Level 3, upsized Smithfield price, firm, market awaits Hologic, Party City; Stork won't fly

By Paul Deckelman and Paul A. Harris

New York, July 18 - The high-yield market's pricing parade continued on Wednesday as two deals totaling some $1.3 billion made their debut.

High-yield syndicate sources said that pork producer Smithfield Foods Inc. drove by with an upsized $1 billion issue of 10-year notes.

Another familiar junk market name, telecom services provider Level 3 Communications Inc., did a quick-to-market $300 million offering of seven-year paper.

Both deals were seen better when freed for aftermarket dealings.

In the Canadian dollar market, Great Canadian Gaming Corp. priced an upsized C$450 million of 10-year bonds, which moved up when it was freed to trade.

Apart from the deals which actually priced, Innovation Ventures, LLC - the company that makes the popular 5-Hour Energy drink - was heard by the sources to have begun a short roadshow for a planned $400 million secured bond offering, which is expected to come to market on Thursday.

That session could get a little crowded, with pricings also expected from Hologic Inc., Party City Holdings Inc. - talk emerged on both of those deals on Wednesday - as well as, possibly, Laureate Education Inc. and Aradagh Packaging Financing PLC.

But the forward calendar meantime lost a deal Wednesday, with Dutch industrial services provider Stork Technical Services Holdco BV deciding to shelve its €315 million secured bond deal due to market conditions.

Traders said the secondary market meantime seemed to be firm, but no one name stood out, and the most prominent credit from the past few days, SuperValu Inc., had disappeared from the most-actives list.

Statistical market performance indicators rose across the board.

Smithfield massively upsizes

Wednesday's primary market saw a pair of drive-by issuers, each bringing a single tranche of notes, raise a total of $1.325 billion.

Smithfield Foods, Inc. priced an upsized $1 billion issue of 6 5/8% 10-year senior notes (B1/BB) at 99.5 to yield 6.694%.

The yield came in line with the 6 5/8% to 6¾% yield talk. The amount was increased from $650 million.

Barclays and Goldman Sachs were the joint bookrunners.

The Smithfield, Va.-based pork producer plans to use the proceeds to fund a tender offer for its 10% senior secured notes due 2014 and its 7¾% senior notes due 2013, and for general corporate purposes.

Level 3 prices at tight end

Level 3 Communications Inc. (HoldCo) priced a $300 million issue of seven-year senior notes (Caa2/CCC) at par to yield 8 7/8%, at the tight end of yield talk which was set in the 9% area.

Citigroup, Bank of America Merrill Lynch, Morgan Stanley, Credit Suisse, Deutsche Bank and J.P. Morgan were the joint bookrunners.

The Broomfield, Colo.-based provider of fiber-based communications services plans to use the proceeds for general corporate purposes, including the potential repurchase, redemption, repayment or refinancing of the company's and its subsidiaries' existing debt from time to time.

Both the massively upsized Smithfield deal and the Level 3 deal went well and saw strong demand, syndicate sources said.

However buyside sources resorted to expletives to characterize runaway demand for both deals.

The new Smithfield 6 5/8% notes due 2022, which came at 99.50, were quoted at 101¾ bid, 102 offered away from the dealer, according to an investor who did not participate.

Level 3, which came at par, was trading at 102 bid, 102½ offered, again away from the dealer, the source added.

Inflows moderating

The intense demand for paper is being driven by an investor base presently laden with cash that needs to be put to work in the junk bond market, sources say.

In part that cash is coming in the form of inflows to high-yield funds.

As of last Thursday fund-tracker EPFR Global was reporting that high-yield funds had seen a whopping $36.3 billion of cash inflows year-to-date, including the $2.65 billion of inflows for the week ending July 11, the most recent complete week to be reported.

However EPFR has tipped off its clients that those flows may be moderating, sources said Wednesday.

With four of the five days in the most recent reporting period in the book, high-yield funds saw just $366 million of inflows to Tuesday's close.

Hence the expectation is that the weekly total which EPFR is expected to announce on Thursday will come in significantly lower than last week's $2.65 billion.

Great Canadian Gaming upsizes

In the Canadian high-yield primary market, Great Canadian Gaming Corp. priced an upsized C$450 million issue of 10-year senior notes (B1/BB+/) on Wednesday at par to yield 6 5/8%, at the tight end of price talk which had been set in the 6¾% area.

The deal was upsized from C$400 million and had about 70 buyers.

Scotia and HSBC were the bookrunners for the debt refinancing.

Busy Thursday ahead

The forward calendar is chock-full of deals expected to price before Thursday's close.

Hologic, Inc. upsized its offering of eight-year senior notes (B2/BB) to $1 billion from $750 million on Wednesday, shifting $250 million of proceeds to the bonds from its concurrent term loan.

Official talk remained at the 6 3/8% area, where it was given on Tuesday, according to a high-yield mutual fund manager.

However pricing is likely to move tighter, sources said.

The bond deal, which had been expected to price on Wednesday, is now set to price Thursday.

Goldman Sachs has the books.

With the upsizing of the bonds, Hologic downsized its seven-year term loan B to $1.5 billion from $1.75 billion.

Elsewhere Party City Holdings Inc. talked its $700 million offering of eight-year senior notes (Caa1/CCC+) with a yield in the 9 1/8% area on Wednesday.

The books are scheduled to close at 10 a.m. ET on Thursday.

Bank of America Merrill Lynch, Deutsche Bank, Barclays, Goldman Sachs and Morgan Stanley are the joint bookrunners.

In addition Ireland's Ardagh Group is expected to price its $920 million equivalent three-part offering of mirror notes.

The transaction will feature $700 million equivalent of non-fungible notes mirroring the company's 7 3/8% senior secured notes due Oct. 15, 2017 (expected Ba3/BB-) in dollar and euro denominations.

The deal also included a $220 million tranche of fungible notes mirroring Ardagh's 9 1/8% senior notes due Oct. 15, 2020 (expected B3/B-).

Citigroup is the bookrunner.

Although no official price talk had circulated as of Wednesday's close, the secured tranche has been discussed in the context of 6% to 6¼%, according to a buyside source who added that the unsecured mirror notes have been discussed in the context of 8¼% to 8½%.

Also Laureate Education, Inc. could price its $300 million offering of seven-year senior notes via Citigroup and J.P. Morgan.

Again, there is no official talk on Laureate, but conversations have taken place in the low 9%-context, the buysider said.

5-Hour Energy

Elsewhere Innovation Ventures, LLC, makers of 5-Hour Energy, in conjunction with Innovation Ventures Finance Corp., began a brief roadshow on Wednesday for a $400 million offering of seven-year senior secured notes, which are also expected to price on Thursday.

Bank of America Merrill Lynch and Jefferies are the joint bookrunners.

Proceeds will be used to repay bank debt and for general corporate purposes; including capital investments in a new manufacturing plant and distribution facility, new product development, international expansion and selective strategic acquisitions.

The deal was premarketed earlier in the summer, according to an investor who said that rate discussions at that time took place in the context of 9½%.

Stork delays deal

Stork Technical Services Holdco BV, based in the Netherlands, delayed its €315 million offering of seven-year senior secured notes (confirmed B3/ expected B-) on Wednesday, according to a press release from the company.

Stork delayed issuance due to the difficult conditions in financial markets, according to the release.

The deal was talked with a yield in the 11½% area on Tuesday, according to a market source.

Goldman Sachs and Jefferies were the joint bookrunners.

Stork was a tough deal for a variety of reasons, according to sources on the buyside and sellside.

Investors questioned whether the company has a sufficiently healthy cash flow, giving rise to an expectation that Stork might return with a PIK structure.

The real problem, however, is that it's a European industrial credit, according to an investor who looked at the deal.

At 11½% investors were not being compensated for risks posed by a such a company having to operate in an economy that is sluggish, at best, the buysider said.

The Stork deal, at 11½%, is not coming cheap enough to French engineering services provider SPIE, which is a healthier company that is paying 11%, the investor asserted.

There may have been a deal for Stork to do at 12½% to 13%, the buysider added.

Level 3 moves up

In the secondary market, Level 3 Communications' new 8 7/8% notes due 2019 were seen by a trader having pushed up to around a 101½ bid level, after having priced at par.

Another trader saw the Broomfield, Colo.-based telecommunications and internet service provider company's quickly-shopped $300 million issue trading in a 102 to 102½ range.

A trader called Level 3 "a bull market phenomenon," noting that "they only come when markets are red hot."

Smithfield seen better

A trader said Smithfield Foods' new 6 5/8% notes due 2022 - which came to market fairly late in the session - were being quoted around 101½ bid, although he had not seen any right side. However, he surmised that when two-sided markets do emerge, "it looks like they're going to open up better." The deal had priced at 99½ to yield 6.694%.

A second trader was a little surprised that the Smithfield, Va.-based hog producer's new deal was able to generate enough demand to warrant an upsizing to $1 billion from the originally announced $650 million, given what's lately been going on in the commodities markets.

"I wouldn't have bought that," he flatly declared - "not with the drought that's going on."

A severe drought in the Great Plains region of the United States has pushed up corn prices, on investor fears that the high heat and lack of water could kill much of the crop. Corn is considered an essential normally low-cost feedstock for livestock producers such as Smithfield, Tyson Foods and Pilgrim's Pride Inc., and an increase in prices would boost their costs and play havoc with earnings.

He opined that the Smithfield deal "went to the I-G [investment grade] guys. At B1/BB and 500 [basis points] off, those guys can't get enough."

He said they must be surmising that the drought will end soon before doing much more damage to Smithfield's and other livestock producers' bottom lines.

Existing Smithfields soar

One of the traders meantime said that Smithfield's existing 10% notes due 2014 - one of the two series of bonds slated to be taken out via a tender offer funded by the new-deal proceeds - were up sharply on the day, rising to 118 bid, about the announced takeout price, from prior levels around 114.

"My guess is they're both up around the tender price," he said, also referring to the 7¾% notes due 2013, which are being tendered for at around the 105.5 level. Those bonds were being quoted above 105 on Wednesday, up from prior levels around 104.

Great Canadian doing great

A trader said that Great Canadian Gaming Corp.'s new 6 5/8% notes due 2022, denominated in Canadian dollars, "did very well," rising as high as 102 and going out at 101 7/8 bid, 102 1/8 offered.

A second trader also said that the C$450 million issue "rallied up to 102."

The Richmond, B.C.-based gaming, entertainment and hospitality company's deal - upsized from an original C$400 million - had priced at par.

Tuesday deals hang in there

A trader said that Tuesday's new issues pretty much held their gains in Wednesday's dealings, although he did say that Lennar Corp.'s new 4¾% notes due 2017 "never really went anywhere" and were trading in a narrow 100¼ to 100½ context.

That's a little off from the 101½ offered levels being quoted late Tuesday, after the Miami-based homebuilder had brought its $350 million drive-by offering" - up from an originally announced $300 million -at par.

However, he saw Interline Brands Inc.'s new 10% notes due 2018 "continuing to hold their gains," going home at 103 bid, 103½ offered. The Jacksonville, Fla.-based maintenance and repair products supplier's $365 million of those PIK toggle notes had priced at par, and then moved up smartly when they were freed for aftermarket activity to around 103 bid, 103½ offered.

He also saw Clean Harbors Inc.'s 5¼% notes due 2020 likewise hanging onto the gains notched in Tuesday's secondary market after that deal priced.

He quoted the Norwell, Mass.-based environmental services company's issue around 102 bid.

"They held their gains," he declared.

That $800 million quick-to-market offering had priced at par on Tuesday after upsizing from an originally announced $600 million. The new bonds had reached as high as 101 7/8 bid, 102 3/8 offered when they began trading around later on Tuesday.

The only Tuesday deal not really seen in the aftermarket Wednesday was Harland Clarke Holdings Corp.'s 9¾% senior secured notes due 2018, which a trader said was "very little seen."

The San Antonio-based business services provider had priced $235 million of those bonds - down from an original $250 million - at a deeply discounted 96 to yield 10.666. Those bonds had traded in a 96¼ to 97 context on Tuesday.

The company's existing 9½% notes due 2015 were meantime seen down 1½ points at 88 bid, and its floating-rate notes due 2015 likewise fell to 81 bid, with over $8 million of the latter bonds having changed hands.

Market signs show strength

Away from the new-deal arena, statistical measures of market performance moved into positive territory across the board on Wednesday; they had been mixed for two straight sessions on Monday and Tuesday, after having been mostly higher on Friday.

A trader saw the Markit Group CDX North American Series 18 High Yield Index gain 5/16 point on Wednesday for a second straight session, ending at 96¾ bid, 96 7/8 offered.

The KDP High Yield Daily Index rose by 6 basis points on Wednesday to finish at 73.47, after having eased by 6 bps on Tuesday.

Its yield narrowed by 3 bps on Wednesday to end at 6.41%; on Tuesday, it had risen by 1 bp for a second straight day.

The widely followed Merrill Lynch U.S. High Yield Master II Index posted its fourth straight gain on Wednesday, rising by 0.17%, on top of Tuesday's 0.064% advance.

The latest gain lifted its year-to-date return to 8.198% from Tuesday's 8.015%, which had been the first time this year the index had pushed above the 8% mark. Wednesday's level was yet another new peak level for 2012 so far, surpassing the previous high-water level, just set on Tuesday. The index's recent levels are the highest they have been since the end of 2010, when the market measure returned 15.19%.

SuperValu disappearing act

Among specific non-new-deal names, traders noted that Wednesday's session was the first in several days in which SuperValu's bonds were not near the top of the high-yield most actives lists, according to Trace.

A trader said that he "hadn't seen anything" Wednesday in the Eden Prairie, Minn.-based supermarket chain operator's bonds, which had swooned badly last Thursday and Friday and then fell again on Monday in response to much weaker than expected quarterly earnings.

However, the bonds had moved up on Tuesday on investor hopes that the company might make good on its announced intention of possibly putting itself up for sale, thus triggering change-of-control put provisions in the various issues indentures.

A market source at another desk did see some SuperValu paper trading, but said that activity levels were well off from recent days, down around the $6 million area for both its 8% due 2016 and 7½% notes due 2014.

He saw the former bonds get back up to the 90 level from Tuesday's levels around 86-87 bid, while the latter issue had crept up to about 943/4, a gain of ¾ point to a full point.

AMR gains on merger talk

A trader said that AMR Corp. bonds "continued to rally," seeing the 6¼% notes due 2014 getting up to 67 bid.

He attributed the rise in the bankrupt Fort Worth, Tex.-based air carrier's bonds to "some comments today from USAir that they're continuing to pursue this [potential] merger."

US Airways chief executive officer said Wednesday that he believed creditors of the American Airlines corporate parent will support his plan for a merger - even though AMR executives have been cool to the idea.

But Douglas Parker said that he may not still be interested after American comes out of bankruptcy protection, warning in a Washington speech that "we're ready to do this now. There's no guarantee that'll be the case forever."

The trader also noted that AMR released numbers after the market close on Tuesday.

Radiation Therapy rebound

Radiation Therapy Services Inc.'s bonds "did well today," a trader said, "though I don't see the reasoning behind it."

He said that the company's 9 7/8% senior subordinated notes due 2017 had moved up to 65 bid, "up a couple of points, as they recoup some of the losses" the bonds recently suffered after the CMMS - the government body that sets Medicare and Medicaid reimbursement rates - published preliminary 2013 reimbursement rates that would cut government payments to companies such as Fort Myers, Fla.-based Radiation Therapy by as much as 40% from current levels for some services.

United Rentals rallies

And the trader said that United Rentals Inc.'s bonds had rallied about a point on the session, pegging the Greenwich, Conn.-based equipment-rental company's 8 3/8% senior subordinated notes due 2020 at 106 bid, "on the back of better numbers" released Wednesday (see related story elsewhere in this issue).

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