Newfield Exploration, Newport TV price; ResCap falls on debt worries; Countrywide in late rebound

By Paul Deckelman and Paul A. Harris

New York, May 5 - Newfield Exploration Co. came to market Monday with a quickly shopped upsized offering of 10-year notes. While the deal was successfully priced, the new bonds did not move much in initial aftermarket dealings.

High yield syndicate sources also said that Newport Television LLC priced an issue of nine-year PIK toggle notes.

As was the case on Friday, much of the secondary market's attention was focused on the trials and tribulations of troubled mortgage lenders Residential Capital LLC and Countrywide Financial Corp. But while ResCap rose on Friday as Countrywide got creamed, the show was on the opposite foot on Monday; ResCap's bonds were several points lower after the company warned that it might not be able to meet its debt obligations, while Countrywide - if not exactly rising - at least firmed off the early lows it hit in response to bearish analyst talk to end pretty much unchanged.

Apart from the ongoing mortgage drama, Hovnanian Enterprises Inc.'s bonds were seen several point better after the Red Bank, N.J.-based homebuilder issued bullish cash-flow guidance.

Pilgrim's Pride Corp.'s bonds retreated after that company posted a larger-than-expected quarterly loss and warned that it is likely to lose money in the upcoming quarter as well. Sprint Corp.'s bonds were seen actively traded in junk land, now that the Overland Park, Kan.-based wireless provider's ratings have been cut to junk level by Standard & Poor's.

One syndicate official said that cash bonds were "maybe a touch lower on the day," and added that equities weighed on high yield a little.

In the primary market two issuers raised $774 million of proceeds. Each one priced a single tranche of notes.

Newfield upsizes

Newfield Exploration Co. priced an upsized $600 million issue of 10-year senior subordinated notes (Ba3/BB-) at par to yield 7 1/8% on Monday.

The notes priced in the middle of the 7% to 7¼% price talk.

An informed source said that the deal, which was upsized from $425 million, went very well and played to a book subscribed with over $2 billion of orders.

"For the highest quality issuers the new issue discount is small," the source commented.

JP Morgan and Morgan Stanley ran the books for the quick-to-market debt refinancing and general corporate purposes issue.

Newport sells toggle notes

Newport Television Holdings LLC and NTV Holdings Finance Corp. priced a $200 million issue of 13% nine-year senior PIK toggle notes (Caa1/CCC+) at 87 to yield 15.768%.

The notes, which generated $174 million of proceeds, came within price talk that had specified a range of 87.05 yielding 15¾% to 85.99 yielding 16%.

The toggle notes were part of an overall $394.5 million face amount two-part offering of notes.

The deal also included $194.5 million face amount of 13¾% 10-year senior discount notes. An informed source told Prospect News that a single account took out the discount notes. Terms were not available.

Wachovia Securities, Goldman Sachs & Co. and UBS Investment Bank were joint for the bridge refinancing.

Royalty Pharma plans term loan

The remainder of Monday's primary market news had to do with novel structures.

Royalty Pharma will host a Thursday conference call for its $200 million seven-year senior unsecured fixed-rate term loan, which is being marketed to high yield accounts.

Banc of America Securities LLC is the lead arranger.

The loan comes with four years of call protection and a 101 change-of-control put.

Proceeds will be used to fund the acquisition of royalty interests.

Cat bond launched

Elsewhere Residential ReInsurance launched a $300 million three-part offering of catastrophe bonds due in June 2011 on Monday via Goldman Sachs.

A roadshow will run until May 15. The notes are expected to price after that.

The tranches include class one bonds related to U.S. hurricanes and earthquakes (BB) talked at the three-month Libor plus 700 basis points area.

The class two bonds, also related to U.S. hurricanes and earthquakes (B), are talked at the three-month Libor plus 1,175 basis points area.

The class four bonds are related to U.S. hurricanes, earthquakes, severe thunderstorms, severe winter storms and California wildfires (BB+) and are talked at the three-month Libor plus 525 basis points area. There are no class three bonds.

New Newfields little moved, Newports little seen

When the new Newfield Exploration 7 1/8% notes due 2018 were freed for secondary dealings, a trader saw them at 100.25 bid, 100.5 offered on the break, up a little bit from their par issue price earlier in the session, but said they came down from that level and were left at 100.125 bid, 100.25 offered.

Another trader saw them closing at 100.125 bid, 100.375 offered.

Several traders said that they had not seen the new Newport Television 13% notes due 2017 trading around, one of them saying that he was "surprised, quite honestly" at the lack of activity in the bonds, even taking into account the relatively small size of the $200 million deal. "I'm sure we'll see them tomorrow [Tuesday]," he added.

Market indicators point lower

Back among the established issues, a market source saw the widely followed CDX junk bond performance index at a mid-point quote of 981/2, essentially unchanged from Friday's levels at 98 3/8 bid, 98 5/8 offered. The KDP High Yield Daily Index fell by 11 bps to 76.38, while its yield widened by 1 bp to 9.01%.

In the broader market, advancing issued narrowly trailed decliners. Activity, represented by dollar volume levels, fell about 26% from Friday's pace.

The junk market, a trader said "was a little easier, with some profit-taking, but it was not really active, by any means."

ResCap in retreat

One of the more actively traded names on the day was Residential Capital - and unlike on Friday, when its bonds were solidly higher on the Minneapolis-based mortgage lender's announcement of plans to tender for $1.2 billion of soon-maturing bonds and exchange new longer-maturity debt for another $12.8 billion - investors even shrugged off ratings-agency downgrades and threats of more downgrades to come if the transactions are successful - on Monday its issues were seen several points lower pretty much across the board. They fell after ResCap warned that even if it accomplishes everything that it wants to accomplish in terms of taking out the existing bonds and extending their maturities to 2010 or 2015 through the exchange offers, it will still have to come up with another $600 million of fresh cash by June 30 to remain in compliance with its various covenants.

ResCap ominously added in its filing Monday with the Securities and Exchange Commission that there is "a significant risk that we will not be able to meet our debt service obligations, be unable to meet certain financial covenants in our credit facilities, and be in a negative liquidity position in June 2008."

That was all it took to wash away whatever good feeling about the name and its prospects for getting out of its financial mess was left over from Friday.

A trader saw its 6 1/8% bonds coming due in November down 3 points at 86 bid, 87 offered, and its 6 7/8% notes due 2015 also down 3 points at 51 bid, 51.5 offered. He saw ResCap parent GMAC LLC's 8% bonds due 2031 down 1 point at 77.5 bid, 79 offered.

At another desk, a trader quoted ResCap's 6½% notes due 2013 down about 4 points at 51 bid, 53 offered.

Another trader noted that those notes had been trading as high as 57 on Friday, although they had ended that session at around 54.5 bid in round-lot trading; on Monday, they traded as low as 51.75, "so from their [Friday] highs, they were down about 5 points," he declared.

He also saw ResCap's 6 3/8% notes due 2010 fall to 53.375 Monday from Friday's round-lot finish at 58, "so they're down 4 points on this one," and down 4 points as well on its floating-rate notes due 2009, which dropped to 77 bid from 81 on Friday.

Noting the irony that ResCap was giving up the gains which it had notched on Friday, he added "welcome to junk bonds."

Countrywide comes back

While ResCap's bonds were headed downward on investor fears stoked by the SEC filing, Countrywide - which got bludgeoned on Friday after prospective buyer Bank of America warned in a filing that it might not assume or guarantee all of Countrywide's debt once it takes over the company - was gyrating around on Monday. It first dropped lower as several analysts raised the possibility that B of A might drastically renegotiate the terms of its acquisition deal downward to reflect the deterioration of Countrywide's mortgage portfolio, and at least one analyst suggested that the smartest thing that B of A could do would be to call the whole deal off - but by the end of the day had regained those losses to end little changed.

A trader saw Countrywide's 6¼% notes due 2016 trading down several points at 84 bid, 86 offered, and saw the company's 3¼% notes coming due on May 21 at 98.5 bid, 99.5 offered, down from recent levels at 99 bid, par offered - but he said the latter issue was "probably bouncing right back because everything looks on" in terms of the Bank of America deal - especially in the wake of a late-day announcement to that effect by the bank - and the fact that the bonds will likely mature before anything definitive happens anyway.

Another trader saw both series of bonds ending unchanged - the 31/4s at 99 bid, 99.75 offered and the 61/4s at 83 bid, 86 offered - after each having been lower in intra-day trading - the 31/4s by ½ point and the 61/4s by 2 points - "so there was a little rebound in the afternoon for both of those."

At another desk, a market source saw the 61/4s fall as low as an 80-81 context from Friday's close at 85 bid - but then bounce back later in the day to actually nose up a point to 86 bid, in brisk trading.

But while the bonds were bouncing around, Countrywide's New York Stock Exchange-traded shares were headed in only one direction - downward - losing 62 cents, or 10.37%, to finish at $5.36. Volume of 72 million was about triple the norm.

Countrywide's bonds were initially thrown for a loop as the market continued the downside momentum seen on Friday in response to B of A's warning regarding Countrywide's debt. Adding to investor angst was negative analyst commentary about Countrywide, notably from Paul Miller at Friedman, Billings, Ramsey & Co. He counseled in a research note that B of A preferably should just walk away from its planned $4 billion, or $7 per share, acquisition of Countrywide, noting the continued deterioration in the mortgage market which undermines Countrywide's value as each day goes on.

He said that Countrywide's diminishing loan portfolio "will prove a drag on earnings and could force [B of A] to raise additional capital." Such an abandonment of the deal, incidentally would entitle B of A to receive a $160 million termination fee from Countrywide due to the quite unusual structure of the deal agreement - a radical departure from the usual arrangement under which the buyer backing out pays the breakup fee.

Barring such an occurrence, Miller said that B of A should at the very least reduce the purchase price it will pay for the troubled Calabasas, Calif.-based mortgage lender, given the eroding value of its underlying mortgage portfolio, to no more than $2 per share tops, the same price target he set for Countrywide shares.

Miller elaborated in his research note that if the giant bank were to complete the deal and acquire Countrywide, it will likely have to write down the value of the latter's mortgage investments by at least $20 billion and possibly by as much as $30 billion - larger than the level envisioned when the deal was first announced in January due to the continued deterioration of the mortgage market since then. Such a writedown could force B of A to raise new capital in order to maintain a strong cash reserve position. He said that anything over $22 billion would likely force B of A to renegotiate the price of the acquisition deal radically downward, which would then "force [Countrywide] bondholders to absorb the remainder of the potential writedowns."

Miller was not the only analyst taking a wary view Monday of the proposed acquisition; S&P Equity Research analyst Kevin Cole said that while the deal is likely to be completed, it will probably happen at a reduced price because of Countrywide's credit losses. Cole for the moment still assumes a $6 price target for Countrywide.

But as upsetting as those commentaries may have been to the bondholders, especially coming on top of Friday's news about B of A's own warnings on Countrywide's debt, the bonds got their second wind and came off the lows to finish Monday essentially unchanged, probably helped by B of A's own assertions that is plans to go through with the deal and no indication that it plans to renegotiate. While B of A confirmed on Monday that it has stepped up its scrutiny of Countrywide's finances and the underwriting practices for some loans, a B of A spokesman, Bob Stickler, said that "the transaction is on track to close as agreed to in the third quarter."

Hovnanian gains on cash projections

Elsewhere, a trader saw Hovnanian Enterprises' bonds "up a couple of points" as the company released improved cash-flow guidance, quoting the 6¼% notes due 2016 and the 6 3/8% notes due 2014 each at 72 bid, 74 offered. Another market source saw the latter bonds at 73 bid, up 2½ points, while the 61/4s were at 72.625, up 1 5/8 points.

While Hovnanian said that it expects higher charges against earnings in the fiscal second-quarter ended April 30 - anywhere from $225 million to $275 million related to the reduced value of the builder's land and inventory - it also said that full-year cash flow should come in at $300 million, up sharply from the $100 million that it forecast in December.

The company said that it Hovnanian said it achieved positive cash flow in the fiscal second quarter - a quarter earlier than it originally expected - citing a reduction in its inventory investment levels.

Pilgrim's Pride pummeled

The numbers were not so kind, however, to Pilgrim's Pride, as the Pittsburg, Tex.-based poultry producer posted a wider fiscal second-quarter loss and predicted it would not return to profitability until next year. Its 8 3/8% notes due 2017 were seen finishing up around 86.75 bid, down from Friday levels as high as 90, while its 7 5/8% notes due 2015 slipped to 90 bid, 92 offered from around 94 on Friday, "so they're down a couple" points, a trader said.

The company lost $111.5 million, or $1.67 per share, in the three months ended March 29 - considerably wider than its year-ago red ink of $40.1 million, or 60 cents per share. Excluding one-time charges and other special items, it lost $1.50 per share - nearly double the roughly 80 cents per share Wall Street had been expecting.

Sprint trades actively

A market source saw active trading in wireless operator Sprint's bonds, following their downgrade to BB from investment grade late last week by S&P. That leaves the bonds at junk status at both S&P and Fitch ratings, which rates the Sprint Capital financing subsidiary's debt at BB, thus forcing some high-grade portfolios to get out of the name. Only Moody's Investors Service keeps the Sprint bonds at investment grade - for now - at Baa3.

The source saw the debt all over the place, with its 8¾% bonds due 2032 up some 4 points at 92.5 bid, but its 8 3/8% notes due 2012 off more than 3 points around 96.

Another trader saw its 6% notes due 2016 get as low as 83 before finally ending the day at 84, down 1½ points, commenting that the bonds "got weaker as the day went on."

© 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.