TreeHouse prices, pops, Reddy Ice readies issue; Rite Aid up again as market rebound goes on

By Paul Deckelman and Paul A. Harris

New York, Feb. 19 - What a difference a week makes.

The high yield universe - which had barely staggered across the finish line last Friday, Feb. 12, reeling from the biggest mutual-fund outflow seen in five years, a slew of postponed primary deals and a secondary market retreat which saw a previously strong market performance measure slide into the red and finish out the week that way for the first time this year - pulled up its socks, dusted itself off and finished out the latest week Friday in quite a bit better shape.

The new-deal market - which had started the week on a somber note with confirmation of market scuttlebutt that Bombardier Inc.'s two-part mega-deal offering had been postponed, a victim of the market conditions which also forced Chaparral Energy Inc. to also shelve its $400 million two-parter - priced its first new issue in more than a week, as TreeHouse Foods Inc. successfully came in with a $400 million offering of eight-year notes. The Westchester, Ill.-based private-label food production company not only did not have to price its deal at a discount to get it done in the suddenly chilly atmosphere for new paper, but that deal was seen by traders to have jumped several points from its par pricing level when it broke into the secondary.

And speaking of chilly things, Reddy Ice Holdings Inc. - the biggest manufacturer and distributor of packaged ice in the U.S. - announced plans to raise $300 million in cold cash for use in refinancing credit facility debt, via an offering of secured notes.

In the secondary market, apart from TreeHouse Foods' spectacular break, trader saw yet another session of a pretty firm tone, as evidenced by statistical measures like market performance indexes, investors apparently not letting Thursday's news of another nearly $1 billion cash loss by the junk bond mutual funds faze them very much.

Among the issues seen better, Rite Aid Corp.'s bonds remained strong, with the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator's paper continuing to bask in the warm afterglow of this week's news of a coming buyout of sector peer Duane Reade, Inc. - an event which some market observers feel has put Rite Aid itself into play as a possible acquisition target for larger pharmacy operators or other retailers.

Treehouse at tight end

The Friday primary market session saw terms emerge on the week's only deal.

Treehouse Foods priced a $400 million issue of eight-year senior notes (Ba2/BB-) at par to yield 7¾%.

The yield printed at the tight end of the 7 7/8% area price talk.

Bank of America Merrill Lynch and Wells Fargo Securities were joint bookrunners.

Proceeds, along with expected new bank debt and a stock offering, will be used to fund a portion of the acquisition of Sturm Foods.

The par-pricing TreeHouse 7¾% notes were trading in a context of 103 bid late Friday, according to a high-yield mutual fund manager.

Somewhat busier ahead

At Friday's close only one deal was positioned on the active forward calendar.

RDS Ultra-Deepwater, Ltd. is in the market with a $260 million offering of seven-year senior secured notes via Jefferies & Co. The roadshow for that deal ends early in the week ahead.

Meanwhile, Reddy Ice Holdings, Inc. plans to issue $300 million of first-lien senior secured notes (B1), according to a Friday press release.

JP Morgan will lead the deal, in a syndicate of banks that will also include Bank of America Merrill Lynch, according to a market source.

Proceeds will be used to refinance the company's existing credit facility.

Reddy Ice is expected to hit the new issue market during the week ahead, or early in March, according to the market source.

Meanwhile, the combined $1.9 billion of outflows sustained by the high-yield mutual funds over the past two weeks, according to AMG Data Services - the biggest back-to-back weekly outflows that the market has seen since March 2005 - certainly got everyone's attention, and succeeded in creating negative sentiment, a syndicate banker said on Friday.

However, those numbers are backward-looking, the banker asserted.

The high-yield market has been up ½ to 1 point each of the past four days, the source said.

The primary market, which saw only one deal price during the holiday-shortened four-day week that ended on Friday, will almost certainly be busier in the week ahead, the banker said.

TreeHouse trades terrifically

When the new TreeHouse Foods 7¾% notes due 2018 were freed for dealings in the secondary market, a trader saw the $400 million issue at 102¾ bid, 103¾ offered, agreeing that it was "quite a break."

A trader at another shop was quoting the new bonds going home in a tighter 103-103¼ context, trading around there "a bunch of times."

The bonds had priced earlier in the session at par.

Appleton apparently better

In other recently priced deals, a trader said that Appleton Papers Inc.'s 10½% secured notes due 2015 "have been rallying the last couple of days," although he didn't see any actual trading Friday.

The Appleton, Wis.-based manufacturer of coated paper had priced $305 million of the notes at 98.035 on Jan. 29 to yield 11%, but they lost ground in the aftermarket from the get-go, ultimately quoted by traders as having touched down to lows around 89-90 at the beginning of the week. Since then, though, the papermaker's paper has turned upward, and the trader heard them quoted Friday around 94 bid.

A second trader saw the Appletons "feeling better" on Friday, trading in a 93-94 context.

GMAC posts gains

A trader said that GMAC Financial Services' 8.30% notes due 2015 were being quoted in a 101-101½ range, which "seems higher to me than what they were at the beginning of the week."

The Detroit-based company, which does automotive financing - and through its Residential Capital LLC unit, mortgage lending as well - priced $2 billion of the bonds on Feb. 9 at 99.19 to yield 8½%.

McJunkin moves up

Also among the recently priced issues, a trader was seeing McJunkin Red Man Corp.'s 9½% notes senior secured notes due 2016 at 100¼ bid, 101 offered, although he said there was "nothing exciting" going on in the issue.

The Tulsa, Okla.-based manufacturer of industrial piping and valves priced $1 billion of the bonds on Dec. 16 at 97.533 to yield 10%. It also priced a $50 million add-on Feb. 8 at 97.544, to also yield 10%.

Market indicators maintain momentum

Among bonds not connected with the new-deal market, a trader saw the CDX Series 13 index up ¼ point on Friday to end at 97 3/8 bid, 97 5/8 offered, after having gained a full point in Thursday's dealings. The index thus ends the week well above the 94¾ bid, 95¼ offered level to which it had slid by the close of trading on the previous Friday, Feb. 12.

The KDP High Yield Daily Index meanwhile rose by 30 basis points on Friday to finish at 70.45, adding to the gains of 20 bps and 65 bps seen respectively on Thursday and Wednesday. Its yield tightened by 10 bps Friday to 8.38%, after having come in by some 8 bps on Thursday. The index thus finishes the week improved from the 69.27 close seen the previous Friday, while its yield has come in from 8.76% a week ago.

Another widely followed junk market measure, the Merrill Lynch High Yield Master II index, closed on Friday showing a year-to-date gain of 1.137% - a solid rebound from the 0.357% loss which it had shown at the close the previous Friday, the first time this year that the index had finished a trading week in the red. While the 1.499% gain on the week to get back in the black was impressive, the index's return still remains well below its 2010 peak level of 2.292% seen at the close on Thursday, Jan. 14. Since that high point, the index's yield to worst has widened out to 9.027% from 8.508%, while its spread to worst has likewise gapped out to 662 bps from 618 bps - but that yield has narrowed by some 39 bps from 9.41% the previous Friday, while the spread has likewise tightened by 39 bps, from 703 bps a week earlier.

Advancing issues topped decliners for a fourth consecutive session on Friday, holding a better than seven-to-five edge.

Overall market activity, as measured by dollar-volume levels, fell by some 23% from Thursday's pace.

A trader said this reflected not only the fact that it was Friday of a holiday-shortened week that saw many market participants schedule vacations, coinciding with school schedules in many areas, but also the continued televised Olympics and even the latest chapter in the ongoing Tiger Woods saga.

He said around closing time that "after Tiger did his little dog-and-pony show" - a nationally televised non-news-conference at which the randy golfing great read a prepared statement expressing contrition for his active extramarital activities to carefully selected reporters but took no questions - "it got kind of quiet. We were seeing a lack of activity, even seeing locked markets, where you just couldn't get anyone to care about [trading]. That's what's kind of what's been happening in the last hour or two.

"It was on every channel - and we didn't get a single phone call or message in the [15] minutes that it was on. America loves a good soap opera."

After Woods finished and TV programming returned to its usual fare - although there was further distraction from the televised Olympics on NBC - "you did have things trading," he said, "but on not a ton of volume."

With those volume limitations, however, another trader said that "junk was holding up, and when things trade, they trade to the upper levels" of trading ranges.

The first trader meantime opined that "things seem to be hanging in there OK."

Rite Aid remains on upside ride

One name which was doing more than just OK was Rite Aid, helped by the continued speculation that the company might be an acquisition target for a larger drugstore chain like Walgreen or CVS Caremark, or a non-pharmacy retailing giant like Wal-Mart - or, perhaps, some combination of potential buyers who might acquire pieces of the Rite Aid empire of more than 4,900 stores. The bonds have been climbing since Wednesday, when Number-One drugstore operator Walgreen announced plans to buy New York-based regional druggist Duane Reade for about $1.1 billion in cash and assumed debt.

On Friday, the rally rolled on, with a trader seeing Rite Aid's 9 3/8% notes due 2015 up 1½ points, as "a lot traded" inside an 851/4-85¾ range.

He also saw Rite Aid's 8 5/8% notes due 2015 trading mostly between 85-851/2, also up about 1 to 1½ points.

However he said that the "the rest of the issues just didn't have large volumes."

Zions seen active

A trader saw Zions Bancorporation's 7¾% notes due 2014 rack up "pretty good volume" while trading around the 96 level. The Salt Lake City bank originally priced the issue last September.

He said that "when they last issued new paper, in late November or mid-December, it was 10 points lower [than it is now]. In the last two months, the paper" - which he said always attracts good junk-investor interest despite its nominal high-grade rating "has gone up by 10 points."

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