Petrohawk, Public Service/PNM price deals; Ply Gem takes a pounding; Blockbuster, Sprint on the rise

By Paul Deckelman and Paul A. Harris

New York, May 9 - Petrohawk Energy Corp. successfully priced a half-billion dollar offering of seven-year notes on Friday; after the bonds were freed for secondary activity, they were seen by traders to have popped up a point, but quickly came off those highs to end only slightly above issue.

Also clattering down the chute, high yield syndicate sources said, were a matched pair of $350 million deals from Public Service Co. of New Mexico and its PNM Resources Inc. affiliate. The former deal was split-rated, while the latter was pure junk and was seen to have risen smartly after having been freed.

Among the established bonds, Ply Gem Holdings Inc.'s paper fell sharply after the Kearney, Mo.-based building products company reported disappointing numbers, including a doubling of its net loss from year-ago levels, and against a backdrop of it having to ask its lenders for covenant relief.

Traders saw gains in Blockbuster Inc.'s notes, even as takeover target Circuit City said it had a change of heart and would open its books so the Dallas-based top video-rental chain operator - looking to acquire the electronics retailer for a bit over $1 billion - could do its due diligence.

Sprint Nextel Corp.'s bonds were seen better, ahead of Monday's scheduled numbers release.

Petrohawk oversubscribed

The Friday session saw $850 million of junk bonds price in the primary market.

The notes came in two tranches, both of which were led by Lehman Brothers.

Petrohawk Energy Corp. priced a $500 million issue of seven-year senior notes (B3/expected B) at par to yield 7 7/8%.

The yield came in the middle of the 7¾% to 8% price talk.

An informed source said that the order book was oversubscribed.

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

Elsewhere PNM Resources priced a $350 million issue of seven-year senior unsecured notes (Ba2/BB-) at par to yield 9¼%.

The yield was printed at the tight end of the 9¼% to 9½% price talk.

The total amount included $247.25 million of remarketed bonds and $102.75 million to raise new funds.

Lehman Brothers and Banc of America Securities were the active bookrunners.

At the operating company level, on Thursday night Public Service Co. of New Mexico priced a $350 million issue of split-rated 10-year senior unsecured notes (Baa3/BB+/BBB-) at par to yield 7.95%, 5 bps below the midpoint of the 8% area price talk.

Lehman Brothers and Merrill Lynch & Co. were the active bookrunners.

An informed source said that the order books for the PNM Resources deal, the Public Service Co. of New Mexico deal and the Petrohawk deal were all oversubscribed.

$4 billion week

Factoring out issuance related to the LBO risk overhang, the first full week of May was saw the greatest amount of issuance thus far in 2008, at $3.92 billion in nine dollar-denominated tranches.

The next-biggest 2008 week in terms of issuance - again factoring out the overhang - was the week beginning April 21 which saw $2.8 billion price in five tranches.

Factoring in Friday's business high yield has seen $22.8 billion of total issuance in 44 dollar-denominated tranches for 2008 so far. However that figure includes issuance related to the LBO overhang.

Clears the calendar

With Friday's business in the books, sources told Prospect News that there are no straight-up high yield bond offerings on the forward calendar.

However syndicate officials claimed to have visibility on deals that will show up next week as quick-to-market transactions.

None of the sources who spoke on Friday provided issuer names. However one source said that an energy company would probably appear with a drive-by deal during the middle of the week.

Petrohawk pops, but only for a bit

When the new Petrohawk 7 7/8% notes due 2015 were freed for secondary activity, a trader saw the paper trade as high as 101 bid on the break, up from its par issue price earlier in the session. But after that brief upside flurry, he said, the bonds retreated back to 100.375 bid, 100.625 offered.

Another trader saw them bid around 100.5 bid. 100.625 offered; then "the bid got hit," and the bonds ended at 100.375 bid, 100.625 offered.

PNM, Public Service power upward

The strongest performance of the day among new or recently priced bonds came from Public Service of New Mexico and PNM. The latter's 9¼% notes due 2015 popped up to 101.5 bid, 102 from their par issue price, while the former's 7.95% notes due 2018 got as good as 102.25 bid, 102.5 offered, also from a par issue price. A trader saw both of the new issues going home at 101.5 bid, 102 offered.

"Yeah, the bonds moved up a lot," he said. "Two points on a slow Friday with a weak equity market. It was a pretty good performance,"

Newfield, DirecTV around issue; Ace dips

Among recently priced issues, a trader saw Newfield Exploration Co.'s 7 1/8% notes due 2018, which priced this past Monday at par, straddling that level most of the day before going out at par bid, 100.25 offered. Meantime, the new DirecTV Holdings LLC/DirecTV Financing Co. 7 5/8% notes due 2016, which priced Wednesday at par, were also anchored to that par bid, 100.25 offered level.

Ace Hardware Corp.'s new 9 1/8% notes due 2016, which priced Thursday at 98.60, got as good as 99 bid, but then fell back to around 98.75, a trader said.

"There doesn't seem to be as much excitement in that one," he said, speculating that some potential bond buyers might have been scared off because of wariness about investing in the troubled retailing sector. "Definitely less enthusiasm."

Another trader saw the new Ace bonds trading "very little," calling that "kinda weird." He saw the bonds fall as low as 97.5 bid, 98.5 offered, and saw them going out below their issue price, at 98 bid, 98.75 offered.

Market indicators easier

Back among the established issues, a trader said, the widely followed CDX junk bond performance index was "unchanged to down 1/4" to 96.25 bid, 96.75 offered. The KDP High Yield Daily Index fell 13 bps to 76.05, while its spread widened by 3 bps to 9.13%.

In the broader market, advancing issues held only a slight edge over decliners, the two groups separated by just a handful of issues. Activity, represented by dollar volume levels, was down 31.5% from Wednesday's pace.

A trader called Friday's session a "weird day, a blah day," with not much seen having gone on. "A lot of people are missing today. I don't know why," he said.

While some traders mentioned the usual excuse of "a spring Friday afternoon," at least one noted that the meteorological conditions hardly lent themselves to playing hooky from work. With buckets of water coming down on the New York metropolitan area, it was unlikely that anyone was sneaking out of the office early to catch some rays, hit the beach or play a little golf.

Ply Gem hammered on results

A trader said Ply Gem's 9% notes due 2012 fell to 67 bid from Thursday's finish around 76 bid, before coming off that low to trade at around 70 later on, after the company announced "worse-than-expected quarterly numbers" and said that it had asked its lenders for amendments to its credit facilities so it can remain in compliance with its covenants. "They were down a lot, but off the bottom," he said.

Another trader likewise saw the bonds fall as low as 67 - which he said was an 8 point drop from the mid-70s level at which the bonds had traded Thursday - but said they managed to rise off their lows to finish around 70.

"Everyone expects these guys' [building products companies] numbers to be down, but Ply Gem was down a fair amount more than people expected." He said that the fall in adjusted EBITDA to $4.9 million from $18 million a year ago "got some guys upset."

Ply Gem said that sales had fallen 10.1% from the year-earlier period to $256.4 million from $285.3 million for the 2007 first quarter. The net loss for the first quarter of 2008 was $21.8 million, twice as much as the year-earlier red ink of $10.9 million.

The company's president and chief executive officer Gary E. Robinette said: "Ply Gem's first quarter sales and EBITDA performance reflects the challenging market conditions that exist in the housing markets today. Our first quarter 2008 financial performance was negatively impacted by lower sales volume due to market demand and increasing raw material and freight costs, partially offset by the cost savings that were realized as a result of our siding and window groups' acquisitions integration and our expense reduction efforts that have been undertaken in all areas of our business in response to what is expected to be a prolonged downturn in the housing market."

Robinette warned that factors such as the continued declines in both the residential new construction and repair/remodeling markets, as well as market-wide increases in raw material prices and fuel costs mean that the company expects adjusted EBITDA will likely be below the level necessary to comply with the leverage ratio in its credit agreement for fiscal quarters after the first in 2008. Ply Gem said it has started talks with its banks about an amendment.

R.H. Donnelley in retreat

Another big mover, traders said, were R.H. Donnelley's bonds, and those of its Dex Media Inc. unit, off about a point or two from the levels that those bonds reached on Thursday, after Cary, N.C.-based telephone directory publisher Donnelley reported generally better-than-expected first quarter earnings and announced an exchange offer for some of its outstanding bonds.

One saw the parent company's 6 7/8% notes due 2013 trading at 66 bid, down from Thursday's high around 68 and its close at 67, "so I would say they are down a point or two on the day." He also saw the company's 8 7/8% notes due 2016 trading in round lots around 67.5, down from Thursday's high around 70 and its closing levels that session around 69.5.

Donnelley "backed off today" another trader said, although he observed that the whole of the distressed-bond market, as well as the larger high-yield arena, was "on the weak side." He saw Donnelley's 8 7/8s down about 2 points to the 68 area and the 6 7/8s at 66 bid, 68 offered, also down a deuce

The bonds of Donnelley's Englewood, Colo.-based Dex Media unit were following the same pattern; its 9 7/8% Dex Media West LLC notes due 2013 "looked about unchanged" at 96.5, a trader said, "so no great shakes there," while the Dex 8% notes due 2013 were around 81, down from Thursday's high of 82 and its close at 81.5, "so it seems pretty consistent - [the Donnelley and Dex bonds were ] down a point or so."

Blockbuster is better

Apart from the volatile ups and down of such distressed credits, a trader saw Blockbuster's 9% notes due 2012 up a point on the day at 79.5 bid, 80.5 offered, bucking the generally negative trend in the market.

Market participants noted that electronics retailer Circuit City, which Blockbuster is trying to buy, seems to have softened its previously adamant stance that it was not interested in Blockbuster's offer to pay between $6 and $8 per share for the company.

Now, it says it will allow Blockbuster to conduct due diligence. Circuit City was apparently swayed by the participation in the proposed deal of Blockbuster's largest shareholder, Carl Icahn. The billionaire investor allayed concerns over whether Blockbuster could finance the deal by saying he was prepared to buy the company if all else fails.

Although the proposed deal has been met with some puzzlement and criticism from analysts and from the financial media, Blockbuster insists on the correctness of its strategy - to buy the electronics retailer in order to create a huge combined chain that would both rent movies and videogames - as well as sell hardware on which to play that content.

Sprint Nextel runs ahead

A market source saw Sprint Nextel unit Sprint Capital's 6.90% notes due 2019 up a point at above the 87 level, while another saw the company's 8¾% bonds due 2032 move up about half a point in brisk trading to the 93 level.

However, its 6 7/8% bonds due 2028 were seen having lost a point in active trading to end at 80.5.

The Overland Park, Kan.-based wireless telecommunications company is scheduled to report quarterly financial results on Monday, a trader said. Wall Street is looking for profits around 2 cents per share.

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