at par on Monday, after upsizing it from $600 million originally, the bonds had jumped to 102¼ bid, 102¾ offered in initial aftermarket dealings.

He said the issue had tacked on another 1 5/8 points on Tuesday to move up to 103 7/8 bid, 104 3/8 offered on Tuesday, and then continued to rise on Wednesday.

A market source at another desk saw them doing even better on Wednesday, calling the bonds up 1 1/8 points late in the day at 104¾ bid, on round-lot volume of some $5 million.

The company's existing NII Capital Corp. 7 5/8% notes due 2021 meantime were among the most heavily traded Junkbondland credits for a second straight session, with over $26 million changing hands. The source pegged the issue at 71 bid, off about 5/32 on the day, giving up the ½ point gain the bonds had notched on Tuesday.

Delphi drive continues

Back among the newly priced bonds, Delphi Corp.'s 5% notes due 2023 were seen having firmed solidly for a second consecutive session on Wednesday.

A market source quoted the bonds going home at just under 102¾ bid, up around ¾ point on the day, with over $17 million of the bonds having traded, placing it high up on the high-yield most-actives list for the day.

Delphi, a Troy, Mich.-based automotive electronics manufacturer, had priced $800 million of those notes at par on Monday in a quick to market deal which came too late in that session for any kind of aftermarket.

When they were finally freed to trade early Tuesday, traders saw the bonds shoot up to a 101½ to 102 bid context, in heavy trading.

Triumph trades up

Another Monday deal - Triumph Group, Inc.'s 4 7/8% notes due 2021 - was seen on the rise on Wednesday.

A trader said the bonds had gained ¼ point on the session to end at 100½ bid, 101 offered, getting back the 1/8 point drop he said had occurred on Tuesday.

The Berwyn, Pa.-based aircraft systems and components maker had priced a quickly shopped $375 million of those bonds at par on Monday, after upsizing the offering from an originally announced $350 million.

Those bonds had traded a little above issue on Monday, around 100¼ to 1001/2.

But traders said that activity in the new Triumphs was considerably less than the busy pace in the new NII International and Delphi deals.

Deals start to back up

Away from this week's issues, a trader opined that one of the emerging features of the junk market he was seeing was that "a lot of those 4% [area] deals that have priced in the last month are trading around 96, 97 or 98 right now."

He further said that overall, "it sounds like we've found some support in some of these high-beta names that were really for sale over the last two weeks or so. Some of the stuff came off 4, 5, even 6 points, before guys really wanted to step in, and they weren't particularly liquid on the way down."

Overseas Ship on the rocks

Among specific names, a trader said that the deeply distressed Overseas Shipholding Group "was worth talking about today."

He said that the company's 8 1/8% notes due 2018 "traded down to 30 cents on the dollar right out of the chute, and then kind of rallied back to the mid-30s. That's still down 3 to 5 [points] on the day, however."

He noted news reports about the Internal Revenue Service going after the largest U.S. tanker operator, claiming the bankrupt New York-based company owes Uncle Sam $463 million in back taxes. Details of the alleged debt weren't immediately available from Kurtzman Carson Consultants LLC, the agent processing claims for Overseas - other than that the IRS labeled the claim a priority, meaning that the tax regulators believe they should be paid ahead of other unsecured and lower ranking debts.

OSG's over-the-counter-traded shares plunged 14 cents, or 13.46%, to end at 90 cents, though volume of 593,000 shares was about 18% below normal

Cengage moves up

Elsewhere, a trader said that Cengage Learning Acquisitions Inc.'s 11½% notes due 2020 "rallied 2 to 3 points on the back of their numbers."

He saw the Stamford, Conn.-based educational content, software and services company's paper get as good as 83 bid before going out in an 80-81 bid context, which he said was still up 3 to 4 points on the day.

For the 2013 fiscal second quarter, Cengage reported net income of $24.2 million, compared to a $3.7 million loss in the prior year.

However, revenues for the quarter were $406.9 million, down 10.8% from $456.2 million in the 2012 fiscal second quarter, and adjusted EBITDA was $145.1 million, down 17.1% from $175 million in the previous year.

But another trader said that the bonds - and the company's bank debt as well - improved despite the mediocre numbers because of the fact that Cengage had done some debt buybacks, which will help interest expense going forward.

Market indicators stay firm

Statistical junk market performance indicators were mostly higher for a third consecutive session on Wednesday, establishing a pattern of strength after having suffered a string of sessions last week in which they had been mostly lower or, at best, mixed.

The Markit Series 19 CDX North American High Yield rose by 3/16 point on Wednesday - its fourth straight gain, to end at 102 5/8 bid, 102¾ offered. It had risen by 9/32 on Tuesday.

The KDP High Yield Daily Index was up by 1 basis point, ending at 75.18, after having fallen by 1 bp on Tuesday, its first loss after two earlier gains.

Its yield was unchanged at 5.74%, after having declined by 1 bp on Tuesday, the first such narrowing after six straight sessions on the rise.

The widely followed Merrill Lynch High Yield Master II index meanwhile posted its third straight gain on Wednesday, as it rose by 0.152%, on top of Tuesday's 0.021% advance.

That raised its year-to-date return to 1.263% from 1.109% on Tuesday, although it still remained well down from its peak level for 2013 so far of 1.991%, set on Jan. 28.

Stephanie N. Rotondo contributed to this report.

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