Upsized Domtar, Valeant price deals, Valeant moves up; junk surge slows; Ford keeps firming

By Paul Deckelman and Paul A. Harris

New York, June 3 - Domtar Corp. and Valeant Pharmaceuticals International successfully priced upsized bond offerings Wednesday, the first a quickly-shopped deal that priced just hours after it emerged, the latter a scheduled calendar offering.

Also pricing was an upsized split-rated (Ba1/BBB-) deal from Toledo, Ohio-based insulation maker Owens Corning, which priced off the investment-grade desks but attracted some attention from players in Junkbondland.

When the new deals moved over to the aftermarket, Valeant firmed smartly, while Owens Corning was treading water.

Among the barrage of issues which came to market over the prior two sessions, Interface Inc., Compagnie Generale de Geophysique Veritas, Graphic Packaging International Inc. and Tesoro Corp. held on to the strong gains they had notched when they began trading, but NRG Energy Inc. continued to struggle.

Among the established issues, Ford Motor Co.'s bonds continued to move up, with its key issue pushing into the mid-60s - more than double where they were just two months ago - as the Number-Two domestic carmaker continued to benefit from the stark contrast investors were drawing between Ford and its bigger, but much more troubled arch-rival General Motors Corp. The latter's bonds, meantime continued to surrender some of the gains notched on Monday, when the bonds had jumped several points right after GM's bankruptcy filing.

Traders saw strong gains in PolyOne Corp.'s bonds, although most had seen no news out on the chemical maker and had no idea what was pushing them up.

The situation was exactly reversed for Elan Corp., whose bonds were seen untraded on the day - despite potentially sizable news in the form of reports that the Irish drugmaker's talks with Bristol-Myers Squibb Co. have ended with no agreement reached for the U.S. pharmaceuticals major to take a stake in Elan, which has been actively exploring strategic options. Initial news of the talks had given the Elan bonds a solid boost on Monday.

Cash bonds fell ¼ to ½ point on Wednesday, according to a high-yield syndicate source.

Domtar upsizes

Two issues of junk priced on Wednesday.

Domtar Corp. priced an upsized $400 million issue of 10¾% eight-year senior notes (Ba3/BB-) at 96.157 to yield 11½%.

The deal priced at the wide end of the 11¼% to 11½% price talk.

There were claims that the order book contained over $1 billion of orders, said a trader from a high-yield mutual fund.

This source was somewhat skeptical about that reported book size, but reasoned that since the Montreal-based uncoated paper manufacturer was using the proceeds to refinance its 7 7/8% notes due 2011 there were "new incremental bonds," so $1 billion was possible.

JP Morgan was the left bookrunner for the quick-to-market deal. Morgan Stanley & Co. Inc. was the joint bookrunner.

Valeant tight to talk

Elsewhere Valeant Pharmaceuticals International priced an upsized $365 million issue of 8 3/8% seven-year senior unsecured notes (Ba3/B+) at 96.797 to yield 9% on Wednesday.

The deal priced at the tight end of the 9% to 9¼% price talk.

Goldman Sachs & Co. was the left lead for the issue which was upsized from $300 million. UBS Investment Bank was joint bookrunner.

The Aliso Viejo, Calif., pharmaceuticals company will use the proceeds to redeem or retire debt and/or equity securities.

Owens Corning sees high-yield play

Meanwhile Owens Corning priced an upsized split-rated $350 million issue 9% 10-year notes (Ba1/BBB-) at 98.386 to yield 9 ¼%.

The deal, which was talked at a yield - 9 3/8% - -instead of a spread, attracted interest among some high-yield accounts, a market source said.

Citigroup, Banc of America Securities, Wachovia and JP Morgan led the deal, which was priced off the high-grade desk.

It did well, according to source close to the deal.

IFCO euro deal for Thursday

IFCO Systems NV plans to price €180 million of secured notes due 2016 (BB-) on Thursday via Deutsche Bank Securities.

Proceeds will be used to pay down the Amsterdam-based logistics provider's 10 3/8% guaranteed senior secured notes due 2010 and to pay down its existing revolving credit facility.

Other offerings in the market that could price during the Thursday session include Western Refining, Inc.'s $600 million offering of eight-year senior secured notes, led by Banc of America Securities, and Mariner Energy, Inc.'s $250 million offering of seven-year senior notes, led by Credit Suisse.

Penn Virginia roadshow

Penn Virginia Corp. will start a roadshow on Thursday for its $250 million offering of seven-year senior notes.

The deal will next week.

JP Morgan is the left bookrunner. Banc of America Securities LLC, Wachovia Securities LLC and Barclays Capital Inc. are joint bookrunners.

The Radnor, Pa.-based oil and gas company will use the proceeds for general corporate purposes which may include, among other things, additions to working capital, repayment or refinancing of existing debt or other corporate obligations, financing of capital expenditures and acquisitions, and investment in existing and future projects.

Valeant very strong, Domtar unseen

Earlier in the session, after Valeant came to market with its upsized $365 million issue of 8 3/8% notes due 2016, a trader initially saw those bonds trading on the break about a point above their 96.797 issue price.

Later, a trader saw them having moved up to 99 bid, 99½ offered, while another pegged the bonds going out at 99 bid, par offered.

Montreal-based paper manufacturer Domtar's upsized $400 million offering of 10¾% notes due 2017 came to market too late in the day for any meaningful trading activity. The bonds had priced at 96.157 to yield 11½%.

Tuesday issues trade higher

Among some of the new issues that came to market on Tuesday, French oilfield seismic services provider CGG Veritas' 9½% notes due 2016 were turning in a rock-solid performance in the secondary sphere, trading at 99 bid, 99½ offered.

That $350 million offering, upsized from $300 million originally, had priced at 96.952 to yield 10 1/8%.

A trader said that CGG's aftermarket performance benefitted from the name's novelty; the credit, he said, "is kind of a different animal - it's not one of those same names that keep coming and pounding us."

Another secondary star was Graphic Packaging's 9½% notes due 2017, which had priced late in Tuesday's session at 97.292 to yield 10%. A trader saw the Marietta, Ga.-based packaging producer's new bonds having powered their way up to 99 bid, 99½ offered.

That was also the level at which he saw Tesoro Corp.'s new 9¾% notes due 2019 - well up from the 96.172 level at which the San Antonio, Tex.-based petroleum refining and marketing company had priced its $300 million deal to yield 10 3/8%.

A lackluster United Rentals

Not all of the Tuesday issues were going up, though.

A trader saw United Rentals North America Inc.'s 10 7/8% notes due 2016 at 97 bid, 98 offered - little changed from the 97.04 mark at which the Greenwich, Conn.-based industrial equipment rental company had priced its $500 million offering, upsized from $300 million, on Tuesday to yield 11½%

A second trader saw the bonds at 97 bid, 97½ offered.

NRG lacking energy

And traders said that NRG Energy's 8½% notes due 2019 "pushed lower at the start and continued to trade below issue," going home at 96½ bid, 97 offered - well down from the 98.348 level at which the Princeton, N.J.-based wholesale power producer had priced its $700 million of bonds on Tuesday to yield 8¾%.

He said that the NRG bonds hit a low during the session of 96¼ bid, 96¾ offered; then it "bounced up a little, but was pretty much hanging around that 961/2-97 neighborhood."

A second trader saw the bonds going out at 97 bid, 97½ offered, up from their lows, but still well under their issue price.

Keen interest in Interface

Perhaps the brightest secondary star among this week's new deals has been Interface Inc., which priced $150 million of 11 3/8% secured notes due 2013 on Monday at 96.301, to yield 12½%.

A trader saw the Atlanta-based floor-covering company's new issue on Wednesday doing "very well," quoting the bonds as having pushed way up to 102¼ bid, 103 offered.

He said that Interface "is one of those names where there are not many bonds around. It's a kind of a different name that people are not over-allocated in and it's not really over-levered, so it's something unique," contributing to its 6 point gain.

Recent issues seen struggling

Apart from this week's issues, a trader said that "a lot of the recent issues are still having a hard time getting out of their own way."

A case in point, he said was Calpine Corp.'s recent $1 billion issue of 8% notes due 2016. The San Jose, Calif.-based independent power producer - which came to market with mega-deal, upsized from its original $800 million, on May 12 - priced those bonds at 95.488 to yield 8 7/8%. However, he said, while the new issue at one point got as high as 95½ bid, 96 offered in aftermarket dealings, it mostly struggled after that. "It briefly traded over its issue price in the past week and a half, but traded down to 95 earlier today."

The Calpine deal "had a brief moment in time, maybe about half a day that it was above issue price, but it [mostly] continues to hang out below issue price."

Another underachiever, he said, was Host Hotels & Resorts LP's $400 million offering of 9% notes due 2017. The Bethesda, Md.-based lodging industry real estate investment trust priced those bonds, upsized from their initial $350 million, back on May 5 at 96.599 to yield 9 5/8%, but he saw them recently "freely offered at 95. It hasn't really seen the light of day since it came."

Ditto, he said, for Host sector peer Starwood Hotels & Resorts Worldwide Inc.'s 7 7/8% notes due 2014. The White Plains, N.Y.-based international lodging operator priced $500 million of those bonds on April 30 at 96.285, to yield 8¾%, but then traded in a 95-95½ context, "and again, it hasn't seen the light of day since it came."

Likewise, Harrah's Operating Co. Inc.'s 11¼% notes due 2017 continue to trade around 96 bid, 96½ offered, straddling the 96.225 issue price at which the Las Vegas-based gaming operator's $1.375 billion behemoth - upsized from $1 billion originally - came to market on May 27 - failing to move up despite its secured-paper status and its 12% yield at the pricing.

Primary parade: no signs of stopping

Overall, the trader said, the "last week to week and a half" has been dominated by new issuance, "and there doesn't seem to be any end in sight. "

He noted the old market adage of "'sell 'em when you want to, not when you have to,' and the window is open here, so people will get as many new deals as they can done."

It was not so very long ago, in last year's third quarter, he noted that the new issue market "came to a standstill."

Even though that freeze has long since been broken, "that fear [that the market could close back up] is still there, and it's pushing [issuers] to get [deals] done. With the exception of a few deals," the new issues, he said, "have done decently, so I think that will keep things chugging along.

"The pipeline is so deep with people that want to come [to market] and can come, and the fundamentals say they can still get these deals done. I think we'll continue to see it happening."

Market indicators seen mixed

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which rose by a point on Tuesday - surrendering that gain on Wednesday, as it moved down a point to 83¾ bid, 84¼ offered.

The KDP High Yield Daily Index, which had shot up by 58 basis points on Tuesday, edged downward by 4 bps to close Wednesday at 62.61, while its yield was unchanged at 10.53%.

Advancing issues - which led decliners for an 11th consecutive session on Tuesday, kept their winning streak going Wednesday, leading by a nearly seven-to-five margin.

Overall market activity, measured by dollar-volume totals, rose about 2.5% versus Tuesday's levels.

A trader said that the junk market "had a firmer tone at the start, and then kind of backed off a bit.

"I think we've come so far, and the flood of new issues has put things at a standstill, plus equities being down put a little hindrance on our being able to continue to move higher."

The bellwether Dow Jones Industrial Average lost 65.63 points, or 0.75%, to end at 8,675.24, on worse than expected economic data on the service industry and factory orders. That was mirrored in the broader indexes, with the Standard & Poor's 500 down 1.37% and the Nasdaq composite losing 0.59%.

He said that most of the high yield market's focus "has been on recent issues," putting the more established issues on the back burner. Accounts, he said, are also keenly awaiting Friday's non-farm payrolls and unemployment numbers for May, hoping for further clues about which way the economy is heading.

Noting Wednesday's slight cooling down of the junk market's torrid new-deal pace seen on Tuesday and the strong secondary gains which have been notched over the previous several sessions, including days when the CDX was up by as much as a point or two on the day, another trader opined that "up until today," the junk market "has been a feeding frenzy. You almost have to sit back and laugh at what short memories these portfolio managers have."

Just three or four months ago, he argued, "they were singing and crying the blues - and now, at least up until today, everyone was just lifting every offering in sight." He termed Tuesday's unusually strong and vibrant market "really bizarre," with people "lifting offering left and right."

The market has recently seen "an incredible number of new issues, all being soaked up."

On Wednesday, he said, "things definitely slowed up today, with equities getting hit. I would not necessarily call our market down - but it definitely froze from [Tuesday's] run."

Ford firmer, again GM not

Ford Motor Co.'s paper continued to benefit from the market's perception that, as a trader put it, "it's not GM," Ford being the only one of the traditional Detroit "Big Three" not needing a federal government bailout and now, the only one of that trio not in bankruptcy.

A trader put its benchmark 7.45% bonds due 2031 at 65 bid, up from 63¾ on Monday, though only on $2 million traded.

At another shop, a trader saw the Ford long bonds up 3 points at 64 bid, 66 offered. Just two months ago, at the beginning of April, those bonds had been trading at, or even below, 30.

Ford's already relatively strong bonds got a further boost this week with the release of favorable May sales figures. During that month, the Dearborn, Mich.-based automaker reported total sales of 161,531, down 24.2% from 213,238 in the same period last year.

But Ford, Lincoln and Mercury sales totaled 155,954, up 20% versus April and the highest sales for any month since July 2008.

A trader meantime saw GM's 8 3/8% benchmark bonds due 2033 ease to 12¼ bid from 13 5/8 on Tuesday, with $15 million traded. He said that GM's issues were "all easier" across the board, continuing to back off from the peak levels north of 14 that the bonds had reached after Monday's Chapter 11 filing.

He saw GM's 8¼% notes due 2023 fall to 11½ bid from 12½ earlier, on $10 million, while its 7.20% notes due 2011 dropped to 11¾ bid from 13 on Tuesday, on $9 million of turnover.

A second trader pegged the GM long bonds at 11½ bid, 12½ offered, down a point.

Yet another saw all of the GM's, including the 8 3/8s and its 7 1/8% notes due 2013, generically trading at 11 bid, 12½ offered.

While GM struggled, one of the traders saw GMAC LLC "stronger daily," with its 6 7/8% notes due 2012 up a point at 84 bid, 86 offered, while its 8% bonds due 2031 were ½ point better at 73 bid, 75 offered.

Why did PolyOne pop?

Outside of the autosphere, traders were at a loss to figure out what was pushing the bonds of PolyOne Corp. up on Wednesday. Several of them saw its 8 7/8% notes due 2012 get as good as 80 bid, up at least 10 points from where they had gone home on Monday, and up nearly 13 points from prior round-lot trading levels in the upper 60s, at the end of last week. Activity was brisk, with several big-block trades at the sharply higher levels noted.

A trader saw "good volume" in the transactions, although he could offer no color on the story behind the rise.

"Poly was up a bunch - but I don't know why," a second declared.

The participants saw no obvious developments that might explain such a rise in the Avon Lake, Ohio-based chemical manufacturer's paper - although one did point out that PolyOne was among four companies selected by the Eastman Chemical Co. to distribute Eastman's patented Tritan copolyester in the United States and Canada. There was no immediate indication of how much money PolyOne might earn as a distributor of Tritan, which is used in such diverse manufacturing areas as the reusable sports water bottle, infant care, small appliance, housewares, medical and sign markets.

Elan unmoved despite Bristol breakdown

A trader saw absolutely no dealings in Elan Corp.'s bonds, despite news reports that negotiations with Bristol-Myers Squibb aimed at having the latter company take a stake in Elan had broken off in failure.

On Monday, a Wall Street Journal report that the two pharmaceutical companies were talking about such an arrangement - and speculation that such an investment could lead to an outright acquisition of Elan by the much larger Bristol-Myers somewhere down the road - had given Elan's bonds a solid boost of anywhere from 3 to 5 points.

Those bonds were seen still at those levels on Wednesday - 95 for its 7¾% notes due 2011 and 91.5 for its

8 7/8% notes due 2013 - even as Reuters was reporting that strategic discussions which the two companies had been having actually broke down in the early stages last month, apparently faltering on the rocks of price and Elan's drug partnerships with Bristol's competitors. Dublin-based Elan is co-marketing the multiple sclerosis drug Tysabri with Biogen Idec, and is co-developing the experimental Alzheimer's drug Bapineuzumab with Wyeth.

Further complicating the situation, UBS AG, in a research report earlier this week, said that Bristol-Myers was not in talks to buy any kind of a stake in Elan, asserting that the U.S. company had confirmed as much to them.

Elan, which is looking for funding for its drug development and which also faces some $1.1 billion of debt coming due in 2011 -- $850 million of the 73/4s and another $300 million of senior floating-rate notes - in January hired Citigroup Global Markets Inc. to consider a merger, sale or strategic alliance as possible options for the company.

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