El Paso Natural Gas, Range Resources price new deals; Mirant firms in wake of Chapter 11

By Paul Deckelman and Paul A. Harris

New York, July 16 - The energy sector was the place to be on Wednesday, as El Paso Natural Gas Co. sold $355 million of new seven year notes, while independent oil and gas operator Range Resources Corp. weighed in with its own $100 million issue of 10-year notes.

And in the secondary market, Mirant Corp. debt was heard quoted at firmer levels Wednesday - both the operating company paper that had jumped on Tuesday on the news of the power producer's Chapter 11 filing, as well as the parent company bonds, which had reacted to the bankruptcy with a quick nosedive.

As Tuesday's session in the high yield primary was news-heavy, so Wednesday's was news light, as conversations with sources in the market revolved around Federal Reserve chairman Alan Greenspan's final day of testimony before the U.S. Congress, as well as a stock market that was seen retreating and a continuing sell-off in the Treasury market.

Whereas four transactions had been completed on Tuesday, only two junk bond deals emerged from the investment banks during Wednesday's session including El Paso Natural Gas Co.'s $355 million. And according to sources El Paso Natural Gas' notes, which came at a discount and priced well wide of price talk, faced a certain amount of difficulty.

Early in Wednesday's session Prospect News made telephone contact with Evergreen High Yield Bond Fund manager Prescott Crocker, who said that both declining share prices and a sizable Treasury sell-off have "negative implications" for the high yield.

Crocker said that he sides with those who hold that the massive infusions of cash that have reportedly come into high yield during 2003 have not resulted in a decline in the credit quality of companies that are tapping the market.

The Evergreen High Yield Bond Fund manager, who has consistently stated his preference for large, liquid issues, commented on two deals presently positioned on the forward calendar.

The first, from Lake Forest, Ill. tractor-maker CNH Global NV is for $1 billion of eight-year senior notes (Ba3/BB), via Citigroup, Deutsche Bank Securities and UBS Investment Bank. The deal is set to hit the road on Thursday.

To Crocker's way of thinking the deal makes sense.

"They got a big equity infusion from the parent," he said. "Now it's time to clean up the balance sheet with good long term debt.

"I love it," added the Evergreen portfolio manager. "I own it. I'm a great believer in the recovery.

"Time to dig up the back yard and plant some seed."

Crocker also commented on another mega-deal that has been heard to possibly be business of the coming week: Charter Communications' $1.7 billion of senior notes via Citigroup, which the St. Louis-based cable operator will use to fund its tender and repay debt.

"Charter has had a 5.7% increase in billing, which is huge in a deflationary environment," said Crocker.

"This company is a lot better than people give it credit for. You don't have to have a big give-up from bondholders to Paul Allen to get it going."

Meanwhile during Wednesday's session two deals priced.

El Paso Natural Gas sold $355 million of 7 5/8% seven-year senior notes (B1/B+) at 98.667 to yield 7 7/8%.

Late Wednesday sources said that the deal, proceeds from which will be used to fund the Western power settlement, struggled to get done, coming at a discount and well wide of the 7¼%-7½% price talk.

Citigroup and Credit Suisse First Boston were joint bookrunners on the deal.

Also pricing Wednesday was a quick-to-market offering from Range Resources Corp. of $100 million 7 3/8% 10-year senior subordinated notes (B3/B-). It priced at 98.272 to yield 7 5/8%, in the middle of the 7 5/8% area price talk, via UBS Investment Bank.

In addition to the CNH deal, two other junk bond offerings crept into the light Wednesday.

The roadshow is set to get underway Monday for Flender Holding GmbH's €250 million of senior notes via Deutsche Bank Securities and Credit Suisse First Boston. No maturity or structural details were heard on the German power transmission maker's notes, which are expected to price on or around July 28.

And late Wednesday Concentra Operating Corp. announced it is planning a $150 million seven-year senior subordinated notes offering.

No timing or syndicate names were disclosed in the press release from the Addison, Tex-based provider of services designed to contain healthcare and disability costs for the occupational, auto and group healthcare markets, except that deal is expected to be completed during the third quarter of 2003.

When the new Range Resources 7 3/8% senior subordinated notes due 2013 were freed for secondary dealings, they were heard to have firmed slightly to 98.5 bid, 99.5 offered from their 98.272 issue price.

The new El Paso Natural Gas 7 5/8% senior notes due 2010, which had priced at 98.667, went home at 98.25 bid, 98.75 offered.

El Paso's existing debt, a market observer noted, was "off a little," not buoyed by either the news of the new bond deal or by the company's announcement that the Houston-based pipeline operator had lured Douglas Foshee - up until now the chief operating officer at Halliburton Corp. - away from the oilfield-service company to take El Paso's reins as chief executive officer.

He quoted the company's 7 3/8% notes due 2012 half a point lower at 88, while its 7% notes due 2011 eased to 90 bid from 91. "All of their debt was down half a point to a point," he added.

Foshee - respected in the investment community for his leadership role in Halliburton's efforts to reach a $4 billion settlement to resolve all present and future asbestos claims - takes over at El Paso from interim CEO Ronald Kuehn Jr., who will remain as chairman; Kuehn in turn had temporarily assumed the top spot after El Paso fired then-chairman and CEO William Wise amid a shareholder revolt and proxy battle sparked by El Paso's plummeting stock price and the fall in its credit ratings to junk-bond status amid its burgeoning debt levels.

Also on the energy front, Mirant's bonds were up two to three points across the board on both the operating and the parent holding company levels.

Mirant's corporate 7.40% notes due 2004 rose to 43 bid and its 7.90% notes due 2004 to 42.5 bid, after both had fallen on Tuesday to around 40 bid from much higher levels- 64 for the 7.40s and 48.5 for the 7.90s - following the Monday night announcement of the bankruptcy filing, which resulted from the company's failure to get lenders and bondholders to agree to an out-of-court restructuring.

Meanwhile, Mirant Americas Generation operating company paper - which had zoomed to around the 72-73 level on Tuesday from prior levels at or below 60 - was also seen still higher on Wednesday, "still continuing to climb," a trader said, "but not as much as the initial pop they got [Tuesday]."

MAG's 7 5/8% notes due 2006 were at 75 bid, its 8.30% notes due 2011 at 74, its 7.20% notes at 74.5 and its 9 1/8% notes due 2031 at 74.

Independent power producer Calpine Corp.'s bonds were "a little better," a trader said, pegging its benchmark 8½% notes due 2011 up half a point at 78 bid, 79 offered.

At another desk, the San Jose, Calif.-based generator's 8 5/8% notes due 2010 were seen likewise up half a point, at 78.5 bid.

A trader quoted the new Calpine 8½% second priority senior secured notes due 2010, which had priced at par a week ago but which began heading lower over the newt several sessions, as having firmed slightly to bid levels in the 97-97.5 area. He also saw the established paper up on the session.

AMR Corp. debt was seen little changed on the news that the Fort Worth, Tex.-based corporate parent of leading U.S. air carrier American Airlines narrowed its second-quarter loss from a year-ago and had beaten analyst's expectations.

AMR said that its second-quarter loss before special items totaled $357, or $2.26 per share. That was not only less than the $495 million it lost a year earlier, but was better than the $2.65 per share loss Wall Street had been looking for. After the special items, AMR's second-quarter loss was $75 million (47 cents per share).

But while that sent the carrier's New York Stock Exchange-traded shares up $1.10 (10.42%) to $11.66, traders saw its bonds hanging in around 70 bid, 72 offered. A trader who saw the bonds offered around suggested that "people are trying to unload on the good news" of the narrowed loss.

On the downside, a trader quoted DVI Inc.'s 9 7/8% notes due 2004 at 81.25 bid, 85 offered, well down from Tuesday's 88 bid, after the Jamison, Pa.-based healthcare finance company announced that it had received a notice from the bonds' trustee, U.S. Bank NA, that in the trustee's opinion, DVI failed to satisfy its obligation to file its quarterly report on Form 10-Q for the period ended March 31, creating a technical default.

The company asserted that it does not believe that a default exists, and warned that if the trustee does not rescind the notice of default promptly, DVI "expects to address this issue by either challenging the validity of the Trustee's Notice of Default or seeking a waiver or modification from the holders of notes representing not less than a majority in principal amount of the outstanding Notes, or both."

Standard & Poor's announced a rating cut to CCC- from the prior CCC+. DVI shares fell 47 cents (10%) to $4.23 on the NYSE.

Also lower, for a second straight session, was Lucent Technologies Inc., which on Tuesday had warned investors that its hoped-for return to profitability would occur in 2004 rather than 2003, citing weak sales of mobile network equipment.

A trader saw the Murray Hill, N.J.-based telecommunications equipment maker's 6.45% bonds due 2029, which had fallen on Tuesday to 67.5 bid, 68.5 offered from prior levels around 70 bid, as having fallen further Wednesday to 65 bid, 66 offered.

He also saw its 7¼% notes due 2006 at 92.75 bid, 93.75 offered, down from 95 bid previously. And the trader observed that Nortel Networks Corp. - a Canadian-based Lucent rival whose bonds trade in tandem with the Jersey company's - was also "under pressure," its 2006 notes at 96.5 bid,97.5 offered, down from prior bid levels around 98.75-99.

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