Hovnanian deal prices, Chesapeake Energy slates; GNC gains on IPO news

By Paul Deckelman and Paul A. Harris

New York, June 5 - Hovnanian Enterprises Inc. was heard by high-yield syndicate sources to have successfully priced a quickly-shopped drive-by offering of 11-year notes - one of a number of developments in a recently sleepy but now newly revived primary market. Chesapeake Energy Corp. is expected to bring an issue of new notes to fund its nearly billion-dollar acquisition of natural gas reserves in Texas, which was announced Monday. Details on the structure of IntelSat (Bermuda) Ltd. and PanAmSat Holding Corp.'s mammoth $3 billion-plus offering emerged in the junk market on Monday. Also heard slating were smaller deals from American Achievement Corp. and UGS Corp.

In the secondary arena, bonds of GNC Corp. were seen up several points on the news that the Pittsburgh-based vitamin and nutritional supplements retailer plans an initial public offering expected to raise about $400 million.

Elsewhere, traders mostly saw a rebound in Revlon Consumer Products Corp. bonds, which had retreated on Friday, and they saw continued firming in Calpine Corp. notes - though nothing quite as dramatic as the upturn that the bankrupt San Jose, Calif.-based power generating company's paper took at the tail end of last week. Also in the distressed markets, Movie Gallery Inc.'s bonds were bouncing around at higher levels, in line with its shares, as takeover scuttlebutt about the company - at this point still strictly unofficial and unverified - circulated among market participants.

A high yield syndicate official said that the broad market appeared unchanged on Monday, although sentiment was "a bit weaker" as the stock market dropped precipitously and Treasuries sold off as well.

Noting that two-year government paper was seven basis point higher in yield on the session, the source added that Federal Reserve chairman Ben Bernanke's comments that recent indications of inflation are "unwelcome" obviously "spooked" the market.

"It was fairly quiet," the source said. "So you're talking about the sentiment of the market being weaker, rather than about actual trading."

Meanwhile a buy-side source, speaking on background, noted that the Dow Jones Industrial Average closed just slightly less than 200 points lower in Monday trading, with Treasuries also off.

"When Bernanke spoke people became upset because they think there is a slowing economy with increased inflation," the buy-sider said, adding that the primary corrosive forces at play in the U.S. economy at present are "raw materials and energy."

Hovnanian drives through

The week got underway in the primary market with one issue pricing - a $250 million issue of 10.5-year notes from K Hovnanian Enterprises.

The quick-to-market notes (Ba1/BB) priced at par to yield 8 5/8%, on top of the price talk.

JP Morgan, Banc of America Securities, Citigroup and Credit Suisse were joint bookrunners for the debt refinancing deal from the Red Bank, N.J., residential home builder.

Yield hogs and hedge funds

The preponderance of primary market news was of the "quick-to-market" variety on Monday.

Two prospective issuers came on the scene with dividend-funding deals that are both expected to be priced by Tuesday's close.

UGS Capital Corp. II, a financing unit of Plano, Tex.-based product lifecycle management software provider, UGS Corp., will host an investor conference call at 11 a.m. ET Tuesday for its $300 million offering of six-year floating-rate PIK notes via Deutsche Bank Securities

And Austin, Texas-based scholastic products company, American Achievement Group Holding Corp., plans to issue $150 million of 10-year senior discount notes on Tuesday, via Goldman Sachs and Lehman Brothers.

A maxim in the high yield market holds that PIK notes and zero-coupon discount notes sold to fund dividends tend to be "hot market deals."

However an investor said that although the junk market may have been hot "four to six weeks ago" it is not now.

Nevertheless the investor said that the UGS and American Achievement deals could appeal to "yield hogs and hedge funds," but added that right now hedge funds are looking for momentum, "which they are not going to find in this market."

Hearing the call

This investor also said that at present there is "a lot of short paper that is getting called away," and added that this scenario is also a plausible source of increased demand "because you don't want your cash to build up too high, or else you will have to cut your dividend."

The source then called the roll, noting that United Agri Products tendered for both its coupon and zero-coupon paper, and US Unwired, Inc. called its floating-rate notes.

Paper has also been called in or tendered for by Resolution Performance Products LLC, Activant Solutions, Inc., Bombardier Recreational Products and Doane Pet Care.

"Short paper is getting called away so people are building cash," the investor asserted, adding that the word is that people are presently sitting on cash in the 5% to 10% range."

The investor commented that for portfolio managers to be sitting on that level of cash is somewhat high, and suggested that investors are presently keen to get some sense of where interest rates are headed.

"Right now the Treasury market is schizophrenic," the source said.

The investor also noted that U.S. interest rates are conspicuously high and gave, for comparison, the following rates in other countries: China 2.78%, Taiwan 2.16%, Japan 1.83%, Czech Republic 3.91%, Greece 4.24% and Italy 4.23%,

"The closest to the U.S. is the U.K. at 4.57%," the investor said.

When Prospect News objected that the junk market seemed to be holding in despite interest rate uncertainties and a cloudy macroeconomic forecast the investor counseled that these forces will eventually come to bear on junk.

"And when they do it will be really awful," the source said.

"You can't have the equity market scared to death about inflation and a slowing economy without it impacting the Treasury market."

Intelsat/PanAmSat structure

Also on Monday the high-yield primary learned the structure of the multi-tranche megadeal - up to $3.5 billion - that Intelsat Ltd. and PanAmSat will take on the road starting Tuesday.

PanAmSat Holding Corp. plans to sell a $725 million tranche of 10-year senior notes and PanAmSat Corp., the operating company, plans to sell $575 million of 10-year senior notes.

Meanwhile Intelsat (Bermuda) Ltd., the holding company, plans to sell $750 million of 10-year senior notes, which will be guaranteed by the operating company.

Intelsat (Bermuda) Ltd. also plans to sell $1.16 billion of senior notes in two tranches that will not be guaranteed by the operating company. The non-guaranteed offerings will be comprised of a tranche of seven-year floating-rate notes and 10-year fixed-rate notes. Tranche sizes remain to be determined.

Deutsche Bank Securities, Citigroup, Credit Suisse, Lehman Brothers and Merrill Lynch & Co. are joint bookrunners for the Rule 144A/Regulation S PanAmSat offerings. Merrill Lynch is a co-manager for the Intelsat offerings.

The final structure depends upon the outcome of the tender offer for PanAmSat's 10 3/8% senior discount notes, with an accreted value of $296.6 million. If the tender offer is consummated then the PanAmSat Holding Corp. $725 million tranche of senior notes will be dropped, and the Intelsat (Bermuda) Ltd. two-tranche transaction, non-guaranteed by the operating company, will be upsized to $2.2 billion from $1.16 billion.

Hovnanian up in trading

When the new Hovnanian Enterprises 8 5/8% senior notes due 2017 were freed for secondary dealings, a trader saw the bonds move up to 100.75 bid, 101.25 offered, which he termed "a pretty good break, all things considered," on a day when most market names were heavier, in line with the rapidly falling stock market that saw the bellwether Dow Jones Industrial Average plunge nearly 200 points on the session.

Stocks slid in response to such developments as market jitters over high oil prices in the wake of Iran's weekend threat to cut oil exports if Western nations punish or attack the country over its nuclear arms program, and bearish inflation and interest rate talk from the chairman of the Federal Reserve Board.

"Bernanke was doing his best to destroy the market," a bond trader acidly observed, "but high yield didn't puke up very much" of its recent gains.

The Fed boss warned an international monetary conference that even though higher energy costs have helped slow the pace of economic growth, core inflation, which excludes food and energy costs, was near the central bank's tolerance level and could demand further rate tightening. That somber projection would seem to quash recently inspired hopes that the central bank had about reached the end of its cycle of gradual monthly tightenings of key rates.

Calpine strong

Even so, the trader emphasized, high yield more or less hung in there, particularly the Calpine bonds, which had firmed smartly on Friday. He pegged the company's 8½% notes due 2011 at 52.5 bid, 53.5 offered, which he called half a point off their intra-day highs but up another point over Friday's levels. He attributed the continued firmness to momentum from last week's upward move in the company's bank debt, the good vibe coming from Calpine's payment last week of $645 million of 9 5/8% first-priority senior secured notes due 2014 - a move which will reduce annual interest costs by $25 million - and the continued impact of last week's unsolicited $8 billion takeover offer for NRG Energy Corp. from rival power generator Mirant Corp.

"There's a bid out there for electric utilities," he observed, quoting the Calpine Canada Energy Finance II ULC 8½% notes due 2008 at 68 bid, up from 66 previously.

Another trader saw those '08s up two points on the session at 69 bid, 70 offered, while the 11s were up 1½ points at 52.5 bid, 53.5 offered. However, he saw Calpine's secured 8½% notes due 2010 actually down a point at 97 bid, 98 offered.

And while a market source saw Calpine's 8¾% notes due 2007 finishing up three points on the day at 75, after having been as high as 76 earlier in the day, another source said that he had seen no additional firmness in the company's notes, other than a "leveling out" at higher levels for its 6% convertible notes.

Another trader, while seeing Calpine "tack on" another point to its previous levels, also saw Reliant Energy Inc.'s bonds also better in the aftermath of the Mirant proposition to NRG, which he said caused Houston-based Reliant to "catch a little wind in the sails as well." He saw its 6¾% notes due 2014 up two points at 92.5 bid, 93.5 offered.

GNC gains on IPO plan

Elsewhere, the trader said, GNC's bonds were up about two points across the board on news of the pending IPO, which the company revealed in a Friday preliminary filing with the Securities and Exchange Commission. It did not say how many shares of stock would be sold, or at what price level. The company plans to use the net proceeds from the IPO to redeem all of its outstanding preferred stock and for working capital and general corporate purposes.

He saw GNC's 8½% notes due 2010 at 99 bid, par offered, while its 9 5/8% notes due 2011 were also "up a deuce," at 101.5 bid, 102.5 offered.

Revlon rebounds

Revlon's bonds "seemed to bounce back" after having gotten mowed down last week, the trader said, seeing its 8 5/8% notes due 2008 up a point at 94 bid, 95 offered, while its 9½% notes due 2011 were also a point higher, at 92.5 bid, 93.5 offered. Those bonds fell Friday after the New York-based cosmetics manufacturer - controlled by billionaire financier Ronald O. Perelman - warned that a planned equity offering would be delayed, and projected lower guidance than before for fiscal 2006.

Another trader said that Revlon "recouped a little," with the 8 5/8s up perhaps half a point from Friday at 93.5 bid, 94.5 offered, and the 91/2s at 91.5 bid, 92.5 offered. The latter bonds, he said, "had been a little bit higher earlier," around 93 bid. "Then there was a sell-off, a little bit," to drop the bonds back, but still leave them better on the session.

"People were anticipating the short-term stuff would hang in," he said, "though maybe not the longer-dated paper." He cited the structure of the planned equity transaction and noted the "backstop provision" under which the Perelman-controlled McAndrews & Forbes will guarantee that all of the planned stock gets sold - by agreeing to buy up any that isn't. He also cited Standard & Poor's announcement Friday maintaining the company's ratings will stay where they area, at least for the moment.

Movie Gallery active

Among other names, Movie Gallery's 11% bonds due 2012 were "very volatile," a trader said, seeing them move as high as 79 bid at mid-morning, before falling back to 77.5 bid, 82 offered, still up 1½ points on the day. He cited acquisition rumors as the likely catalyst.

Level 3 lifted on acquisition

Level 3 Communications Inc.'s bonds were steady to a bit higher, as the Broomfield, Colo.-based telecommunications company announced its plans to buy data transport services company Looking Glass Networks Inc. for $96 million.

"It's like the fourth acquisition recently," a trader said. He saw its 12 7/8% notes half a point better at 102.5 bid, 103 offered, while its 9 1/8% notes due 2008 unchanged at 99.5 bid, par offered.

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