SM Energy, Aker close out record January primary; Massey up on acquisition news; Navios sinks

By Paul Deckelman and Paul A. Harris

New York, Jan. 31 - January came to a close on Monday with yet two more deals pricing: domestic oiler SM Energy Co.'s upsized $350 million offering of eight-year notes and Norwegian energy drilling rig operator Aker Drilling ASA's NOK 1.5 billion two-part offering of five-year notes.

That brought total new junk issuance to above the $34 billion mark, more than double the tally of a year earlier.

While those deals were coming to market, high-yield syndicate sources said a number of issuers hoping to soon bring forth their own deals were hitting the road to shop those offerings around to prospective buyers, including oil and gas operator Energy Partners Ltd., well-known junk homebuilder Hovnanian Enterprises Inc., aluminum producer Aleris International, Inc. and British insurance broker Towergate Finance plc.

The sources also heard price talk on offerings from pharmacy benefits manager MedImpact Holdings Inc. and Blue Merger Sub Inc., the latter the financing vehicle for raising some $1.3 billion of cash from the junk market - downsized from the originally planned $1.5 billion - to help finance the leveraged buyout of consumer foods and pet-food manufacturer Del Monte Foods Co.

Meanwhile, coal producer Massey Energy Co. was heating things up in the secondary arena, with brisk activity in the Richmond, Va.-based company's bonds at higher levels on the news that it will be acquired by Alpha Natural Resources, Inc. in a deal valued at $8.5 billion.

Traders saw Navios Maritime Holdings Inc.'s recently issued tranche of eight-year bonds listing badly - some 5 points below issue - due to weakness in cargo shipping rates.

SM Energy upsizes

The final January session in the primary market brought a relatively quiet end to another record breaking month for issuance.

SM Energy priced an upsized $350 million issue of eight-year senior notes (B1/BB) at par to yield 6 5/8%, at the tight end of the 6¾% area price talk. The deal was increased from the original $250 million.

Bank of America Merrill Lynch and Wells Fargo Securities were the joint bookrunners.

Proceeds will be used to repay bank debt, to fund capital expenditures and for general corporate purposes.

The SM Energy deal extended January 2011 issuance to $33.88 billion, the biggest January in the history of the market; that amount more than doubles the previous January record, January 2010's $16.55 billion.

January is the 10th month of the past 13 months to set an all-time monthly issuance record in the high-yield new issue market, according to a syndicate banker.

Del Monte mega-deal downsizes

Meanwhile on Monday, sponsors downsized the bond portion of the Del Monte Foods Co. LBO debt financing to $1.3 billion from $1.5 billion.

The eight-year senior notes (B3/B-) are talked with a 7¾% yield, and are set to price on Tuesday morning.

The joint physical bookrunners are Bank of America Merrill Lynch, which will bill and deliver, and Morgan Stanley & Co. Inc. Barclays Capital Inc. and J.P. Morgan Securities LLC are the joint passive bookrunners.

Proceeds will be used to help fund the leveraged buyout of Del Monte by Kohlberg Kravis Roberts & Co. LP, Vestar Capital Partners and Centerview Partners.

Concurrent with the downsizing of the bond deal, the Del Monte bank loan was upsized by $200 million, increasing it to $2.7 billion from $2.5 billion.

MedImpact sets talk

MedImpact Holdings talked its $225 million offering of seven-year senior secured notes (Caa2) to yield 10½% to 10¾% with 1 to 1.5 points of original issue discount.

There were also covenant changes.

The books are scheduled to close at 2 p.m. ET on Tuesday.

Credit Suisse, Bank of America Merrill Lynch and Jefferies & Co. are the joint bookrunners.

Aleris to start roadshow

The new issue calendar continued to build, as the primary market heads into February with $3.8 billion of business in the market.

Aleris International will begin a roadshow on Tuesday for its $500 million offering of seven-year senior notes.

Bank of America Merrill Lynch is the lead left bookrunner. Barclays Capital, Deutsche Bank, J.P. Morgan Securities LLC and UBS Investment Bank are joint bookrunners.

Proceeds will be used to fund a distribution of about $300 million to the company's stockholders and for general corporate purposes, including financing for the construction of an aluminum rolling mill in China.

Energy Partners on the road

Energy Partners Ltd. began a roadshow on Monday for a $210 million offering of seven-year senior notes.

Jefferies & Co. is the left bookrunner. BMO Nesbitt Burns is the joint bookrunner.

Proceeds will be used to acquire certain shallow-water Gulf of Mexico shelf oil and natural gas interests.

Towergate returns

Meanwhile England-based Towergate Finance plc will return to the high-yield market with a debt refinancing deal that it postponed during spring 2010.

The company will begin a roadshow on Tuesday for a £570 million equivalent two-part deal.

The Maidstone, England-based independent insurance broker intends to sell £280 million equivalent of seven-year senior secured notes (expected ratings B1//BB) and £290 million equivalent of eight-year senior unsecured notes (expected ratings B3//B-).

The mix of currencies in which the bonds will be offered remains to be determined.

J.P Morgan Securities is a joint bookrunner, and will, bill and deliver. Credit Suisse, Goldman Sachs and Lloyds TSB are joint bookrunners.

Proceeds will be used to refinance debt

The overall offering comes downsized from the £665 million equivalent amount which Towergate postponed last spring.

SM Energy unseen in trading

The new SM Energy offering of eight-year notes came to market too late in the day for any kind of meaningful aftermarket activity.

Oasis moves up

However, sector peer Oasis Petroleum Inc.'s new 7¼% notes due 2019 were seen by traders having pushed upward from the levels at which the Houston-based oil and gas exploration and production operator's $400 million offering had priced on Friday.

That issue - upsized from the originally announced $300 million - had priced Friday at par and then had moved up in the aftermarket to bid levels between 101¼ and 1013/4.

In Monday's dealings, a trader saw the bonds trading at 101¾ bid early on, then rising to 102 1/8 bid, before going home at 102 bid, 102 3/8 offered.

A second trader said that at his shop, "we saw Oasis a couple of times today."

He pegged the bonds in a range of 102 to 1021/4. "They were just under 102 on Friday and today they're hovering slightly above 102."

Yet another trader saw the bonds straddling 102, at 101 7/8 bid, 102 1/8 offered.

No move for Mentor

Friday's other pricing - for Boston-based home and community services provider National Mentor Holdings, Inc.'s 12½% notes due 2018 - were not seen having any kind of real rise, with one trader quoting the $250 million issue - downsized from the originally planned $275 million - at a wide 971/2-99 context, versus the 97.737 where the bonds had priced to yield 13%.

"It was a wide market," a second trader agreed, spotting the bonds in that same context. He had heard of some bids around 971/2, a bit below the issue price, but suggested that "they probably didn't trade very much."

He reeled off the list of the underwriters and opined that "it looks like nobody pushed it."

Reynolds recovers a little

Also among last week's deals, a trader said that the two-part mega-deal from Reynolds Group Issuer Entities "looks like it found a floor."

He saw the Chicago-based foods packaging company's upsized $1 billion of 6 7/8% senior secured notes due 2021 and its upsized $1 billion of 8¼% senior unsecured notes due 2021 having moved back up to 101 bid from around 100¾ bid, 101 offered on Friday.

The two tranches, both of which had been doubled in size from the originally envisioned $500 million to meet added investor demand, had each priced at par on Thursday but traded up to 101½ bid, 102 in the aftermarket later that same session, traders said.

Then on Friday, after the bonds initially firmed a little more, to around 101¾ bid, 102¼ offered, Reynolds began to unravel, pulled down by the generally soggy sentiment seen in Friday's junk market alongside equities' Egypt-induced malaise. They were seen having retreated gradually but methodically, ending below 101 going home.

A second trader saw the 6 7/8s going out on Monday at 101 bid, 101¼ offered, while the 81/4s ended at 100¾ bid, 101¼ offered.

Reynolds, another trader said, "seemed quiet today - we did not see a lot of it. Friday, we saw a lot of action on that but [Monday] we really didn't see anything in that."

He theorized that "these deals will trade for the first day or two, and then they'll just quietly get put away. Everyone forgets about it."

Navios Maritime on the rocks

However, one deal from earlier in the month which seems to have resurfaced is Navios Maritime Holdings, Inc.'s 8 1/8% notes due 2019; a trader said on Monday that those bonds "were getting clocked," seeing the Greek cargo shipping company's issue having fallen to 95 bid, 97 offered - well down from the par level at which the $350 million offering, upsized from the originally announced $325 million, had priced "only around two weeks ago," on Jan. 13, to be precise.

He said that the bonds had eased down last week from par to around 98¾ bid, 99½ offered, but in Monday dealings "they were being offered at 97, and the best bid I saw was 95."

He suggested that bondholders might be nervous over the prospect that the current political turmoil in Egypt could conceivably produce a closure of the strategic Suez Canal, which could play havoc with the company's shipping of such drybulk commodities as iron ore, coal, grain and fertilizer between Atlantic ports in the United States and Europe by way of the Mediterranean Sea and ports on the Persian Gulf, the Indian Ocean and Asian destinations.

He also said there might be concern that drybulk shipping rates might not be high enough to allow such companies to be profitable. Another Greece-based drybulk cargo carrier, Excel Maritime Carriers Ltd., last week postponed an expected $250 million offering of eight-year notes, citing financial market conditions and adverse shipping industry developments, including a sector peer, Korea Line Corp., being forced to file for receivership last week.

Amid a glut of big new cargo ships ordered during the shipping boom years in the middle of the 2000s decade and now plying world maritime lanes, rates for leasing such vessels have fallen steeply over the past few months, now hovering dangerously near or in some cases even below the breakeven levels of around $8,000 to $10,000 per day that the operators need to keep the ships afloat.

A Deutsche Bank report last week cautioned that China would likely cut its coal consumption as that country attempts to control inflation by slowing its runaway growth, which would likely mean fewer coal shipments, hurting carriers hauling such commodities. Deutsche warned of "a weak drybulk market in the near to intermediate term," causing shares of some shipping companies to slide.

At another desk, a trader also quoted the new Navios bonds in a 95-97 context. "You've got guys making lower bids, the offerings are lower, but people aren't hitting them down at that level yet."

He was a little skeptical of the Suez Canal blockage or closure scenario, pointing out that just on Monday in an interview on CNBC, petroleum tanker operator TeeKay Corp.'s chief executive officer said that one of his company's ships went through the canal on Monday with "no issues.

"They were in contact with it, and so it was kind of a non-event," the trader said. "They're watching it - but nothing terrible has happened yet."

That having been said, though, he allowed that "with the turmoil that can go on in that section of the world, you can just never know what can happen tomorrow. So, maybe owning [bonds or shares of] a shipping company that goes through the Suez Canal is not something you would necessarily have as a core position at this point in time.

"There would seem to be no smooth sailing but instead, rough seas."

Indicators slightly firmer

Away from the new-deal sphere, a trader saw the CDX North American Series 15 HY index up 3/8 point on Monday to end at 103 5/8 bid, 103 7/8 offered, after having lost ½ point on Friday.

The KDP High Yield Daily index meantime was unchanged on Monday at 75.31, after having gained 1 basis point on Friday. Its yield narrowed by 2 bps on Monday to 6.99%, after having risen by 2 bps on Friday.

Advancing issues led decliners for a seventh consecutive session on Monday, with their advantage widening out to six to five after having narrowed on Friday to just a few dozen issues out of the nearly 1,300 that traded that session.

Overall activity, represented by dollar-volume levels, rose by about 7% on Monday, on top of the 10% gain seen on Friday from the previous session's level

Traders said that the busiest high yield name easily was Massey Energy, but apart from that, one said, "a lot of people came in thinking the market was going to go down, and they could get some deals - but it never really went down. It was maybe 1/8 point overall today."

He said that "volume was slow at the beginning, but kind of picked up at the end of the day."

While everyone "is waiting to see what happens in Egypt, it looks like it's not going to be that terrible - but at the same time, is anything good going to come out of it?"

He also noted that the usual end-of-month damper that was on the market, with accounts who report monthly or whose fiscal quarters end in January having already closed their books and done their window-dressing transactions.

"Now we'll see what happens in February."

Massive trading in Massey

The news that Alpha Natural Resources has agreed to acquire Massey Energy for $7.1 billion in stock and cash - a transaction having an $8.5 billion value including debt refinancing (see related story elsewhere in this issue) - sent the Richmond, Va.-based coal company's 6 7/8% notes due 2013 up 1 3/8 points on the day to 102 3/8, with round-lot trading of at least $38 million seen, and literally page after page of smaller-sized trades recorded on Trace.

"Most of the action today was in Massey," a trader said, "that was the big money-mover."

He saw "most of the activity" within a bid range of 102¼ to 1021/2.

"These bonds had moved up to that kind of level a couple of weeks ago - maybe even a couple of months ago - based on takeover talk, people thinking this was something that might or could happen.

"So it really wasn't a big change - but now that the event has happened, people are selling and people are buying."

A trader at another desk said that the bonds "were clearly the volume leader on the day," quoting them at 102 3/8 bid, 102½ offered.

He said that some accounts had bought the bonds "and are selling it to raise cash" at the now-higher price - which is actually above the current call price of 101.719. The call price drops to par on Dec. 15, but he was of the opinion that the bonds are likely to be taken out via a call before that, maybe within a few months of the scheduled closing of the acquisition, which is expected to take place around mid-year.

Massey has no coattails

While such a big deal might ordinarily be expected to generate some M&A buzz about other companies in that same industry, in this case, it apparently wasn't so, with one trader calling the Massey deal "just kind of a one-off event."

Another trader agreed that there had been no rise in other high yield-rated coal companies like Peabody Energy Corp., the latter's rival and St. Louis neighbor Arch Coal Inc., or Pennsylvania-based Consol Energy Inc.

He quoted Peabody's 7 3/8% notes due 2016 unchanged at 112 1/8 bid, 112¼ offered, and said he had seen no trading whatsoever in Peabody's 6½% notes due 2020.

He likewise saw no dealings in either Arch's paper, or Consol's.

Terremark takes a breather

Elsewhere, Terremark Worldwide Inc. - the big name from Friday's market - also pushed higher in heavy trading by M&A news - relinquished the spotlight to Massey, and its formerly heavy volume dwindled accordingly.

Traders saw its 12% notes due 2017 continuing to trade around the same 125-ish level they had occupied late Friday - although round-lot volume of around $8 million was but a tenth of the heavy turnover seen at the end of last week, when the bonds shot skyward by around 9 or 10 points on the news that Verizon Communications will acquire the Miami-based cloud computing and information technology provider for $19 per share, or a $1.4 billion deal.

Kodak crumbles a little more

Among credits having no M&A connection, a trader said that Eastman Kodak Co.'s 7¼% notes due 2013 were trading around 93 bid, which he said was still down ¾ point to a full point from the levels seen around Friday in a 931/2-93¾ level. He said there had been "decent activity" in Kodak on Friday after the bonds got beat up last week on the combination of bad quarterly and earnings and an adverse preliminary decision in the patent-infringement case Kodak it brought against several well-known smartphone makers .

Another trader said that 71/4s were the only Kodak bond trading around on Monday - there had also been trading last week in its 7% notes due 2017 and 9¾% notes due 2018, both in the high 90s after easing from pre-news levels around or above par. He saw the 71/4s on Monday at 93¾ bid, which he called down ¼ point from Friday.

Last week, company executives expressed optimism on their fourth-quarter conference call that the patent-infringement action Kodak brought before the federal International Trade Commission against iPhone maker Apple Inc. and Blackberry producer Research in Motion Ltd. - alleging the defendants had poached its digital-imaging technology for the camera application in their devices - would ultimately be decided in Kodak's favor by the full commission later this year, as several similar past cases were.

But even allowing that the bonds had stabilized from their previous fall and had actually improved a little on Friday on such bullish jawboning, the first trader said that Kodak was "still in a bad situation.

"Even if they succeed in the patent case, their numbers are just terrible to begin with," he declared.

At mid-week, the Rochester, N.Y.-based company - which dominated the photographic equipment and supplies industry back in the days of traditional film cameras, but which has lost considerable ground in recent years as upstart rivals seized a commanding share of the new digital photography market that has rendered film photography pretty much obsolete - reported an adjusted fourth-quarter loss of 37 cents a share. That was considerably worse than Wall Street's expectations that it would earn about a nickel per share after factoring out charges and other unusual items.

Ford firms after slide

A trader said that Ford Motor Co.'s 7.45% bonds due 2031 were up by ½ point on the day, to 109¼ bid, 110¼ offered. The bonds came back after having skidded lower on Friday, after the Dearborn, Mich.-based Number-Two U.S. domestic carmaker dismayed investors by reporting a sharply lower profit versus a year earlier for the fiscal 2010 fourth quarter ended Dec. 31, and a full-year profit which, while it was more than double the 2009 result and was Ford's best full-year showing since 1999, still fell short of Wall Street's expectations by a considerable margin.

While Ford managed to get out of the breakdown lane and back on the road on Monday, the 8 3/8% benchmark bonds due 2033 of Motors Liquidation Co. - which fell sharply on Friday in apparent sector sympathy with Ford - were about unchanged on Monday. A trader saw those bonds - which had been issued by the "old" General Motors before its 2009 bankruptcy reorganization and name change to Motors Liquidation - at the same 35½ bid, 36 level at which they had ended on Friday.

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