Nortel prices upsized add-on, El Paso drops ahead of upcoming issue; asset sale boosts Spectrum Brands

By Paul Deckelman and Paul A. Harris

New York, May 21 - Nortel Networks Corp. successfully priced an upsized, quickly-shopped add-on to its existing 10¾% notes due 2016 on Wednesday. As has been the case with a number of recently priced junk deals, the new bonds did not go very far in secondary dealings - likely an indicator that the offering had been priced at an appropriate level.

Also on the new-deal front, price talk emerged on Noble Group's half-billion dollar issue of five-year notes, and El Paso Corp. was heard by high yield syndicate sources to be getting ready to price its own $500 million offering, most likely on Thursday. Secondary market traders meantime saw the Houston-based natural gas exploration, production, storage and transmission company's outstanding issues lower.

Back among secondary names having no new-deal connections, Spectrum Brands Inc.'s bonds were up solidly on the news that the Atlanta-based consumer products company had reached a deal to sell of its pet-care business, with the proceeds expected to go to debt paydown.

Also on the upside were Six Flags Inc. and Young Broadcasting Inc., although there didn't seem to be any fresh news out on either company.

A high yield syndicate official said the release of the minutes from the April meeting of the Federal Reserve's Federal Open Market Committee, reinforcing a widely held view that the Fed will discontinue its latest round of interest rate cuts, seemed to sour the market's mood.

"It wasn't doing all that well before that, to be honest," the official conceded.

Sources roundabout the market mentioned crude oil prices cresting well above the $130 per barrel price.

"We're in kind of a lull, here," said a source from a high yield mutual fund.

"I think the market was ahead of itself."

Nortel massively upsizes add-on

Nortel Networks Ltd. priced a massively upsized $675 million add-on to its 10¾% senior notes due July 15, 2016 (B3/B-) at 99.00 to yield 10.933% on Wednesday, continuing the May parade of drive-by deals.

The issue price came on top of the price talk.

JP Morgan and Citigroup ran the books for the debt refinancing deal that was upsized from $500 million.

Shortly after the Nortel terms circulated a buy-sider, who was in the deal, spotted the bonds trading at 99½ bid, 99¾ offered.

However, the source added, the week's other non-energy deal, DISH Network Corp. subsidiary EchoStar DBS Corp.'s new 7¾% senior unsecured notes due 2015 (Ba3/BB-), which priced at 99.75 to yield 7.797% on Tuesday in an upsized $750 million issue, were not faring as well.

"DISH is off a little less than a point," the buy-side source said, adding that accounts which typically put in large orders expecting to end up with allocations that are cut back to mere fractions of those orders unexpectedly got much bigger allocations of the EchoStar bonds than they are accustomed to receiving.

In other words the accounts were "stuffed," the buy-sider said, translating that expression to mean that the accounts ended up being allocated 50% of their original orders.

However the bleeding among recent issues didn't stop with EchoStar on Wednesday, as sources were marking other recently priced notes lower, including the new Chesapeake Energy Corp. 7¼% senior notes due Dec. 15, 2018 (Ba3/BB) which priced Tuesday at par, and the Forest Oil Corp. add-on senior notes to its 7¼% notes due June 15, 2019 (B1/existing BB-) which priced at 100.25 to yield 7.216% on Monday in a $250 million deal.

"They were good executions," one high yield syndicate official remarked.

"But they look a little tight given what has gone on in the world over the past 36 hours."

El Paso plans $500 million for Thursday

El Paso Corp. plans to sell $500 million of 10-year senior notes (expected ratings Ba3/BB-) on Thursday in a debt refinancing deal via Deutsche Bank Securities, Goldman Sachs and JP Morgan.

Elsewhere China's Noble Group set price talk for its $500 million offering of five-year fixed-rate senior notes (Ba1/BB+/BBB-) at 8½% to 8¾% on Wednesday.

The Rule 144A/Regulation S debt refinancing deal is expected to price Thursday, New York time, via Citigroup and JP Morgan.

Finally, an informed source advised Prospect News to remove from its forward calendar the Royalty Pharma $200 million senior unsecured fixed-rate term loan due 2015 (/BB+/BBB-), via Banc of America Securities, explaining that the deal had been done internally, and no terms were available.

New Nortels up just slightly

When the new Nortel 10¾% notes due 2016 were freed for secondary dealings, a trader saw the bonds opening at 99.75 bid, 100.75 offered, up from their issue price at 99. The bonds seemed to come off those peak levels as the day wore on, with the trader seeing them going home at 99.25 bid, 99.5 offered, "so it's still at a premium, but it seems to have not held up."

Another trader saw the new bonds having opened around 99.5 bid, par offered, but then later trading down into a 99.25 bid and going home at 99.25 bid, 99.75 offered with things "pretty much done for the day."

He meantime saw the company's existing bonds trading lower, with its 10¾% notes due 2016 moving between 99.125 and 100.5 before finishing at 99.5, "in sync with the new ones." A week ago, the bonds had been trading at 101 bid, 101.5 offered.

Nortel's 10 1/8% notes due 2013 were at 99 on Wednesday, down 1¼ points from where they were at the start of the week. Its floating-rate notes due 2011 stayed anchored around the 94 level, "so there was not much change there."

Established El Paso bonds easier

Talk in the market that El Paso will bring a $500 million bond issue was seen by several market participants as the catalyst for a retreat in its established issues.

A trader called its 7% notes due 2017 "down a point or so" at 102 bid, 103 offered. Another market source saw those bonds at 103.5, down nearly a full point. And a third saw the bonds at 103, down about 1½ points.

Chesapeake continues aftermarket struggle

A trader saw the issues which had priced on Tuesday "a little softer," with the new Chesapeake Energy Corp. 7¼% notes due 2018 trading around 99.75 most of the day. The $800 million of new bonds had priced at par, but then fell to around 99.25 bid, 99.75 offered in immediate aftermarket dealings.

On Wednesday, he said, "the bid would get hit and it would back off to 99.625 then would come back and maybe go up to 99.75, but the market seemed to be pretty tight inside of 99.625-99.875, with most of the trades taking place at 99.75."

Another trader saw the bonds at 99.75 bid, 100.25 offered, although at another desk, they were being quoted as low as 99.25 bid, 99.75 offered.

Plains at a premium

A trader saw the new Plains Exploration and Production Co. 7 5/8% notes due 2018 trading around 100.25 bid, 100.5 offered late in the session.

The Houston-based independent oil and gas exploration and production company priced an upsized $400 million of the bonds at par on Tuesday; after initially struggling, they cautiously moved back up to end just slightly north of par. On Wednesday, he said, the bonds had traded as well as 100.75, before dropping off that peak to the 100.25-100.5 level.

Another trader saw the bonds finishing at 100.25 bid, 100.75 offered, with a final round-lot trade a little earlier around 100.375, "so they're definitely outperforming the Chesapeakes, and still trading at a slight premium to issue, which is impressive [in a market environment] where stocks are down 227 [points on the Dow Jones Industrial Average], Treasuries are lower, and there's definitely more of a negative short-term tone on the overall market. So it's very impressive on the Plains [issue]."

Another recently-priced energy name is SandRidge Energy Inc., whose $750 million of 8% notes due 2018 priced at par a week ago. The trader saw them on Wednesday "extremely strong," holding to levels at 101.25 bid, 101.5 offered.

DISH rally try doesn't fly

Among the recent non-energy bonds, a trader said that the new EchoStar DBS Corp. 7¾% notes due 2015, which had priced at 99.75 late Tuesday but which then did not immediately trade in the aftermarket, "seemed to not get out of the way [Wednesday] right off the bat."

He said that in the morning, the Englewood, Colo.-based satellite television broadcaster's upsized $750 million of bonds had opened at par bid, "they hit that bid, then they hit the 99.625 bid, and there were more for sale. There seemed to be some trading" around the 99.375 bid, 99.625 offered level before the bonds traded back up to the 99.5- 99.625 level. "Right off the bat, they tried to open it up stronger," but most of the day's trading took place at the 99.375 bid, 99.625 offered.

Another trader saw the bonds going out at 99.5 bid, 99.75 offered, "so obviously, they're a little bit easier" versus both its issue price and Wednesday's initial level.

And another had them going out at 99.25 bid, 99.75 offered.

New Hovnanians hangs in

A trader saw the recently priced Hovnanian Enterprises Inc. 11½% notes due 2013 still at 103 bid, 103.5 offered, the high level to which they had shot up after pricing Monday about a point below par. He called the continued strength "impressive," especially in the face of a generally easier market because "it would be so easy to get cash by selling the bonds."

A trader saw the Red Bank, N.J.-based homebuilder's established 6 3/8% notes due 2014 and 6¼% notes due 2016 down a point to 70.

Another trader saw Hovnanian's 8 7/8% notes due 2012 somewhat lower at 77.375, versus Tuesday's round-lot prices in the 78-79 range, while yet another called the bonds 76 bid, 77 offered, "down a couple."

No impetus to go up

Commenting specifically on the new Chesapeake, Plains Exploration and Production, EchoStar and Nortel offerings, a trader said that "it looks like a lot of these deals were priced for perfection," leaving little room for much upside. Then the equity market "took a beating today, the second day you've had the equity market get hammered, and governments [bonds] are off a little bit. Then you had the Fed minutes [from the FOMC policy committee's recent meeting], came out, and the discussion about how the [most recent] interest-rate cut was the last cut probably didn't help things."

With all of that going on, the trader said that the forward calendar of upcoming issues had recently been "heavily weighted towards energy names" like Chesapeake and Plains, among others, but added that EchoStar came, and Nortel came and the Nortel deal is still trading at a premium" to par. He further declared that the 10¾% coupon "is a nice coupon, compared with the 7%-type paper that's been coming in the energy sector,

"And if the [junk] market holds in, it seems like there will still be a stream of energy deals coming. So I don't think there's a lot of reason for the market to better when you have days where the rest of the stuff that's going on is just weighing on the other markets, it doesn't make for a strong market."

He said that even though junk generally was off, "they were still able to put new issues away. I'm not sure where the point is where the market has to back off to get these issues done, as opposed to being able to take them and not trade up."

Spectrum is special

In the secondary market, a trader said, "everybody is sort of focusing on the weakness in the equity market, and the calendar." He said that the junk market generally was down about ½ point on the day, "with not a whole lot trading going on - it was a pretty quiet afternoon."

He also said that "there was a little flurry [Wednesday] morning with the Spectrum news coming out - its bonds traded up a few points."

He saw its 11% notes due 2013 trading between 87.5 and 88.5 bid, from 85 previously. There was "a fair amount of trading" going on in the name. He saw the 7 3/8% notes due 2015 trading in a 70-71 context, up from 68 previously. "There was not as much trading [in the latter issue] as there was in the 11s, but there were some trades."

A second trader said that Spectrum was "the big mover to the upside, with the 11% notes up 3½ points to 87.75 bid, 88.75 offered and its 7 3/8% notes 2 points better at 69 bid, 71 offered. At another shop, the 11s were quoted as high as 90 and the 7 3/8s at 69, both up 2 points on the day.

Yet another trader opined that that Spectrum had "bucked the [market's generally easier] trend, no doubt about it."

He quoted the 11s closing at 88.375, near the top of their day's range and well up from previous round-lot trading around 85, while the 7 3/8s were "also active" around 70.5 bid, 71.25 offered, "while two days ago" they were traded in round lots at 67.75.

Spectrum - probably best known for its Rayovac batteries and Remington electric shavers - said that it had agreed to sell its United Pet Group unit, which sells aquariums, dog and cat treats, health and grooming supplies and bedding products, to Salton Inc. - best known for its George Foreman line of electric hamburger grills - for $692.5 million in cash. That purchase price could be reduced if the pet division's 2007 adjusted EBITDA is less than $89.9 million. The cash proceeds, whatever their level, are slated to be used for debt paydown. The deal terms also include total debt of $222.5 million, less an amount equal to unpaid interest since the dates of the last interest payments.

Six Flags, Young rise

Several traders mentioned that New York-based TV station group owner Young Broadcasting's bonds were up several points on the day, with one pegging its 10% notes due 2011 at 70, up 2 points on the day, and another seeing the bonds up nearly 5 points since its last really good-sized trade, a week ago at 65.5. Yet another called it "up a couple."

There was no fresh news seen out on the company, which is in the midst of trying to find a buyer for its potentially most lucrative asset, its San Francisco/Oakland-area television station, KRON-TV. That search has been going on for a number of months.

Traders likewise saw no fresh news on Six Flags, although the New York-based theme park operator's 8 7/8% notes due 2010 gained 2 points on the day to end at 91 bid.

Market indicators generally easier

Overall, a trader said, the widely followed CDX junk bond performance index was down 11/16 point Wednesday to 97 5/16 bid, 97 111/2/16 offered. The KDP High Yield Daily Index fell by 9 basis points to 76.54, while its spread widened 4 basis points to 9.06%.

In the broader market, advancing issues were almost even with decliners. Activity, represented by dollar volume levels, fell 23% from Tuesday's pace.

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