Coeur d'Alene pulls deal; junk quiet in shortened pre-holiday session; Verso up on NewPage offer

By Paul Deckelman and Paul A. Harris

New York, July 3 - The high-yield market saw a mostly quiet and abbreviated session on Tuesday, as participants quickly took care of whatever business they had and then went home for the Fourth of July.

The only real event in the primary sphere was the announcement by precious metals concern Coeur d'Alene Mines Corp. that it will not be proceeding with its planned $350 million issue of eight-year notes.

The company cited the ubiquitous "market conditions" explanation, leading to speculation about the cause of the deal's demise - everything from Latin American politics to worries about what the company wanted to do with the borrowed money.

In the secondary realm, traders saw a mostly quiet session. Recent new deals like Ashtead Group plc and SM Energy Co. were trading near their highs.

Energy credits were seen firmer, helped by a rise in oil prices and the boost in energy company equities.

Verso Paper Corp.'s bonds and those of bankrupt sector peer NewPage Corp. were quoted solidly higher on the news that Verso had approached NewPage bondholders with an offer of at least $1.4 billion to acquire the company. The bonds - and Verso's shares - rose, even though NewPage gave the offer the cold shoulder.

Statistical measures of junk market performance were better on the day.

Golf Town sets roadshow

As expected, the abbreviated Tuesday market session ahead of the Independence Day holiday in the United States passed quietly, with a substantial number of market players taking days off on either side of July 4.

Golf Town Canada Inc. and Golfsmith International Holdings, Inc. plan to hold a roadshow the week of July 9 for a high-yield offering of C$150 million of senior second-lien notes (B/DBRS B low).

The deal comes in units split between the issuing entities, Golf Town representing 70% and Golfsmith representing the other 30%.

Scotia, TD and BMO are the three-way joint bookrunners.

Proceeds will be used to repay debt, replace the existing Golfsmith ABL facility and return capital to shareholders.

The deal comes as Golf Town plans to acquire U.S. specialty golf retailer Golfsmith International for $6.10 a share, an acquisition that will make it the world's largest specialty golf retailer with 143 stores in Canada and the United States.

Coeur d'Alene withdraws

Coeur d'Alene Mines cited "weak overall conditions in the debt markets" as it withdrew its $350 million offering of eight-year senior notes (B3/BB-) on Tuesday.

Near the conclusion of a full investor roadshow, the deal was talked with a yield in the 8½% area, according to an informed source.

However, talk subsequently moved into the context of 9%, according to a high-yield mutual fund manager.

Barclays Capital Inc. was the lead left bookrunner. Wells Fargo Securities LLC was the joint bookrunner.

The deal's stated use of proceeds, along with a perception that the government of Boliva - in which Coeur d'Alene Mines has an operation - might be evolving a position hostile to foreign operators in the resources and energy sectors, likely impacted the deal, sources say.

Post-holiday a 'toss-up'

With cash flows into the high-yield asset class having returned to the positive, and the flow of negative financial and economic headlines - especially ones emanating from Europe - having moderated somewhat, the post-July 4 primary market could see a considerable amount of action, sources say.

"Right now it's a toss-up," a syndicate banker said on Tuesday.

"There is an opportunistic pipeline out there. When people get back next week, they are going to be keen to reassess their opportunities to get deals done at levels they like."

This syndicate banker professed visibility on 10 July deals that could come after the holiday should market conditions prove favorable.

An investor, hearing this color, agreed that a strong July calendar is a possibility, but warned that these days risk aversion is always near at hand.

"The European situation is not yet over," the investor said.

"Also, you have some weaker numbers coming out of other parts of the world, including the U.S."

This economic weakness has served to intensify focus on each data point that swims into the cross hairs, the buysider said.

Hence, people are keen to see whether the European Central Bank elects to cut short term interest rates when it meets on Thursday, the investor said.

Also of keen interest will be the non-farm payroll numbers scheduled to be released on Friday by the U.S. Bureau of Labor Statistics.

Pre-holiday market winds down

With the Securities Industry and Financial Markets Association having recommended an early close for the U.S. debt markets on Tuesday, some shops, if they were open at all, were lightly staffed, and people left early, in some cases well before the "official" 2 p.m. ET early closing time.

A trader who did stick around declared: "[I saw] not a thing going on today. I didn't see anything price, haven't seen any of the recent new issues and hardly saw any markets go by."

He added, "Activity in general was just really slow. If you had anything to do, you got it done earlier in the week."

That having been said, a second trader said that he actually saw "a fair amount of things going on - for what today was."

Coeur cancellation a puzzle

At another desk, a trader said, "The few guys that are around were just kind of filling holes."

Looking at the major nugget of news coming out of the primary market - Coeur d'Alene's decision to withdraw its planned $350 million bond deal - he called it "strange," given what would seem to be technical factors favorable to new issuance.

He said that he was "surprised because we continue to see money coming into the funds. But it seems like if the [exchange-traded funds] aren't doing it, the paper that they're not involved in is languishing, rather than improving with the market."

He suggested that the Coeur d' Alene deal "might be something that gets revived after the holiday - before the markets really slow down" for the summer, which usually happens as August looms.

Conditions would seem to be favorable for issuance; last week's grand arrangement among European leaders to provide help for Italy and Spain, which spurred big gains in both the equity and junk bond markets Friday on reduced uncertainty, provides "breathing room from Europe. The current swing of sentiment is positive and you've had cash coming in," the source said.

However, he continued, "We're going to be looking at the economic numbers that are coming in over the course of the month. It's still kind of newsy, with cash coming in.

So the better-rated credits that are not only with the ETFs but in the crossover portfolios just continue to tighten up. But names that have a lot of yield on [them], even if they're kind of okay by high-yield standards, aren't moving along with the market. And I think you can see that with that deal [Coeur d'Alene] getting pulled today, or at least yanked for a while," he added.

New deals trade near highs

Hawthorne, N.J.-based retail and commercial lender Community Choice Financial Inc.'s $25 million of 12¾% senior secured notes due 2020 and restructured college bookstore operator Nebraska Book Co.'s $100 million of 15% senior secured notes due 2016, both of which came at par, did not trade around.

However, with no new issues coming to market on Tuesday and no trading seen in the smallish deals the junk market saw on Monday, secondary players looked to the deals which had priced last week.

A trader said that British equipment rental company Ashtead's 6½% second-priority senior secured notes due 2022 were trading around 102 bid on Tuesday.

That quickly shopped $500 million issue priced on Friday at par and had been seen moving up in initial aftermarket dealings to 101¼ bid, 101¾ offered, firming a little more on Monday to 101¾ bid, 102¼ offered.

The trader said that Friday's other deal - Houston-based energy exploration and production operator Halcon Resources Corp.'s 9¾% notes due 2020 - traded around 100 7/8 bid on Tuesday.

That $750 million issue - upsized from an originally announced $500 million - priced at 98.646 to yield 10% and was then seen having moved up in the aftermarket to a 1001/2-to-101 context, about where the notes stayed on Monday as well.

Going back a little further, he said that SM Energ's 6½% notes due 2023 were at 101 bid, 101 3/8 offered on Tuesday, "without really any volume in it," after having been around 100 5/8 bid, 101 offered on Monday.

The Denver-based oil and gas E&P company's quick-to-market $400 million offering - upsized from an originally announced $300 million - priced at par a week ago and moved up to around 100 5/8 bid, 100¾ offered in initial aftermarket dealings. The bonds had finished last week around 100 5/8 bid, 101 offered, so the three issues "were at their highs" on Tuesday.

Verso, NewPage move on takeover

Away from the recent new issues, a trader said that one of the few significant things that he saw going on in the otherwise quiet pre-holiday market was the gyrations in Verso Paper bonds after the Memphis-based coated-paper maker's unsolicited merger proposal to bankrupt rival NewPage, which rejected the offer.

He said that Verso's bonds were up between 5 and 6 points on the news. He saw "a bunch of trades" in Verso's 11 3/8% senior subordinated notes due 2016 in a range between 53 bid and 573/4, versus the issue's late-June levels around 47.

He also saw Verso's 11¾% senior secured notes due 2019 move as high as 85½ bid on Tuesday before going home around 811/2-82, up from Monday's levels around 76 bid.

The two Verso issues, he said, were among the most actively traded junk bonds in Tuesday's abbreviated session. About an hour before the scheduled early close, some $15 million of the 11¾ bonds and $11 million of the 11 3/8% notes had been recorded on the Trace system.

He said that trading in the bonds of Ford Motor Co. and Verso "accounted for most of the activity."

He said that from where he sat, "NewPage really didn't trade."

However, at another desk, a trader said that NewPage "would be expected to probably have some activity" on news like that, "and it did."

He saw the Miamisburg, Ohio-based coated-paper manufacturer's 11 3/8% first-lien senior secured notes due 2014 going out at 69 bid, 70 offered, after starting the day around 72 bid. While off the highs following NewPage's brush-off of the Verso offer, however, that closing level was still up around 8 points from prior levels in the low 60s, he said, with $23 million to $25 million traded.

He saw the Verso 11 3/8% subordinated notes at 53-54, calling them up 3½ points on the session, on $12 million of turnover.

He saw Verso's 11¾% first-lien bonds move as high as 84 bid at the opening. The bonds came off those early peaks after NewPage officially shot down the Verso offer and went out, he said, at 81 bid, 82 offered, but that was still up from 76 bid on Monday. He saw about $12 million of the bonds having traded.

Verso's 8¾% second-priority senior secured notes due 2019 finished at 48 bid, 49 offered, which the trader called a gain of 7 or 8 points on the day, on volume of $16 million.

Verso announced on Tuesday that it had proposed a combination of the two struggling companies via discussions with some holders of the NewPage first-lien bonds, offering them $1.075 billion of new Verso notes, $150 million of Verso stock and $200 million in cash.

Verso said that it would also fully repay NewPage's debtor-in-possession financing and the allowed priority and administrative claims in the bankruptcy proceedings and would give holders of NewPage's 10% second-lien senior secured notes slated to mature this year an as-yet-undetermined amount of Verso stock.

The plan would further allow a to-be-determined recovery for NewPage's unsecured creditors.

Verso said that "a combination with NewPage would create a stronger business in the global coated and 'super-calendared' paper industry because of material cost savings that would be achieved." It called the proposed deal a "compelling option."

However, NewPage doesn't quite see things that way. The company said on Tuesday that the proposed combination with Verso posed "significant downside risks to its shareholders, employees and business."

NewPage also said that it has been advised that even its first-lien noteholders group, which would get the lion's share of the compensation being offered by Verso, does not support the other company's proposal.

"Accordingly, NewPage does not anticipate further discussion regarding this proposal," it declared.

Verso shareholders, however, don't seem to be in the mood to take "no" for an answer. Its New York Stock Exchange-traded equity more than doubled in price at one point and ended up 56 cents, or 47.86%, at $1.73. Volume of 2.3 million shares was about 22 times the normal turnover.

Energy names up as oil climbs

Away from Verso, a trader said, "With oil prices better, I'm seeing some of the [energy exploration and production] paper better."

For instance, he saw Kodiak Oil & Gas Corp.'s 8 1/8% notes due 2019 trading up to 104½ during the session. He saw the Denver-based exploration and production company's bonds recently down to lows around 102.

He said "most of the E&P paper caught a better bid," helped by firmer oil prices.

Oil has recently been rising and rose again on Tuesday, helped by expectation that international central banks will enact easing monetary easing measures in hopes of spurring economic growth worldwide. Planned sanctions against Iran are also seen potentially helping to tighten the supply situation, sending prices up.

On Tuesday, crude for August delivery climbed $3.91 on the New York Mercantile Exchange, finally settling in at $87.66 a barrel - the highest level since May 30 and a nearly 13% gain from the eight-month lows to which the crude market fell just last week.

ATP steady after gains

Also in the energy sector, a trader said that ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 were about unchanged in a 48-to-49 context.

That was about the level to which the Houston-based offshore energy exploration and production company's bonds had risen on Monday on brisk volume of over $30 million, on the news that the company had made a significant natural gas discovery at one of its wells in the Mediterranean Sea off the coast of Israel. ATP holds a 40% stake in the Shimshon well, which may be able to access as much as 2.3 trillion cubic feet of natural gas.

That news had sent ATP's bonds up about 1½ to 2 points on Monday and bumped its Nasdaq-traded stock price up by more than 19%. "They need a bump," the trader said of the underperforming company's bonds and shares.

However, he said that on Tuesday, volume in the bonds had fallen back down to around $6 million to $8 million.

Chesapeake seen steady

Chesapeake Energy Corp.'s bonds were seen little changed on the day in light round-lot dealings - its 9½% notes due 2015 at 107½ bid and its 6.775% notes due 2019 at 97½ bid.

A trader said, "CNBC went after them for a while" on the news that activist investor Daniel P. Loeb's Third Point LLC hedge fund had taken a major position in the recently embattled Oklahoma City-based natural gas producer.

"The guys on CNBC were saying [of Loeb], 'Well, he's been wrong before, and so has [Carl] Icahn,' " another major Chesapeake shareholder.

The trader opined, "It's almost like they're working with the [short sellers] to try and take them down" with such negative assessments.

Market indicators improve again

Statistical market performance measures were up across the board for a third straight session on Tuesday.

A trader saw the Markit Group CDX North American Series 18 High Yield Index up by 5/16 of a point on Tuesday, to end at 97 1/16 bid, 97 5/16 offered, after having risen by a quarter-point on Monday. It was the index's third consecutive gain.

The KDP High Yield Daily Index recorded its fifth straight gain on Tuesday, firming by 11 basis points to close at 73.48, on top of Monday's 17 bps rise. Its yield came in by 3 bps on Tuesday, to 6.57%, after having narrowed by 5 bps on Monday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index racked up its sixth consecutive gain on Tuesday, as it rose by 0.136%, on top of Monday's 0.22% advance.

Tuesday's gain lifted its year-to-date return to 7.457%, up from Monday's 7.311%.

Tuesday's finish set a new 2012 high for the index, eclipsing the old mark, set just on Monday. The index is thus at its highest point since the end of 2010, when it returned 15.19%.

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