Universal Hospital add-on prices; primary otherwise quiet; NewPage slides; Sino-Forest rebounds

By Paul Deckelman and Paul A. Harris

New York, June 14 - Universal Hospital Services, Inc. was heard by high-yield syndicate sources to have priced a quickly shopped $175 million add-on to a series of existing PIK toggle notes on Tuesday. It was the only pricing of the day and the first dollar deal of what is shaping up to be a virtually comatose week in the primary arena.

All other new-issue activity came from abroad, and there really wasn't even much of that. Italian carmaker Fiat SpA is reportedly considering bringing a benchmark deal at some point, and Britain's Kerling plc is set to hold an investor meeting on a loan notes deal.

Away from the new deals, traders saw not much going on during what one called "a typical crappy summer day," even though technically, the Summer Solstice is not until next week.

But there was activity in a few names. NewPage Corp., whose bonds got clobbered in heavy trading on Monday for no apparent reason, continued their retreat on Tuesday, again in busy dealings.

Sino-Forest Corp.'s bonds were seen better even as the embattled timber company released first-quarter results, although its beleaguered shares went for another slide.

On the merger front, a trader saw Telcordia Technologies Inc.'s paper firm on the news that it is to be acquired by LM Ericsson Telephone Co. Graham Packaging LP's bonds were off a few points as the plastic container manufacturer dumped a planned acquisition by Silgan Holdings, Inc. in favor of an apparently better deal from Reynolds Group Holdings Ltd.

Universal Hospital prices

The primary market saw a single issuer price bonds on Tuesday.

Universal Hospital Services priced a $175 million add-on to its 8½% cash, 9¼% in kind second-lien senior secured PIK toggle notes due June 1, 2015 (B3/B+) at 102.25, resulting in a yield of 7.826%.

The reoffer price came at the cheap end of the 102.25 to 102.50 price talk.

Barclays Capital Inc. and RBC Capital Markets, LLC were the joint bookrunners for the quick-to-market issue.

The notes will pay a cash coupon because the toggle option has expired.

Proceeds will be used to repay revolver borrowings, to fund a $35 million distribution to equity holders and for general corporate purposes.

The original $230 million issue priced at par in May 2007. It was part of an overall $460 million two-part transaction that also included $230 million of second-lien senior secured notes due June 1, 2015, which carry a coupon of six-month Libor plus 337.5 basis points and priced at par.

European pipeline awaits

A sizable pipeline of European high-yield deals awaits improved market conditions, London-based bankers said on Tuesday.

On the heels of a brief non-deal roadshow that began late last week, Fiat is measuring the market for an opportunity to bring a benchmark offering of notes (Ba1/BB/BB+).

"The markets steadied somewhat today," said a syndicate banker in London, referring to recent volatility related to the Greek credit situation.

"If things continue to improve on Wednesday, we could hear an announcement on Fiat," the banker added, noting that there may be as many as six other deals presently in the European pipeline.

Although Fiat is presently a sub-investment-grade credit, the deal is expected to receive a high-grade style execution, sources said.

Citigroup, Mediobanca, Royal Bank of Scotland, Banco Santander, UBS and SG CIB led the non-deal roadshow for the Milan-based car-maker.

Elsewhere, England-based Kerling along with arranger Bank of America Merrill Lynch, will host a Wednesday investor meeting for Kerling's €75 million loan note deal, according to a market source who added that the transaction is basically a loan in note form.

Kerling, through its INEOS ChlorVinyls business, will use the proceeds to help finance its acquisition of Belgium-based Tessenderlo Group's chlor-vinyls business and assets in Belgium, France and the Netherlands for €110 million in cash.

Seeking resolution on Greece

The European capital markets obviously have much more sensitivity to the deterioration of Greece's sovereign credit rating and the looming possibility of a default, said a senior syndicate official on Tuesday.

On Monday, Standard & Poor's said that it lowered the long-term sovereign credit ratings on Greece to CCC from B.

Once the Greece situation is resolved, the European high-yield market should be able to restart operations quickly, the banker said.

What's more, the sellsider is confident that the situation will be remedied.

"It's going to be resolved to a certain degree," the banker said.

"The governments will step up to save Greece and won't allow Greece to have a technical default.

"Right now, the markets are waiting for the governments to agree, with the main drivers being Germany and France."

Deals in the market

The forward calendar contains a handful of deals set to price before the end of the present week. No news or price talk surfaced on any of them during the Tuesday session.

Germany's Evonik Carbon Black Ltd. is marketing a €600 million equivalent two-part offering of seven-year senior secured notes (B2/B) in dollars and euros via Goldman Sachs International, UBS and Barclays.

The roadshow wraps up on Thursday.

Pro forma on the deal was 8¾% to 9%. However a banker in Europe, stating that it is a committed, bridged financing, expects the print to be substantially higher.

Meanwhile, Goodman Networks Inc. is in the market with a $225 million offering of seven-year senior secured notes (B2/B+) via Jefferies.

The deal was pro forma-ed at 9¾% in the red, according to a high-yield mutual fund manager who added that price talk is expected on Wednesday. The deal is expected to price on Thursday.

Finally, Downstream Development Authority is shopping a $295 million offering of eight-year senior secured notes.

Jefferies & Co. is the left bookrunner, and Bank of America Merrill Lynch is the joint bookrunner.

Pro forma was 9¾% to 10% in the red, the fund manager said, adding that the Downstream deal is expected to price on Friday.

Still seeing outflows

Cash flows to this manager's high-yield mutual fund have been negative from Friday through Tuesday, including a big outflow on Friday.

"Market-timers are pulling money out," the manager commented.

Right now, issuers who don't have to come are going to sit on the sidelines and wait, the buysider added.

One of those prospective issuers that will likely wait is Rural Metro Corp., which is looking to raise money in the leveraged markets to support the leveraged buyout by Warburg Pincus.

Meanwhile, Citigroup is rounding up investors for the bridge financing of Sealed Air Corp.'s planned $4.3 billion acquisition of Diversey Holdings, Inc., the buysider mentioned, adding that finding participants to play in the syndicated bridge should not be a problem.

Little new-issue trading action

A secondary market trader, meantime, declared that "it looks like nothing has come across the tape" in terms of real news out of the primary market.

He said that he "didn't think that anybody waited to go home for that [Universal Hospital Services]," with the smallish deal from a relatively obscure issuer unlikely to see any kind of trading around.

"I don't think we're going to see a lot of activity in that," a second trader agreed.

He said that beyond that "there hasn't been much on the new-issue front. The market is kind of re-pricing a little, making new issues difficult to get done right now."

One of the few recently priced issues the first trader saw was Arch Coal Inc.'s $2 billion two-part behemoth, which priced last week.

He saw both tranches 100½ bid, noting that was up a little from previous levels in a 100 1/8 bid area.

The St. Louis-based coal operator priced $1 billion of 7% notes due 2019 and $1 billion of 7¼% notes due 2021 last Wednesday, both at par, and the bonds had settled in by the end of the week in a tight par-to100 1/8 bid range for both tranches.

He also saw Chrysler Group LLC's $3.2 billion of senior secured eight-year and 10-year notes continuing to struggle. "Man, those things just keep going down."

He saw both its $1.5 billion of 8% notes due 2019 and $1.7 billion of 8¼% notes due 2021 trading on either side of 96 bid.

The Auburn Hills, Mich.-based No. 3 U.S. automaker priced its two-part $3.2 billion deal on May 19, with both halves coming to market at par.

After the pricing, the eight-years initially moved up to 100½ bid, 100¾ offered, while the 10-years firmed to 100¾ bid, 101 offered, but they have since skidded off into a ditch and languish at current levels.

However, at another desk, a market source said that the 96¼ bid level at which the Chrysler 8s were trading was actually up a point from where the bonds had been on Monday.

Market indicators turn mixed

Away from new or recently priced issues, secondary sphere performance indicators seemed a little improved on Tuesday from where they had been on Monday.

A trader said that the series 16 CDX North American High Yield index was up 5/8 point on Tuesday to 100¼ bid, 100 3/8 offered after having firmed 1/8 point on Monday.

And the KDP High Yield Daily index rose by 4 bps Tuesday to end at 75.22, versus its 9-bps loss on Monday. Its yield meantime came in by 2 bps to 6.81% after having risen by 4 bps on Monday.

However, the Merrill Lynch High Yield Master II index was lower for a ninth consecutive session on Tuesday, losing 0.063% on top of Monday's 0.141% retreat.

That dropped the index's cumulative return below the psychologically significant 5% mark for the first time since April 21, when the trajectory was heading the opposite way. It finished at 4.96%, down from Monday's 5.026% reading. It also retreated further from its year-to-date peak level of 6.071% reached on May 20.

Even with that downturn, a trader said that Tuesday's tone "was a little bit better, if you want to be optimistic. Call it slightly improved today, maybe better by one-quarter to one-half point in spots - but that by no means makes up for the losses we've seen over the past two weeks."

A second trader said, "This is one of those market environments where the sellers want to get a full offered side, and the buyers only want to pay the bid side, and it's tough to put the two sides together. That's the nature of this market."

Yet another trader agreed. "We're hearing that account-wise, folks are looking to add to positions if they trade down, but they really don't trade down. If something does, you go to buy it and it's not really there."

He said it was just "painting" pictures.

"Nothing is jumping out."

He summed up the session as "just a crappy summer day" - probably the first of many.

Sino-Forest higher post-call

Among specific names, a trader said that Sino-Forest's bonds were "up slightly" on the day on Tuesday after the beleaguered Canadian-Chinese timber company released first-quarter results and during its conference call, continued to defend itself against severe allegations of corporate wrongdoing leveled by Muddy Waters LLC. (See related story elsewhere in this issue.)

He saw the company's 10¼% notes due 2014 up 2 points on the day, at 68 bid, while seeing its 6¼% notes due 2017 about 1½ points higher, at 61 bid.

He saw "lighter volume" in its 9 1/8% notes that are scheduled to come due on Aug. 17 - "call them two-month paper, if you will," he said - pegging those bonds up by 1 point at 91½ bid.

He meantime saw the company's 5% convertible notes due 2013 offered at 63 bid and its 4¼% convertibles due 2016 offered at 52.

At another desk, a market source saw the 101/4s ending the day at 66½ - but throwing out the several smaller late-session trades that dropped the bonds to that level, the bonds ended at 68 bid on a round-lot basis, up 2 points on the day, with $16 million having changed hands.

The 61/4s were even busier, with over $22 million having traded. Those bonds closed at 61 bid - up 1½ points from Monday's closing level, but a 5-point jump from the previous round-lot close at 56 on Friday. Most of the upside activity took part in the latter part of the day.

But even with the advances, the company's bonds still remain well below the trading levels near or even above par that they had held before the June 2 release of the Muddy Waters report, which caused the notes to swoon precipitously and which absolutely devastated its Toronto Stock Exchange-traded shares. Those shares have lost around 75% of their pre-report strength from levels above C$18.21.

On Tuesday, the shares - which on Friday had plunged more than 13% on over five times the usual volume but which then rebounded on Monday, gaining back 11% on about twice the normal activity level - returned to the downside, plummeting by C$1.62, or 32.53%, to close at C$3.36. Investors were apparently dismayed by the company's warning, delivered during the conference call, that it would take several months for an independent committee appointed to review the company's finances in the wake of the Muddy Waters report to complete its task. Volume of 16 million shares was more than four times the average daily turnover.

NewPage slide continues

A trader said that New Page's 11 3/8% first-lien senior secured notes due 2014 were down 3/8 point to 92 bid and its 10% second-lien senior secured notes due 2012 dropped 1¾ points to 32¼ bid.

That extended the notable decline seen in Monday's trading on heavy volume of over $40 million for the 10s and over $35 million for the 11 3/8s.

A second trader suggested that there might be some investor concern over whether the company would be able to make the approximately $91 million interest payment due on the 11 3/8s at the end of this month.

He meanwhile called the 10s "a little softer there," seeing them at 32 bid, 33 offered.

As was the case on Monday, there was busy dealings in the bonds on Tuesday, with a market source seeing over $24 million of the 10% notes, which he pegged down a deuce on the day at 32 bid. Meanwhile, over $13 million of the 11 3/8s changed hands, down three-eights of a point, he said, at 92 bid.

The declines have come on no fresh news about the Miamisburg, Ohio-based coated-paper manufacturer, although a trader said on Tuesday that with the end of the second quarter and the first half of the year fast approaching, "portfolio mangers are barking let's get these dogs off the books!"

Telcordia pops

A trader said that Telcordia Technologies' 11% notes due 2018 were quoted sharply higher on the news that the Piscataway, N.J.-based developer of mobile, broadband and enterprise communications software agreed to be acquired by Swedish communications equipment powerhouse LM Ericsson for $1.15 billion.

He saw the bonds at the 125 level, versus prior levels around 112 bid.

Graham goes down

Also on the M&A front, a market source saw Reynolds Group Holdings paper down around 2 points after the announcement that Graham Packaging, a York, Pa.-based maker of plastic containers, had decided to scrub its previously announced merger with Silgan Holdings to accept Reynolds' better takeover offer.

However, at another desk, a source said that there had been no movement in the Reynolds bonds, but there had been some in Graham's paper, with its 8¼% notes due 2018 down 1½ point on the day at 104 bid on volume of $7 million.

He also saw Graham's 8¼% notes due 2017 off by a whopping 4 points at 1043/4, with $5 million of the notes traded, while its 8 7/8% notes due 2014 lost three-quarters of a point in light dealings to end at the 103 level.

Graham said that Reynolds had offered $25.00 per share in cash, topping Silgan's $19.56-per share cash-and-stock bid.

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