Verso three-part deal prices; Phibro offering restructured; GM up on results

By Paul Deckelman and Paul A. Harris

New York, July 26 - Verso Paper Holdings/Verso Paper Inc. was heard to have successfully priced $900 million of new bonds Wednesday in a three-part offering that included both fixed- and floating-rate notes.

Elsewhere in the primary market, high yield syndicate sources said that Phibro Animal Health Corp. restructured its upcoming bond offering into a two-part deal, although it was unchanged in size. Price talk emerged on H&E Equipment Services Inc.'s 10-year senior note deal, while two other prospective offerings made their way onto the forward calendar - one, a nearly $2 billion multi-tranche mega-deal from Australia-based Fortescue Metals Group, while Berry Plastics Corp. will sell new notes to help finance its tender offer for its $335 million of existing 10¾% notes due 2012, being undertaken as part of the planned buyout of the Evansville, Ind.-based maker of plastic packaging by private equity players Apollo Management LP and Graham Partners, a deal announced about a month ago.

In the secondary market, General Motors Corp. was expected to come in with strong earnings, which had pushed the Detroit giant's bonds up during Tuesday's session, and that is exactly what happened, with the world's largest carmaker's bonds extending their recent gains during Wednesday's action.

With auto sector bellwether GM better, bonds of other automotive names followed it right up, including GM's own financing arm, General Motors Acceptance Corp., its major rival, Ford Motor Co., and Ford's financing unit, Ford Motor Credit Co., and even the bonds of bankrupt former GM parts subsidiary Delphi Corp., which remains inextricably linked to its one-time corporate parent because of its extensive sales to GM, its single largest customer, and because GM is helping Delphi out of its current financial jam by agreeing to front Delphi most of the money the cash-strapped latter company needs to proceed with its program to cut its bloated workforce by offering buyouts to thousands of unionized hourly workers.

Outside of the automotive realm, hospital bonds continued to weaken for yet another session - they have been on the slide for over a week now - in the wake of Monday's news that industry leader HCA Corp. has agreed to be bought out by several private equity firms and insider investors in a deal valued at $33 billion - the largest ever leveraged buyout transaction, and one which is expected to add billions of dollars of new debt to the Nashville-based hospital operator's already heavy debt burden. Names seen lower in sector sympathy included Tenet Healthcare Corp. and Triad Hospitals Inc.

Starwood Hotels & Resorts Worldwide Inc.'s bonds were better, in apparent reaction to Standard & Poor's raising the White Plains, N.Y.-based hotel and leisure company's debt ratings to investment grade - lofty territory that those ratings have not seen since May 2003.

High yield sources unanimously marked the broad market higher on Wednesday.

A buy-side source who focuses on both high yield bonds and bank loans said that there is a good deal of cash remaining to be put to work in junk, and marked the market up ¼ point not long before the close.

Shortly after the close a high yield syndicate official said the market moved up ¼ to ½ point on the session.

A little later a source from a hedge fund also said that the market firmed on the day and added that the CDX 100 index closed 99.75 bid, 99.875 offered, up one-sixteenth.

Meanwhile $900 million of new paper cleared the primary market in three tranches from a single issuer.

Verso prices $900 million

Verso Paper Holdings LLC and Verso Paper Inc. came with Wednesday's only issuance, pricing $900 million of high yield notes in three tranches.

The deal included a $350 million tranche of eight-year fixed-rate second priority senior secured notes (B1/B+) which priced at par to yield 9 1/8%, on the tight end of the 9¼% area price talk.

In addition the company priced a $250 million tranche of eight-year floating-rate second priority senior secured notes (B1/B+) at par to yield three-month Libor plus 375 basis points, 25 basis points inside of the Libor plus 400 basis points area price talk.

The deal also included a $300 million tranche of 10-year senior subordinated notes (B3/B-), which priced at par to yield 11 3/8%, 25 basis points beyond the 11% area price talk.

Credit Suisse and Lehman Brothers were joint bookrunners for the acquisition deal from the Stamford, Conn.-based paper, packaging, forest products and chemical products company.

Shortly after the terms were circulated a source from a hedge fund said that all three tranches had traded up in the aftermarket, and inferred that there had been plenty of demand for the Verso paper.

Fortescue Metals plans $1.9 billion

The forward calendar of deals thought to be in the market continued to grow conspicuously on Wednesday, as the tally rose to more than $7 billion.

Australian iron ore company FMG Finance Property (Fortescue Metals Group) started a roadshow Wednesday in Asia for its $1.9 billion equivalent multi-tranche high-yield bond deal, which is being led by bookrunner Citigroup.

The company, which is headquartered in East Perth, plans to sell first-lien senior secured notes with maturities ranging from five years to 10 years, with a possible floating-rate tranche.

Notes will be offered in dollar and euro denominations.

Credit ratings remain to be determined.

Proceeds will be used to fund construction of a freight rail line from Fortescue's new iron ore project in the Pilbara region of Western Australia to the coast.

Talking the deals

Elsewhere news surfaced on deals that are expected to price before the end of the week.

H&E Equipment Services talked its $250 million offering of 10-year senior notes (B3/B+) at 8¼% to 8½% on Wednesday.

The issue is expected to price on Friday via Credit Suisse and UBS Investment Bank.

Meanwhile Phibro Animal Health restructured its $240 million high-yield bond deal on Wednesday.

The Ridgefield Park, N.J., animal health and nutrition products company plans to sell $160 million of seven-year senior notes (B3/B-), talked at a yield in the 10% area.

Meanwhile the company introduced to the structure an $80 million tranche of 10-year senior subordinated notes, which it has talked at the 12½% area.

Previously Phibro Animal Health had been in the market with a single $240 million tranche of the seven-year senior notes. Price talk of the 10¾% area had been heard on that tranche of notes.

UBS Investment Bank has the books for the deal which is expected to price on Thursday.

Verso up in trading

When the new Verso paper bonds were freed for trading, traders saw all three tranches - the 9 1/8% and floating-rate second-lien notes due 2014 and the 11 3/8% subordinated notes due 2016 at 100.5 bid, 101 offered, up from their par issue price.

GM jumps on earnings

Back among the established issues, "it was GM day," a trader said, quoting the carmaker's 8 3/8% notes due 2033 at 83 bid, 83.5 offered, up 3 points on the day, and 6.85% notes due 2008 a point higher at 84.5 bid, 85.5 offered.

Another trader saw the 8 3/8s up 1½ points at 82.75 bid, 83.25 offered, noting "they opened up there" in response to the quarterly results "and then they just sat there."

He saw GMAC's 8% notes due 2031 up ¼ point at 98.5 bid, 99.

Other autos better too

The first trader said that "the whole [automotive] sector felt good," and noted that it had "been moving up the last day or two," in anticipation of GM's quarterly report.

He saw former GM unit Delphi's 6.55% notes due 2009 at 82.25 bid, 83.25 offered, up 1¼ points from Tuesday's levels.

The second trader saw Delphi's 7 1/8% notes due 2029 up 3/8 point at 77.5 bid, 78 offered, and saw GM rival Ford's 7.45% notes due 2031 also a 3/8 point gainer, at 74.5 bid, 75 offered. Ford Credit's 7% notes due 2013 were ¾ point better at 88.75 bid, 89.75 offered.

GM announced that for the second quarter, it had a net loss of $3.2 billion ($5.62 per share), although that included a total of $4.3 billion ($7.66 per share) in special items that reflected a previously announced $3.7 billion after-tax charge related to the successful accelerated attrition program, in which 34,400 hourly employees participated. By comparison, for the second quarter of 2005 the company reported a net loss of $987 million ($1.75 per share).

However, GM bulls pointed to the company's adjusted net income for the quarter, excluding special items, which was $1.2 billion ($2.03 per share) on record revenue of $54.4 billion. That was a solid improvement of $1.4 billion from the year-ago adjusted loss of $231 million (41 cents per share) on revenue of $48.5 billion.

GM also said that its adjusted operating cash flow for the quarter was $700 million - a more than $2 billion improvement compared to the second quarter of 2005.

Earnings help Amkor

Among other companies reporting earnings Wednesday, Amkor Technology Inc.'s bonds were better, with the Chandler, Ariz.-based semiconductor testing and packaging services provider's 7¾% notes due 2013 seen up 1½ points to around the 89 area.

In its report after the stock market close Wednesday, Amkor showed net income of $24 million (13 cents per share) for the quarter, a solid comeback from its year-ago net loss of $52 million (30 cents per share).

While the earnings fell far short of the 27 cents per share that Wall Street was looking for, second-quarter revenues of $689.6 million blew right through analysts' expectations of about $664 million, and were up sharply from $489.3 million a year ago.

B/E steady after results

B/E Aerospace Inc.'s bonds were essentially unchanged on the session, even as the Wellington, Fla.-based maker of aircraft interior components posted strong second-quarter earnings amid brisk demand for commercial aircraft and business jets.

The company's 8½% notes due 2010 - nearly all of which will be bought in a tender offer currently under way - were at 106.5 bid, 107.25 offered and its 8 7/8% notes due 2011 were at 104.375 bid, 104.75 offered, both unchanged on the day, a trader said.

Second-quarter net income more than doubled, to $18.7 million (24 cents per share) from $8.4 million (14 cents per share) in the year-ago period. Per-share earnings topped Wall Street's estimates of 21 cents.

Sales, meantime, jumped 31% to $271.5 million from $207.6 million last year, well above analysts' expectations of $252 million. The backlog of orders to be filled - an indicator of future revenues - zoomed more than 75% from year-earlier levels to $1.45 billion at the end of the quarter.

Boyd drops on earnings

Boyd Gaming Corp.'s bonds moved lower, as the Las Vegas-based casino operator drew all deuces and threes with its latest earnings report. The company's second-quarter net income plunged 79% to $10.2 million (11 cents per share), well down from $48.6 million (54 cents per share) a year ago.

A trader saw Boyd's 8 ¾% notes due 2012 down ¼ point at 104.5 bid, 105.25 offered, while its 6¾% notes due 2014 lost 3/8 point to close at 94 bid, 94.75 offered.

A market source at another shop quoted Boyd's 7¾% notes due 2012 down nearly a point at 100.25.

Yet another trader saw those bonds start out at that same level and finish at 99.75 bid, 100.75 offered.

Besides the poor earnings, Boyd also said it is selling its seven-month old South Coast casino property in Las Vegas to Michael Gaughan, the founder of the Coast Casinos chain that Boyd merged with two years ago. Boyd opened the 600-room South Coast in December at a cost of about $583 million, but it was thought to be underperforming versus expectations. Its sudden sale after less than a year of operation, for a price around what it spent on the property, as figured by a formula involving Boyd's stock price, is thought by analysts to send a signal of management uneasiness about committing further resources to its core market in Las Vegas, which is thought to be softening up after having boomed along for the last several years.

Abitibi better

Abitibi Consolidated Inc.'s bonds were seen modestly firmer, even as the Canadian forest products company reported a fall in its second-quarter operating profit from year-ago levels. The debt was apparently buoyed by Montreal-based Abitibi announcing the suspension of its stock dividend, a move it says will save C$44 million a year.

A trader saw Abitibi's 8½% notes due 2029 at 84 bid, 85 offered, up 1½ points on the session, even though its 8 3/8% notes due 2015 were unchanged at 91.25 bid, 92 offered.

At another desk, the company's bonds were seen up around ¼ to ½ point on the day, with its 8 3/8% notes due 2015 half a point better at 91.5 bid.

While Abitibi earned C$157 million (36 Canadian cents a share) in the quarter, an improvement over the year-earlier loss of C$43 million (10 Canadian cents), that swing into the black was due to the effects of a C$130 million one-time foreign exchange gain and a C$63 million positive income tax adjustment. Excluding those special; items, Abitibi lost C$36 million (eight Canadian cents a share) on an operating basis versus C$26 million (six Canadian cents a share) a year ago.

Starwood higher after upgrade

Apart from companies reporting earnings, a trader saw Starwood Hotels' bonds about ¾ point firmer across the board as S&P lifted the company's corporate credit and senior unsecured ratings to BBB-. That reversed S&P's May 2003 decision to drop the company into junk territory.

The trader saw Starwood's 7 7/8% notes due 2012 at 105 bid, 105.5 offered, while its 7 3/8% notes due 2015 firmed to 102.5 bid, 103.5 offered.

Moody's Investors Service and Fitch Ratings continue to consider Starwood junk, at Ba1 and BB+ respectively.

Hospitals keep dropping

The hospital names continue to suffer the after-effects of Monday's announcement that Bain Capital, Kravis Kohlberg Roberts & Co., Merrill Lynch's private equity arm will acquire HCA Corp., the largest hospital operator in the U.S. for more than $21 billion, and will assume more than $11 billion of debt.

HCA's bonds had widened out substantially last week on the first news reports of the buyout talks, with bond investors fearing that any such transaction will involve loading the company up with even more debt to pay for it. The bonds nosedived Monday on the official announcement, and continued to ease Tuesday, and now Wednesday, although the easing over those latter two sessions was much less pronounced.

A trader saw HCA's 6½% notes due 2016 down another ¼ point at 78.5 bid, 79.25 offered, while its 6¼% notes due 2013 were ¾ point lower on the day at 80.75 bid, 81.5 offered.

He also saw the bonds of Dallas-based rival hospital operator Tenet lower, with its 9¼% notes due 2015 off ¾ point at 92.25 bid, 93.25 offered. Traders have cited investor worries that the HCA deal might spark further LBO deals among the sector.

A second trader pegged HCA's 5¾% notes due 2014 at 77.25 bid, 78.25 offered, well down from 78.75 bid, 79.75 offered previously, and saw the Tenet bonds down about ¼ point across the board.

Another sector-watcher saw Triad Hospitals' 7% notes due 2013 ¼ to ½ point lower, around 96.5.

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