Sabre bonds price, soar, new CIT tranches up; Chesapeake chokes on results, new CEO woes

By Paul Deckelman and Paul A. Harris

New York, May 2 - Sabre Inc. took a trip to Junkbondland on Wednesday, as the travel information technology company priced a $400 million seven-year secured bond deal off the forward calendar. Traders said the new issue firmed smartly when it was freed for aftermarket dealings.

That was the sole pricing seen on Wednesday.

Both tranches of the massive drive-by offering from lender CIT Group Inc. were heard to have firmed by as much as a point when they began trading around during the morning. The $2 billion offering of five- and eight-year paper had actually priced at par on Tuesday, but came too late for secondary dealings immediately afterward.

Away from the issues which actually priced, high-yield syndicate sources said that home décor products retailer Garden Ridge Corp. is set to kick off a $360 million seven-year secured offering with a Thursday investor call.

They also heard price talk on car-rental operator Europcar Groupe SA's euro-denominated five-year secured paper deal, which is expected to price Thursday.

Away from the primary arena, Chesapeake Energy Corp. - whose bonds and shares had actually traded up solidly on Tuesday - spat up all of those gains and then some on Wednesday, tumbling in heavy trading in response to poor quarterly numbers and the surprising claims that the natural gas company's embattled CEO also had a sideline venture for some years running a hedge fund that speculated in commodities that included....energy futures.

Overall, the market, reflected in statistical measures, turned mixed Wednesday after more than a week on the upside.

Sabre prices $400 million

Sabre priced Wednesday's only deal, a $400 million issue of seven-year senior secured notes (B1/B) that came at par to yield 8½%.

The yield printed at the tight end of the 8½% to 8¾% yield talk.

Goldman, Sachs, Morgan Stanley, Deutsche Bank, Bank of America Merrill Lynch, Barclays, Natixis and Mizuho were the joint bookrunners for the debt refinancing and general corporate purposes deal.

Late Wednesday word circulated that Evertec, LLC and Evertec Finance Corp. had priced a $40 million add-on to their 11% senior notes due Oct. 1, 2018 (existing ratings Caa1/B-).

However final terms will not be available until Thursday, a syndicate source said during a telephone call.

A sell-side source, not in the deal, said that the word going around the market is that the Evertec deal is essentially done at 105. However this source had not seen a yield to worst or a settlement date.

Bank of America Merrill Lynch is the lead left bookrunner. Morgan Stanley is the joint bookrunner.

The original $220 million issue priced at par in September 2010.

Europcar sets talk

Europcar talked its €335 million offering of five-year senior subordinated secured notes (Caa1/B-) to yield 12¼% to 12½%, and pricing with 3 to 5 points of original issue discount, a syndicate source said on Wednesday.

The deal is set to price on Thursday.

Joint bookrunner Deutsche Bank will bill and deliver for the debt refinancing deal. Credit Agricole, Goldman Sachs, J.P. Morgan, SG and Royal Bank of Scotland are joint lead managers.

Europcar is part of an active European high-yield calendar totaling €1,775,000,000.

Included in that total are Lecta SA, which is in the market with €590 million in two tranches of notes, and Monier Group, which is marketing a €250 million offering of seven-year senior secured notes. Both are expected to price before Friday's close in Europe.

All for the better, remarked a London-based sellside source who spoke by telephone on Wednesday.

The reason is that Greece is set to hold its general election on Sunday, and that election, if it produces a workable coalition, is apt to produce one that reflects the electorate's desire for a renegotiation of the austere fiscal measures spelled out in the Greece's Memorandum of Understanding with the International Monetary Fund.

Such a re-negotiation is unlikely to receive a warm reception from the IMF, and hence Greece, which has proven to be a disruptive force in the global capital markets for the past three years, could ignite yet another disruption in the European credit markets, and perhaps beyond, the sellsider said.

Garden Ridge sets Thursday call

Only one new deal announcement was heard on Wednesday.

Garden Ridge will host an investor call on Thursday to present a $360 million offering of seven-year senior secured notes.

The deal is set to price during the middle part of the week ahead.

Jefferies and UBS are the joint bookrunners.

With respect to credit ratings, the deal has a single-B profile, according to the source.

Garden Ridge, a Houston-based superstore chain specializing in home decor, plans to use the proceeds to refinance existing debt.

Other than Sabre and the Garden Ridge announcement, the primary market in the United States remained generally quiet on Wednesday.

And syndicate officials do not look for a dramatic pickup in activity for the remainder of the week.

Sabre soars in secondary

When the new Sabre 8½% senior secured notes due 2019 were freed for aftermarket dealings after pricing at par, a trader said that "the very first picture we saw" was 101 ¼ to 102.

After that, he said, the travel information technology company's deal moved up to 102¼ bid, 102¾ offered.

"They hit that 2¼ bid," he said, but a little bit after that "they moved back up" to late levels around 102 3/8 bid, 102 5/8 offered.

CIT mega-deal moves up

A trader said that CIT Group's big two-part bond offering that priced late Tuesday "was fairly active" on Wednesday morning, and then the trading volume intensified as the day wore on, until both tranches of the New York-based commercial lender and online banking company's new deal were among the most actively-traded junk credits of the day.

He saw both its $1.25 billion of 5% notes due 2017 and its $750 million of 5 3/8% notes due 2020 trading in a range between 100½ and 100 7/8 bid on the day, "kind of bouncing around between there."

Both halves of that drive-by deal had priced at par on Tuesday, too late in the session for any immediate aftermarket.

He saw some $90 million of the 5% bonds and $52 million of the 5 3/8s changing hands Wednesday.

A second trader said that "a lot of those things were just put away," with the bonds ending up in the hands of "better holders" rather than in-and-out flippers.

"There was really good demand and it was received very well," he said, quoting the new 5 3/8% paper at 100¾ bid, 101 offered.

Yet another trader observed the 5% notes trading as high as 101 bid, quoting them going out at 100¾ bid, 101 offered, "so they're up a bit."

He saw the 5 3/8s last trading at 100½ bid, 100¾ offered. Although their volume was brisk in its own right, he said that "they were much quieter" than the 5% notes.

Most of the trades, he said, went off between 100 3/8 and 100¾ bid.

A market source at another desk meantime saw the company's existing 5¼% notes due 2018 actively traded around 102 bid, on volume of over $17 million.

Another trader saw those bonds in "a fairly tight market," at 102¼ bid, 102 3/8 offered.

Harland Clarke gets clocked

A market source said that Harland Clarke Holdings Corp.'s 9½% notes due 2015 - which had been bouncing crazily around on Tuesday at mostly higher levels as the company started shopping a new bond deal around - came down from those higher prices on Wednesday.

He saw them down a point on the day at 92¾ bid.

Volume was also down sharply from the $28 million which had changed hands on Tuesday, when the bonds soared as high as 99 bid during the day before going home at 94, still up by several points on the session.

The San Antonio, Tex.-based business services company was heard by junk market syndicate sources to be shopping a $300 million senior secured note issue around as part of its pending amend-and-extend transaction on its senior secured term loan facility.

Chopping up Chesapeake

Away from the new-deal arena, the key name of the day was Chesapeake Energy - whose bonds, and its New York Stock Exchange-traded shares - fell sharply, just a day after they had firmed solidly.

"They're just running out gas," one trader quipped regarding the Oklahoma City-based energy operator's paper.

He saw its most widely-traded issue, the 6.775% notes due 2019, "by far the most active," with at least $85 million having changed hands by the time trading wound down.

Another market source estimated even heavier volume of some $99 million, with at least $72 million of the company's 9½% notes due 2015 having traded, $49 million of its 6 1/8% notes due 2021 and at least another $45 million of its 6 5/8% notes due 2020 having turned over.

The first trader saw those 2019 bonds down by 4¼ points on the day, last trading at 95.

He saw the 6 1/8% notes off by 3½ points on the session at around 921/2, with most of the rest of the company's issues down anywhere from 2½ to 3½ points, depending on the specific issue."

He saw the biggest loser pricewise "by far" as the Chesapeake 7¼% notes due 2018, which plunged over 5 points to 98½ bid, although he said volume on that one was relatively restrained, at just $4 million.

Another trader saw the 6.775s trading in a 95ish context, while the company's 5 1/8% notes due 2020had fallen to 94 bid, 94 ½ offered.

"Holy cow," yet another trader exclaimed "the 6.775s were all over the lot." He saw them trading between 95 and 96 during the day, well down from levels around 99¼ on Tuesday, when the bonds had risen by 1½ to 2 points.

"They are well below where they were trading Monday, at around 971/2," he said.

Hedge fund horror story

As to why the bonds fell so sharply on Wednesday after having risen solidly on Tuesday in active dealings - over $30 million of the 6.775s turning over - a trader suggested that first-quarter earnings had been "disappointing."

Perhaps even more disappointing, at least from a bondholder's perspective, was the company's statement that amidst its financial weakness total debt had risen to $13.1 billion by the end of the first quarter, a substantial increase from the $10.6 billion on the balance sheet at the end of the 2011 fourth quarter, putting the company further away from its goal of reducing that debt load to $9.5 billion by the end of the year.

Chesapeake hopes to do this through asset sales - but it disclosed on Wednesday that it faces the daunting task of selling between $9 billion and $11 billion of assets in order to both pay down that debt as planned and to fund its ambitious capital budget, which is greater than the amount of revenues coming in from energy sales, with average natural gas prices in the United States having fallen to $1.96 per thousand cubic feet at the end of the first quarter from $3.33 at the end of the fourth quarter.

But the trader mentioned another, even more surprising disclosure that took center stage on Wednesday.

Reuters released the latest in a series of bombshell reports about the personal finances of Chesapeake's chief executive officer and then-chairman, Aubrey McClendon.

Two weeks ago, it had reported that McClendon had personally borrowed over $1 billion from the same lenders who dealt with Chesapeake in order to be able to take part in a program allowing him to buy into a 2.5% stake in the company's numerous gas and oil wells, with his stake securing those loans.

On Wednesday, Reuters reported that from 2004 to 2008, McClendon, while serving as chairman and CEO, was also running a side business - a $200 million hedge fund that invested in various commodities, including energy futures - with critics claiming at least the appearance of a possible conflict of interest.

On the company's conference call, McClendon apologized to shareholders for the "distractions" the news about his personal finances have caused, but he did not address the substance of the latest Reuters report. At least one U.S. Senator called for an investigation of the company following the latest disclosure.

A trader said that the legalities remain to be sorted out - but he opined that "if you're in your house and you smell gas, you want to run out before it blows up. That may be the case here, where people are starting to smell something that doesn't pass the sniff test, and they're bolting.

"It's not their mandate to be in a dicey ride like this - and if you can get out of this paper while it is still yielding 7% or 7½%- why not?"

Market measures mixed

Statistical measures of junk market performance turned mixed on Wednesday, after six consecutive sessions before that on the upside.

A trader saw the Markit Group CDX North American Series 18 High Yield Index unchanged for a second straight day on Wednesday, at 96 11/16 bid, 96 15/16 offered.

The KDP High Yield Daily Index meanwhile fell by 5 basis points to end at 74.10, after having risen by 15 bps on Tuesday. Its yield rose by 3 bps to 6.48%, after having declined by 5 bps on Tuesday.

But the widely followed Merrill Lynch U.S. High Yield Master II Index posted its seventh straight daily gain Wednesday, rising by 0.075%, following Tuesday's hefty 0.245% advance.

That lifted its year-to-date return to 6.565%, a new peak level for 2012, from 6.485% on Tuesday, the previous 2012 high-water mark.

That left the cumulative return to its highest level since Dec. 31, 2010, when it ended that year at 15.19%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.