Chesapeake, EchoStar, Plains deals price, struggle in aftermarket; Visteon '10 bonds up on exchange offer

By Paul Deckelman and Paul A. Harris

New York, May 20 - Chesapeake Energy Corp. priced $800 million of 10-year notes on Tuesday; the deal was part of the Oklahoma City-based independent oil and gas exploration and production company's larger re-financing effort.

From out of that same sector, Plains Exploration & Production Co. priced an upsized issue of 10-year notes. Traders heard that the new Chesapeake and Plains Exploration bonds, as well as the Forest Oil Corp. notes that priced on Monday, were all trading slightly below their respective issue prices.

High yield syndicate sources also heard that EchoStar DBS Corp. priced an upsized offering of seven-year notes at a slight discount to par. The new bonds came to market too late in the session for any kind of secondary activity.

In the purely secondary realm, Visteon Corp.'s 8¼% notes due 2010 jumped solidly on the news that the Van Buren Township, Mich.-based automotive components manufacturer plans to exchange new longer-maturity debt for a portion of those outstanding bonds. However, its other widely traded issue, the 7% notes due 2014, which is not involved in the exchange, were being quoted anywhere from up a point to down 2 points on the day.

Residential Capital LLC's bonds, which had jumped about 2 to 3 points during Monday's session, were seen holding onto those gains on Tuesday.

Traders saw recently robust healthcare names such as HCA Inc., Tenet Healthcare Corp. and Community Health Systems Inc. trading a little bit lower.

Spots on the broad high yield market varied from source to source on Tuesday.

The CDX High Yield 10 index was down ½ point on the day, a trader said.

A buy-side source said that cash bonds were basically unchanged to perhaps slightly lower, and added that one end-of-day trading run actually had cash up 12 to 14 basis points on the day.

Biggest day of '08 to date

Tuesday's primary market session saw the largest amount of issuance from U.S.-based high-yield issuers thus far in 2008 (excluding the LBO overhang), as three issuers, each pricing a single tranche, raised $1.95 billion of proceeds.

Two of Tuesday's three deals came upsized, by a combined total of $350 million.

One priced at the tight end of price talk. Another priced at the wide end. The third came without official price talk.

All three were quick-to-market deals.

Plains Exploration tight to talk

Plains Exploration & Production priced an upsized $400 million issue of 10-year senior notes (expected B1/confirmed BB) at par to yield 7 5/8% on Tuesday, according to an informed source.

The yield was printed at the tight end of the 7 5/8% to 7¾% price talk.

The order book was four-times oversubscribed, according to the source.

JP Morgan, Banc of America Securities LLC, Lehman Brothers and Merrill Lynch & Co. ran the books for the debt refinancing deal.

Chesapeake Energy prices $800 million

This session's biggest issuer was Cheaspeake Energy, which priced an $800 million issue of senior notes due Dec. 15, 2018 (Ba3/BB) at par to yield 7¼%, on the wide end of the 7% to 7¼% price talk.

Credit Suisse, Banc of America Securities LLC, Lehman Brothers, Deutsche Bank Securities and RBS Greenwich Capital were joint bookrunners for the debt refinancing and general corporate purposes deal.

EchoStar upsizes by $250 million

Finally, EchoStar DBS Corp. priced an upsized $750 million issue of 7¾% seven-year senior unsecured notes (Ba3/BB-) at 99.75 to yield 7.797%.

There was no official price talk on the issue which was upsized from $500 million.

Credit Suisse was bookrunner for the general corporate purposes deal.

A source from a high yield mutual fund said that on Monday EchoStar had been attempting to sign up accounts at a 7 5/8% coupon with a par issue price, and then upped the coupon to 7¾% on Tuesday, and offered the notes at a discount.

The buy-sider also said that Monday's price represented a 15 basis points discount to EchoStar's existing bonds, whereas the Tuesday terms increased that discount to 40 basis points.

The source chalked up the concessions to Tuesday turbulence in the capital markets - the Dow Jones Industrial Average closed a shade less than 200 points, or over 1.5%, lower on the day.

However, the buy-sider added, at Monday's prices the deal from the subsidiary of DISH Network Corp. was too rich.

Seven-handle oil and gas paper

The buy-sider confided to Prospect News that the dealers may have become a touch aggressive.

Late Tuesday sources were reporting that the new Chesapeake Energy paper, as well as the Forest Oil Corp. add-on to its 7¼% senior notes due June 15, 2019 which priced Monday at 100.25 to yield 7.216% in a $250 million issue, were both trading below issue price.

However the buy-side source said that on both issues the bid away from the underwriter was the issue price; at the underwriter the bid is basically up a quarter from the issue price, the buy-sider added.

Meanwhile a senior official from a high yield syndicate desk, speaking shortly after the Tuesday close, asserted that both Chesapeake and Forest Oil were trading below issue price.

This source asserted that the original whisper on the Chesapeake paper was 7% to 7 1/8%. It priced at par to yield 7¼%.

"We're seeing a little bit of a crack, today," the official reckoned.

"I don't know if that's a function of the PPI numbers or an indication that the market is starting to get a little full up on seven-handle oil and gas paper.

"But the market is still in pretty good shape."

New deals anchored around issue levels

A trader said that Tuesday's new deals "aren't faring so well."

When the new Chesapeake Energy 7¼% notes due 2018 were freed for secondary dealings, he saw the bonds at 99.75 bid, par offered, slightly below their par issue price. A bit later on, he saw that the bonds had tightened a little to a 99.875-par context, while the new Plains Exploration 7 5/8% notes due 2018 were "hanging in there" at 100.125-100.25.

Another trader saw the new Chesapeake bonds at 99.75 bid, par offered and the Plains bonds at 100.125 bid, 100.375 offered. The latter issue, he said "opened a little weaker" after the pricing, breaking at 99.75 bid, 100.125 offered, but after that "initial weakness" had moved up to its closing level by the end of the day.

However, yet another trader saw both of the new issues trading at the same 99.75 bid, 100.25 offered price, and saw a similar level for the new Forest Oil 7¼% notes due 2019, which priced as an add-on issue Monday at 100.25. He called the latter bond down 3/8 point from Monday's close.

One of the traders explained the lack of any big upside moves in any of the new deals, as had been seen on Friday when Hovnanian Enterprises Inc.'s new 11½% secured notes due 2013 had priced just below par, but then had shot up more than 3 points in busy aftermarket dealings.

Besides the fact that the deals probably priced at appropriate levels rather than coming way too cheaply just for the sake of getting a deal done, "you're looking at better-rated credits. Plains is a decent single-B/double-B credit, while with Chesapeake, you're looking at a solid BB credit. So unless they priced it really cheap [which the companies and their respective underwriters did not do], there's really not going to be that much of a run up."

He said that "both Chesapeake and EchoStar have such a well-defined credit curve, so unless they give the thing away, if they price it right, it's just going to hover there."

Meanwhile, Chesapeake's outstanding 6¼% notes due 2018 were seen down ¾ point at 96.5 bid. EchoStar's established 7% notes due 2013 were off nearly 1½ points to 97.5, while its 7 1/8% notes due 2016 lost ¼ point to end just below 97.

Market indicators generally easier

Back among the established issues not having any new-deal links, a trader said, the widely followed CDX junk bond performance index was down ½ point Tuesday to 98 bid, 98½ offered. The KDP High Yield Daily Index fell by 4 bps to 76.63, while its spread was unchanged at 9.02%.

In the broader market, advancing issues led decliners by a slight margin. Activity, represented by dollar volume levels, jumped 47% from Monday's pace.

A trader saw "definitely an easier tone, following the equity market in response to the PPI and oil," estimating the market down ¼ to ½ point.

Junk took its cue from stocks, which were in retreat following the release of the government's producer price index for April, which saw wholesale inflation edging up by 0.2% - far less than the 1.1% jump seen in March - but outside of soaring energy and food costs, the core inflation rate was up by a larger than expected 0.4% on the month, as much higher energy prices begin to push up prices in other sectors of the economy. Also dampening Wall Street's ardor was the continued rise in oil prices, which spiked to a new record above $129 per barrel in New York trading.

Visteon victorious on note exchange news

The big gainer of the day was Visteon's 8¼% notes, which were seen shooting up to levels as high as 97 bid from Monday's finish at 91.5, before coming off that peak to settle in around 96. Volume was very active, most of it in large round-lot transactions.

A trader saw the notes shoot up 5 points to 96 on news of the company's tender offer/bond exchange, and saw the company's 7% notes due 2014 up a point at 72. Another trader saw the 81/4s get as high as 97 early in the session before ending at 95.75, which he called still up 4 points on the day.

Another market source also saw the 81/4s at that level, calling them up more than 4 points in active large-block trading, but saw the 7s end down 2 points on the day at 70.

The 8¼% notes jumped after the company announced plans to tender for $344 million of the approximately $700 million of outstanding bonds, offering total cash consideration of $978.30 per $1,000 principal amount to those holders tendering their bonds before the offer's early tender deadline of 5 p.m. ET on June 2, subject to possible extension. Holders tendering after that deadline would receive the total consideration minus the $40 per $1,000 principal amount early tender payment, or $938.30 per $1,000 principal amount. Tendering holders would also receive accrued and unpaid interest up to, but not including the offer's settlement date, which is expected to be June 18. The overall tender offer is scheduled to expire at 11:59 p.m. ET on June 16, subject to possible extension.

As part of the complex offer, tendering holders will be obligated to purchase new 12¼% senior notes due 2016 of a principal amount equal to 60% of the principal amount of the old 8¼% bonds that the company purchases from them under the tender offer, at a price of 91.621. The new bonds carry a put option exercisable on Dec. 31, 2013 at par.

Visteon said that prior to launching its offer it had been in talks with the holders of $201 million principal amount of the old bonds and had gotten indications that they will tender their notes under the offer - putting the company two-thirds of the way towards reaching its minimum tender goal of $300 million principal amount of the old bonds.

Healthcare names a little less robust

Elsewhere, a trader said that "healthcare names have been strong over the last couple of days," but the sector "lost a little of that" in Tuesday's dealings. He saw the Tenet Healthcare 6 3/8% notes due 2011 down a point at 94 bid, 95 offered, while HCA's 6½% notes due 2016 were likewise a point lower at 87.25 bid, 88.25 offered.

Another trader saw the Community Health Systems 8 7/8% notes due 2015 down about 3/8 point on the day to 103.125 bid, 103.375 offered. Because of the huge size of the Franklin, Tenn.-based hospital operator's benchmark issue - more than $3 billion of the bonds are outstanding - he said it was "a good barometer" for the overall pulse of the junk market, which he saw as easier on the session.

XM a little firmer, Sirius easier

A trader said that apart from issues with big news attached to them, like Visteon or the new-deal names, there was "not considerably" much going on otherwise. He did see "some activity" in XM Satellite Radio Holdings Inc.'s floating-rate notes due 2013 at the end of the day. He saw the Washington. D.C.-based satellite radio broadcaster's bonds at 99.25 bid, "a little better than they've been," leaving the bonds at 98.5-99.5.

"Anytime I see some activity picking up in a name like that which has been kind of quiet [recently]," against the backdrop of XM's pending merger deal with rival satellite broadcaster Sirius Satellite Radio Inc., "it kind of makes me wonder if there's just some speculation out there, or if there's some increased chatter about the merger."

He acknowledged that he had not noticed the latter, and there seemed to be no fresh news out about XM's pending transaction with its upstart New York-based competitor. The latter's 9 5/8% notes due 2013 were meanwhile quoted around 85, down several points from recent levels in the high 80s to around 90, in mostly small odd-lot trading.

Homebuilders seen mixed

A trader saw Beazer Homes USA Inc.'s 8 5/8% notes due 2011 down a point at 85 bid, with Hovnanian's 6 3/8% notes due 2014 and 6¼% notes due 2016 down a point to 70. He saw Standard Pacific Corp.'s bonds ½ point lower at 73.5 bid.

However, another trader called Hovnanian's 8 7/8% notes due 2012 "up a couple of points" to 78 bid, 79 offered, and likewise saw Standard Pacific's 6 7/8% notes due 2011 a point better at 75.5 bid, 76.5 offered. Another market source saw the Hovnanian 61/4s lower by 2 points at 69.5, although Beazer's 8 1/8% notes due 2016 were pegged a point higher at 84.

ResCap holds Monday gains

A trader saw Residential Capital's 6½% notes due 2013 - which had pushed up about 2 or 3 points on Monday on the news that the mortgage lenders had gotten the needed consents from its bondholders to proceed with its exchange offer for those bonds - pretty much unchanged at 51 bid, 53 offered.

He saw ResCap corporate parent GMAC LLC's 8% bonds due 2031 half a point lower at 79. GMAC part-owner General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were a point lower at 74.5 bid, 75.5 offered, while domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 were down a point at 73.5 bid, 74.5 offered.

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