Range prices upsized 10-year; housing names weaker after Lennar results; Unisys off on security flap

By Paul Deckelman and Paul A. Harris

New York, Sept. 25 - Range Resources Corp. was heard by high yield syndicate sources to have priced an upsized new offering of 10-year notes at par, as the junk bond primary market continues to get back into the swing of things now that fall has arrived. The new bonds were seen having firmed slightly when they were freed for aftermarket activity. Elsewhere among the new-dealers, market price talk emerged on Downstream Development Authority's upcoming new issue of eight-year notes.

In the secondary market, housing names such as Hovnanian Enterprises Inc. and KB Home moved lower, as did more marginal credits like Beazer Homes USA Inc., Tousa Inc. and WCI Communities Inc., as investment-grade industry leader Lennar Corp. reported a sharply wider-than-expected fiscal third-quarter loss, and realtors said sales of existing homes dropped sharply last month - the latter statistic a bad omen for sales of new construction.

Unisys, Inc.'s bonds were down about a point or so, as the Blue Bell, Pa.-based information technology company fended off Congressional allegations that it was to blame for recent tech security problems at the Department of Homeland Security, including hacker intrusions. Other high-tech credits like Amkor Technology Inc. and Freescale Semiconductor Inc. were also seen lower.

Movie Gallery Inc.'s bonds were initially seen firmer after the Dothan, Ala.-based Number-Two U.S. video rental chain operator announced that it would move to cut costs and conserve cash by shuttering 520 of its roughly 4,500 stores. However, that news-oriented bounce proved to be short-lived, because the bonds were seen going home quoted unchanged to even off slightly, depending on who was speaking.

A sell-side source gave spotted the mid-level of the high yield tracking CDX index at 97¾ on Tuesday, down ¼ on the day.

However the source added that the liquidity of the CDX High Yield 8 may be questionable at present as the index will formally roll over into the CDX High Yield 9 on Thursday.

Meanwhile a sell-side official parsed recent developments in the leverage markets and asserted that there are unmistakable indications that market conditions are improving.

Range upsizes

Tuesday's sole new deal was Range Resources' upsized $250 million issue of 10-year senior subordinated notes (Ba3/B+), which priced at par to yield 7½% in a quick-to-market transaction.

There was no official price talk.

JP Morgan ran the books for the issue, which was upsized from $200 million.

The Fort Worth-based independent oil and gas company will use the proceeds to refinance debt.

The drive-through

Range Resources became the fifth drive-by deal to price in as many sessions.

Or, as some might hold, it is the fifth drive-by deal to price in the wake of the Fed's 50 basis points Fed Funds rate cut, which took place on Sept. 18.

In the interim R.H. Donnelley Corp. priced an upsized $1.0 billion issue of 10-year senior notes at par to yield 8 7/8%, Leucadia National Corp. priced an upsized $500 million issue of 8 1/8% eight-year senior notes at 98.307 to yield 8.42%, American Tower Corp. priced an upsized $500 million issue of 10-year senior notes at par to yield 7% and Waterford Gaming LLC priced a $128.5 million issue of seven-year senior notes at par to yield 8 5/8%.

All of them were quickly shopped deals.

Signs of improvement

Sell-side sources have been telling Prospect News that to dwell on the $300 billion-plus of hung up LBO financing now on underwriters' balance sheets as a result of unplaced junk bonds and unsyndicated leveraged loans is to miss the unmistakable signs that the leveraged markets are improving.

In addition to the recent rash of drive-by deals summarized above, sources also say that prices are firming.

On Tuesday one leveraged markets syndicate official said that DAE Aviation has returned to the bank loan market with its $937 million credit facility, which it is now talking at 98.50.

The bookrunner, Barclays, which had funded the bridge, had recently been talking the deal at a steeper discount, according to the source.

The official added that the DAE news follows developments earlier in the month on the hung bridge backing the LBO of Allison Transmission. Underwriters priced approximately $1 billion of that bridge at 96.00 with MFN protection.

Subsequently another $500 million of the bridge risk was priced at 96.50, without MFN protection.

Hence, the source said, there is evidence that investors are willing to participate in the LBO risk overhang at higher prices, whereas in the run up to Labor Day the doom-and-gloom crowd insisted that the risk, if it moved at all, would do so in the low 90s, or maybe even in the high 80s.

The official also asserted that a look beneath the surface at Biomet Inc.'s recent notes issue points to stronger prices, not weaker ones.

Biomet priced $2.348 billion of 10-year high yield notes last Friday, via Banc of America Securities.

In subsequent trading in the secondary market Biomet's new 10% senior cash-pay notes, its 10 3/8% toggle notes and its 11 1/8% subordinated notes, all of which were priced at par, traded lower.

However, although the notes were trading below par on Tuesday morning they were generally trading "a couple of points higher" than recent trading levels of the high yield bridge exposure which had been syndicated, at par, near to the time when the Biomet term loan allocated, in July, according to the source (see related story in this issue).

Downstream sets talk

Finally on Tuesday, the Downstream Development Authority set price talk for its downsized $205 million offering of eight-year senior notes (B3/B-).

The notes are talked to price at a discount with a 12% coupon to yield 12½%.

The deal, which was downsized from $235 million and is expected to generated $197 million of proceeds, is scheduled to price on Wednesday morning via left bookrunner Banc of America Securities and joint bookrunner Merrill Lynch & Co.

New Range Resources moves up slightly

When the new Range Resources 7½% notes due 2017 were freed for secondary dealings, a trader saw the bonds "out of the gate" at 100.5 bid, 101.5 offered, up from their par issue price earlier in the session.

He also saw the new American Tower Corp. 7% notes due 2017, which had priced at par Monday, really too late for any meaningful aftermarket activity, as having edged up only slightly, to 100.25 bid, 100.5 offered.

He meantime also saw the big new Biomet Inc. deal, which priced in three parts on Monday, and then mostly traded lower, hanging in pretty much around where they had gone out on Monday, with its 10% cash-pay senior notes due 2017 at 99.75 bid, 100.25 offered, its 10 3/8% senior payment-in-kind toggle notes due 2017 at 96.25 bid, 96.75 offered, and its 11 5/8% senior subordinated notes due 2017 at 97 bid, 97.5 offered, all versus their respective issue prices at par.

Although the latter two tranches were trading well off their pricing levels, people in the market were indicating that the bonds had been expected to trade down like that - word was that the underwriters had bought the deal, and then were attempting to turn around and sell it in the secondary.

"Yeah," a trader said, "I think they just had this on their books and they started trading it. They pretty much owned all the chips, trying to get some people to maybe do some short sales into it - and then they could screw 'em," he added with a laugh.

Housing names hurt by Lennar

Back among the established names, housing was seen in retreat pretty much across the board, dragged down by the bad earnings news from Lennar and data from the National Association of Realtors, which said that existing-home sales in August fell 4.3% to a 5.5 million-unit annual pace, while inventories of unsold houses and condominiums hit their highest level in 18 years.

Earlier, Miami-based Lennar, the largest U.S. homebuilder, reported that it lost $513.9 million, or $3.25 per share, in the fiscal third quarter ended Aug. 31. That represented a severe deterioration in the company's finances from a year earlier, when Lennar earned $206.7 million, or $1.30 per share. The big loss surprised Wall Street, which had been expecting a per-share loss in the area of 55 to 60 cents. Its BBB rated 6½% notes due 2016 were down ¼ point at 91 bid, 92 offered.

Over on the junk side of the industry, Hovnanian's 6 3/8% notes due 2014 were down a point at 81 bid, while KB Homes' 6¼% notes due 2015 lost 2 points to 85.5.

Among the more marginal junk homebuilders, whose finances have been hit even harder than Hovnanian and KB by the recent problems in the mortgage industry and falloff in home sales, Beazer Homes' 8 5/8% notes due 2011 were down ½ point at 81.5 bid, 83.5 offered.

Tousa Inc.'s 8¼% notes due 2011 fell to 65.5 bid, 67.5 offered from 67.75 bid, 68.75 offered previously. Its 9% notes due 2010 dropped to 67.5 bid, 69.5 offered from 70.75 bid, 71.75 offered, and its 10 3/8% notes due 2012 eased to 33 bid, 35 offered from 36.5 bid, 38 offered. Its 7½% notes due 2011 retreated to 27 bid, 29 offered from 29 bid, 31 offered.

WCI Communities Inc.'s 9 1/8% notes due 2012 were down 2½ points to 83 bid, 85 offered. And Standard Pacific Corp.'s 9¼% notes due 2012 were seen down 2 points at 70 bid, 72 offered.

On the other hand, a trader said that he "didn't really see too much" in actual dealings in real estate-related paper. "We had a customer trying to buy some of those Realogy Corp. bonds today - but I couldn't find anyone to sell them. I think things were quoted weaker - but I couldn't cover any shorts. Nobody was rushing in to sell paper. I didn't see anyone saying 'I gotta get out of this name.'"

Unisys off on security breach concerns

Unisys' bonds were seen down around 1 to 2 points, with a market source locating its 6 7/8% notes due 2010 at 97 bid, off a point, and its 8% notes due 2012 at 96, a 1½ point retreat. The latter bond gyrated around a little, moving as high as 98.5 before dropping back later on. Last week, the 8s had traded in a 97-98 context, while the 6 7/8s were moving around the 98-99 level.

Another market source saw the 6 7/8s down a point at 96.5.

However, at another desk, the company's 8½% notes due 2015 were actually quoted up 1½ points at 99.5, although that was still below the par-101 context in which those bonds had traded last week.

Unisys has been rocked by allegations from Capitol Hill that it failed to follow proper computer security standards and even supposedly covered up hacking incidents that took place on Homeland Security networks. The chairman of the House committee that oversees homeland security, Rep. Bennie G. Thompson, D-Miss., and the head of that panel's subcommittee on emerging threats, cybersecurity, and science and technology, Rep. James R. Langvin, D-R.I., sent a letter Friday to the department's inspector general, Richard L. Skinner, seeking an investigation into the recent alleged cyber attacks and into what they termed "incompetent and possibly illegal activity by the contractor charged with maintaining security on its networks."

A Washington Post story said the congressional panel was looking into a variety of incidents, including hackers allegedly being able to break into "dozens" of DHS computers, extract information from them and then send the data to a web-hosting service connected to Chinese web sites. There were allegations that network intrusion detection systems which were supposed to alert officials to such incidents were not working properly at the time, and other charges contained in the letter to Skinner, that "contractors had given inaccurate or misleading information" to government officials, "attempting to hide gaps in their capabilities."

Unisys - which in 2002 won a contract worth as much as $1 billion to provide computer security services to DHS, and which secured a renewal of the deal potentially worth another $750 million last year - has denied as "not correct" any allegations that it did not properly install or maintain the computer security systems. "We routinely follow prescribed security protocols and have properly reported incidents to the customer in accordance with those protocols," the company said in a statement.

Other high-tech names were seen lower, likely on sector sympathy, including Austin, Tex.-based semiconductor manufacturer Freescale, whose 8 7/8% notes due 2014 were down nearly a point at just under 97, and Chandler, Ariz.-based semiconductor packaging and testing services provider Amkor, whose 7¾% notes due 2013 were a point lower at 95.

At another desk, Freescale's 10 1/8% notes due 2016 were down more than 1½ points at 93.5.

Community Health looks robust

Elsewhere, a trader said that Community Health Systems Inc.'s 8 7/8% notes due 2015 are trading around the 104 mark, after having straddled par "for a really long time" over the summer, particularly during the prolonged August "dead spot. Those have really come back very strongly," trading in a 103 context last week and advancing to either side of 104.

"It's a solid name, and a $3 billion issue," which priced a little below par at the end of June, "and did well when it came - it immediately to a premium when it came. Then in July, it went down into the mid-90s with everything else, in the midst of the panic. Then it came back and hung around par," before starting to move up to around 103 last week and now, 104 this week.

The trader opined that it would not be a surprise if short-covering wasn't now pushing the Nashville-based hospital operator's bonds back upwards. "It certainly is a liquid name that's easy to go back and forth on, and take a ¼ [point] here and there."

Movie Gallery sizzles, then fizzles

From out of the distressed-debt precincts came word that Movie Gallery's 11% notes due 2012, which on Monday had fallen a point or so to a 35.5-36 context, had firmed to above 37 in morning trading after the store-closing announcement by the company, which operates coast-to-coast under either the eponymous Movie Gallery banner or as Hollywood Video. However, by the afternoon, the bounce was over and the bonds were seen back down around 35.

Another trader saw the bonds bouncing around, but said that at the end of the day, they were a point lower at 34.5 bid, 35.5 offered.

And yet another trader saw them down 2 points on the day at 35 bid, 36 offered.

Movie Gallery said that by closing the 520 least profitable locations, it would be able to focus on its remaining 4,000 outlets, which compete with the larger traditional brick-and-mortar video operator Blockbuster Inc., as well as with non-traditional rental operators such as Netflix Inc. and Coinstar Inc.'s Redbox unit.

Movie Gallery has struggled since it acquired the larger Hollywood chain two years ago, running into integration problems as well as the changing nature of the U.S. video rental and retailing industry, industry dynamics which have also hurt Blockbuster to a degree - instead of specifically going to a video store, many customers now prefer the convenience of ordering and receiving their DVDs either online or by mail, the Netflix business model, or getting them from kiosks located in restaurants, stores or other areas where they are already doing other shopping, the Redbox model.

Buffets buffeted by bad numbers

Buffet's Holdings Inc.'s 12½% notes due 2014 were seen down 3 points to 74 bid, 75 offered on bad numbers. A trader said another factor was the company's conference call, which he euphemistically termed "not promising."

At another shop, the bonds were seen down nearly 5 points to that same 74 level, with trading described as very busy.

The Eagan, Minn.-based self-serve restaurant chain operator said that its net loss for the fourth quarter of fiscal 2007 was $55.1 million - far wider than the net loss of $2.7 million for the fourth quarter of fiscal 2006.

Overall, a trader said, "it was one of those days today - it's nearing the quarter end [Friday is the last trading day of the period] and people were just kind of squaring up. Away from that, we didn't really have much direction. "

A trader said that the widely followed CDX index of junk bond performance was down ¼ on the day at 97 11/16-97 16/16. Among other market performance indexes, the KDP High Yield Daily Index was off 0.11 on the day to 79.70, while the yield widened by 2 bps to 7.92%.

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