Primary pauses but for Campofrio pricing; new Navistars trade actively; NXP up on debt cut

By Paul Deckelman and Paul A. Harris

New York, Oct. 23 - After a busy week which saw nearly $5 billion price in a dozen deals - and heading into what is expected to be yet another busy week - junk bond primaryside players for the most part kicked back on Friday, which saw little in the way of real news. The only pricing of the session came from a European issuer, Spain's Campofrio Food Group, which brought a euro-denominated issue of seven-year senior notes to market.

New-dealers also heard that Cequel Communications LLC's upcoming $400 million offering could either price by the fast-approaching end of this month, or it could carry over into early November.

Beyond those two sparse little nuggets of news, attention was mostly focused on the performance of the new junk deals that priced earlier in the week once they got to the secondary side. Trading was especially brisk in Navistar International Inc.'s $1 billion offering of 12-year senior notes, with investors trying to get a piece of the deal - no small feat, since much of it apparently went to existing loanholders - trading nearly $100 million of it.

Thursday's other two deals - from Navios Maritime Holdings Inc./Navios Maritime Finance (US) Inc. and Murray Energy Corp. - were also seen more than holding their own.

Among the purely secondary established issues, NXP BV's bonds were seen better as the Dutch semiconductor company reported better quarterly numbers and progress in reducing its debt load.

CIT Group Inc.'s bonds were seen mostly lower, as investors evaluated the company's latest arguments trying to get them to go along with its big debt-exchange offer.

Navistar continues to shine

A trader said that Navistar International's new 8¼% senior notes due 2021 traded as high as 99¾ bid, before going out at 99 3/8 bid, 99½ offered.

That was well up from the 96.328 level at which the Warrenville, Ill.-based truck and bus maker priced its $1 billion issue on Thursday to yield 8¾%. The bonds had firmed solidly when they were initially freed for secondary dealings Thursday, rising to levels around 98 7/8 bid, 99 1/8 offered, and continuing to firm on Friday.

Another trader said that an astounding $91 million of the new bonds were traded, with "a majority in the first half of the day" right around a 99 to 99½ context. Later on, he said, they slipped from that peak level to around 98 7/8 bid, 99 1/8 offered, though "not on heavy volume."

A trader said that Navistar - which will use the proceeds from its mega-deal to repay existing bank debt - "was one of those deals where most of the bonds went to bank debt holders" looking to maintain some exposure on in the credit.

He said that left some traditional bond investors out in the cold.

"You've got a $1 billion deal, which means it's automatically going into the high yield indexes" like the Merrill Lynch index now done by Bank of America or the Lehman Brothers Index now compiled by Barclays Capital - "and for the most part, the high yield mutual funds got middling allocations."

He said that creates problems for bond fund managers because "the paper is going into the indexes, and that's how those guys are paid, on their performance versus the index. They're not getting any paper, so by the very fact that they're not getting allocated paper, they're going to underperform the index - especially since some of these [new] deals are going up 2 or 3 points."

The second trader said that intense scrambling among bondholders to get a piece of the deal in the face of truncated allocations might be "a very good reason for the high volume" seen on the day in the deal.

Murray Energy issue is hot

A trader saw Murray Energy's new 10¼% senior secured notes due 2015 get as good as 102¼ bid, although he saw the Pepper Pike, Ohio-based coal producer's new bonds going home closer to 101¼ bid, 101¾ offered.

At another desk, a trader saw the deal go from Thursday's peak to a close Friday around 101 bid, 102 offered, although another trader saw them more in the area of 101 7/8 bid, 102 1/8 offered.

That was off from the 102-103 region to which the $500 million issue had firmed in its initial aftermarket dealings on Thursday, but still up solidly from 98.889, where the issue had priced earlier Thursday to yield 10½%.

The first trader noted that the Murray deal presented the same kind of problem to bond investors as Navistar did - much of the deal was taken down by bank debt investors looking to stay in the credit, leaving bond players to fight among one another for the crumbs that were left.

"So the deal went up to 103," he said, and "then all of a sudden, somebody decided that was enough of a profit and they started unloading."

Investors' hunger for the meager allocation of Murray Energy bonds they might get is a little deceptive, because, he said, Murray is the kind of deal that "if wasn't short in the marketplace, it might be at 80."

Navios stays afloat

Thursday's third new deal, Navios Maritime's upsized $400 million offering of 8 7/8% first-priority ship mortgage notes due 2017, was seen by a trader at 101 bid, 101¾ offered at the opening, later tightening to 101½ bid, 101¾ offered.

The Greek commodity cargo shipping company's deal, upsized from $375 million originally announced, priced at 98.603 on Thursday to yield 9 1/8%, and then rose to a par bid in initial aftermarket activity.

A busy week ahead

One of the traders said that there were "rumors going around" that a number of new deals are expected to price in the upcoming week, apart from the offerings for Universal City Development Partners Ltd. - Universal Orlando - Reynolds Group and GCI Inc. that are already on the new week's forward calendar.

He said that people had "heard that one of the banks has at least five on tap," although he had no further specifics as to which companies or even sectors might be among those upcoming issuers.

As for the deals already on the calendar, he predicted the GCI "should go pretty well."

He said that the Universal Orlando deal "should mostly be [current bank debt investors] rolling in from existing debt.

He also said that he had not heard much, one way or another, on the upcoming $1.8 billion dual-currency issue from Reynolds, a Richmond, Va.-based manufacturer of consumer packaging and wraps.

Although the year-end is still more than two months away, the trader said that time would pass quickly - intensifying the pressure on those issuers who want to get a deal done sooner rather than later. After the upcoming week, with the Universal, Reynolds and GCI deals plus the other five he was talking about, we're into the new month, and "we have the first three weeks of November [to get a deal done] because the fourth week is Thanksgiving, and then we have, really, three full weeks in December, before people start heading out for the holidays.

"So we have six weeks left in the year - and the banks have a lot of business that they need to get done."

Market indicators mostly firmer

Back among the existing bonds not connected with the new-deal market, a trader saw the CDX Series 13 index down 1/8 point on Friday at 94 1/8 bid, 94 5/8 offered, after having gained ¼ point on Thursday. The widely followed index thus was little changed on the week from the 94¼ bid, 94½ offered level at which it had finished the previous week on Friday, Oct. 16.

Meanwhile, the KDP High Yield Daily Index rose by 3 basis points on Friday to end at 70.11, after having gained 1 bps in Thursday's dealings. Its yield was unchanged at 8.49%, after having narrowed by 1 bp the session before. The KDP index thus showed a gain on the week from its level the previous Friday of 69.50, with a prior yield of 8.63%.

In the broader market, advancing issues trailed decliners for a second straight session Friday, lagging by about a six-to-five margin.

Overall market activity, as measured by dollar-volume levels, eased by about 1% from Thursday's pace.

A trader said that "when equities rolled over this afternoon," as investors took profits, causing stocks to close lower on the session and for the week, "so did high yield."

He said that junk came to "a screeching halt. Levels didn't back off all that much, but you couldn't get a bid on anything. It was just like nobody cared on anything."

A second trader agreed that "it really quieted down toward the later part of the afternoon," while at another shop, yet a third trader opined that there was "not much to report."

The first trader said that the spate of earnings now starting to come out, while superficially positive, is "kind of a mixed bag. The reality is that cost-cutting is still playing a major role," rather than any kind of perceived economic pickup that would boost a company's top line as well as its bottom line. "You couple that with the ability to access the capital markets, and it's a field day for the banks to restructure their own leveraged loan portfolios, meaning to downsize them, and it's all being done on the backs of the high yield investors right now."

NXP numbers boost bonds

Among specific issues, NXP BV's 9½% notes due 2015 were seen by a market source having jumped nearly 3 points on the session to the 80 bid level, on considerable volume.

Another source meantime saw its 7 7/8% notes due 2014 firm to the 85½ level, although not quite as substantial a move as the 91/2s.

That followed release of the Dutch semiconductor company's third-quarter numbers, with bond market participants paying particularly close attention to the progress the company has made in cutting its debt.

NXP's chief executive officer, Rick Clemmer, declared on the company's conference call that it had reduced its debt by $814 million in the third quarter and by $1.3 billion for the year, and would bring its annual interest expense down to about $300 million versus $500 million in 2008.

As of Sept. 30, NXP had cash of $1.06 billion, compared with $1.37 billion at the end of the second quarter of 2009, due mainly to the bond repurchases in the third quarter and ongoing restructuring payments under the company's redesign program, according to NXP.

While third-quarter sales were $1.03 billion, down from $1.2 billion in the same period of 2008, it had net income for the quarter of $412 million - a sharp turnaround from its year-earlier loss of $2.5 billion and an improvement from the $344 million profit in the second quarter of 2009.

CIT busy, amid uncertain future

A trader saw considerable activity in CIT Group's bonds, especially its 4 1/8% notes coming due on Nov. 3. He saw $17 million of the bonds trading, mostly in a 69-71¼ range.

He saw some $13 million of the 5% notes due 2014, trading in a range of 61½ bid, 63½ offered, "where the majority of trades were."

He saw CIT's 5.80% notes due 2011 at 64-64½ and its 5% notes due 2015 at 64 bid, 65 offered, both on $5 million traded.

Another source saw the 5% notes due 2014 off marginally, to 62½ bid, while its 5.85% notes due 2016 slid 1½ points to 631/2, on decent volume.

Another trader said that at his shop, "this week, we were very active" in CIT bonds and the legacy debt left over from the former Lehman Brothers.

He said that there was considerable market activity in CIT as the company approaches "the final deadline" on its exchange offer for its current bonds, which is scheduled to expire for most categories of notes at 11:59 p.m. ET next Thursday, Oct. 29.

CIT executives, on a pre-recorded conference call presentation to investors Friday, warned that both the company and the bondholders faced dire consequences if the noteholders fail to go along with the company's pending debt exchange offer, which covers about $29 billion of CIT's $42 billion of debt and which seeks to cut that debt load by up to $5.7 billion.

The trader said that "regardless of what is done with this company" - whether the debt exchange is successful, or whether it is unsuccessful and the company is forced into some kind of Chapter 11 restructuring, as management has warned, or, alternatively, whether billionaire investor Carl Icahn's proposed rescue plan is somehow adopted - "the reality of the situation is that they will have to figure out a way to get financing going forward," since CIT's old financing model, making great use of cheap short-term commercial paper financing, is no longer viable.

He continued that he did not know "how completely people have stepped into the gap to fill in for them in providing funding for small businesses and retail. We've heard anecdotally that other banks have stepped into the gap to try and pilfer a lot of CIT's customers. Well, if that's happened, and the economy is functioning without any difficulty and CIT really isn't doing any lending, it begs the question of do they [CIT] really need to exist?"

He said some answers may be clearer this week once it becomes evident whether the note exchange carries or not.

Primary calm ahead of storm

The Friday session passed in relative quiet, with only one transaction pricing in the high-yield primary.

However the week ahead is likely to see the new issue market operating full tilt once again.

The big dealers will be busy, sources say.

Continued cash inflows to the high-yield asset class are driving that anticipated issuance, en route to what could turn out to be a record October, a banker said on Friday.

As evidence, the high-yield mutual funds have seen $28.9 billion of aggregate year-to-date inflows to the Oct. 21 close, according to AMG Data Services, the banker said. That number tallies inflows seen by funds which report to AMG on a weekly basis and those which report on a monthly basis.

And it represents the highest amount seen for any year to Oct. 21, going back to 2000, which is as far back as this source's records go.

As for the color that October 2009 could break October issuance records, the pre-Halloween week would have to be a big one, indeed.

Issuance for October to the Friday close, stood at slightly more than $12.4 billion.

So another $12 billion of issuance, during the five sessions ahead, would be needed to top the $24.4 billion that priced during October 2007, according to Prospect News data.

Campofrio tight to talk

In London, Spain's Campofrio Food Group priced Friday's sole high-yield deal, a €500 million issue of 8¼% seven-year senior notes (B1) at 99.365 to yield 8 3/8%.

The yield printed at the tight end of the 8½% area price talk.

Deutsche Bank and RBS Securities were joint bookrunners for the debt refinancing deal from the Madrid, Spain-based processed meat company.

The week ahead

With no dollar-denominated deals pricing on Friday, the Oct. 19 week closes with issuers having raised just over $4.9 billion of proceeds in 13 tranches.

That extends year-to-date issuance to $116.5 billion proceeds in 273 tranches, according to Prospect News data.

The issuance tumblers are expected to roll purposefully during the week ahead, sources say.

However, as the week gets underway only three announced deals appear on the active forward calendar.

Universal City Development Partners Ltd. is in the market with a $625 million two-part offering of notes: $400 million of six-year senior notes and $225 million of seven-year senior subordinated notes. Moody's rated both tranches at B3 on Friday.

Timing for the deal was moved up.

The offering is now set to price on Monday, following an investor call scheduled for 11 a.m. ET Monday morning.

Initial timing on the deal had a brief roadshow starting on Monday and pricing expected on Oct. 30.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch, Barclays Capital Inc., Deutsche Bank Securities Inc., Goldman Sachs & Co. and Morgan Stanley & Co. are joint bookrunners for the debt refinancing and general corporate purposes deal.

Meanwhile Reynolds Group continues to market its $1.8 billion equivalent two-part offering of seven-year senior secured notes.

The planned tranche sizes are $1.1 billion and €450 million and are subject to change.

Credit Suisse is the bookrunner for the acquisition financing.

And the roadshow for the GCI Inc. $400 million offering of 10-year senior notes (B2/existing B-), is scheduled to wrap up on Wednesday.

Deutsche Bank Securities Inc., Calyon Securities, Morgan Stanley & Co. Inc. and RBC Securities Corp. are joint bookrunners for the debt refinancing deal.

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