EarthLink drive-by prices; Cooper-Standard, AES bring add-ons; big DISH deal slated for Wednesday

By Paul Deckelman and Paul A. Harris

New York, May 14 - High-yield primary market activity slid on Tuesday, with syndicate sources seeing only $580 million of new fully junk-rated, dollar-denominated issuance from domestic or industrialized-country borrowers, in sharp contrast to the more than $2.2 billion of bonds that came to market on Monday.

Communications and internet technology company EarthLink, Inc. priced $300 million of seven-year secured notes in a quick-to-market transaction. Traders said those new bonds firmed smartly when they were freed for secondary dealings.

EarthLink's was the only actual stand-alone dollar deal completed in Tuesday's session. The day's other two pricings involved add-ons to existing series of notes, including one from familiar borrower AES Corp., which brought a $250 million addition to the 10-year notes that the power-generation company sold just a couple of weeks ago.

There was also a $25 million tap of automotive components manufacturer Cooper-Standard Holdings, Inc.'s five-year senior toggle notes. Both of the add-on deals were heard to have moved modestly higher when they were freed for aftermarket dealings.

But while the actual volume of new issuance was relatively restrained, market participants heard of a very big deal waiting in the wings for likely pricing on Wednesday, as satellite television broadcaster DISH DBS Corp. shopped a four-year issue of new bonds and a 10-year tranche.

Among recently priced bonds, Alere Inc.'s seven-year issue, which shot up by over 2 points after it came to market on Monday, gave up some of those initial gains. Ball Corp.'s giant-sized 10-year deal continued to lose ground in the aftermarket.

Statistical performance indicators turned mixed after having been lower for the previous two sessions.

EarthLink drives by

The dollar-denominated new issue market saw $580 million of new issuance in three tranches from three separate issuers on Tuesday.

EarthLink priced a $300 million issue of seven-year senior secured notes (Ba3/B+) at par to yield 7 3/8%.

The yield printed in the middle of the 7¼% to 7½% yield talk.

Credit Suisse, Deutsche Bank and Jefferies were the joint bookrunners for the debt refinancing.

AES taps 4 7/8% notes

AES priced a $250 million add-on to its 4 7/8% senior notes due May 15, 2023 at 102.00 to yield 4.622%.

The reoffer price came on top of price talk.

AES priced the original $500 million issue at par on April 25.

The add-on, which went well, filled some of the excess demand left over from when the original deal priced, according to an informed source.

Morgan Stanley was the bookrunner.

The Arlington, Va.-based power company plans to use the proceeds to fund its tender offers, with any remaining proceeds to be used to repay debt and for general corporate purposes.

AES is tendering for its 7¾% senior notes due 2014, its 7¾% senior notes due 2015, its 9¾% senior notes due 2016 and its 8% senior notes due 2017.

Cooper-Standard taps PIK

Cooper-Standard Holdings priced a $25 million add-on to its senior PIK toggle notes due April 1, 2018 (Caa1/B) at 101 to yield 7.126%.

As with the outstanding notes, the add-on notes come with a cash coupon of 7 3/8% and a PIK coupon of 8 1/8%.

Deutsche Bank, BofA Merrill Lynch, J.P. Morgan and UBS were the joint bookrunners.

Proceeds will be used for general corporate purposes, including share repurchases and capital contributions to Cooper-Standard Automotive Inc.

Italcementi taps 6 1/8% notes

The Tuesday session also saw activity in the euro-denominated high yield.

Italcementi Finance SA priced a €150 million add-on to its 6 1/8% senior notes due Feb. 21, 2018 (Ba2/BB+) at a 340 basis points spread to mid-swaps.

The spread came at the tight end of the 340 to 350 bps spread talk.

The notes were issued at a reoffer price 108.261 and have a 4.169% yield to maturity.

Banca IMI, BNP Paribas, Credit Agricole CIB, Natixis and UniCredit were the joint bookrunners. BNP will bill and deliver.

DISH for Wednesday

The new deal calendar continued to build on Tuesday, and sources look for the trend to continue as a dramatic upward move in Treasury yield put names in the secondary market under pressure, sources say.

The move in Treasuries should serve as a catalyst for reticent issuers to step into the market, according to one syndicate banker, who expects to have more deal announcements before the end of the week.

DISH DBS set price talk for its $2.5 billion two-part offering of non-callable senior notes (Ba2/BB-) on Tuesday afternoon.

The deal, which was announced on Tuesday morning, features a tranche of four-year notes talked with a yield in the 4¾% area and a tranche of 10-year notes talked with a yield in the 6% area.

Tranche sizes remain to be determined.

The deal is set to price on Wednesday.

Barclays is the lead left bookrunner. Jefferies, Macquarie and RBC are the joint bookrunners.

Proceeds will be placed into escrow, subject to release to fund the merger with Sprint Nextel Corp.

The notes will be redeemed if the merger is not consummated, in which event they are callable at par for the first six months, and at 101 thereafter.

Magnetation restructures

Magnetation LLC and Mag Finance Corp. talked a restructured $325 million offering of non-callable five-year senior notes (B3/B-) to yield 11%.

In a restructuring of the deal, the tenor of the notes is decreased to five years from seven years, while call protection is increased to the life of the notes from the previous non-call-three structure.

There were also changes to the asset sales, restricted payments and debt test covenants.

Books close at 10 a.m. on Wednesday, and the deal is set to price shortly thereafter.

J.P. Morgan, Jefferies and Deutsche Bank are the joint bookrunners.

EarthLink shows improvement

In the secondary market, when EarthLink's 7 3/8% senior secured notes due 2020 were freed for aftermarket dealings, a trader saw the Atlanta-based telecommunications and information technology company's drive-by deal trading at 102 bid, 102 1/w offered, well up from the par issue price earlier in the session.

A little later on, he said that while the bid side that remained the same, the offered level had tightened a little to 102 3/8.

A second trader pegged the bonds at 102 bid, 102¾ offered/

Add-ons improve slightly

A trader said that AES Corp.'s 4 7/8% notes due 2023 were trading 102 5/8 bid, 102 7/8 offered, up from the 102 level at which the company had priced its quick-to-market add-on deal.

A second trader quoted the bonds at 102 bid, 102¾ offered.

A trader said that Cooper-Standard Holdings' 7 3/8%/8 1/8% PIK 2018 notes were trading in a 100½ to 101½ context. The Novi, Mich.-based automotive components maker had earlier priced its quickly shopped add-on at 101.

Alere comes off peaks

Among the deals that priced on Monday, traders saw Alere Inc.'s 6½% senior subordinated notes due 2020 having come off the peak levels reached in those bonds' initial aftermarket dealings.

One said that "[Monday] was definitely better," with the Waltham, Mass.-based medical services provider's quick-to-market $425 million deal having finished that session at 101¼ bid, 102¼ offered. On Tuesday, he said, the Alere bonds were off a half-point, at 100¾ bid, 101¾ offered.

A second trader, who had seen the bonds get as good as 101¾ bid, 102½ offered on Monday, saw them on Tuesday finishing at 100 7/8 bid, 101¼ offered.

Among the other bonds that priced on Monday, a trader quoted Select Medical Corp.'s 6 3/8% notes due 2021 at 99¾ bid, par offered. That was down from the par to 100¾ context in which the Mechanicsburg, Pa.-based hospital and clinic operator's quickly shopped and upsized $600 million traded on Monday, after pricing at par.

And Cequel Communications Holdings I, LLC's 5 1/8% notes due 2021 traded at par bid, 100¼ offered, a trader said, little changed from the closing levels reached by the St. Louis-based cable operator's new bonds after that $750 million drive-by offering had priced at par earlier Monday.

Ball continues to fall

A trader said that Ball Corp.'s new 4% notes due 2023 were down about ½ to ¾ of a point on Tuesday, on top of the losses suffered on Monday and before that, on Friday.

He saw the bonds finishing at 97½ bid, 98½ offered.

The Broomfield, Colo.-based packaging maker had priced $1 billion of those bonds at par in a quick-to-market transaction, after the deal had been upsized from an originally announced $600 million.

But although trading in the new deal was very brisk, with over $200 million having changed hands since it priced, its levels have failed to keep pace, declining steadily from their par issue price.

"They're more Treasury-sensitive, so they continued weaker" in the face of rising Treasury yields, the first trader said.

Caesar's a busy name

Away from the new deals, one of the busiest bonds in Wednesday's session was the 10% notes due 2018 issued by what used to be Harrah's Operating Co. Inc., now a part of Las Vegas-based casino giant Caesars Entertainment.

Those bonds saw brisk dealings around the upper 50s to lower 60s. That's well down from the levels around 70 bid seen earlier this year, even though a trader opined, "I don't see any news on it - it's just that, in general, month-over-month, the gaming industry's numbers haven't been great."

He said that the 10s were trading right around the 58½ level, which he called off about 3/8 of a point, with $9 million or $10 million of them traded during the session.

A second trader noted that the company's capital structure has two separate issues of the 2018 bonds, pegging one of them at 581/2- to 59, which he said was "pretty much unchanged, where they've been," or perhaps up a half-point.

He said that the larger issue - $3.3 billion, in contrast to the other tranche's size around $800 million - was finishing at 601/4, which he called up 1½ points, on over $16 million.

"A lot of activity," he said.

Another market source called the larger tranche up 1¾ points on the session, at 60¼ bid.

In a research note, Gimme Credit LLC senior analyst Kim Noland wrote that Caesar's operations "continue to be negatively impacted" by its exposure to the hyper-competitive Atlantic City market, which overall has seen total casino revenues and winnings dropping because of the impact of competition from newer casinos in nearby states.

Noland also noted that within Caesar's own capital structure, the unsecured legacy Harrah's bonds, like the 10s, "are impaired not only because of the downturn in operations, but also because of the large amount of secured debt layered in ahead of them" as Caesars' buyout of Harrah's several years ago boosted the company's leverage ratio of debt to nearly 10 times EBITDA.

Market indicators turn mixed

Overall, statistical junk performance indicators were seen turning mixed on Tuesday after having been down across the board over the previous two sessions.

The Markit Series 20 CDX North American High Yield index rose by 1/8 of a point on Tuesday to end at 109 9/16 bid, 109 11/16 offered. That snapped a three-session losing streak.

But the KDP High Yield Daily index, meanwhile, dropped by 14 basis points Tuesday to end at 76.41, its fourth consecutive loss. On Monday, it had slid by 15 bps. Its yield rose by 7 bps Tuesday to finish at an even 5%, its third consecutive widening. On Monday, the yield was up by 5 bps.

The widely followed Merrill Lynch High Yield Master II suffered its third consecutive loss on Tuesday, as it was off by 0.082%. That followed the 0.226% downturn on Monday.

The loss dropped the index's year-to-date return to 5.371% from 5.458% on Monday and down as well from Thursday's 5.835%, its peak level for the year.

The index's yield to worst increased to 5.201% from Monday's 5.16% and from Thursday's 4.986%, its most recent new all-time low.

The spread to worst also widened on Tuesday to 441 bps over Treasuries, versus 438 bps on Monday and Thursday's 427 bps, its tight level for the year.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.