Downstream, Evonik deals price to close out low-volume week; KV Pharma climbs on asset sale

By Paul Deckelman and Paul A. Harris

New York, June 17 - Downstream Development Authority priced a $295 million offering of eight-year senior secured notes on Friday, one of two deals that came to market during the session to lift primaryside issuance during this oh-so-quiet week past the $1 billion mark. Traders saw the new bonds moving around after the pricing.

Also pricing Friday, in addition to the Oklahoma casino operator, was German specialty chemical maker Evonik Carbon Black Ltd.'s seven-year secured paper. The latter deal also priced with a tranche of euro-denominated seven-years. Traders didn't see much trading in the aftermarket for either Evonik or a Thursday sale by Australian mining concern TFS Corp., for which terms emerged Friday on a downsized $150 million seven-year secured deal.

Thursday's offering of seven-year secureds from telecommunications services provider Goodman Networks, Inc., meantime continued to trade above the level at which that $225 million deal had priced.

On the forward calendar front, AMC Networks, Inc. was heard hitting the road to market its $700 million bond deal, which will help to fund the company's spinoff from Cablevision Systems Corp.

But syndicate sources said that the official notice of the demise of Silgan Holdings Inc.'s planned acquisition of Graham Packaging Co. Inc., which went with a better offer elsewhere, also removes from the calendar the Silgan's planned $400 million bond deal that would have helped finance the acquisition of sector peer Graham.

Away from the new deals, K-V Pharmaceutical Co.'s planned $60 million sale of its generic drug business proved to be the right tonic for its bonds, which firmed smartly on the news.

Statistical performance indicators meantime closed out Friday's session mostly lower on the day and down across the board on the week.

Evonik prices two-part deal

Friday's primary market session saw two dollar-denominated tranches price for a total of $643 million plus a euro tranche for €355 million.

Germany's Evonik Carbon Black turned out final terms on a €603 million equivalent two-part seven-year senior secured notes transaction (B2/B) on Friday, according to market sources.

The specialty chemical company priced a $350 million tranche of notes at par to yield 9 5/8%. The yield printed at the wide end of price talk which had been set in the 9½% area. The dollar-denominated tranche had been announced to the market in a $250 million minimum amount.

Evonik also priced a €355 million tranche of the notes at par to yield 10%. The yield on the euro-denominated notes printed 12.5 basis points beyond the wide end of price talk which had been set in the 9¾% area. The euro-denominated tranche had been announced to the market at a €425 million maximum amount.

Goldman Sachs International and UBS were the global coordinators for the LBO deal. Goldman Sachs, UBS and Barclays were the joint bookrunners.

Quapaw inks secured deal

Downstream Development Authority of the Quapaw Tribe of Oklahoma priced a $295 million issue of 10½% eight-year senior secured notes (B3/B) at 99.337 to yield 10 5/8%.

The yield printed at the wide end of price talk which had been set in the 10½% area.

Jefferies & Co. Inc. was the left bookrunner for the debt refinancing. Bank of America Merrill Lynch was the joint bookrunner.

TFS prices notes/warrants deal

Terms also surfaced Friday on a deal from Australian sandalwood producer TFS Corp. which priced a downsized $150 million issue of seven-year senior secured notes (B3/B/) at par to yield 11% on Thursday.

The yield came in line with price talk, according to an informed source.

The notes come with attached warrants. For each $1,000 of notes investors will receive 370 warrants exercisable at $1.28 per share.

Global Hunter Securities, Clarkson Capital Markets and Knight Securities were the bookrunners for the deal, which was downsized from $175 million.

The Nedlands, Western Australia-based owner and operator of sandalwood plantations plans to use the proceeds to fund land acquisitions and for general corporate purposes.

Quietest week since February

With Friday's deals in the tally the primary market saw $1.25 billion of issuance in six junk-rated, dollar-denominated tranches price during the June 13 week.

That is the lowest weekly amount of issuance since the week Feb. 21, which saw $1.05 billion priced in four tranches.

The most recent week's total extends year-to-date issuance to $186 billion is 418 tranches, according to Prospect News data.

In addition to Downstream, TFS and Evonik, the other dollar-denominated deals pricing against the week's grim backdrop included Goodman Networks, Inc.'s $225 million offering of 12 1/8% seven-year senior secured notes via Jefferies & Co., Universal Hospital Services, Inc.'s $175 million add on to its existing $230 million of 8½% cash, 9¼% in kind second-lien senior secured PIK toggle notes due June 1, 2015 via Barclays Capital and RBC, and Merge Healthcare Inc.'s small $52 million add on via Morgan Stanley.

Uncertainty and outflows

Friday's market tone was "okay but not great," according to a trader from a high yield mutual fund.

"Heading into the weekend people are trying to be flat," the trader added.

Pressed to parse the week's primary market news for themes, the trader pointed two items: 1) a $1.6 billion outflow from the high yield mutual funds during the week to Wednesday, as reported by Lipper-AMG, and 2) a flight to quality.

As to the outflow, it did not take junk players by surprise, the trader insisted.

"The Street was feeling it all week, and had priced it in," the source said, and asserted that most of the negative flows could be chalked up to "retail" as opposed to "institutional" cash.

As to the flight to quality, the trader pointed to Thursday's Canadian dollar-denominated drive-by deal from Videotron Ltd.

Videotron priced an upsized C$300 million issue of 10-year senior notes (Ba1/BB) at par to yield 6 7/8%.

The refinancing deal, which was led by RBC Capital Markets Corp. and TD Securities Inc., was upsized from C$250 million, and priced on top of the price talk.

"It was a highly rated deal that came in an upsized drive-by, and priced at price talk," the trader pointed out.

"It shows that for quality deals people still have plenty of cash to put to work.

"We think that the market will continue to be open for deals like that."

AMC starts roadshow

Given these circumstances, the slow-going seen in the primary market during the past week is likely to continue into the week ahead, the trader predicted.

The April-May market was characterized by a confident march of deals through roadshows that lasted three to seven days, followed by price talk and brisk executions, along with a steady stream of drive-bys, market sources say.

June's capital markets volatility has rendered things somewhat murkier, as issuers and dealers negotiate a minefield of negative news about the U.S. economy and ongoing noise regarding the sovereign credit quality of Greece.

Nevertheless, the June 20 week gets underway with a $1.6 billion calendar of deals.

The latest to board that calendar was AMC Networks, which started a roadshow on Friday for its $700 million offering of 10-year senior notes (B2/B+).

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Barclays Capital Markets, Citigroup Global Securities, Credit Agricole CIB, Credit Suisse Securities (USA) LLC, Goldman Sachs & Co., Morgan Stanley & Co., RBS Securities Inc., SunTrust Robinson Humphrey, UBS Investment Bank and US Bancorp are the joint bookrunners for the deal which is related to the spinoff of AMC Networks' subsidiary, Rainbow Media Holdings, from Cablevision Systems Corp.

Downstream makes debut

When the new Downstream Development Authority offering of secured notes was freed for secondary dealings, market participants saw the new bonds all over the board.

On the high end, one shop quoted the $295 million deal as having firmed to 99 7/8 bid, 100 3/8 offered, up from the 99.337 level at which that paper had priced earlier.

A second trader quoted the bonds at 99 3/8 bid, 99 7/8 offered.

On the low side, a trader pegged the Oklahoma casino operator's bonds in a bid range of 99 to 991/2. He suggested investors may be cautious about the gaming industry, in view of the continued soft economy, which tends to work against businesses like gaming and other forms of entertainment that depend upon consumer discretionary spending.

As an example, he pointed to the recent weakness in familiar junk gamer Harrah's Entertainment; the Las Vegas-based gambling giant, now officially known as Caesars Entertainment Corp., has seen its 10% notes due 2018 pushed down into the mid-to-upper 80s from last week's levels above 90, with similar declines across its capital structure. On Friday, the 10s retreated further, to 87¼ bid, 87¾ offered, on "a lot of bonds traded," down 3/8 to ½ point.

TFS deal a no-show

Several traders said that they did not see any aftermarket activity in TFS Corp.'s new $150 million offering of seven-year second bonds.

One or two also said that the new Evonik Carbon Black/Kinove Bondco offering was not seen around.

However, at another shop, a trader did see the latter bonds - a $350 million dollar-denominated tranche that came as part of a two-part, dual-currency transaction - as having pushed up to 101½ bid, 102½ offered, after pricing at par.

Goodman still pretty good

Thursday's deal for Plano, Tex.-based telecommunications services company Goodman Networks continued to hold above its issue price.

A trader saw the $225 million of 12 1/8% senior secured notes due 2018 having firmed on Friday to 99¼ bid, 99¾ offered. That was up from the levels seen on Thursday, when the deal priced at 98.273 to yield 12½%, and then proceeded to trade at 99 bid, 99½ offered when it was freed.

A second trader saw the bonds off from those peak levels, down to 98¾ bid, 99¼ offered, though still hanging in above issue.

Yet another market source saw them going home at 99¼ bid, 99½ offered.

KV Pharma name of the day

In the secondary market, KV Pharmaceutical was seen by traders as the name of the day after the Bridgeton, Mo.-based drug manufacturer announced plans to sell its generics division, Nesher Pharmaceuticals, Inc., to Zydus Pharmaceuticals, a unit of India-based drug maker Cadila Healthcare, for about $60 million in cash.

A trader said that KV's 12% notes due 2015 "moved up nicely" on the session, seeing them jumping to 91 bid, 93 offered towards the end of the day. Right after the announcement, the bonds had traded at 87½ bid, 89½ offered, up from pre-news levels around 86 bid, 88 offered, the levels at which they had traded on Wednesday.

"So they had a nice run," he said. "It's a nice bond."

He did note that "prior to the downdraft in the market" seen over the last week or so, the bonds had traded around 90 bid, "holding their own, but then everything got wrecked in the last week or so."

Redemptions take their toll

"We've seen some relatively significant withdrawals here," he said - most notably the $1.6 billion outflow from high-yield mutual funds reported on Thursday by AMG Lipper, according to market sources familiar with the numbers. That was the third straight loss of cash from the funds, which are considered a good proxy for overall market liquidity movements, and the biggest cash drain in more than 13 months.

At another desk, a trader said that "it felt like there were more redemptions late this afternoon - we saw some selling of paper."

He said the junk secondary had been "firm to quiet this morning, and was actually trying to stabilize. Then this afternoon, we saw a resumption of selling."

He said that "there's been some pressure on the higher-dollar issues - people have sold higher-dollar because they don't have to sell as many to generate proceeds."

However, the trader also pointed out that "there were buyers out there too for this stuff - it wasn't going into the hands of the Street. As the levels have come down, traditional money managers, traditional high-yield managers, the more disciplined ones, have stepped in and are willing to bid on quality names, in size, if so needed."

Market signs still struggle

On a statistical basis, indicators mostly remained under pressure as the week closed.

A trader did see the CDX North American Series 16 HY Index gaining ¼ point on Friday to end the week at 99 5/8 bid, 99 7/8 offered, after having lost 3/16 point on Thursday, and it left the index unchanged on the week.

However, the KDP High Yield Daily Index lost 7 basis points on Friday to end at 74.96, after dropping by 13 bps on Thursday. Its yield rose by 5 bps, to 6.93%, after having widened out by 4 bps Thursday. It also ended the week well down from 75.27, with a 6.79% yield, recorded a week earlier.

And the Merrill Lynch High Yield Master II Index was lower for a 12th consecutive session, retreating by 0.086%, following Thursday's 0.327% loss.

That dropped the index's cumulative return to 4.481% from Thursday's 4.571%. It was down 0.659% on the week from the previous Friday's 5.174% - the fourth consecutive week on the downside.

This Friday's reading was also further down from its year-to-date peak level of 6.071%, reached on May 20.

NewPage catches a break

Among other busily traded issues, NewPage Corp.'s 11 3/8% senior notes due 2014 "rebounded a little bit," a trader said.

He called the issue up a point, trading with a 92 handle.

He said there was "not a lot of trading" in the 10% subordinated notes due 2012, "but they were certainly quoted higher" at 30½ bid, 31 offered.

"Short-covering is my guess," he said when asked what had caused the gains. He also noted that the "stock market was up a good bit of the day."

Another trader called the 11 3/8% notes 1½ points higher at 921/2.

The debt had been on the decline recently, taking a pounding over the first three sessions of the week - and in good sized dealings - as investors worried over a looming coupon due June 30 on the senior notes.

Additionally, with the 10% notes coming due next year, the Miamisburg, Ohio-based papermaker must either refinance or repay the debt or face the acceleration of its $500 million revolving credit facility.

-Stephanie N. Rotondo contributed to this report

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