German trio dominates primary market, new Fidelity bonds up strongly in firm but quiet market

By Paul Deckelman and Paul A. Harris

New York, July 9 - High yield primaryside players broke out the bratwurst and cast their eyes eastward on Friday, to Germany to be precise, as a trio of companies based there successfully came to market with over €1.75 billion of new bonds, from Conti-Gummi Finance BV, a financing unit of tire maker Continental AG, chemical manufacturer Oxea GmbH and Phoenix PIB Finance BV, a financing unit of drug wholesaler Phoenix Pharmahandel GmbH & Co. KG.

The new-deal arena was otherwise quiet, except for the news that Care UK Health & Social Care plc, a provider of outsourced healthcare services to Britain's government healthcare system, will hit the road on Monday to market a sterling-denominated offering of seven-year secured notes.

There meantime was nothing shaking on the domestic new-deal front.

Traders didn't see too much activity in the secondary market either, aside from strong gains posted when Fidelity National Information Services, Inc.'s $1.1 billion of new bonds, which priced Thursday, hit the aftermarket.

Among issues without new-deal connections, Anadarko Petroleum Corp.'s bonds continued to strengthen, along with its shares, as the energy exploration and production company said that it would not help BP plc with cleanup costs from BP's ruptured Gulf of Mexico well, 25% of which is owned by Anadarko. ATP Oil & Gas Corp.'s bonds meantime firmed for a second consecutive session.

There was no further deterioration - really, very little activity - in the bonds of Skilled Healthcare Group Inc., whose bonds nosedived on Thursday after a California jury hearing a lawsuit against the company socked the nursing home operator with massive damages.

Continental prices €750 million

All of Friday's primary market activity emanated from Europe, where three issuers - all of them German - raised nearly €1.75 billion equivalent from a combined four tranches of notes.

Conti-Grummi Finance BV, a financing unit of German tire manufacturer Continental AG, did the day's biggest deal.

Continental priced a €750 million issue of 8½% five-year senior secured notes (B1/B) at 99.004 to yield 8¾%.

The yield printed at the tight end of the 8¾% to 9% price talk.

The deal came to market as a benchmark-sized offer, and launched late in the week at €500 million minimum.

However market-watchers anticipated the final size would come in somewhere between €750 million and €1 billion.

Citigroup and Royal Bank of Scotland were the global bookrunners.

Commerzbank, Deutsche Bank, ING, Landesbank Baden-Wurttemberg and UniCredit were the joint bookrunners.

Proceeds will be used to refinance debt.

Oxea prices two-parter

Meanwhile, Oxea Finance, a financing unit of German chemicals manufacturer Oxea GmbH, raised approximately €505 million equivalent via the sale of its seven-year senior secured notes (B2/B+).

The deal included dollar-denominated and euro-denominated notes.

The Oberhausen, Germany-based firm sold $260 million of notes at par to yield 9½%. The yield on the dollar-denominated notes printed on top of price talk.

Oxea also sold €300 million of notes at par to yield 9 5/8%, at the tight end of the 9¾% price talk.

Deutsche Bank Securities and Morgan Stanley were the joint bookrunners. JP Morgan was the co-manager.

Proceeds will be used to repay bank debt, to repay shareholder loans, to fund a distribution to shareholders and for general corporate purposes.

Phoenix sells four-year bullet

Finally, Phoenix PIB Finance BV, a financing unit of Germany's Phoenix Pharmahandel GmbH & Co. KG, raised approximately €500 million of proceeds via the sale of its 9 5/8% four-year senior notes (B1/CCC).

The non-callable notes were priced at 98.7894 to yield 10%.

The yield printed on top of price talk.

Deutsche Bank Securities, BayernLB, Commerzbank, Credit Agricole, Danske Bank, Erste Group, Helaba International Finance plc, HSBC, ING, Landesbank Baden-Wurttemberg, Mediobanca, Nordea, Royal Bank of Scotland, Raiffeisen Zentralbank Oesterreich, SEB, UniCredit and WestLB were the underwriters.

Proceeds will be used to refinance debt.

In addition to the bonds, the financing includes €2.6 billion in syndicated loans.

Nearly all the action in the euro-junk market is out of Germany, a London-based debt capital markets banker conceded.

In addition to the trio of deals, above, German packaging firm Nordenia Holdings GmbH priced a €280 million issue of 9¾% seven-year second-priority notes (B2/B/) at 98.76 to yield 10% on July 2.

Care UK starts Monday

Apart from the news from Germany, one other prospective European issuer stepped forward on Friday.

Care UK Health & Social Care plc will begin a brief roadshow on Monday for a £250 million offering of seven-year senior secured notes (/B2/).

The roadshow wraps up on Thursday.

Citigroup, Royal Bank of Scotland, BNP Paribas, HSBC and ING are joint bookrunners.

Proceeds will be used to help fund the LBO of the company by Bridgepoint Capital.

$2.23 billion week

With Oxea's $260 million dollar-denominated tranche into the mix, the abbreviated post-Independence Day week closed having seen just under $2.23 billion of junk-rated, dollar-denominated issuance.

That makes it the biggest week since the week of June 21, which saw $3.13 billion, and only the third week to clear the $2 billion mark since the week of May 10.

Year-to-date issuance stood at $121.6 billion in 290 tranches, according to Prospect News data.

Chasing bonds

With Friday's action centered in Europe, talk among players in the United States focused on Thursday's $1.1 billion two-part offering of senior notes (Ba2/BB-/) from Fidelity National Information Services, Inc.

To recap, the Jacksonville, Fla.-based financial services company priced a $600 million tranche of seven-year notes at par to yield 7 5/8%, at the tight end of the 7¾% area price talk, and $500 million tranche of 10-year notes at par to yield 7 7/8%, on top of talk that had them coming 25 basis points behind the seven-year notes.

Bank of America Merrill Lynch, J.P. Morgan, Goldman, Sachs and Wells Fargo Securities were joint bookrunners.

One investor, who customarily professes an aversion to chasing bonds in the secondary market, owned up to paying between 103¼ and 103½ for some of the new Fidelity National 7 5/8% seven-year paper on Friday.

The reason: A horrible allocation on Thursday.

"We went in early, and were warned that it would be tough," the buy-sider recounted.

"But it turned out to be much worse than we expected."

A salesman attempted to console this investor by saying that there were between 250 and 275 accounts in the order book, 50 of which got no bonds whatsoever, while another 100 accounts received 250 bonds, or less.

Why chase this one, Prospect News wanted to know.

It's a pretty good company, the investor replied.

The only reason the high-yield market had a shot at it is because Fidelity National is doing a strategic stock buyback, rather than selling the company outright, the investor said.

"They generate a fair amount of free cash flow, so they can probably get their statistics down. Maybe in two years they will be back toward investment grade."

This money manager believes the bonds will trade for the next couple of weeks, and then get put away because a lot of higher quality accounts are going to just hold them.

Migration to quality

With the double B rated Fidelity National bonds trading higher on Friday, and cash bonds in general up ½ point on the day, a somewhat sanguine view of the high yield may be taking hold, sources said.

However, they added, the present appetite favors higher rated paper, such as Fidelity National.

"We heard this week that there has been a lot of interest in double-B paper from insurance companies, high-grade accounts, crossover accounts, and just traditional high yield accounts," a fund manager said Friday, adding that the bid for triple-C paper was not as strong as the bid for double-B paper.

"Insurance companies are asking to see double-B paper maturing in six years or less, so they're not making a huge duration bet," the source added.

Meanwhile, the $166 million of outflows for week to Wednesday, reported on Thursday by Lipper-AMG - the second consecutive outflow - took some junk market-watchers by surprise.

"I was expecting a slightly positive number," a buy-sider said, and added that redemptions were likely concentrated to the early part of the seven-day reporting period which wrapped up at Wednesday's close.

Sources anticipate that a modest deal calendar will begin to take shape.

However, at Friday's close only the above mentioned Care UK sterling-denominated deal was aboard the active forward calendar.

"Opportunistic issuers may still feel like the time is not right," the buy-sider reasoned, noting that recent capital markets volatility - much of it driven by credit concerns coming out of the eurozone - is believed to have pushed out new issue premiums somewhat.

However that could soon change, the buy-sider said.

There will be dollar-denominated business during the week ahead, dealers assured Prospect News, heading into the weekend.

Look for the committed financings which have to come, they advised.

New Fidelity does well

A trader saw Fidelity National Information Services's two tranches of brand-new bonds each having firmed smartly from the par level at which the Jacksonville, Fla.-based banking and transaction payment technology provider's seven- and 10-year bonds had priced on Thursday.

He quoted the company's $600 million of 7 5/8% notes due 2017as having firmed to 103 1/8 bid, 103¼ offered, while seeing its $500 million of 7 7/8% notes due 2020 at 103½ bid, 103 7/8 offered.

The trader said that in line with just about everything else in the secondary market Friday, Fidelity National was "pretty active in the morning, but then it quieted down."

He added that still, there was "more activity [in the new bonds] than in most others."

Market indicators stay strong

Among established issues having no new-deal connections, a trader saw the CDX North American HY Series 14 Index up by ¼ point on Friday to 96 5/8 bid, 97 1/8 offered, after having gained by ¾ point on Thursday. The index thus ended the week up solidly from the 94 3/8 bid, 94 7/8 offered level at which it had closed out the previous week on Friday July 2.

The KDP High Yield Daily index meantime shot up by 28 basis points on Friday to end at an even 71.00, after having improved by 48 bps over the three previous sessions, including a 22-bps gain on Thursday. The index thus ended well up from 70.20 the previous Friday.

Its yield narrowed by 10 bps on Friday to 8.52%, after having come in by 7 bps on Thursday. The KDP yield thus ended the week well in from 8.77% a week earlier.

Advancing issues led decliners for a fifth consecutive session on Friday, widening their advantage to around a seven-to-four ratio from the seven-to-five margin seen the previous two sessions.

Overall activity, represented by dollar-volume levels, nosedived by 45% on Friday, after having risen by 7% on Thursday

A trader said that overall, "the market definitely felt firmer - but it was a summer Friday again. Volume was very light - but the bond market felt much firmer."

Noting that the week was shortened by the close on Monday in observance of Independence Day, he said that "it was a very light volume week, and a very light day of volume on Wall Street. I guess everybody is just cruising into the weekend."

He agreed with the general proposition that with another sunny day and 90-degree temperatures in New York, "everyone is at the beach."

Another trader said that the session "seemed a little bit quiet. We're getting some stuff done, but nothing too dramatic."

He said that it "looks like there was a fair amount of activity" early on, "but then things just died."

Gulf names continue climb

A trader said that ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 had moved up to around 71½ bid, from prior levels in a 70-72½ context.

That continued a firming trend in the Houston-based energy exploration and production company's bonds, which recently had gotten as low as around 68-69 on investor worries that the tough federal restrictions on deepwater oil drilling in the Gulf of Mexico in the wake of the Deepwater Horizon disaster might hurt the company, since a large portion of its oil and gas reserves are in the deepwater sectors of the Gulf.

That $1.5 billion bond issue had priced just below par on April 19 - the day before the Transocean Inc. drilling rig Deepwater Horizon, leased to BP and its 25% partner in the Macondo Prospect undersea well, Anadarko Petroleum, exploded, burned and sank about 40 miles off the Louisiana coast, rupturing the well it was drilling and sparking the worst-ever Gulf oil spill.

A trader meantime saw Anadarko's 5.95% notes due 2016 get as good as 94 bid, up from a 92-92½ context on Thursday and a 90-91 area level on Wednesday, "So Anadarko keeps moving up."

He noted that BP "is getting closer to plugging the darn thing" [the ruptured undersea well] and has billed its junior partner, Anadarko, for $272 million of the mounting cleanup cost - estimated at $3.12 billion and rising - which Anadarko has so far refused to pay, blaming the entire problem on BP's alleged negligence. On Friday, Anadarko reiterated that it was withholding reimbursement to BP, although the company said that it remains "committed to working with BP in good faith to achieve a satisfactory resolution."

The seemingly conciliatory words notwithstanding, the trader predicted that "it looks like a long legal fight" between the former partners.

"They want to get off scot-free, I don't know that they're going to [be able to ] do that."

A market source at another desk saw Woodlands, Tex.-based Anadarko's 7 5/8% notes due 2014 had advanced more than 2 points to above 101 bid.

Buyers boost Tronox

Tronox Worldwide - ironically, currently involved with its own, unrelated legal battle against Anadarko - has been active in the junk market over the last few sessions, and on Friday, its debt traded down in initial dealings, a trader said, but buyers soon pushed the notes back up so it ended about unchanged.

The trader saw the 9½% notes due 2012 at 78 bid, 79 offered.

"They were hammered [Thursday]," he said, referring to the 10 to 15 point drop the bonds experienced following the filing of the company's reorganization plan. "They dipped some more [Friday], but it seemed like they found a floor and buyers came in."

But another trader said the notes fell from their intra-day highs, ending around 773/4.

Under the terms of the plan filed late Wednesday, unsecured creditors holding over $470 million in claims will receive 80% to 100% recovery. Secured creditors holding just $1 million in claims will be repaid in full.

Also, the Oklahoma City-based chemical pigments company will set up trusts to deal with environmental claims, estimated to be as high as $5.2 billion. The trusts will be funded with up to $145 million in cash and other assets. And, the trusts will have the right to receive 88% of recoveries related to litigation involving Anadarko.

Anadarko purchased Kerr-McGee - Tronox's former parent - for $18 billion just a few months after it spun Tronox off in 2006.

After Tronox filed for bankruptcy protections in January 2009, the company then filed suit against both Kerr-McGee and its new owners in May of that year, claiming its erstwhile parent had overloaded the spin-off with so much environmental liabilities that it had no choice but to file for Chapter 11.

Skilled Healthcare slide subsides

A trader said "nothing happened today" in Skilled Healthcare Group Inc.'s 11% notes due 2014, which gyrated on Wednesday and Thursday in response to a negative verdict and a giant damage award in a class-action lawsuit against the California-based nursing home operator. Those bonds had traded last week around 104 bid, then were quoted on Wednesday, after the bad news - $671 million of statutory and compensatory damages to plaintiffs in the suit - at bid levels as low as 35, although there was no actual trading in the name on Wednesday. On Thursday, over $21 million of the bonds did trade in a series of round-lot transactions between a low of 66 and a high of 72, before going out around 70.

He said that on Friday, there was just one trade, around the 76 level - but he said it as a smallish trade of no more than 100 bonds (i.e. $100,000), "so that was it, very quiet"

He suggested that "actually, there was a buy and sell at that same price, so who knows- it could have been some kind of an internal cross [transaction] or something like that. It doesn't make a lot of sense."

Besides the damages already assessed, Skilled Healthcare could be socked with additional tens of millions of dollars - or even hundreds of millions of dollars - of punitive damages. That phase of the trial is expected to get under way in Humboldt County, Calif., this coming week.

Skilled Healthcare has denied charges that it violated state laws requiring minimum staffing levels, and has indicated that it could appeal the verdict. However, in order to hold off enforcement of the giant judgment during the appeals process, it may have to post a bond for 150% of the amount of the final judgment, which would be far in excess of its own market capitalization - estimated on Thursday at under $100 million - and in excess of its available liquidity, also under $100 million. With its malpractice liability insurance for the years covered by the suit already exhausted, observers question the company's ability to appeal, and analysts have raised the specter of the company possibly being forced into bankruptcy.

Appleton up on asset-sale news

Appleton Papers Inc.'s bonds were quoted higher on the news that the Wisconsin-based specialty paper manufacturer will sell a non-core division for $58 million and use the proceeds for debt pay down. An Appleton executive told Prospect News on Friday that paying the roughly $40 million outstanding on the company's revolving credit agreement is its top priority; after that, it will explore paying off smaller, higher-coupon pieces of its approximately $587 million debt load (see related article elsewhere in this issue).

A trader said that while there was "nothing new" going on in Appleton's 11¼% second-lien notes due 2015, which were last seen offered at around 84, before the news, the company's other issue, its 10½% first-lien secured notes due 2015 had moved up to 97 bid, 99 offered, "a little better" than the 941/2-96 context in which the bonds had been quoted back on July 1.

A second trader, also seeing the 101/2s at 97-99, quoted them up ½ point on the day and "probably a couple [of points] during the week."

Another trader said that while he personally had not noticed the trading, "any asset sale is going to be good for the bonds."

Short Fords cruise higher

A trader saw the short end of Ford Motor Co.'s maturity curve "definitely move up." He said the Number-Two domestic carmaker's 9 7/8% notes slated to come due next month were trading as high as 105¾ in a locked market, which he called up ¼ point or so, although he said that the movement was coming on "very light volume.

Nuveen seen better

A trader saw "a lot of trading" in Nuveen Investment's 10½% notes due 2015 around the 88½ level - "not an inordinate amount, but since there's not much of anything today, that was "one of the more active ones.

He described the 88½ level as "kind flattish [i.e. unchanged], or maybe up a little bit."

But at another shop, those bonds were quoted having pushed as high as 91½ bid near the end of trading, up nearly 3 points on the day.

Stephanie N. Rotondo contributed to this report

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.