Upsized Huntington Ingalls mega-deal, JMC Steel price, jump in trading to close out busy week

By Paul Deckelman and Paul A. Harris

New York, Mar. 4 - Huntington Ingalls Industries, Inc. priced an upsized $1.2 billion two-part offering of seven- and 10-year bonds on Friday. Both tranches of the shipbuilder's new issue were seen by traders to have jumped by several points when they were freed for aftermarket dealings, reflecting a strong desire on the part of fund managers and other investors to put the continued cash inflows the market has recently seen to work.

Also pricing on Friday was a $725 million offering of seven-year notes by steel tubing manufacturer JMC Steel Group, Inc. Like both tranches of the Huntington Ingalls deal, the JMC bonds priced at par and then firmed solidly when they were freed to trade.

The two deals boosted the week's new-issuance total to more than $10 billion - a far cry from the anemic level of somewhat over $1 billion seen in the previous, holiday-shortened week. The busy dealings got March's new issuance off to a strong start, continuing the robust trend seen in February, and strengthened year-to-date totals to around twice the amount of new paper which had priced by this time last year - and last year itself shattered all full-year records for total new issuance.

Deals which had priced on Thursday like MEMC Electronic Materials, Inc. and Jo-Ann Stores, Inc. continued to trade strongly, although Thursday's big deal, Valeant Pharmaceuticals International, Inc.'s $1.5 billion two-part transaction was seen hovering just above the issue level for both tranches.

In the secondary market, traders said the new issues pretty much monopolized everyone's time. Statistical indexes of market performance ended the week on a mixed note.

Huntington Ingalls a blowout

Friday's volatility in the stock markets of Europe and the United States registered little if any impact upon business in the high-yield primary market, a debt capital markets banker said.

The final session of the February-March crossover week saw two issuers price a combined three tranches of high-yield notes which generated $1.925 billion of proceeds.

Huntington Ingalls Industries, Friday's biggest issuer, priced an upsized $1.2 billion two-part senior notes transaction (Ba3/B+).

The Newport News, Va., shipbuilding company priced a $600 million tranche of 10-year notes at par to yield 7 1/8%.

The yield printed in the middle of the 7% to 7¼% price talk.

Huntington Ingalls also priced a $600 million tranche of seven-year notes at par to yield 6 7/8%. The yield on the seven-year notes printed on top of price talk which had it coming 25 basis points inside of the yield of the 10-year notes.

Credit Suisse Securities, J.P. Morgan Securities LLC, RBS Securities Inc. and Wells Fargo Securities were the joint bookrunners.

The overall issue size was increased by $25 million to $1.2 billion from $1.175 billion, with $25 million of proceeds shifted away from the company's term loan A.

Proceeds will be used to capitalize the company, as well as to fund a cash transfer to Northrop Grumman, which is spinning off Huntington Ingalls, Northrop's shipbuilding business.

Proceeds will also be used for general corporate purposes.

The proceeds will be funded into escrow prior to the effective date of the spinoff.

The deal was multiple-times oversubscribed, and allocations were tough, according to an informed source.

In addition to high-yield accounts, non-traditional players, including high-grade accounts and multiple-asset accounts were active in the Huntington Ingalls deal, the source added.

JMC prices inside talk

Meanwhile on Friday, JMC Steel Group priced a $725 million issue of seven-year senior notes (B3/B/) at par to yield 8¼%.

The yield printed 12.5 bps inside of price talk that had been set in the 8½% area.

J.P. Morgan Securities LLC ran the books for the acquisition deal.

$10 billion week

Trailing two weeks which saw issuance totals below the $5 billion mark, issuance shot above $10 billion in the February-March crossover week.

The market saw $10.16 billion in 23 junk-rated dollar-denominated tranches during the week to Friday's close.

It was the third week thus far in 2011 to top $10 billion, and it was the third-biggest week thus far in 2011. The year’s biggest week so far was the five days starting Jan. 10 which saw $14.24 billion in 28 tranches.

Year-to-date issuance stood at $65.1 billion in 151 tranches at Friday's close.

Skylink sets talk

The first full week of March will get underway on Monday with a comparatively light forward. calendar: $565 million and C$275 million.

There were no new deal announcements on Friday.

In Europe, Fiat Industrial SpA hosted a conference call with fixed income investors on Friday.

That call could result in a bond deal as early as Monday, pending market conditions, an informed source said.

No size or structure have been announced.

Banca IMI, Barclays Capital, BNP Paribas, Credit Agricole CIB, Citigroup, Royal Bank of Scotland, SG CIB and UniCredit have organized the meetings and call.

Meanwhile Toronto-based Skylink Aviation Inc. is marketing a minimum of C$100 million of five-year notes (B/B) through Monday.

Yield discussions have taken place in the 12% to 12½% context, a market source said.

RBC Capital Markets Corp. is the lead manager.

Smooth sailing for shipbuilder’s bonds

When the big new Huntington Ingalls two-part deal was freed for secondary trading, both tranches of the Newport News, Va.-based shipbuilder’s bonds were seen having firmed smartly.

A trader pegged its 7 1/8% notes due 2021 at 104 bid, 104¼ offered, well up from their par issue price, while its 6 7/8% notes due 2018 did almost as well, going home at 103¾ bid, 104 offered, also up from par.

“That’s a deal you’d like to be in,” he observed.

A second trader saw the 10-years at 104¼ bid and the 7-years matching them “almost dollar-for-dollar,” rising to 103¾ bid, 104¼ offered.

He said that he was “surprised” by the aftermarket strength of the mega-deal.

JMC Steel shows strength

That big break overshadowed the solid secondary market performance of the day’s other deal, Beechwood, Ohio-based steel tubing maker JMC Steel Group’s offering of seven-year bonds.

Like Huntington Ingalls, this too priced at par and then proceeded to move up by several points when it was freed to trade.

One trader saw the new bonds at 101 7/8 bid, 102 1/8 offered, while a second also saw those bonds as high as that level before going out at 101 5/8 bid.

Yet another dealer queried later in the session quoted them at 102 bid, 102½ offered.

MEMC moves up

The deal which priced too late during Thursday’s session for any immediate aftermarket dealings, MEMC Electronic Materials, Inc.’s 7¾% senior notes due 2019, also moved up solidly when it began trading on Friday.

A trader saw the St. Peters, Mo.-based high-tech components manufacturer’s $550 million offering to have firmed to 101½ bid on Friday from the bonds’ par issue price.

At another shop, a trader saw two-sided markets at 101½ bid, 102 offered.

Jo-Ann Stores stays up

Among Thursday’s other deals, a trader said that the new Jo-Ann Stores, Inc. 8 1/8% notes due 2019 “hung right in there,” actually improving slightly on Thursday’s closing aftermarket levels to go out on Friday at 101 1/8 bid, 101¼ offered.

The Hudson, Ohio-based specialty retailer’s $450 million issue, which had priced on Thursday at par, had finished that session at around the 101 bid level.

Valeant little changed on day

A trader said that although he saw “a ton” of Valeant Pharmaceuticals International’s new bonds trading on Thursday after they were priced by the Mississauga, Ont.-based drug maker, he didn’t see them on Friday.

But a second trader did see them about unchanged from Thursday’s initial aftermarket levels, with the 6½% notes due 2016 at 100 ½ bid, 100 7/8 offered, up from their par pricing, and its 7¼% notes due 2022 at 98½ bid, 99 offered, versus their 98.125 issue price.

Perry still hot, Jones not

Traders said generally speaking most of the other bonds which priced last week remained at about the same levels on Friday that they had held on Thursday, which for most of them was within ¼ to ½ point of their issue price, either way, most of them to the upside.

However, a trader noted that Miami-based fashion house Perry Ellis International Inc.’s $150 million of 7 7/8% notes due 2019 continued to trade strongly above the par level at which they priced on Wednesday.

“They’re a really good company,” he said, in quoting the bonds at Friday trading at 102¼ bid, 102¾ offered. “They all did well.”

However, Jones Group, Inc.’s 6 7/8% notes due 2019 notes meantime remained well under the par level at which the New York-based apparel company had priced its $300 million issue on Wednesday.

“They just got whacked,” he said, quoting the bonds at 98 5/8 bid, 98 7/8 offered.

New issues remain the focus

But Jones – parent company of the noted Jones New York fashion line – was the exception to the rule, which saw most of the new deals at least holding at or even somewhat above, their respective issue price, buoyed by the need to put all of the cash flowing into Junkbondland to work.

“Everybody’s got cash,” a trader said, “and they’re buying these new deals. They may be complaining a little about the pricing and the lower coupons” – some of them with 6% handles, considered mediocre by junk market standards – “but they need to do something with the money.”

He said that “it’s a seller’s market, if you’ve got something to sell.”

He said the secondary market has been pretty much focused on new issues.

“That’s where all the activity is, when the thing breaks.”

Indicators turn mixed

Away from the new-deal world, a market source saw the CDX North American Series 15 HY index off by 1/8 point on Friday to end at 103¾ bid, 104 offered, after having gained 3/8 point on Thursday.

For the week, the index was unchanged, closing almost exactly at the same level seen at the end of the previous week last Friday, Feb. 25.

The KDP High Yield Daily index meantime eased by 1 basis point on Friday to close at 75.96, after having risen by 1 bp on Thursday. Its yield was unchanged on the day at 6.62%, after having come in by 1 bp on Thursday.

The index closed the week marginally better than the previous Friday's close at 75.91, while its yield was a bit narrower than the 6.66% seen the previous Friday.

The Merrill Lynch High Yield Master II index gained 0.040% on Friday, on top of its 0.054% advance seen on Thursday. That lifted its year-to-date return to 3.673%, a new peak level for 2011 so far, up from Thursday's 3.576% reading.

The index rose 0.354% on the week, in contrast to the previous week's 0.060% decline, which had been the first week-on-week pullback after a long string of advances dating back to early December. The year-to-date return figure was thus up from 3.307% at the close the previous Friday.

Advancing issues fell behind decliners Friday after having led them for five consecutive sessions. But the margin of difference was less than two dozen issues out of the more than 1,300 which traded, versus the roughly six-to-five margin which had been seen over the previous three days.

Overall market activity, as measured by dollar-volume levels, fell by 25% on Friday, after having risen by 26% on Thursday from the previous session.

GM drives lower

Among specific issues in a mostly quiet non-new deal secondary arena, a trader said that the 8 3/8% benchmark bonds due 2033 of Motors Liquidation Co. – the former General Motors Corp. following its 2009 bankruptcy reorganization – “were quoted lower, though on not a lot of trading.” He saw the bonds down 1 point at 31 bid, 32 offered, “on not a lot of activity.”

He said the news that federal bankruptcy judge said that he would approve the reorganization plan for Motors Liquidation – which was left responsible for the company’s outstanding bonds and other liabilities and unprofitable, unwanted assess while its profitable carmaking operations were separated into a “new GM” – was essentially a non-story.

A second trader saw the “old GM” bonds down that same single point, though at 31 ½ bid, 32 ½ offered.

At another desk, a trader said he “didn’t see a lot of quotes” in any of old GM’s debt, even with the news out about the bankruptcy plan, which will distribute a specified number of shares of the new GM to old GM’s bondholders and other creditors.

He said there was maybe $18 million traded across all of the different issues in the company’s capitals structure – really not a lot for an issuer like GM.

“It’s not like you opened GM and saw $100 million traded,” he said. The most active bond was the 8 3/8s - and even they saw only around $2 million, meaning they were “virtually untraded.”

A trader meantime saw GM domestic arch-rival Ford Motor Co.’s 7.45% bonds due 2031 down 1/8 point at 108¾ bid, 109¾ offered.

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