NRG, Continental deals price; HCA ahead; Amkor gains on numbers

By Paul Deckelman and Paul A. Harris

New York, Nov. 8 - NRG Energy Inc. successfully brought its billion-dollar-plus offering of 10-year notes to market Wednesday, junk bond primary sources said, The Princeton, N.J.-based power generating company's new bonds were heard to have traded up when they were freed for secondary dealings.

Also pricing, syndicate sources said, was a $200 million offering for Continental Airlines Inc., which also moved a bit higher on the break.

Among established issues, Amkor Technology Inc.'s bonds firmed smartly after the Chandler, Ariz.-based provider of testing and packaging services to the semiconductor industry reported a solid third-quarter profit and record sales.

Technical Olympic USA Inc.'s bonds - which had fallen sharply on Tuesday when a lender demanded that it put up additional money to bail out a struggling joint venture - were seen to have bounced back and recovered part of those losses.

Market sources were marking the broad high yield market slightly off on Wednesday.

A source from a hedge funds said that the CDX 100 was three-sixteenths lower late in the afternoon.

Meanwhile it was a news-heavy day in the primary market.

Three issuers priced a combined total of four tranches for $1.665 billion of issuance.

Two of the three issuers brought their deals as quick-to-market transactions.

NRG prices $1.1 billion

Wednesday's biggest issuer in terms of dollar-amount was NRG Energy.

The Princeton, N.J. power generator priced a $1.1 billion issue of 10-year senior unsecured notes (B1/B-) at par to yield 7 3/8% in deal that was unveiled on Tuesday and talked early Wednesday at 7¼% to 7 3/8%. Hence the yield was printed at the wide end of price talk.

Merrill Lynch & Co. and Morgan Stanley were joint bookrunners.

Proceeds will be used to fund payments to counterparties under certain existing long-term hedging agreements in order to reset hedge price levels to current market prices.

A source close to the deal said that the NRG transaction went well, and added that the order book was more than three times oversubscribed.

The source added that almost all of the existing holders of NRG bonds came into the deal, and there were a few new accounts.

The source had NRG's new 7 3/8% notes going out Wednesday at 100.25 bid.

NCO's $365 million two-parter

Elsewhere NCO Group Inc. priced a $365 million two-part high-yield notes transaction late on Wednesday.

The Horsham, Pa., provider of business process outsourcing services priced a $165 million tranche of seven-year senior floating-rate notes (B3/B-) at par to yield three-month Libor plus 487.5 basis points, at the wide end of the Libor plus 475 basis points area price talk.

NCO Group also priced a $200 million tranche of eight-year senior subordinated notes (Caa1) at par to yield 11 7/8%, 25 basis points beyond the wide end of the 11½% area price talk.

Morgan Stanley was the left bookrunner for the LBO financing.

An informed source said both tranches went out bid at 100.25 to 100.50.

Continental a.m. to p.m.

Also on Wednesday Continental Airlines priced a $200 million issue of five-year senior notes (Caa1/CCC+) in a same-day drive-by deal.

The notes came at par to yield 8¾%, on top of the price talk.

Morgan Stanley ran the books for the general corporate purposes offering from the Houston-based air carrier.

An informed source said that the notes had traded up ½ to ¾ point in the secondary market, and added that the order book was at least twice oversubscribed.

The source went on to say that the Continental deal seems particularly noteworthy when considering that it was the first "regular senior unsecured notes" airline junk deal completed since Northwest Airlines Corp. sold $300 million in January 2004, almost three years ago.

And, the source added, in the interim Northwest defaulted.

Continental's last straight bond deal was in May 2003, when it priced $100 million of secured subordinated floating-rate notes due 2007 with a Libor plus 750 bps coupon at 95 for a discount margin of Libor plus 886 bps.

Setting the stage

Details surfaced on the rest of the business expected to clear the primary market before Friday's close.

Bombardier Capital Funding LP and Bombardier Inc. set the structure and price talk on their €1.8 billion equivalent three-part notes offering (Ba2/BB) on Wednesday, according to a market source.

The Montreal-based company talked a €500 million tranche of seven-year senior floating-rate notes, which are non-callable for two years, at Euribor plus 300 to 325 basis points.

Meanwhile the company talked a $385 million tranche of eight-year senior fixed-rate notes, which are non-callable for four years, at the 8% area.

And Bombardier talked a €1 billion tranche of 10-year fixed-rate senior notes, which are non-callable for five years, at the 7¼% area.

Books are expected to close at noon ET Thursday, with pricing to follow early Friday morning.

Deutsche Bank Securities, JP Morgan and BNP Paribas are leading the deal.

Sally Beauty talks $710 million

Also on Wednesday Sally Holdings LLC talked its $710 million two-part notes offering.

The beauty supplies company talked its $430 million tranche of eight-year senior unsecured notes (B2/CCC+) at 9¼% to 9½%, and its $280 million tranche of 10-year senior subordinated notes (Caa1/CCC+) to price 125 basis points behind the senior notes.

Pricing is expected on Friday.

Merrill Lynch & Co., Banc of America Securities LLC, JP Morgan and Morgan Stanley are joint bookrunners.

A bullet from Griffin Coal

Price talk also surfaced on the Griffin Coal Mining Co. $400 million offering of 10-year senior notes (Ba2/BB-): at 9¼% to 9½%.

The company, which is based in Western Australia, also increased the call protection to encompass the life of the bond. It had formerly been in the market with five years of call protection.

The Merrill Lynch-led deal is expected to price on Thursday.

A source close to the deal said that the price talk and the increase in call protection were driven by U.S. and Asian investors who are simply demanding to be paid a premium to do the work on the deal.

One reason for that request is the amount of buy-side attention that is naturally gravitating toward the massive Hercules Holding II (HCA Inc.) $5.70 billion three-part deal.

The books on that transaction were expected to close on Wednesday, with pricing to follow on Thursday.

To recap, the deal is comprised of $4.2 billion of senior secured second-lien notes in two tranches: eight-year notes talked at 9¼% area, and 10-year notes talked at 9 3/8% to 9½%.

In addition, a $1.5 billion tranche of 10-year senior second-lien "toggle" notes is talked 25 to 50 basis points behind the 10-year secured notes, with a 75 basis points PIK coupon step-up.

Citigroup, Bank of America Securities, JP Morgan, Merrill Lynch, Deutsche Bank Securities and Wachovia Securities are joint bookrunners for the LBO financing.

New NRG, Continental bonds firm

When the new NRG Energy 7 3/8% notes due 2016 were freed for secondary dealings, several traders saw the new bonds going home at 100.25 bid, 100.5 offered, up a bit from their par issue price.

However, another trader saw the bonds doing considerably better, quoting them as high as 101.25 bid, 101.375 offered.

The new Continental 8¾% notes due 2011 were seen at 100.25 bid, 100.5 offered as well, up from a par issue price.

Among issues that priced on Tuesday, Britannia Bulk plc's new 11% notes due 2011, which had priced at 93.622, were quoted in Wednesday morning dealings at 93.75 bid, 94.5 offered.

And Conexant Systems Inc.'s new senior secured floating-rate notes due 2010, which priced at par, had moved up to 100.5 bid, 101 offered, although a trader said that with just a four-year maturity, "they didn't trade much, and probably just got put away."

HCA up ahead of deal

Market participants were also anticipating HCA Inc.'s tremendous $5.7 billion multi-part offering, price talk on which emerged Tuesday.

"The talk is that the book is well oversubscribed," a trader said, "and there's going to be a food fight for bonds - but the people we've talked to [indicate] that some guys are obviously in big, but there are a lot of guys that are sort of reluctant buyers, that's what we're hearing.

"So it's sort of mixed. The word on the Street is that it's an absolute blowout, and then there's other people who are sort of reluctant, and they say that 'everybody's playing, so we're playing too,' that kind of mentality."

The trader noted that the Nashville-based hospital industry giant's existing bonds meantime "have all been trading higher," with its more recently priced outstanding issues trading at yields "inside of 9½%, which is supposedly where the new deal is pricing, around 9 3/8% to 9½%."

He saw HCA's 6½% notes due 2016 trading at 82.5 bid, 82.75 offered, which translates to yields of 9.40% and 9.32%, respectively, while its 6¾% notes due 2013 were at 87.5 bid, 88 offered, for yields of 9.40% and 9.19%.

He said that he "can't for the life of me" understand why the existing subordinated paper is trading at such levels, given that the new deal is going to be secured paper ranking above it in the capital structure.

"He suggested that "maybe people think they're going to get shut out on the new deal [allocations], so that's why there's a rush to get the existing paper at a discount."

Even so, he further opined, "you would think it would trade wider, that someone would look at the relative value. Regardless of what the allocations end up being, the outstanding paper should not be trading inside of where the new senior secured paper is coming."

The latter, he said "can't be that mispriced - it's not like it's going to trade in the 8% area - but we'll see."

Election impact downplayed

Looking at the hospitals and healthcare sector in general, the same trader did not see any kind of big upside move in the wake of the sweeping Democratic gains in Tuesday's elections, which returned control of the House of Representatives to the party for the first time in 12 years, and which seemed to point to a similar takeover in the Senate, where only one last seat was still seen as in doubt, but likely to go Democratic as well.

There had been some suggestions in the financial media that a Democratic victory bodes well for sectors of the economy like healthcare, since Congress may move to allocate more funds to programs like Medicaid and Medicare, or even move toward expanding health coverage to the currently uninsured.

However, the trader, who watches healthcare names in particular, was dubious about this line of reasoning.

"The money's got to come from somewhere, so it ultimately kind of squeezes the margins on some of these guys. It's unclear what if, anything, the Democrats are going to be able to pass through. It's going to be a battle between the White House and Congress as to what ultimately goes on with Medicare."

He flatly dismissed the notion that much will be done to implement single-payer healthcare - i.e. government as the health insurer - which some Democrats have advocated and which in theory could, if it is ever enacted, help hospital operators like HCA or Tenet Healthcare Corp., which have been struggling to blunt the impact of bad-debt expense arising from treating uninsured patients.

"That kind of a massive reorganization [of the health insurance environment] is not likely to occur. I would find it hard to imagine that large of an upheaval, reforming the whole system, that's not going to happen in the next two years. It seems a little far fetched."

He did acknowledge, however, that "all of this stuff is very well bid, all of a sudden."

Another trader actually saw the HCA 6½% notes "up pretty good," seeing those bonds finishing at 85.125 bid, 85.5 offered, well up from prior levels around 81.375 bid, 81.625 offered, and allowed that it could be a knee-jerk response by sector investors to the political upheaval on Capitol Hill.

Looking beyond healthcare, the first trader warned, that "if you start talking about raising the minimum wage" - likely House Speaker-to-be Nancy Pelosi has indicated this as an area where the House will take early action - if they start raising that, any retailers or restaurant companies, or people that pay guys by the hour, it starts squeezing their margins. So it's not necessarily going to be that great. Ultimately it could be a negative."

Amkor gains on numbers

A trader, meantime, saw Amkor bonds "up pretty good," on the company's late-afternoon release of third-quarter results.

He pegged its 7 1/8% notes due 2011 at 92.5 bid, 93 offered, up from 90.75 bid, 91.25 offered, its 7¾% notes due 2013 at 91.25 bid, 91.75 offered, up from 89.25 bid, 90 offered, and its 9¼% notes due 2008 at 95 bid, 95.5 offered, up from 93.5 bid, 94 offered.

Amkor reported net income for the third quarter of $52.8 million (27 cents per share) - a sharp improvement from its year-earlier loss of $19.5 million (11 cents per share), and up as well from Wall Street's expectations of earnings around 24 cents per share.

Sales grew to $713.8 million from $549.6 million a year ago, easily beating analysts' consensus projections of about $691 million.

Amkor said that the sales figure was a record, with revenues driven by driven by "seasonal builds for wireless and other mobile devices, and for high performance applications, including game consoles and networking."

The company is projecting fourth-quarter sales in a range of $678.1 million to $692.4 million - down 3% to 5% from the third-quarter, but better than the $676 million that Wall Street has been predicting. Earnings for the quarter are expected to come in between 20 cents and 24 cents a share, versus analysts' expectations of 21 cents.

Cablevision steady as loss narrows

Cablevision Systems Corp. posted a third-quarter loss of $59.2 million (21 cents per share), an improvement from its year-ago red ink of $63 million (22 cents per share), although analysts on average were looking for a loss of only 14 cents per share.

The Bethpage, N.Y.-based cable operator's bonds were seen little changed on the figures, with its 7 5/8% notes due 2018 hanging in at 99.125 bid, 99.625 offered, while its 7 5/8% notes due 2011 were up ¼ point at 101.5 bid, 102 offered, which a trader called "nothing significant." The company's bonds "maybe moved ¼ point here or there - but nothing notable."

Technical Olympic bonds bounce

From out of the distressed markets came word that Technical Olympic USA Inc.'s bonds - which fell as much as 6 points on Tuesday - recovered at least half of that back on Wednesday.

A trader saw the Hollywood, Fla.-based homebuilder's 10 3/8% notes due 2012 as having partially recovered from Tuesday's plunge to end at 86.5 bid, 87.5 offered.

The company's New York Stock Exchange-traded shares, which on Tuesday had nosedived 35% on nearly 20 times the usual turnover, were also on the rebound Wednesday, up 48 cents (6.86%) to end at $7.48. Volume of 6.4 million shares was about eight times the norm.

The bonds and shares had careened downward Tuesday on investor fears that the company might be forced to bail its floundering Florida joint venture and might even face bankruptcy - speculation which at this time is strictly unconfirmed and unofficial.

Deutsche Bank, the lead bank for a group of lenders to Technical Olympic's troubled Transeastern homebuilding venture, said that "TOUSA has an obligation to 'undertake funding initiatives to stabilize the borrower."

However, Technical Olympic rejected that demand, saying that it is in talks with the lenders about the situation, but does not believe any obligations related to financing the venture have been triggered.

It blamed Transeastern's problems on heavy debt and a weak Florida housing market rather than on anything for which it might be held responsible.

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