Chesapeake prices upsized add-on, HCA, Forest Oil also price; Sirius bonds nosedive on bankruptcy speculation

By Paul Deckelman and Paul A. Harris

New York, Feb. 11 - Chesapeake Energy Corp. made a return visit to the high yield primary market on Wednesday, pricing an upsized additional tranche of 9½% notes due 2015 exactly two weeks after pricing its original offering of those notes.

The Oklahoma City-based independent oil and gas exploration and production company's new bonds, which priced at a discount to par, were seen having moved up when they were freed for secondary dealings.

Also out of the energy sector, Forest Oil Corp. priced a sharply upsized offering of five-year notes at a discount; those bonds also firmed in the aftermarket.

And HCA Inc. priced a slightly upsized eight-year offering, also at a discount; the issue hit the market after activity had virtually wrapped up for the session, too late for any kind of secondary dealings.

Among the established issues, Sirius XM Satellite Radio Inc.'s bonds stumbled and its shares tumbled, on newspaper reports that the New York-based satellite radio broadcaster has hired turnaround experts to advise it on a possible bankruptcy reorganization - even as satellite TV tycoon Charlie Ergen has offered a big cash infusion and debt restructuring that would make a bankruptcy unnecessary, but leave the founder of DISH Network Corp. and its affiliate EchoStar Corp. in control of Sirius.

Good earnings were seen pushing up the bonds of Dean Foods Co., Iasis Healthcare LLC and Berry Plastics Corp.

Unisys Corp. strengthened even in the face of a quarterly loss, a stock slide and a ratings downgrade

But bad gaming revenue numbers from Las Vegas and Atlantic City dragged down MGM Mirage as well as sector peers Wynn Las Vegas LLC and Boyd Gaming Corp.

Forest Oil prices $600 million

Wednesday was a big day for the primary market as three issuers each priced a single tranche of notes to raise a combined total of slightly less than $1.28 billion of proceeds, rendering Wednesday the biggest day in nearly three weeks, in terms of dollar amount of issuance.

The day's most dramatically upsized deal came from Forest Oil Corp. which priced an upsized $600 million issue of 8½% five-year senior notes (B1/BB-) at 95.15 to yield 9¾% in a quick-to-market transaction.

The deal was increased from $350 million and came on top of price talk that had the notes pricing with an approximately 5 point discount to yield 9¾%.

JPMorgan, Banc of America Securities, Credit Suisse, Deutsche Bank Securities and Wachovia Securities were joint bookrunners for the Denver-based company's debt refinancing deal, which was well oversubscribed, according to an informed source.

Chesapeake returns

Meanwhile, two weeks after it priced the original $1 billion issue, Chesapeake Energy Corp. returned to the new issue market to price an upsized $425 million add-on to its 9½% senior unsecured notes due Feb. 15, 2015 (Ba3/BB) at 97.75 to yield 10.004%.

There was no official price talk, however the guidance on the deal had centered on the 97.75 issue price, according to an informed source.

The add-on was multiple-times oversubscribed, and the add-on notes came approximately 5/8 of a point in back of where the existing bonds were trading Tuesday, the source added.

Banc of America Securities and Deutsche Bank Securities were joint bookrunners for the debt refinancing and general corporate purposes deal from the Oklahoma City-based independent producer of natural gas.

HCA would not grow

Finally, HCA Inc. priced a $310 million issue of 9 7/8% eight-year senior secured second-priority notes (B2/BB-/B+) at 96.673 to yield 10½% in a drive-by deal that market watchers had been anticipating for weeks.

The deal came on top of price talk.

Banc of America Securities LLC, Citigroup, JPMorgan and Wachovia Securities were joint bookrunners for the debt refinancing deal.

One high-yield mutual fund manager expressed strong disappointment that HCA elected not to upsized the deal, which, according to sources, played to an order book that topped $3 billion.

This investor said that HCA has $13 billion of bank loans that it needs to refinance in the coming two to three years: $2 billion of asset-based revolver debt, $2.5 billion of term A, $8.6 billion of term B, and $850 million of a European term loan facility.

The biggest chunk is the $8.5 billion Libor plus 225 basis points term loan B which matures in 2013.

True, the Libor plus 225 bps rate represents a cheap cost of capital, the investor conceded.

"They're trying to get an amendment that would essentially allow them to replace the first-lien loans with first-lien bonds, and push out the maturities a little," the buy-sider explained.

"This issue is a second-lien. But on the call they said that in the future they expect to offer both first-lien and second-lien notes. But they're going to leave the first-lien leverage unchanged. They wouldn't put more first-lien debt ahead of everybody else, but they would switch it to bonds from loans, which is supposedly what this whole amendment is about.

"They have $13 billion of loans, which is a lot of debt that they need to refinance in the next couple of years, because if they don't they could get stuck."

The deals which HCA discussed during the investor call almost have to be bigger than the $310 million the company did on Wednesday, the investor said, but added that the Nashville company is apt to be put off by what it sees as high interest rates being extracted from issuers in the early 2009 high-yield primary market.

New Chesapeakes move up

When the new Chesapeake Energy 9½% notes due 2015 were freed for secondary dealings, a trader saw them on the break at 98 bid, 98.5 offered, versus their 97.75 issue price. Another trader later saw those bonds a bit firmer than that, at 98.125 bid, 98.625 offered.

Meanwhile, Chesapeake's existing 91/2s - which on Tuesday had fallen from their early levels around a par-101 context to close at 98.5 bid on rumors, eventually borne out, that the company would bring a sizable additional offering of those bonds - got as good as 101 at one point early in Wednesday's session, a market source said, before falling back from that peak to trade primarily in a 98-99 range for the rest of the day. A trader exclaimed "wow- were they ever active," seeing $45 million of the bonds change hands. It was the busiest of any of the day's issues, and "maybe the most active [day] ever for a Chesapeake issue. He saw those bonds down 3/8 point on the session versus Tuesday's, and said he saw "no differentiation" between the price levels of the two tranches of 9½% 2015 bonds late in the day.

HCA higher ahead of deal pricing...

That trader also saw HCA's established 9¼% notes due 2016 move up to a round-lot level of 95.875 bid from Tuesday's 95.5, on volume of $13 million.

"I'm surprised that bond would be up with a new issue coming in," he said, suggesting that the credit might have gotten a lift from the overall cautiously positive market tone, outweighing any supply concerns junk players might have.

He also saw the Nashville-based hospital operator's 9 1/8% notes due 2014 on the upside at 96.75 bid, a gain of ½ point on the day, with $7 million of the bonds traded.

...but Forest falls back

However, he saw Forest Oil's established 7¾% notes due 2014 drop ¾ point ahead of the Denver-based E&P operator's new deal to 93.75 bid from 94.5 on Tuesday.

"Now, that's more like it," he opined, although noting that the dip came on just $1 million traded.

When the new Forest 8½% notes due 2014 were freed, a market source pegged them at 96.25 on the break, up from their pricing level of 95.15.

Denbury bonds better

Plano, Tex.-based energy company Denbury Resources Inc.'s new 9¾% senior subordinated notes due 2016 were being quoted at 95.5 bid, up from 94 bid, 95 offered late Tuesday.

The company had priced the upsized $420 million issue at 92.816 to yield 11¼%, earlier Tuesday.

Market indicators stay mixed

Back among the already established issues, the widely followed CDX High Yield 11 index of junk bond performance, which lost a point on Tuesday, continued in that same direction on Wednesday, with a trader quoting the market measure off by ½ point to 73.125 bid, 73.625 offered.

Market watchers appear to be migrating away from the index as a measure of the market's performance, an investment banker asserted late Wednesday.

The KDP High Yield Daily Index was meanwhile down by 6 basis points on the day at 54.55, although its yield tightened by 9 bps to 13.02%.

In the broader market, advancing issues stayed ahead of decliners, though again by only a relatively narrow margin.

Overall market activity, measured by dollar-volume totals, dipped by almost 5% from the levels seen in Tuesday's session.

Meanwhile the cash position of the buy-side continues to grow, according to a high-yield mutual fund manager.

A trader said that while "overall, it still feels like most people are on the sidelines, waiting for the right opportunity to jump in, I certainly don't see any selling of note, except with specific news out, for instance, like the Chesapeake add-on ."

In line with that neutral to slightly better tone, he saw the two issues widely considered to be proxies for the overall junk market because of their great size and liquidity, Community Health Systems Inc.'s $3.021 billion of 8 7/8% notes due 2015, and First Data Corp.'s $2.184 billion of 9 7/8% notes due 2015, each up modestly. Franklin, Tenn.-based hospital operator Community Health's bonds were up ½ point to 98.75, on volume of $11 million. Meanwhile, Greenwood Village, Colo.-based e-commerce processor First Data's bonds were also a half-point better, at 61, although the trader noted that there was only $1 million of the latter bonds traded, "very light for a $2 billion-plus issue - but at least it was an uptick."

Iasis bonds healthier

Community Health sector peer Iasis Healthcare - in fact, also a neighbor in Franklin - was seen solidly higher after reporting strong quarterly earnings results.

A market source saw its 8¾% notes due 2014 move up nearly 7 points to just below the 97 mark.

Iasis said that for the fiscal first quarter ended Dec. 31 its net revenue totaled $561.6 million, an increase of 14% from $492.7 million a year earlier. Adjusted EBITDA for the quarter totaled $66.7 million, versus $64.9 million in the year-ago period. Net earnings from continuing operations for the first quarter totaled $12.4 million, up from $11.5 million in the prior year quarter.

While admissions and adjusted admissions decreased by 3.7% and 0.3%, respectively, in the first quarter, compared with the prior year quarter, net patient revenue per adjusted admission increased 8.8% from a year earlier.

Dallas-based hospital operator Tenet Healthcare Corp. - whose bonds had gained on Tuesday on news it had agreed to sell two of its facilities - continued upward for an additional day, its 9 7/8% notes due 2014 rising to 81.5 bid, up another 1½ points, a market source said.

Dean Foods firmer on good numbers

Also on the upside was Dean Foods, with a trader seeing the Dallas-based dairy producer's 7% notes due 2016 gain more than a point on the day to end at 96.5, on volume of $9 million.

Even though sales were off by 5% year-over year, the company said that fourth-quarter net earnings more than doubled to $66.4 million, or 42 cents a share, up from $32.6 million, or 24 cents a share, in the year-earlier quarter. The company credited the improvement to a drop in raw milk prices. Excluding unusual items, such as a charge it took to close some facilities, Dean Foods said it earned 46 cents a share, beating Wall Street's expectations of around 40 cents per share.

To top it off, Dean released optimistic guidance, projecting first quarter earnings of "at least" 38 cents a share, and full-year earnings of $1.50 - both a few pennies per share better than analysts' average expectations.

Berry bonds better

A trader said that "Berry Plastics is something I've seen all day long," quoting its 10¼% notes due 2016 at 38.5 bid, 42.5 offered, up a point or two from 37-area levels Tuesday, and its 8 7/8% notes due 2014 in a 59-61 range, with the last trade at 60.5, up 1 on the session. He called Berry an "active name." The bonds had also firmed on Tuesday -- the '14s were up 3 points Tuesday - on improved fourth-quarter numbers.

Another trader saw the 8 7/8s climb to 60.5 bid, up from 59.75 previously, although he saw its floating-rate notes due 2015 unchanged at 80 bid, on $5 million of volume.

Berry, an Evansville, Ind.-based maker of disposable plastic cups for the food-service industry and other plastic packaging products, cut its net loss to $29.4 million from $31.3 million a year earlier. Operating income meantime tripled to $31.6 million from $10.5 million a year earlier. It also ended the quarter with $170.6 million of cash and equivalents, well up from $21.8 a year before.

Unisys holders ignore bad news

Absolutely crummy numbers seemed to have no impact on Unisys Corp.'s bonds; the Blue Bell, Pa.-based information technology company's 6 7/8% notes due 2010 gained 4 points on the session to 61 bid, several market sources said.

Meantime, its New York Stock Exchange-traded shares dropped 9 cents, or 12.68%, to 62 cents, on volume of 2.8 million, somewhat smaller than usual.

That followed Tuesday's disclosure by the company that it slid into the red during the fourth quarter with a $58 million loss, or 16 cents per share, versus a year-earlier gain of $13.8 million, or 4 cents per share; Unisys said the most-recent quarter's results were hurt by charges of $99 million which it took to cover the cost of work force cuts, facility consolidations and asset write-downs.

The bondholders also ignored Tuesday's announcement by Standard & Poor's that it had cut the company's corporate credit rating to B from B+ previously, noting that the kind of services and technology spending that Unisys lives on continues to decline amid the global economic downturn. S&P cited the company's "declining revenues, weakening profitability metrics, and challenging market conditions," although it added that these were offset in part by "a good competitive position, especially in the federal government and public sector and a moderately leveraged financial profile." The agency also warned that continued tightness in the credit markets could hinder Unisys' ability to revise or extend its credit facilities, hurting the company's liquidity.

Broadcaster's bonds see Sirius downturn

A trader saw "some activity going on" in Sirius XM Satellite Radio Inc.'s bonds, amid news reports the company is considering a bankruptcy filing and has hired advisors.

He saw its 9 5/8% notes due 2013 in a 35-37.5 context, although he said "right around 36.5 is where [most of ] the trading is going on;" that was down from levels in the low 40s on Tuesday. However, he said that while there were "a couple of big trades, there was not as much trading in this issue as you might think," based on all of the stories about bankruptcy speculation. At one point during the day, he said, the bonds "were down 10 points, now they're down 6."

He quoted subsidiary XM's 13% notes due 2013 as being around 39 bid, 42 offered, but said that he "just [was] not seeing a lot of trading in that, either." He saw no activity at all in the Sirius convertibles slated to come due next Tuesday.

Another trader saw the 9 5/8s at 36 bid, down 4 points on the day.

A market source at another desk said the bonds had gone home on Tuesday around 42.5 bid, or 40 on a round-lot basis, but then had swooned down as 32, in large-size trading, before coming off that nadir to move back up into the upper 30s, still down 4 or 5 points on the day.

Sirius' Nasdaq-traded shares, already nearly worthless at a little over a dime a share, lost fully half of what little remaining value they previously had, dropping by nearly 6 cents, or 51.71%, to about 5½ cents apiece. Volume of 279 million shares was almost six times the norm.

The declines came on the back of a New York Times article which stated that the company was working with bankruptcy advisors. The news only served to increase the Chapter 11 chatter, given that the company has nearly a billion dollars of debt maturing this year alone - including nearly $175 million coming due on Tuesday. Some market players believe that tightness in the credit markets will not help Sirius to meet its debt obligations.

Sirius recently rejected an unsolicited bid from EchoStar Corp.'s chief executive, Charles Ergen, who owns a large chunk of the '09 convertible debt set to mature next week; although the satellite TV pioneer was willing to restructure the debt and inject several hundred million dollars into Sirius, according to The Wall Street Journal, that help would have come with an enormous string attached - Ergen would take control of Sirius, something current management, led by another shrewd communications industry veteran, Sirius CEO Mel Karmazin, is loathe to permit. News reports Wednesday evening indicated that Sirius, looking for a white knight to save it from both bankruptcy and Ergen, was reaching out to other potential buyers or investors, including Liberty Media Inc. and Ergen's arch-rival in satellite television, DirecTV Group Inc.

Some observers theorized that lining up bankruptcy advisors might just be a negotiating ploy by Karmazin as he attempts to keep Ergen from grabbing control of the company, which was created when Sirius and former rival XM merged in February 2007, following a string of losses, in a $13.6 billion deal. In conjunction with the merger, Sirius assumed much of XM's debt. As such, the combined company's struggles have remained, with Sirius posting a loss of $4.88 billion in the third quarter of 2008.

MGM loses 'big,' Isle gains

Las Vegas' monthly gambling revenue numbers came out Thursday and the news put more pressure on an already flailing sector.

One trader called MGM Mirage the day's "big loser," its 7½% notes due 2016 off 2 points at 52.5 and its 6% notes due 2009 down 7½ points at 76.

A second declared that the Las Vegas-based gaming giant was "really getting hit. It's not a pretty picture at all."

In fact, he noted that the company's shortest-dated issue, the 6½% notes coming due on July 31 had fallen to 82.375 from prior levels around 90.25. It yield to maturity of 54%, he said, "does not show very much [investor] confidence that the issue will be paid off." Its performance on Wednesday was "even uglier than I first thought."

In that same vein, another soon-maturing issue, the MGM 6% notes due Oct. 1 slid to 76 bid - a 56% YTM -- from 83.5, on $7 million traded.

Another trader quoted the 7½% notes at 50 bid, 52 offered, calling that "down a couple." But it was the short paper that he saw really declining, the 6½% notes due 2009 at 82 bid, 84 offered from around 90 previously.

At another desk, MGM's 6 5/8% notes due 2015 were seen over 3 points lower at 50.75 bid, while the 8½% notes due 2010 dropped 10 points to end at 62 bid, 63 offered.

Along with the poor Vegas numbers, MGM also suffered from a downgrade from Fitch Ratings. Fitch attributed the downgrade in part to continued financing troubles associated with its CityCenter project.

Earlier this week, Clark County ordered MGM to have its Harmon Hotel at CityCenter re-inspected, as many construction errors were previously overlooked.

Another downsider was Boyd Gaming. "Oh yeah, did they get hit," he said, guesstimating the 7¾% notes due 2012 at 78.5 bid, down 2 points on the day on $12 million of activity.

Elsewhere in the sector, Wynn Las Vegas LLC's 6 5/8% notes due 2014 fell nearly 2 points to 72.25,

Meanwhile, one of the few gainers in the troubled sector, Isle of Capri Casinos Inc.'s 7% notes due 2014 gained slightly after the gaming operator's tender offer expired.

One source placed the bonds at 50 bid, a gain of a point. Another trader said he had not seen much in the name for some time, though he saw a quote of 48 bid, 53 offered a couple days ago.

St. Louis-based Isle of Capri said that noteholders bearing over $300 million of the bonds had validly tendered. The company added that it was exercising its right to increase the maximum tender amount of $140 million by 2% to $142.8 million.

But while other casinos have not fared so well, Isle of Capri's Kansas City casinos posted an increase in revenues for January. The company reported $6.9 million in revenue, a 5.2% gain year-over-year.

Back in Sin City, revenues on The Strip were down 23% in December to $474.2 million. Overall, the state's gambling revenue slipped 19% to $888 million in December and 10.6% to $6.12 billion for the year.

Bankrupt bonds bouncing around

Among companies already in, or entering - or exiting -- Chapter 11 on Wednesday, a trader said that Lehman Brothers Holdings Group's bonds were trading at around 14-15, with some activity seen at those levels in its 6 7/8% notes due 2018, of which at least $17 million had traded as of mid-afternoon, and its 4.5% notes due 2010, with nearly $10 million having changed hands by mid-afternoon, according to a market source at another desk.

"After their news came out, a week or so ago, they moved up in price, and then settled back down." At one points, he said, "they were up at 16," but came off that peak, and there has been "a lot of volume" in that 14-15 context "over the last three days. That's where size is quoted."

Lehman asked the bankruptcy court's permission last week to infuse up to $272 million of cash to its indirect wholly owned non-debtor subsidiary Woodlands Commercial Bank -- the former Lehman Brothers Commercial Bank unit - saying the cash infusion was necessary to preserve the ability for Lehman to realize the fair value of the bank's assets and maximize recoveries to Lehman's creditors

Elsewhere, a trader saw no activity in Pliant Corp.'s bonds on the packaging producer's "Chapter 22" filing - its return to Chapter 11 under a pre-packaged deal less than three years after emerging from reorganization the first time. While noting that the company has some 11 1/8% notes and 11.85% notes slated to come due later this year, he said "I have not seen activity in that name for a long time," with the latter bonds' most recent levels in the 50s, last month, "and I still haven't." He continued "It's a whimper - a couple of people mentioned they filed for bankruptcy, but I'm not seeing any quotes."

Another bankruptcy-related story Wednesday was Sea Containers Ltd., which emerged from Chapter 11. The trader saw its bonds recently quoted "in the really low single digits recently," and there was no change on Wednesday. He saw its 10½% notes due 2012 trading at 5, on "one trade, not seeing a whole lot of activity," while its 10¾% notes that were to have matured back in 2006 -- approximately $115 million remain outstanding, according to Trace - were also at 5 on the day's sole trade. "Five," he said, "seems to be the level on those small trades."

Stephanie N. Rotondo contributed to this report.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.