SemGroup, Rhodia price deals; Harrah's bonds bounce off lows

By Paul Deckelman and Paul A. Harris

New York, Oct. 3 - With junk bond desks pretty much back to near-normal strength on Tuesday - a number of participants had been out Monday for the Yom Kippur religious holiday - the high-yield primary market continued its recently busy activity level.

The primary market saw two issues price as Rhodia SA completed its oversubscribed €1.1 billion transaction and SemGroup, LP priced a $250 million add-on.

Earlier in the day, Buffets Inc. was heard to have set a $330 million size on its upcoming junk bond offering, which will fund the company's acquisition of Ryan's Restaurant Group Inc.

In the secondary realm, bonds of Harrah's Entertainment Inc. and Caesar's Entertainment Inc. - the latter now a division of the Las Vegas-based gaming giant - were seen to have rebounded off the lows to which they were pounded down on Monday by the news that two buyout shops are putting together a deal - likely an LBO - to take Harrah's private. Other casino names such as Boyd's Gaming Corp., Mandalay Resort Group and Isle of Capri Casinos Inc., however, were on the downside on the possibility that buyout shops and other potential investors might be eyeing them as potential LBO material as well.

Airline issues - particularly Delta Air Lines Inc. and Northwest Airlines Corp.-were seen winging their way higher, given a boost by the continued fall in world crude oil prices, which nosed below $59 a barrel Tuesday, a potentially positive sign for industry investors about likely future price moves for jet fuel.

Following the close of Tuesday's session, which saw the Dow Jones Industrial Average finish at a new all-time high, an official on a high yield syndicate desk said that the market had a firmer tone on the session, but specified that it was nothing spectacular.

Rhodia 2.5 times oversubscribed

In primary action, French specialty chemical manufacturer, Rhodia, priced a €1.1 billion issue of seven-year senior floating-rate notes (B2/B-) at par to yield three-month Euribor plus 275 basis points on Tuesday.

The yield came at the tight end of the Euribor plus 275 to 287.5 basis points price talk.

Credit Suisse ran the books for the Paris-based company's debt refinancing deal, which was 2.5 times oversubscribed, according to an informed source.

SemGroup taps 8¾% notes

Elsewhere midstream energy services provider SemGroup priced a $250 million add-on to its 8¾% senior notes due Nov. 15, 2015 (B1//B+) at 99.50, resulting in a yield of 8.828%.

Price talk was the 100.00 area.

Banc of America LLC was the bookrunner for the acquisition, debt refinancing and general corporate purposes transaction.

The original $350 million issue priced at 98.376 to yield 9% in a transaction that was upsized from $250 million on Nov. 7, 2005.

Hence with Tuesday's transaction SemGroup shaved slightly more than 17 basis points off of the yield it printed on the original notes.

NXP talks five tranches

In other primary market news on Tuesday NXP BV/NXP Funding LLC, formerly Philips Semiconductor, set price talk and timing for its €4.5 billion equivalent five-tranche notes deal - the largest ever offering of high yield notes from a European issuer, according to a source close to the deal.

Tranche sizes and price talk are as follows:

• Approximately $1.5 billion seven-year senior secured floating-rate notes (Ba2/BB+), non-callable for one year, price talk Libor plus 275 basis points area;

• Approximately €1 billion seven-year senior secured floating-rate notes (Ba2/BB+), non-callable for one year, price talk Euribor plus 275 basis points area;

• $750 million to $1.0 billion eight-year senior secured fixed-rate notes (Ba2/BB+), non-callable for four years, price talk 7 7/8% area;

• Approximately $1.3 billion nine-year senior unsecured fixed-rate notes (B2/B+), non-callable for five years, price talk 9¼% to 9½%;

• €500 million nine-year senior unsecured fixed-rate notes (B2/B+), non-callable for five years, price talk 8½% area.

Morgan Stanley, Deutsche Bank Securities and Merrill Lynch & Co. are joint bookrunners for the acquisition-related debt financing deal from the Netherlands-based microchip manufacturer.

Pricing is set for Thursday.

Secondary yawns at Freescale financing

Back in the secondary market, the news that Freescale Semiconductor plans to sell over $6 billion of new junk bonds as part of its LBO financing had little impact on the chipmaker's existing bonds.

A trader saw Freescale's 6 7/8% notes due 2011 unchanged at 105.25 bid, 105.75 offered, while the company's 7 1/8% notes due 2014 were likewise steady at 1027.25 bid, 107.75 offered.

Freescale said in a filing with the Securities and Exchange Commission that it expects to use an up to $4.25 billion senior secured credit facility and issue up to $6.15 billion of high-yield bonds to help fund the buyout by a consortium of private equity companies led by The Blackstone Group and including The Carlyle Group, Permira Funds and Texas Pacific Group.

Harrah's recovers some ground

The trader meantime saw Harrah's Entertainment's 5 5/8% notes due 2015 at 85.75 bid, 86.25 offered, while its 6½% notes due 2016 finished at 89 bid, 89.75 offered, each up 1¼ points on the session, as the bonds bounced - a little, at least - from the lows seen during Monday's bloodletting.

Monday's session saw the world's largest casino operator's stock shoot up - but its bonds brutally shot down, by anywhere from 6 to 10 points, depending on whom you spoke to, on the news that the company had received a $15 billion buyout offer from private equity firms Apollo Management and Texas Pacific Group. That deal does not include Harrah's $10.8 billion of existing debt.

While stockholders saw the notion of a buyout by the deep-pocketed equity companies as a royal flush, bondholders saw themselves being dealt a hand of all deuces and threes, with the buyers likely to fund the deal by piling on additional debt in an LBO - and much of that new debt likely to be of the secured variety, pushing their own bonds further down the food chain.

Those concerns were voiced by the major ratings agencies on Monday, with Standard & Poor's actually dropping Harrah's ratings into junkbondland at BB+ with a negative outlook from BBB- previously.

"If a transaction were ultimately agreed upon, we would expect a marked increase in leverage, which is likely to result in even further ratings downside potential," S&P warned.

"If an acquisition is not consummated, we believe the company will be faced with increasing shareholder pressures for some form of leveraging transaction over the near term, given the company's stock-price appreciation since the public confirmation by Harrah's of the acquisition proposal. There is no room for even a relatively modest share repurchase program at the former rating."

The agency further noted that the acquisition proposal, "and likely increased shareholder pressures, comes at a time when Harrah's already had limited flexibility in its leverage profile at its former rating."

Moody's Investors Service had sounded a similar note Monday, as it changed Harrah's rating outlook to negative from stable, although it kept the company's ratings - for the moment - at a tenuously investment-grade Baa3. However, it warned that "if a transaction is consummated on the current offer price, Moody's estimates a potential downgrade to the single B rating category." On the other hand, even if the buyout is not completed, the ratings might still be dropped, to an as-yet unknown level, depending on how much additional leverage Harrah's might take on to give the shareholders a consolation prize in the form of any program to increase shareholder returns.

"Harrah's has been volatile on all the LBO news," another trader said Tuesday.

He saw the company's bonds fall "10 points yesterday [Monday]. I'd say they gained back a point to 2 points [Tuesday], depending on which issue," with the 5¾% notes due 2017 bouncing back up a little to 84 bid, 85 offered, "so they're moving back a little bit."

The upturn, he added was "not much. If you own the 53/4s, you're still down about 9 points. There was no major rally. There were more buyers in the short end and the long end continues to move up in lock step, but not much."

He said "little by little, you'll have some people come in to take a look at the paper at these levels, but there's still a long way to go" to get back to where the bonds were before the buyout news hit the tape Monday.

The first trader meantime saw Caesar's Entertainment 8 1/8% notes due 2011, which had also retreated badly on Monday, up ¾ point on Tuesday at 102 bid, 102.75 offered.

At another desk, those bonds were seen up as much as 1 5/8 point at just over 102, after having been pegged nearly 5 points lower to around par bid on Monday.

Caesar's 7 7/8% notes due 2010, however, were off more than a point on the day at 102.25.

Other gaming names lower

"Gaming, as you would think," a trader said, "was off a little bit. People are nervous that [other companies] could be next, which is good for equity holders, but bad for the bondholders, so you saw a little pullback in the Boyd Gamings and the Station Casinos [Inc.], which have had some more activity of late."

He saw Las Vegas-based Boyd's 6¾% notes due 2014 down ¼ point at 97.5 bid, 98.5 offered, while Vegas-based local operator Station's 6% notes due 2012 were about a point lower at 95.5 bid, 96.5 offered.

"Boyd was mentioned last week that they might go private," so with that possibility already out there, "so they've kind of hung in there, but Stations were off a little."

He also saw Las Vegas gaming giant MGM Mirage "off a little bit. Generally, I'd say they were off a quarter-point to a half point, depending on which names."

Among other gaming names, Las Vegas-based Mandalay Resort Group's 9 3/8% notes due 2010 were seen down about a point at 105.75. Also down a point was Atlantic City, N.J.-based Trump Entertainment Resorts Inc., whose 8½% notes due 2015 were at 94.5. Biloxi, Miss.-based Isle of Capri's 7% notes due 2014 were seen ½ point lower at 95.5 bid, while Chester, W.Va.-based MTR Gaming Group Inc.'s 9% notes due 2012 were almost a point lower at 100.375.

Airlines reach for the skies

Elsewhere, traders saw the bonds of bankrupt Atlanta-based Number-Three U.S. air carrier Delta up about a point or two, with one quoting its 8.30% notes due 2029 two points higher on the day at 31 bid, 32 offered.

He also saw Northwest's paper up by around the same amount, with the bankrupt Eagan, Minn.-based Number-Four carrier's 8 7/8% notes due 2006 advancing to 56 bid, 57 offered.

At another desk, a trader saw both of those issues up about a point on the day, with the Delta 8.30s ending at 30.5 bid, 31.5 offered, and the Northwest 8 7/8s at 54.75 bid, 55.75 offered.

He also saw the bonds for Fort Worth, Tex.-based AMR Corp. - the parent of top carrier American Airlines - having "inched up," with the company's 9% notes due 2012 seen around 99.625 bid.

Airline bonds have been firming gradually over the past several weeks, in line with the fall in world crude prices, which is seen in some quarters as a sign that jet fuel prices may come down over time. Sky-high fuel prices helped to push both Delta and Northwest into Chapter 11 last year and hurt the finances of many other airline operators, including AMR.

In Tuesday's New York Mercantile Exchange dealings, crude for November delivery slid $2.35 to settle at $58.68 a barrel, the lowest close since Feb. 16. That slide follows a $1.88 drop on Monday.

Airline investors were also heartened a bit by Northwest's forecast Monday that it expects to record a "modest" profit for the full year 2006, excluding reorganization costs, even though revenue weakened last month and the fourth quarter is not expected to be profitable.

Northwest projected a full-year pretax profit margin of about 2% on revenue of more than $12 billion, excluding reorganization items.

Goodyear off on labor worries

Back on solid ground, a trader saw Goodyear Tire & Rubber Co.'s bonds "trending a little lower, maybe half a point," on the Akron, Ohio-based tire giant's labor problems.

The United Steelworkers union on Monday warned Goodyear that it would end its contract, without an extension, on Thursday if no deal was reached in their four-month-old talks - raising the possibility of strikes or lockouts at the company's U.S. plants.

Goodyear's 7.857% notes due 2011 eased ½ point to 96.5 bid, 97.5 offered.

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