Atlantic Power prices, Acadia on tap; Tuesday deals move up; Clearwire climbs on Sprint news

By Paul Deckelman and Paul A. Harris

New York, Oct. 26 - Atlantic Power Corp. priced a $460 million offering of seven-year notes on Wednesday, high-yield syndicate sources said.

It was the session's only pricing and seemed a little anti-climactic after Tuesday's barn-burner of a session which saw over $4.5 billion of new paper come to market in four deals, all of them upsized to meet demand and two of them opportunistic drive-by offerings by borrowers seeking to take advantage of the suddenly open window.

But Atlantic Power continued the revived primary's momentum, as did reports from the sources that price talk had emerged on a $150 million offering from Acadia Healthcare Co., Inc., which could price as soon as Thursday morning.

The new Atlantic Power issue came too late in the session for secondary dealings - but traders saw upside activity in all of the Tuesday deals, from Kinetic Concepts Inc., FMG Resources Pty. Ltd., MarkWest Energy Partners, LP and Chesapeake Oilfield Operating LLC.

Away from the new deals, Sprint Nextel Corp.'s bonds and shares fell across the board after the wireless carrier reported third-quarter results, including its estimates of needed heavy spending on iPhone technology, which will force it to line up additional funding. But Sprint's Clearwire Corp. affiliate's bonds and share soared, after Sprint said the two companies were in talks to extend their network partnership beyond 2012.

Junk bonds apart from Sprint were generally on the upside, and statistical performance measures were higher as well.

Atlantic Power prices

The Wednesday primary market session saw the completion of a single deal.

Atlantic Power priced a $460 million issue of 9% senior notes (B1/BB-) at 97.471 to yield 9½%.

The yield printed 25 basis points beyond the wide end of the 9% to 9¼% price talk.

Morgan Stanley and TD Securities were the joint bookrunners.

The Boston-based independent power producer plans to use the proceeds to help fund its acquisition of Capital Power Income LP and to repay Capital Power Income's revolver.

Any remaining proceeds will be used to fund additional growth opportunities and for general corporate purposes.

In the secondary sphere, there was no trading in the new notes, which priced too late in the session for meaningful dealings.

Acadia sets talk

Acadia Healthcare Co., Inc. talked its $150 million offering of seven-year senior notes (B3/B-) with a 12¾% coupon plus a discount of 1.25 points.

The books closed late Wednesday, and the offering is set to price on Thursday morning via bookrunner Jefferies.

The deal was at book-size heading into Wednesday, and solid orders came in throughout the day, according to an investor who is in the book, and who anticipates a yield in the range of 13%.

The Franklin, Tenn.-based inpatient behavioral health care services provider plans to use the proceeds for its merger with Peabody, Mass.-based Pioneer Behavioral Health, a behavioral health care services provider.

Forecasting record inflows

Massive amounts of cash continued to flow into the high-yield funds on Tuesday despite a substantial sell-off in equities, according to a mutual fund manager who has seen 15 consecutive days of "robust" inflows.

The present week's flows are double the size of last week's, the manager said, adding that retail investors are looking for yield.

Trailing last week's record inflows, junk market watchers say that a new record for the present week is practically an accomplished fact.

Indeed, high yield funds saw a $1.3 billion daily inflow on Tuesday, according to EPFR Global.

Of that amount, $1.18 billion came into U.S. high-yield funds.

The week to Tuesday's close saw $3.3 billion flow into global high-yield funds, EPFR said.

Hence, last week's record-setting $3.16 billion inflow, for the period ending Oct. 20, already appears to be consigned to the dustbin of history - with one day remaining in the present reporting period.

And Wednesday's flows were positive, according the high yield mutual fund manager.

'Four big guys' took Kinetic

Kinetic Concepts, Inc.'s freshly minted 10½% second-lien senior secured notes (B3/B/) due Nov. 1, 2018, which priced at 98.198 to yield 10 7/8% in a $1.75 billion issue on Tuesday, gained 1½ points in the secondary market, according to a mutual fund manager who spotted them going out at 99 5/8 bid on Wednesday.

Four big accounts took $800 million of that deal which was upsized to $1.75 billion from $1.65 billion, the fund manager said.

Tuesday deals doing well

The new deals which came to market during Tuesday's nearly $5 billion borrowing barrage were all seen doing better on Wednesday.

"It traded well today," one trader said, seeing Kinetic Concepts' new 10½% second-lien senior secured notes due 2018 changing hands at 99 5/8 bid, 99 7/8 offered, up ¾ point on the day. A second trader saw them at 99 5/8 bid, par offered.

The San Antonio-based medical technology company's deal - originally structured as a three-part offering of dollar- and euro-denominated secured paper and unsecured dollar paper, but eventually cut down to just one big tranche of secured dollar notes - priced on Tuesday 98.198 to yield 10 7/8%. The bonds had traded as high as 99 ½ bid in initial aftermarket dealings, before falling back to close on Tuesday at 991/4.

The issue was originally supposed to be $2.55 billion, then was carved down to $1.65 billion when the $900 million tranche of unsecured dollar notes was dropped, but was eventually upsized a little back to $1.75 billion, making it the first mega-deal sized junk offering since power generator AES Corp.'s $1.25 billion two-part deal that priced on Sept. 26. It was the largest junk offering since hospital heavyweight HCA Inc.'s massively upsized $5 billion two-part leviathan came to market on July 26.

A trader saw East Perth, Australia-based iron ore producer FMG Resources' 8¼% notes due 2019 at 101 bid, up from the par level at which the quickly-shopped deal - upsized to $1.5 billion from an originally planned $1 billion - had priced on Tuesday.

He said that after their pricing, the bonds "couldn't get out of their own way," heard going home with a paltry 1/8 point gain in Tuesday's aftermarket, before firming on Wednesday.

A second trader also saw them better, at 100 7/8 bid, 101 1/8 offered.

The first trader also saw improvement in MarkWest Energy Partners' new 6¼% notes due 2022 - another issue, he said, which also "couldn't get out of their own way" Tuesday after pricing at par.

The Denver-based natural gas and oil company's quickly-marketed $700 million deal - upsized from the originally announced $500 million - had traded slightly above par late Tuesday, going out at 100¼ bid, but on Wednesday had firmed to 101¼ bid, 101½ offered.

"They were up nicely," said another trader, who also saw them at that level on Wednesday.

The trader also saw Chesapeake Oilfield Operating's 6 5/8% notes due 2019 at that same 101¼ bid, 101½ offered level on Wednesday.

The Oklahoma City-based subsidiary of Chesapeake Energy Corp. had priced $650 million of the notes - up from the original $500 million - at par on Tuesday. Those new bonds had moved up to the 101 bid level in Tuesday's aftermarket dealings.

At another desk, a trader, noting the rise across the board in the new issues, opined that "a lot of the people that were in them were basically flippers - they got out, they moved on, they made their half a point."

He said that the Chesapeake paper was up solidly from its offering price, and "everything else was trading up around issue price, if not higher."

Firmer tone seen

Away from the new issues, a trader said that the market was "lookin' pretty good."

A second characterized the session as "very situational. There's a lot of cash in the marketplace and money is chasing yield - but they're being a little more picky on the credits that they're buying."

That having been said, though, he allowed that "even though there's cash on the sidelines, and people are trying to wait to see what goes on across the pond [i.e. in Europe], people are still putting money to work.

"So if there's an offering, people are engaged in it."

At another desk, a trader declared that there was "a firm tone today."

He noted the continued cascade of cash coming into Junkbondland, pointing out that mutual-fund tracker EPFR had tabulated a better than $1.1 billion inflow to the junk funds on Tuesday - a key barometer of overall high yield market liquidity trends.

"That's the largest [daily] number I've ever seen," he marveled, "just massive."

Doing some quick mental math, he suggested that "it definitely implies that at this point in time, you're looking at a better than $3 billion inflow for the week" through Wednesday, which is expected to be reported on Thursday afternoon.

He said the weekly gain might even be "better than last week's," which Cambridge, Mass.-based EPFR said totaled a whopping $3.16 billion - the biggest such cash injection to the funds that the company had ever recorded.

Indicators stay firm

Statistical secondary market performance indicators, which had turned mixed on Tuesday after seeing solid gains on Friday and again on Monday, were generally on the strong side Wednesday.

A trader said the CDX North American series 17 High Yield index rose by 5/8 point on Wednesday to end the day at 92 3/8 bid, 92 5/8 offered, after having lost ¾ point Tuesday.

The KDP High Yield Daily index was actually little changed, rising just 1 basis point to end Wednesday at 72.83, after having jumped by 30 bps on both Monday and again on Tuesday. Its yield rose by 1 bp, to 7.62%, after having come in by 13 bps on Tuesday.

But the Merrill Lynch U.S. High Yield Master II index finished in positive territory for a ninth consecutive session Wednesday, rising by 0.11%, which followed Tuesday's 0.465% gain.

That lifted the index's year-to-date gain to 3.014% from Tuesday's 2.901%

It was the first time the year-to-date figure had been above the psychologically potent 3% mark since early August, and was the index's highest reading since Aug. 5, when it showed a 4.279% return for the year.

However, while the index continued to show considerable progress in bouncing back from its recent low point, the 3.998% deficit recorded Oct. 4, the year's worst showing, it still is well down from the peak gain for the year of 6.362%, which was set on July 26.

Junk was helped out by surge in stocks, which were rebounding after Tuesday's slide on Europe-induced market jitters.

The bellwether Dow Jones industrial average, which had swooned by 207 points on Tuesday, ended Wednesday up 162.42 points, or 1.39%, at 11,869.04. The Dow and other market measures were buoyed by late-session reports that China ready to aid embattled Europe by investing in the financial rescue fund being set up by the various central banks there to prop up struggling countries and banks.

The Standard & Poor's 500 index rose 1.05% on the day Wednesday, while the Nasdaq Composite index gained 0.46%.

Sprint slides, Clearwire glides

Among specific secondary issues, a trader said that Clearwire's bonds were up sharply on the news that majority owner Sprint Nextel - which earlier this month gave investors the impression that it planned to abandon Clearwire and go it alone in building out its new network - said Wednesday that it had reached an agreement with Clearwire on technical cooperation between the two telecommunications companies, raising the hopes of investors that the current network-sharing deal could be extended beyond 2012.

"The comments on the Sprint call really impacted them," he said, seeing the Kirkland, Wash.-based wireless broadband company's 12% second-lien notes due 2017, recently seen in the mid-40s, closing up 6 points on the day, while its 12% first-lien paper due 2015, which had been in the mid-70s, was up around 3 points, "and both of those levels were probably 3 to 4 points off their highs" for the day.

He said Clearwire was "very active, very volatile, and much better."

Its Nasdaq-traded stock was likewise a big winner on the day, climbing 32 cents, or 19.51%, to end at $1.96, on volume of 22.7 million shares, almost triple the norm. At one point during the day, the shares had risen as much as nearly 29%.

But while Clearwire was sizzling, parent Sprint Nextel was fizzling, with a trader seeing the Overland Park, Kan.-based Number 3 U.S. wireless carrier's bonds "actually down 3 to 4 points, on the back of their numbers."

A market source at another desk had Sprint's busiest bond, its 6% notes due 2016, off by ¾ point at 88 bid, while its 8 3/8% notes due 2017 lost nearly 1 point to end just below 96 bid.

But the biggest loser in the Sprint complex was unit Sprint Capital Corp.'s 6.9% notes due 2019, which were seen having tumbled some 4½ points to just over 85 bid, in brisk dealings.

Sprint's New York Stock Exchange-traded shares nosedived by as much as 12% during the session, finally ending still down 7.04%, or 19 cents, at $2.51. Volume of 118 million shares was 45% more than the usual daily turnover.

The bonds and shares sank after Sprint reported numbers for the third quarter ended Sept. 30 - even though, on the face of it, the numbers were not as bad as expected and actually better than the year-earlier results.

For the quarter, Sprint added 1.3 million new subscribers and churn of contract subscribers - a phone company's biggest enemy - fell to 1.91% from 1.93% the year before.

The net loss was $301 million, or 10 cents per share, just one-third of a loss of $911 million, or 30 cents per share, for the same quarter of 2010.

And revenues were up 2.2% at $8.33 billion.

But what investors did not like was the fact that with the addition of Apple Inc.'s iPhone - and the subsequent payout of at least $15.5 billion to the iPhone creator over the next four years - the chance of Sprint turning a profit before 2015 seemed unlikely.

And Sprint executives said on their conference call following the release of the numbers that in the upcoming year, the company will face a cash shortfall of up to $2.2 billion and as much as $5.2 billion in 2013.

The executives said that Sprint will likely have to visit the capital markets in search of up to $7 billion to continue funding its operations (see related story elsewhere in this issue).

-Stephanie N. Rotondo contributed to this report

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