Upsized Peninsula Gaming, Arch deals price, USG slates; buyers buoy secondary; CIT busier

By Paul Deckelman and Paul A. Harris

New York, July 28 - Peninsula Gaming LLC and Arch Coal Inc. were heard by high yield syndicate sources to have each priced upsized bond deals on Tuesday, with Peninsula's transaction a two-part offering of senior secured and unsecured notes.

Arch's deal came too late in the session for any kind of after market activity, but Peninsula's saw some secondary action, with the secured notes firming robustly, the unsecureds somewhat less so.

Also on the new-deal front, Chicago-based building products producer USG Corp. kicked off a brief roadshow for an offering of five-year senior guaranteed notes, which is expected to price on Friday.

Away from the new-deal realm, traders saw a generally firm tone, with no shortage of buyers seen around for such varied issues as HCA Inc., Tenet Healthcare Corp., Graphic Packaging International Inc. and even Kellwood Co.

CIT Group Inc., whose paper absolutely dominated Junkbondland for some two weeks, before really stepping away from the spotlight on Monday, made something of a comeback on Tuesday, with more activity but no real direction - some bonds going up and others falling back.

Arch Coal upsizes

It was a billion-plus day in the primary market.

Two issuers priced $1.145 billion face amount of junk in a combined three tranches.

St. Louis-based Arch Coal, Inc. priced an upsized $600 million issue of 8¾% seven-year senior notes (B1) at 97.464 to yield 9¼% on Tuesday.

The yield was printed at the rich end of the 9¼% to 9½% yield talk and the deal was increased from a planned $500 million size.

The notes were expected to come at a reoffer price of around 97.50.

Banc of America Securities LLC/Merrill Lynch & Co., Citigroup, Morgan Stanley and JP Morgan were joint bookrunners for the deal. PNC was joint lead manager.

Proceeds, together with a 17 million share offer priced at $17.50 each to raise $297.50 million, will be used to fund the acquisition of the Jacobs Ranch mining complex.

Peninsula Gaming two-parter

Meanwhile Peninsula Gaming, LLC and Peninsula Gaming Corp. completed a restructured $545 million two-part notes transaction on Tuesday.

The Dubuque, Iowa-based gaming company upsized its six-year senior secured notes tranche to $240 million from $215 million. The 8 3/8% senior secured notes (Ba2/BB) were priced at 97.701 to yield 8 7/8%.

The yield came at the tight end of the 8 7/8% to 9 1/8% yield talk.

Meanwhile Peninsula Gaming downsized its eight-year senior unsecured notes tranche to $305 million from $315 million. The 10¾% senior unsecured notes (B3/B) were priced at 97.395 to yield 11¼%.

The yield on the unsecured notes was at the wide end of the 11% to 11¼% yield talk.

In addition to yield talk, both tranches were talked to price with a small amount of original issue discount.

Jefferies & Co. was the left bookrunner. Wells Fargo Securities was joint bookrunner.

Proceeds will be used to fund the acquisition of the Amelia Belle Casino, located near Morgan City, La.

Peninsula owns and operates gaming facilities is Iowa and Louisiana.

Two deals launch

The dealers unveiled two offerings on Tuesday.

USG Corp. started a roadshow for a $250 million offering of five-year senior notes.

Pricing is expected on Friday.

JP Morgan and Bank of America Merrill Lynch are joint bookrunners for the general corporate purposes deal from the Chicago-based building materials company.

And Jabil Circuit, Inc. will start a roadshow on Wednesday for its $200 million offering of seven-year non-callable senior notes (Ba1/BB+/BB+).

The debt refinancing deal, which is being led by JP Morgan, Citigroup and RBS Securities Inc., is expected to price on Monday.

Peninsula secured bonds seem solid

When the new Peninsula Gaming deal was freed for secondary dealings, the upsized secured bond tranche clearly outperformed the downsized unsecured portion - confirming the suspicions of a trader before the pricing who characterized the Dubuque, Iowa-based riverboat gaming company as "having a problem" with the eight-year junior piece, a situation which contributed to its being downsized to $305 million from the originally intended $315 million, while the six-year senior secured piece was upsized to $240 million from $215 million originally, to meet demand.

A trader saw the 8 3/8% senior secured notes due 2015 having traded up to 99 bid, 99½ offered from the 97.701 level at which it had priced earlier.

A second trader saw those bonds rise to 98 5/8 bid, 99 offered, while a third also pegged them at 99 bid, 99½ offered.

While the secured piece was rising smartly, the 10¾% notes due 2017 only advanced marginally, a trader seeing them at 97¾ bid, 98¾ offered, versus 97.395 at pricing. Another trader observed them at 97¾ bid, 98¼ offered.

Out of that same gaming sector, a trader saw Las Vegas based Pinnacle Entertainment Inc.'s upsized offering having moved up, though only marginally, from the level at which it had priced during Monday's session.

Pinnacle's new $450 million of 8 5/8% notes due 2017, upsized from $375 million originally, had priced Monday at 98.597 to yield 8 7/8%. On Tuesday, the trader quoted the bonds only slightly higher, at 98 7/8 bid, 99 1/8 offered.

Problems for Prospect Medical

Among other recently priced deals - and most of them seem to have done pretty well in secondary dealings - a trader said that "the deal that's really struggling" is Prospect Medical Holdings Inc.'s 12¾% senior secured first-lien notes due 2013.

The Los Angeles-based hospital and health management services company priced $160 million of those bonds last Wednesday at 92.335 to yield 15% -- but since then the have dropped to Tuesday's level of 89½ bid, 90½ .

At another shop, a trader quoted the bonds at a wide 90 bid, 93 offered.

Market mostly hangs in

Back among the more established issues, the CDX Series 12 High Yield index - which had gained ½ point on Monday - was seen by a trader to have eased by ¼ point Tuesday to end at 88¼ bid, 88¾ offered.

However, the KDP High Yield Daily Index, which gained 32 basis points on Monday, was up another 19 bps on Tuesday to end at 65.34, while its yield tightened by 6 bps to 9.58%.

In the broader market, advancing issues - which had led declining issues for a seventh straight session on Monday - put the decliners behind the 8-ball on Monday, continuing to lead them by an eight-to-five margin.

Overall market activity, measured by dollar-volume totals, rose by 12% from Monday's level.

A trader said that "the new issue calendar continues to hold the center stage."

Apart from that, he said, "it's been fairly busy. The market's still very well-bid, in select names - it seems like guys are all looking for the same things, a lot of the time, so prices keep grinding tighter."

He said that there had been "some selling from certain pockets over the last couple of days, which has brought out a lot of buy interest across the curve, so it's been active two-way flow in a lot of names."

CIT returns - sort of

A trader said that the market seemed to be returning to normal, in contrast to last week, when CIT Group's problems dominated the proceedings for literally days on end.

However, several CIT issues were seen trading somewhat busily - at least $10 million on the day -- although on nowhere near the volume seen last week, when turnover of $100 million or more was sometimes seen.

CIT's floating-rate notes coming due on Aug. 17, last week's busiest mover, was seen off about a point from recent levels at 79 bid, on mid-afternoon volume of at least $15 million, a market source said.

Its 7¾% notes due 2012 were observed down 1 5/8 point at just under the 55 level, with over $12 million traded, although its 5% notes due 2014 were seen having firmed 2 points to the 54 level, with over $11 million traded at mid-afternoon.

Another market source saw the company's 5.85% notes due 2016 off more than a point at just under 55.

Several CIT issues, though, were being quoted up. At one desk, its 7 5/8% notes due 2012 were seen 2 points ahead, at around 56, while its 6% long bond due 2036 gained more than a point to about 50 - consistent with the predictions of traders who saw the New York-based commercial lender's capital structure compressing and converging within a narrower range - which some would say is a sign that the market is expecting a bankruptcy filing, sooner if not later.

Healthcare bonds weathering Washington storm

A trader said that he was "kind of concerned about a lot of healthcare [paper], particularly with what's going on in Washington - but we've had nothing but buyers."

He said that "we've had buyers" for Nashville-based hospital operator HCA Inc.'s bonds, "particularly the short end - 2012, 2013." He quoted those levels in the middle low-90s.

He also saw buyers around for HCA rival Tenet Healthcare Corp.'s recently priced 8 7/8% senior secured notes due 2019. The Dallas-based hospital operator priced $925 million of those bonds - massively upsized from the originally announced $200 million - on June 1 at 95.229 to yield 9 5/8. The trader saw them having firmed to 104½ bid, 105½ offered, "so those are up about 10 points [from their pricing level] .

He also saw the company's 9 7/8% notes due 2014 at 99½ bid, 100½ offered.

"So nobody is scared, nobody is worried" by all of the news coming out about various government ideas for tinkering with the healthcare system. "Maybe their feeling is that the healthcare thing is DOA, and they're not going to be able to pass this."

However, he cautioned that if the political winds shift and some kind of massive healthcare bill is passed, "I think these guys are going to be in for a big surprise."

Ford takes five

A trader saw Ford Motor Co.'s 7.45% bonds due 2031 - which had risen the past four sessions, first in anticipation of improved quarterly numbers and later, in reaction to them - unchanged at 71½ bid, 73½ offered.

He meantime saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down ¼ point at 12¾ bid, 13¼ offered.

Graphic Packaging grinding back upward

Elsewhere, a trader said that Graphic Packaging's 9½% senior subordinated notes due 2013 have been on the comeback trail lately. He said that he "couldn't figure out why they were trading down" so badly - with the Marietta, Ga.-based packaging company's paper going from around 99 bid, around the time the company did a $245 million bond issue, down to a 92-93¼ context.

But of late, he said, "they've rallied back to the 98ish level -- which is where they should [have been] all along."

He said of the subordinated issue that that "we've always liked that one here."

Meantime, the company's new 9½% senior notes due 2017, which priced at 97.292 back on June 2 to yield 10%, were seen trading Tuesday at 98½ bid, 99½ offered.

Cott keeps creeping northward

The trader saw continued firming in Canadian soft-drink manufacturer Cott Corp.'s 8% senior subordinated notes due 2011, helped by recent changes in the company's credit facility and, on Monday, favorable quarterly results.

He said that after the earnings, the bonds bubbled up to 98 bid from prior levels in the mid-90s - although a market source at another shop saw the bonds having backed off a little from that peak in Tuesday's dealings, ending at around 97 bid, all on odd-lot trades.

Cott - which produces private-label sodas, bottled water and other drinks for, among others, retailing giant Wal-Mart Stores Inc., reported Monday that in the fiscal second quarter ended June 27 it earned $33.7 million, or 48 cents a share, versus year-earlier red ink of $1.8 million, or 3 cents a share. Excluding one-time impairment costs and tax benefits, Cott earned about 30 cents a share - roughly double the 15 cents per share earnings Wall Street was looking for.

But while the earnings clearly beat expectations and represented a sharp turnaround from a year ago, the company still cautioned that it faces a challenging, competitive environment.

Last week, the bonds had also been moving up, to a 95-96 context as the week ended from around the 93-94 level at the beginning of last week. Besides anticipation of good earnings, the soda bottler's bonds got some pop from Cott's announcement last week that its bankers had agreed to amend its credit agreement, giving the company greater flexibility to purchase or redeem the 8% notes and to raise debt or equity to fund such a purchase or redemption.

Kellwood climbs after debt deal

The trader also said that Kellwood Co.'s bonds have been on the rise "ever since they averted bankruptcy" by giving holders of a bond issue that came due on July 15 new debt.

"So people feel that they now have time to work out their problems" - which has given the St. Louis-based apparel maker's 7 5/8% notes due 2018 a boost all the way up to the 30 bid area, a more than 10-point gain from where they were last Thursday.

Trading was active on Tuesday, although it was mostly in smallish odd-lot pieces, with the bonds circulating in a 29-30 context.

On Thursday, the company said that its bondholders had agreed to accept new senior secured notes due 2014 in place of the $140 million of 7 7/8% notes slated to mature on July 15. Before that deadline, the company had been negotiating with its bondholders on accepting new debt, but those negotiations had been thrown into turmoil when holders led by Deutsche Bank AG - its biggest bond investor - backed away from the arrangement, much to the chagrin of Kellwood.

The clothing maker expressed puzzlement as to why Deutsche had done what it called "a complete 180" and backed out of an exchange deal which Kellwood said the bank had not only previously endorsed, but had actually helped to cobble together. Kellwood announced at that time that it had reached a forbearance agreement with its lenders, including Bank of America Corp., and said that it would look at other options to strengthen its balance sheet.

Deutsche Bank did not make public the reasons for its abrupt change of heart in torpedoing the original exchange deal - but in the negotiations which took place after the July 15th deadline had come and gone, it switched course again and got back on board. That was all it took to get the ball rolling again, with Kellwood announcing last Thursday that it had done a par-for-par exchange of the 2014 bonds for the 7 7/8s. It did not disclose what percent of bondholders participated in the swap.

Kellwood, whose brands include Vince, Phat Farm and Sag Harbor, said it continues to enjoy access to its $175 million credit facility, and said that the debt-swap finally agreed to by the bondholders would strengthen the company financially.

'Buyers' as a theme

One of the traders summed it up by saying "generally speaking, the real theme of the market is just buyers, regardless of what the equity market" is doing. "The general theme is it's just a modest pullback in an overall recovery scenario.

"So people are not afraid and they're buying spread product - corporate credit."

He also suggested that "earnings have had a buoyant effect on the market in general. So, with these big fat coupons -- 93/4, 103/4, 11, whatever, at a discount - people are buyers."

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