Neff, some Harrah's bonds up on exchange offers; swaps emerge as 'new primary'; converts deal aids Level 3

By Paul Deckelman and Paul A. Harris

New York, Nov. 17 - Neff Corp.'s bonds rose sharply in active dealings Monday after the Miami-based construction-equipment rental firm announced plans to offer bondholders new term-loan debt for its outstanding junk bond issue.

The Neff deal was one of several exchange-type transactions seen kicking around the market. Another company announcing one on Monday was Harrah's Entertainment Inc., which is offering up to $2.1 billion of new second-lien notes in exchange for some of its existing notes; outstanding notes which have a higher priority for repurchase were seen up solidly, also in active dealings, but those Harrah's bonds down at the bottom of the priority scale and not likely to be repurchased in the swap fell by several points.

Yet another company looking to take out some existing debt was Level 3 Communications Inc., which sold new convertible debt, and will use the proceeds to pay off converts maturing next year and in 2010. The news helped its straight bonds, although traders were split on how much of a boost the latter debt really got from it.

With the junk primary market essentially locked down for the near-term as the more-than year-long credit crunch continues to take its toll, market watchers are seeing deals like the Harrah's and Neff exchanges, as well as a similar transaction announced Friday by Realogy Corp., as, in effect, the new primary market (see related story elsewhere in this issue).

Apart from exchange transaction-related credits, Junkbondland was mostly on the downside, in line with yet another day of weaker equities. Even ostensibly good news failed to have much impact on some credits; case in point was Las Vegas Sands Corp., whose auditors on Monday withdrew the scary "going concern" language with which they had qualified the Nevada-based casino company's latest financial reports, after the company's successful raising of $2.1 billion last week to get it out of potential covenant default trouble.

Overall cash bonds traded down a point to 2 points on Monday, sources said.

"It's pretty ugly again today," said a high-yield mutual fund manager, who marked junk off at least 2 points.

Meanwhile a high-yield syndicate official said that the cash market was probably a point lower, but noted that trading in high-yield has not lately been marked with the gyrating volatility seen in the stock market.

"Within individual credits you've seen some pretty big movements, particularly in credits that are going to be exposed to the economy," the source conceded.

Market indicators point lower

The widely followed CDX High Yield 11 index of junk bond performance, which had lost 1/8 point on Friday, dropped by ¾ point on Monday, a trader said, quoting it at 78 bid, 78½ offered. The KDP High Yield Daily Index meantime plunged by 53 bps basis points to 51.67, as its yield widened by 10 bps to 16.33%.

In the broader market, advancing issues trailed decliners by a more than two-to-one margin. Overall market activity, reflected in dollar volumes, fell by almost 37% from Friday's pace.

A trader said that apart from the names which had news developments attached to them, such as Neff, Harrah's and Level 3, the overall market was mostly "uneventful - and definitely sloppy."

Another trader said that "nothing" was going on, outside of those exchange-related names.

A third cited what he called the "definite negative tone" in the junk market which had carried over from the equity side of the fence.

"Look at the stock market, and look at the reasons why the stock market is lower. It doesn't point to a positive future for high yield issuers."

Stocks finished sharply lower Monday amid continued investor worries about the economy, aggravated anew by Monday's announcement that Citigroup will lay off 53,000 employees world-wide - the latest body blow to a still-reeling financial industry - as well as concern over whether Washington will agree on some kind of rescue for the nation's beleaguered Big Three carmakers. The bellwether Dow Jones Industrial Average fell 223.73 points, or 2.63%, to 8,273.58, near its lows of the session. The broader Nasdaq composite and Standard & Poor's 500 indexes were also down more than 2% on the session.

Neff exchange offer boosts bonds

A trader said that Neff Corp.'s 10% notes due 2015 opened at 16 and "jumped up" to 24 bid, 25 offered, which he estimated was 8 or 9 points up from prior levels. He said there "a lot of trading" going on in the issue.

Another trader said that Neff was probably "the most active issue" in junk, with over $31 million traded. He saw the bonds move up to 24.25 bid from 15.5 previously.

A trader said that Neff's bonds were "up a lot" at 24 bid, 25 offered, versus 16 at the opening, calling that up 8 points on the day.

Another market source saw the bonds among the most active issues of the day, pegging them at around the 23 level and calling that an 8-point gain on the session, although that was down a little from their day's highs around 25.

Neff announced an offer to give the holders of the $230 million outstanding principal amount of 10% notes term loan debt in exchange for their bonds, in an exchange offer that is slated to run through Dec. 15. The company will give tendering bondholders holders consideration of 40 cents on the dollar in term loan debt, with another 5 cents on the dollar as a consent fee for those who tender their notes and agree to desired changes in the bonds' indenture by the Dec. 2 early consent deadline, for total consideration of $450 per $1,000 principal amount tendered.

Both deadlines are subject to possible extension.

Some Harrah's bonds gain on exchange offer

While Neff's one issue of notes was unambiguously up on its relatively straightforward exchange offer, Harrah's Entertainment's more complex exchange transaction left some of its Harrah's Operating Co. Inc. bonds - those most likely to be repurchased by the company in exchange for new second-lien notes - well up on the session, but left others that are less likely to be accepted for exchange on the downside.

A trader saw Harrah's 5 3/8% notes due 2013 "heavily traded; he saw the bonds go as high as 28 bid before finishing at 27 bid, 28.5 offered, which he called "substantially higher from the "high teens" level at which the bonds had been trading last week.

Another trader saw the 5 3/8s last trading on a round;-lot basis at 27, versus 19 last Thursday, with $15 million traded. He saw Harrah's 5 5/8% notes due 2015 making "not so much of a move," up ¼ point at 15.25, on volume of $11 million. He saw its 7 7/8% notes due 2010 jump to a round-lot level of 58 from 52 on Friday, with $7 million traded, while its 8 1/8% notes due 2011 pushed up to 42.25 bid from 35 previously, on $6 million bonds traded.

Yet another trader quoted the 5 3/8s up 4 points to 25 bid, 26 offered and the 7 7/8s at 56 bid, 57 offered, calling them up 6 points. He saw Harrah's 5 ¾% notes due 2017 unchanged at 14 bid, 15 offered.

That trader, however, also saw other Harrah's bonds that are much less likely to be accepted for exchange trade off badly. He said "the regular, LBO debt" 10 ¼% notes due 2016 slid 7 points to 22.5 bid, 23.5 offered, while its 10 ¾% toggle notes due 2018 lost 6 points to 14.5 bid, 15.5 offered.

A market source at another desk saw the 8 1/8% notes due 2011 (originally issued by Caesars Entertainment Inc., later assumed by Harrah's when it took over Caesars) up 8 points at 43 bid. The 2010, 2013 and 2015 bonds were seen among the most actively traded issues, the market source said.

Harrah's said that it would issue up to $2.1 billion of new 10% notes in exchange for the outstanding bonds; it will issue 10% notes due 2015 in exchange for existing bonds slated to mature between 2010 and 2013, and will issue 10s due 2018 in exchange for any existing bonds with maturities from 2015 to 2018 that it accepts.

Harrah's is also offering to purchase some of its 2010 and 2011 notes in cash rather than in exchange for new notes.

Level 3 deal impact debated

A trader saw Level 3's 12¼% notes due 2013 trading at a final round-lot level of 63, versus 61.5 on Friday, on about $1 million of bonds trading. He saw its 9¼% notes due 2014 better by ½ point at 58.5 bid, with $3 million traded, while the 8¾% notes due 2017 had a round-lot close of 53 versus 52 on Thursday, on volume of $4 million. While he saw Level 3's floating-rate notes due 2015 trading in a round lot at 46, he had no recent comparable trades against which to compare it.

However, another trader said that because the Broomfield, Colo.-based telecommunications company's news revolved around taking out converts with the proceeds from the sale of newer converts, "the straight bonds didn't do much," estimating them up ½ point. He saw the 12¼% notes up ½ point at 63 bid, 64 offered, and called its 5¾% notes due 2017 up maybe a point at 52 bid, 53 offered

More Sands erosion, despite news

Apart from issues being taken out through exchanges or other means, market participants saw most names lower in line with the equity market downturn. This even included credits which had some positive news to report, such as Las Vegas Sands, whose 6 3/8% notes due 2015 were seen by a trader at 60 bid, down more than a point from Friday's levels, despite its auditors' withdrawal of "going concern" language from the company's financial results.

PricewaterhouseCoopers LLP, had originally expressed skepticism over whether the big gaming company could continue as a "going concern" after Sands had warned that it could default on a credit agreement financial covenant, which could in turn trigger other cross-defaults. However, the company successfully raised $2.1 billion of new capital to avoid that default through the sale of common and preferred shares - including a big chunk bought by the company's founder, chairman, president, chief executive officer and principal stockholder, billionaire investor Sheldon G. Adelson. In the wake of the capital raising and its improved financial position, the accounting firm said in a Securities and Exchange Commission filing that it was withdrawing the "going concern" language.

Auto bonds little moved as D.C. talks drag on

Elsewhere, a trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down 1½ points at 22 bid, 24 offered, and saw Ford Motor Co.'s 7.45% bonds due 2033 unchanged at 25 bid, 27 offered.

Another trader said that the GM bonds "didn't do much" at 23 bid, 24 offered, and saw its GMAC LLC 8% bonds due 2031 down 2 points on the day at 34 bid, 35 offered.

However, at another desk, a trader noted that despite the lack of progress on a federal bailout for the beleaguered industry, GM's equity "closed up - and that was quite a surprise." Its New York Stock Exchange-traded shares in fact rose by 17 cents, or 5.65%, to $3.18.

The trader saw a round-lot level on its benchmark bonds as high as 26, versus a close at 23 on Friday. But he saw GM's 7.20% notes due 2011 unchanged on the day at 30.25. He saw GMAC's 8s down 1¼ points on the day at 34.75, though its 6 7/8% notes due 2011 traded up to 45.25 bid from 44.125 on Friday.

The trader further saw Ford's 7.45s unchanged at 27, while its 7 3/8%notes coming due next Oct. 28 were up ¾ point at 73 bid. Ford Motor Credit Co.'s bonds firmed a littler, with its 8% notes due 2016 up ½ point from Friday, at 52.5, while its 7¼% notes due 2011 were at 55.75 bid versus 55 on Friday, he said.

With Congress expected to vote Wednesday on a bailout package for GM, Ford and smaller rival Chrysler LLC, Capitol Hill observers said prospects were dimming for any kind of an agreement, with the White House and leaders of the Democratic-dominated Congress at odds on whether money for a bailout should come from the $700 billion Troubled Asset Recovery Program, as the Congressional leaders want, or be allocated separately, as the administration wants.

Adding to the clouded prospects are objections from senators representing South Carolina and several other Southern states where Japanese and European carmakers such as Toyota, Honda, Daimler-Benz and BMW have established factories and are producing cars at relatively lower cost than Detroit does; they contend that a Big Three bailout would reward those companies for their inefficiency and bad marketing choices and in effect punish the more efficient and financially stable "transplant" companies in their states.

Companies seen broadly lower

A trader said Idearc Inc.'s 8% notes due 2016 "continue to just move lower," seeing them at 11.375 bid on a round-lot basis versus 12.25 on Friday, on volume of $10 million.

Pilgrim's Pride Corp.'s 7 5./8% notes due 2015 "made their way back to the most actives," a trader said, with $8 million trading at 10.25 bid, down from 13 previously.

Another market source saw sector peer Smithfield Foods' 7¾% notes due 2017 down 3 points at 58 bid.

Georgia Gulf Corp.'s 9½% notes due 2014 moved down to 41.25 bid from 43.5 offered last week.

A trader said United States Steel Corp. "got hit again," with its 6.05% notes due 2017 at 60.5 bid, versus 63.375 previously.

A trader said that Houston-based chemical manufacturer Lyondell's 8 3/8% notes due 2015 "got hit" on concerns that the company would have to seek covenant waivers; he saw those bonds drop 10 points to 16 bid, 17 offered. In that same sector, Ineos Group's 8½% notes were 8 points lower at 23 bid, 24 0ffered.

Sally a surprise

However, not all was gloom and doom. A trader called Sally Holdings LLC's 10½% notes due 2016 "a pleasant surprise," with the bonds at 63 bid, up from 60 previously, bucking the generally negative trend. He surmised that investors must believe that the Denton, Tex.-based wholesale and retail provider of beauty products would be able to hold its own despite the current retailing downturn.

ION 'quietly' marketing

In the primary, ION Geophysical Corp. is "quietly marketing" a $175 million offering of five-year senior notes (BB-), market sources say.

The deal was announced last Friday in a press release.

Jefferies Finance LLC, which committed to a $150 million bridge loan backing the notes, is believed to be the bookrunner for the Rule 144A deal.

"Right now there is no advantage to be gained from going out on a roadshow, or making deal announcements with a lot of fanfare," a sell-side source not in the deal said, making reference to market conditions.

Proceeds generated from the sale of ION's senior notes will be used to repay debt incurred in ION's acquisition of ARAM Systems Ltd. and related companies in September.

Meanwhile Precision Drilling could come this week with its $400 million debt securities, sources say.

Precision's $1.2 billion bank deal is in the market, with pricing expected shortly, an informed source said Monday.

Proceeds are slated to fund Precision's acquisition of Grey Wolf Inc.

RBC Capital Markets and Deutsche Bank are leading the debt securities.

More forced selling

Although sources have lately contended that forced selling on the part of hedge funds and others might be winding down, a high-yield mutual fund manager wondered aloud on Monday whether or not this is so.

"We saw a $4.2 billion BWIC [bids wanted in competition] last week," the investor said. "Four times bigger than the biggest one we had previously seen!"

Specifying that the offering was comprised of loans, the source added: "You name it, it was on it.

"And it was not marketed through the Street. We called our dealers, and they didn't know anything about it.

"It only went to big accounts."

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