Harron deal prices, trades up, Lawson on tap; coal names get crushed in otherwise dull day

By Paul Deckelman and Paul A. Harris

New York, March 28- Primaryside activity in the high-yield market slowed markedly on Wednesday, with syndicate sources seeing just one relatively smallish domestic deal price - cable operator Harron Communications, LP's $225 million offering of eight-year notes.

While those bonds did price fairly late in the session, a trader saw them having firmed smartly in the aftermarket.

No other dollar-denominated deals came to market on Wednesday but there was a pair of euro-denominated offerings priced by European issuers - a €375 million seven-year deal from French construction and engineering company SPIE and a €110 million tranche of five-year notes from Finnish metals company Talvivaara Mining Co.

Back on the domestic front, Lawson Software, Inc. was heard by market sources to have upsized its dollar- and euro-denominated two-part mega-deal, which is expected to price on Thursday morning.

Nesco LLC, which provides cherry-picker bucket trucks and other specialized vehicles to utility operators, was taking to the road to market a $275 million issue of five-year senior secured paper, which is expected to price some time next week.

Among recently priced issues, energy drilling contractor Hercules Offshore, Inc.'s $500 million two-part issue began trading around, with its secured five-year notes seen having firmed modestly from Wednesday's par issue price, although its seven-year unsecured piece stayed around par.

Wednesday's other two deals - for builder Meritage Homes Corp. and hospital operator Vanguard Health Systems, Inc. - were seen anchored around their respective issue prices.

Away from the new-deal sphere, traders described a pretty lackluster day, with several suggesting that investor caution ahead of the end of the month and the calendar first quarter may have played a role in quieting things down. Statistical performance measures were on the downside.

Bonds of coal mining names like Arch Coal, Inc., Alpha Natural Resources, Inc. and, particularly, Patriot Coal Corp., were lower across the board, as were their shares, as investors reacted negatively to federal government plans to impose tough new emission regulations on coal-fired power plants.

Harron prices mid-talk

The primary market took a bit of a breather on Wednesday, with just one dollar-denominated deal sold to junk investors.

Harron Communications priced a $225 million issue of eight-year senior notes (Caa1/B-) at par to yield 9 1/8%.

The yield printed in the middle of the 9% to 9¼% yield talk.

SunTrust and Wells Fargo were the joint bookrunners.

The Frazer, Pa.-based cable services provider plans to use the proceeds to fund the redemption of the remaining 25% equity interest of BV Investment Partners and to repay a portion of its outstanding term loans.

The deal went well, according to a syndicate source who noted that deals from the cable sector are virtually always well received.

SPIE prints at 11%

In the euro-denominated market France's SPIE Bondco 3 SCA priced a €375 million issue of senior notes due Aug. 15, 2019 (Caa1/CCC+) at par to yield 11%, at the tight end of the 11% to 11¼% yield talk.

Morgan Stanley, HSBC and SG were the joint global coordinators.

BNP Paribas, Credit Agricole CIB, Deutsche Bank AG and Natixis were the joint bookrunners.

The Paris-based engineering services provider plans to use the proceeds to refinance debt.

Nesco brings secured deal

There was one deal added to the forward calendar on Wednesday.

Nesco, LLC and Nesco Holdings Corp. rolled out a $275 million offering of senior secured notes due April 15, 2017, which is set to price in the middle or later part of the week ahead.

Bank of America Merrill Lynch, Wells Fargo, PNC, Morgan Stanley, Jefferies and Deutsche Bank are the joint bookrunners.

Proceeds will be used to refinance an interim credit facility that was part of the funding for Platinum Equity's acquisition of Nesco, as well as to repay borrowings under an ABL facility and to fund a special dividend to shareholders.

The abbreviated week ahead of the Easter/Passover holiday weekend will be an active one in the primary market.

However the window to bring a pre-holiday deal which requires a roadshow is rapidly closing, a syndicate banker said on Wednesday.

Without ruling out a drive-by, or a deal which could be in the market for a day or two, this banker professed the belief that most of what will come between now and the holiday weekend has already been announced to the market.

Lawson upsizes, sets tranches

Lawson Software upsized its cross-border offering of eight-year senior notes (Caa1/B-) to $1.35 billion equivalent from $1.15 billion equivalent, and set the tranche sizes on Wednesday.

The deal features a $1.015 billion tranche of notes which are talked to yield in the 9½% area.

It also features a €250 million tranche of notes which are talked to yield 50 basis points behind the dollar-denominated notes. The size of the euro-denominated tranche comes in at the low end of the previously announced range of €250 million to €300 million.

Pricing is set for Thursday morning, New York time.

Left lead bookrunner Bank of America Merrill Lynch will bill and deliver. Credit Suisse, J.P. Morgan, Morgan Stanley, Barclays, Deutsche Bank, RBC and KKR are the joint bookrunners.

Proceeds, together with borrowings under the new senior secured credit facilities consisting of a $150 million revolver and $3.5 billion of term loan facilities, will be used to refinance existing debt, to finance a change-of-control offer, and for a tender offer and consent solicitation for the company's 11½% senior notes due 2018.

The additional proceeds from the upsizing of the deal will be used to repay approximately $200 million of Lawson's holdco PIK loan.

Whispers of an outflow

Cash flows into high-yield mutual funds and ETFs may slow or may even turn negative when the weekly reports from EPFR Global and Lipper AMG surface on Thursday afternoon, sources said Wednesday.

Citing whispers of redemptions from accounts, one syndicate banker is treating the rumble of a possible outflow cautiously, but is not discounting it altogether.

Sources conceded that the same buzz ran through the market exactly a week ago, and it turned out that Chicken Little was conspicuously wrong, in that instance.

For the week to March 21 EPFR reported inflows of $1.41 billion and AMG reported positive $978 million.

Harron goes higher

Although Harron Communications' eight-year notes came to market fairly late in the session, a trader saw the cable system operator's $225 million deal having moved up solidly.

He quoted the bonds at 101½ bid, 102¼ offered, well up from their par issue price.

Hercules short paper is strong

The new Hercules Offshore bonds that priced late Tuesday began trading around on Wednesday, and traders saw the Houston-based energy drilling contractor's 7 1/8% senior secured notes due 2017 having moved up.

"Those are doing okay, they're hanging in there," a trader said, pegging the bonds at 100½ bid, 100 5/8 offered, up from the par level where that $300 million tranche had priced.

A second trader also saw the bonds holding their own, at 100½ bid, 100¾ offered, while yet another trader had them at 100½ bid, 101 offered.

But the other half of that $500 million two-part forward calendar deal - the $200 million of 10¼% senior unsecured notes due 2019 - was seen by traders to be struggling a little, one had the bonds trading off by 1 point on the day from their par issue price, going out Wednesday at 99 bid. A second trader saw them at 99¼ bid, 99¾ offered.

Tuesday deals hang near issue

Tuesday's other two deals were meantime seen on Wednesday trading around the same levels at which they had finished Tuesday.

A trader saw Vanguard Health Systems' quickly-shopped add-on offering to its existing 7¾% notes due 2019 at 99 3/8 bid, 99 5/8 offered.

The Nashville-based hospital operator's $375 million deal - upsized from an originally announced $350 million - priced at 99.25 on Tuesday to yield 7.891%, and was quoted in initial aftermarket dealings later that session around 99¾ bid.

A trader said that he had not seen any dealings Wednesday in Meritage Homes' 7% notes due 2022, but surmised that the Scottsdale, Ariz.-based builder's $300 million quick-to-market deal - upsized from an originally announced $250 million - was staying around par bid, 101 offered, where it had traded Tuesday after pricing at par.

Lyondell again little moved

The traders also said that LyondellBasell Industries NV's big two-part deal was trading around the same levels seen on Tuesday.

"They're just staying where they are," one of them said in quoting the Rotterdam, Netherlands-based global chemical manufacturer's two issues at par bid, 100 1/8 offered.

A second trader saw the bonds at 99 7/8 bid, 100 1/8 offered.

LyondellBassel's $3 billion drive-by offering of seven- and 12-year notes - the biggest junk deal since early February - came to market on Monday, with both the $2 billion of 5% notes due 2019 and the $1 billion of 5 3/34% notes due 2024, having priced at par.

Both tranches had been seen trading on Tuesday around the par bid level, and remained there on Wednesday.

Poindexter holds gain

A trader saw J.B. Poindexter & Co.'s new 9% notes due 2022 at 103 bid, 103¾ offered.

The bonds, he said, "were trading well, but they weren't really moving" from the high levels they have occupied ever since the Houston-based diversified manufacturer priced that $200 million deal at par on Friday after a short roadshow.

The new bonds were seen at that time to have firmed smartly, to the 102¼ bid, 102¾ offered level, and had pushed up to the 103 bid level by Monday.

Recent AK bonds in retreat

Some recently priced bonds, on the other hand, were going the opposite way.

"The bond that's getting destroyed - and I don't get why - is AK Steel [Corp.]," a trader declared.

He saw the West Chester, Ohio-based steel alloys producer's 8 3/8% notes due 2022 offered at 97.

That quickly-shopped $300 million deal - upsized from $250 million originally - had priced at par back on March 19.

But after a brief initial flurry a little bit above issue, it was all downhill from there, falling first to around 99 bid and then to around the 98 level during the first few days after the bonds had priced.

Making it even more difficult to understand why the AK Steel bonds were doing so poorly was the fact that AK is a well-known name in Junkbondland; it is one of the largest American steelmakers, and along with United States Steel Corp. and Nucor Corp., survived the giant shakeout about a decade ago that saw many once-formidable companies in the industry, including such venerable names as Bethlehem Steel, National Steel and Republic Steel, disappear forever.

"Not all of the steel bonds are getting killed," the trader continued, "but AK's 8 3/8s are offered at 97."

"I don't understand it," he continued. "They say the steels are getting weaker - but we're trading U.S. Steel and that's not doing so badly."

He did note that AK "has become a big retail name - where the retail firms will take bonds down at 97 or 98 and sell them at par to their small accounts" in $10,000 and $20,000 lots - "but nobody understands why this one is down that much."

A dull day

Away from the new deals, traders saw what one described as "a very lackluster day."

He suggested that "you still have the conferences" going on, which took some participants out of the market this week. Among them were the Howard Weill energy conference that was in New Orleans through Wednesday, or, earlier in the week, the Barclays Capital high yield bond and syndicated loan get-together in Phoenix.

A second trader agreed with the idea that "definitely, there's an enthusiasm deficit."

Yet another noted the impact the calendar might be having, with Friday being the last trading day of both the month and the calendar first quarter; some accounts, he suggested, may have already done their end-of-quarter cleaning up and are likely to do nothing until the new month and quarter begin next week.

"The junk market is tired - it's had a long march, or long March, if you will," he quipped.

Add to that, he said, "a lot of people are getting ready for their Easter vacations, with their kids out of school this upcoming week." Easter is a week from this Sunday, also coinciding with the start of the Passover holiday next weekend, and schools in many areas will be closed for all or part of the upcoming two weeks.

Market indicators turn lower

Statistical measures of junk market performance were seen easier across the board on Wednesday, after having gained ground for a second straight session on Tuesday.

A market source saw the Markit Group CDX North American Series 18 High Yield Index, which began trading on Tuesday after the semi-annual "roll," or change in the index's composition, down by about 5/16 point on Wednesday, ending at 97¼ bid, 97 3/8 offered.

The KDP High Yield Daily Index eased on Wednesday after two straight days of gains, losing 4 basis points to close at 73.99; on Tuesday, it had gained 1 bp. Its yield rose by 1 bp to 6.57%, after having declined by 2 bps on Tuesday.

And the widely-followed Merrill Lynch High Yield Master II Index finished lower for the first time in three sessions on Wednesday, when it was off by 0.008%, versus Tuesday's 0.096% gain.

That loss left the index's year-to-date return at 5.214%, down from Tuesday's 5.222% reading, and down as well from its peak level for 2012 of 5.361%, recorded on March 2.

Coal gets clobbered

One of the few notable areas during an otherwise largely featureless session was the carnage in coal that followed Tuesday's announcement by the federal Environmental Protection Agency that it its planned rules would limit new coal-fired power plants' carbon dioxide emissions.

"The coal sector came under a good amount of pressure," one trader said.

He saw Alpha Natural Resources' 6¼% notes due 2021 down 2½ points on the day at 89½ bid, 90½ offered, while sector peer Arch Coal's 7¼% notes due 2020 were down a deuce at 92 bid, 93 offered.

A market source at another desk saw the Alpha bonds off by 2 3/8 points, ending at 90 1/8 bid, on volume of over $9 million, while the Arch issue lost 2¼ points to end at just under 92 bid. While activity was intense, it was mostly in odd-lot pieces, with round lot volume totaling just $2 million.

Arch's 8¾% notes due 2016 lost a point to end at 105¼ on volume of over $9 million. Alpha's 6% notes due 2019 finished down by 1¼ points at 90 1/8 bid, on volume of about $5 million.

The wildest gyrations came in Patriot Coal's 8¼% notes due 2018, which had gone home on Tuesday at 93 7/8 bid, but fell to a final round-lot price of 78½ bid. About $5 million changed hands.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.