Forbes Energy prices deal at discount; Idearc off on numbers, Donnelley follows; Spectrum also a loser

By Paul Deckelman and Paul A. Harris

New York, Feb. 7 - Forbes Energy Services LLC/Forbes Energy Capital Inc. was heard by high yield syndicate sources to have successfully brought its issue of seven-year notes to market on Thursday, continuing a trend of offerings from the energy sector.

In the secondary arena, the bonds of Idearc Media - which fell over the previous two sessions in advance of the Dallas-based phone directory publisher's quarterly results - slid even further Thursday after those results actually came out. Sector peer R.H. Donnelley Corp.'s bonds, as well as paper from the latter's Dex Media unit - also continued lower in the wake of the Idearc slide.

Disappointing numbers were also behind a fall in Spectrum Brands Inc.'s bonds.

The high yield market continued to trade off on Thursday, continuing a slide which has lasted through the week, according to a high yield syndicate official.

The source added that the CDX High Yield 9 is trading at a spread of 690 basis points spread to Treasuries, believed to be its all-time wide.

Meanwhile, well after the Thursday close market sources told Prospect News that information from AMG Data Services relating to flows of cash to and from high yield mutual funds had not yet become available.

Forbes Energy

Thursday saw the week's first new junk issue clear, as Forbes Energy Services LLC and Forbes Energy Capital Inc. priced a $205 million issue of 11% seven-year senior secured notes (B2/B) at 97.635 to yield 11½%.

The issue priced on top of the price talk and generated $200.15 million of proceeds.

Jefferies & Co. ran the books for the debt refinancing and general corporate purposes.

The new Forbes Energy deal priced too late in the afternoon for meaningful aftermarket action.

The energy sector

Market sources had not been expecting the Forbes Energy deal to price until next week, and were taken by surprise when price talk surfaced Thursday morning, followed by the deal terms on Thursday afternoon.

However observers on both the buy-side and the sell-side continue to tell Prospect News that energy and resources-related deals are presently thought to represent a safe haven for high yield investors. Hence, in an otherwise prohibitive new issue market, energy/resources deals can get done, sources say.

Apart from the bonds related to the backlog of LBO risk, 2008 has thus far seen just four new issues price, counting Forbes Energy.

And perhaps not coincidentally all four emanate from the energy/resources space.

On Jan. 11 Southwestern Energy Co. priced a $600 million issue of senior notes due Feb. 1, 2018 (Ba2/BB+) at par to yield 7½%.

On Jan. 17 Atlas Energy Operating Co. and Atlas Energy Finance priced a $250 million issue of senior notes due Feb. 1, 2018 (B3/B) at par to yield 10¾%.

And on Feb. 1 Petroleum Development Corp. priced a $203 million issue of 12% 10-year senior unsecured notes (B3) at 98.572 to yield 12¼%.

Market indicators continue retreat

A market source said that the widely-followed CDX index of junk market performance fell about ½ point to 88 5/8 bid, 89 offered, while the KDP High Yield Daily Index tumbled 0.47 to 75.17 and its yield widened out by 13 basis points to 9.37%.

In the broader market, declining issues topped advancers by around a five-to-three margin. Overall activity, reflected in dollar volumes, dipped about 12% from Wednesday's levels.

Idearc a wrong number

Telephone directory-publisher names were seen solidly lower for a third consecutive session.

After having fallen a point on Tuesday and more than 3 points on Wednesday, apparently on anticipation of bad quarterly numbers, Idearc's 8% notes due 2016 were seen by a market source having slid another 6 points on Thursday, down to the 80 bid level, after the company actually did report disappointing earnings for the fourth quarter.

"They got hit hard," said a trader, who mused that "one would have thought that publishing the Yellow Pages would be a stable business." He saw the 8s down 4 points at 79 bid, 80 offered.

Another market source quoted the bonds down more than 5 points at just below the 80 mark.

Idearc's New York Stock Exchange-traded shares meantime swooned $3.66, or 24.05%, to end at $11.56. Volume of 9.4 million shares was nearly six times the norm.

The company made $100 million, or 68 cents a share, on revenue of $787 million during the three months ended Dec. 31 - down from $107 million or 73 cents a share on revenue of $801 million a year earlier. While the per-share earnings actually beat Wall Street estimates by 4 cents, the revenue totals fell $4 million short of expectations.

During the conference call following the release of the numbers, company executives spoke of the "economic softness" of current conditions and warned that "cyclical economic headwinds" would continue to hinder revenues this year - but they declined to quantify their expectations, although analysts on the call kept asking for more details.

The prospect that the weakening economy will result in lower telephone directory advertising revenues is also bad news for Idearc's main rival, Cary, N.C.-based R.H. Donnelley, whose shares and bonds, as well as the bonds of Donnelley subsidiary Dex Media, were all lower.

A trader quoted Donnelley's 8 7/8% notes due 2016, which fell 2 points on Wednesday, down another deuce on Thursday, finishing at 78.5 bid, 79.5 offered.

A market source saw the Dex Media 8% notes due 2013 off 4 points over the previous two sessions and then down another 2 points on Thursday to 85, while the Dex Media West 9 7/8% notes due 2013 were down 2 points to 98.

R.H. Donnelley's NYSE-traded shares tumbled $5.42, or 19.80%, to finish at $21.95, on volume of 5.1 million, more than three times the usual turnover.

Spectrum thrown for a loss

Bad numbers were also the undoing of Spectrum Brands, whose 11% notes due 2013 closed at 84 bid, down 1½ points on the session, after having traded all day between 83 and 85, a trader said, while its Rayovac 7 3/8% notes due 2015 were "down a couple" of points at 68.5 bid. There was, he said, "a lot of trading" going on in the name.

Another trader saw the 11s at 83 bid, 84 offered, down 2 points, while the 7 3/8s lost 1½ points to end at 68.5.

The Atlanta-based consumer products company's NYSE-traded shares meantime slid 68 cents, or 14.85%, to $3.90. Volume of nearly 2.5 million shares was four times the average daily handle.

Spectrum fell after the company - whose products include such well-known consumer brands as Rayovac flashlight batteries, Remington electric shavers and Tetra pet-care products, reported a fiscal first-quarter loss of $43.4 million, or 85 cents per share, considerably wider than its year-earlier red ink of $18.8 million, or 38 cents per share.

The company said a big part of the wider deficit included a loss from discontinued operations of 65 cents a share related to the sale of its home and garden business. Excluding such one-time special items, Spectrum actually made a profit of 6 cents per share, but that fell short of the 8 cents per share, ex-items, that Wall Street was looking for. The company's net sales of $560.5 million also came in well under analysts' average forecast of $596.2 million.

Also dragging the latest quarter's results down were earlier-than-usual shipments of holiday merchandise, which meant $15 million in battery and personal care-product sales were recorded in the fiscal fourth quarter ended last Sept. 30.

HCA gains as company tenders for bonds

On the upside, HCA Inc.'s 7 7/8% notes due 2011 were seen up more than 3 points to above the 101 level, in active trading.

That followed the announcement by the Nashville-based hospital operator that it would tender for up to $500 million of three series of bonds, including those 7 7/8% notes.

Also in the healthcare sphere, Community Health Systems Inc.'s 8 7/8% notes due 2015 lost nearly a point in active trading to end at 99.5.

Rite Aid routed

Another actively traded issue Thursday was Rite Aid Corp.'s 7.7% notes due 2027, seen down a whopping 5 points on the session to the 56.5 level, although traders did not see any fresh negative news out on the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator that might explain the retreat.

A market source at another desk saw Rite Aid's 6 5/8% notes due 2015 down a point at 74.5.

Blockbuster a hot ticket

The traders also had no ready explanation for a strong rise in Blockbuster Inc.'s bonds, seeing no fresh news out on the Dallas-based top U.S. video-rental chain operator.

A trader called its 9% notes due 2012 up ½ point to 79 bid, 81 offered, but at another desk, those bonds were seen up as much as 1¼ points to end at 81.5 bid. The bonds were among the most actively traded issues of the day.

Levi lower

Back on the downside, a trader saw Levi Strauss & Co.'s 8 7/8% notes due 2016 down a point on the session at 92.5 bid, 94.5 offered. Here again, no fresh major news was seen out on the privately held San Francisco-based apparel company, which did announce that it will release its 2007 fourth-quarter and full-year results next Tuesday.

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