Laredo drives by with add-on; Emdeon may price earlier; most names up solidly; Sprint strong

By Paul Deckelman and Paul A. Harris

New York, Oct. 12 - The recently improved tone in the high-yield market finally broke through to the primary sphere on Wednesday, as energy operator Laredo Petroleum, Inc. came to market with un upsized $200 million add-on to an existing series of eight-year bonds sold earlier this year.

The Oklahoma oiler's drive-by deal was the first dollar-denominated pricing in the junk market in more than two weeks since hospital heavyweight HCA, Inc.'s quickly-shopped $500 million transaction and building products maker Jeld-Wen, Inc.'s $460 million issue back on Sept. 27.

The new Laredo bonds were quoted up from their issue price in trading.

New-deal denizens were also talking about the possibility that the upcoming $375 million deal from healthcare administrative services provider Emdeon, Inc may come to market more quickly than expected - perhaps as early as Friday.

The secondary realm saw another very strong day, with numerous issues up by at least 1 point many of them by considerably more than that, with downsiders few and far between. Even the badly battered bonds of Sprint Nextel Corp. - one of the few big losers in Tuesday's rollicking upside session - were on the rebound Wednesday.

ATP Oil & Gas Corp. continued on a tear as one of the day's big gainers. Caesars Entertainment Corp. was another big gainer, in very busy trading.

Statistical measures of junk market performance rose sharply for a second consecutive session.

Laredo upsizes tap

The high-yield market rallied persuasively on Wednesday, sources said.

Cash and synthetics were up well over a point, according to a trader from a high-yield mutual fund.

A portfolio manager from a different mutual fund reported large inflows over the past three days, and remarked that it's an indication that the market is "about to open up big-time."

One deal, a drive-by, crossed the finish line in Wednesday's primary market.

Laredo Petroleum priced an upsized $200 million add-on to its 9½% senior notes due Feb. 15, 2019 (confirmed Caa2/existing CCC+) at 101, resulting in a 9.252% yield to worst.

The reoffer price came on top of the price talk. The amount was increased from $150 million.

Bank of America Merrill Lynch, J.P. Morgan Securities LLC, Wells Fargo Securities LLC and Goldman, Sachs & Co. were the joint bookrunners for the quick-to-market debt refinancing deal.

The original $350 million issue, which was upsized by $50 million, priced at par on Jan. 12, 2011. Hence the company shaved a quarter point of interest expense by virtue of Wednesday's execution.

The deal went well and was multiple-times oversubscribed, according to a syndicate source who had the new notes at 101½ bid, 102½ offered on the break, up from the 101 reoffer price.

More Emdeon bonds circled

Although it was the first day of the roadshow, the market buzz surrounding the Emdeon Inc. LBO deal intensified on Wednesday.

Already cut in half to $375 million from the original $750 million by way of a private placement, an additional amount of the remaining bonds has been circled up, according to a source close to the deal.

Buy-side sources told Prospect News on Wednesday that the amount of eight-year senior notes (confirmed Caa1/expected CCC+) now expected to actually hit the market - that is, to be available for purchase by qualified institutional investors - is thought to be in the range of $200 million to $250 million.

"It's shaping up to be a food fight," a mutual fund manager commented, heading into Wednesday's close.

Meanwhile a sell-side source close to the deal said that the amount of bonds that remains "uncircled" could be greater than $250 million.

Market sources also professed the expectation that timing on the deal would be moved forward, with a Friday pricing now anticipated. The original schedule had roadshow stops on the West Coast set for the early part of the Oct. 17 week.

"We're keeping all of our options open," was all the sell-side source would say in response to questions about the timing.

Rally could trim pricing

To recap, an expected $750 million amount of bonds, representing the size of the senior unsecured bridge loan, was whacked in half last week when Emdeon announced that affiliates of Goldman Sachs agreed to purchase $375 million of Emdeon's 11¼% senior notes due 2020.

Pro forma guidance on the remaining Emdeon bonds is for a yield in the 11% area, according to a trader from a high-yield mutual fund, who added that market conditions could push pricing either way.

Should the market continue to rally as it did on Wednesday, pricing of the bonds could definitely be impacted, a source close to the deal said.

Barclays, Bank of America Merrill Lynch, Citigroup, Goldman Sachs and SunTrust Robinson Humphrey are the joint bookrunners for the bonds, which will be issued by special-purpose vehicle Beagle Acquisition Corp.

The bonds are part of the financing for the buyout of Emdeon by Blackstone Capital Partners VI LP and Hellman & Friedman LLC for $19.00 per share in cash in a transaction is valued at about $3 billion.

Healthcare trifecta

At present the primary market - meager though it may be - belongs to the healthcare sector.

In addition to Emdeon, medical technology company Kinetic Concepts, Inc. is also roadshowing bonds.

Earlier in the week Kinetic Concepts withdrew a planned $900 million offering of senior unsecured notes from the so-called "public" market ("public" being idiomatic for qualified institutional buyers) and, much like Emdeon, is attempting to circle up part of that unsecured debt club-style, in a manner that more resembles a true private placement than a conventional high-yield bond deal, according to an informed source.

What remains in the public market is $1.65 billion equivalent of 7.5-year second-lien senior secured notes (B3/B/), which is being offered in dollars and euros.

Rounding out the triumvirate of health care-related deals now on the active calendar is California biopharmaceutical firm Mannkind Corp., which is attempting to raise $370 million of proceeds via the sale of six-year senior discount notes.

Yield discussions on Mannkind have taken place in the context of 12%, according to a trader from a high-yield mutual fund.

New Laredo moves up

A trader said that he had not seen any traces at all of Laredo Petroleum's new $200 million add-on to its eight-year bond issue sold earlier this year.

However, a second trader said that the new bonds had firmed a little in the aftermarket to 102 bid, 103 offered, a 1 point gain from their pricing level.

'A feeding frenzy'

"The market seemed much stronger today," a trader said. "It seemed like the buying continued.

"Certain bonds are up multiple points."

He said that "everyone is in a buying mood."

A second trader said that the junk market resembled "a feeding frenzy - no question about it "Stuff is flying. There's a lot of paper up a lot today."

He continued that "up 1 or 2 [points] is pretty much generic - and a number of things are up more than that."

Indicators on a roll

A trader said that the CDX North American series 17 High Yield index jumped by 1¼ points on Wednesday to end at 90 bid, 91 offered That big gain came after the index zoomed by 1 7/16 points on Tuesday, the first day back after the long Columbus Day holiday break.

The KDP High Yield Daily index shot up by 71 basis points on Wednesday to close at 70.55%, on top of Tuesday's 40 bps gain.

Its yield tightened by 24 bps on Wednesday to 8.35%, after having come in by 13 bps on Tuesday.

And the Merrill Lynch U.S. High Yield Master II index notched sixth consecutive gain on Wednesday, rising by 0.995% on the session, which followed Tuesday's 0.682% rise.

Wednesday's gain cut the index's year-to-date loss by more than half, to 0.768% from 1.745% on Tuesday. The loss has narrowed markedly from its widest reading of the year, the 3.998% deficit recorded last Tuesday. But it still stands in stark contrast to the peak gain for the year of 6.362%, which was set on July 26.

Market activity, as determined by dollar-volume levels, were up briskly on Wednesday, with 23% more turnover.

Junk seems to be once more aligned with stocks, which firmed smartly Wednesday on renewed investor hopes for a solution to the debt problems in Greece and elsewhere in the euro zone.

The bellwether Dow Jones industrial average - which on Tuesday had traded in a narrow range all day before going home down around 17 points - on Wednesday boomed by 102.55 points, or 0.90%, ending at 11,518.85. Broader indexes like the Standard & Poor's 500 and the Nasdaq Composite posted gains of 0.98% and 0.84%, respectively.

ATP rebound rolls on

A trader said that "certain bonds were up multiple points," and prominently among that group was ATP Oil & Gas, whose 11 7/8% notes due 2015 traded up another 5 points to 79 bid.

A market source at another desk, who saw the bonds having firmed to 79½ bid from Tuesday's close around 74, said that activity was fairly brisk, with over $12 million having changed hands .

The Houston-based offshore energy exploration and production company's bonds have been among those volatility leaders over the past two weeks, beaten savagely down when the overall market was down, and then coming back up in line with the overall market rise.

Those bonds had gotten down to the high 50s to lower 60s early last week, but then began to turn and firm as the week wore on, ending in a 60s to lower 70s context by the end of last week, and continuing to strengthen since then.

Several traders have suggested that the bonds' gyrations more or less track the energy market, with crude oil having moved up to the mid-80s from about $75 a barrel around a week ago.

Sprint runs up

The big comeback story of the day was Sprint Nextel, whose bonds had gotten solidly whacked down on Tuesday in the wake of a poorly-received management presentation to the Overland Park, Kan.- based wireless carrier's investors on Friday.

A trader saw the company's Sprint Capital Corp. unit's 8 3/8% notes due 2017 up 4¾ points, last trading at 91¾ bid.

The parent company's 6% notes due 2016 were up 6¼ points, trading at 86 bid

"So Sprint was fairly active today," he said, they're bouncing back."

The busiest Sprint bond was the 8 3/8% notes due 2012, which saw $46 million changing hands. They ended at 100 7/8, up ¾ point.

The 2017 8 3/8s traded over $21 million, while the 6% notes racked up $9 million,

Sprint's network partner, Kirkland, Wash.-based Clearwire Corp., meantime saw its debt "up a bunch," according to a trader. He saw the 12% first-lien notes due 2015 in the high-70s and the 12% second-lien notes due 2017 in the mid-40s.

Last week, Sprint held an investor conference in which it said that it would discontinue selling devices compatible with Clearwire's network by the end of 2012. That particularly hurt Clearwire, which has been struggling to stay afloat.

Sprint also got hit as executives failed to address concerns about the financial impact of adding Apple's iPhone to its portfolio.

In a news interview, James Hance, chairman of Sprint, said the failure was a "mistake" and one that the company will address at its third-quarter conference call.

Harrah's higher again

Caesars Entertainment's 10% notes due 2018 - known widely by the Las Vegas-based gaming giant's former name, Harrah's Entertainment Operating Inc. - were seen by a trader up 2¾ points at 69¼ bid, on "pretty good volume.

"All in all, they were pretty strong," he said.

Another trader estimated that the Harrah's bonds were trading up anywhere from 3 to 5 points, "and they didn't even get beat up" on Tuesday like Sprint was, he said.

A market source at another desk said that the Harrah's 10s were the most actively traded bonds in Junkbondland on Wednesday, with more than $47 million changing hands. He saw the bonds up by 1¾ points at 69¼ bid.

Stephanie N. Rotondo contributed to this report.

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