Junk primary quiets; new Superior Energy trades up; shipping names listing as Frontline sinks

By Paul Deckelman

New York, Nov. 22 - The high-yield primary market seemed to go into its pre-turkey trance on Tuesday, as activity fell to a standstill.

The only "active" name on this week's forward calendar - chemical manufacturer Trinseo Materials Operating SCA - did not price. Several market sources are now saying the restructured six-year deal is in "day-to-day" mode.

Optima Specialty Steel, Inc., meanwhile, remains on a roadshow and is not expected to price its $200 million offering until the end of the month.

Among recently priced deals, traders saw Superior Energy Services Inc.'s $800 million offering of 10-year notes having moved up by a point from where that deal priced on Monday evening.

In contrast, Kodiak Oil & Gas Corp.'s eight-year deal, which priced on Friday and promptly shot up by 2 points from issue, continued to come in on Tuesday, giving up more of its initial premium.

Away from the new-deal arena, traders saw shipping names, particularly those who run oil tankers, taking on water after a major player in the tanker industry - Frontline Ltd. - fell into the red in the third quarter and warned that it would have to hold talks with creditors to restructure its obligations.

That in turn pushed sector peers like Teekay Corp., Overseas Shipholding Group, Inc. and Ship Finance International Ltd. lower.

Statistical measures of junk market performance continued to slide lower on the session.

'We're done'

Things were deadly dull in the high-yield primary market on Tuesday. A number of syndicate sources reported that absolutely nothing was going on.

One put it this way: "We're done through Thanksgiving."

Not only were no prospective new deals announced, but the one name listed on the forward calendar as a possible pricing this week appeared not to be going anywhere.

That would be the $450 million six-year offering from Trinseo Materials Operating, a Berwyn, Pa.-based chemical company.

It surfaced on the radar screen the day before Veterans Day and began shopping its planned deal around to would-be buyers via a roadshow last week. Price talk emerged on the offering Thursday, envisioning a yield of 12¼% including 3 points of original issue discount.

But after that - nothing. A sellside source reported on Monday that the deal "has gone day-to-day,' with the timing of the deal now "to be determined."

A source at a different desk confirmed on Tuesday that that's what he heard too.

The deal was originally supposed to be a seven-year bond but was restructured last week to shorten its maturity.

The Rule 144A/Regulation S deal, which is being sold with registration rights, is being brought to market via Barclays Capital Inc, which is the left lead, as well as Deutsche Bank Securities Inc., BMO Securities, Citigroup Global Markets Inc., Goldman Sachs & Co. and HSBC Securities (USA) Inc.

Trinseo - currently known as Styron LLC, although it plans a name change shortly - plans to use the anticipated deal proceeds to repay existing term-loan debt and for general corporate purposes.

Optima still on the road

Optima Specialty Steel - whose planned $200 million offering of six-year senior secured notes first surfaced on Friday - remains on a roadshow and is expected to continue marketing the deal to prospective investors through Nov. 30.

The Rule 144A for life deal is scheduled to come to market after that via bookrunner Jefferies & Co.

Optima is a steel products manufacturer based in Akron, N.Y., a suburb of Buffalo. It plans to use the anticipated deal proceeds, together with $34.9 million of sponsor equity from Optima Acquisitions, LLC, to fund its acquisition of Buffalo-based steel bar producer Niagara Lasalle Corp.

New Superior shows strength

Among recently priced new deals, traders saw the new 7 1/8% notes due 2021 of Superior Energy Services having moved up about a point from where they came to market on Monday.

A trader said the bonds were at 101 bid "most of the day," while several others quoted them going home at 101 bid, 101½ offered.

Superior, a New Orleans-based oilfield services company, priced that opportunistically timed and quickly shopped $800 million issue at par on Monday. The deal was upsized from an originally announced $700 million.

The deal priced way too late - well after trading had ceased for the day - for there to be any kind of an aftermarket on Monday.

It was the latest of a string of new deals to recently emerge from a resurgent energy sector, including offerings last week from Plains Exploration and Production Co., Kodiak Oil & Gas and Swift Energy Co., to name just a few.

Superior plans to use the new-deal proceeds, cash on hand and term loan and revolver borrowings under its senior credit facility, which it intends to amend and restate, to pay for the cash portion of its pending $2.7 billion acquisition of Complete Production Services Inc., a smaller, Houston-based oilfield services company.

It will also use some of the proceeds, cash and borrowings to repay Complete's $650 million outstanding 8% notes due 2016 and any amounts outstanding under Complete's revolving credit facility, which will be terminated, and to pay related fees and expenses.

Complete's 8% notes were seen up about one-quarter of a point on Tuesday at 104¼ bid.

A market source said volume of nearly $10 million made it one of the busier issues in Junkbondland on Tuesday.

Kodiak climb curtailed

While Superior was swimming along, traders said that one of those other energy deals - Friday's $650 million offering of 8 1/8% notes due 2019 from Denver-based exploration and production operator Kodiak Oil & Gas - was continuing to retreat from the solid highs those bonds hit immediately after pricing.

A trader saw the bonds at 100 5/8 bid, 101 5/8 offered on Tuesday.

That was down from around 101 bid, 102 offered on Monday.

And it was well down from late Friday trading levels above 102 that had been seen when the new issue was freed for dealings after it priced at par.

Traders chalked the erosion up to overall weakness in the market rather than any specific investor problem with the Kodiak deal, which was upsized from the originally announced $550 million.

Entercom erodes

Friday's other new deal - the $220 million offering of 10½% notes due 2019 from Bala Cynwyd, Pa.-based broadcasting company Entercom Radio LLC - was quoted by a trader "down a couple of points," having fallen to 95 bid, 96 offered.

That was well below the levels seen after that issue began trading on Monday, which ranged anywhere from a 99 bid, 99¼ offered level on the high side to a 98½ offered, with no bids seen, on the low side.

That offering was downsized from the originally announced $250 million. It priced on Friday at 98.672 to yield 10¾% but did not begin trading around till Monday.

Junk still in a funk

Away from the new deals, traders said that Tuesday's market was definitely quiet - and likely to get even quieter on Wednesday, the last session before the Thanksgiving holiday break.

They also saw what one called "a weak tone" as junk continued to be influenced by the ongoing downturn in the equity market.

A second trader said that with liquidity relatively low, "it's easier to push issues around."

Statistical secondary market performance indicators were off for a sixth consecutive session on Tuesday.

A trader said the CDX North American series 17 High Yield index was off by ½ point on Tuesday to end at 88½ bid, 88¾ offered. That followed Monday's nosedive of 1 1/16 points.

The KDP High Yield Daily index fell by 39 basis points on Tuesday to end at 70.88 after it dropped by 45 bps on Monday.

Its yield jumped by 127 bps on Tuesday, to 7.95%, after having risen by 12 bps on Monday.

And the widely followed Merrill Lynch High Yield Master II index lost 0.355% on Tuesday, its sixth consecutive loss. That followed Monday's 0.497 % downturn.

That loss left the index's year-to-date return at 1.552%, down from 1.913% on Monday.

That was the lowest the index has been since Oct. 20, when it showed a 1.266% cumulative return.

Tuesday's return remains below the index's recent peak level of 4.28%, recorded on Oct. 28, and is well below its high-water mark for the year of 6.362%, which was set on July 26.

However, the 1.552% return is still well up from the index's 2011 low point, a 3.998% deficit recorded Oct. 4.

Junk continued to take its cue from stocks, which ended lower on Tuesday after previously reported third-quarter U.S. economic growth numbers were revised downward. And the European debt situation was also weighing heavily on investors' minds.

The bellwether Dow Jones industrial average fell 53.59 points, or 0.46%, on Tuesday to close at 11,943.72. It plunged nearly 249 points on Monday.

The S&P 500 and Nasdaq indexes were down by 0.41% and 0.07%, respectively, on Tuesday.

Tankers sink as Frontline falters

Among specific names, a trader said that "the shipping space got hit pretty good" after Frontline, a Bermuda-based oil tanker operator, posted a sizable third-quarter loss and said it would seek talks with its creditors on restructuring its liabilities. It also warned that "if the current weak market continues and no solution can be found, there are significant uncertainties linked to Frontline's sustainability in the present form."

A second trader said that Frontline's 4.5% convertible notes due 2015 - which were trading around 43 bid last week - swooned to around 31.5.

Frontline's New York Stock Exchange-traded shares meantime plunged by $2.13, or 41.04%, to end at $3.06. Volume of 15 million shares was over five times the norm.

As for straight junk issues in the shipping sector, a trader said that Teekay's 8½% notes due 2020 traded down to 95 from previous levels above 98.

A market source at another desk said that the bonds were down about 3½ points on the day, though only off about 2¾ points on a round-lot basis, factoring out small and unrepresentative trades. Volume was about $2 million, meaning relatively light even by the standards of this week's less-busy junk market.

"Ouch," said a trader who looked at the Teekay paper and saw it down nearly 4 points. But given the relatively small volume and the lesser loss from the last round-lot trade, the trader allowed that "they weren't exactly getting crushed."

The first trader also saw New York-based tanker company Overseas Shipholding Group's 8 1/8% notes due 2018 trade down to 73½ bid, down 4 points on the session and down 5 points from the most recent round-lot trade, earlier this month. About $3 million of the bonds traded.

He said that Ship Finance International's 8½% notes due 2013 fell to an 87-88 context.

Another market source saw the Bermuda-based tanker operator's bonds down even further, quoting them going home a little above 85 - down 7½ points on the day, though only down around 5 points from the most recent round-lot levels seen last week. However, none of Tuesday's trades were of round-lot size.

A trader saw bankrupt New York-based tanker operator General Maritime Corp.'s 12% notes due 2017 at 9½ bid.

Travelport trades up

A Trader said that Travelport LLC's 9 7/8% notes due 2014 rose after favorable news on the legal front. He said the Atlanta-based travel services company's issue "actually traded up a couple of points, one of the few things that was up today," to the 62-63 area, up from about 60 bid previously.

Travelport claimed that a Texas federal judge threw out most of American Airlines' antitrust lawsuit against Orbitz Worldwide, the flight-information provider and online travel agent that is 48% owned by Travelport.

Travelport said that the judge dismissed the airline giant's claims that Orbitz monopolizes distribution of airline fare and flight information to travel agents.

However, American Airlines claimed that the setback was only procedural and that the judge actually allowed its main antitrust claims to proceed.

Harrah's busy but steady

A trader said that Caesars Entertainment Corp.'s 10% notes due 2018 were basically unchanged to maybe down one-quarter point just below the 62 level.

The company is the former Harrah's Entertainment.

A market source said the Las Vegas-based gaming giant's most widely traded issue was the busiest junk bond of the day, with about $30 million changing hands.

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