Atlas prices upsized deal, Petrohawk hits the road; ArvinMeritor off on split plan; Idearc up on numbers

By Paul Deckelman and Paul A. Harris

New York, May 6 - Atlas Energy Operating Co. priced an upsized add-on offering of its 10¾% notes due 2018 on Tuesday; when those bonds were freed for secondary dealings, traders saw some bids but for the most part didn't see much trading in them.

Elsewhere in the primary sphere, syndicate sources heard that Petrohawk Energy Corp. was beginning a roadshow Wednesday to market a new issue of seven-year notes to potential investors.

Among established issues, ArvinMeritor Inc.'s bonds were seen lower after the Troy, Mich.-based automotive components maker said it planned split itself in two, spinning off its Light Vehicle Systems group, which makes parts for cars, from its core Commercial Vehicle Systems operations, which produces assemblies for large trucks. Fitch Ratings was not thrilled with the idea and put the company's bonds under scrutiny for a possible downgrade.

Idearc Inc.'s bonds moved up, along with its shares, after the Dallas-based telephone directory publisher reported better-than-expected first-quarter results. Sector peers R.H. Donnelley Corp. and the Donnelley-owned Dex Media Inc. were also firmer, although on less activity than Idearc.

From the buy-side, a source from a high yield mutual fund said that the market has hit a lull.

"Things are flat to down over the past four days," the buy-sider said.

"TXU bonds and HCA bonds are off probably a point."

Not cheap anymore

This buy-side source said that what has been true of high yield investors for the past month remains true at present: people have cash to put to work.

"The new issue market is outperforming," the source said.

"Meanwhile the problem is that the secondary has already moved four or five points, and now you're in a lull where people don't want to put money to work there because of that movement.

"So they're sitting on 8% to 10% cash."

Atlas Energy upsizes

Tuesday's primary market saw a single, upsized $150 million add-on deal price.

Atlas Energy Operating tapped its 10¾% senior notes due Feb. 1, 2018 (B3/B) at 104.75, resulting in a 9.85% yield to worst.

The debt refinancing deal came in the middle of the 104.50 to 105.00 price talk, via JP Morgan and Wachovia Securities.

Tuesday's deal size of $150 million matches the amount by which Atlas Energy downsized the original issue when they priced it in mid-January: that issue was reduced to $250 million from $400 million and was priced at par.

An informed source told Prospect News that the upsized Atlas tap played to a solid mix of mostly existing accounts but also some new accounts.

Energy names draw cash

The buy-side source did not play in the Atlas Energy tap.

However the source commented that the recent spate of energy deals has been driven by reverse inquiry.

The buy-sider pointed to Monday's drive-by deal from Newfield Exploration Co., an upsized $600 million issue of senior subordinated notes due 2018 (Ba3/BB-) which priced at par to yield 7 1/8%, also in the middle of the 7% to 7¼% price talk.

"Newfield was priced to perfection," the buy-sider asserted.

"It's now par to par and a quarter, and basically it's just going to stay put."

The source said that the buy-side continues to cultivate a strong appetite for paper from the energy sector because it is perceived to be resilient in the face of an economic slowdown.

However this buy-sider offered a sobering note:

"Energy names are all outspending cash flow," the source contended.

"That's why they all need money.

"Newfield had $1.4 billion of EBITDA, and they're talking about spending $2 billion in capital expenditures in the year, $600 million more than their cash flow.

"But because there is a belief that oil could go to $200 per barrel people don't care."

Petrohawk launches $500 million

Elsewhere on Tuesday Petrohawk Energy Corp. launched a $500 million offering of seven-year senior notes (expected ratings B3/B) on a brief roadshow that is set to wrap up on Thursday.

Lehman Brothers, JP Morgan, Merrill Lynch & Co., BNP Paribas, Credit Suisse and Banc of America Securities LLC are joint bookrunners.

Proceeds will be used to pay down revolver debt so the company has the flexibility it needs to fund capital expenditures and possible acquisitions.

Newfield trades

Two traders said that while there had been some 105 bids for the new Atlas Energy 10¾% notes due 2018, a little above their 104.75 issue price, they didn't see any offered levels on the paper. Another, however, did quote the bonds at 105 bid, 106 offered.

There meantime was "definitely some activity," as a trader said, in the new Newfield Exploration 7 1/8% notes due 2018, which priced on Monday at par and then moved slightly upward in initial aftermarket trading later that session. But while there were some dealings going on, the bonds failed to break out from their previous levels, with a trader quoting them at par bid, 100.375 offered.

Another saw them staying in a narrow 100.125-100.25 range, finishing the day at the latter level

A trader saw the new Newport Television LLC 13% toggle notes due 2017 at 88.5 bid, 89.5 offered, up from 87, the level at which the Kansas City, Mo.-based television station group owner's bonds priced on Monday.

Market indicators point lower

Back among the established issues, a market source saw the widely followed CDX junk bond performance index down 3/8 point at 98 bid, 98½ offered. The KDP High Yield Daily Index fell by 10 bps to 76.28, while its yield widened by 4 bps to 9.05%.

In the broader market, advancing issues trailed decliners by a five-to-four ratio. Activity, represented by dollar volume levels, picked up by about 40% from Monday's pace.

A trader said he saw "a definitely easier tone" on Tuesday. It was his impression that "people refrained from doing very much" in the way of going out on any limbs.

Another trader, noting the volatility in some issues, said that things had been "rockin' and rollin'. Everything's been up and down like a yo-yo today."

Idearc numbers ideal for investors

Looking at specific names, Idearc's bonds, as well as its shares, were seen better in the wake of the company's better than expected first-quarter numbers. The company's 8% notes due 2016 - which had fallen on Monday in apparent anticipation of disappointing numbers - were bouncing back solidly, and in heavy large-block trades, when the earnings data came in better than the year-ago figures, and better than expected.

Traders saw the notes up anywhere from 3 to 5 points on the better-than-expected first-quarter results. One said that the bonds traded Tuesday in a range of 67 to 68.5, with the last large trade at 68.25, well up from Monday's close around 64.5.

Another called them 4 points higher Tuesday at 68 bid, 69 offered. Yet another pegged them at 67.5 bid, 68.5 offered, up 4, as "earnings weren't as bad as expected." A market source at another desk quoted the bonds up more than 4 points on the day, as high as 68.75.

One of the trader said that there was "good volume - a lot of activity" on the bonds.

Another, who saw "80%" of the day's trades taking place in a 67-68 context, well up from Monday's 64ish levels, noted that the bonds not too long ago "had been up around 70. They got hit pretty hard ahead of the numbers." He also noted the "huge percentage gain" in the company's shares.

Idearc's New York Stock Exchange-traded shares zoomed $1.52, or 45.65%, to $4.85, on volume of 16.4 million shares, more than four times the usual activity level.

The bonds and shares rose after Idearc reported that first-quarter net income rose 7.8% from year-ago levels, to $111 million, or 76 cents per share, versus $103 million, or 70 cents per share, in the 2007 first period. Excluding earnings charges and other one-time items, the company earned $116 million, or 79 cents a share. While that was actually down from its year-earlier ex-items earnings of $119 million, or 82 cents per share, it was well above the roughly 62 to 65 cents of per-share earnings that Wall Street was looking for.

The bonds and shares rose even though revenues for the quarter, at $770 million, came in 4.5% below year-earlier levels of $806 million and actually undershot analysts' expectations of about $775 million. While first-quarter internet revenues rose 7%, to $73 million - the company puts together a number of online directories, as well as printing the traditional paper kind - its much larger core business, the print directories, saw a revenue decline of 6% from a year ago to $696 million, largely due to the softer economy, which has played havoc with all varieties of advertiser-dependent media, including newspapers and broadcasting.

But Idearc managed to reduce operating expenses by 9% year-over-year - including a 25% decline in administrative costs - to offset that print revenue drop, allowing it to post a gain in profit.

Donnelley, Dex up on Idearc's coattails

The surge in Idearc's bonds and shares were also seen helping the securities of its chief rival, Cary, N.C.-based directory publisher R.H. Donnelley Corp., and the latter's wholly-owned Dex Media subsidiary, although there was considerably less activity in those issues than in Idearc's. Donnelley is set to announce its quarterly earnings data on Thursday.

Donnelley's 8 7/8% notes due 2016 were seen up more than 2 points at 64.75 on a handful of large-sized trades, while its 6 7/8% notes due 2013 were up about 1½ points at 64. Donnelley's NYSE-traded shares jumped $1.39, or 28.60%, to $6.25. Volume of 8.7 million was nearly triple the usual turnover.

Englewood, Colo.-based Donnelley unit Dex Media's 8% notes due 2013 were seen having moved up to around the 76.5 level, a gain of 1½ points on the session. Its most busily traded issue, the Dex Media West LLC 9 7/8% notes due 2013 were up by less than a point around the 93.5 area.

ArvinMeritor bonds brake on break-up plan

Elsewhere, ArvinMeritor's recently firmer bonds were seen unchanged to somewhat lower in reaction to the company's plans to spin off its passenger vehicle component division, leaving the company as a maker of brakes and axles for heavy-duty trucks.

Its 8 1/8% notes due 2015 were seen by a market source at 90.5 bid, down around a point from Monday's late dealings and down nearly 2 points from Monday's last round-lot trading level. Its 8¾% notes due 2012, after opening a bit higher at 98, lapsed back to the 97 mark, unchanged on the day.

A trader saw the 8 1/8s open at 91.75 but then retreat from that level - the day's peak - to close at 91, down nearly 1½ points, even though "I would have thought that the news [that the company will break itself up] would be a positive."

Maybe bondholders didn't see it that way, but shareholders definitely did. The company's NYSE-traded shares gained as much as 8% in intraday trading before coming off those highs to end up 79 cents, or 5%, at $16.58. Volume of more than 2 million shares was nearly double the norm.

The company envisions that the 100% spin-off of the car components unit - which post-split will be called Arvin Innovation Inc., while the remaining truck components company will retain the ArvinMeritor name - will be completed within a year.

ArvinMeritor, like other auto-parts makers has seen its sales slide amid the generalized weakness in the domestic auto industry, but last month managed to report a fiscal second-quarter profit and affirm its previously announced full-year earnings projections, helped by the strength of its non-U.S. operations. It said that the split will let each group improve its focus and will create "two multibillion-dollar companies that are market-leading companies ... with stronger competitive positions because there will be clarity and a focus in the businesses."

But the Fitch ratings service was not so sure about that. The agency put ArvinMeritor's senior unsecured and issuer default ratings, currently at single-B, and its and its bank credit rating, now at double-B, under review for a possible ratings downgrade.

Fitch cautioned that the spin-off "will reduce the business diversification of the current consolidated entity, increasing exposure of the remaining Commercial Vehicle Systems (CVS) business to the cyclical truck market, and increasing exposure of the LVS entity to competitive conditions and individual manufacturers in the automotive market. It also raised the likelihood that "[d]uplicating corporate functions at the LVS entity concurrent with the spin will also pressure margins."

Fitch further warned: "Total liquidity requirements will likely increase from current levels in order to finance working capital requirements, continuing restructuring actions, capital expenditures, and to act as a buffer against cyclical volatility. The combined entity has forecast continued negative cash flow for its current fiscal year, indicating that total debt to be allocated at the time of the spin will be higher than current levels."

It went on to say that ArvinMeritor bondholders face the possibility that "[e]xisting senior unsecured debt could be pushed farther down the capital structure or face reduced recovery prospects depending on the allocation of debt and new financing arrangements."

Standard & Poor's on the other hand affirmed the current B+ corporate credit rating and its other ratings, though with a negative outlook.

Analyst Shelly Lombard of the Gimme Credit investment research service noted that management, on the company's call, gave the impression that most of the existing debt, as well as the company's retirement liabilities will remain with ArvinMeritor rather than migrating over to the new company, since the truck components unit "is the bigger moneymaker." The truck business has about $4.2 billion of annual sales - nearly double that of the Light Vehicle Systems group.

Even so, Lombard wrote in a research note, "spinning off LVS and leaving CVS with the majority of the liabilities gives us cause for concern. A business like CVS where demand is highly cyclical shouldn't be overleveraged." The service pulled its previous recommendation on the debt - outperform with limited upside - pending more information on just how the debt and other liabilities will in fact be allocated.

Breaking the company in two in effect unwinds the 2000 merger between what was then Meritor Automotive and Arvin Industries, which was undertaken at the time to better diversify the company by putting it into both the truck and the car component business.

Sprint runs into trouble

News reports indicating that another well-publicized merger that's fallen well short of original expectations could conceivably be unwound - the $35 billion 2005 combination of Sprint Corp and Nextel Communications Inc. - helped to push the combined Sprint Nextel Corp.'s bonds lower. A trader said that the Sprint 6% notes due 2016 "were very active" at lower levels, trading between 82.5 and 83.5 before going out at 83.5, down about ½ point from Monday's finish.

Its 6.9% notes due 2019 was seen down about ½ point from the 85 level at Monday's close.

Another trader saw the 6s at 83 bid, 84 offered, although he called them little changed.

A market source saw the company's 6 7/8% notes due 2013 down more than 4 points, while the 6 7/8% bonds due 2028 were seen up 2 1/8 points to around the 83 level.

Mortgage names seen easier

In the ever-volatile mortgage sector, a trader saw Countrywide Financial Corp.'s 3¼% notes coming due on May 21 trading at 99 bid, 99.75 offered, up from 98.5 bid, 99.5 offered on Monday, while the company's 6¼% notes due 2016 traded between 83 bid and 85.25 bid, finally going out at 83.5, "a little easier" from Monday's levels near 86. A second trader saw the '16s down 2 points at 82 bid, 84 offered.

However, another trader said that the Calabasas, Calif.-based mortgage originator's bonds - which had bounced around on Monday before finally ending little changed - were "up a little, down a little, and ended unchanged [Tuesday]." He saw the 31/4s finish at 99 bid, 99.75 offered, and that that it was "the same story as the insured paper " for the 61/4s - up a little, down a little" before ending unchanged on the day at 83 bid, 66 offered.

A trader saw Residential Capital LLC's 6½% notes due 2013 fall as low as 47 before coming off that nadir to end at 50 bid, 52 offered, down 1 point on the day. He saw ResCap corporate parent GMAC LLC's 8% bonds due 2031 losing 3 points on the day to 75.75 bid, 76.75 offered. At another desk, a market source saw the ResCap 8 7/8% notes due 2015 down 2 points on the day at 50, while GMAC's 6 7/8% notes due 2012 lost 1½ points to end around the 81 level.

However, another trader, quoting most ResCap bonds around 50 bid, estimated them "up a point," adding that "there was not much action today. They were unchanged to up a little on the juniors."

© 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.