NRG off on takeover rejection, CIT lower; Vought up again; Freedom, Prospect slate deals

By Paul Deckelman and Paul A. Harris

New York, July 8 - NRG Energy Inc.'s bonds were lower Wednesday after the Princeton, N.J.-based electric power producer rejected would-be suitor Exelon Corp.'s recently improved takeover offer, saying the bid was still inadequate.

Also on the downside, Seitel Inc.'s bonds were in retreat after the energy industry seismic services company issued lower revenue guidance.

Another lower name was CIT Group Inc., whose bonds fell along with a ratings industry downgrade of the New York-based commercial lender.

On the upside, Vought Aircraft Industries Inc.'s bonds gained altitude for a second straight session in the wake of the company's agreement to sell one of its factories to aerospace giant Boeing Co.

Catalogue retailer Harry & David Holdings Inc.'s bonds were up by several points, bucking a generally negative trend, a trader said.

Also higher was Las Vegas Sands Corp., given a boost by optimistic comments from principal owner Sheldon Adelson.

Primary market activity meanwhile remained at a low level, although Freedom Group Inc. was heard by syndicate sources to have hit the road to market a new deal and Prospect Medical Holding Inc. was preparing to do the same.

Market indicators continue retreat

Looking at market measures, the CDX Series 12 High Yield index - which had lost ½ point on Tuesday - was seen off by another ½ point on Wednesday at 82 bid, 82½ offered.

The KDP High Yield Daily Index, which had eased by 6 basis points on Tuesday, lost another 17 bps on Wednesday to end at 62.71, while its yield rose by 6 bps to 10.55%.

In the broader market, advancing issues - which had lagged decliners for a second consecutive session on Tuesday, stayed behind them on Wednesday as well, again by a six-to-five margin.

Overall market activity, measured by dollar-volume totals, rose 3.5% from Tuesday's level.

"By everything we've seen, our market is weaker, easier, softer - whatever terminology you want to use - and the bottom line is the party is over," a trader said.

He further said that he "wouldn't be surprised" if the high yield mutual fund flow number from AMG Data Services was to show an outflow this week, reversing the $385 million inflow seen last week. The number - a key gauge of junk market liquidity and, by extension, investor willingness to pump money into Junkbondland -- circulates in the market around closing time on Thursday afternoons.

He said a negative reading for the week ended Wednesday is quite possible, given "the way things have gotten hit, and there's some uncertainty. People are nervous again. There's definitely a different aura in our market" than there was just a week ago, when AMG reported its 15th inflow in the last 16 weeks, market indicators like the CDX, the KDP index and the Merrill Lynch High Yield Master II index were on the rise, and new issuance was booming along to the tune of over $4 billion on the week.

Barometer issues lower

Another sign of the changed sentiment in the market, he said, was the lower levels for some of the big, liquid issues regarded by many as market barometers.

For instance, First Data Corp.'s 9 7/8% notes due 2015 were "active and lower," he said, with the Greenwood Village, Colo.-based financial transaction processor's issuer falling to 68¾ bid from prior levels at 70, with $22 million changing hands.

He also saw Aramark Corp.'s 8½% notes due 2015 down ½ point at 953/4, with $5 million of the Philadelphia-based food service and uniform provider's paper trading around. Franklin, Tenn.-based hospital operator Community Health Systems Inc.'s 8 7/8% notes due 2015 eased ¼ point to 971/2, though only on "a measly" $3 million of volume.

Volume meantime was anything but measly in the perennially well-traded bonds of Freeport-McMoRan Copper & Gold Inc., which were also seen on the downside Wednesday, this despite Citigroup analysts having positive things to say about the Phoenix-based metals mining company's prospects.

Its 8 3/8% notes due 2017 were the most widely traded junk bond on Wednesday, the trader said, with $36 million changing hands. The bonds were down about ¼ point to 1011/2, while its 8¼% notes due 2015 - also a popular credit, with $19 million of turnover - were down a full point at 1011/2.

A trader at another desk saw the 8 3/8s trade in a 1011/2-102 range. He said it was "the same range they've been trading around in, but this is off a touch."

Bond investors apparently were not much impressed by Citi's upgrading the company's shares to a "buy" from a "hold" previously, while also increasing its price target on the shares to $58 from $53. It cited bullish expectations for copper pricing in 2010 and 2011, average prices of $2.50 a pound next year and $3 a pound in 2011 - although in the here and now, prices for the red metal continue to struggle. They were down for a fourth consecutive day on the New York Mercantile Exchange's Comex division - the longest slide since mid-May - with the September-delivery contract finishing off 6.65 cents, or 3%, at $2.159 a pound. Prices have been undermined by investor fears that the global economic rebound will likely be slower than earlier forecast.

NRG says no

Another actively traded issue on Wednesday was NRG Energy, which announced early Wednesday that its board of directors had again rejected an unsolicited takeover bid from power-generation peer Exelon Corp., even though Exelon had recently sweetened the original offer it had made last fall by 12%. NRG said even in its revised form, Exelon's offer undervalues NRG and doesn't take into account the positive things NRG has been doing recently, including cost savings the company has realized and its acquisition of RRI Energy Inc.'s Texas power-retailing business.

NRG said it remains a "willing seller," should the price be right, and said it would be willing to sit down with Exelon to negotiate a better deal - although the latter said at the time it raised its offer that this was its "best and final offer."

With the prospect of NRG being acquired apparently hitting a stone wall - at least for now - the company's bonds, which had risen on Tuesday in anticipation of a definitive announcement, fell back. A trader saw NRG's 7 3/8% notes due 2016 at 97 1/8 bid, down from 97½ on Tuesday, with $21 million traded.

But its busiest issue was the 8½% notes due 2019. They lost a full point to 98 bid, on volume of $29 million.

Seitel on the slide

Another energy-related name seen lower was Houston-based seismic services provider Seitel.

A trader said its 9¾% notes due 2014 "got clocked" after it projected lower second-quarter revenues, numbers which were "not very good." He saw the bonds trade in a 551/2-60 range during the day, finally coming to rest at 58, down from Tuesday's close at 66.

Another trader also said the bonds "got whacked," down to 57 from the last previous round-lot level of 59¼ -- he said the 66 quote for the close on Tuesday must have reflected smaller odd-lot dealings - with $21 million traded.

The company said that based on preliminary information, it expects total revenue for the quarter ended June 30 to come in at $21.3 million, a 52% decrease from total revenue of $44.7 million for the same period last year. Cash resales for the second quarter of 2009 were $7.2 million, down 78% from the same quarter of last year and down 28% on a sequential basis. North American drilling activity continued to fall during the second quarter, with the average year to date rig count dropping by 38% compared to the year-earlier period.

Seitel further warned that "we have seen no indications at this point that our industry environment will improve materially in the near term or that our resales will increase."

Seitel said that as of June 30, its cash balances stood at approximately $28.7 million, but it was not in compliance with the covenants on its undrawn $25 million Wells Fargo Foothill credit facility. It remains in discussions with its bankers on the status of the credit facility.

CIT Group goes south

A trader said that CIT Group's paper "was getting a little heavy this morning," and remained lower on the day, not helped by the afternoon news of a credit downgrade by Fitch Ratings, which cut CIT's long term ratings two notches to BB- from BB+ previously - and warned that it may cut them again.

He saw CIT's 7 5/8% notes due 2012 "down a couple of points" at 65 bid, 66 offered, and said there had been "decent trading in that name."

Another trader said that CIT was "both active and lower" - in fact, he said, the commercial finance company was "one of the most active names on the day."

He saw CIT's 4¼% notes due 2010 dip to 86¾ bid from 87½ on Tuesday, on volume of $13 million. But while that issue was only down ¾ point, he said, "the longer issues were down multiple points."

Among them were CIT's 5.80% bonds due 2036, which fell 1¾ points on the session to 53¼ bid, on volume of $9 million; its 5.55% notes due 2016, which traded at a round-lot level of 531/2, well down from the previous round-lot finish at 58 3/8 a week ago, with $5 million traded; and its 5 1/8% notes due 2014, at 54½ versus 60, also a week ago, on volume of $13 million. He saw CIT's 5.20% notes due 2010 drop to 77½ bid from 80½ on Monday, on volume of $11 million.

"They were down on the news, without a doubt," he declared.

In lowering CIT's ratings, Fitch expressed concern over CIT's funding sources, as it awaits a decision on whether it can get access to government funds under the Temporary Liquidity Guarantee Program.

"If CIT's application is not approved over the very short term, Fitch would likely lower CIT's ratings to levels that would indicate that default is a real possibility," the agency cautioned.

Vought victory continues

On the upside, a trader said that Vought Aircraft Industries' 8% notes due 2011 were "still pretty strong," pegging them up 1¼ points on the day at levels above 88.

At another desk, a trader saw the bonds at 881/2, up from 87¾ on the day, with about $8 million of those bonds traded.

That follows the spectacular jump of more than 13 points seen on Tuesday to about the 87 level from 73 or 74 previously, after the Dallas-based company announced that one of its major customers, aerospace giant Boeing, will buy the North Charleston, S.C., facility where Vought produces fuselage sections for Boeing's next-generation jumbo jet, the Dreamliner 787. Boeing will give Vought $580 million in cash and forgive some $422 million in advance payments it has already made.

Those bonds had already shot up to the lower 70s from prior levels around 62 last week on market rumors that such a deal was in the works, fed by a Wall Street Journal story indicating the two companies had been in lengthy talks about such a transaction.

Harry & David head higher

A trader said that Harry & David Holdings' 9% notes due 2013 were at 471/2, up from 45½ previously, on volume of $8 million -- which he called "clearly an aberration for our market," given its overall negative tone.

There was no fresh news out about the Medford, Ore.-based company, which sells gift baskets of fancy fruits and other gourmet goodies through a chain of retail stores and by mail order from its online catalog operation.

Sands seen firmer

Las Vegas Sands' 6 3/8% notes due 2015 were being quoted up about 2 points on the session at the 76 level, although traders pointed out that activity was very light and consisted solely of small odd-lot pieces.

The bonds firmed in conjunction with news reports out of Singapore, where the company is building a big new casino resort and where its chairman and principal owner, billionaire investor Sheldon Adelson, held a news conference. Adelson said that June results from the company's Venetian and Palazzo casinos in Las Vegas were "significantly higher than we expected," adding that "we are in the trough of the cycle so things are looking up."

Adelson also said that his company's Macau properties were "bucking the trend" and doing better, and said Sands was considering raising several billions of dollars via an initial public offering linked to those Macau assets.

Remington takes aim

In the primary, no new issues were priced.

However the primary market did produce some news.

Freedom Group, Inc., the parent of Remington Arms Co., will begin a roadshow on Thursday for its $200 million offering of six-year senior secured notes (expected ratings B1/B+).

The deal is set to price next week.

Banc of America Securities, Deutsche Bank Securities and Wells Fargo Securities are joint bookrunners.

The Madison, N.C.-based firearms company will use the proceeds to repay existing debt, including the refinancing of Remington's 10½% senior notes due 2011.

Prospect Medical via RBC

Meanwhile Prospect Medical Holdings, Inc. will kick off its $160 million offering of five-year senior secured first-lien notes on Thursday.

The deal, which is being led by left bookrunner RBC Capital Markets, starts a full roadshow on Monday, and is expected to price during the week of July 20.

Jefferies and Co. is joint bookrunner for the bank debt refinancing for the Los Angeles-based hospital and health management services company.

Prospect Medical operates five hospitals in the greater Los Angeles area.

Nuveen: the hallmarks of high-yield

From the bank loan market news emerged that Nuveen Investments Inc. held a lender call on Wednesday to launch its new $350 million six-year second-lien term loan.

Deutsche Bank is leading the deal with bookrunners Bank of America, Wells Fargo and Morgan Stanley.

The indicative coupon on the second-lien term loan is a fixed rate of 12½% with an original issue discount of 90, which puts it a spot over a 15% all-in yield, officials remarked.

Pricing on the debt refinancing loan deal is expected to take place on July 15.

Although the junk bond accounts are not being rallied, per se, to play the Nuveen deal, it does come with a fixed interest rate, in addition to junk-style call features and a change of control put at 101, an informed source conceded on Wednesday.

Hence it is not inconceivable that some of the high-yield accounts will have a look, the source added.

Nuveen is a Chicago-based seller of investment products.

Eyeing the stock sell-off

An axiom of the junk market holds that high yield tends to track equities because of the close proximity of the two asset classes on the capital structure.

With the Dow Jones Industrial Average down more than 325 points since the beginning of the month to Wednesday's close, Prospect News quizzed its sell-side sources as to whether drooping stock prices are registering an impact in the high-yield new issue market.

Responses varied.

Not yet, contended one syndicate official who has visibility on three deals apt to appear before the end of the week, two of which might be announced on Thursday.

This source, who also professed visibility on a handful of deals for next week, said that so far prospective issuers don't seem to getting cold feet.

However another official, from a different high-yield syndicate desk, conceded that while issuers have been prepping bond deals, the 2009 third quarter's lackluster start is not exactly coaxing those prospective issuers to the starting line.

This source professes visibility on a couple of deals, but adds that timing, at this point, is "TBD."

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