Upsized Aircastle drives by, rises; Alere slates; J.C. Penney finds a floor as overall market firms

By Paul Deckelman and Paul A. Harris

New York, Nov. 27 - The high-yield primary market saw its first pricing of a purely junk-rated, dollar-denominated issue for the week on Tuesday, as aircraft-leasing company Aircastle Ltd. unexpectedly swooped in for a landing with an upsized $500 million of seven-year notes. Those bonds were seen to have gained some altitude when they hit the aftermarket.

Syndicate sources also saw a $2.25 billion split-rated (/BB+/BBB-) issue of 10-year subordinated notes from Royal Bank of Scotland Group plc price, although that was expected to be mostly of interest to high-grade and crossover accounts rather than pure junk bonders.

French carmaker Renault SA also drove by with a euro-denominated add-on to an existing bond issue, following the new deal on Monday from one of its European automotive rivals, Italy's Fiat SpA.

Back among the purely domestic junk issues, health care company Alere Inc. was heard by the syndicate sources to be shopping around a $450 million 5.5-year deal, with pricing expected Wednesday. Telecom infrastructure services provider Dycom Industries, Inc. was also expected to do a deal Wednesday, a small add-on to an existing issue.

More definitive information on timing emerged about the $550 million 8.5-year deal that environmental services concern Clean Harbors, Inc. announced on Monday.

And some price guidance was out on Canadian oilfield services provider Tuscany International Drilling Inc.'s $200 million offering.

However, Rex Energy Corp. postponed a planned $250 million transaction.

Away from the new deals, traders saw a generally firm market. Cellphone maker Nokia Corp.'s bonds were up several points, and a trader said that retailer J.C. Penney Co. Inc.'s recently volatile bonds "have found a floor."

Statistical measures of market performance were mixed on the day as the cash indexes showing strength, but derivatives were weaker.

Aircastle upsizes drive-by

News volume intensified in the primary market on Tuesday.

Aircastle completed the session's sole dollar-denominated deal, an upsized $500 million issue of non-callable seven-year senior notes (Ba3/BB+), which came at par to yield 6¼%.

The yield printed on top of yield talk, which had tightened from earlier talk of 6¼% to 6½%.

Just after the close, the bonds were 101¼ bid, according to an investor who had not taken part.

J.P. Morgan, Citigroup, Goldman Sachs and RBC were the joint bookrunners for the quick-to-market deal, which was upsized from $400 million.

Proceeds will be used for general corporate purposes, including the purchase of aviation assets. Proceeds from the $100 million upsizing will be used to put cash on the balance sheet and for general corporate purposes.

Renault taps 2017 notes

Following Fiat by one day, Renault priced a €250 million add-on to its 4 5/8% fixed-rate notes due Sept. 18, 2017 (Ba1/BB+) at 99.145 to yield 4.825% on Tuesday, according to a market source.

The yield printed in line with the 4 7/8% yield guidance.

Credit Agricole, HSBC and UniCredit managed the drive-by.

The original €600 million priced at 99.891 to yield 4.65% in mid-September of this year.

Tuscany sets talk

Back in North America, Tuscany International Drilling talked its $200 million offering of senior notes due 2019 (/B/B+) with a yield in the low 10% area.

The roadshow was scheduled to wrap up on Tuesday.

Credit Suisse and Scotia Capital are the joint bookrunners.

Alere to price Wednesday

Alere plans to price a $450 million issue of senior notes due July 1, 2018 on Wednesday.

The company held an investor call on Tuesday.

Jefferies, Goldman Sachs and Credit Suisse are the joint bookrunners for the debt refincing and general corporate purposes deal.

Dycom plans add-on

Dycom Industries plans to host an investor call at 10 a.m. ET on Wednesday to discuss a proposed $90 million add-on to its 7 1/8% senior subordinated notes due Jan. 15, 2021.

The deal is expected to price on Wednesday afternoon.

Goldman Sachs and Merrill Lynch are the joint bookrunners.

Proceeds will be used to repay a portion of the bank debt which, together with cash on hand, will be used to fund the purchase price for the acquisition of substantially all of Quanta Services, Inc.'s domestic telecommunications infrastructure services subsidiaries.

Clean Harbors kicks off deal

Clean Harbors kicked off a $550 million offering of 8.5-year senior notes (/BB+/), which are expected to price mid-to-late in the present week.

Goldman Sachs and Merrill Lynch are the joint bookrunners.

In addition to the notes, the Norwell, Mass. environmental, energy and industrial services provider is offering 6 million shares of Clean Harbors common stock.

Proceeds from both the bonds and the stock will be used to finance a portion of the purchase price for the company's previously announced proposed acquisition of Safety-Kleen, Inc. and its subsidiaries.

Rex Energy postpones

Rex Energy became the eighth prospective November issuer to withdraw from the market.

Rex postponed its $250 million offering of eight-year senior notes due to market conditions.

The company joined Singapore's Global A&T Electronics Ltd., Bombardier Inc., Sealed Air Corp., Epicor Software and BlueScope Steel Ltd., all of which pulled one or more tranches since the beginning of the month.

Some or all of those deals could come back, given the fact that cash is moving back into the market, an investor said on Tuesday.

This buyside source, who manages a high-yield mutual fund, saw the year's biggest outflow on Monday, Nov. 19.

However, since then, flows up to and including Tuesday's have been positive, the buysider said.

Investors who may have been hoarding cash temporarily because of election results or misgivings about the United States government's ability to steer away from the "fiscal cliff" are back, the investor said.

The dealers know it, the source added.

Pre-Thanksgiving expectations notwithstanding, look for new deal flow to start ramping up during the waning days of 2012, the investor advised.

Aircastle takes off

When Aircastle's upsized $500 million of new 6¼% notes due 2019 freed for aftermarket dealings, a trader saw the Stamford, Conn.-based commercial aircraft leasing company's deal in a 101-to-101¾ bid context.

That was well up from the par level at which that quickly shopped deal had been priced, after having been upsized from the originally announced $400 million.

A second trader, however, saw the new bonds in a somewhat tighter 1003/4-to-101¼ range.

Accounts scrutinize deals

A trader noted that with a deal like Aircastle's, "maybe a couple of weeks ago, you'd talk to a bunch of people and half of them would be on the deal. Today, it's very few."

He theorized that "people kind of [may be thinking] that instead of investing whatever cash they're sitting on in new issues, they'll say, 'We'll just stay liquid until the end of the year, for redemptions.' "

He said that's been especially true with the end of the year fast approaching, "and you have Mr. and Mrs. Retail Investor deciding how this fiscal cliff is going to impact them for 2013," referring to market concerns over whether Congress and the Obama administration can reach any sort of agreement on heading off a looming laundry list of tax hikes and draconian automatic budget cuts that will take effect on Jan. 1.

A penthouse peak?

Another possible explanation for the recent lack of investor activity in Junkbondland, he suggested, is that "maybe the consensus of thought is that the elevator that's been going straight up has reached the top floor - and can go no higher."

For instance, the widely followed Merrill Lynch High Yield Master II Index is currently showing a year-to-date return of slightly above 13%, which is more than double last year's peak level of 6.3% and well above the standard generic prediction many market participants made at this time last year that investors would likely earn their coupon and perhaps a point or so above that, but probably not much more than that.

Having notched better-than-expected gains, this could lead some players to simply want to take their money off the table now and pocket those gains, rather than risk making a mistake and blowing them in the final month of the year.

Returning to his original metaphor, he opined, "This elevator that everyone's been riding the past four years may have hit the top floor. I'm not saying it's going to return to the ground level, but there are no more floors for it to go up to.

"When you're at the penthouse, you can't go any higher."

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