Junk primary back with Harrah's, Plains; Smithfield ignores numbers, AIG ignores asset sale

By Paul Deckelman and Paul A. Harris

New York, Sept. 8 - On its first day back after the unofficial end of the somnolent late-summer season, the high yield primary sphere on Tuesday immediately moved to make up for lost time, springing into action with the pricing of over $1 billion from domestic issuers Harrah's Operating Co. Inc. and Plains Exploration & Production Co. - the heaviest one-day total in nearly a month.

On top of that, there was overseas high yield activity from Italy's Fiat SpA, a unit of which priced a euro-denominated mega-deal.

Meanwhile, Global Crossing Ltd. and Central European Media Ltd. - interestingly, both headquartered in Hamilton, Bermuda - each announced plans for bond offerings, with Global Crossing's to be dollar-denominated and Central European Media's marked off in euros.

While the new-deal sector was thus ramping up after its prolonged hiatus, which saw only a handful of relatively small deals pricing during the second half of August and the first week of September, the secondary market seemed to act as though it was still on vacation. Although the market clearly had a firmer tone, activity was again seen as restrained, much as it had been last week, with some shops still less than fully staffed.

The new Harrah's and Plains Exploration deals came too late in the session for any kind of aftermarket. Among the established issues, Harrah's paper was seen a touch better ahead of its new deal.

Among other names, traders saw Smithfield Foods Corp.'s bonds not much changed, despite weaker-than-expected fiscal first-quarter results from the big Virginia-based pork producer.

American International Group Inc.'s bonds failed to get any lift from news reports indicating that the troubled New York-based insurance giant, in the midst of a turnaround effort, may actually be able to sell its Taiwan unit for more than the $2 billion it has been seeking - a surprise to the financial world - with the apparent emergence of a suitor willing to pay considerably more than that. Instead, they seemed to follow the negative lead of the company's shares, which swooned on a Credit Suisse downgrade.

Harrah's taps 11¼% notes

The new issue market roared out of the gates as players took their places on Tuesday following the holiday weekend.

Three issuers combined to price $1.12 billion and €1.25 billion of junk. All of it came in the form of drive-by deals.

Harrah's Operating Co., Inc. priced a $720 million add-on to its 11¼% senior secured notes due June 1, 2017 (Caa1/B) at par to yield 11¼%.

The deal came cheap to the par to 100.25 price talk.

J.P. Morgan, Bank of America Securities Merrill Lynch, Citigroup, Credit Suisse and Deutsche Bank Securities were joint bookrunners.

Proceeds will be used to repay bank debt.

The original $1.375 billion issue priced at 96.225 to yield 12% on May 27, 2009.

Plains Exploration upsizes

Elsewhere Plains Exploration & Production priced an upsized $400 million issue of 8 5/8% senior notes (B1/BB) at 98.335 to yield 8 7/8%.

The yield was printed in the middle of the 8¾% to 9% price talk and the amount was increased from $300 million.

J.P. Morgan, Barclays Capital, BMO Capital Markets, Bank of America Merrill Lynch and Morgan Stanley ran the books for the quick-to-market deal.

Proceeds will be used for general corporate purposes, including to fund a portion of the payment of the remaining drilling carry under the company's agreement with Chesapeake Energy Corp.

Both the Harrah's and Plains Exploration deals were led by JP Morgan.

JP Morgan has an additional eight deals to get out the door in the near term, a high-yield investor said.

Fiat prices €1.25 billion

Fiat Finance & Trade, the financing unit of Italian car-maker Fiat SpA, priced €1.25 billion of 7 5/8% five-year fixed-rate notes (Ba1/BB+/BB+) at 99.498.

BNP Paribas, RBS and SG Corporate & Investment Banking were joint bookrunners.

A buy-side source pointed out that as a measure of how the market has improved for issuers, Fiat priced an identically sized three-year deal on July 23. That coupon was 9%.

"The market has been on a tear," the investor remarked.

"There is a lot of cash out there, so you have a lot of demand for paper.

Global Crossing starts roadshow

Global Crossing began a roadshow on Tuesday for a $650 million offering of six-year senior secured notes.

The deal is set to price by the end of the week.

Goldman Sachs & Co. is the left lead bookrunner. Credit Suisse and JP Morgan are joint bookrunners.

Proceeds will be used to repay the company's existing term loan, and to fund the tender for Impsat's 9 7/8% notes due 2017.

Impsat tender price

Impsat wants to tender for the 9 7/8% senior notes due 2017 at 105, but there is a group being led by T. Rowe Price which took an initial position of 117, an investor said on Tuesday.

"I don't think they're going to get 117. But 105 looks too low," the source remarked.

The 9 7/8% bonds were actively trading above the tender price - at 105¼ bid, 105½ offered - on Tuesday, the buy-sider added.

"Supposedly the group can't block the tender, although they must be really close," the investor said.

"But at the same time Goldman doesn't have enough people to push it through on their side.

"So it's a game of chicken at this point."

Axtel, Central European Media

There were two other announcements of dollar-denominated Rule 144A deals on Tuesday.

Both surfaced from what are traditionally considered the emerging markets.

Axtel, SAB de CV will begin a roadshow on Friday in New York for a dollar-denominated offering of senior unsecured notes (Ba2/BB-/BB).

The deal's size and structure remain to be determined, according to the source. However the notes are expected to come with either a 10-year tenor, featuring five years of call protection, or a seven-year tenor with four years of call protection.

Bank of America Merrill Lynch and Credit Suisse are joint bookrunners for the debt refinancing and general corporate purposes deal from the Monterrey, Mexico, telecommunications company.

Also Central European Media started a roadshow in London on Tuesday for a €150 million offering of seven-year senior secured notes (expected ratings B2/B).

The deal is expected to price later this week.

Deutsche Bank Securities, Bank of America Merrill Lynch and BNP Paribas are joint bookrunners.

Proceeds will be used to repay €127.5 million of loan agreements with the European Bank for Reconstruction and Development, as well as to repurchase a portion of the company's 8¼% senior notes due 2012 or repay other debt.

The issuer is based in the Czech Republic.

New Plains, Harrah's bonds unseen

Both the Plains Exploration and Harrah's deals priced fairly late in the afternoon, with traders seeing no immediate aftermarket in either credit.

Harrah's firms ahead of deal

A trader meantime said "some Harrah's [bonds] traded in front of [the new issue]."

He saw the Las Vegas-based gaming company's 10¾% notes due 2016 start out around 65, and then get up to 66 - an improvement from the issue's levels last week in a 641/4-64½ context. He said that there had been "not a lot of trading" last week and the week before in the credit, but said the bonds "moved up a little" Tuesday on the news of the new deal.

He termed the $720 million of add-on bonds sold "kind of a weird number," as opposed to a more traditionally rounded-off figure like $700 million, $750 million or $800 million, and suggested the somewhat unusual deal size might have had something to do with the amount of additional senior secured debt the company was permitted to incur under its bank credit agreements.

NewPage gyrates amid tender offer news

NewPage Corp.'s bonds were seen gyrating around on Tuesday, even as the Miamisburg, Ohio-based paper maker - which plans to sell $595 million of new senior secured notes to help fund a pending tender offer for its existing bonds - announced some changes in that tender arrangement.

A market source saw New Page's 10% senior secured notes due 2012 down 4 points on the day at 54 bid, in brisk trading.

However, another market source pointed out that the bonds had actually been trading in the lower 50s late last week, only going home on Friday at 58 on a couple of smallish outlier trades. Tuesday's trading levels below that were actually more in line with where the bonds had actually been trading for most of Thursday and Friday - and disregarding unrepresentative small trades and focusing only on round-lot transactions, they were last seen Tuesday at around the 55 level - actually up about 2 points from last week on that basis.

The bonds were bouncing around even as the company announced that it had extended its tender offer for the 10s and for its floating-rate secured notes due 2012 by a week, to this coming Friday - while at the same time cancelling its previously announced tender offer for its floating-rate and 12% senior subordinated notes both due in 2013.

There meantime was no fresh word from primary sources on the likely timing of the upcoming issue of five-year notes which will fund the tender offer.

Market indicators end firmer

Back among the established issues without new-deal ramifications, a trader saw the CDX Series 12 High Yield index - which had gained 3/16 point on Friday - solidly expanding that gain on Tuesday, quoting the index up by a full 1½ points Tuesday to end at 88 7/8 bid, 89 3/8 offered.

The KDP High Yield Daily Index, which gained 12 basis points on Friday, added another 5 bps on Tuesday to close at 66.44, as its yield narrowed by 1 bp to 9.25%.

In the broader market, advancing issues - which led decliners for a third consecutive session on Friday, by a nine-to-eight ratio, maintained their lead Tuesday, widening their advantage to around a seven-to-five margin.

Overall market activity, reflected in dollar-volume totals, jumped to nearly three times Friday's feeble pre-holiday level.

A trader, noting the sharp rise in the CDX market gauge, declared that Junkbondland "had a good day" on Tuesday."

Another, however, noted the overall quiet of the market - the volume rise from Friday's extremely weak activity level notwithstanding - noting that at his shop "a lot of people were still out. We had a small shift today."

Crossover names still popular

A trader said that the leading high-yield name in terms of volume was DirecTV Holdings LLC, which he noted was "almost kind of a high-grade crossover" on account of the El Segundo, Calif.-based satellite TV operator's split-rated status (Ba2/BBB-/BBB-).

Its 7 5/8% notes due 2016 were being quoted sharply higher at around 1051/4, versus levels below 104 seen on Friday. A market source said over $51 million of the bonds had changed hands by mid-afternoon, while acknowledging that some, if not most of that buying, may have come from high-grade accounts, which are playing in the name along with junk investors.

DTV's 6 3/8% notes due 2015 had a much more relaxed pace, with just $10 million traded at mid-afternoon, with the bonds pretty much unchanged at 1021/2. Its 8 3/8% notes due 2013 traded at 102 5/8, off slightly from 102¾ on Friday.

The first trader also noted the popularity of other quasi-crossover names, such as Watson Pharmaceuticals Inc.'s 6 1/8% notes due 2019, which saw over $24 million traded at mid-afternoon, again drawing interest from both junk marketeers and the high-grade crowd, despite its relatively small coupon by usual high yield standards.

The Corona, Calif.-based drugmaker's split-rated (Ba1/BBB-/BBB-) 10-year bonds, $400 million of which priced at 99.796 to yield 6.193% on Aug. 18, as part of a two-tranche, $850 million offering, quickly shot to levels above par soon after pricing, and have continued to firm to their current lofty perch since then. There meantime was no sign Tuesday of the other half of that deal, the $450 million of 5% notes due 2014, which priced at 99.589 to yield 5.095%, and which has also moved above par, though a little more slowly than the 6 1/8s, and which now trade about a point behind the 10-years.

Smithfield shrugs off bad numbers

Back among the purely high yield names, a trader said Smithfield Foods' bonds "didn't react too much" to the wider fiscal first-quarter losses which the company reported.

He said the numbers were "kind of in-line with expectations, at least on the equity earnings per share side, and I think they had a reasonably good conference call - or at least, management was positive."

The Smithfield, Va.-based company - thought to be the world's largest hog producer - lost $107.7 million, or 75 cents per share, in the quarter ended Aug. 2, compared with a loss of $13.2 million, or 10 cents per share, in the same period last year. Much of the loss was attributable to big charges which the company took - hog production impairment charges of $34.1 million and debt extinguishment charges of $7.4 million. Excluding those one-time factors, the company's loss in the period 56 cents per share - around what Wall Street was expecting.

Bondholders may have also been heartened by encouraging statements from company executives who said Smithfield is now starting to see the benefits of its restructuring in its packaged meat business. Its chief executive officer, C. Larry Pope, told analysts and investors on the conference call following the release of earnings that the packaged meats operation - which Smithfield hopes to expand so that it is less dependent on the volatile fresh-pork business - is "the area we are extremely optimistic about."

Against that not too shabby background, the trader saw Smithfield's 7% notes due 2011, which have recently traded in a low-mid 90s context, "a tiny bit better" than they were last week, while the 7¾% notes due 2013, recently in the low 80s, were "kind of unchanged."

He saw the company's 10% senior secured notes due 2014 at 99¾ bid, 100¾ offered, "but that issue has been pretty quiet of late, so it's hard to gauge whether that was really up or down" on the session. "There hasn't been a lot of activity that I've seen in them."

The issue, however, has definitely been down for a while from the 104 level at which the company priced a $225 million add-on issue of the bonds a month ago to yield 8.969% -- although the trader also pointed out that it remains well above the 96.201 level at which the company priced its original $625 million tranche of those bonds, upsized from $500 million, on June 25 to yield 11%.

At another desk, Smithfield's 7¾% notes due 2017 were seen up nearly 2 points at the 74½ level.

AIG off despite Taiwan developments

A trader said American International Group's 8.175% bonds due 2058 "traded several times today," but were lower than those previous levels, with investors apparently ignoring potential good news - a possible buyer for AIG's Taiwan unit reportedly put in a larger-than-expected bid for that division - to instead follow its shares lower, after they were downgraded by Credit Suisse.

He saw the bonds get as good as 45½ before going out around 44, while last week, "they were a little higher, actually," reaching 46¾ bid on Thursday before going out that session at 461/4, "so today, they were a little weaker, despite that news."

He noted that that the company's New York Stock Exchange-traded shares, which had closed on Friday at $40.05, opened Tuesday at $39 and then "traded down all day after that," falling "relatively quickly" to the $36.50 range on news that Credit Suisse had cut the shares to "underperform" from "neutral previously," and finally going out at $35.85, down $4.20, or 10.49%. Volume of 40.7 million shares was about one-third greater than the usual turnover.

The Credit Suisse news overshadowed an earlier Reuters report that Chinatrust Financial, Taiwan's top credit card issuer, offered $2.4 billion for AIG's Taiwan Nan Shan Life unit, outbidding rivals.

The news service attributed the story to an unidentified "source with direct knowledge of the situation," and there was no official confirmation Tuesday from either AIG or Chinatrust.

If the story pans out, it would be a coup for AIG, which said that it hoped to get at least $2 billion for the Taiwan unit - a figure which analysts called too optimistic. Several bids from other would-be buyers have come in well below the $2 billion figure, prompting speculation that AIG might drop its efforts to sell the division, especially in light of new CEO Robert Benmosche's recent pledge that AIG will not sell assets at what amount to fire-sale prices just for the sake of making a sale.

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