Giant-sized Reynolds offering, MGM megadeal close out explosively busy week, market solid

By Paul Deckelman and Paul A. Harris

New York, Sept. 14 - The high-yield primary market saw its heaviest new-deal session of the year on Friday, and the biggest-ever Friday borrowing binge, as over $6.3 billion of new dollar-denominated, purely junk-rated paper from domestic or developed-country issuers had priced by the time tired market participants finally turned off their computer screens, pushed their chairs away from their desks and called it a day, and a week.

The day's issuance totals topped the more than $6.1 billion that came to market back on Feb. 2 - the previous largest single-session issuance this year, according to data compiled by Prospect News.

And coming on top of the more than $9.8 billion which had already come to market from Monday through Thursday, the day's swollen total puts this week in the running for the honors as the busiest issuance week this year.

And it further boosts 2012's year-to-date total, which had lagged last year's pace for many months, finally pulled even in recent weeks and now is running about 9.5% ahead of where 2011 issuance was by this point on the calendar, the data indicated.

Over half of the day's total - some $3.25 billion - came from just one borrower, consumer packaging products manufacturer Reynolds Group Issuer Inc./Reynolds Group Issuer (Lux) SA, whose parent company produces the well-known Reynolds Wrap aluminum foil product. After that quickly shopped and massively upsized eight-year secured paper deal priced at par, the new issue was seen trading just a little above that.

The day's other mega-deal came from gaming giant MGM Resorts International, which did an upsized, quick-to-market $1 billion offering of eight-year notes. These too only rose modestly in the aftermarket.

Besides those big deals, the market saw other drive-by deals from Spanish-language broadcaster Univision Communications Inc., which did an upsized $600 million add-on to its existing 10-year notes sold just last month, and from commercial lender Ladder Capital Finance LLLP/Ladder Capital Finance Corp., which priced an upsized $325 million of five-year notes.

Coming off the forward calendar, medical devices maker DJO Global Inc. sold $540 million of bonds in two tranches - one an add-on and the other a new stand-alone deal - with the latter quoted up nearly 2 points. Metals mining company Iamgold Corp. price an upsized $650 million of eight-year notes, which were not seen trading around.

Traders saw dealings at mostly higher levels, from the new bonds which had come to market on Thursday, from the likes of issuers Midstates Petroleum Co. Inc., First Data Corp., Tesoro Corp., Cablevision Systems Corp. and Drill Rig Holdings, Inc.

They noted a generally firm tone in the market, buoyed by investor euphoria about the Federal Reserve's quantitative easing announcement on Thursday - although a couple wondered how long it might before that bubble will burst.

In the meantime, statistical measures of junk market performance were again solidly higher on the day, and versus week-ago levels.

Biggest Friday

It was the biggest Friday in the history of the high-yield primary market.

The Sept. 14 session saw six issuers bring a combined seven tranches to raise a total of $6.327 billion.

That shades the previous record for a Friday in the junk bond new issue market: $5.9 billion in four tranches, set on Nov. 4, 2011.

The theme of the day was deal size, with five of the seven tranches upsizing, in some cases massively so.

Four of the seven came at the tight end of price talk, while one blew through the tight end of talk.

Reynolds' $3.25 billion tranche

The Friday session also saw the biggest single bond in nearly five years, as Reynolds Group priced a massively upsized $3.25 billion issue of eight-year senior secured notes (B1/B+) at par to yield 5¾%, via bookrunner Credit Suisse.

The drive-by was upsized from $1 billion, and the yield printed on top of yield talk

In order to find a bigger tranche than Friday's Reynolds deal, you need to turn back the calendar to Jan. 28, 2008 when Harrah's Entertainment Inc. priced a $4.9 billion issue of 10¾% senior notes due Feb. 1, 2016 at par as part of an overall $6.335 billion two-part deal.

MGM Resorts upsizes

Also massively upsizing was MGM Resorts, which brought a $1 billion issue of non-callable eight-year senior notes (B3/B-) at par to yield 6¾%.

The quick-to-market deal was increased from $700 million, and the yield printed at the tight end of the 6¾% to 6 7/8% yield talk.

The joint bookrunners for the debt refinancing deal were Bank of America Merrill Lynch, Deutsche Bank, RBS and SMBC.

Iamgold upsizes debut bond

In its debut in the high-yield market, Toronto-based gold mining company Iamgold priced an upsized $650 million issue of eight-year senior notes (B1/BB-) at par to yield 6¾%.

The yield printed at the wide end of the 6½% to 6¾% yield talk. The amount was increased from $500 million.

Citigroup was the left bookrunner. Scotia was the joint bookrunner.

Proceeds will be used for general corporate purposes, including capital expenditures and development.

Univision doubles size

Univision Communications doubled the size of its Friday high-yield bond deal to $600 million from $300 million, as it tapped its 6¾% senior secured notes due Sept. 15, 2022 (existing ratings B2/B+) at 102.875 to yield 6.285%.

The reoffer price came at the tight end of price talk that was set in the 102.75 area.

The joint bookrunners were Deutsche Bank, Bank of America Merrill Lynch, Barclays, Credit Suisse, Morgan Stanley and Wells Fargo.

The Los Angeles-based Spanish-language media company plans to use the proceeds to repay bank debt.

The original $625 million issue priced at par on Aug. 15, 2012.

DJO finishes two-part deal

DJO Finance LLC and DJO Finance Corp. priced $540 million of high-yield notes in two tranches.

The Vista, Calif.-based medical device company priced a $100 million add-on to its 8¾% second-lien notes due March 15 2018 (B3/B-) at 106.75 to yield 6.96%.

The reoffer price came 12.5 basis point better than the rich end of the 106 to 106.50 price talk. The original $230 million issue priced at par on March 13, 2012.

Also on Friday, DJO priced a $440 million tranche of senior notes due April 15, 2018 (Caa1/CCC+) at par to yield 9 7/8%.

The yield printed at the tight end of yield talk that was set in the 10% area.

Credit Suisse, Goldman Sachs, UBS, Wells Fargo, RBC and Macquarie were joint bookrunners for the debt refinancing deal.

Ladder at the tight end

Like DJO, Ladder Capital Finance Holdings LLLP and Ladder Capital Finance Corp. priced a deal trailing a brief investor roadshow.

Ladder Capital priced an upsized $325 million issue of five-year senior notes (Ba3/B+/BB) at par to yield 7 3/8%, at the tight end of yield talk that was set in the 7½% area.

J.P. Morgan, Deutsche Bank and Wells Fargo were the joint bookrunners for the debt refinancing deal which was upsized from $300 million.

EDP 10-times oversubscribed

Friday also saw action in the European market as Energias de Portugal (EDP) priced a €750 million issue of 5¾% five-year senior notes (Ba1/BB+/BBB-) at 99.472 to yield 5 7/8%, on top of the yield talk.

The deal played to a book that contained €7.5 billion of orders, an informed source said, and added that high-yield and investment-grade accounts alike thronged to the deal, as investors in Europe scramble for risk, trailing September moves by central bankers in Europe and the United States to provide economic stimulus and, in Europe, to shore up assets in the portfolios of the big banks.

Friday's EDP deal was led by Barclays, BNP Paribas, Credit Suisse, ING, Mizuho, SG CIB, Banco Espirito Santo SA and Millennium.

Reynolds wraps day's deals

When Reynolds Group's new 5¾% senior secured notes due 2020 were freed for secondary dealings, a trader pegged the bonds at 100¼ bid.

A second trader saw the huge new deal going out at par bid, 100 1/8 offered.

One of the traders said that the New Zealand-based consumer packaging products company's quickly shopped issue was "massively upsized" to meet investor demand, growing from an originally shopped $1 billion up for $3.25 billion - the single biggest tranche seen in Junkbondland this year, and one of only two whole deals to get up to $3.25 billion. That, he theorized, could explain why there was not much upside when the bonds began to trade - because everybody who wanted some was able to get some once the deal was more than tripled in size.

News that the company was adding billions of dollars of new debt pushed its existing 7 7/8% notes due 2019 down some 1 5/16 points on Friday. Those bonds were seen ending around 1091/2.

MGM, DJO firm

Also among the day's deals, MGM Resorts International's 6¾% notes due 2020 were seen by two separate traders having firmed a little to 100¼ bid, 100¾ offered.

That came after the Las Vegas-based casino powerhouse priced its $1 billion drive-by deal at par, after having upsized it from $700 million originally.

A trader saw DJO Finance LLC/DJO Finance Corp.'s 9% notes due 2018 having firmed up to 101½ bid, 102 offered.

That $440 million of notes priced Friday as part of a $540 million two-part transaction from the Vista, Calif.-based medical devices maker that also included a $100 million add-on to its existing 8¾% senior secured notes due 2018. The latter bonds were not trading around.

Neither were the new notes from Univision Communications, Iamgold and Ladder Capital Finance Holdings LLLP, traders said, owing to the lateness of the hour at which they priced.

Thursday deals trade around

Among the deals which came to market late Thursday but which did not trade in the aftermarket at that time, a trader said that Cablevision Systems' new 5 7/8% notes due 2022 was clearly the star issue of the day.

He said that " a couple of hundred million" of the Bethpage, N.Y.-based-based cable systems operator's quick-to-market $750 million deal traded around, clearly the high-yield volume leader.

A trader at another shop pegged those bonds at 101 bid, 101¼ offered, up from the par level where they had priced after upsizing from the originally announced $500 million.

Cablevision's existing 8% notes due 2020 rose by ½ point to 113½ bid.

A trader saw Drill Rig Holdings' 6½% senior secured notes due 2017 at 101 bid, 101½ offered.

The Cyprus-based undersea energy drilling contractor's $800 million of those notes had priced off the forward calendar at 99.469 to yield 6 5/8% after being upsized from an original $750 million. Those bonds too did not get to trade until Friday.

Among the deals which did see some aftermarket action after pricing on Thursday, Midstates Petroleum managed to improve on its initial gains as trading continued Friday.

The Houston-based energy exploration and production company's new 10¾% notes due 2020 were being quoted Friday going home at 104 bid, 104½ offered; on Thursday the bonds had "ran like mad," in the words of one trader, shooting up to 103 bid, 103½ offered. That was well above the par level where the $600 million forward calendar deal - upsized from an originally announced $550 million - had priced.

Also in the energy sphere, a trader saw San Antonio, Texas.-based refiner Tesoro's quickly shopped two-part offering continuing to trade at strong levels on Friday.

The company's $450 million of new 4¼% notes due 2017 and its $475 million of 5 3/8% notes due 2022 were both seen around 102½ bid, 103 offered on Friday.

On Thursday, both tranches had priced at par, and then the five-year paper was initially seen trading at 100¾ bid, 101¼ offered, while the 10-years were at 100½ bid, 101½ offered.

However, later Thursday, those bonds had continued to rise, with both parts of the $925 million deal going home at 102½ bid.

Atlanta-based electronic transaction processor First Data's $850 million add-on to the 6¾% senior secured notes due 2020 that had been sold only last month was seen on Friday at 101 bid, 102 offered, versus late Thursday's 101½ bid, 101¾ offered.

The deal - upsized twice, first from the originally shopped $250 million and then from $500 million - had priced at 100.75 to yield 6.591%.

'A feeding frenzy'

A trader, saw the Thursday deals all moving up "in a major way," almost in unison. He opined that, with most issues higher and the overall market flying on the back of Thursday's announcement by the Federal Reserve Open Market Committee of a huge new round of quantitative easing, which also gave stocks a big boost, and big cash inflows continuing to come into the market, that the "buy" flag was clearly flying high.

"I've been doing high yield for a very long time," he said. "Today was about as much of a feeding frenzy that I've ever seen."

A second trader said that "secondary spreads tightened again" on Thursday, between junk bond prices mostly rising across the board and Treasury yields also rising as government paper fell badly for a second straight session on the Fed news - the 10-year Treasury's yield shot up by 15 basis points to 1.87% at the close, while the 30-year long bond's yield rose by 16 bps to 3.09%.

He saw that people were just buying everything "indiscriminately," buoyed by the news that the Fed will continue to keep interest rates at current historically ultra-low levels and will buy $40 billion of mortgage-backed securities every month to pump more liquidity into the system in order to free up lending to businesses.

How long it can go on is anybody's guess, he said.

"It's a cockamamie scheme," he said of the plan outlined by Fed chief Ben Bernanke. "When people start to do the math on what he is promising to do, the numbers get pretty scary."

He added that "what happened in the high-yield market today," in terms of the indiscriminate buying "was even scarier."

Indicators up on day, week

Statistical indicators of junk market performance were meantime solidly higher across the board for a fourth consecutive session on Friday and were up as well on a week-to-week basis.

The Markit Group CDX North American Series 18 High Yield Index notched its fourth straight gain as it rose by ½ point to close at 102 3/16 bid, 102 7/16 offered on Friday, after having zoomed by 1 1/16 points on Thursday.

The index ended the week up solidly from the 99 7/8 bid, 100¼ offered level at which it had ended the previous week on Sept. 7.

The KDP High Yield Daily Index scored its 8th consecutive gain on Friday, jumping by 29 basis points to 75.16 - a new high for the year, eclipsing the old mark of 74.87 just set on Thursday, when it had risen by 13 bps.

Its yield fell by 10 bps, to 5.87%, after having declined by 6 bps on Thursday. Friday's yield marked a new low for the year, bypassing the former low point, which had been set the day before.

And the widely followed Merrill Lynch U.S. High Yield Master II Index meanwhile put up its 21st consecutive gain on Friday, rising by a robust 0.398%, following Thursday's 0.139% advance. That winning streak dates all the way back to Aug. 17.

The latest gain lifted its year-to-date return to 12.612% - a new 2012 peak, bypassing the old mark of 12.165% that had just been set on Thursday. 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 6.202%%, down from the 6.342% mark seen Thursday. Friday's yield was also the new low yield for the year, versus the old mark set the previous session.

On the week, the index shot up by 1.211% - its fourth consecutive weekly rise, and the biggest such gain this year. Last week, the index had shown a one-week gain of 0.742%, with last Friday's yield to date at 11.264%.

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