Key Energy, Windstream, Copano deals price; United Rentals dives as Cerberus bails out of LBO deal

By Paul Deckelman and Paul A. Harris

New York, Nov. 14 - Key Energy Services, Inc. and Copano Energy LLC were heard to successfully priced upsized bond offerings on Wednesday - the latter transaction an add-on to an existing tranche of notes. When the new bonds were freed for secondary dealings, the Key Energy notes firmed slightly - but Copano rose smartly, traders said. High yield syndicate sources also saw Windstream Regatta Holdings, Inc. bring a quickly shopped offering of 10-year notes to market.

Among the established issues, United Rentals Inc.'s bonds fell badly on Wednesday, along with the company's shares, on the news that Cerberus Capital Management LP will back out of its previously announced $7 billion acquisition of the Greenwich, Conn.-based equipment-rental company.

Elsewhere, E*Trade Financial Corp.'s battered bonds - which gyrated wildly at lower levels on Tuesday in a belated response to an analyst's warning Monday that the on-line financial services company faces as much as a 15% chance of having to file for bankruptcy - were again bouncing around, though this time at higher levels than those seen on Tuesday. However, it proved unable to hold those gains and ended up only slightly on the session.

LifeCare Holdings Inc.'s bonds were seen on the critical list, collapsing some 10 points after the Plano, Tex.-based hospital operator reported bad third-quarter numbers. However, Constar International Inc.'s bonds were seen solidly better for a second straight session, in response to better-than-expected numbers.

A high yield syndicate official said that the market had a better tone on Wednesday morning, but later in the day junk traded off along with equities.

However, the source specified, trading in cash bonds continues to be light, with most of the action concentrated in credit default swaps.

Meanwhile a money manager from a mutual fund said that the CDX High Yield 9 was going out at 95 5/8 bid, 95¾ offered, down 0.65 on the day.

The primary market saw four issuers - each pricing a single tranche - raise slightly less than $975 million of proceeds.

Two of the four deals were drive-bys.

Key Energy upsizes

Wednesday's biggest deal by dollar amount was Key Energy Services's upsized, restructured $425 million issue of seven-year senior unsecured notes (B1/B). which priced at par to yield 8 3/8%.

The yield was printed at the wide end of the 8¼% area price talk.

The issue was increased from $400 million.

The tenor of the notes was decreased to seven years from 10 years. Call protection was decreased to four years from five years.

Lehman Brothers was the lead bookrunner for the debt refinancing and general corporate purposes deal from the Houston-based oil rig services provider. Banc of America Securities LLC and Morgan Stanley were joint bookrunners.

An informed source told Prospect News that the Key Energy deal got a good reception, and added that it played to a high quality book comprised of traditional high yield accounts and institutional accounts.

The book was approximately two times oversubscribed.

The source added that the new Key Energy Services 8 3/8% notes due 2014 broke to 100¾ bid.

Copano Energy also upsizes

Copano Energy, LLC and Copano Energy Finance Corp. priced an upsized $125 million add-on to their 8 1/8% senior notes due March 1, 2016 (B2/B+) at 100.625 to yield 7.993% on Wednesday.

There was no official price talk.

Banc of America Securities ran the books for the quick-to-market issue of notes, which was raised from $100 million.

The original $225 million issue priced at par on Jan. 31, 2006. The total issue size following Wednesday's add-on is $350 million.

An informed source said that the deal went very well, particularly given that the broad high yield market sold off in the late afternoon.

Windstream Regatta drives through

Elsewhere Windstream Regatta Holdings priced a $210.5 million issue of 10-year senior subordinated notes (B2/B-) at par to yield 11% on Wednesday.

JP Morgan, Merrill Lynch & Co. and Lehman Brothers were joint bookrunners for the quick-to-market deal.

Proceeds will be used to help finance the purchase of Windstream Yellow Pages by investment funds of Welsh, Carson, Anderson and Stowe and for general corporate purposes.

Newland brings $220 million

Finally, Newland International Properties (Trump Ocean Club, Panama) priced a $220 million issue of 9½% seven-year amortizing senior secured notes (Ba3//BB) at 96.934 to yield 10¼%.

Talk on the Rule 144A deal had been revised to the 10% area from 9 3/8% to 9 5/8% shortly before the pricing.

Bear Stearns was the bookrunner.

Cerberus backs off

Late Wednesday United Rentals possibly trumped the rest of the session's primary market news by issuing a press release disclosing that Cerberus Capital "is not prepared to proceed with the purchase of United Rentals on the terms set forth in its merger agreement, dated July 22, 2007. Under that agreement, Cerberus agreed to acquire United Rentals for $34.50 per share in cash, in a transaction valued at approximately $7.0 billion."

In the second paragraph from the top URI noted that "Cerberus has specifically confirmed that there has not been a material adverse change at United Rentals."

The LBO deal that Cerberus backed away from included $5.15 billion of debt financing, including $2.55 billion offering of seven-year second-priority senior secured notes (B2/B) that were in the market.

Last week the notes were talked at 10½% to 10¾%, and the deal was expected to price last Friday, but did not.

As the broad market awaited terms on the notes rumors flew, with sources maintaining that the talk had widened out from 100 basis points to as much as 250 basis points from the original talk.

However a source close to the deal told Prospect News on Tuesday that there had been no official modifications to the price talk.

Credit Suisse, Banc of America Securities LLC, Lehman Brothers and Morgan Stanley are joint bookrunners.

Trailing Wednesday's news that Cerberus backed away from the existing deal, sources close to the debt financing declined to discuss it when contacted by Prospect News.

However one source hinted that a renegotiated deal is not out of the question.

Subsequently, in an 8-K document filed with the Securities and Exchange Commission, the Cerberus acquiring entity, Ram Holdings, Inc., in a letter to United Rentals, stated that the agreed upon termination fee is $100 million, and added that Ram is willing to renegotiate the deal with United Rentals or pay the termination fee.

Illiquid, risk averse

Prospect News puzzled out the United Rentals developments with two sources from the buy-side on Wednesday afternoon.

A money manager from a mutual fund said that it is a "good news-bad news" event.

The good news is that, against the backdrop of less liquidity and a reduced appetite for risk, with the United Rentals deal in limbo the forward calendar becomes lighter.

The bad news is the aforementioned reduced appetite for risk.

"Seasonally we're coming up to the end of the year, where everybody is closing their books," the money manager said.

"Secondary trading is going to start to really diminish. And whatever deals can get done, people are just trying to get them out the door."

Earlier Wednesday afternoon a hedge fund manager hit on the same themes.

"People are pretty uneasy," the source said. "They just want to get the year over with.

"They're being told not to put on any more risk.

"Right now things are pretty illiquid."

New Keys edge up, Copanos jump

When the new Key Energy 8 3/8% notes due 2017 were moved into the aftermarket, they didn't go very far. A trader quoted the bonds at 100.25 bid, 100.75 offered, up slightly from their par issue price earlier in the session. However, another trader saw the bonds doing somewhat better, pegging them at 100.75 bid, 101.25 offered.

Meanwhile, the Copano Energy 8 1/8% notes due 2016 were seen by the first trader to have firmed smartly to 101.625 bid, 102.125 offered from their 100.625 issue price.

United Rentals dives on Cerberus news

Back among the established issues, United Rentals' bonds were beaten down, first on the speculation that Cerberus might pull out of its leveraged buyout deal and later on confirmation from the company that this was indeed what had taken place.

In morning dealings, its 6½% notes due 2012, which had recently been seen trading above 103, were reported by a market source to have opened well down, at 98 bid, on sizable volume, while a trader at another shop saw the bonds fall even further, pegging them at 96 bid, 98 offered, which he called at least a 6½ point drop.

At that point, the deal was not officially dead - but Reuters - attributing its information to unidentified sources close to the deal - was reporting that Cerberus "is considering the withdrawal of its $4 billion leveraged buyout offer" for the equipment rental company, which had been announced back in July - before the real onset of the credit crunch which has roiled the financial markets in recent months. The story explained that Cerberus was "worried about the company's economic outlook, and investment banks funding the deal are struggling with selling the associated debt offering" of $2.55 billion of new junk that would partially fund the multi-billion-dollar LBO.

By mid-afternoon, United Rentals confirmed what everyone in the market was already buzzing about - that it had been officially informed by Cerberus that the big New York-based private investment firm "is not prepared to proceed with the purchase of United Rentals on the terms set forth in its merger agreement," under which Cerberus would have acquired the company for $7 billion in cash.

United Rentals noted that Cerberus "has specifically confirmed that there has not been a material adverse change at United Rentals" that would justify such a step, called the repudiation of the deal by Cerberus "unwarranted and incompatible with the covenants of the merger agreement," and said that it had retained a law firm, Orans, Elsen & Lupert LLP, to represent it "in connection with considering all of its legal remedies in this matter." Under the terms of the agreement outlined in proxy documents sent to its shareholders - who had already approved the sale of the company - Cerberus is liable for a $100 million breakup fee for not going through with the purchase.

Once the announcement had been made, the bonds continued to fall further, with the 61/2s seen dropping as low as 94, down more than 9 points on the session.

A trader said that United Rentals' 7% notes due 2014 were down some 10 points at 95 bid, 97 offered, while a market source at another desk, also seeing the bonds at 95, estimated a more than 11 point plunge on the day.

A trader said that the United Rentals bonds plunged "once that deal went south," and noted that all three of its bond tranches - the 7¾% notes due 2013 as well as the 61/2s and the 7s" had been trading "way over par," in line with the prices set in the tender offer for those bonds which United Rentals had begun last month as part of the LBO acquisition process. He saw the 61/2s as having been trading in a 103.25 bid, 103.75 context before the deal fell apart, with the 7s at 105.5 bid, 106.25 offered and the 73/4s at 105.75 bid, 106.5 offered. He quoted the 61/2s post-news as trading at 96, the 73/4s at 94 bid, 96 offered and the 7s offered at 96.5, "all off around 10 points."

Before the deal formally fell apart, the company announced in the morning that it had extended from Tuesday till Friday the scheduled expiration date of the tender offer for the 6½%, 7% and 7¾% bonds, while giving no explanation for the extension. That announcement, as well as the speculation generated by the original Reuters story indicating that Cerberus was getting cold feet, helped to plow under the company's New York Stock Exchange-traded shares, which ended down $10.51, or 30.90%, at $23.50. Heavy volume of 36.1 million shares was more than 24 times the usual turnover. After the stock's initial plunge, the NYSE briefly halted trading in United Rentals, seeking comment from the company as to whether there were any corporate developments at hand that investors should know about. United Rentals said at that time that its company policy was not to comment on unusual market activity or rumors.

Back in the junk market, a trader said that he didn't think that the United Rentals debacle affected the rest of the equipment rental sector. For instance, he said, "there's been a big seller" of Ashtead Group plc's 9% notes due 2016. "He tried to beat the market up, but I don't think it worked," with the bonds coming back with a bid level of 93.

However, at another shop, a trader saw Neff Rentals Inc.'s 10% notes due 2015 - already trading at distressed levels - down another point to 65 bid, 67 offered.

E*Trade bonds bounce around

Elsewhere, it was another wild session for E*Trade Financial's bonds, which had gyrated crazily at lower levels on Tuesday, investors at first spooked by a Citigroup analyst's warning Monday - when the bond market was closed - that customers might make a run on its bank and holding out the 15% chance that the company might go belly up, but then later reassured by another analyst's assessment that this was "highly unlikely." The bonds - originally down 20 points or more - ended the session quoted down 10 to 12 points.

On Wednesday, a trader said that E*trade's bonds rallied, with the 8% notes due 2011 - which had swooned as low as 70 bid on Tuesday before coming back to end at 82-83, down about 12 points - hitting a high of 88 during the Wednesday session, before coming back in to close at 83.5 bid, 84.5 offered. The trader attributed the gains in part to short covering.

Another trader called activity in E*trade "the big one today." He said the 8% notes were "up early," hitting a high of 86 bid, 87 offered. But the bonds could not hold on to all of their gains, closing down from their peak to 83 bid, 84. Still, the bonds were up from its 81 bid, 82 levels in the previous session, he said.

The trader also noted that it was "probably short covering" that boosted the debt.

Yet another trader also saw the bonds get as good as 88, before coming back in to finish around 82 bid, 83.5 offered, "the low point of the day."

E*Trade's 7 7/8% notes due 2015 were seen by a market source at 79.5, only up slightly.

E*Trade's Nasdaq-traded shares, which had nosedived nearly 60% on the original bankruptcy warning on Monday, and then rebounded 40% on Tuesday, jumped another 10.80%, or 54 cents, on Wednesday to end at $5.54 on extremely heavy trading of 156 million shares, over six times the norm. The shares were helped by the company CEO's denial during a TV interview that any bankruptcy filing is being contemplated.

Earnings push names up and down

On the earnings front, a trader saw LifeCare Holdings' 9¼% notes due 2013 down 10 points to 50 bid, 55 offered, blaming the slide on "weak numbers". But he saw Constar International's 11% notes due 2012 - which had risen smartly on Tuesday - continuing to move up on Wednesday on the favorable numbers the packaging company reported. The bonds gained another 3 points to 73 bid, 74 offered. And he saw ArvinMeritor's 8 1/8% notes due 2015 up 1 point at 90 bid, 91 offered, again attributing the gain to the automotive parts maker's "pretty good quarter."

Stephanie N. Rotondo contributed to this report

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