Chesapeake Midstream, Icahn price, move up; Sears still busy; market mixed on day, up on week

By Paul Deckelman and Paul A. Harris

New York, Jan. 6 - Chesapeake Midstream Partners LP and CHKM Finance Corp. excited the junk bond market Friday with a very well-received drive-by offering of 10-year notes which was solidly upsized to $750 million. When the natural gas operator's new bonds were freed for secondary dealings, they quickly jumped by nearly 2 points.

Also joining the Chesapeake Energy Corp. affiliate on the pricing line was split-rated Icahn Enterprises LP, which, along with its Icahn Finance Corp. subsidiary, priced a quickly-shopped and upsized add-on to its existing 2018 bonds. The diversified holding company's new deal was also quoted higher in the aftermarket.

Those late-afternoon deals capped off a moderately busy first trading week of 2012, which saw some $3.8 billion of new paper clattering down the chute, including mega-deal-sized offerings earlier in the week from propane distributor AmeriGas Partners LP and from Ford Motor Credit Co. LLC. The former, a two-part deal which gained a point after pricing on Thursday, continued to firm marginally, while both tranches of the latter issue traded a little over par.

Syndicate sources meantime heard European telecommunications operator Polkomtel SA getting ready to hit the road in the U.S. next week to market a big offering denominated in dollars, euros and Polish zlotys. On the domestic front, they said breakfast cereal maker Post Holdings Inc. will serve up a 10-year offering in connection with its upcoming spinoff from its parent company.

In the secondary arena, Sears Holdings Corp was once again the busiest junk issue, but is still little changed from recent levels. Fellow retailer Rite Aid Corp.'s bonds were up for a second straight day after posting good December sales numbers. Netflix Inc.'s bonds and stock were up on better-than-expected customer numbers.

Statistical performance indicators were mixed for a second straight session, but were higher on the week.

Chesapeake Midstream upsizes

The Friday session saw a single upsized junk-rated tranche clear the market.

Chesapeake Midstream Partners, LP and CHKM Finance Corp. priced a $750 million issue of 10.5-year senior notes (Ba3/BB+) at par to yield 6 1/8%.

The yield printed on top of the price talk. The size was increased from $600 million.

Barclays, Credit Suisse, RBS and Wells Fargo were the joint bookrunners for the quick-to-market deal.

The Oklahoma City-based midstream natural gas company plans to use the proceeds to repay its revolver and for general corporate purposes.

The deal played to a book containing $2 billion of orders, according to a trader from a high yield mutual fund.

Although initial rate discussions came right where the deal was talked and priced, 6 1/8%, during the course of marketing on Friday morning feelers went out at 6% to 6 1/8%, the trader added.

$3.3 billion week

With Chesapeake Midstream in the book, the opening week of 2012 generated a healthy $3.3 billion of issuance in five junk-rated dollar-denominated tranches.

That's the biggest amount of weekly issuance since the week of Dec. 5, and of course represents the month- and year-to-date amount of issuance, in addition to the weekly total.

Icahn upsizes split-rated tap

Also on Friday Icahn Enterprises LP and Icahn Enterprises Finance Corp. priced an upsized $500 million split-rated add-on to its 8% senior notes due Jan. 15, 2018 (Ba3/BBB-) at 102.5 to yield 7.475%.

The reoffer price came on top of price talk. The amount was raised from an initial $350 million.

Jefferies ran the books for the quick-to-market add-on.

Proceeds will be used for general corporate purposes.

The order book was said to be three-times oversubscribed, and accounts were cut back in terms of allocations, according to a portfolio manager from a high yield mutual fund.

The add-on notes traded to 103 1/8 bid, 103 5/8 offered in the secondary market, the investor added.

The original $1.15 billion issue priced at 99.275 to yield 8 1/8% in January 2010.

A previous $300 million add-on priced at 103.50 to yield 7.36% on Nov. 8, 2010.

Polkomtel roadshow for Monday

Poland's Polkomtel will begin a roadshow in the United States on Monday for a €900 million equivalent multi-currency offering of eight-year notes.

An investor call is set for Tuesday.

The U.S. roadshow runs through Friday, and will be followed by a European roadshow in the Jan. 16 week.

The notes are being offered in dollar-, euro- and zloty-denominated tranches.

Deutsche Bank and Credit Agricole CIB are the global coordinators and joint bookrunners. Royal Bank of Scotland and SG are joint bookrunners.

Primary activity to ramp up

Looking to the week ahead there is only one deal on the active forward calendar set to price before the Friday close.

Datatel Inc. is in the market with a $530 million offering of seven-year senior notes (Caa1/CCC+/), expected to price during the middle part of the week via J.P. Morgan, Bank of America Merrill Lynch, Barclays, Citigroup and Credit Suisse.

The deal is being discussed in the context of a yield in the 10% area, according to a buyside source.

Beyond Datatel, however, the second week of 2012 figures to be a conspicuously active one, syndicate sources say.

It's no secret that the flow of cash into junk bonds has been strong. In a market that is rallying hard, especially in higher quality bonds, a calendar is required in order to put that cash to work, sources say.

Also, the watchword thus far into 2012 has been "stability," a syndicate official reflected following Friday's close. Equities, having been generally flat throughout the latter part of the week, are providing a favorable backdrop for the junk market.

"That gives you a supportive setting for bringing a high-yield deal," the official asserted.

"It's much easier to bring a deal when the markets are flat and stable than it is when you're getting 3% daily swings in either direction."

Hence opportunistic issuers who have been parked on the sidelines of the new issue market since before Thanksgiving now appear ready to roll out their deals.

Although no names were volunteered, a few of those opportunistic issuers are expected to show up in the week ahead.

Chesapeake charges higher

When the new Chesapeake Midstream Partners 10-year notes were freed for secondary dealings, a trader saw the Oklahoma City-based natural gas operator's new bonds having enjoyed "an almost 2 point pop," rising to 101¾ bid, 102 offered from their par issue price earlier in the afternoon.

"They absolutely did well," said another trader who pegged them at that same level.

"Yeah, it's done well," said another, who located the bonds at 101¾ bid, 102¼ offered.

There was also some activity seen in the bonds of Chesapeake Energy Corp., which last week announced its sale of assets in the Marcellus Shale natural gas formation in the Northeastern United States to Chesapeake Midstream Partners for $865 million - $600 million in cash and the rest in stock, which will raise Chesapeake Energy's limited partnership stake in Chesapeake Midstream to about 46% from 42% previously.

Chesapeake Energy's 7¼% notes due 2018 gained ¼ point on the day to end a little above 112½ bid, on over $8 million of turnover.

Its 9½% notes due 2015 were seen unchanged at 115¼ bid, on over $6 million traded.

Icahn bonds improve

The day's other new deal, Icahn Enterprises' add-on to its 2018 notes, were initially not seen trading around. However, later in the session, a trader heard the new bonds offered at 1033/4, but with no bid.

But a second trader saw the bonds of billionaire investor Carl Icahn's New York-based diversified holding company having emerged in two-sided dealings at 103 bid, 103¾ offered, up from the 102.5 price at which the add-on came to market.

AmeriGas gains continue

Among the recently priced issues, Thursday's deal from AmeriGas Finance LLC and AmeriGas Finance Corp. continued to rise, building on the solid gain which those bonds experienced after they came to market.

A trader saw the company's 6¾% notes due 2020 up ¼ point on the day at 101¼ bid, while its 7% notes due 2022 were ½ point higher at 101½ bid.

A second trader saw the bonds going home "wrapped around" 101¼ for the eight-years and around 101¾ for the 10-years.

Yet another trader saw the eight-years at 101¼ bid and the 10-years at 101 5/8 bid, 101 7/8 offered.

The issuers - units of Valley Forge, Pa.-based retail propane distributor AmeriGas Partners LP - priced their quick-to-market $1.55 billion two-part offering on Wednesday, just a day after it was announced, selling the $550 million of 6¾% notes and the $1 billion of 7% notes at par.

Both tranches were seen having moved up in initial aftermarket dealings to 101 bid, 101½ offered.

AmeriGas' existing bonds - which on Thursday had fallen in response to the new deal - were seen by market participants as having come back on Friday.

Its 6¼% notes due 2019 were seen having jumped nearly 4 points to 101½ bid. On Thursday, a market source said those bonds had dropped by some 2¼ points to 97¾ bid.

The AmeriGas 6 ½% notes due 2021 rose by ¾ point to 99¾ bid. On Thursday, those bonds had fallen by as much as 2½ points to the 98 level, before getting back some of that lost ground to close at 99, still down 1½ points on the day.

A trader said that so far the new year's issuance has pretty much been "high quality names - Chesapeake a little more so than Icahn, but Chesapeake, AmeriGas, all very high quality."

Ford stays in neutral

Wednesday's $1 billion add-on offering of three- and six-year bonds from Ford Motor Credit Co. was seen on Friday continuing to largely trade around the two tranches' respective issue prices.

A trader said that Ford Credit's 5% notes due 2018 were going home at 100½ bid while its 3 7/8% notes due 2015 were at 100 1/8 bid, "pretty much unchanged."

Another trader saw the 5% notes at 101 bid and the 3 7/8s were at 99¼ bid, 100¼ offered.

The $300 million of 3 7/8% notes due 2015 from the Dearborn, Mich.-based auto-finance arm of Ford Motor Co. had priced at 99.672 on Wednesday to yield 4%.

Ford Credit's $700 million add-on to its 5% notes due 2018 priced at 100.744 on Wednesday to yield 5%.

Indicators stay mixed

Away from new or recently priced issues, statistical measures of junk market performance - which had turned mixed on Thursday after beginning the new year with unambiguous gains Tuesday and Wednesday - stayed that way on Friday.

But those indicators were up on the week.

A trader saw the CDX North American Series 17 High Yield index off by ¼ point for a second consecutive session on Friday to end at 93 3/8 bid, 93 5/8 offered.

However, it closed the week better than the 92 7/8 bid, 93 1/8 offered level at which it had finished the previous week, ended Dec. 30.

The KDP High Yield Daily rose by 7 basis points on Friday to finish at 72.72, after having declined by 4 bps on Thursday.

Its yield came in by 3 bps on Friday to close at 7.27%, after having risen by 1 bp on Thursday.

Both measures showed improvement from the index's 72.31 reading and 7.47% yield a week earlier.

And the widely followed Merrill Lynch High Yield Master II Index notched its 16th consecutive gain on Friday - a streak that dates back to the middle of December.

It rose by 0.147%, which followed Thursday's 0.047% advance.

The gain lifted the index's year-to-date return to 0.764%, a new high for the new year, from 0.616% on Thursday.

The index also posted a one-week gain of 0.766%, its third consecutive weekly gain.

The index had closed out 2011 with a return of 4.383% - well below the index's high-water mark for the year of 6.362%, which was set on July 26, but well up from its 2011 low point, a 3.998% deficit recorded on Oct. 4.

Sears seen rebounding

Retailers continued to be on the active side Friday and Sears Holding held on to its dominant position within the industry, in terms of volume traded.

A trader said Sears' 6 5/8% notes due 2018 traded up nearly a point to 76¾ bid, 77 offered. Another trader said the issue was "maybe a little better" at 76½ bid, 77 offered.

Standard & Poor's downgraded Sears' rating to CCC+ from B on Friday, citing the belief that EBITDA will be negative in 2012 and that liquidity would be strained through 2013 "absent a turnaround or substantial asset sales to fund operating losses."

Elsewhere in the world of retail, traders saw Rite Aid's bonds continuing to firm on the back of favorable December sales numbers released on Thursday.

A trader saw its 9½% notes due 2017 up 3/8 point at 95 bid, while its 9 3/8% notes due 2015 gained ¾ point to end at 981/2.

Both issues were among those which had firmed on Thursday in brisk dealings, after Camp Hill, Pa.-based Rite Aid reported total sales of $2.64 billion, a 3.3% increase year over year, during the five weeks ended Dec. 31.

A retailer of a different sort - Los Gatos, Calif.-based movie rental chain Netflix Inc. - was also moving higher Friday, its 8½% notes due 2017 seen up 2 to 3 points to 106½ bid, 107½ offered, though on "not heavy volume."

He said the bonds and the company's shares rose in response to favorable results from the company, which released better-than-expected figures on its streaming services during the fourth quarter.

Petroplus gets pummeled

In the distressed-debt precincts, a trader said that Petroplus Holdings AG's bonds were all in a 40 to 44 range on Friday, after having fallen anywhere from 5 to 8 points on Thursday after the Zug, Switzerland-based independent petroleum products refiner and wholesaler said that its lenders had suspended access to all of the credit lines under its revolving credit facilities, and the company announced shutdowns of several of its refining facilities.

The trader said that he "did not see them on the big actives list," and quoted the company's 6¾% notes due 2014 trading in a 42-44 context, while its 9 3/8% notes due 2019 and 7% notes due 2017 were trading between 40 and 42.

Petroplus' convertible 4% notes due 2015 were trading around 37-39.

While adding that "I don't recall seeing much size trading in that name," he characterized the trading levels as being "up off the bottom from yesterday [Thursday], by a couple of points - that's what it looks like."

On Thursday, he had quoted the 63/4s as having fallen 7 points to end at 42-45, while the 9 3/8s had dropped 5 or 6 points to end at 39-42. He had also seen its 7% paper down 7 or 8 points on the day at 40-42, and had called the converts unchanged on the day at 37-39.

Another trader on Friday was seeing the converts at 37-39, and said "It's the only one I saw today."

He noted that "they're a pretty sizable refiner in Europe. I'm not sure what went wrong there, because they used to be a pretty good credit," although he allowed that he "had not looked at it for a long time."

He noted that the company's stock, which trades in Europe, was down around 20 cents on Friday to the $1.20 level. In contrast, he said, those shares had recently traded around $12, "so they've fallen off a cliff a couple of times."

On Thursday, traders said that the company's bonds "got hit hard after the banks pulled their credit line," as one put it.

Another trader said that activity in the name on Thursday "came after 4 [p.m. ET]", as the junk market was winding down for the day.

A market source, seeing the 9 3/8s having tumbled to 39-42, said that those bonds had last previously traded around the 63 bid level, in early December.

Petroplus said that access to all credit lines under its revolving credit facility has been suspended and access to pledged bank accounts with the revolver lenders has been restricted, pending the outcome of continuing negotiations with the lenders.

The company said that it will hold another meeting in the coming days with the lenders in an effort to secure necessary funding and liquidity arrangements to let it meet its current and future financial obligations.

It further said that the talks involve reviewing strategic options and securing other sources of liquidity.

The company additionally announced some facilities closures in the wake of the financial problems, including its Petit Couronne refinery in France, its Antwerp facility in Belgium, and its Cressier refinery in Switzerland, which is expected to run down crude oil stocks by early in the second half of January.

Stephanie N. Rotondo contributed to this report

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