Edison, American Greetings, Education Management issues price; Calpine moves up

By Paul Deckelman and Paul A. Harris

New York, May 19 - As drenching thunderstorms moved through the New York region Friday, a very busy week in the junk bond primary market appropriately came to a thunderous close, with almost $2 billion of new bonds seen pricing during the session. Half of that total came from one billion-dollar deal, Edison Mission Energy's two-part senior note offering. Education Management Corp. also weighed in with a large-sized two-part transaction, while American Greetings Corp. priced a deal - just one tranche, and considerably smaller - as well.

That burst of activity put an exclamation point on a week which had seen new bond deals from issuers such as Superior Energy Services Inc., Range Resources Inc. and Unifi Inc. But the biggest issue - even dwarfing Edison Mission's huge transaction - came from tobacco giant Reynolds American Inc., with brought a $1.65 billion three-part mega-deal to market late Thursday.

While those new deals lit up the scoreboard in the primary arena, they did little for the secondary market, and that pattern held in on Friday, with the new issues all seen trading pretty much around their respective issue prices, as investors tried to digest over $4 billion of new paper.

Among the established issues, Calpine Corp. paper went up, particularly the bonds of its Calpine Canada Energy Finance II ULC unit, as investors parsed the bankrupt San Jose, Calif.-based power generating company's 10-K annual report to the Securities and Exchange Commission and found reasons for optimism, traders said.

Most other issues were seen essentially tethered to levels they had hit earlier in the week - either on the upside or down - with not much change seen as activity levels fell off around midday and players got an early jump on the weekend. One of the big losers on the week was bankrupt Toledo, Ohio-based insulation maker Owens Corning, which lost much of the previous week's hefty gains to a week's worth of profit-taking.

Overall, sources said that the broad market firmed ever-so-slightly during Friday's quiet session.

Almost $2 billion of new deals

For the second consecutive day the primary market drew up just short of the $2 billion-mark, in terms of issuance.

Friday's session saw $1.96 billion price in five dollar-denominated tranches from three issuers.

One tranche was upsized and one was downsized. Four priced in the middle of price talk while the fifth came at the tight end.

By comparison, Thursday's session, which generated $1.98 billion of proceeds - also in five tranches from three issuers - saw two of those tranches downsized. Two of Thursday's five tranches came wide of price talk while the remaining three came at the wide end of talk.

"The market appears to have stabilized and regained its footing a little bit, although it was very quiet and a lot of people seem to have left early," a buy-side source commented shortly after the New York close.

A sell-side official, saying that the market was unchanged to slightly higher, added that the equity markets appeared to stabilize as well on Friday.

Edison Mission Energy prices $1 billion

Friday's largest amount of issuance came from Edison Mission Energy which priced $1 billion of senior notes (B1/B) in two $500 million tranches on Friday.

Both priced at par, and both came on top of the price talk.

The indirect subsidiary of independent power producer Edison Mission Group priced a tranche of seven-year notes to yield 7½% and a tranche of 10-year notes to yield 7¾%.

JP Morgan, Citigroup, Credit Suisse, Merrill Lynch & Co. and Goldman Sachs & Co. were joint bookrunners for the debt refinancing deal from the California power producer.

A buy-side source, whose account was allocated nearly all of the bonds it had ordered, said that while it was safe to say that the Edison Mission Energy deal was oversubscribed it likely was not massively oversubscribed.

This source added that the book was probably pretty well balanced between the seven-year and 10-year notes.

"It went pretty much as predicted," the buy-sider said, adding that the seven-year notes were going out at the close at 100.25 bid, while the 10-year notes were going out at 100.125 bid.

Education Management oversubscribed

Education Management Corp., meanwhile, priced a $760 million two-part notes transaction.

The Pittsburgh-based provider of private post-secondary education priced an upsized $375 million issue of eight-year senior notes (B3/CCC+) at par to yield 8¾%, at the tight end of the 8¾% to 9% price talk. The senior notes issue was upsized from $320 million.

The company also priced a downsized $385 million issue of 10-year senior subordinated notes (Caa1/CCC+) at par to yield 10¼%, on top of the price talk which had the subordinated notes coming in the 150 basis points area behind the senior notes. The subordinated notes issue was downsized from $440 million.

Credit Suisse, Goldman Sachs, Merrill Lynch and Banc of America Securities were joint bookrunners for the acquisition financing.

One source close to the deal said that it had gone very well, playing to an order book that was two-times oversubscribed.

American Greetings mid-talk

Finally, American Greetings priced a $200 million issue of 10-year senior notes (Ba2/BB+) at par to yield 7 3/8%, in the middle of the 7¼% to 7½% price talk.

UBS Investment Bank and JP Morgan ran the books for the debt refinancing deal from the Cleveland-based manufacturer of social expression products.

Biggest in six weeks

Tallying Friday's five tranches, the week of May 15 came to a close having seen $4.236 billion of issuance in 11 dollar-denominated tranches, making it the biggest week by dollar amount since the week of April 3, which saw $4.704 billion.

In addition to the April 3 week, 2006 has thus far seen two other weeks which produced issuance greater than the May 15 week's $4.236 billion: the Jan. 23 week which had $5.826 billion, rendering it the biggest week thus far in 2006, and the Jan. 9 week which had $5.124 billion.

At Friday's close year-to-date issuance stood at just under $53.66 billion, as 2006 continues to pull away from 2005 in a year-over-year comparison of proceeds raised in the high yield primary market. At the May 19, 2005 close issuance stood at slightly less than $38.24 billion.

And although 2006 deal volume previously had been lagging that of 2005, by Friday's close year-over-year deal volume was just about dead even: 154 tranches thus far in 2006 versus 155 tranches by the May 19, 2005 close.

The week ahead

In the backwash of the Thursday and Friday sessions which produced a combined issuance of approximately $3.94 billion, the May 22 week will get underway with a meek $715 million on the forward calendar.

Three companies are in the market with one tranche apiece, and all are expected to price before Friday's close.

MTR Gaming Group Inc. has talked its $125 million of six-year senior subordinated notes (B3/B-) 9% area at par.

Jefferies & Co. has the books on that offering.

Some sources were expecting terms to emerge on Friday. However well after the session's close none had been heard.

Also in the market is Libbey Glass Inc., which is offering $400 million of eight-year senior notes (B), via JP Morgan and Bear Stearns, and Hanger Orthopedic Group Inc., with a $190 million offering of seven-year senior unsecured notes (B3/CCC+) via Lehman Brothers and Citigroup.

Education Management up in trading

Of the new deals that priced, only Education Management's 10¼% senior subordinated notes due 2016 seemed to have any ooomph to them in the aftermarket, with several traders seeing the bonds trading as high as 101 bid, up from their par issue price.

"There was some initial trading on the break," one said, seeing those bonds approaching the 101 level, before going out at 100.75 bid, 101.25 offered, "and then it quieted down for most of [the rest of] the day." He saw the other half of the deal, the 8¾% senior notes due 2014, end at 100.5 bid, 101 offered, up from their par issue price earlier in the day.

Another trader saw the 101/4s at 100.75 bid, 101.75 offered, and the 83/4s at 100.25 bid, 100.75 offered, while yet another saw the 10-years push all the way up to a close at 101 bid, 101.5 offered, while the eight-years were at 100.5 bid, 101 offered.

A trader saw Edison Mission's new bonds barely moved from both tranches' par issue price, with the 7½% senior notes due 2013 at 100.125 bid, 100.375 offered and its 7¾% senior notes due 2016 at an even tighter 100.125 bid, 100.25 offered.

American Greetings' new 7 3/8% senior notes due 2016 opened at 100.5 bid, 101.25 versus their par issue price, a trader said. "We had a couple of buyers, but [the bonds] couldn't get tight enough to trade them."

Short Reynolds bonds tighter

And the trader saw Reynolds American's new bonds, despite their ostensible junk-bond status, still being quoted on a spread-versus Treasuries basis as befitting a recent fallen angel name. He saw "the two larger issues, the two shorter ones" - the company's $625 million of 7¼% senior secured notes due 2013 and its $775 million of 7 5/8% senior secureds due 2016 - trading about five basis points tighter than their late-Thursday issue price, while the $250 million of 7¾% senior secureds due 2014 were trading "right around their issue price."

A second trader saw the Reynolds 71/4s just "slightly better" than issue, at a bid level equivalent to 237 bps over Treasuries and an offered level at 234 bps over, versus their pricing spread at 237.5 bps. He saw the 7 5/8s "slightly worse," widening out to 266/263 from their 262 bps pricing spread, while the 73/4s widened to 277/272 from their 275 bps pricing spread.

Yet another trader did see those bonds quoted in dollar terms, "all around issue," with the 71/4s at 99.25 bid, 99.5 offered, versus a 99.277 issue price; the 7 5/8s were at 99.25 bid, 99.75 offered, slightly off their 99.538 issue price, while the 73/4s ended at 99.375 bid, 99.575 offered, versus a 99.484 issue price.

"There was nothing exciting on the break for any of them," he said.

Range edges up

Among other issues which priced during the week, a trader said that the Range Resources 7½% notes due 2016, which priced Thursday at par, were slightly firmer, at 100.5 bid, 101.5 offered. And Unifi's 11½% notes due 2014, which priced Thursday at par, were seen straddling that issue point at 99.75 bid, 100.25 offered.

Calpine jumps on 10-K

Back among the established issues, Calpine Canada "was the big winner," a trader said, quoting the company's 8½% notes due 2008 six points better on the day at 59.5 bid, 60.5 offered. He saw other Calpine issues also doing better, though not quite so dramatically, with the 8½% notes due 2011 up three points at 39 bid, 40 offered, and Calpine's 10½% notes due 2006 two points better at 58.5 bid, 59.5 offered.

"That was the bulk of the excitement in the market Friday," he opined.

Another trader also saw those Canadian bonds having jumped five points on the day to 58.5 bid, 59.5 offered, while the 8½% 2011s were two points better at 39.5 bid, 40.5 offered, and the 8½% secured notes due 2010 were ½ point better at 92.5 bid, 93.5 offered.

Yet another trader saw the Calpine Canada bonds get as good as 60 bid, 61 offered, which he merely termed up "several points, and probably the most active bond."

Calpine - which sought Chapter 11 protection from its junk bond holders and other creditors last Dec. 20 - issued its long-delayed annual report - and much of the news was not good, with Calpine warning that total claims against the company will be "significantly greater" that the $17.4 billion of debt it listed. Observers suggested that sorting this all out will likely delay the company's reorganization and emergence from bankruptcy, for which no firm timetable has been set. The company reported operating losses for the fourth quarter of $9.26 billion and a yearly operating loss of $4.37 billion (see related story elsewhere in this issue).

However, Calpine also said it was working on a new business plan that could leave it cash-flow positive, on an operating basis, in 2007.

The first trader suggested that Calpine's bonds may have risen, despite the huge operating losses and the likely greater liabilities, on indications that revenues had grown.

And he said that the 8½% Calpine Canada bonds likely rose because "there's also some legal mumbo-jumbo going on, that they [the bondholders] might be entitled to higher remuneration. That's the rumble out there."

Techs weak - except AMD

Elsewhere, he said, things were "pretty lethargic," particularly in the tech sector, where Unisys Corp.'s 8% notes due 2012 "had a pretty sloppy week" and finished at 92.5 bid, 93.5 offered, down three points on the week.

Other tech names struggling included Flextronics' 6½% notes, which lost two points on the week to 96.5 bid, 97.5 offered, while Amkor Technology Inc.'s 7¾% notes due 2013 closed out at 91.5 bid, 92.5 offered, down half a point.

However, Advanced Micro Devices Inc.'s 7¾% notes gained a point to 103.5 bid, 104 offered, helped by Dell's announcement that it will use the Sunnyvale, Calif.-based semiconductor maker's microprocessors in some of its high-end servers, breaking what has previously been a monopoly for computer-chip giant Intel Corp.

Out of the distressed-debt desks came the words that Owens Corning's bonds failed to gain any traction toward recovery, after having dropped sharply from their week-earlier levels well above 120 bid, on profit-taking.

Its 7½% notes due 2018 were quoted at 112 bid, 114 offered, and its 7% notes due 2009 "settled down on the week," a trader said, at 110 bid, 112 offered.

A trader said that overall, "it was a very unexciting day today. The market started out weaker, but firmed up, and I would say it was unchanged to up a quarter [point] on the day - but there was not a lot to write home about. I think everybody was just trying to chase these new issues. A lot of people left early in the afternoon."

Another trader - noting the fact the coming week will be a short one, ahead of next Monday's Memorial Day holiday closure, preceded by an abbreviated session, quipped "if you think this Friday [May 19] was bad - wait till next Friday."

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