Tenet Health prices upsized drive-by deal; Beverly bonds boom on takeover offer

By Paul Deckelman and Paul A. Harris

New York, Jan. 25 - Healthcare was where things seemed to be happening on Tuesday, junk market players said. In the primary sphere, Tenet Healthcare Corp. moved quickly to price an upsized offering of 10-year notes, proceeds of which will be used to redeem two existing bond issues.

Those bond issues scheduled to be taken out were seen stronger in secondary dealings - but the big mover of the session was another healthcare name, Beverly Enterprises Inc., after the Fort Smith, Ark.-based nursing home operator announced that it had received - and is considering - an unsolicited takeover bid from a group of investment firms.

Elsewhere in the secondary arena, RJ Tower Corp.'s bonds showed some bounce after having been slammed around for three consecutive sessions. And AK Steel Corp. was seen better after the Middletown, Ohio-based steelmaker reported strong fourth-quarter results.

In a market that opened on firmer footing Tuesday, just under $1.25 billion of bonds priced in the primary, including a massively upsized $800 million issue from Tenet Healthcare Corp. and a $250 million 10-year deal from Del Monte Corp. that came inside of price talk.

Both were drive-bys.

Meanwhile the forward calendar continued to build as Select Medical Corp. announced timing on its $660 million LBO financing.

"The market was firmer today," a sell-side source told Prospect News in the early afternoon, on the telephone in New York City.

"You would expect that with a lot of people first getting back after the big snow storm.

"And the primary market looks open to me," the source added, specifying that with Intelsat's three-part $2.55 billion deal that priced Monday - with a floating-rate tranche that was trading up smartly Tuesday in the secondary - almost $3.8 billion of issuance had priced by the end of the Tuesday session.

"This is probably going to be a $5 billion-plus week," the source said.

Tenet upsizes by $300 million

The greater part of Tuesday's business came in the form of quick-to-market transactions.

The biggest by far came from Santa Barbara, Calif. based Tenet Healthcare Corp. which priced a massively upsized $800 million issue of 9¼% 10-year senior notes (B3/B) at 98.406 to yield 9½%. The deal was increased from $500 million.

The Citigroup and Banc of America Securities-led debt refinancing deal which came at the wide end of the 9 3/8% to 9½% price talk.

Del Monte prices through talk

Also driving by on Tuesday was Coral Gables, Fla.-based Del Monte Corp. with a $250 million issue of 10-year senior subordinated notes (B2/B) that priced at par to yield 6 ¾%, inside of the 6 7/8% to 7% price talk.

Morgan Stanley and Banc of America Securities ran the books for the debt refinancing deal.

Meanwhile terms emerged on two smaller transactions.

Edgen Acquisition Corp. priced $105 million of six-year senior secured notes (B3/B-) at par to yield 9 7/8%, on the wide end of the 9¾% area price talk.

Jefferies & Co. ran the books for the acquisition financing from the Baton Rouge, La.-based supplier for the oil and gas process and power generation industries.

And Quality Distribution LLC in conjunction with QD Capital Corp. priced an $85 million issue of seven-year senior floating-rate notes (Caa2/CCC) at 98.00, with a coupon that floats at three-month Libor plus 450 basis points.

Credit Suisse First Boston and Deutsche Bank Securities ran the books for the debt refinancing and general corporate purposes deal from the Tampa, Fla.-based freight company.

Accuride talks 10-year notes

With four deals having cleared the market during the Tuesday session, details emerged on the Jan. 24 week's three remaining sessions, which figure to be busy ones.

Price talk is 8 3/8% to 8 5/8% on Accuride Corp.'s $225 million of 10-year senior subordinated notes (Caa1/B-), expected to price on Wednesday via Lehman Brothers, Citigroup and UBS Investment Bank.

Also expected to price on Wednesday is Di Giorgio Corp.'s $150 million of eight-year senior notes (B2/B-), via Merrill Lynch & Co. and Deutsche Bank Securities.

Although some sources told Prospect News that they had been expecting terms late last week on the debt refinancing and dividend funding deal, an informed source said late Tuesday that the structure is unchanged, and talk remains 10¼% to 10½%.

Select Medical to start investor rounds

Meanwhile a Thursday roadshow start was heard for an anticipated $660 million LBO deal from Select Medical Corp. The company is in the market with 10-year non-call-five senior subordinated notes (B3/B-), which are expected on Thursday, Feb. 3.

Merrill Lynch & Co. has the physical books.

Elsewhere WS Financing Corp., a financing entity of Worldspan, LP, announced in a Tuesday press release that it will sell $350 million of senior second-lien secured floating-rate notes.

JP Morgan, UBS Investment Bank, Lehman Brothers, Deutsche Bank Securities and Goldman Sachs & Co. will be underwriters of the Rule 144A/Regulation S offering, according to a market source.

The company also announced that it will obtain a $440 million senior credit facility, with the same banks leading.

The Atlanta-based travel systems firm will use the proceeds to refinance debt.

And Jeffersonville, Ind.-based marine transportation and services company American Commercial Lines LLC will bring junk bonds in addition to a $225 million asset-backed revolver, both via UBS Investment Bank and Banc of America Securities.

The company will use the proceeds to refinance its restructured bank debt in connection with its exit from bankruptcy.

Intelsat trades higher

The new Tenet Healthcare bonds were heard to have priced too late in the session to see any aftermarket activity on Tuesday.

But there was considerable activity - at least in the morning, - in the new Intelsat Bermuda Ltd. bonds, which had priced on Monday afternoon in a massive three-tranche deal totaling some $2.55 billion. On Monday, the floating-rate senior notes due 2012 were heard having moved up to around 101 bid by the close from their par issue price, while the two fixed-coupon tranches - the 8¼% seniors due 2013 and the 8 5/8% senior notes due 2015 - were seen having stayed around their par issue price.

A trader noted that at the opening Tuesday morning, all three tranches of bonds "traded right up to 103," although they then came back in by about a quarter to half a point. He saw the 81/4s come down off their high to end at 102.5 bid, 103 offered.

A trader saw the 8 5/8s "trade up right from the open and stay there," finishing the day at 102.75 bid, 103.75 offered. And while he had seen some trading in the floating-rate notes above the lofty 103 level, he said that was relatively small, and the bonds "came back in" to end at 102.625 bid, 102.875 offered.

"All of the issues came off their highs," he said. "They shot right out of the gate but came back down to end off their highs."

"There was a lot of action in Intelsat," another trader agreed, with the bonds pretty well received by the market. He quoted the floaters having gone home at 102.875, while the coupon bonds were both at 102.625 bid.

But he said that "other than Intelsat, things were pretty calm. I didn't see much action" in other issues.

Most existing Tenet issues lower

A trader saw Tenet's existing bonds "slightly softer on the day" on the news of the Birmingham, Ala.-based outpatient surgery and rehabilitation clinic operator's new bond issue - all except the two issues Tenet plans to take out using the proceeds from that deal, the 5 3/8% notes due 2006 and the 5% notes due 2007. He saw those issues "about two or three points higher" to bring them up to their make-whole call levels, with the 5 3/8s going out at 100.5 bid, 101.5 offered, and the 5% notes finishing at 102.5 bid, 103.5 offered.

As for the company's other bonds, he saw the Tenet 6 3/8% notes due 2011 trading down half a point at 89.75 bid, 90.25 offered.

"They just got upgraded by [Standard & Poor's], which is another wrinkle," he said.

"But basically, the rationale by S&P is they've effectively taken out the banks [as creditors], so now the senior unsecureds have that [top] spot. So it's a little bit of a shell game, and they're coming with this new deal, and getting people all jazzed up about that."

He said that most of the people he had spoken to, before the bonds priced, thought that the pricing would likely be "kind of on the tight side" - but indicated that they would "be playing anyway."

Beverly jumps higher

Looking at the day's other significant mover in the healthcare sector, Beverly Enterprises, the trader quoted its 7 7/8% notes due 2014 up anywhere from six to seven points to around the 112.5-113.5 offer, but said he had seen no actual trades at that level.

He said that the news that the company was "reviewing the preliminary expressions of interest" from Formation Capital LLC, an investment group including Appaloosa Management LP, Franklin Mutual Advisors LLC and Northbrook NBV LLC, "had a lot of people scratching their heads" in wonderment about the $1.53 billion bid for Beverly.

"It seems to be a very, very full price for what amounts to a nursing company. Ten times [per-share earnings] - everybody's kind of wondering 'where's the value in this deal?"

The investment group's offer works out to $11.50 per share for the 91.9% of Beverly that it doesn't already own. That represents a 30% premium over the average price of Beverly's stock over the 20 trading days preceding the takeover offer, which first surfaced in a Dec. 22 letter from Formation Capital chief executive Arnold M. Whitman, which Beverly disclosed in a Securities and Exchange Commission filing late Monday.

"A nursing care company trading at 10 times [earnings] - there's no upside there," the trader said, although Beverly shareholders might disagree; they took the company's New York Stock Exchange-traded shares up $2.39 (up 25.48%) to $11.77 on volume of 30.3 million, some 27 times the usual activity level.

Tower rebounds a little

Elsewhere, RJ Tower's 12% notes due 2013 - which had skidded down over the past three sessions to intra-day lows as low as 54 bid on Monday before finishing that session at 56 bid 58 offered - still well below the 79.5 level it had hovered at on Thursday morning, before the Novi, Mich.-based automotive components maker issued a warning about liquidity constraints - were finally coming off the bottom and moving up Tuesday, closing at 58.75 bid, 59.25 offered.

Tower, a trader said, had been "like a yo-yo," although he saw the movement Tuesday steadily upward from its recent lows.

That coincided with a move in the company's NYSE-traded stock, which was up 10 cents (10.64%) to $1.04 on volume of 3.5 million shares, about double the norm. That stock rise followed a 25.33% gain on Monday, which had lifted the shares from their recent lows of 75 cents. But they still remain well down from the levels around $2.50 at which that stock had traded before Tower's warning on Thursday.

That warning - that its "its ongoing initiatives to improve liquidity "were adversely impacted" by longer-than-expected customer shutdowns over the holiday season that might cumulatively adversely impact Tower's liquidity by as much as $40 million during the current 2005 first quarter - caused both S&P and Moody's Investors Service to inflict multiple-notch downgrades on the company's debt ratings, with Moody's dropping the bonds to Ca, just two notches above default, and warning in its downgrade message of "the rising potential for bankruptcy or some other form of distressed balance sheet restructuring to be required."

That got some investors speculating on Monday and again on Tuesday that a Chapter 11 filing might be somewhere on the road ahead, traders said, and investment-oriented internet bulletin boards were abuzz with heated discussion of that possibility.

Tower did not return several telephone and e-mail messages from Prospect News on Tuesday seeking the company's reaction to Moody's warning and the other bankruptcy speculation in the market.

Tenneco helps auto names

The automotive sector, however, got a lift from good earnings posted by Tenneco Automotive Inc., which said that adjusted earnings - excluding restructuring charges and expenses related to the bond refinancing, as well as one-time tax benefits - rose to $8 million (17 cents per share) in the fourth quarter from $2 million (six cents per share) a year earlier, while for the full year, adjusted income increased to $52 million ($1.18 per share, a new company record) from 2003's $23 million (55 cents per share).

The Lake Forest, Ill.-based automotive components maker also said on its conference call that a big debt refinancing it completed last year - issuing $500 million of new bonds and using the proceeds to take out a like amount of older, higher-coupon debt - would enable it to post significantly lower interest costs this year; Tenneco also expects to continue bringing its debt/EBITDA leverage ratio down, as it moves toward its goal of an investment grade debt rating (see related story elsewhere in this issue).

Among the auto names heartened by Tenneco's performance was components maker Dura Operating, whose 9% notes due 2009 firmed two points, to 96 bid.

AK Steel better

Also on the earnings front, AK Steel's 7¾% notes due 2012 were seen two points better at 103 bid, while its 7 7/8% notes due 2009 improved to 102.375 bid from 101 on Monday.

AK lost 95 cents a share for the fourth quarter ended Dec. 31, although this included a $330.8 million earnings charge related to the steelmaker's pension and other post-retirement benefit plans, and a $5.4 million charge for early payment of debt. Excluding those expenses, AK earned $73.7 million (68 cents per share) - better than year-ago comparable earnings of $65.3 million (60 cents per share), and better than the 66 cents per share of adjusted earnings Wall Street was expecting.

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