HCA markets upsized 10-year notes, DigitalGlobe, JBS slate deals; retailing paces junk advance

By Paul Deckelman and Paul A. Harris

New York, Apr. 14 - HCA Inc. hogged the limelight in Tuesday's junk bond market as the big Nashville-based hospital operator lined up investors for its issue of 10-year first-lien notes. Although the issue was expected to actually price some time after a mid-morning investor call, traders reported that it still had not been seen by the time activity was winding down for the day - and market scuttlebutt was that what had started out as a $500 million deal was being greatly upsized to meet buyer demand, with the offering now expected to be at least $1 billion and perhaps as much as $1.5 billion. If it come in anywhere near the latter size, it would not only be the biggest deal of 2009, eclipsing Chesapeake Energy Corp.'s billion-dollar January offering, but the biggest since First Data Corp.'s humongous three-part mega-deal last September.

Almost lost in the shuffle was the news of two more entries to the suddenly-swelling forward calendar - DigitalGlobe Inc.'s $300 million offering of secured notes, a roadshow for which will open on Thursday, and JBS USA LLC's $400 million offering of non-callable notes.

In the secondary sphere, HCA's existing bonds defied the conventional wisdom - which usually sees the outstanding issues fall when a big new deal comes to market, especially one which will assume a senior position in the capital structure - and they rose.

Also on the upside were bonds of various retailers, including names like Rite Aid Corp., Macy's Inc. and Saks Inc. - this despite new economic data showing an unexpected drop in March retail sales.

HCA sees strong demand

The long-expected HCA Inc. first-lien notes deal finally launched on Tuesday.

The 10-year deal (BB) is expected to massively upsize to a range of $1 billion to $1.5 billion, after having launched Tuesday morning at $500 million.

Talk is for a yield in the 9% area, with the notes pricing at a slight discount.

Citigroup, Banc of America Securities, JP Morgan, Deutsche Bank Securities and Goldman Sachs are joint bookrunners.

The buy-side is demonstrating a voracious appetite for the HCA first-lien notes, according to a high-yield mutual fund manager who spoke on background.

Reverse inquiry pegged to a note yielding 9% likely totaled $1 billion, the source added.

Although HCA has $10 billion of maturities to address, the buy-sider believes that the company might bring the deal at the low end of the $1 to $1.5 billion range, on the theory that it could bring more debt later at lower rates.

There is a decent chance that the deal will get done at a yield of 8 7/8%, which would be the tight end of price talk, the buy-sider added. The discount will likely be less than a point, the source said.

HCA expects to report as much as a 25% increase in year-over-year adjusted EBITDA for the first quarter of 2009, the buy-sider noted, forecasting early Tuesday a range of: $1.425 billion to $1.475 billion, up from $1.180 billion.

That certainly won't hurt this deal, the investor added.

Calendar comes alive

Meanwhile the active high-yield forward calendar, a ghost town since the beginning of the year, now features three offerings that are in the market.

Two were announced on Tuesday.

Greeley, Colo., beef and pork processor JBS USA, LLC and co-issuer JBS USA Finance, Inc. began a roadshow on Tuesday for a $400 million offering of five-year senior notes.

The notes, via JP Morgan and Banc of America Securities, are expected to price early next week.

Mid-single B credit ratings are expected.

Proceeds will be used to repay inter-company debt and credit facilities, and for general corporate purposes.

Also launching on Tuesday was privately held DigitalGlobe, Inc., which will begin a roadshow on Thursday for its $300 million offering of five-year senior secured notes (B+).

The offering, which is being led by bookrunner Morgan Stanley, is expected to price during the week of April 20.

Proceeds will be used for general corporate purposes, including the repayment in full of the outstanding senior secured credit facility and senior subordinated notes due April 18, 2012.

DigitalGlobe is a Longmont, Colo., space imagery company.

JBS and DigitalGlobe join Seagate Technology International, which began a roadshow on Tuesday for its $430 million offering of five-year senior secured second-priority notes (Ba1/BB+).

The deal, also being led by Morgan Stanley, is expected to price before the end of the week.

Existing HCA bonds trade higher

A trader, noting the sharp upsizing of the HCA deal, said that the new deal was "so over-subscribed, it's ridiculous."

Another opined that "there's so much money on the sidelines, and everyone just wants to stay conservative, relative to the high-yield market, of courses," by sticking to established, sure names like HCA, the largest for-profit hospital operator in the United States. "It's a perfect example. That's where all the money is being funneled to."

Although most of the time, adding a big new tranche of debt high up in a company's capital structure is usually seen as bad news for its existing bonds, investors seemed to be willing to overlook it in this case, traders said, seeing HCA's outstanding issues - like most everything else in the market - trading points higher.

A trader saw HCA's 9¼% notes due 2016 trading up to 95¾ bid, a gain of ½ point on the session, on volume of $21 million, while its 9 5/8% notes due 2016 firmed more than a point to 851/4, with $14 million changing hands.

At another desk, a market source saw HCA's 6½% notes due 2016 up 4 points, to the 75 level, while its 5¾% notes due 2014 were up nearly 3 points at 73 bid. That source also saw the 91/4s gain ½ point to end just under 96, in brisk trading.

One of the traders also saw gains in HCA sector peer Tenet Healthcare Corp., with the Dallas-based hospital company's 9 7/8% notes due 2014 enjoying a "nice pop" in moving up to 80½ bid from recent round-lot levels at 78 3/8, on volume of $8.5 million, and suggesting that it may have been carried higher by investor enthusiasm about the HCA new deal.

However, another market participant said those bonds actually fell ½ point on the day to get to that 80½ level.

Franklin, Tenn.-based hospital operator Community Health Systems Inc.'s 8 7/8% notes due 2015 - seen as something of a market proxy because of its great size (over $3 billion) and widespread distribution - eased ¼ point on the session to 961/2, on volume of $17 million.

'Everything is up'

However, other issues sometimes seen as junk market bellwethers were doing better, with a trader noting that Greenwood Village, Colo.-based financial transaction processor First Data's 9 7/8% notes due 2015 "had a big jump," to 64¾ bid from 621/2, on volume of $12 million, while Philadelphia-based uniform supply and food-service company Aramark Corp.'s 8½% notes due 2015 gained ½ point to 941/2, on $6 million traded.

He said that that reflected the overall better tone in the junk market. "It was more of the same from [Monday]."

While he was able to find "one credit-specific downsider" - bankrupt Middlebury, Conn.-based chemical manufacturer Chemtura Corp.'s bonds, and those of corporate ancestors Great Lakes Chemical Corp. and Witco tumbled on the results of the settlement auction to determine the value of the company's credit-default swaps contracts - most other names were better, some by multiple points. "Rite Aid was up points," for instance, he said, despite a lack of fresh positive news.

"Everything was up," a trader said, describing the session as "one of the more frustrating days that I've had" - not because he was short anything and hence on the wrong side of most trades, but just because "everybody's asking for offerings, and the stuff disappears."

"What's happening," he said is that there's just a lot of pent-up cash in the marketplace. There are redemptions and stuff, and people have to put money to work. So the bias is definitely up.

"If you're lucky to ride this train, it's going pretty well."

Market indicators stay strong

A trader saw the CDX Series 12 High Yield index - which had gained 7/8 point on Monday - essentially unchanged on Tuesday, holding steady at 75½ bid, 76 offered.

Meanwhile, the KDP High Yield index was up 52 basis points at 55.30, while its yield tightened by 16 bps to 12.79%.

Cash bonds rallied substantially on Tuesday, according to a high-yield mutual fund manager.

Advancing issues continued to lead decliners, fattening their bulge to a better than two-to-one margin.

Overall market activity, measured by dollar-volume totals, jumped 23% from the level seen in Monday's session.

"There's a lot of demand out there," a trader said.

Another trader noted that a large amount of the junk market's activity is taking place in "4-B and 5-B" credits, including such recent fallen angels as Macy's. He saw the Cincinnati-based department store owner's 5.90% notes due 2016 as the single busiest-traded issue on the day, with $34 million changing hands. The bonds went up a point to 71 bid.

The first trader meantime said that "there's a ton of Macy's trading today," also seeing the 5.90s in a 71 range, while its 5.35% notes due 2012 at 83 1/4.

"It's all up."

Retailers just roll along

Macy's continued to post gains along with the rest of the retailing sector, even though such a move might seem counterintuitive on a day when the industry - already hard hit by a drying-up of consumer spending in the midst of the ongoing economic downturn - saw an unexpected drop in sales during the month of March, the first decline in sales in the last three months. In its monthly report, the U.S. Commerce Department said that sales fell 1.1% from February and were down 10.6% year-over-year.

There was more bad news from the National Retail Federation, which said that sales dropped 0.6% from February and 3.7% from the year before, with the group's chief economist, Rosalind Wells, lamenting in a statement that "a chilly start to spring and a late Easter combined for dreary March sales."

However, the economist did hold out some hope that better times might be coming, noting that "to compensate for the Easter shift, retailers typically look at March and April together to get a better look at how their stores performed. Easter should give a much-needed boost to April sales."

With that in mind, a trader said, "retailers continued strong."

He saw Saks "continuing its upward march," even though the New York-based upscale department store operator reported "disappointing" numbers, including the recently announced 20%-plus slide in March same-store sales, the retailing industry's key performance metric. He saw Saks' 9 7/8% notes due 2011 gain more than a point to 771/4, on over $6 million traded.

Rite Aid takes a ride

A trader saw Rite Aid's bonds among the most busily traded names on the day, with the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator's 9½% notes due 2017 having jumped to 37 bid, up from 33½ on Monday, on volume of $23 million, which he called "very active for a Rite Aid bond."

He also saw the 8 5/8% notes due 2015 firm to 36 from 32¾ on Monday, on turnover of $11 million, while its 10 3/8% notes due 2016 ended at 77, well up from 72½ previously, with $6 million traded.

He noted that while the bonds were sizzling, Rite Aid's New York Stock Exchange-traded shares were fizzling - down a penny, or 2.38%, to end at 41 cents, on volume of 5.1 million shares, about 40% above the daily average.

He saw no fresh news that might explain the rise - in fact, the latest edition of Time magazine contains an article listing Rite Aid among retailers that could soon be facing bankruptcy, triggering a ripple effect in the already troubled commercial real estate market. Still, he said, "there's something from somebody. You don't have a movement like that without something being out."

Another trader who also said that Rite Aid's bonds were better - he pegged the 10 3/8s "up 3 to 4 points" versus Monday's levels, pegging them at 75 bid, 77 offered - suggested that "their 8-K came out - maybe there's something in there," although a look at the filing disclosed a seemingly innocuous change in the makeup of the company's board of directors, with George G. Golleher resigning and being replaced by a former Rite Aid senior executive vice president and chief administrative officer, David R. Jessick.

Elsewhere in the sector, a trader saw Levi Strauss & Co.'s 8 7/8% notes due 2016 jump to 86½ bid, a 4 point gain, on volume of $3 million, although the San Francisco-based clothing manufacturer's 9¾% notes due 2015 lost ¾ point, also on $3 million traded.

MGM bonds better

Elsewhere, a trader saw MGM Mirage's 13% notes due 2013 in the mid 80s, around 85 bid, 86 offered, calling that "2 points higher - maybe it's something that happened [Monday]," although most of the bonds were seen little changed during that session.. He said he saw its 6 7/8% notes due 2016 "quoted a little higher" at 40 bid, 42 offered, but added that he "did not know how much trading was going on."

Another trader saw some belated upside movement after Monday's largely steady performance, despite news that the company had gotten a waiver from its lenders allowing them to make a loan payment on its CityCenter development project in Las Vegas.

He said the MGM 6% notes coming due on Oct. 1 moved up to 70 bid, or a 102% yield to maturity, from 68.25, on $8 million traded. He also saw its 7 7/8% notes due 2027 at 41 bid, up a deuce from 39 previously, on $8 million traded, while its 8½% notes due 2010 gained more than 2 points to 56.5, on $9 million traded.

GM bonds continue retreat

A trader saw General Motors Corp.'s bonds 'all trading in the single digits - they're converging down there, and everyone thinks they're going to file [for Chapter 11] soon. The company's bonds, he said, were "actively traded."

He saw GM's benchmark 8 3/8% bonds due 2033 at 8½ bid, 9 offered, which he said was "a little better" than the rest of the capital structure, which saw its other bonds trading around 7 bid, 9 offered.

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