Upsized NCR leads $3 billion day, moves up; Nuveen does mega-deal; Chesapeake up on asset sale

By Paul Deckelman and Paul A. Harris

New York, Sept. 12 - After warming up on Monday and Tuesday, the high-yield primary sphere stepped on the gas on Wednesday, as more than $3 billion of new dollar-denominated, purely junk-rated paper from domestic or developed-country issuers came to market.

Financial firm Nuveen Investments, Inc. had the big deal of the day, pricing $1.145 billion of new five-year and eight-year notes. However, that deal priced too late in the session for aftermarket dealings.

Earlier in the day, NCR Corp. did an upsized $600 million of 10-year notes. The electronic transaction technology company's deal was seen by traders to have firmed smartly when it hit the secondary market.

Forest Oil Corp. brought an upsized $500 million issue of eight-year notes to market; the energy operator's new paper moved up modestly.

Tire and automotive components manufacturer Continental Rubber of America Corp. priced $900 million of new seven-year secured paper - twice upsizing that deal, which appeared too late for any kind of trading.

Apart from the deals which actually priced, market sources heard talk emerge on deals from MidStates Petroleum Co. Inc. and Ocean Rig UDW Inc., which are both expected to come to market during Thursday's session.

Tuesday's new deal from DR Horton Inc. proved to be underwhelming for investors, falling below its par issue price as trading volume in the homebuilder's new bonds dropped precipitously.

But that session's other new issue - from energy name Hiland Partners, LP/Hiland Partners Finance Corp. - jumped by multiple points.

Away from the new-deal world, Chesapeake Energy Corp.'s bonds were sharply higher on the session, fueled by the news that the big natural gas company will sell nearly $7 billion of assets and use the proceeds for debt paydown.

Statistical measures of junk market performance were solidly higher across the board

Nuveen prices two-part deal

"Upsize" became the watchword of Wednesday's busy primary market session.

In the dollar-denominated market, four issuers priced five tranches of notes for a combined total of $3.2 billion.

Four of the five tranches were upsized by an aggregate amount of $850 million.

Nuveen Investments upsized one of its two tranches but downsized the other.

Nuveen priced $1.145 billion in a two-part senior notes transaction (Caa2/CCC) which saw $100 million shifted to the shorter maturity tranche from the longer maturity tranche.

The Chicago-based investment services provider priced an upsized $500 million tranche of five-year notes at par to yield 9 1/8%. The tranche size was increased from $400 million, and the notes priced at the wide end of price talk which had been set in the 9% area.

Nuveen also priced a downsized $645 million tranche of eight-year notes at par to yield 9½%. The long tranche was downsized from $745 million, and the notes also priced at the wide end of price talk which had been set at 9¼% to 9½%.

Deutsche Bank, Bank of America Merrill Lynch, Morgan Stanley, RBC, UBS and Wells Fargo were the joint bookrunners for the debt refinancing deal.

Continental massively upsizes

Continental Rubber of America, Corp. priced the session's most upsized deal.

The company priced a $950 million issue of seven-year senior secured notes (Ba3/BB-) at par to yield 4½%.

The deal was upsized twice on Wednesday. At the start of the session it was increased to $750 million from $500 million, before ultimately launching at its final $950 million size.

The yield printed on top of the yield talk which had been tightened from earlier talk of 4½% to 4¾%.

Bank of America Merrill Lynch, Credit Agricole, J.P. Morgan, Deutsche Bank, HSBC and RBS Securities Inc. were the joint bookrunners for the debt refinancing.

NCR at the tight end

NCR priced an upsized $600 million issue of senior notes due July 15, 2022 (Ba2/BB) at par to yield 5%, at the tight end of the 5% to 5 1/8% yield talk.

The amount was increased from $500 million.

J.P. Morgan, Bank of America Merrill Lynch, Morgan Stanley, RBC and SunTrust were the joint bookrunners.

Proceeds will be used for general corporate purposes including funding a contribution to the company's U.S. pension plan and for repayment of bank debt. The additional proceeds from the upsizing will be used for general corporate purposes.

Forest Oil drives by

Forest Oil Corp. priced an upsized $500 million issue of eight-year senior notes (B2/B-) at par to yield 7½%, at the tight end of the 7½% to 7¾% yield talk.

J.P. Morgan and Wells Fargo were the joint bookrunners for the quick-to-market debt refinancing deal which was upsized from $300 million.

Talking the deals

Looking toward what promises to be a busy Thursday session, Cyprus-based Ocean Rig UDW Inc. talked its $750 million offering of five-year senior secured notes (/B/) with a yield in the 6 7/8% area.

Deutsche Bank, Morgan Stanley and DNB are the joint bookrunners.

And Midstates Petroleum Co., Inc. and Midstates Petroleum Co., LLC talked their $550 million offering of eight-year senior notes (Caa1/B-) to yield 10½% to 10¾%.

Bank of America Merrill Lynch, SunTrust, Goldman Sachs, Morgan Stanley, RBC, Citigroup, Natixis, RBS and SG are the joint bookrunners.

GKN drives by

The Wednesday session was also a busy one in the European high-yield market.

England's GKN Holdings Plc priced a £450 million issue of 5 3/8% 10-year notes (Ba1/BB+/BBB-) at a 375 basis points spread to Gilts, on top of spread talk.

Joint bookrunner Barclays will bill and deliver. Citigroup, HSBC and RBS were also joint bookrunners.

The Redditch, Worcestershire, England-based provider of engineered products and services plans to use the proceeds to help fund the acquisition of Volvo Aerospace.

Most of the deal went to investment-grade accounts, according to a debt capital markets banker in London.

Selling ahead of supply

Although GKN's deal, with its BBB- rating from Fitch, might be viewed as a crossover trade by some, junk investors were mainly shut out whether they were interested or not, the London-based banker said.

High-yield investors are presently sitting on much more cash than they wish to be, sources say. Reports of managers who are north of 15% cash have been circulating the market.

Several factors are exacerbating the situation, sources say.

New issue supply is failing to keep pace with the amount of cash coming into the asset class. Refinancing deals take investors out of old paper as they are rolling into new paper.

And, as was the case with GKN, irregular investors including high-grade managers and insurance fund managers are playing the higher-rated junk deals.

There is a story circulating about one account who, in anticipation of a massive September pipeline, sold ahead of it to store up cash for the coming new issue market.

However due to the above described circumstances this investor is now at 20% cash.

Being invested, with high yield rallying hard, is an increasingly difficult challenge, market players assert.

Cabot sets talk

Elsewhere in Europe, Cabot Financial Luxembourg SA talked its £265 million offering of seven-year senior secured notes (expected ratings B1/BB) with a yield in the 10½% area.

The deal is expected to price on Thursday.

JPMorgan is the lead left bookrunner. Citigroup, Lloyds TSB and RBS are the joint bookrunners.

Techem marketing for Thursday

Finally, Germany's Techem plans to start a roadshow on Thursday for a €735 million two-part offering of notes.

Techem GmbH is offering €410 million of seven-year senior secured notes (expected ratings Ba3/B+/BB).

Techem Energy Metering Service GmbH & Co. KG is offering €325 million of eight-year senior subordinated notes (expected ratings B3/B-/B).

The roadshow wraps up on Tuesday, and the deal is set to price thereafter.

Global coordinator JP Morgan will bill and deliver for the debt refinancing deal.

Deutsche Bank and Credit Agricole are also global coordinators. Commerz, RBS and UniCredit are joint bookrunners.

NCR rings up gains

When NCR's new 5% notes due 2022 were freed for secondary market action, traders saw the issue shoot up right out of the gate.

"Wow!" was how one of them put it in seeing the bonds at 102½ bid, 103 offered, adding that such levels were "not bad for a 5% coupon."

A second trader saw the bonds initially hit 102 on the break, then drop back slightly to around 101½ bid, 102 offered - only to strengthen again, moving up to 102¾ bid, 103¼ offered. That was up smartly from the par level at which the Duluth, Ga.-based company - a maker of cash registers and retail checkout systems, ATM machines, financial terminals and check imaging products - had priced its $600 million transaction, upsized from an originally announced $500 million.

"And that's after tightening the price talk by 50 basis points," he observed.

He added that he was "surprised" to see the deal do so well. "I don't know what people are thinking with that," explaining that NCR "stands for National Cash Register - and people aren't exactly using cash that much any more.

Offsetting that possible negative, he allowed that "it's a name that's well known by investment-grade accounts," even though the issue is a Ba2/BB credit. "It's a U.S. corporation that many people know, even though you look at their businesses and scratch your head. They make point-of-sale terminals, which is a very good business, but they still are selling check-scanning equipment, even though people don't use checks all that often anymore either - a lot of people do everything electronically."

With all of that, he opined that "it will be interesting to see how it fares," noting that there was clearly enough demand for the deal to warrant its having been upsized by $100 million.

"It seems to me that it went right to I-G land, or to crossover buyers."

Forest firms a little

When Forest Oil's new 7½% notes due 2020 began trading around, a market source saw the new bonds push up to 100½ bid, 101½ offered, versus the par level at which that $500 million quick-to-market transaction priced.

A trader at another shop noted that the Denver-based energy exploration and production company's existing 7¼% notes due 2019 were trading right around that 7½% yield level.

He also noted that the deal was supported by "a roll contingent, because they're taking out the 81/2s" - or at any rate, at least half of those existing 2014 bonds.

Other new deals are no-shows

Traders did not see any immediate aftermarket dealings in Continental Rubber of America's new 4½% senior secured notes due 2019; the tire and automotive products manufacturer's deal came to market too late in the session to trade around.

That was also the case with Chicago-based financial company Nuveen Investments' $1.145 billion two part offering of five- and eight-year paper.

DR Horton fizzles...

Looking at Tuesday's new issues, traders were in general agreement that DR Horton's 4 3/8% notes due 2022 were a big disappointment, considering that the Fort Worth, Texas-based homebuilder is such a familiar high-yield presence.

"They were not doing so great," one trader said, quoting the new bonds trading in a 99 to 99¾ bid range - down from the par level at which that $350 million drive-by deal had priced, and down even further from the 100¾ bid level to which the bonds had initially risen after that pricing, only to fall back to around issue.

A second trader saw the bonds at 99 3/8 bid, 99 7/8 offered on Wednesday.

"That traded off as Treasuries traded off," he said, noting that government paper "traded off pretty good today," finishing just off its worst levels of the session on a variety of factors, including the decision by the German High Court to allow for the ratification of the euro zone bailout fund and better-than-expected economic data - lessening the bonds' attraction as a safe haven for investors - as well as a disappointing 10-year note reopening. The 10-years, he added were finishing off by ½ point to yield 1.70%. With the 30-year long bonds yielding as much as 2.92% during the session, he said, "they backed up pretty good."

He further noted that only about $10 million of the new DR Horton bonds were changing hands on Wednesday, "versus over $100 million [Tuesday] - that gives you an idea of how people walked away from that deal."

...while Hiland sizzles

While DR Horton dropped, Tuesday's other deal, from Hiland Partners, popped.

A trader saw those 7¼% notes due 2020 jumping to 104 bid from the par level at which the Enid Okla.-based provider of natural gas gathering and processing services had priced its $400 million deal after upsizing from $350 million originally.

A second trader enthused that the new deal was going home on Wednesday at 104½ bid, 104¾ offered.

"They closed at 1021/4-102½ at 5 o'clock last night, and today, wow, they're above 104!"

He suggested that given the company operates in the natural gas space in the energy sector, perhaps the bonds got a boost from the big jump seen in Chesapeake Energy's bonds.

Chesapeake is the champ

Away from the new deals, Chesapeake's bonds were clearly the stars of the session, both in terms of price movements and volume, fueled by the news that the Oklahoma City natural gas exploration and production company will sell some $6.9 billion of property in the Permian Basin region of West Texas and other assets as well, and use the proceeds for debt paydown, including a $4 billion chunk of bank loan debt.

A market source saw Chesapeake's most actively-traded issue, its 9½% notes due 2015, firm by 2 1/8 points on the day, going out at 113 3/8. Over $40 million of those bonds changed hands, tops on the Junkbondland most-actives list on Wednesday.

That trader also saw Chesapeake's 6 5/8% notes due 2020 gain 1 3/8 points on the session to end at 105¼ bid, with over $30 million having traded.

Its 7¼% notes due 2018 closed at just over 110 bid, a gain of nearly 4 points. Over $15 million of those bonds had moved.

"Chesapeake popped on the asset-sale news," another trader said, "so that got people enthused about buying their debt again."

He noted that "for a mutual fund, those 91/2s still look pretty attractive," despite all of the troubles that have swirled around the company in recent months.

"It's a short piece of paper - just a three-year piece of paper, with 8% and change on yield.

"That's better than anything you're going to find in the new-issue market."

Indicators continue firming

Statistical indicators of junk market performance were meantime solidly higher across the board for a second consecutive session on Wednesday, after having been mixed before that.

The Markit Group CDX North American Series 18 High Yield Index scored its second victory in a row on Wednesday, as it rose by ½ point to end at 100 5/8 bid, 100 7/8 offered; on Tuesday, it had gained 3/8 point.

The KDP High Yield Daily Index scored its 6th consecutive gain on Wednesday as it rose by a sizzling 23 basis points to end at 74.374 - a new high for the year, eclipsing the old mark of 74.69, set back on March 1. That came on top of Tuesday's 16 bps jump.

Its yield fell by 8 bps to 5.91%, after having declined by 7 bps on Monday. Wednesday's yield marked a new low for the year, bypassing the former low point, which had been set on Tuesday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index meanwhile put up its 19th consecutive gain on Tuesday, rising by a robust 0.322% - roughly double the 0.166% advance seen Tuesday. That winning streak dates all the way back to Aug. 17.

Wednesday's gain lifted its year-to-date return to 12.01% - a new 2012 peak, bypassing the old mark of 11.651% that had just been set on Tuesday. The index is now at its highest level since the last session of 2010, when it closed out that year with a 15.19% return.

Its yield to worst, meanwhile, stood at 6.386%, down from Tuesday's 6.48% reading. Wednesday's yield was also the new low yield for the year, versus the old mark set the previous session.

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