Generac pulls deal; Consolidated downsizes; AMC up on buyout; DaVita off on acquisition

By Paul Deckelman and Paul A. Harris

New York, May 21 - The high-yield primary market saw no deals price Monday - and two of the names on the forward calendar were seen actually getting more cautious in line with a suddenly more turbulent Junkbondland environment.

Power generator maker Generac Power Systems Inc. announced late in the day that it was pulling the plug on its planned $425 million issue of eight-year notes, citing market conditions. That junk-bond deal was part of an overall $1.2 billion financing package, also including a term loan. The company will continue with the loan, but the overall financing effort was reduced in size.

Telecom operator Consolidated Communications Holdings Inc. was heard by high-yield market sources to have downsized its planned eight-year deal to $300 million; they also said that some covenant tinkering was going on. Those sources saw price talk emerge on the deal.

There also was talk out on natural gas midstream company NGPL Pipeco LLC's $550 million of seven-year secured notes, with pricing possible sometime after the order books close Tuesday.

In the secondary market, traders saw modest firming in some of last week's new deals, including Friday's issues from metals processor Kaiser Aluminum Corp. and mining company Molycorp, Inc.

Frontier Communications Corp.'s existing bonds improved in the wake of the telecom company's recent deal, but it was quite the opposite story for existing Momentive Performance Materials Inc. paper.

Away from the new deals, AMC Entertainment Holdings, Inc.'s bonds shot up on news that the big movie-theater company is going to be acquired by a Chinese concern.

But health care provider DaVita Inc., on the other end of an announced acquisition, saw its bonds fade.

Statistical market performance measures turned mixed after ending last week on a lower note.

NGPL PipeCo sets talk

The rally in the stock market gave the high-yield synthetics a boost Monday, according to sources.

A hedge fund manager had the CDX HY18 index up 1 7/16 points at 93 1/16 bid, 93 5/16 offered.

However, cash ended the session half a point lower, according to a syndicate banker who added that in the true cash market, investors appear unwilling to either buy or sell bonds at present.

No deals were announced and conditions in the primary market remain challenging, sources say.

However the primary market did generate news as the pre-Memorial Day week got underway.

Two issuers set price talk on deals that are expected to price Tuesday.

NGPL PipeCo talked its $550 million offering of seven-year senior secured notes (Ba3/B+/BB-) to yield 9½% to 9¾%.

The books are scheduled to close mid-morning Eastern Time on Tuesday.

Barclays is the lead left bookrunner for the debt-refinancing deal. Credit Suisse and RBC are the joint bookrunners.

Consolidated downsizes

Also on Monday, Consolidated Communications Finance downsized its offering of eight-year senior notes (B3/B-) to $300 million from $350 million. It set price talk at 10¾% to 11%.

The debt-incurrence covenant was modified, decreasing the debt-to-EBITDA ratio of 4.25x from 4.5x.

Morgan Stanley has the books for the debt-refinancing and acquisition-financing deal.

As a metric for how much the market has moved, the Consolidated Communications deal serves well, sources say.

In the middle part of last week, an investor who was then keen on getting bonds said there was a deal to be done around 9¼%.

That level represented a dramatic increase from the deal's initial guidance of 8¼% to 8½%, the investor added.

Before the end of last week, yield discussions pushed beyond 10%, according to a trader from a different high-yield mutual fund.

Then came Monday's downsizing, and official talk of 10¾% to 11%.

Wolverine Healthcare launches

Wolverine Healthcare Analytics, Inc. began a roadshow Monday for its $325 million offering of eight-year senior notes (expected ratings Caa1/CCC+).

J.P. Morgan, Bank of America Merrill Lynch, Morgan Stanley and UBS are the joint bookrunners for the buyout deal, which is expected to price Friday.

From the dialysis sector

Also on Monday, there was news from the kidney dialysis sector involving transactions from two names known well to the high-yield universe.

Both are expected to generate substantial amounts of new issuance, sources say.

DaVita expects to get new senior secured loans and issue unsecured debt to help fund its acquisition of HealthCare Partners.

J.P. Morgan Securities LLC is the lead bank on the financing.

And Fresenius SE & Co. KGaA plans on getting a new roughly €2.7 billion credit facility and about €2.1 billion in bonds for its public takeover offer being made to Rhon-Klinikum AG shareholders and the refinancing of a credit facility that was obtained in 2008 for the acquisition of APP Pharmaceuticals.

Deutsche Bank, J.P. Morgan, Societe Generale, Credit Suisse and UniCredit are the lead banks on the financing.

Generac withdraws

Generac Power Systems became the third prospective issuer in two sessions to withdraw from the market.

Generac pulled its $425 million offering of eight-year senior notes in light of recent financing market conditions, according to a Monday press release from the company.

The company downsized its financing to $900 million from $1.2 billion.

On Friday, Harland Clarke Holdings Corp. and HudBay Minerals Inc. each pulled deals that they had in the market.

Friday deals firm a little

In the secondary market, a trader described Monday's market as "a kind of weird market we have going on here."

He said that even though he was looking for Molycorp's issue of 10% notes due 2020, "I never saw anything on it," despite the relative size and liquidity of the Greenwood Village, Colo., rare earth miner's $600 million offering, which priced at par Friday.

However, a trader at another desk did see the new Molycorp bonds, quoting them trading in a 100¼ to 100½ context.

The trader also saw one of Friday's other deals - Kaiser Aluminum's 8¼% notes due 2020 - doing better.

He pegged the Foothill Ranch, Calif., aluminum products producer's $225 million offering at 100¾ bid, 101¼ offered, up from the par level at which those bonds priced after an upsizing from the originally announced $200 million.

Another recent deal doing better in Monday's aftermarket was Frontier Communications' 9¼% notes due 2021.

A trader saw the Stamford, Conn.-based telecommunications company's $500 million issue moving up to 101¼ bid level by the close on Monday, "a couple of times, it looks like."

He said the bonds started the day around the 100¾ bid level before rising to a 101- to 1011/4-context later on.

The quickly shopped deal priced at par very late in the day Thursday and was seen by traders moving up to the 100¼ bid, 101 offered area Friday, before continuing to rise Monday.

Frontier's existing 8¼% notes due 2017 gained 1 point on the day Monday to go home at 102¾ bid, on volume of about $4 million.

Momentive moves down

While both the new Frontier Communications bonds and its existing paper did better Monday, it was quite the opposite story for Momentive Performance Materials, which also priced a deal Thursday - a radically downsized $250 million offering of 10% 1.5-lien senior secured notes due 2020.

Those bonds priced at par, but not until the company cut the deal in half versus the $500 million that was being talked around the market Wednesday. The bonds initially hung in around a 99- to par-context in Thursday's aftermarket, but were heard by market sources to going as good as par bid, 100 3/8 offered Friday.

However, on Monday, a trader said they were once again bid in a 99- to par-range.

The trader saw Momentive's 9% notes due 2021 trading down 1 point, around the 76 bid level, estimating about $5 million of volume. During the day, he said, the bonds traded between 75½ and 77½ during the day.

A second trader saw the bonds firm up to 78½ on Friday before going home that session at 77½ bid and then saw them retreat further Monday to around 76.

The Columbus, Ohio-based specialty chemical and materials maker's existing bonds dropped from their previous level around 83 bid over the course of several days starting last Wednesday, after the company announced plans for its new secured bond deal, which would rank senior to the existing bonds in the capital structure.

"Obviously [the new bonds] would have to be a lot senior, given the price difference," the second trader said.

Market indicators turn mixed

Away from the new deals, statistical indicators of market performance were seen turning mixed Monday as at least one such gauge swung sharply to the upside. Although others remained mired in the same rut they were in for the previous six sessions.

The Markit Group CDX North American Series 18 High Yield Index zoomed by 1 3/8 point on the session Monday, bulling its way up to 93 bid, 93 3/8 offered, after falling by 3/16 point on Friday, its sixth consecutive loss and the 11th loss in the prior 12 sessions for the index.

However, the KDP High Yield Daily Index nosedived by 34 basis points on Monday to close at 72.32, its seventh consecutive loss. On Friday, it plunged by 25 bps. Its yield rose by 11 bps to 7.09%, after moving up by 6 bps on Friday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index lost -0.318% on Monday - its sixth straight loss - coming on the heels of Friday's 0.32% retreat.

The latest downturn dropped its year-to-date return to 4.774%, versus Friday's 5.108%. The latest level was well down from the peak level for 2012 so far, 6.80%, set May 7.

Monday's finish marked the first time the index was below 5% on a year-to-date basis since April 13, when it closed at 4.942%, and it was the lowest level since April 11, when it ended at 4.665%.

Good show for AMC

The star of the day in the secondary market was AMC Entertainment Holdings' 9¾% notes due 2020, which shot up on the news that the Kansas City, Mo., based movie theater chain operator agreed to be acquired by Dalian Wanda Group Co. Ltd., a Chinese theater company, in a deal valued at $2.6 billion, including debt.

The AMC bonds "were fairly active," a trader said, seeing "a lot of trades" in the 1101/2- to 1103/4-area, up substantially from prior levels around 102 to 103. "So they did nicely," the trader said.

A market source saw more than $15 million of the bonds changing hands on a round-lot basis, making AMC one of the busiest junk names of the day.

Downturn for DaVita

On the downside, a trader said that "one of the losers" on the day was DaVita, following the announcement that the Denver-based kidney dialysis provider plans to buy the doctor network operator HealthCare Partners in a cash-stock deal worth about $4.42 billion, more than $3.6 billion of it in cash.

To swing that deal, the company plans to issue about $3.8 billion of new debt, some of it in the form of secured loans and the rest unsecured.

With the prospect of lots of new debt going into its capital structure, the trader said the company's 6 3/8% notes due 2018 fell to 101¼ bid, 101½ offered from levels last week of about 104¼ bid, 104½ offered, on busy volume of around $18 million.

He saw its 6 5/8% notes due 2020 "down 4½ points first thing this morning," versus the 104½ finish at the end of last week, although he said the bonds came off their lows a little to end at 101½ bid, down 3 points on the day. More than $17 million of those bonds changed hands.

Intelsat loses altitude

The trader also saw the bonds of Intelsat Global SA's various units dropping down from the high levels they hit on Friday on news that the Luxembourg-based communications satellite company plans an initial public equity offering.

For instance, he saw Intelsat Bermuda Ltd.'s 11½% notes due 2017 - the company's most active issue - trading at 98½ bid.

He noted that on Friday, those bonds rose by several points, to 100¼ bid 100½ offered. On Monday, the bonds opened at par. "And now they're back down to where they were on Friday morning, before the [IPO] news," the trader said. "Over $10 million of the bonds had traded by mid-afternoon."

He speculated - tongue only partly in cheek - that initial investor enthusiasm for the IPO may have taken a hit after seeing the results of Facebook Inc.'s long-awaited and much ballyhooed IPO.

The social networking giant's new stock began trading Friday at $38 per share, hit $43, dropped back to close little changed, but only because heavy buying by the underwriters propped it up. On Monday, without such help, the stock sank to $34.

Chesapeake continues to calm

Elsewhere, a trader said Chesapeake Energy Corp.'s recently very active bonds were again relatively quiet Monday with the Oklahoma City-based natural gas company's 6 5/8% notes due 2020 hitting about $10 million of volume.

He quoted the bonds up a point, going home at 91¾ bid, 92 offered.

Chesapeake's bonds gyrated on heavy trading last week after the company indicated that it might delay a planned asset sale over concerns about keeping cash-flow within covenant-mandated levels.

Also on the energy front, a trader said that he saw ATPG Oil & Gas Corp.'s 11 7/8% senior secured second-lien notes due 2015 a few times, sending the Houston-based offshore energy company's bonds home trading in a 58-59 context. The trader called that down 1¾ points on volume of more than $20 million.

That continues the slide seen for most of last week and for some of the week before that after the company reported disappointing quarterly earnings. The accompanying conference call did nothing to restore investor confidence.

Kodak gets clobbered

From the distressed-debt precincts, a trader said Eastman Kodak Co.'s bonds slid after the bankrupt photographic products and digital imaging technology company suffered a setback in its legal battle with Apple Inc. and Research In Motion Ltd. over whether those Smartphone manufacturers violated Kodak's patents.

A trader saw Rochester-based Kodak's 7¼% unsecured notes due 2013 fall to a 15- to 17-context, down from prior levels between 24 and 25, with more than $13 million of the notes changing hands. Shortly after giving that quote, he saw the bonds continuing to head lower to a 14- to 16-bid range.

He also saw Kodak's 9¾% second-lien notes due 2018 and 10 5/8% second-lien notes due 2019 drop to 67 bid, 69 offered, which he called down about a dozen points on the day

He said of the latter bonds: "Those were all higher [not too long ago], but not anymore. This credit definitely had a tough day."

He called the drop "pretty brutal."

"That's that ugly story," he added.

Another trader noted that Monday's court decision "was just another preliminary ruling - but they did lose it."

He saw the two secured issues bid at 81 back on Friday. "But this afternoon, there was only a 72 bid, with no offering," the trader said.

He said the 9¾% notes were quoted Monday at a very wide 70-78 context while the 10 5/8s were at 72½ to 751/2. "So, if you just took the mid-market, that's down about 8 points on the pair of them."

An administrative law judge at the U.S. government's International Trade Commission ruled that Apple and Research in Motion did not violate a Kodak patent when using its technology, allowing a user to preview digital images for their iPhone and Blackberry smartphones, respectively, because the patent was supposedly invalid.

Kodak disputes that finding, saying the U.S. Patent Office has upheld the validity of its patent. The company expects to win the multibillion-dollar lawsuit when the full ITC reviews the judge's decision in September.

Kodak's shares, which now trade over the counter following the former blue chip's de-listing from the New York Stock Exchange following its bankruptcy filing in January, fell by 7 cents, or 26.69%, on Monday on news of the ruling, ending at 20 cents. Volume of 15.9 million shares was nearly six times the usual turnover.

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