Inaer prices euro deal to close out primary week; TXU drops on exchange amid softer market

By Paul Deckelman and Paul A. Harris

New York, July 16 - Inaer Aviation came to market on Friday with a euro-denominated offering of seven-year senior secured notes. The Spanish helicopter services provider's new issue was heard to have traded down when it was freed for aftermarket dealings.

Inear put the cap on what for mid-summer was a fairly busy week in the new-deal arena, including pricings from NXP BV, which did an upsized, secured, drive-by mega-deal; Windstream Corp., another opportunistic quickly shopped offering; Cedar Fair, LP, a restructured revival of a deal which had been shopped around earlier in the year but which then languished in forward calendar limbo; and Care UK Health & Social Care plc, a sterling offering.

In the secondary market, the announcement by Energy Futures Holdings Corp. of an offer to exchange cash and new debt for two issues of its outstanding bonds did not lift those notes; quite the contrary, they were down several points, reflecting apparent investor dismay over the terms of the former TXU Corp.'s plan.

With BP plc's new cap firmly in place on its ruptured Gulf of Mexico oil well and showing no signs of leakage while the plug undergoes tests, the British oil giant's bonds were seen better on the day, as were those of such other names identified with the disastrous accident as BP's junior partner in the ruptured well, Anadarko Petroleum Corp., the operator of the drilling rig whose fiery demise started the whole problem, Transocean Inc., and ATP Oil & Gas Corp., the innocent bystander whose bonds have fallen on the diminishing likelihood that it will be allowed by Washington to drill any deepwater wells in the Gulf anytime soon.

On the back of a sharp drop in equity prices, high-yield bonds were flat to slightly lower on Friday, according to a New York-based debt capital markets banker.

Volumes were low, as can be expected on a summer Friday, the source commented.

The banker chalked up the bad news rocking the stock market to weak earnings news from the financial sector, and warned that more of the same could be in train as the week ahead gets underway.

"The second quarter was tough for everybody," the source remarked.

Inaer prices

One deal priced in the primary market.

Madrid-based helicopter services company, Inaer Aviation priced a €470 million issue of 9½% seven-year senior secured notes (B2/B) at 98.745 to yield 9¾%.

The yield printed at the wide end of the 9½% to 9¾% price talk.

JPMorgan, Barclays Capital, BNP Paribas, KKR Capital Markets and Banco Santander were the underwriters.

Proceeds will be used to refinance debt, to fund Kohlberg Kravis Roberts & Co.'s purchase of a 49.9% stake in Inaer and for general corporate purposes.

Biggest week in nearly three months

With no dollar-denominated issues pricing on Friday, the week of July 12 closed having seen issuers raise $4 billion in six junk-rated dollar-denominated tranches.

It was the biggest week in nearly three months. The last week to top it - at more-than double the July 12 week's dollar amount of issuance - was the week of April 26, which saw nearly $9 billion in 24 tranches.

At Friday's close, year-to-date issuance stood at $125.5 billion in 296 junk-rated, dollar-denominated tranches.

Three banner executions

The July 12 week's three dollar-denominated non-emerging markets deals went particularly well, market-watchers said.

On Monday, Windstream Corp. priced a $400 million issue of 8 1/8% eight-year senior unsecured notes (Ba3/B+/BB+) at 99.248 to yield 8¼%, at the tight end of the 8 3/8% area yield talk. The reoffer price came slightly rich to discount talk of approximately 1 point.

Morgan Stanley, Deutsche Bank Securities and Goldman Sachs were the joint bookrunners for the quick-to-market deal.

On Tuesday, Netherlands-based NXP BV and NXP Funding LLC priced a massively upsized $1 billion issue of eight-year senior secured notes (Caa1/CCC+/) at par to yield 9¾%, on top of the price talk and increased from $600 million.

Credit Suisse ran the books for that quick-to-market deal.

Then on Thursday, Cedar Fair, LP priced a $405 million issue of 9 1/8% eight-year senior unsecured notes (B2/B-/) at 98.613 to yield 9 3/8%, at the tight end of the 9½% area price talk.

All three deals were significantly oversubscribed, and allocations ranged from tough to terrible, market sources said.

The window

With these notable executions coming in conjunction with $1.275 billion of inflows to high-yield mutual funds for the most recent week, as reported Thursday by Lipper-AMG, Prospect News submitted to some of its sources the thesis that the window should now be reopened to issuers seeking to refinance debt in the high-yield market at opportune rates.

What's more, there is reportedly a massive pipeline of such issuers waiting to step forward - some of them sidelined by the May-June capital markets correction, sources say.

Perhaps not just yet, one syndicate official replied Friday, upon hearing this thesis.

One reason: the markets, including those for stocks and high-yield bonds, remain volatile.

No one wants to bring a deal on a day when the stock market drops by 2% to 3%, as was the case on Friday, the source said.

Stocks, to which junk bonds are generally closely correlated, rallied throughout most of the past week, the official recounted.

That rally provided a healthy backdrop for the Windstream, NXP and Cedar Fair deals.

However, given the present volatility, it is difficult to predict when the stock market is going to be your friend, the source added.

"If we see another week like this one, with good executions and healthy inflows, I think people will perceive the window as being open," the official said.

The week ahead

On Friday the market heard deal announcements from Europe and the United States.

inVentiv Acquisition, Inc. will begin a roadshow on Wednesday for a $275 million offering of eight-year senior unsecured notes (Caa1/B-).

The roadshow wraps up on July 28.

Bank of America Merrill Lynch, Citigroup, Credit Suisse and Deutsche Bank Securities are joint bookrunners for the deal to help fund a LBO and refinancing of related debt.

From the United Kingdom, furniture firm DFS Furniture Holdings will begin a brief roadshow on Monday for its £240 million seven-year senior secured notes (B1/B) - also an LBO deal.

The roadshow wraps up on Wednesday.

Goldman Sachs, JP Morgan and Lloyds TSB are the underwriters.

Meanwhile, Interactive Data Corp., in conjunction with Igloo Merger Corp., is roadshowing a $700 million offering of eight-year senior notes (Caa1/B-), via Barclays Capital, Bank of America Merrill Lynch, Credit Suisse and UBS Investment Bank.

The roadshow for that LBO deal wraps up on Tuesday.

Finally, Calumet Specialty Products Partners, LP's $450 million offering of 10-year senior unsecured notes, which was scheduled to conclude its roadshow on Friday, is carried over into the week ahead, according to a sell-side source.

J.P. Morgan and Bank of America Merrill Lynch are the joint bookrunners for the debt refinancing.

New Inaers lose altitude

When the new Inaear 9½% senior secured notes due 2017 bonds were freed for secondary dealings, a trader quoted the issue at 97 5/8 bid, 98¼ offered.

That was down from the 98.745 level at which the euro-denominated deal had priced earlier in the session to yield 9¾%.

Other new deals higher

Among other new-deal names making it to the secondary side, a trader saw Cedar Fair's 9 1/8% notes due 2018 trading at 100¼ bid, 100¾ offered.

Another trader quoted the Sandusky, Ohio-based amusement part operator's new paper at 100¼ bid, 100½ offered.

Those were about the levels which those bonds had held late Thursday after the company priced its $405 million deal - upsized from the previously announced $300 million - at 98.613 to yield 9 3/8%.

Windstream's 8 1/8% notes due 2018 were seen by a trader at 101 bid, "give or take." That was up from the par bid, 100½ offered level at which the bonds were trading in their initial secondary market action earlier in the week, and was well up from the 98.248 level at which the Little Rock, Ark.-based telecommunications company had priced its $400 million drive-by offering on Monday to yield 8¼%. The new Windstreams "really hung in," he said.

The trader also said the new NXP 9¾% senior secured notes due 2018 "seemed to stabilize" around the 103 level, "a little off its highs."

On Tuesday, the Dutch semiconductor manufacturer had priced $1 billion of those bonds - upsized from the $600 million size announced earlier in the session - in a quickly-marketed offering at par. Those bonds came too late that session for any aftermarket action, but firmed smartly the following day, getting as good as 103¼ bid, 103¾ offered, before settling in a little lower than that peak level over the next several sessions.

The company's existing bonds - a portion of which will be taken out using the proceeds from the new deal - meantime continued to hold at the strongly higher levels to which they had moved when the new deal was announced on Tuesday, and then continued to gain marginally in subsequent sessions. Its 7 7/8% senior secured notes due 2014 continued to trade at par, well up from the 97 area the bonds held before the new-deal announcement.

Its senior secured floating-rate notes due 2013 and 9½% notes due 2015 were both still trading around the 94 level, up from levels around 88 and 871/2, respectively, at the start of the week.

Market indicators turn mixed

Among established issues having no new-deal connections, a trader saw the CDX North American HY Series 14 Index lose ¾ point on Friday to end at 96 bid, 96¼ offered, after having gained ¼ point on Thursday. The index thus eased on the week from the 96 5/8 bid, 97 1/8 offered seen at the end of the previous week on Friday, July 9.

The KDP High Yield Daily index meantime was down by 3 basis points on Friday to 71.59, after having gained 12 bps Thursday, while its yield increased by 2 bps Friday to 8.36%, on top of the 1 bp rise seen Thursday. The index thus improved from the previous Friday's closing reading of an even 71.00, with a yield of 8.52%.

The widely followed Merrill Lynch High Yield Master II index was ending the week with a year-to-date return of 6.755%, up from 5.653% the week before.

Advancing issues led decliners for a tenth consecutive session on Friday, although their advantage dwindled to just a relative handful of the roughly 1,200 issues tracked, versus the seven-to-five margin which had been seen on both Wednesday and Thursday.

Overall activity, represented by dollar-volume levels, fell by 23% on Friday, on top of the 21% slide seen Thursday.

A trader said that "the session was almost non-existent. Everyone was watching golf," as TV monitors in trading rooms had people riveted to the British Open, giving market participants a wonderful distraction and a perfect excuse for not wanting to go long anything heading into the weekend.

"The trader said on top of that, "so many people are out. I haven't seen things this light in many moons."

He said that the "true test" of how well the new issues will hang in should come on Monday, when a lot of people who took a mid-summer, post-July 4 vacation week will return.

Gulf names continue rise

Among specific names in the secondary on Friday, energy names related to the Gulf of Mexico oil-well blowout continued to rise in the wake of the good news finally coming from there - that the cap which BP plc has placed on its ruptured undersea well has continued to stop the leakage of any more oil into the water, as testing on the device continues.

BP Capital Markets plc's 3 5/8% notes due 2014 were seen up about ½ point at 94¾ bid, while its 5¼% notes due 2013 gained 1½ points to end at 991/2, both on brisk trading volume.

A trader said that "RIG [Transocean Inc.] keeps moving up like crazy," seeing the Deepwater Horizon owner's 5¼% notes due 2013 hovering around 99¼ bid, 99 7/8 offered. "Just two or three weeks ago, it was at 94," he noted.

He said that ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 "have a long way to go" to get back to the levels around par which they held prior to the news of the Deepwater Horizon disaster in the Gulf which caused the BP well to rupture on April 20 - ironically, just the day after the Houston-based energy exploration and production company priced its $1.5 billion offering of those bonds at just a shade below par. That having been said, though he noted that they have firmed to around 73½ bid, 74 offered from lower previous levels to which those bonds had tumbled on investor worry about the impact the tough federal deepwater drilling ban imposed in the wake the disaster may have on companies like ATP, which has most of its proven oil and gas reserves in deepwater sections of the Gulf.

The 7.95% bonds due 2039 of BP's 25% junior partner in the well, Anadarko Petroleum Corp., gained 2 points on the day to end at 97¾ bid.

The Woodlands, Tex.-based exploration and production company's 5.95% bonds due 2016, on the other hand, were seen little changed around the 96 level.

Natural gas drillers up after data promise

Bonds of on-shore energy operators MarkWest Energy Partners LP and Range Resources Corp. were seen up on the day, perhaps given a boost by the announcement at mid-week by Range Resources - which has partnered with MarkWest in exploring and drilling for natural gas in the Northeast's Marcellus Shale formation - that it will voluntarily disclose information about the chemical additives it uses for hydraulic fracturing, the controversial process of shooting water, chemicals and sand into underground rock formations at high pressure to free up reservoirs of natural gas down there.

The move by Range Resources - coming amid criticism of "fracking" as a potential danger to underground water supplies near the Marcellus formations in Western New York State, across Pennsylvania and on into West Virginia - was praised in some sectors of the financial press as a proactive way of getting ahead of the criticism and defending "fracking," which has been used in the on-shore oil and natural gas industry since the mid-20th century to push petroleum or natural gas deposits up from their underground pools.

Although environmentalists would disagree, Range Resources defends the practice as safe, noting that the deposits are customarily located well below underground aquifers, making leaking of chemicals into the water supply unlikely.

Range Resources' 7½% notes due 2017 gained a point on the day to stand a little over 104 bid. Marcellus partner MarkWest's 8½% notes due 2016 were up more than 2 points on the day to 106 bid.

TXU slips on exchange news

Energy Future Holdings - more commonly referred to by its former moniker, TXU Corp. - announced an exchange offer for its 11¼%/12% senior toggle notes due 2017 and its 10 7/8% senior notes due 2017.

The news, however, did not produce gains in the Dallas-based energy company's debt.

A trader said the 10 7/8% notes were "down a good couple [of points]." He saw the paper opening at 76¼ bid, 76¾ offered and by the end of business, the bonds had fallen to around 731/2.

The 11¼% notes meantime began the day around 70, he said. The issue closed out the day around 671/4.

At another desk, a trader said the 10 7/8% notes were "pretty active" following the news, but lower nonetheless. He said the notes "opened a little bit higher" around 74 bid, 75 offered. "It seems like they faded throughout the day," he added, seeing them trade down to around 72 and then close around "73-ish."

Under the terms of the swap, TXU is looking to exchange $2.7 billion of the toggle notes and $1.78 billion of the senior notes for new debt and cash. The new debt consists of $2.18 billion of 10% senior secured notes due 2020 and $500 million in cash.

For each $1,000 principal amount of notes tendered by the early deadline date, holders will receive $720 for the toggle notes or $785 for the 10 7/8% notes. If tendered after the early deadline, holders will get $670 for the toggle notes and $735 for the 10 7/8% notes.

The breakdown of new debt and cash per each $1,000 tendered will be dependent on how much is tendered by the early deadline. If all bonds are accepted by the early deadline, then holders of the toggle notes would get $134.33 in cash and $585.67 in new notes, while the 10 7/8% noteholders would receive $146.46 in cash and $638.54 in new notes.

However, no cash will be paid out to those tendering after the early deadline.

The early tender deadline is 5 p.m. ET on July 29. The offer expires midnight ET on Aug. 12.

Automotive names mixed

A trader said that Ford Motor Co.'s 7.45% bonds due 2031 gained ½ point on the session to end at 94 5/8 bid, 95 3/98 offered.

At another desk, the Ford long bonds were quoted as high as 95¼ bid, up over 1½ points.

Ford domestic arch-rival General Motors Corp.'s benchmark 8 3/8% bonds due 2033 lost ½ point to 32¼ bid, 32¾ offered.

Drivetrain components maker American Axle & Manufacturing's 7 7/8% notes due 2017 finished at 87 bid, down 1¼ points.

Stephanie N. Rotondo contributed to this report

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