Concho prices deal, bonds climb, Toll also prices; Parallel Pete pops powerfully on buyout

By Paul Deckelman and Paul A. Harris

New York, Sept. 15 - Concho Resources Inc. was heard by high yield syndicate sources to have successfully priced an upsized offering of eight-year notes on Tuesday.

The new bonds moved up 2½ points when they were freed for secondary dealings.

In the secondary arena, the news that Concho's sector peer and downtown neighbor in Midland, Tex., Parallel Petroleum Corp., had agreed to be acquired by Apollo Global Management Inc., caused Parallel's bonds to jump nearly 30 points on the session, since the independent energy exploration and production company said it would offer to buy back those bonds under the change-of-control provision in their indenture.

Blockbuster Inc.'s bonds rose for a second straight session apparently on the favorable audience response to the Dallas-based DVD and Blu-Ray rental operator's plans to strengthen its balance sheet with a new secured deal later on in the week.

But Sprint Nextel Corp.'s bonds - which rose smartly on Monday on news reports that Deutsche Telekom AG might make an offer for the Number-Three U.S. wireless carrier - were seen little changed Tuesday, their upside momentum dissipated, especially on fresh news reports indicating that DT isn't rushing into any such arrangement.

Secondary market activity was strongly to the upside, traders said, with volume picking up substantially.

Back in the primary sphere, Horsham, Pa.-based luxury homebuilder Toll Brothers Inc. brought a split-rated 10-year bond issue to market late in the session.

Concho upsizes

In Tuesday's primary market action, Concho Resources Inc. priced an upsized $300 million issue of 8 5/8% eight-year notes (B3/BB) at 98.578 to yield 8 7/8%.

The yield printed in the middle of the 8¾% to 9% yield talk. The issue price came in line with the price talk specifying 1 to 2 points of original issue discount. The amount was increased from $250 million.

Timing of the deal was moved up. Initially the roadshow was expected to conclude on Sept. 19.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch, BNP Paribas Securities Corp. and Wells Fargo Securities were joint bookrunners.

It was multiple-times oversubscribed, and allocations were severe, according to investors.

One buy-side source reported getting an allocation that came to one-20th of the order amount.

Junk continues to rally, said a high-yield fund manager, who added that triple-C paper is presently outperforming, as people continue to pile into risk.

People appear to be chasing these deals, another asset manager said, referring to Concho.

It is hard to make sense of that, given the expectation that the market could see another $40 billion of issuance before the year ends.

Meanwhile, cash continues to come into the high-yield asset class, sources say.

Toll brings split-rated deal

Elsewhere Tuesday Toll Brothers Finance Corp. priced a $250 million split-rated issue of 10-year notes (Ba1/BBB-/BBB-) at 99.986 to yield 6¾%.

The yield was printed at the tight end of the 6 7/8% area price talk.

Bank of America Merrill Lynch, Citigroup, and JP Morgan were joint bookrunners for the deal which was priced off the investment-grade desk.

New Concho Resources paper pops

When the new Concho Resources 8 5/8% notes due 2017 were freed for secondary dealings, a trader saw the paper get as good as 1011/2-102 - well up from the 98.578 level at which that $300 million of bonds had priced earlier in the session.

A second trader was quoting the new bonds as having jumped to 101 5/8 bid, 101 7/8 as a closing odd-lot trade, while seeing 101½ bid, 102¼ a little earlier as the final round-lot trade.

"We expected those guys to do well," he said, noting that the company's ratio of debt to its barrels of oil equivalent - a measure of petroleum reserves - "looks okay, even though a fair amount of their reserves are not developed yet. But they look OK."

The company primarily explores for oil and natural gas in the Permian Basin of southeastern New Mexico, the Central Basin Platform and the Western Delaware Basin of West Texas, the Williston Basin in North Dakota and the Arkoma Basin in Arkansas.

New Qwest paper mostly quiet

While the Concho deal was firming smartly in the aftermarket, a trader said that Qwest Communications International Inc.'s new issue of 8% notes due 2015 "haven't really run up," seeing the bonds at 98¾ bid, 99 offered - just modestly above the 98.244 price at which the Denver-based telecommunications company priced its $550 million of bonds Monday - upsized from the originally planned $300 million - to yield 8 3/8%. "Not too much."

Qwest's 7½% notes due 2014 were seen down almost ¾ point, just below the 98 mark.

Market indicators keep rising

A trader saw the CDX Series 12 index up "over a point" on Tuesday at 94 1/8 bid, 94 5/8 offered, continuing the momentum seen on Monday when the index had risen 3/8 point, its sixth consecutive gain.

The KDP High Yield Daily Index climbed by 35 basis points on Tuesday to 68.06, while its yield fell by 13 bps to 8.73%. The index continued the definitively positive trend seen on Monday when it had risen by 23 bps while its yield had tightened by 7 bps.

In the broader market, advancing issues led decliners for a ninth straight session on Tuesday, fattening their edge to some two-to-one.

Junk market activity, reflected in dollar-volume totals, more than doubled from Monday's level.

"Things seemed to be percolating today to the upside," a trader asserted.

A second said that "everything was just bid without [offers]. There's not much paper to source right now. Everyone's focus is on how to make money in the second half [but] there's not a lot of supply out there."

Another trader declared that "everything is kinda wild. Every time you looked at something, it was up a little bit today."

And some things were up quite a lot.

"Things were crazy," he said, noting the dramatic rise in Parallel Petroleum's bonds.

Buyout boost for Parallel

Easily the biggest gainer of the day was Parallel Petroleum's 10¼% notes due 2014, which zoomed up to 99.5 bid, on several large-sized trades, versus the 71 level at which those bonds had last been seen, on Friday. A market source saw them come slightly off their highs to go out at 99 - still up some 28 points on the session.

A trader at another desk saw the bonds in a 99-99.5 range "all day." He said that before Tuesday's news-driven sessions, "they hadn't traded in weeks."

The company's Nasdaq-traded shares meantime rose by 29 cents, or 10.21%, to end at $3.13. Volume of 10.562 million shares was more than 18 times the norm.

The bonds and the shares rose after Parallel Petroleum, which drills for oil and natural gas in West Texas and New Mexico, announced that it had agreed to be acquired by Apollo Global Management LLC for $132 million in cash, in a deal valued overall at $483 million, including the assumption or repayment of $351 million of Parallel's net debt.

A part of that debt is the company's nearly $150 million of outstanding 2014 bonds, which Parallel will offer to repurchase at a price of 101 under the terms of the change-of-control provision in the notes' indenture. There was no immediate indication from the company when that bond repurchase might take place. While the company will buy back the bonds, as is required by the indenture, Parallel's news release noted that bondholder consent to the transaction is not required.

Apart from the bonds, the company's major debt obligation, according to the 10-Q report which Parallel filed with the Securities and Exchange Commission on Aug. 4, covering the second quarter ended June 30, is a $230 million borrowing-base revolving credit agreement with $225 million outstanding as of that date

On the equity side, Parallel said that an Apollo affiliate will begin a $3.15 per share tender offer for the company's outstanding shares on or before Sept. 24, with that tender offer expected to expire on the 20th business day after the tender offer begins, subject to possible extension.

In announcing the sale of the company, Parallel's chairman of the board, Jeffrey Shrader, said that the board had "considered a range of potential alternatives, including continuing to operate as an independent entity, the returns and dilution associated with issuing additional equity in a public or private offering, the possibility of the sale of certain assets, and combinations with other merger partners."

Shrader continued that "after conducting an exhaustive evaluation of recapitalization and corporate sale alternatives, our board of directors unanimously concluded, after in-depth consideration, that this transaction with Apollo is in the best interests of our shareholders."

Blockbuster keeps bouncing

Elsewhere, a trader saw continued upside in Blockbuster's 9% notes due 2012, seeing them trading all day in a 71-73 range and then pegging them up 1¾ points at the end of the day at 72¼ bid, on "a lot of activity."

Another trader saw the bonds mostly hanging around a 71½ level, "not too different than [Monday]," but said that by the end of the day, they got as high as 72 bid, 72¼ , which he called "a nice move."

He had seen the bonds going out on Monday around a 70-70½ range, and said they were well up from Friday's lows around 67- 69.

On Monday, the company announced plans to sell up to $340 million of senior secured notes due 2014, with proceeds to be used to eliminate term loan debt and revolving credit line debt and for general corporate purposes.

Rite Aid rally continues

A trader saw Rite Aid Corp.'s 10 3/8% notes due 2016 push above par bid to a 100-101 context, which he said would leave the bonds unchanged to up ½ point, continuing the recent firming trend in the Camp Hill, Pa.-based drugstore chain operator's bonds.

Those bonds had meantime risen 1½ points on Monday to around the 99½ level, and had also firmed on Friday, amid a general upward move in the company's bonds, prompted, some said, by investor perceptions that the economic downturn was finally bottoming, setting the stage for a rebound by retailers like Rite Aid.

Rite Aid's 8 5/8% notes due 2015 were up 1½ points on Tuesday, finishing at 81 bid. Those bonds have steadily moved up since levels in the mid-70s seen a week ago.

However, there was no actual fresh news out on the company, which recently announced plans to release its second-quarter results on Sept. 24.

Smithfield strengthens on stock sale plans

A trader saw Smithfield Foods Corp.'s bonds better, in apparent delayed reaction to Monday's late-session announcement that the Smithfield, Va.-based hog producer and pork processor will do a $250 million equity offering, with plans to use the proceeds from the transaction for working capital and general corporate purposes, "with a goal of continuing to strengthen its balance sheet, which may include the retirement of debt."

He saw the company's 7¾% notes due 2013 trade as high as 88 bid, well up from Monday's finish at 83¾ bid, "so that's a nice move."

A market source at another desk also saw those bonds up more than four points on the day, at the 88 level.

Sprint surge loses steam

On the other hands, Sprint Nextel's bonds seemed to have run out of gas after having risen solidly on Monday, on the strength of market speculation that European telecommunications giant Deutsche Telekom AG was considering making an offer for Overland, Kan.-based Sprint, the third-largest U.S. wireless carrier, with an eye towards possibly combining it with Deutsche Telekon's own U.S. cellular provider, T-Mobile, to produce a giant capable of going toe-to-toe with industry giants Verizon Wireless and AT&T.

A trader said that he "didn't see a lot of action" in the Sprint Nextel 8 3/8% notes due 2017-the $1.3 billion issue which had priced Aug. 10 at 98.575 to yield 8 5/8, and which then proceeded to fall into the low-to-mid 90s, only moving back up on Monday to around a 98ish context on the Deutsche Telekom news reports.

On Tuesday, he saw those bonds around the 98¾ level "several times," and said that the bonds had also traded around that level on Monday, "so they didn't move much further."

Another market source meantime saw the company's Sprint Capital Corp. financing arm's 7 5/8% notes due 2011, which had run up several points on Monday, dip slightly Tuesday to end just below the 102 mark, in fairly active dealings.

The speculation which pushed the bonds up on Monday was largely due to a weekend story in the U.K. newspaper The Sunday Telegraph suggesting that possibility. Neither Deutsche Telekom nor Sprint Nextel confirmed the speculation - and in fact, the German phone company, in declining any comment Tuesday on what it termed "rumors and speculations," reportedly referred media questioners to a CNBC story indicating that bankers and lawyers close to Sprint had said that they weren't aware of any talks with Deutsche Telekom.

News reports Tuesday, citing people close to DT, also appeared to undermine other reports which had said that its two largest shareholders - the German government, with 30%, and the Blackstone private equity group, with 5%, were pressuring company management to quickly make a major move to improve the performance of its U.S. operations, which could include a T-Mobile/Sprint combination. Those later reports said that there is no deadline, no pressure to make a move, and no move is imminent.

Other reports also quoted analysts expressing skepticism that such a combination could even take place, citing such roadblocks as a too-high potential price tag for Sprint Nextel, technical difficulties in meshing the two different operating systems of T-Mobile and Sprint Nextel, and possible regulatory reluctance to allow such a merger.

Homebuilders head higher

A trader exclaimed that "all the homebuilders are up points," adding that the sector "jumped up nicely."

He saw Beazer Homes USA Inc.'s 8 1/8% notes due 2016 at 75 bid, 77 offered, "probably up 3 points," while its 8 3/8% notes due 2012 traded at 86 bid, which he called up 1¼ point, with "paper trading on that one."

He also saw Hovnanian Enterprises Inc.'s 6¼% notes due 2016 quoted in the high 60s, but added that "I didn't see a lot of trading in that."

He saw Hovnanian's 11½% notes due 2013 quoted around par, "up almost 3 points, trading up to 99 7/8."

So, "homebuilders were feeling better."

William Lyon Homes Inc.'s 10¾% notes due 2013 were at a 49-51 context, which he called up "5 or 6 points" from recent levels. "There's not a lot of trading in that one, it seems to be a thinner issue, but again, it's up with the rest of the homebuilders."

He saw little or no activity in Standard Pacific Corp.'s established bonds, such as its 7¾% notes due 2013, hovering around 88 bid - down from recent levels above 91 - saying all of the company's action was in the recently priced 10¾% notes due 2016, which have moved up to around 96-97, well up from the 91.997 level at which the company priced that $280 million of notes - up from $200 million originally - last Thursday to yield 12½%. "That's the active one in that [name], because it just came out."

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