TransDigm, CVR, Shelf Drilling lead $2 billion primary; AMR trades off; confab stills market

By Paul Deckelman and Paul A. Harris

New York, Oct. 5 - The high-yield primary market saw more than $2 billion of new paper price in five tranches on Wednesday, syndicate sources, against a backdrop of an overall lackluster session.

Most of the day's deals were quick-to-market transactions, such as aircraft components maker TransDigm Inc.'s upsized $550 million of eight-year subordinated notes.

Pharmaceuticals maker PPDI, issuing through Jaguar Holding Co. I, did an upsized $525 million offering of five-year PIK toggle notes, while fuel refiner CVR Refining, LLC and its Coffeyville Finance Inc. unit also reached the half-billion-dollar mark with their 10-year secured deal.

The latter was just one of three deals coming out of the energy sector; offshore drilling contractor Shelf Drilling Holdings Ltd. brought a $475 million six-year secured deal to market, the only regularly scheduled forward calendar transaction of the day, while oil and gas operator Endeavour International Corp. priced a $54 million add-on to its existing six-year secureds.

Only CVR and TransDigm were seen trading around, sticking close to their respective issue levels.

Traders meantime called the secondary market dull, a combination of a holiday-shortened week and the absence of many participants due to Deutsche Bank's investment conference in Arizona.

One name which did stand out, however, was American Airlines Inc., whose secured equipment trust certificates fell as the troubled carrier sought court permission to call those securities at less than the make-whole call stipulated in the indentures.

Overall, statistical market performance measures were listing to the downside.

TransDigm upsizes

The primary market deal machine continued to hum on Wednesday, with half a dozen issuers raising a combined total of $2.58 billion, as each one brought a single tranche.

TransDigm priced an upsized $550 million issue of eight-year senior subordinated notes (B3/B-/) at par to yield 5½%, on top of the yield talk. The amount was increased by $50 million.

The deal was half-done on reverse inquiry, according to a buyside source who added that although leverage is high, junk bond investors like the credit.

"The market is hot, but the primary market is underwhelming right now," the buysider remarked.

"People aren't' that crazy about some of these names. TransDigm is the only one out there that people seem to care about."

If the primary were a little more exciting there would be more selling into the calendar, but presently people are sticking to what they have, the source added.

UBS, Credit Suisse, Citigroup and Morgan Stanley were the joint bookrunners for the quick-to-market deal.

The Cleveland-based maker of aircraft components plans to use the proceeds to pay a special dividend.

PPDI PIK toggle dividend deal

TransDigm was not the only dividend deal rolled out in drive-by fashion on Wednesday.

PPDI priced an upsized $525 million issue of five-year senior PIK toggle notes (Caa1/CCC+), also to fund a dividend to its shareholders.

The notes will pay a 9 3/8% cash coupon and a 10 1/8% PIK coupon.

The reoffer price was 98.064, resulting in a 9 7/8% cash yield and a 10.4% PIK yield.

The cash coupon printed in the middle of the 9 3/8% to 9½% cash coupon talk. The reoffer price came in line with price talk of 98. The cash yield printed in the middle of the 9¾% to 10% cash yield talk.

The amount was increased from $500 million.

J.P. Morgan, Credit Suisse, UBS, Deutsche Bank and Goldman Sachs were the joint bookrunners.

CVR sells 10-year secured deal

In a deal that was in the market overnight, CVR Refining LLC and Coffeyville Finance Inc. priced a $500 million issue of 10-year second lien senior secured notes (Ba3/B+) at par to yield 6½%.

The yield printed at the wide end of the 6¼% to 6½% yield talk.

Credit Suisse, Citigroup, Barclays, UBS and Jefferies were the joint bookrunners.

Proceeds will be used to refinance existing first-lien debt and for general corporate purposes.

Shelf Drilling's placement

In a true private placement, Shelf Drilling priced a $475 million issue of six-year senior secured notes (B1/B) at par to yield 8 5/8%.

The yield printed in the middle of the 8½% to 8¾% yield talk.

Jefferies was the placement agent.

Proceeds, along with a $75 million term loan and $645 million of equity, will be used to finance the acquisition of 38 drilling rigs from Transocean Inc. for $1.05 billion.

Endeavour taps 12% notes

Endeavour International priced a $54 million tack-on to its 12% first priority notes due March 1, 2018 (Caa1/CCC+/) at 109 to yield 9.436%.

Credit Suisse Securities (USA) LLC was the bookrunner for the quick-to-market transaction.

The Houston-based oil and gas exploration and production company plans to use the proceeds to redeem, repurchase or otherwise retire its outstanding 12% senior subordinated notes due 2014 and to finance a portion of the construction, improvement and other capital costs related to its U.S. and U.K oil and natural gas properties.

Portugal Telecom in market

In a deal transacted on the European high-grade syndicate desks, Portugal Telecom International Finance BV priced a €750 million issue of 5 7/8% 5.5-year senior notes (Ba2/BB+) at 99.47 to yield 6%.

It was announced a benchmark size, with initial guidance in the 6¼% area, sources said.

Bank of America Merrill Lynch, Barclays, Banco Espirito Santo, BNP Paribas, Caixabi, Citigroup, HSBC and Mizuho managed the sale.

IMS roadshow for Monday

The Wednesday session also saw one deal come aboard the active calendar, set to run a brief roadshow in the week ahead.

IMS Heath Inc. plans to roadshow a $500 million offering eight-year senior notes on Monday and Tuesday.

Goldman Sachs, Bank of America, Deutsche Bank, HSBC and J.P. Morgan are the joint bookrunners.

In keeping with a burgeoning primary market theme, the New Jersey-based company plans to use the proceeds to fund a dividend.

TransDigm, CVR little moved

When TransDigm's new 5½% notes were freed for aftermarket dealings, several traders saw the Cleveland-based aircraft components manufacturer's issue trading in a 100 3/8 to 100 5/8 context, versus its par issue price. One did see it at 100¼ bid, 100½ offered, although yet another trader saw the bonds get as good as 100½ bid, 101 offered.

There was considerable activity in the company's existing 7¾% notes 2018. Although some $28 million of those bonds changed hands in round-lot dealings, making it one of the busiest names of the day in Junkbondland, "it looks like it's unchanged" right around the 109 5/8 to 109 7/8 range, a trader said.

He theorized that the activity in the bonds may have been due to "selling in that one and rolling into the [new] 51/2s."

He suggested "you may have had some guys take some profits [in the 73/4s] and buy the 51/2s and pick up 90 [basis points]. They would take out some dollars" by selling the higher-coupon bond, "and put the cash to work in the 5½% coupon."

The new CVR Refining/Coffeyville 6½% second lien senior secured notes due 2022 were meantime seen trading around 100½ bid, after the Sugar Land, Texas-based fuel refiner and nitrogen fertilizer producer priced its deal at par.

"All trades were into a 100½ bid in the Street," a trader said, adding "I would presume that's the underwriter" supporting the bonds.

Several traders saw no activity in the new Shelf Drilling 8 5/8% notes; one explained that the United Arab Emirates-based offshore energy drilling contractor's $475 million deal "came as a pure private [placement], so it cannot trade in the secondary market until settlement. It comes as a Schedule D, and then it will become a 144A, but not till it settles."

Elsewhere among the day's new deals, a trader quoted Wilmington, N.C.-based biotech and pharmaceuticals maker Jaguar Holding Co. I (PPDI)'s new 9 3/8%/10 1/8% PIK senior toggle notes due 2017 at 100½ bid, 101 offered - up from the 98.064 level at which the upsized $525 million deal had priced.

There was no activity seen in Houston-based oil and natural gas exploration and production company Endeavour International's $54 million add-on to its existing 12% first-priority notes due 2018, which priced Wednesday at 109 bid.

Tuesday bonds

Among the bonds which had priced on Tuesday, a trader said that HD Supply Inc.'s upsized $1 billion offering of 11½% senior notes due 2020 "did well," pegging the bonds around 102 bid.

"We were active in that one all day here," he said.

Another trader saw the Atlanta-based industrial products distributor's deal - which was massively upsized from an originally-shopped $750 million - trading in a context between 101 7/8 and 1021/4, suggesting that the new deal's hefty coupon was attracting buyers, especially in the current environment were so many deals are getting done with coupons of under 6% and in some cases, even under 5%.

Tuesday's other deal, from Hudson, Ohio-based specialty retailer Jo-Ann Stores Holdings, Inc. "was up marginally," a trader said, seeing the $325 million of 9¼%/10½% senior PIK toggle notes due 2019 trading between 98¾ and 99¼ offered, a bit above the 98.764 level at which those bonds had priced to yield 10% in cash or 10.485% if the interest is paid in kind

A second trader said the Jo-Ann bonds "did OK," getting as good as 99¾ bid.

However, at another desk, a trader said he "didn't see too much in them - not a lot of activity."

A lackluster session

Away from the new deals, traders said that Wednesday's session was decidedly underwhelming; one called it "torture," while another simply said that it was very quiet.

A trader at another shop opined that "everybody's in a holiday mode," with Monday having been an off day for everyone due to the Columbus Day celebrations and many participants absent when the market returned to work on Tuesday, the last day of the Jewish holiday season.

And, said a trader, "don't forget that a lot of people are at that Deutsche Bank conference out in the desert. A lot of folks were out of pocket."

The investment bank was holding its usually well-attended annual leveraged finance conference - its 20th - in Scottsdale, Ariz., near Phoenix.

Indicators off on session

Statistical indicators of junk market performance were lower across the board for a second straight session on Wednesday.

The Markit Group CDX North American Series 19 High Yield Index lost 3/8 point, to end at 99½ bid, 99¾ offered, after having dropped ¾ point on Tuesday. It was its second straight loss.

The KDP High Yield Daily Index meantime also fell for a second consecutive session, ending down 12 basis points at 74.23 bid, after having lost 6 bps on Tuesday.

Its yield rose by 3 bps to 6.06%, its second consecutive rise, having edged up by 1 bp on Tuesday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index was down by 0.078% on Wednesday, its second straight retreat. It had lost 0.049% on Tuesday.

That left its year-to-date return at 12.451%, down from Tuesday's 12.539%. Those levels also remain below the 2012 peak level so far of 12.814%, set on Sept. 19.

AMR loses altitude

Among specific non-new-deal names, several traders noted that Fort Worth, Texas-based AMR Corp., the bankrupt parent company of American Airlines, saw its enhanced equipment trust certificates decline significantly Wednesday, as the company asked a judge to allow it to repay the securities without a make-whole premium.

One trader said the 13% notes due 2016 were down only 2 points at 1041/2. However, another trader said the issue had been trading around 108, but fell to 103 in Wednesday trading.

"They were down 3 or 4 points across the board," yet another trader said. The 13% notes turned over more than $20 million of volume at mid-afternoon, making them one of the busiest credits.

The second trader meantime added that two other EETC issues -- the 10 3/8% notes due 2019 and the 8 5/8% notes due 2021 -- had also fallen to around 103, which would be the call price if the payment is allowed absent the make-whole amount.

The trader also noted that all $1.3 billion that makes up the three issues are current on interest and are not part of the bankruptcy case.

AMR wants to call the issues at par plus accrued interest, which it would do by offering another EETC issue at a cheaper rate. The company is estimating that doing so will save it $200 million annual interest expense.

But the proposal hinges on whether or not the company can ignore a make-whole provision included in the debt - something the company has hinted will not be included in any new offerings.

"There's something in the wording that may allow them to just call them," a trader said, noting that the language included in the prospectus was a bit vague.

If the payment is approved, there could be broader implications, according to Gimme Credit LLC analyst Vicki Bryan.

"Buyers of the new bonds should pay keen attention here, and not only to the dubious 'new' language in the bond terms," Bryan wrote in a report published Wednesday. "Indeed, all of AMR's creditors and anyone buying and selling EETCs should closely monitor this transaction because AMR seems to be writing its own rules."

Bryan notes that while EETC lenders are not averse to risk, their lack of aversion is based on the knowledge that they will be repaid "as agreed," which includes any call premiums. If companies can disregard such premiums at their will, it could result in an uptick in risk for the EETC sector as a whole.

Stephanie N. Rotondo contributed to this report

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