Swift, upsized Pioneer Drilling, downsized Pharmaceutical Product price; ATP agony continues

By Paul Deckelman and Paul A. Harris

New York, Nov. 15 - The high-yield primary market churned out anther $1 billion of new paper on Tuesday, including a pair of opportunistically timed and quickly marketed deals out of the energy sector.

Oil and gas exploration and production operator Swift Energy Co. priced a $250 million offering of 10.5-year bonds, which were seen trading slightly above their issue price when they hit the aftermarket.

Contract drilling services provider Pioneer Drilling Co. upsized to $175 million its drive-by add-on to an existing tranche of seven-year bonds that had priced last year.

Also in the primary sphere, Pharmaceutical Product Development, Inc. did a downsized $575 million eight-year deal off the forward calendar.

The Pioneer Drilling and Pharmaceutical Product Development deals were not seen trading around after pricing.

American Greetings Corp. began shopping around a $225 million deal.

In the secondary market, ATP Oil & Gas Corp.'s bonds continued to lose value, even though the energy exploration and production company's shares pulled out of their recent nosedive.

Junk bond and distressed-debt traders noted that ATP was by far the busiest high-yield issue of the day.

On the other hand, Residential Capital LLC's bonds firmed solidly for a second consecutive session, in fairly busy trading, on apparent investor belief that the mortgage lender had made a scheduled coupon payment on one of its issues, thus reassuring the financial community, for now.

Pharmaceutical Product Development downsizes deal

Three issuers, each one bringing a single tranche of bonds, raised a combined total of $998 million on Tuesday.

Although it was downsized, Pharmaceutical Product Development's $575 million issue of eight-year senior notes (B3/B) was a blowout, according to an asset manager who played the deal.

The Wilmington, N.C.-based product development and management services provider priced the deal at par to yield 9½%, inside of the 9¾% area price talk.

The issue, via JPMorgan, Credit Suisse, Goldman Sachs and UBS, was downsized from $700 million, with $125 million of proceeds shifted to a seven-year term loan B, upsizing it to $1.45 billion from $1.325 billion.

That term loan is playing to a $4 billion order book, the asset manager said, explaining that loans have been trading up smartly, and investors in the leverage markets are not blind to the advantages of getting into secured loan paper, given that there is every reason to expect it to immediately trade to a tidy premium.

Because of the intense demand, pricing on the loan was lowered to Libor plus 500 bps from Libor plus 550 bps on Tuesday and the original issue discount moved to 98½ from 97.

Also, the maintenance covenants were stripped out of the term loan in a move that one sellside source characterized as "very aggressive but understandable" given the demand.

The high-yield investor found Pharmaceutical Product Development bond allocations agreeable on Tuesday evening.

That's because this buysider participated in the bridge and was told that non-participants, no matter how big, would receive allocations of no more than $10 million.

Swift prices at the wide end

The drive-by market remained active on Tuesday and is expected to continue to do so for the remainder of the week.

Both of Tuesday's drive-bys came from the energy space.

Swift Energy priced a $250 million issue of 7 7/8% 10.5-year senior notes (B3/B+/) at 99.156 to yield 8%, at the wide end of the 7¾% to 8% price talk.

JPMorgan, Credit Suisse, Goldman Sachs, RBC and Wells Fargo were the joint bookrunners.

The Houston-based oil and gas company plans to use the proceeds for general corporate purposes, including funding its 2012 capital expenditures.

Pioneer Drilling upsizes

Pioneer Drilling priced an upsized $175 million add-on to its 9 7/8% senior notes due March 15, 2018 (B3/B) at 101, resulting in a 9.579% yield to worst.

The reoffer price came on top of the price talk

Bank of America Merrill Lynch, Goldman Sachs and Wells Fargo Securities were the joint bookrunners.

Proceeds will be used to fund a portion of the company's new-build drilling rig program, to fund one or both of two possible acquisitions, or a combination of both depending on timing and other potential factors.

The original $250 million issue priced at 95.75 to yield 10.677% on March 4, 2010. Hence the company realized 101 basis points of interest savings with Tuesday's add-on versus the print on the original notes.

Busy primary anticipated

Buyside accounts continue to have cash to put to work, according to a manager from a high-yield mutual fund that has seen only one day of negative flows in the past five weeks.

Flows to this fund have been strongly positive going back to Oct. 6. Nov. 2 was the one day that saw outflows, and they were mild.

Hence it stands to reason that the new issue market should remain busy, the investor said.

So robust is the technical strength of high yield that the imponderables of the European debt crisis - a cure for which seems more remote with each passing day, the investor confessed - and the looming deadline for the deficit-cutting congressional super committee have thus far failed to erode sentiments.

This buysider was knocking on wood, however.

As the week wears on, look for more news out of JPMorgan, the source advised, having been told by his JPMorgan salesman on Tuesday that the dealer could bring three deals a day for the remainder of the week and clear its pre-Thanksgiving calendar.

Also look for Ford Motor Co. to sail into the market with a multi-tranche offering of notes, possibly as early as Wednesday, a trader from the crossover space advised.

American Greetings starts roadshow

One new roadshow announcement was heard on Tuesday.

American Greetings plans to price a $225 million offering of 10-year senior notes (confirmed Ba2/existing BB+) on Thursday or Friday at the conclusion of a brief roadshow.

JPMorgan and Bank of America Merrill Lynch are the joint bookrunners for the debt-refinancing deal.

Swift firms slightly

When the new Swift Energy 10.5-year notes were freed for aftermarket dealings, a trader saw the Houston-based oil and gas operator's new $250 million issue in a 99-to-99½ context, up a tad from the bonds' 99.156 issue price.

No trading was seen in either the Pioneer Drilling 2018 add-on issue or Pharmaceutical Product Development's eight-year issue, both of which priced too late in the session for any kind of secondary dealings.

No recovery for Community

Community Health Systems Inc.'s $1 billion issue of 8% notes due 2019 - which traded down slightly on Monday after pricing at par - continued to move backwards on Tuesday.

A trader saw the Franklin, Tenn.-based hospital operator's quickly shopped issue at 98½ bid, 99 offered, down from 99½ bid, 99¾ offered at the close on Monday.

However, a second trader saw the bonds only off a little, at 99¼ bid, 99½ offered.

Host holds above issue

Bethesda, Md.-based lodging industry real estate investment trust Host Hotels & Resorts LP's 6% notes due 2021 were seen by a trader at 100¼ bid, 100¾ offered on Tuesday.

A second saw the bonds at 100 1/8 bid, 100 5/8 offered.

That was up slightly from the par level where the $300 million drive-by deal had priced on Monday but down a little from late trading levels after pricing of 100½ bid, 100¾ offered.

Carrizo offered at issue price

A trader saw Carrizo Oil & Gas, Inc.'s 8 5/8% notes due 2018 offered at 981/2.

That's the same level at which the Houston-based energy exploration and production company's quick-to-market $200 million add-on to its existing notes due 2018, sold a year ago, had priced during Monday's session.

Those bonds had traded late Monday at 98 5/8 bid, 98 7/8 offered.

Indicators head south

Away from the new-deal arena, a trader said that while bonds were down on "fairly decent volume," he got the impression that apart from a couple of big movers like ATP Oil & Gas, "there was a general softness in the market, but not a lot of activity."

He saw lots of trading in ATP and in some "5-B" crossover-type issues, such as SLM Corp. and Anadarko Petroleum Corp., but otherwise, it was "a pretty light day."

The statistical secondary market performance indicators, which had been mixed on Monday, took a tumble on Tuesday.

A trader said the CDX North American series 17 High Yield index was down 3/8 of a point to end 91 bid, 91 1/8 offered after having gained 5/16 of a point on Monday.

The KDP High Yield Daily index dropped by 17 bps on Tuesday to close at 72.08 after it had eased by 3 bps on Monday.

Its yield rose by 5 bps on Tuesday to 7.56%,after having edged up by 1 bp on Monday.

And the widely followed Merrill Lynch High Yield Master II index was down by 0.231% on Tuesday after having been up the previous two sessions, including Monday, when it gained 0.04%.

The loss left the index's year-to-date return at 2.958% - its first time below 3% since Oct. 25. On Monday, it had finished at 3.189%.

The cumulative return remains below its high-water mark for the year of 6.362%, which was set on July 26, but is still well up from its 2011 low point, a 3.998% deficit recorded Oct. 4.

ATP a loser, again

A distressed-debt trader exclaimed that "we've still got the oil-patch stuff percolating." ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 were "the big name today" and at least $65 million to $70 million of the bonds changed hands.

He said that it was "the same thing" as over the last several days, with the Houston-based energy exploration and production company's debt on the downside.

However, he said that by the end of the day, "I think it stopped going down."

He saw the bonds - which on Monday had fallen to around 65 bid from previous levels in the higher 60s - get as low as a 60-61 context in early trading.

"But then it ticked back up" from those lows to end the session somewhere around 631/2-to-64 bid, down a point on the day on "a lot of volume."

The bonds declined even though ATP's recently hard-hit stock shot up by 88 cents, or 15.22%, on Tuesday to end at $6.66 on almost three times the normal volume.

The bonds have declined each session since ATP's release of third-quarter earnings and company guidance - and ATP's acknowledgement that it will produce less oil and gas going forward, raising some investor qualms about the company's ability to service its debt in 2012.

The latest blow to investor confidence in ATP came on Tuesday in the form of a research note from Jefferies & Co., which warned that output from the company's oil wells is "underperforming, putting further strain on an already precarious liquidity position."

The brokerage further cautioned that ATP will likely see widening losses in the fourth quarter and in 2012.

It said that ATP "will need additional external financing to carry out its 2012 program, but sources are difficult to identify."

ResCap rises again

Residential Capital's bonds moved up on the day, continuing the positive momentum that the Minneapolis-based residential lender's bonds had shown on Monday, when they were up several points.

The key issue was ResCap's 9 5/8% notes due 2015, which a trader saw up by several points at 62½ bid, 63½ offered after they started the day at 60½ bid, about where they had gone home on Monday.

"Call them up two points on the day, with a decent amount of activity," the trader said, with around $10 million of the bonds trading.

He said that he had no firm information about whether the company made the $110 million coupon payment on its $2.12 billion of outstanding bonds, "but based on the price, I think they did."

During Monday's session, traders said the bonds had risen on investor anticipation that the coupon would be met.

Kodak climbs

A trader said that Eastman Kodak's 7¼ notes due 2013 were up 5 points on the session, quoting the bonds at 46 bid, 46½ offered.

However, he said that it "did not seem like there was much volume. It was just a couple of trades."

He saw the Rochester, N.Y.-based photographic products and digital imaging technology provider's secured bonds - its 9¾% notes due 2018 and 10 5/8% notes due 2019 - sitting still at 69-72.

On the news front, a group of Kodak bondholders was reported to have hired the Blackstone Group as a financial adviser, and also recently retained the law firm of Akin Gump Strauss Hauer & Feld, in order to give itself a better position in the event the company undergoes a restructuring.

And a Kodak equity investor has asked the company to scrap a "poison pill" plan adopted in August that would effectively bar any parties from accumulating more than 4.9% of the stock.

Investment Partners Asset Management said in a letter to Kodak that it believes that the company's real motive in adopting the takeover defense was not, as management claimed, protecting Kodak's tax assets but rather was to prevent any unsolicited acquisition offers thus, in the investor's view, letting management and the board insulate themselves from being held accountable to shareholders.

Accellent trades off

A market source saw the 10% notes due 2017 of Accellent trading around 80 on Tuesday.

That was well down from prior levels around 86 where those notes had traded as recently as last week ahead of the release of the company's quarterly numbers.

About $4 million or $5 million of the bonds changed hands.

Accellent, a Wilmington, Mass.-based provider of manufacturing and engineering services to the medical device industry, reported that in the third quarter ended Sept, 30, net sales increased 6.4% to $133.1 million from $125 million in the 2010 third quarter. However, income from operations was $13.5 million in the third quarter of 2011, down from $17.6 million in the third quarter of 2010, while the company's net loss was $4.4 million in the latest quarter, wider than the net loss of $3.1 million in the third quarter of 2010.

Canadian junk steady to higher

Most of the handful of new Canadian-dollar high-yield bonds were unchanged on Tuesday.

"All trading about the same," a trader said.

The new debt from Ford Credit Canada Ltd. and Cara Operations Ltd. traded flat, while Newalta Corp.'s notes edged higher.

Newalta's 7¾% senior debentures due Nov. 14, 2019 rose to 101 bid on Tuesday, a trader said.

The company sold C$125 million of the series 2 debentures (B1/DBRS: BB) at par on Nov. 8.

Newalta is a Calgary, Alta.-based industrial waste management and environmental services company.

Elsewhere in trading, Ford Credit Canada's 4.2% senior notes due Nov. 14, 2013 were unchanged at 100.25 bid, a trader said Monday.

The notes priced on Nov. 8 at 99.949 in a C$450 million offering.

The company is a financing arm of Ford Motor Co.

Not much activity has been seen in Cara Operations' 9 1/8% subscription receipts due Dec. 1, 2015 since the issue priced a week ago, a trader said Tuesday.

"Nothing," the trader said.

The receipts were quoted flat at 99 bid, 100 offered.

Cara (/BB-/DBRS: B) sold C$76 million of the receipts at 99 to yield 7.42%.

The subscription receipts will roll into the company's existing 9 1/8% senior second-lien guaranteed notes due Dec. 1, 2015 after the company's acquisition of Prime Restaurants Inc. closes in January.

Vaughan, Ont.-based Cara is a full-service restaurant operator with brands that include Swiss Chalet Rotisserie & Grill, Harvey's and Montana's Cookhouse.

Cristal Cody contributed to this report

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