Issuers Queue Up, But Will They Get In The Club?

As I write this Thursday afternoon, the high yield primary market has a queue of four companies that have announced their intention to issue bonds. Two others priced offerings earlier in the week—one $135 million less than it had hoped, the other with a supersized OID—and this situation has some folks, including myself, wondering if we might have a case of the overloads. 

While the high yield primary market has held up quite well during the past couple of months, especially in light of a plunging stock market and overall economic turmoil, this doesn’t mean demand is strong enough to absorb whatever issuers throw at it.

Don’t get me wrong, investors tell me they still want to buy decent credits. “There’s probably a fair amount of cash on the sidelines looking for stable credits,” one portfolio manager said, but he is somewhat concerned about the volume. “We’ll see,” he said in regards to whether the current crop of deals can get done. 

Citigroup has been road showing a bond offering from telecommunications company Digicel Limited, which is hoping to price $435 million in senior notes due 2014 by the end of the week (er, tomorrow). Moody’s Investors Service has rated the notes B1, and Fitch Ratings has assigned a B- rating.

Pricing on a deal for Anixter International, a communication products supplier planning to issue $200 million in senior notes due 2014 is also expected by tomorrow. That deal is led by Banc of America Securities.

And Deutsche Bank has been on the road this week with a deal for Dole Foods—$325 million in senior secured third-priority notes due 2014. Pricing for that offering is expected next week.

Finally, Nuevo Energy hopes to issue $500 million in senior subordinated notes due 2016, a deal JPMorgan is leading. No word on a pricing date for that offering. 

These companies may find themselves paying up for the privilege of issuing in today’s market, though some more than others. The two issues to hit the market earlier this week both came with a discount, but one was significantly larger than the other. Independent oil and gas company Plains Exploration & Production Co. downsized its planned $500 million issue to $365 million; the 10% senior notes due 2016 priced Tuesday with an OID of 92.37. The same day, building materials supplier Louisiana-Pacific Corp. priced $375 million in 13% senior notes due 2017, with a whopping OID of 75 to net the company $281 million.

But then companies having anything to do with construction aren’t exactly market darlings. A company such as Dole, a well-liked name, will likely fair much better. Whether all of these issuers can squeeze through the door into the club of the “done deal,” well, we’ll see.

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