Mirant, other energy names better; Millennium America prices add-on deal

By Paul Deckelman and Paul A. Harris

New York, April 22 - News that Mirant Corp. had obtained a default waiver from its banks sent the Atlanta-based energy producer's bonds and shares higher Tuesday, and seemed to pretty much empower the whole sector, which has recently been among the junk world's better performing areas as company after company has inked refinancing deals.

As sell side sources predicted, the new issuance market was driven by drive-by activity during the second session of the April 22 week - although late in the session word began circulating of a possible major debt financing on its way from Xerox Corp.

Millennium Chemicals, Inc. priced an upsized quick-to-market $100 million add-on to its 9¼% senior notes due 2008 to yield 7.13% while Bluewater Finance, Ltd. lifted the curtains on a $75 million add-on to its 10¼% senior notes due 2012 (B1/B+), which is expected to price Wednesday.

Also on Tuesday Americo Life Inc. announced a split-rated $125 million 10-year deal (Ba1/BBB-) that will trade off the high-grade desk but is expected to see some action from the junk bond accounts.

In an analysis of data collected by Prospect News drive-by deals represent slightly less than 45% of the number of deals, or 36% of the dollar value of business in the high-yield new issuance market since the beginning of March 2003.

One sell-side official who spoke to Prospect News on Tuesday commented that the recent spate of drive-by activity is fine, however what is needed in the present market are sizable deals that come with full roadshows.

"You're not going to see big deals coming in this fashion," the official said. "Those have to go through the normal process.

"Drive-by deals are old deals sold to the old investors," the source added. "They are well-known frequent issuers who have liquid issues, where people trade their paper and know their story.

"They make almost no impact on the buy-side, where people are either sitting and waiting, which can't happen for long, or they are driving up the secondary market, which is precisely what we have been seeing. The secondary market has already had a very good run this year.

"What we need is some deals on the road."

The official pointed to Owens-Brockway Glass Container, Inc.'s $800 million two-tranche deal, announced Monday and set to start roadshowing Wednesday via Deutsche Bank Securities and Banc of America Securities.

The Rule 144A offering is comprised of $450 million of eight-year non-call-four senior secured notes and $350 million of 10-year non-call- five senior notes, and is expected to price April 30.

"We need the blockbuster deals," the sell-sider emphasized.

One possibility that might fit that description emerged in rumors late Tuesday. Talk began circulating in the high-yield market that Xerox Corp. is about to bring a sizable financing.

When pressed for details by Prospect News, sources would only state that details would not emerge until Xerox released its first quarter earnings, scheduled for 7 a.m. ET Wednesday, with a conference call to follow at 10 a.m. ET.

One sell-side official who spoke to Prospect News late Tuesday said that at present the high yield market is "white hot."

"It's better than any market we have ever seen," said the source. "I think this market rivals if not surpasses the market we saw back in the 1997-1998 time frame."

Definitely emerging Tuesday were two drive-by add-on deals.

Millennium Chemicals through its Millennium America, Inc. subsidiary priced an upsized $100 million add-on to its 9¼% senior notes due 2008 (Ba1/BB+) at 109, spot on the 109 price talk, for a yield to maturity of 7.13%. The deal was increased from a planned size of $75 million.

JP Morgan and Banc of America Securities were joint bookrunners. The original $275 million issue priced on June 13, 2000 and a $100 million add-on transaction was done on June 20, 2002.

Bluewater Finance also announced it will do a $75 million add-on to its 10¼% senior notes due Feb. 15, 2012 (B1/B+), a deal that is expected to price on Wednesday, via Morgan Stanley.

The original $260 million offering priced on Feb. 14, 2002.

News also circulated Tuesday on Americo Life's split-rated Rule 144A offering of $125 million 10-year senior notes (Ba1/BBB-). The offering, via Citigroup, is scheduled to price late this week or early next week, off the investment-grade bond desk. However participation from high yield accounts is expected.

Back in secondary dealings, Mirant said that its lenders had agreed not to penalize the company should it default on some upcoming loan payments. Mirant is currently working with advisor Blackstone Group on how to restructure its estimated $8.6 billion debt-load. It has $1.125 billion of that coming due in mid-July, and said that it had turned to its bank lenders for the default waiver on the possibility the company might find itself in default on a covenant between now and the completion of its refinancing. Mirant had nothing further to say on the progress of its restructuring talks.

But the fact that the banks are willing to play ball with the merchant energy company was seen by both bond and equity investors as a positive sign; Mirant's 8.30% notes due 2011 were quoted as having firmed to about 65.5 bid from prior levels at 62; at one desk a market source saw them even higher, pegging them at 66.25 late in the session.

On the equity side of the fence, the company's New York Stock Exchange-traded shares jumped 34 cents (14.98%) in Tuesday's dealings, to $2.61, on volume of 23.9 million shares, nearly five times the usual turnover.

Mirant was seen in turn helping other sector players firm - not that the merchant energy names have really needed much help; the whole group has recently been strong as players such as El Paso Corp., Reliant Resources Inc., Dynegy Inc. and AES Corp. have announced new financings of one sort or another.

Calpine Corp. is one of the few such companies that has not had any financing news to announce lately but its bonds have firmed smartly over the past few weeks on the likelihood that the San Jose, Calif.-based independent power producer might be the next one to announce a financing deal.

Calpine "was up a bit" Tuesday, a trader said, quoting the company's 8¼% notes due 2005 as having gained a point to 76 bid/79 offered. However, another observer said that while Calpine debt seemed to strengthen initially, he saw it largely unchanged by day's end, with its 8½% notes due 2011 holding steady at 66.75 bid.

The observer, though, got the sense that "pretty much all of the energy group was firmer," such as Mirant, El Paso and Dynegy, although he did not have specific quotes on those names; he did see AES's 9½% notes due 2009 as having gained two points on the session, to end at 92 bid.

Outside of the energy constellation, airline bonds continued to gyrate, as the fate of Number-One carrier American Airlines remained, well, up in the air, following the revelations that the troubled airline tried to give its top executives cushy bonuses and guarantee their pension money against seizure by the airline's creditors in the event of a bankruptcy filing - this right after American asked its rank- and-file employees to approve a package of hefty wage and staffing cuts. At the very least, this was a monumental public relations blunder, and has caused two of the airline's three unions to announce that they will vote again on the concession package, while the third union, representing the pilots, weighs whether to allow its leadership to now sign the concession agreement. American tried to mend fences with the workers, scrapping the bonus plan and announcing that it would not further fund the protected executive pension plan. Airline officials also apologized to the unions, while denying there was any attempt to deceive them.

American's bonds had soared into the 40s last week as the unions completed their approval of the givebacks - approval the airline says it needs to avoid bankruptcy - but fell back to quoted levels in the 30s on Monday.

On Tuesday, a trader who had seen AMR's 9% notes due 2012 and due 2016 quoted at wide 30 bid/40 offered levels on Monday, "but with no trades," said he saw some trades around 32 bid/34 offered on Tuesday.

The trader also saw Northwest Airlines Corp.'s bonds mostly flat to up half a point Tuesday, pegging its senior notes around 61.5 bid.63.5 offered. And he saw Delta Airlines' 6.65% notes due 2004 moving up to 84 bid/86 offered from 81.5 bid/83.5 offered.

But another trader saw Continental Airlines Corp.'s 8% notes due 2005 as having fallen to 55 bid/59 offered from prior levels around 62, although he said he had not seen any fresh news out on the Houston-based carrier.

Back on the ground, Levi Strauss & Co. bonds continued to edge their way back up after having been badly battered last week on worries the San Francisco-based apparel maker might have tax accounting problems, an allegation raised in a lawsuit filed by former executives - and vigorously denied by the company. Levi's 11 5/8% notes due 2008 were seen a point higher at 82 bid although at another desk they were quoted as much as two points better on the session at 83.

Little movement was seen in the bonds of an number of junk issuers who reported quarterly earnings, with Regal Entertainment Group's 9 3/8% notes due 2012 continuing to hover around 108 bid; Tenneco Automotive's 11 5/8% notes due 2009 unchanged at 76.75; aaiPharma's 11% notes due 2010 half a point better at 107; and Argosy Gaming's 9% notes due 2011 unchanged at 107.

Investment-grade tobacco and consumer products giant Altria Group - the former Philip Morris - edged closer to possible fallen-angel status, as Moody's Investors Service dropped its senior unsecured bond rating a notch to Baa2 in the wake of the company's legal troubles that include a massive $10 billion legal judgment against the company and onerous bonding requirements imposed by the courts in order for it to appeal.

But investors were apparently relieved that the downgrade was just one notch and Altria/Morris for the moment remains investment grade; its 7¾% notes due 2027, which trade on a spread versus Treasuries basis like most high-grade bonds, were heard to have tightened about ten basis points Tuesday to bid levels 280 basis points over the comparable government paper.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.