Two-part Icahn mega-deal prices, Stone, Marquette; new Stone is solid but Icahn struggles

By Paul Deckelman and Paul A. Harris

New York, Jan. 12 - The high yield new-deal pricing parade rolled on through Tuesday's session, as Junkbondland's first mega-deal of the year - Icahn Enterprises LP/Icahn Enterprises Finance Corp.'s much-anticipated $2 billion two-part offering - came to market. However, the big deal failed to live up to its advance billing and proved to be a dud when it was freed for secondary trading, leaving market participants to debate what went wrong.

Not so Stone Energy Corp.'s upsized offering of seven-year notes; the Lafayette, La.-based oil and gas exploration and production company's transaction priced just a day after its announcement, and the bonds proceeded to firm smartly in aftermarket dealings.

Also during the session, Marquette Transportation Company, LLC/Marquette Transportation Finance Corp.'s offering of seven-year senior secured notes - like Icahn a scheduled forward calendar deal that was shopped around to investors on a traditional roadshow - successfully priced and then was heard to have moved up when it began trading.

Domestic pricings were rounded out by Verso Paper Corp.'s suddenly appearing add on to the Memphis-based coater-paper company's existing 11½% notes due 2014. The quite small deal - $25 million - which priced at a substantial premium to par, reflecting the existing issue's trading levels, did not trade in the secondary.

European issuer HeidelbergCement AG was meantime heard to have come to market with a massive two-part, euro-denominated issue.

Apart from the day's pricings, talk emerged on the dollar-denominated portion of Virgin Media Secured Finance plc's triple-tranche, three-currency offering of eight-year first lien notes, which is expected to price on Wednesday morning.

Among the established bonds, KB Home's paper moved up a point or so as the California-based homebuilder reported its first quarterly profit in almost three years, handily beating Wall Street's expectations.

In the distressed-debt precincts, R. H. Donnelley Corp.'s bonds were better on the news that the bankruptcy court overseeing its restructuring had approved the telephone directory publisher's plan of reorganization, clearing the way for its emergence from Chapter 11 and the distribution of virtually all of its equity to its bondholders.

Stone Energy upsizes

In Tuesday's primary market, Stone Energy Corp. priced an upsized $275 million issue of 8 5/8% seven-year senior notes (Caa1/BB-) at 98.713 to yield 8 7/8%.

The yield printed at the tight end of the 9% area price talk. The amount was increased from $250 million.

Bank of America Merrill Lynch and J.P. Morgan Securities Inc. ran the books.

Proceeds will be used to fund a tender for the company's notes maturing in 2011 and for general corporate purposes.

Marquette prices at tight end

Meanwhile, Marquette Transportation Co., LLC and Marquette Transportation Finance Corp. priced a $250 million issue of 10 7/8% seven-year senior secured notes (B3/B-) at 98.81 to yield 11 1/8%.

The yield printed at the tight end of the 11¼% area price talk.

J.P. Morgan and Wells Fargo Securities were joint bookrunners.

Proceeds will be used to repay debt.

Verso brings add-on

Verso Paper Holdings LLC and Verso Paper Inc. priced a $25 million add-on to their 11½% senior secured notes due July 1, 2014 at 109.75 to yield 8.204%.

Credit Suisse ran the books.

Proceeds will be used for capital expenditures, and for general corporate purposes.

HeidelbergCement upsizes

Away from the dollar-denominated market, HeidelbergCement AG priced an upsized €1.4 billion two-part senior unsecured notes transaction (B1/B+) on Tuesday.

The German company priced €650 million of 6½% 5.5-year notes at 98.856 to yield 6¾%. The yield printed on top of the price talk.

The company also priced €750 million of 7½% 10.25-year notes at 98.219 to yield 7¾%, also on top of price talk.

The total size was increased from €1 billion.

Deutsche Bank, Citigroup, Commerzbank, ING, Landesbank Baden-Württemberg, RBS Securities and Unicredit were joint bookrunners.

Proceeds will be used to repay bank debt.

Icahn brings split-rated deal

And in a split-rated deal that was closely followed by high-yield players, Icahn Enterprises LP and Icahn Enterprises Finance Corp. priced $2 billion of split-rated senior notes (Ba3/BBB-) in two tranches on Tuesday.

An $850 million tranche of 7 ¾% six-year notes priced at 99.411 to yield 7 7/8%. The yield printed at the wide end of the 7¾% to 7 7/8% yield talk. The reoffer price came in line with discount talk of approximately ½ to ¾ point.

Also a $1.15 billion tranche of 8% eight-year notes priced at 99.275 to yield 8 1/8%. Again, the yield printed at the wide end of the 8% to 8 1/8% yield talk. The reoffer price of the eight-year notes came toward the cheap end of the ½ to ¾ point of discount talk.

Jefferies & Co. ran the books.

Proceeds will be used to refinance the master limited partnership's 7 1/8% senior notes due 2013 and its 8 1/8% senior notes due 2012 and to fund general corporate purposes.

Virgin Media for Wednesday

Virgin Media Inc. set price talk for the dollar-denominated tranche of its £500 million equivalent offering of eight-year first-lien notes (expected ratings Ba2/BB/BB+) at 6¾% to 7%, on Tuesday, according to a market source.

The deal, which will also include euro- and sterling-denominated notes, is expected to price on Wednesday.

JPMorgan and Goldman Sachs & Co. are global coordinators for the bank debt refinancing.

New Icahn bonds fizzle in aftermarket

When the new Icahn Enterprises mega-deal was freed for secondary dealings after the two tranches priced fairly early in the morning, the big new issue "did not perform well," a trader declared. "It was very disappointing."

The Icahn offering, another trader agreed "did not trade stellar out of the box."

He saw the $850 million of 7¾% notes due 2016 initially trading as low as 97¾ bid, 98¾ offered - versus their 99.41 pricing level, which yielded 7 7/8% -- although later on, the bonds came a little off those early lows to settle in around 98½ bid.

Meanwhile, the $1.15 billion of 8% notes due 2018, which had priced at 99.275 to yield 8 1/8%, also broke well below their issue price, debuting at 97½ bid, 98½ bid, before later firming to about 98 bid, 98½ offered.

However, he said that the levels around 98-98½ were also notched in the morning "because then it all kind of quieted down. We haven't really seen much of it this afternoon."

Another trader did see the 8% bonds going home around 98-981/4, and the 7 7/8s offered at 983/4, without a bid, in pegging the bonds between a half point and a full point below their initial levels.

A trader said the new deal may have been sabotaged by the weak equity market, which in turn depressed sentiment among junk players, who heretofore had ridden the crest of a strong wave of positive momentum.

The bellwether Dow Jones Industrial Average - dragged lower by weak earnings reported by component Alcoa Inc. - ended down 36.73 points, or 0.34%, to close at 10,627.6. The broader Standard &Poor's 500 index was meantime falling 0.94%, while the still broader Nasdaq composite tumbled 1.30%.

"That may have something to do with it," he said. "We just ran out of steam."

Another trader said that there were several possible explanations for the deal's poor aftermarket performance.

For one thing, he said, there was negative news out on the company - controlled by billionaire investor Carl C. Icahn - right on the eve of the bond deal, with New York hedge fund Q Investments, LP suing Icahn Enterprises on Monday in New York for having allegedly made "a materially misleading representation" to potential bond-buyers as to the extent of the ownership and control that Icahn exercises over one of its largest investments, in the formerly bankrupt automotive components maker Federal Mogul Corp. The suit is the latest skirmish in an ongoing legal battle between the hedge fund and the wily tycoon.

"I can't tell you if that lawsuit had anything to do with [the deal's anemic secondary performance] or the fact that you've got an underwriter that normally doesn't do $2 billion deals," potentially cutting down on the amount of support it could lend to the deal in the trading phase. He also raised the fact that the Ba3/BBB- deal might normally attract attention from the investment-grade side of the fence, "but they may get spooked just because it's a new issue from an underwriter that normally doesn't do this type of paper."

Another possibility, he said, was "maybe you had a lot of flippers" playing off the company's existing bonds, which would rise on the likelihood that they will be taken out, versus the new issue, "so maybe they lose half a point on what they just bought, but they're making it back on the older issue that they had a nice run in."

And finally, he suggested - "it may not have had enough juice on it" to attract investors. There was enough, he said to get the deal priced, "but not to give it the nice pop or support afterward.

"Icahn is a very savvy investor, so he probably wasn't leaving any money on the table, and with him not leaving money on the table so it could be 'priced cheap' so it trades up on its own, he does well - but it may not perform as well as investors thought it would."

All in all, he said, "for something that everybody's been talking about since the new year - for it to trade down a point right out of the box - is a little disappointing."

Stone Energy soars

Several traders noted the methodical climb in Stone Energy's new 8 5/8% notes due 2017, which had priced earlier in the session at 98.713.

One saw the bonds at around 100½ bid.

Another pegged them at par bid, 101 offered.

Marquette travels up

A trader saw Marquette Transportation's new 10 7/8% senior secured notes quoted as high as 100¼ bid, although he acknowledged that he had not seen an offering side.

The Paducah, Ky.-based river freight company's deal had earlier priced at 98.81.

Monday deals hang in there

A trader said that the new B&G Foods Inc. 7 5/8% notes due 2018, which priced on Monday, "were hanging in there pretty well," seeing the bonds as high as 102¼ bid, 102½ offered, before going out at 102 bid.

The Parsippany, N.J.-based packaged foods company's $350 million of bonds had priced at 99.271 to yield 7¾% and then had moved up to 101¾ bid, 102½ offered later Monday.

He also saw Scotts Miracle-Gro Co.'s 7¼% notes due 2018 having initially traded down a point from Monday's levels, but by the end of the day they had recovered to end at 101¾ bid, 102¼ offered, up from Monday's late level at 1011/4. It was meantime well up from the 99.254 level at which the Marysville, Ohio-based maker of lawn and garden-care products had priced its $200 million offering on Monday to yield 7 3/8%.

The two issues were among "the big traders" on the day.

New UAL gains altitude

Also seen flying higher was United Air Lines Inc., which priced a $700 million two-part offering late in the day Monday.

UAL's bonds "traded up, then down" the trader said.

Its $500 million of 9 7/8% first-lien senior secured notes due 2013 were seen in the morning having gotten as good as 102¼ bid, 102½ offered, before descending a little from those peaks to finish at 101¼ bid, 101¾ offered - still well up from the 99.259 level at which the Chicago-based Number-Two U.S. air carrier had priced the bonds on Monday to yield 10 1/8%.

The company's $200 million of 12% second-lien senior secured notes due 2013 reached a high of 96½ bid, before going out at 95¾ bid, 96 3/8 - well up from the 95.318 at pricing, yielding 13 5/8%.

Market indicators turn mixed

Among statistical measures of market performance, a trader saw the CDX Series 13 index down ½ point on Tuesday at 100½ bid, 101 offered, after having been up ½ point on Monday.

The KDP High Yield Daily Index meanwhile gained 1 basis point on Tuesday to 72.25, after having risen by 14 bps on Monday. Its yield held steady at 7.77%, after having tightened by 4 bps the previous session.

Advancing issues fell behind decliners for the first time in the new year, though only by the relatively narrow margin of a few dozen issues out of more than 1,500 tracked.

Overall market activity, as measured by dollar volume levels, jumped nearly 44% from Monday's pace.

A trader characterized Tuesday's session as "kind of a fairly active day, with the new issues and a little secondary here and there."

KB Home higher after earnings

A trader saw KB Home's paper doing better after the Los Angele-based homebuilder reported better-than-expected fourth-quarter earnings, but said that it was "nothing huge, not large volume."

He saw the company's 9.10% notes due 2017 trading at 106 7/8, which he called a gain of 3/8 to ½ point. Meanwhile, KB's 7¼% notes due 2016 were quoted up between 1½ and 2 points from their levels around 95-95¼ seen at the beginning of the year. Likewise, its 5 7/8% notes due 2015 "have begun to slowly move up" and also are around 2 points stronger than the start of the year, in a 951/4-95½ context, but were unseen on Tuesday.

However, another trader did see the latter bonds up 1 point in Tuesday dealings at 95 bid, 96 offered, on "not too bad" earnings.

KB, a builder of single-family homes, reported net income of $100.7 million, or $1.31 per share, for the fiscal fourth quarter, beating Wall Street expectations of around 40 cents per share of earnings, and solidly turning around from its year-earlier loss of $307.3 million, or $3.96 per share.

However, it should be noted that the latest results included an income tax benefit of $191.7 million. On a pretax basis, the company posted a loss of $91.0 million for the quarter, mainly due to non-cash charges for inventory and joint venture impairments and the abandonment of land-option contracts.

Company executives said on their conference call that KB ended 2009 with $1.29 billion of cash, cash equivalents and restricted cash -- an amount that will allow it to opportunistically capitalize on the nascent housing market recovery. It has ample liquidity, no borrowings under its revolving credit facility and was in compliance with all of its debt covenants. Net debt of $531 million at the end of the fiscal year on Nov. 30 was down $224 million from where it stood at the end of the third quarter, due to positive operating cash flows during the fourth quarter.

Donnelley gains on court OK

A trader saw R.H. Donnelly Corp.'s bonds "up a little" on the news that the bankruptcy court overseeing the Cary, N.C.-based phone directory publisher's restructuring had confirmed its plan of reorganization, clearing the way for the company to emerge from Chapter 11 by the end of this month.

He saw Donnelley's 8 7/8% subordinated notes due 2016 improve to 12½ bid, 13 offered from recent levels at 11¾ bid, 12¼ offered, while its 8% notes due 2013 firmed to 35 bid, 37 offered from 31 bid, 33 offered earlier, "so they're up a little."

Another trader saw the 8 7/8s as the most active of the company's bonds, with "a lot" trading around the 13 level in afternoon dealings, "up from 12-and-change [Monday] and 11-and-change the day before, so they've moved up all week."

He said that last week, the bonds had traded "with a 10-handle, and now they're trading around 13, so they've moved up over the last several days, I guess, maybe anticipating this news."

Under terms of the plan, bondholders will get virtually all of the company's equity, in return for their $6 billion of unsecured paper.

The company anticipates starting distribution of the equity to the bondholders by the end of the current month, concurrently with its emergence from Chapter 11.

-Jennifer Lanning Drey contributed to this report

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