ONO closes out $5 billion-plus primary week, new dollar bonds jump; Vanguard moves up

By Paul Deckelman and Paul A. Harris

New York, Jan. 21 - Spain's ONO Finance II plc was heard by high yield syndicate sources to have priced a two-part €461 million offering of eight -year notes on Friday. Traders said that the dollar-denominated portion of the deal broke strongly upward when the bonds were freed for secondary dealings.

The quickly-shopped ONO deal, pricing just a day after it was first announced, brought to a close a week which saw more than $5 billion of new dollar-denominated junk come to market - respectable enough issuance for a holiday-shortened week, although certainly no match for the more than $14 billion which priced the week before.

Also pricing Friday was an upsized sterling-denominated offering from U.K.-based water utility company Anglian Water (Osprey) Financing plc

Price talk surfaced on members-only buying service DirectBuy's six-year senior secured deal, and aviation ground services provider Swissport International Ltd.'s seven-year dollar- and Swiss franc-denominated offering.

Meanwhile, Bi-Lo, LLC, a supermarket operator, real estate company Realogy Corp. and kidney dialysis provider Fresenius Medical Care were heard by the syndicate sources to have begun shopping new deals around.

Among recently priced offerings, Thursday's two-part issue from hospital operator Vanguard Health Systems moved up when it began secondary trading, particularly the unusual zero-coupon discount note tranche.

Statistical indexes of secondary performance closed out the day and the week on a positive note.

Vanguard Medical upsizes

The Friday primary market session saw issuers raise $1.02 billion, £350 million and €295 million with a combined six tranches of high-yield notes.

Vanguard Health Systems priced an upsized $795 million two-part deal.

Issuing at the operating company, Vanguard Health Holding Co. II, LLC and Vanguard Holding Co. II, Inc. priced a downsized $350 million tranche of eight-year senior notes (B3/B-) at par to yield 7¾%. The tranche was cut from $375 million. The yield printed on top of price talk.

Proceeds from the operating company notes will be used for general corporate purposes.

Meanwhile at the holding company, Vanguard Health Systems, Inc. raised $444.655 million with a tranche of five-year senior discount notes (Caal/CCC+) which priced at 59.508 to yield 10 5/8%.

The holding company tranche was upsized from $375 million. The yield printed in the middle of the 10½% to 10¾% price talk.

The initial $375 million of proceeds from the holding company notes were designated to fund a dividend.

Bank of America Merrill Lynch was the left bookrunner for the quick-to-market deal, the overall size of which was upsized to $795 million from $750 million.

Barclays Capital, Citigroup, Deutsche Bank, Goldman Sachs & Co. and Morgan Stanley were the joint bookrunners.

Preliminary terms were reported in the Jan. 20 edition of the Prospect News High Yield Daily.

ONO beats talk

Elsewhere Spain's ONO Finance II priced €461 million equivalent of 8.5-year senior notes (Caa2/CCC/CCC) in two tranches - both of which priced tighter than talk.

The Madrid, Spain-based broadband communications and entertainment company priced a $225 million tranche of the notes at par to yield 10 7/8%.

The yield printed 12.5 basis points richer than the 11% to 11¼% price talk.

ONO also priced €295 million of the notes at par to yield 11 1/8%.

The euro-denominated notes also priced 12.5 bps richer than price talk, which was 11¼% to 11½%.

Deutsche Bank and Bank of America Merrill Lynch were the global coordinators and joint bookrunners for the quick-to-market debt refinancing deal.

BNP Paribas, Credit Agricole, Credit Suisse and J.P. Morgan Securities LLC were the joint bookrunners.

Anglian Water upsizes

In the sterling-denominated high-yield market, Anglian Water (Osprey) Financing priced an upsized £350 million issue of seven-year senior secured notes (Ba3//BB+) at par to yield 7% on Friday.

The yield printed at the tight end of the 7% to 7¼% guidance. The size was increased from £200 million.

BNP Paribas and Morgan Stanley were the global coordinators. Barclays Capital, BNP Paribas, HSBC, Lloyds TSB, Morgan Stanley and the Royal Bank of Scotland were joint bookrunners for the LBO deal.

$5.475 billion week

The four-session week of Jan. 17 - abbreviated in the United States by the Jan. 17 holiday celebrating the birth of Dr. Martin Luther King Jr. - saw issuers raise $5.475 billion in 18 junk-rated, dollar-denominated tranches.

That total tops the high end of recent forecasts from syndicate bankers that the primary market will be turning out $4 billion to $5 billion per week, at least in the near term.

Those forecasts seemed much too low to one syndicate official who envisions around $8 billion per week once the market hits its stride during a week which is not foreshortened by a national holiday.

As it happens, the week ahead fills that bill.

Swissport price talk

In addition to the $2.5 billion active new issue calendar of deals already announced, the week ahead should produce plenty of news out of the European market.

Zurich-based Swissport International talked its CHF 750 million equivalent offering seven-year senior secured notes (B2/B) with an 8% to 8¼% yield on Friday.

The offering - to be sold in dollar-denominated and euro-denominated tranches - is set to price on Monday during the New York morning. Tranche sizes remain to be determined.

Citigroup is the left lead bookrunner. Barclays Capital, BNP Paribas and RBC Capital Markets are the joint bookrunners.

Proceeds will be used to fund the leveraged buyout of the Zurich-based air passenger and cargo logistics and infrastructure company by French private equity group Pai Partners from the Spanish construction group Ferrovial for about €654 million.

Fresenius in dollars, euros

Meanwhile Germany's Fresenius Medical Care will run a Monday to Tuesday roadshow for a multi-currency offering of senior notes due February 2021 (Ba2/expected BB+).

The deal features a $500 million tranche to be issued via Fresenius Medical Care U.S. Finance, Inc. and a €300 million tranche to be issued via FMC Finance SA VII.

Both issuing entities are financing units of Fresenius.

Bank of America Merrill Lynch is the global coordinator. Deutsche Bank, Barclays, JP Morgan, Commerzbank and Credit Agricole are joint bookrunners.

Proceeds will be used to refinance short-term debt and fund acquisitions.

BI-LO roadshow

Turning to issuers based in the United States, BI-LO, LLC and BI-LO Finance Corp. will begin a brief roadshow on Monday for a $285 million offering of eight-year senior secured notes.

The roadshow wraps up on Wednesday.

Citigroup and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used to repay the outstanding balance under the company's existing $200 million senior secured term loan due 2015 and to fund an approximately $74 million cash distribution to the sponsor.

DirectBuy sets talk

Finally, DirectBuy talked its $325 million offering of six-year senior secured second-lien notes (B2/B) with a 12% coupon, at an issue price of approximately 97, to yield 12¾%.

Pricing of the transaction, which has been sidelined since the roadshow concluded during the Jan. 10 week, hinged on pending documentation, and was expected to take place late Friday or on Monday.

No terms were available at press time on Friday.

J.P. Morgan Securities LLC has the books.

The DirectBuy price talk heard on Friday, foreseeing a 12¾% yield, is substantially higher than the 11% context at which initial discussions began, sources said.

Investors say 'oh, yes!' to ONO

When the new ONO Finance II deal was freed for aftermarket dealings, traders saw the dollar-denominated portion of the Spanish cable and broadband company's new issue soaring in the secondary.

One saw the new 8.5-year bonds jump up to 104 bid, 105¼ offered - well above the $225 million tranche's par issue price earlier.

The trader was amazed at the new deal's strength - "what the heck?" he interjected, calling the high price "crazy", but then conceded that "it [the quote] looks real."

A second trader confirmed that the new bonds were up in nosebleed territory at 104½ bid, 105¼ offered.

Vanguard in the forefront

Traders also saw brisk upside movement in Nashville-based hospital operator Vanguard Health Systems' new two-part deal, particularly its zero-coupon senior discount notes portion.

Those bonds were freed to trade on Friday morning.

Several joked that it had been a good four or five years since any zeroes - once a common high-yield financing structure - had been seen in Junkbondland. Their return would indicate a greater investor appetite for risk, or at least, a greater tolerance for risk in search of more yield.

"It's like we're back in 2006 or 2007," one quipped.

A trader quoted the new zero-coupon notes due 2016 at 62 7/8 bid; they had priced Thursday at 59.845 to yield 10 5/8% and generate $444.655 million of proceeds, upsized from the originally envisioned $375 million.

"People are just buying risk," he declared, although he acknowledged that there might be something of a novelty to buying an unusual structure that has not been seen around for the past few years on the chance assumption that it might pay off.

He said that "the zeroes definitely did better" than the other part of that deal - the company's $350 million of conventionally structured 7¾% notes due 2019. That issue, downsized from the originally planned $375 million, had priced at par.

On Friday, the bonds moved up moderately to 100¾ bid, 101 1/8 offered, but then "kind of died this morning" at that level, he said. .

Florida Rail still on track

Meanwhile, the star performer from Thursday's market - Florida East Coast Railway's new 8 1/8% senior secured notes due 2017 - continued to chug along at the higher levels it reached when it was freed for aftermarket dealings that session.

The Jacksonville, Fla.-based freight railroad operator had priced $475 million of the bonds, upsized from $450 million originally, at par late Wednesday, but they did not trade till Thursday, when they firmed smartly.

On Friday, a trader said, the bonds traded around in a 103¼ to 103½ range. They had traded as high as 103 3/8, "but then bracketed that, actually. They settled in" around the current levels after having gotten as good as 103½ bid on Thursday.

Indicators come back

Away from the new deal arena, a trader saw the CDX North American Series 15 HY index up by ¼ point on Friday to end at 103 5/8 bid, 103 7/8 offered, after having been unchanged on Thursday.

The index thus ends the week up slightly from the 103½ bid, 103¾ offered level seen at the close of trading for the previous week, ended Friday, Jan. 14.

The KDP High Yield Daily index meantime was unchanged at 74.97, after having fallen by 4 basis points to that level on Thursday. Its yield was likewise unchanged at 7.10%, after having risen by 2 bps to that level on Thursday.

The index reading was unchanged from the prior week's close, although the yield was slightly above the previous Friday's 7.08%.

The Merrill Lynch High Yield Master II index was back on a firming trend Friday after having lost ground Thursday for the first time in seven sessions. The index rose by 0.068% on Friday after having eased by 0.054% on Thursday. Friday's year-to-date return of 1.521% was up from Thursday's 1.452%, and was also a new peak level for 2011, eclipsing the old high of 1.507%, set Wednesday. The index rose by 0.186% on the week, to surpass the 1.333% cumulative return recorded the previous Friday.

Advancing issues moved back out in front of decliners on Friday by a better than six-to-five margin. On Thursday the decliners had finally overtaken the gainers for the first time in 17 sessions - a winning streak for the advancers that dated back to mid-December. The losers led the gainers on Thursday by about a six-to-five advantage.

Overall activity, represented by dollar-volume levels, rose by 11% on Friday after having gained 5% on Thursday from the previous session's level.

Apart from secondary trading in the new-issue world, a trader called Friday's session "pretty much a quiet day.

"I didn't have much fun at all."

Sale buzz sweet music for Warner

One secondary name which did see some notable price action and activity was Warner Music Group, whose bonds - and New York Stock Exchange-traded shares as well - rose solidly on news reports indicating the New York-based music publishing and recording company had hired Goldman Sachs & Co. to beat the bushes and look for a possible buyer or buyers.

A trader saw the company's 9½% notes due 2014 move up to 100¾ bid, 101 offered from Thursday's levels around 97¾ bid, 98½ offered.

"A lot of bonds traded, actually," he said.

He said the company's 2016 bonds got as good as 108¾ bid, although they went home at 106¾ bid, 107 offered, not too much changed from Thursday's close at 106½ bid, 106 5/8 offered, "so they went up a lot, but then settled back down."

The company's shares meantime zoomed by $1.29, or 27.33%, to end at $6.01.

Harry & David steadies again

Elsewhere, a trader saw Harry & David Operations Corp.'s 9% notes due 2013 firming for a second consecutive session on Friday, as the bonds bounced back - though only a little, relatively speaking - from the dramatic lows seen earlier in the week after the Medford, Ore.-based marketer of fruit baskets and other gourmet food gift items warned about its debt an liquidity situation.

He quoted those bonds at 44 bid, 45 offered, up from around 42½ bid seen late in the day on Thursday.

That in turn was well up from the lows around 38 at which the bonds had finished on Wednesday and up still further still from Wednesday's absolute intraday lows around 33, which were hit as investors hammered the bonds down savagely from bid levels around 72.

Those higher levels had been seen before Tuesday's announcement by Operation's corporate parent, Harry & David Holdings, warning that based on the company's preliminary financial results for the quarter ended Dec. 25 - which it lamented were "significantly below" management's expectations - it will fall out of compliance with the financial covenants under its revolving credit facility and thus will not be able to borrow on the facility unless the lenders agree to amend the facility or to waive the non-compliance.

The company also warned that while its cash on hand is sufficient to fund short-term operations, it will not be able to finance its continuing operations without securing new capital and restructuring its debt based on its current working capital and anticipated working capital requirements and operational results.

Harry & David said that it had hired Rothschild Inc. as its financial adviser and Jones Day as legal adviser to explore recapitalization alternatives, and said it plans to hold discussions with its revolving credit lenders, bondholders, other creditors and owners in an effort to recapitalize.

Kellwood seen poised for move

A trader said that Kellwood Co. is an example of a bond which "has been beaten down, and now people are saying their results are going to be better than they originally thought."

He said that the 7 5/8% notes due 2017 of the St. Louis-based apparel company, currently controlled by Sun Capital Partners, Inc., "have been beaten down into the low 50s, but they look like they're ready to pop here."

As a private equity company's portfolio company, he said, "they don't publicly give out a lot of information" - but he was hearing that "their results are anticipated to be much better" than previously thought.

"People are looking for names that are trading in the 40s and 50s," he said, "because there aren't that many good ones."

Another trader said that the 7 5/8s are quoted bid around a 50-52 context, but he added that "not in a long time" had he seen much real trading in them. He said the company's other issue, its 12 7/8% notes due 2014, trades around 91 bid.

Kellwood fans were encouraged with the announcement earlier in the month that the company - which already sells clothes under a variety of well-known fashion labels such as Baby Phat, Phat Farm, Sag Harbor, Vince, ISIS, ADAM, Briggs NY, Jolt, and My Michelle, as well as licensed brands XOXO and David Meister, has acquired upscale women's sportswear line Rebecca Taylor. Kellwood is also reported in talks to buy the Gryphon label.

Autos mostly idling

A trader saw Motors Liquidation Co.'s benchmark 8 3/8% bonds due 2033 - issued when the company was still called General Motors Corp., before its 2009 bankruptcy reorganization - unchanged on the day Friday, quoting the bonds around 35¼ bid, 35¾ offered.

He meantime saw GM domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 likewise steady at 107¾ bid, 108¾ offered.

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