Emdeon prices; junk bonds firm; Cemex bonds climbing back up; Beazer, Hovnanian notes boosted

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Oct. 14 - Emdeon Inc. priced $375 million of new bonds Friday as the secondary high-yield market finished the week a bit firmer.

"It came back a little bit," a trader said of Friday's performance, though he added that overall the market was "lackluster."

"People are still looking for paper," said another trader. "But it's not as much of a feeding frenzy as it was earlier in the week. It's not just trading up, it's gapping up and people are reaching back into stuff they think is cheap."

A third trader said that "a lot of things were higher," though he deemed volume just moderate.

Caesars Entertainment Corp. continued to be one of the top trading names as the casino operator's debt regained some of the ground it had lost on Thursday. Other market mainstays like ATP Oil & Gas Corp. and Community Health Systems Inc. were also gaining value.

Cemex SAB de CV paper was continuing to rise.

"They've really been coming back," a trader said, as some in the market have opined that the debt was oversold.

The housing arena meanwhile was gaining momentum after Beazer Homes Inc. released preliminary quarterly results that were not too shabby. Hovnanian Enterprises Inc.'s bonds were also seen better.

There also continued to be strength in the retail arena, even for Gap Inc., which is reportedly planning to close about 200 stores by the end of 2013.

Emdeon brings $375 million

The Friday primary market saw a single deal cross the finish line.

Emdeon priced a $375 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 11%.

The yield printed at the tight end of the 11% to 11¼% price talk.

Barclays, Bank of America Merrill Lynch, Citigroup, Goldman Sachs and SunTrust were the joint bookrunners.

Timing on the deal was moved ahead. Initial timing would have extended the roadshow into the early part of the Oct. 17 week.

The notes, which were issued via special-purpose vehicle Beagle Acquisition Corp., will rank pari passu with the $375 million of 11¼% senior notes due 2020 that affiliates of Goldman Sachs have agreed to purchase, as previously reported.

Proceeds from the 11% notes and the 11¼% notes 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.

Fearing the squeeze

Emdeon also priced its $1.224 billion term loan at 97 on Friday, and the paper broke at 99¾ bid, par ¾ offered, eventually ending the day 3 points above issue.

A mutual fund manager who plays both bank loans and junk bonds was watching the loan streak higher and carping about a crummy allocation, during a Friday morning call.

The investor had also put in for the Emdeon bonds, and expressed apprehensions that the strong secondary market performance of the loan, which "was priced to move," would prompt Emdeon and its dealers to squeeze some yield out of the $375 million of junk.

"They might even try to bring it with a 10-handle, although they shouldn't," the investor said.

That squeeze failed to materialize.

And it would appear that the dealers left at least a modicum of juice on the table because a trader spotted the par-pricing 11% notes at 102¼ bid at Friday's close.

Of the nominal $375 million amount of Emdeon bonds that priced on Friday, $125 million had been spoken for before the lights came up on Friday morning, the buy-sider said.

$577 million week

With Emdeon in the tally, the Oct. 10 week came to close having seen $577 million of dollar-denominated junk price in two junk-rated tranches.

That extends 2011 issuance to $217.9 billion in 488 tranches, as of Friday's close.

In the week ahead the market will be keenly tuned into Kinetic Concepts Inc.'s $1.65 billion equivalent offering of 7.5-year second-lien senior secured notes (B3/B/), in euros and dollars.

Morgan Stanley, Bank of America Merrill Lynch, Credit Suisse and RBC are the joint bookrunners. UBS is the co-manager.

Proceeds will be used to help fund the buyout of the company by Apax Partners, Canada Pension Plan Investment Board and the Public Sector Pension Investment Board for $68.50 per share in cash in a transaction valued at $6.3 billion, including outstanding debt.

The second-lien notes portion of the financing was upsized to $1.65 billion from $1.25 billion last week when the term loan portion of the Kinetic Concepts LBO deal was downsized to $2.2 billion from $2.6 billion.

The overall bond deal in the market was cut from $2.55 billion, with the dealers withdrawing $900 million of unsecured notes from the market.

At least part of that amount of unsecured paper is the subject of club-style marketing more characteristic of the true private placement market, an informed source said.

Such an execution would bear some resemblance to Emdeon's $375 million tranche of 11¼% senior notes due 2020, which was marketed private placement-style prior to last Friday's launch of $375 million of eight-year senior notes to qualified institutional investors.

Market indexes, 'go-gos' strong

The high-yield market had a positive day Friday and market indicators were reflecting that.

The KDP High Yield index rose to 71 as its yield tightened to 8.18%. That compared to Thursday's reading of 70.61, with an 8.31% yield.

The CDX North American Series 17 High Yield index meantime gained ¾ point, closing at 91 1/8 bid, 91 3/8 offered.

The typical "go-go" names were also on the rise.

A trader said there were "a ton of trades" in Caesars Entertainment's 10% notes due 2018, seeing about $32 million of the bonds changing hands shortly before the market closed.

He said the notes got as high as 70½ before settling in at 68½ bid, 69½ offered, still up a point on the day.

Another trader said the name was actively traded, seeing the 10% notes at 69¼ and the 11¼% notes due 2017 at 1051/2.

He called both issues up ½ point.

At another shop, a trader pegged the 10% notes at 69, down from the intraday high around 70, but still 1 to 2 points better from the previous closing levels.

Other market mainstays were also gaining ground. Community Health Systems' 8 7/8% notes due 2015 rose a point to 1011/2, a trader said.

He noted that the bonds were "trading off their highs" around 102, but he still said the debt was up a point.

ATP Oil & Gas' 11 7/8% notes due 2015 meantime earned 1½ points, closing around 771/2.

Cemex rallies on

Cemex's bonds were "up there again," a trader said.

"They've really been coming back," he said.

He called the 9% notes due 2018 "up another point" around the 75 level.

Another trader saw the bonds gaining anywhere from a quarter-point to 2½ points. The floating-rate notes due 2015 were up the most, he said, at 671/2. The 9% notes due 2018 moved up the least, closing at 743/4.

The 9½% notes due 2016 were in the middle, closing at 813/4.

Cemex's debt had previously run down as investors feared the Mexican cement and aggregate company would not be able to meet the terms of a $15 billion loan agreement that it obtained in 2009 to help avoid a default.

However, the run down is considered by some to be overblown. In one news report a money manager said it was "illogical" that the bonds were trading as if the company was nearing bankruptcy and that at current levels the bonds were attractive.

Beazer, Hovnanian move up

The housing sector has also seen a bit of a boost of late and Beazer's release of its preliminary quarterly results only served to further that trend.

One trader said Beazer's 6 7/8% notes due 2015 were up 4 points at 69, while the 8 1/8% notes due 2016 moved up 2½ points to 661/2.

The trader also saw Hovnanian Enterprises' 10 5/8% notes due 2016 up 1½ points at 801/2.

A trader at another shop echoed those levels as well.

Atlanta-based Beazer said Thursday that based on preliminary fourth quarter estimates, new orders were up 33% and closings gained 23% from 2010.

The company also reported cash and equivalents of $646 million, including about $370 million of unrestricted cash.

According to Vicki Bryan, an analyst with Gimme Credit LLC, Beazer and Red Bank, N.J.-based Hovnanian have "been in a race to the bottom," as the two companies have the weakest balance sheets among homebuilders. She opined, however, that Beazer could be gaining ground.

"While Hovnanian is currently offering a desperate and particularly unsavory bond exchange offer, which suggests that its fourth quarter results could include some nasty surprises, Beazer jut announced encouraging growth in homes ordered and delivered for its fiscal fourth quarter ended Sept. 30," Bryan wrote in a report out Friday.

Bryan maintained that Beazer's unsecured debt has little to no value but remarked that "even Beazer's fragile liquidity beats Hovnanian's."

Gap, retailers hold steady

Gap's 5.95% notes due 2021 were "kind of unchanged" despite reports that the company plans to shutter about 200 stores by the end of 2013.

He quoted the notes at 91 bid, 91½ offered.

Gap, which also owns Old Navy and Banana Republic, is reportedly planning to close 189 stores by the end of 2013. The company has already been shutting down stores for a few years to deal with changes in shopping patterns and outlets.

However, other retailers were continuing to rebound, due in part to "better-than-expected" retail sales, a trader said.

Limited Brands Inc.'s 6 5/8% notes due 2021 for instance moved up half a point to a point to 103.

"They're just about all the way back to where they were before we had that week-long rout" that decimated many high-yield names.

In September, retail sales were higher than anticipated, rising 1.1%, according to a report released by the Commerce Department on Friday.

Sprint shakes off downgrade

A trader said Sprint Nextel Corp.'s debt was "still up 2 to 3 points" despite getting a rating downgrade.

"They barely gave back much," he said.

He quoted the 8 3/8% notes due 2017 at 92½ bid, 93 offered and the 6.90% notes due 2019 at 87½ offered.

Another market source called the 6% notes due 2016 up nearly a deuce at 87¾ bid.

Moody's Investors Service dropped about $20 billion of Sprint's debt to B1 from Ba3, citing concerns about the costs of constructing its own network and its plan to phase out its network partnership with Clearwire Corp.

Because of the rating cut, Sprint - which said it will need to raise funds to construct the new network - will likely face higher borrowing costs.

Clearwire, for its part, was also downgraded.

Sprint is an Overland Park, Kan.-based wireless services provider.

Broad market ends week firmer

Among other junk issues, a trader saw First Data Corp.'s 11¼% notes due 2016 moving up nearly 3 points to 773/4.

He also saw Clear Channel Communications Inc.'s 10¾% notes due 2016 at 633/4, up 2¾ points.

Another trader said Springleaf Finance Corp.'s 6/90% notes due 2017 had risen to 73½ bid, 74, a gain of "about a point."

Meanwhile, some "$20-odd million" of NewPage Corp.'s 11 3/8% first-lien notes due 2018 traded, down "a little bit" around 721/4.

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