Chesapeake Energy up on asset-sale news; Dollar General rises before numbers; MBIA notes keep rising

By Paul Deckelman and Paul A. Harris

New York, Sept. 2 - As the junk bond market got back to work Tuesday after its long Labor Day holiday weekend hiatus, Chesapeake Energy Corp.'s bonds were seen higher as the company announced a big sale of a drilling interest in one of its properties to British energy operator BP - and said it planned other such partnerships with non-U.S. firms.

Dollar General Corp.'s paper was likewise better, with market participants speculating that they were being pushed up ahead of the Goodlettsville, Tenn.-based discount retailer's second-quarter results, which are scheduled to be announced on Wednesday.

MBIA Inc.'s surplus notes due 2033 continued the sharp rise seen at the tail end of last week, when they were pushed up after the beleaguered bond insurer inked a deal to insure billions of dollars of municipal bonds, despite its credit-crunch connected problems.

Despite not having had an issue come to market for several weeks - the last deal that got done was Caribbean Restaurants LLC's $149 million issue back on Aug. 13 - there was no surge of pent-up primary demand, as domestic borrowers continued to hug the sidelines.

Market indicators better

The widely followed CDX index of junk bond performance was up 1/8 point, said a trader, who quoted it at 92 5/8 bid, 92 7/8 offered. The KDP High Yield Daily Index meantime rose 8 basis points to end at 70.61, while its yield narrowed by 5 bps to 10.58%.

In the broader market, advancing issues led decliners by a narrow margin. Activity, represented by dollar volume, was more than four times the anemic pre-holiday levels seen on Friday.

"Even though we were coming back today," a trader said, "it didn't feel all that different" from the lackadaisical pace seen for most of last week ahead of the holiday weekend.

"There was a flurry in the morning when there was a brief period of euphoria, with stocks running up over 200 [points on the bellwether Dow Jones Industrial Average], but it was short-lived." He said he had seen "not a lot of volume - certainly more than the end of last week, of course, but still not up to par."

Chesapeake bonds better

Traders saw some upside in Chesapeake Energy's bonds, propelled by the Oklahoma City-based independent oil and gas exploration and production company's announcement of a large asset sale.

One quoted Chesapeake's 7½% notes due 2013 up ½ point at 101 bid, 102 offered.

Another said that Chesapeake "had some issues treading," seeing its 6½% notes due 2017 get as good as 94 bid in round-lot trading, before coming off that high to end at 93.75 bid, still up around ½ point from where they had finished at the end of last week.

He saw the 6 7/8% notes due 2016 at 96.25 bid, unchanged on the day, after having first risen 96.5.

And he saw Chesapeake's 7.625% notes due 2013 up 5/8 point at 102.25.

"There was certainly a positive bias," he said, "although it doesn't seem like anything outrageous."

Chesapeake agreed to sell a 25% interest in its Fayetteville Shale assets in Arkansas for $1.9 billion to a unit of British oil major BP plc.

Chesapeake's chief executive officer, Aubrey McClendon, said his company was "also pursuing a similar transaction involving our Marcellus Shale assets with others in the industry that we hope to complete by year-end 2008." He also told an energy conference that Chesapeake's next deal likely would involve a large company that is not domiciled in the United States.

China's state owned energy firm, China National Petroleum Corp. was recently reported to be thinking about bidding for minority states in Chesapeake's shale gas assets.

Dollar General on the rise

Elsewhere, a trader said that Dollar General's 11 7/8% notes due 2017 had moved up ¾ point to 95.25 in "heavy volume" of $9 million. He also saw its 10 5/8% notes at around the 100.5 level, with a busy activity level of $8 million.

Another market source saw the 11 7/8s as one of the most actively traded of any issues on the day, quoting them at that same 95.25 level.

A third trader noted that Dollar General has earnings coming out Wednesday and suggested that "people figure that people are spending some $1 bills in this economy."

He saw the 11 7/8s "up a good amount, about a point," at 95 bid, 96 offered, while the 10 5/8s were about ½ point higher at 100.5 bid, 101.5 offered.

But elsewhere among the retailers, a trader saw Burlington Coat Factory Warehouse Inc.'s 11 1/8% notes due 2014 as "the biggest downsider," off by 4 points from last week's levels, down to 68.5 bid. Another trader saw the bonds at 68.5 bid, 69.5 offered, calling them 3 point losers and noting that the company had numbers out late in the day Friday, which were the likely cause of Tuesday's falloff.

MBIA move continues

A trader saw MBIA's 14% surplus notes due 2033 continuing to firm smartly - even though the surge in the New York-based bond insurer's shares prompted by last week's news that it had inked a deal to reinsure billions of dollars in municipal bonds, showing it was able to attract new business despite the credit crunch - has come to an end.

He quoted the bonds at 88.5 bid, up 5½ points on the session.

GM better ahead of sales data

A trader saw General Motors Corp.'s 8 3/8% benchmark bonds due 2033 up a point at 50 bid during the session, although he said that by the end of the day, they were unchanged at 49. He saw GMAC LLC's 8% bonds due 2016 up 1 point at 54.

A second trader saw the GM paper up ¾ point at 50 bid, 51 offered, while Ford Motor Co.'s 7.45% bonds due 2031 were ¼ point better at 51 bid, 52 offered.

Another trader, looking just at round-lot dealings versus the levels seen last week, said that the GM benchmarks had risen 1¼ points to 51 bid. He saw GMAC's 8s better by ½ point at 55. However, he said the most active GM issue was its 7 1/8% notes due 2013, which in fact was "one of the most active" of any bonds Tuesday. He saw them up 5/8 point to trade at 55, noting the very attractive yield around 22%.

Among Ford's paper, he saw the benchmark 7.45s at 52, up ¾ point from Thursday's last trade.

In Ford Motor Credit Co.'s issues, he saw the 7 3/8% notes due 2011 as the most active, up 5/8 point at 81.5 bid, while Ford Credit's 5.80% notes due 2009 at 98.75 bid, up ¼ point.

The Ford and GM paper rose despite what many analysts expect to be more bad sales news when the August figures come out Wednesday afternoon - even with GM's efforts to hype sales with its "employee pricing" offers on most of its vehicles, which wrapped up on Tuesday.

Idearc, Donnelley trade up

A trader saw Idearc Inc.'s 8% notes due 2016 up 1 point at 46 bid.

Another trader said that the Dallas-based telephone directory publisher's bonds "seemed to have a little momentum, them and R.H. Donnelley [Corp.]. " He saw the Idearc 8s up 2 points on the day at 46.25 bid, 47.25 offered, while Donnelley's 8 7/8% notes due 2017 got as high as 54 bid, but "then gave back a little" to close at 53.5 bid, 54.5 offered, still up 1½ points.

Yet another trader saw the Donnelley bonds as "one of the biggest gainers," pegging the bonds at 53.5 bid, up ½ point on the day, "which for R.H. Donnelley is always welcome."

A market source at another desk saw the Donnelley-owned Dex Media Inc. 8% notes due 2013 up 1½ points at 61 bid.

Still quiet in the primary

The primary market's failure to turn out any news on Monday surprised some players - but not all.

One high yield syndicate official lamented Tuesday's utter quiet along the new deal pipeline saying that while new deal launches may not be characteristic of the first day back from the Labor Day weekend, it is customary to start hearing names ahead of deal rollouts that will take place later in the week.

However by mid-Tuesday afternoon this source had not heard any such names.

Meanwhile another official, from a different high-yield syndicate desk was unsurprised by Tuesday's quiet in the primary market, asserting that players were still returning to their seats.

"We will probably be hearing about deals later in the week," the official said.

Vantage Drilling joins calendar

There was one piece of news on Monday, in the form of a company press release.

Vantage Drilling Co. announced that it is offering $135 million of senior secured callable bonds due 2011 in a Rule 144A/Regulation S offering.

No syndicate names or timing were disclosed in the press release and the company did not return a telephone call from Prospect News.

Proceeds from the notes will be used to pay the first installment of the purchase of the drillship Platinum Explorer under the agreement with Mandarin Drilling Co.

One sell-side source remarked that the Vantage Drilling deal looks like a junk offer.

However hard information on the deal remained scarce throughout the Tuesday session.

Elsewhere, another sell-side source expects the Ashland Inc. $750 million senior unsecured notes deal to appear sooner than later.

Late last week an investor from a high-yield mutual fund said much the same thing.

Banc of America Securities will lead the acquisition deal.

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