Issuance moderates as Beazer, Plastipak, SNF price; Caesars slips, Penney paper pounded

By Paul Deckelman and Paul A. Harris

New York, Sept. 25 - The high-yield primary market stepped back and caught its breath on Wednesday, as new issuance lessened markedly from Tuesday's more than $6 billion session, which was mostly driven by a giant-sized General Motors Co. deal and another big transaction from ADT Corp.

Wednesday saw no such megadeals come clattering down the chute. Instead, there was a trio of relatively smallish deals, including builder Beazer Homes USA, Inc.'s $200 million of eight-year notes, which priced at a discount to par but which firmed a little in the aftermarket.

Syndicate sources also said that packaging products manufacturer Plastipak Holdings Inc. priced an upsized $375 million offering of eight-year notes, which moved up solidly when it was freed to trade.

And French specialty chemicals manufacturer SNF Floerger mixed up a $250 million issue of 8.25-year notes.

Traders meantime reported that the new GM bonds, and the ADTs, were around the same levels at which they had finished on Tuesday after their pricing.

For a second consecutive session, Caesars Entertainment Corp.'s existing bonds were on the slide, getting hammered down in active trading even as the giant gaming company met with prospective investors and outlined its plans to raise capital through the issuance of new debt and equity. Caesars was one of the most heavily traded names in Junkbondland on Wednesday.

The traders also saw a sharp downside move in J.C. Penney Co., Inc.'s bonds - although on considerably less volume than the Caesars paper generated. The troubled department store operator's bonds and its shares dropped after a Goldman Sachs analyst warned that it faces a liquidity crunch unless it manages to raise new capital.

Overall, statistical indicators of junk-market performance were lower across the board for the second time in three sessions, after having turned mixed on Tuesday.

Plastipak upsizes

Three issuers brought single-tranche deals on Wednesday, raising a combined total of $822 million.

Plastipak Holdings priced an upsized $375 million issue of eight-year senior notes (Caa1/B) at par to yield 6½%.

The deal was increased from $300 million.

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

J.P. Morgan, Wells Fargo, RBS, BofA Merrill Lynch and Goldman Sachs were the joint bookrunners for the debt refinancing and general corporate purposes deal.

SNF Floerger at tight end

France-based SNF Floerger priced a $250 million issue of senior notes due Jan. 15, 2022 (Ba3/BB+) at par to yield 6%, at the tight end of the 6% to 6¼% yield talk.

BofA Merrill Lynch was the left bookrunner. BNP Paribas was the joint bookrunner.

Proceeds will be used to repay revolver debt and for general corporate purposes.

Apart from the SNF Floerger deal, it was a relatively quiet session in Europe.

France's Oberthur Technologies is expected to bring about €200 million of seven-year notes to the market during the week ahead, market sources say.

Goldman Sachs will be the lead for the debt refinancing deal.

Beazer Homes prices

Beazer Homes priced a $200 million issue of 7½% eight-year senior notes (Caa2/CCC) at 98.541 to yield 7¾%.

The coupon came on top of coupon talk. The yield printed at the wide end of the 7 5/8% to 7¾% yield talk. The reoffer price came in line with price talk which specified that the deal would price at a discount.

Credit Suisse was the bookrunner.

The Atlanta-based homebuilder plans to use the proceeds for general corporate purposes including potential land acquisitions.

As reported, the Beazer Homes deal had been expected to price on Sept. 16, but was sidelined for more than a week. Previous to Wednesday's revival, the offering had been in the market via a syndicate of banks led by Goldman Sachs & Co., and which included Deutsche Bank Securities Inc., UBS Investment Bank and Credit Suisse.

Yield talk on the original deal was set in the 7¼% area, according to a market source.

Stackpole brings secured notes

The wraps came off a single new roadshow deal, on Wednesday.

Stackpole International began marketing a $360 million offering of eight-year senior secured notes which is set to price early in the week ahead.

Morgan Stanley, Nomura, RBC and UBS are the joint bookrunners for the acquisition financing and debt repayment deal.

Plastipak pops in secondary

In the secondary market, a trader said that Plastipak Holdings' 6½% notes due 2021 were finishing in a 101 to 101¼ bid context.

He said that after the notes priced at par, "basically, I saw a 101 bid," followed by a little motion around that data point, "then after that, nothing's happened."

A second trader quoted the Plymouth, Mich.-based plastic packaging products maker's upsized deal as having firmed slightly to 100½ bid, 101 offered, up from their issue price

Beazer firms after discount

A trader said that Beazer Homes' 7½% notes due 2021 had moved up to 99 bid, 99½ offered, versus their 98.541 pricing level.

However, a second trader said he had not seen any of the builder's new notes in the aftermarket, noting the relatively smallish size of the $200 million transaction.

GM, ADT seen little changed

Among the deals that priced on Tuesday, a market source said that he saw some activity in the giant-sized three-part offering from automotive behemoth General Motors, though he quickly added that there was "not a ton" of action going on.

He said that GM's 3½% notes due 2018 were in a par to 100¼ bid range, while its 4 7/8% notes due 2023 were "hugging 99," quoting them trading between 98¾ and 991/4. He did not see any dealings in the new 6¼% bonds due 2043.

A second trader pegged the five-year bonds at par bid, 100¼ offered, down 1/8 point on the day, with the 10-years unchanged at the same 99 bid, 99¼ level to which they had fallen late Tuesday. He saw the 30-year paper down 3/8 points on the day at 100 5/8 bid, 101 1/8 offered, versus Tuesday's aftermarket highs around 101 bid.

Detroit-based GM had priced each $1.5 billion tranche of those five-, 10- and 30-year bonds at par on Tuesday.

One of the traders meantime saw ADT's 6¼% notes due 2021 at 101 5/8 bid, 101 7/8 offered, up 3/8 point on the day from the levels to which the Boca Raton, Fla.-based security alarm company's $1 billion offering had risen late Tuesday after pricing at par.

A second trader saw the bonds at 101½ bid, 101¾ offered.

The new notes firmed over the two sessions despite some qualms in the analyst community over the way ADT has consistently been raising its leverage targets and using proceeds from its last several bond issues to funnel cash back to its shareholders.

Senior analyst Carol Levinson of the Gimme Credit independent research service warned in a note that the security industry is a very capital-intensive business - and after the required capex costs, "if ADT is to continue to grow and invest in its business, it must borrow more if it also wants to return cash to shareholders. Hence the inevitability of higher leverage targets and the likelihood that leverage will continue to increase."

Levinson gave the company an "underperform" rating.

Caesars slides in busy trading

For a second consecutive session, traders saw the bonds of Caesars Entertainment lower in active trading, investors apparently dismayed by the Las Vegas-based casino giant's plans to sell $1.85 billion of new secured notes - which would rank higher in the capital structure than the existing bonds.

One saw its 10% notes due 2018 down 2¼ points at 53 ¾ bid, with over $40 million of the paper having traded.

He saw its 8½% notes due 2020 down 1½ points at 94 bid, while its 9% notes due 2020 were down a deuce at 95 5/8 bid.

"They got hit pretty much across the board," he declared. "It will be interesting to see if the new deal is priced cheap enough that it trades up with everything," making the analogy to the giant-sized Verizon Communications deal that hit the capital markets two weeks ago.

A second trader queried later saw over $55 million of the bonds having traded by the close, but said that the '18s were only down around a point on the day at 55 bid.

As previously reported, Caesars is looking to refinance about $4.4 billion of CMBS debt and the $450 million senior secured credit facility entered into by Octavius Linq Holding Co. LLC, an indirect subsidiary. As such, the company is looking to sell $1.85 billion of senior secured notes.

The deal includes a $500 million tranche of seven-year first-lien notes (B2/B) and a $1.35 billion tranche of eight-year second-lien notes (Caa2/CCC+). Both tranches come with three years of call protection.

In addition to its investor lunch, Caesars announced Wednesday that it was selling 10 million shares of common stock.

Penney is punished

JCPenney's bonds dropped 3 to 4 points on Wednesday on the heels of an analyst report that stated the Plano, Texas-based retailer would soon run out of cash.

"The bonds were trading off a bit," one trader said, though he noted that they were "not all that active."

Both the 6 7/8% notes due 2015 and the 6 3/8% notes due 2036 were off over 3½ points, he said, at 91 1/8 and 671/4, respectively. The 7.95% notes due 2017 dropped over 3 points to 86 and the 5.65% notes due 2020 declined by 4½ points to 733/4.

Another market source pegged the 5.65% notes at 73½ bid, also calling that down 4½ points.

The company's stock meantime hit a 13-year low as Goldman Sachs analyst Kristen McDuffy said in a note to clients that the company will likely have to raise new capital in the near future.

The company's New York Stock Exchange-traded shares nosedived $1.78, or 14.96%, to $10.12, on volume of over 100 million, about five times the norm.

"Weak fundamentals, inventory rebuilding, and an underperforming home department will likely challenge J.C. Penney's liquidity levels in the third quarter," McDuffy wrote in the note. "In order to safeguard against a potentially poor fourth-quarter holiday season, it is likely that management will look to build a bigger liquidity buffer."

Analysts at UBS are forecasting that the company needs about $1.1 billion and that it will therefore need to raise at least $1 billion.

Last week, Bloomberg reported that the company was in fact looking at its financing options. It is reportedly working with Goldman - not only the source of the scathing report, but also where the company inked a $2.25 billion loan earlier this year.

It is also being speculated that back-to-school sales were less than stellar, fueling concerns that a bankruptcy filing could be on the horizon.

Market indicators are weaker

Statistical junk-market performance indicators turned lower across the board on Wednesday, the second downturn all around in three days, after having managed to turn mixed on Tuesday.

The Markit Series 20 CDX North American High Yield Index lost 3/16 point to close at 106 bid, 106 1/16 offered. On Tuesday, it had edged up by 1/32 point.

The KDP High Yield Daily index moved lower for a third straight session, as it lost 16 basis points to finish at 73.68. On Tuesday, the index had slid by 15 bps.

Its yield rose by 2 bps on Wednesday to go out at 6.06%, its third consecutive rise. It had widened by 5 bps on both Monday and again on Tuesday.

And the widely followed Merrill Lynch High Yield Master II Index suffered its third loss in a row, retreating by 0.07%. That was on top of Tuesday's 0.014% setback.

Wednesday's loss dropped its year-to-date return to 4.068% from 4.141% on Tuesday and down from its recent peak level of 4.231%, recorded on Friday.

Stephanie N. Rotondo contributed to this review

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