MarkWest, Host Hotels, Abengoa sell; new MarkWest, Univision bonds up nicely; Sbarro suffering

By Paul Deckelman and Paul A. Harris

New York, Oct. 19 - MarkWest Energy Partners, LP/MarkWest Energy Finance Corp., Host Hotels & Resorts, LP and Abengoa Finance, SAU were heard by high-yield syndicate sources on Tuesday to have all successfully priced new bond deals during the session.

MarkWest and Host were quickly shopped - MarkWest had only been announced late Monday, and Host actually drove by just hours after its Tuesday morning new-deal announcement. Abengoa, on the other hand, came off the regular forward calendar.

When the new MarkWest bonds were freed for aftermarket dealings, they shot up by nearly two points. Abengoa gained 1 point, while Host priced too late for secondary trading. Univision Communications Inc., which had priced too late on Monday to trade around, also firmed by about two points when it began trading Tuesday. But Calpine Corp.'s upsized mega-deal, another Monday transaction, stayed chained to its par issue price.

Spain's Nara Cable Funding Ltd. also came to market with a tranche of euro-denominated eight-year notes.

Away from the issues that actually priced, Hanger Orthopedic Group, Inc. was heard to be hitting the road to market a $200 million offering of eight-year paper to fund a tender offer for some existing bonds. Price talk emerged on Accellent Inc.'s $315 million of seven-year senior subordinated notes.

Outside of the new-deal realm, traders said the market felt heavier, a feeling borne out in the easier readings of various statistical measures.

Among specific issues, Sbarro Inc.'s bonds gyrated at lower levels. An analyst opined that the restaurant operator's bondholders are getting indigestion from a rancid stew of bad financial indicators that spell trouble ahead.

Abengoa upsizes

The dollar-denominated primary market saw a trio of issuers that each brought a single tranche, raising $1.64 billion of proceeds on Tuesday.

Spain's Abengoa Finance priced an upsized $650 million issue of non-callable 8 7/8% seven-year senior notes (Ba3/B+) at 98.095 to yield 9¼%.

The yield printed 12.5 basis points beyond the wide end of the 9% area price talk.

Credit Suisse, Citigroup, Deutsche Bank Securities and Bank of America Merrill Lynch were the joint bookrunners for the issue, which was upsized from $600 million.

Proceeds will be used for general corporate purposes and capital expenditures for a project pipeline.

The issuer is a financing unit of Abengoa SA, a Seville, Spain-based conglomerate.

Host yields 6%

Elsewhere, a pair of U.S. issuers each completed $500 million 10-year deals, drive-by style.

Host Hotels & Resorts priced a $500 million issue of 10-year series U senior notes (Ba1/BB+) at par to yield 6%, on top of the price talk.

Goldman, Sachs & Co., Bank of America Merrill Lynch, Deutsche Bank Securities and J.P. Morgan Securities LLC were the joint bookrunners for the a.m.-to-p.m. drive-by deal.

Proceeds will be used to redeem at least $250 million of the $500 million outstanding 7⅛% series K senior notes due 2013 at 101.188 and for general corporate purposes, future acquisitions or the repayment of other debt.

MarkWest atop talk

Meanwhile, in a deal that was in the market overnight, MarkWest Energy Partners and MarkWest Energy Finance priced a $500 million issue of 10-year senior notes (B1/BB-) at par to yield 6¾%, also on top of the price talk.

Wells Fargo Securities, Bank of America Merrill Lynch, Barclays Capital Inc., Morgan Stanley & Co. Inc. and RBC Capital Markets Corp. were the joint bookrunners.

Proceeds will be used to fund the tender offer for the company's notes due 2014 as well as to repay bank debt, to provide working capital and for general corporate purposes.

MarkWest is a Denver-based natural gas, natural gas liquids and crude oil company.

A frothy market

"It's a hot market, and the deals are coming rich," a mutual fund investor asserted during a Tuesday telephone conversation.

Allocations remain poor, the source added, explaining that an order of $5 million to $10 million will typically result in an allocation of $1 million to $2 million unless the account is a holder of the issuer's existing paper and/or is an anchor order in the deal.

"The market is getting frothy," the buysider added.

In the near-to-intermediate term, HCA, Inc. will show up with a dividend deal, the investor said, adding that Bank of America Merrill Lynch will be involved.

BioMed will also show up with a dividend deal, the fund manager said.

And, should a more persuasive indication of a frothy market be required, BWAY Holding Co., having lately been acquired by Madison Dearborn Partners, is expected to show up in the intermediate term with a PIK/Holdco deal, the buysider said.

Accellent price talk

Meanwhile in the primary market, Accellent talked its $315 million offering of seven-year senior subordinated notes (Caa2/CCC+) with a 9 7/8% area yield, according to a buyside source.

The order books were scheduled to close at 5 p.m. ET on Tuesday, the source added.

Goldman Sachs is the left-side joint bookrunner for the debt-refinancing deal.

Hanger Orthopedic's brief roadshow

Finally, Hanger Orthopedic Group began a brief roadshow on Tuesday for its $200 million offering of eight-year senior notes (current ratings B3/B-).

The roadshow wraps up on Wednesday, and the deal is set to price thereafter.

Noting that the company is "going into a pretty hot [high-yield] market," Hanger officials expressed hope during a Tuesday conference call that the deal could be executed with an interest rate in the 7% range.

Bank of America Merrill Lynch, Jefferies & Co., Oppenheimer & Co. and SunTrust Robinson Humphrey are the joint bookrunners.

The Austin, Texas-based provider of orthotic and prosthetic patient care services plans to use the proceeds to repurchase its existing 10¼% senior notes due 2014 and for general corporate purposes.

New MarkWest issue improves

When MarkWest Energy's new 6¾% notes due 2020 were freed for secondary dealings, a trader saw the $500 million issue trading at 101¼ bid, 101¾ offered.

Another trader saw them a little bit better than that, finishing the day at 101½ bid, 102 offered, well up from their par issue price earlier.

However, the Denver-based natural gas company's outstanding 8½% notes due 2016 - which is not one of the issues that MarkWest is planning on taking out via the tender offer that the new bonds will finance - were being quoted down about ¾ point at 106½ bid.

Abengoa goes up

Abengoa's $650 million offering - upsized from $600 million originally - was meantime seen having also firmed, a trader seeing the Spanish conglomerate's bonds first trading at 98¾ bid, 99 offered and then advancing to 99 bid, 99½ offered later.

A second trader saw those bonds at the latter level, up around a point from the deal's 98.095 pricing level.

Univision is hot ...

Univision Communications, which priced too late in the day on Monday for aftermarket dealings, was freed for secondary trading Tuesday and promptly moved to make up for lost time.

The Los Angeles-based Spanish-language broadcaster's $750 million of 7 7/8% notes due 2020, which had priced at par on Monday as a quickly shopped "drive-by" deal, "actually did pretty well," a trader said, who saw the bonds going home Tuesday "wrapped around" 102.

A second trader pegged them at 101¾ bid, 102¾ offered, while yet another had them at 102 bid.

... but Calpine is not

On the other hand, Monday's other notable quick-to-market offering, Calpine's even bigger 7½% first-lien senior secured notes due 2021, "was active" in terms of the amount of trading going on in the $2 billion behemoth, a trader said, "but it didn't really move." He saw the bonds at par bid, 100½ offered, unchanged from the par level at which the San Jose, Calif.-based independent power producer had priced its deal on Monday after first upsizing it from $1.5 billion.

A second trader said the new Calpine paper had gotten as high as 100 3/8 bid during the morning but then dropped as low as 99¾ bid later on. He also saw the bonds ending at par bid, 100½ offered.

Yet another market source saw the new bonds straddling issue at 99 7/8 bid, 100¼ offered.

Other recent deals seen lower

Among some other recently priced issues, a trader said that Sears Holding Corp.'s 6 5/8% senior secured notes due 2018 were trading at 99¼ bid, 99¾ offered. That's well in from the par level at which the iconic Hoffman Estates, Ill.-based department store operator had priced its $1 billion issue - massively upsized from the originally announced $500 million - back on Sept. 30.

And it was down still further from the 100¾ bid, 101 level at which those Sears bonds traded once they went into the secondary market.

He also said that Avis Budget Group Inc.'s 8¼% notes due 2019 were trading at par bid, 1001/4, "and that's lower." While the Parsippany, N.J.-based vehicle-rental company's $400 million deal was in line with the par level at which it had priced on Oct. 7, it was well down from levels as high as 101½ bid, 102 offered at which traders saw the bonds trade on the break.

A market source at another desk saw DaVita, Inc.'s 6 5/8% notes due 2020 down 1 point on the day at 101 bid. However, the bonds remained above the par level at which the Denver-based provider of kidney dialysis services had priced its $775 million issue on Oct. 5 as part of a $1.55 billion two-part deal, increased from the originally announced $1.4 billion. The other half of that deal - the $775 million of 6 3/8% senior notes due 2018, which like the 6 5/8s, had also priced at par and had moved up in secondary dealings - was also seen around 101 bid on Tuesday.

Market indicators ease off

Away from the new-deal world, a trader saw the CDX North American Series 15 HY index down ½ point on Tuesday to 99 bid, 99¼ offered after having been unchanged on Monday.

The KDP High Yield Daily index meantime eased by 6 bps Tuesday to end at 74.08 after having retreated by 8 bps on Monday. Its yield was unchanged, at 7.33%, after having risen by 4 bps on Monday.

The Merrill Lynch High Yield Master II index lost 0.017% on Tuesday after having gained by 0.082% on Monday. That pushed its year-to-date return down to 13.584% versus Monday's 13.604%, its peak 2010 cumulative return level.

Advancing issues fell behind decliners on Tuesday, although the margin of difference was not great - just a couple dozen issues out of the nearly 1,500 tracked. On Monday, the gainers had oh-so narrowly edged out the losers by just a handful of issues.

Overall activity, represented by dollar-volume levels, jumped by 53% on Tuesday after having fallen by 18% on Monday versus the previous session.

"Generally speaking, the market is a little bit heavy," a trader said. "It's still difficult sourcing paper, and that kind of thing. There are not a lot of fellows around" who are selling anything.

Adding to the supply-and-demand pressure on established bonds, he noted, was "a lot of crossover-type demand" from high-grade accounts deciding to take a walk on the wild side and venture down into Junkbondland - albeit the fairly genteel BB rated tier of it - in order to pick up some yield.

At his shop, he said, "we were very active in secondaries and some of these new issues," and he saw some players "flippin' them around, that kind of thing."

Add it up, he said and "generally, it was not a bad day - really, two good days in a row, after some very spotty, new-issue driven focus."

Rite Aid in retreat

Among specific issues, a trader saw Rite Aid Corp. paper down ½ point to 1 full point on "pretty heavy volume," although he noted that the Camp Hill, Pa. No. 3 U.S. drugstore chain operator's bonds are "always the leaders" in the junk market retail space.

He saw the company's 9½% notes due 2017, "kind of their go-go bond," at 84½ bid, 85 offered by the end of the session, calling that down ½ point.

Rite Aid's 8 5/8% notes due 2015 clocked in down nearly 1 point, at 87½ bid.

Sbarro slide continues

Sbarro's bonds were fairly actively traded on Tuesday after being quoted sharply lower on Friday and Monday as a result of two late round-lot trades Friday down at 42 bid, versus prior levels around 60.

In Tuesday's dealings, the Melville, N.Y.-based Italian-style quick-service restaurant chain operator's 10 3/8% notes due 2015 were seen gyrating around at levels as high as 45 and as low as just under 35, hitting the lower end of that range with several $100,000 trades - but there were no trades seen larger than that.

A trader at another shop heard the bonds last offered at 40, but he said that he "did not see a lot of activity. They're ending up at 40 cents on the dollar, but there's not a lot of trades to speak of at all.

"Quoted lower - but not a lot of activity."

Another trader said that Sbarro "continues to kind of slide today" down into the upper 30s.

Analyst saw it coming

The Sbarro bonds' slide down to their current levels comes as no surprise, according to senior analyst Aqeel Merchant at Knight Capital in Greenwich, Conn. Knight put out a bearish note on Sbarro in August just after the company released its second-quarter results. At that time, the bonds were trading in the high 70s, but Merchant had then noted the proper mid-value for the bonds would be around 35.

There was no specific development or negative news that caused the sudden slide on Friday after several weeks with no large trades; rather Merchant said that "as people have run numbers again and again, probably a holder who has held this for a very long time realized this is it," because of the company's deteriorating financials, "it's going to go lower, and has just decided to get out of the situation.

"I believe [the current trading levels] are simply a reflection of value at this point."

Sbarro is being hurt, he said, by continued weak traffic in the shopping malls, where about half of its approximately 1,000 restaurants are located (the company operates these outlets itself; another 536 are operated by franchisees at non-mall locations). Merchant said that shopping-mall traffic shows no sign of picking up amid what he termed the currently "tepid" economic recovery.

He also saw the company being choked by cheese prices - a key factor for a restaurant chain specializing in such dishes as pizza and lasagna. Right now, these costs show no sign of going down.

Covenant trouble on the menu

Sbarro has been in trouble for a while. Back in the fourth quarter of 2008, Merchant noted, the company was about to breach its loan covenants; however, its equity sponsors negotiated with the banks and paid down some of the first-lien obligations, providing the company with a second-lien loan.

"At that time, this was considered by most bondholders as a temporary crisis, and the fact that it was averted and liquidity was offered to the company once again was a cause to cheer and the bonds actually went up."

Fast-forward to the present, and "EBITDA has continued its decline, mall traffic hasn't improved and cheese prices don't look like they will go down." The analyst estimated that full-year EBITDA, which stood at $58 million in 2007, currently stands at $41.6 million on a last-12-months basis. He projects that for the full 2010 year, that key measure should slide below $40 million, which would put Sbarro in violation of its covenant.

The minimum EBITDA covenant right now sets a $40 million floor - and that is scheduled to go up to $43 million for the fourth quarter of this year, putting the company between the frying pan and the fire.

Merchant said another rescue by the equity sponsors is possible, but he said the cash infusion would likely be at the second-lien level, so "it's not going to do anything for the recoveries for the bondholders, unless EBITDA makes a comeback."

Market hungrier for Sbarro peers

While Sbarro has a whole plate load of problems before it, there have been some positive signs for the larger restaurant sector, which recently has seen well-received new issues from the likes of Burger King Holdings Inc. and DineEquity Inc., owner and franchisor of the Applebee's and IHOP casual-dining chains, as well as the deal over the summer to fund the buyout of the Dave & Buster's chain.

However, Merchant pointed out that those companies "have either had assets for sale, ongoing free cash flow or a plan to shore up the same by reducing capex over time, building up free cash flow that way."

Comparing the respective leverage levels of the companies, he noted that Burger King's debt is around 6.0 times its EBITDA, Dave & Buster's is about 5.8x and DineEquity's around 5.8x. By contrast, Sbarro's leverage ratio is up around 8.2x - and it could hit 8.9x by year-end.

"So you are entering territory which none of these [other] guys are in," he concluded.

TXU keeps trading around

Elsewhere, a trader said that Texas Competitive Electric Holding Co.'s bonds "are always actively quoted," especially now that the Dallas-based utility company has done a new deal and will use some of the proceeds to take out a small portion of its existing bond debt.

He saw both series of the company's 10¼% notes due 2015 around 61¾ bid, 63 offered, down a half-point, while its 10½% notes were at 55 bid, 56 offered, which he called down 1 point.

The company's 11¼% notes due 2017 were a little easier at 59 bid.

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