Owens & Minor prices split-rated issue; Sensata leads growing calendar; Tenet gains on hung jury

By Paul Deckelman and Paul A. Harris

New York, April 4 - Owens & Minor Inc. was heard by high yield syndicate sources to have priced a split-rated issue (Ba2/BBB-) of new 10-year bonds Tuesday, although its split-rated pedigree meant that at a lot of shops the bonds were priced off the high-grade desks and were not seen in the junk secondary.

Elsewhere in the primary arena, AutoNation Inc. downsized and restructured its planned two-part bond deal, the sources said, with tighter pre-deal market price talk heard on each tranche. Price talk meantime was also heard on several other upcoming offerings. Sensata Technologies was expected to hit the road Wednesday to market a new two-part, dual-currency offering, while Packaging Dynamics was packing its bags ahead of a Thursday roadshow opening for its planned 10-year note issue.

In the secondary realm, Tenet Healthcare Corp.'s bonds were getting better after the judge hearing the government's case against the Dallas-based hospital operator declared a mistrial when the jury was unable to reach a verdict on charges the company had paid kickbacks to doctors.

Calpine Corp.'s bonds were being quoted steady to higher, after the bankrupt San Jose, Calif.-based power generating company announced plans to sell 20 plants that don't fit into its long-term turnaround strategy, close its offices in several cities and reduce its workforce in hopes of saving $100 million annually.

A high-yield market source marked the broad market flat with Treasuries on Tuesday.

Meanwhile, although no straight junk-rated deals priced, the forward calendar grew by $1.72 billion, and appeared poised to make a meaningful assault on the $5 billion threshold of deals in the market, as five companies announced seven tranches of dollar-denominated notes.

The calendar builds

The largest amount of expected issuance, $900 million equivalent, was announced by Sensata Technologies BV, an Attleboro, Mass., supplier of engineered sensors and controls emanating from the $3 billion acquisition of the Texas Instruments sensors and controls business by Bain Capital LLC.

The company will begin a roadshow on Wednesday for dollar- and euro-denominated tranches of senior notes and a dollar-denominated tranche of senior subordinated notes.

Tranche sizes and maturities remain to be determined.

Morgan Stanley, Bank of America Securities and Goldman Sachs & Co. are joint bookrunners for the LBO-funding deal.

Bain is also providing $975 million in equity.

Two tranches from Nutro Products

Bain Capital is also sponsoring the management-led buyout of Nutro Products Inc., a City of Industry, Calif., producer of food for pets and livestock.

The company plans to start a roadshow Wednesday for its $345 million offering of notes in two tranches: a $180 million tranche of 7.5-year senior floating-rate notes and a $165 million tranche of eight-year senior subordinated fixed-rate notes.

JP Morgan Securities has the books.

Elsewhere Chicago-based Packaging Dynamics Corp. will begin a roadshow on Thursday for its $150 million offering of 10-year senior subordinated notes, an acquisition financing via Deutsche Bank Securities and Jefferies & Co.

And Austin, Tex.-based Brigham Exploration Co. will start a roadshow Wednesday for its $125 million offering of eight-year senior notes - a debt refinancing and general corporate purposes deal led by Banc of America Securities and Credit Suisse.

A junk tranche from Southern Star

Natural gas transmission company Southern Star plans to sell $200 million of high-yield bonds as part of its overall $430 million sale of notes.

Southern Star Central Corp., the parent, plans to price a $200 million offering of 10-year senior unsecured notes (Ba3/BB+) on Friday. The notes will come with five-years of call protection.

Also operating subsidiary Southern Star Central Gas Pipeline, Inc. plans to price an investment-grade $230 million offering of 10-year bullet notes (Baa3/expected BBB-).

Lehman Brothers and Credit Suisse are joint bookrunners on the debt refinancing from the Owensboro, Ky., company.

Codere to tap 8¼% notes due 2015

Spanish gaming firm Grupo Codere plans to launch a €150 million add-on to its existing 8¼% senior notes due June 15, 2015 (existing ratings B2/B) on Thursday, with pricing expected to follow on Friday.

Credit Suisse has the physical books for the debt refinancing and general corporate purposes deal. Morgan Stanley is the joint bookrunner.

The original €335 million priced at par in June 2005.

Split-rated Owens deal sees junk play

Also on Tuesday, Mechanicsville, Va.-based distributor of medical and surgical supplies Owens & Minor, Inc. priced a split-rated $200 million issue of 6.35% 10-year senior notes (Ba2/BBB-/BBB-) at 99.939 to yield 6.358%.

The notes priced at a 150 basis points spread to Treasuries, on the tight end of the Treasuries plus 150 to 155 basis points price talk, according to a source who added that high-yield accounts took part in the debt refinancing deal.

AutoNation restructures, tightens talk

Florida-based automobile retailer AutoNation Inc. made structural changes to its downsized $600 million two-tranche offering of senior unsecured notes (Ba2/BB+/expected BB+).

On Wednesday morning the company plans to price a $300 million tranche of eight-year fixed-rate notes which it is talking at 7%, revised from earlier price talk of 7% to 7¼%. AutoNation introduced a make-whole call for the first three years after which the notes will become callable at par plus three-quarters of the coupon. Call protection was decreased from four years.

The company also plans to price a tranche of seven-year floating-rate notes which it is talking at three-month Libor plus 200 basis points area, revised from earlier price talk of Libor plus 225 basis points area. In Tuesday's structural change AutoNation introduced a two-year make-whole call to the floating-rate notes, after which the notes will become callable at 102.

Tranche sizes are still subject to change, the source added.

JP Morgan, Banc of America Securities and Wachovia Securities are joint bookrunners for the share repurchasing and debt refinancing deal. The offering was downsized by $200 million on Monday, while the bank loan was increased by $300 million.

Level 3 holds gains

Several junk traders said they did not see Owens & Minor's new 6.35% notes due 2016 following their pricing at 99.939, saying that the split-rated issue was too high-grade for most high yield accounts.

Level 3 Communications Inc.'s new 12¾% add-on notes due 2013, which priced Monday at 102 in a quickly-shopped "drive-by" deal and which then moved up on the break to 102.5 bid, 103 offered later that session, were seen Tuesday clinging to Monday's modest gain.

Tenet gains on mistrial

Back among the established issues, traders saw Tenet's bonds up on news of the mistrial - the second time the jury has failed to reach a verdict in the government's case against the company.

A trader called Tenet's bonds "up a couple" of points on the news, although he saw its widely watched 9¼% notes due 2015 up a more modest ¾ point at 100.75 bid, 101.25 offered.

At another desk, a trader pegged those particular bonds higher - at 101.5 bid, 102.5 offered - but still considered them up only about a point.

A market source at another shop estimated Tenet's 6 3/8% notes due 2011 to be up nearly two points on the session at 92.5 bid.

Tenet's New York Stock Exchange-traded shares rose 61 cents (8.37%) to $7.90, on volume of 9.3 million, about triple the norm.

The Justice Department was trying to prove that Tenet, the nation's second-largest healthcare operator, illegally bribed physicians in exchange for patient referrals to its Alvarado Hospital Medical Center in San Diego. Tenet contends that the payments were perfectly legal relocation incentives paid to the doctors to get them to come to the rapidly growing - but medically underserved - eastern portion of San Diego County, California's southernmost.

A jury had also failed to reach a verdict one way or another on those issues in February 2005. This time around, the feds spent seven months laying out the complex case and the jurors deliberated for 60 days before telling judge James Lorenz of the federal district court in San Diego that they were hopelessly deadlocked. That left the jurist with no choice but to declare a mistrial.

Tenet said that it hopes the prosecutors will now drop the case rather than trying to try it yet a third time. The government has not indicated what it will do.

Even if this particular case is dropped, Tenet is still the target of probes into doctor relocation payments by company-owned hospitals in six other states, and is additionally dealing with a separate federal investigation over alleged Medicare overbilling in more complex than usual "outlier" medical cases. The company has been in talks with Washington on settling the Medicare probe for more than two years. Some analysts estimate that a settlement might cost Tenet $1 billion or more - but would let the company finally get out from under the legal cloud that has been shadowing it over the past several years.

Market mostly quiet

Elsewhere, traders described the general tone of the market as quiet, with one terming it "a pretty subdued day" in contrast to Monday, which saw a big new primary market add-on offering for popular junk issuer Level 3 as well as a big move in the bonds of Alderwoods Group Inc. on the news that worldwide deathcare industry leader Service Corp. International will acquire the Cincinnati-based company, the second-biggest funeral home and cemetery operator in North America. There had also been some gyrations in the bonds of General Motors Corp. and its General Motors Acceptance Corp. financing arm on the news that GM had finally reached an agreement to sell a 51% stake in GMAC to an investor group led by Cerberus Capital Management LLC.

In Tuesday's dealings, a trader saw Alderwoods' 7¾% notes due 2012 - which had jumped about four points Monday on the news the company will be bought out by Houston-based SCI - unchanged at 108 bid, 108.5 offered. Meantime, he saw Service Corp.'s bonds - which had fallen several points Monday on investor and ratings agency dismay about likely higher leverage levels - also pretty much unchanged Tuesday, with its 7.70% notes due 2009 off perhaps another quarter-point, at 102.25 bid, 103 offered.

Another trader said he thought "Service Corp. was lower and Alderwoods was higher - but they were too inactive to really tell."

GM slips again

In the automotive area, GM's bonds - which on Monday had initially firmed on the GMAC-stake sale news, only to come off those highs to end unchanged to perhaps lower - were seen continuing to erode on Tuesday, apparently pressured by investors looking beyond the immediate liquidity benefits of the GMAC deal to worry about how GM will do once it can no longer depend on GMAC as a captive, wholly owned cash cow.

A trader saw GM's benchmark 8 3/8% notes due 2033 dip a point to 72 bid, 73 offered, while another saw the bonds off even further, at 71.5 bid, 72 offered, which he called a drop of 1¾ points on the day. A third trader agreed that the '33s were down "at least 1½ points" at 71 bid, 72 offered. A market source meantime saw GM's less-widely traded 7 1/8% notes due 2013 down a point at 74.75 offered.

As for the GMAC bonds, which on Monday had initially firmed smartly on the sale news, then come off their peak levels to end about a point higher across the board, Tuesday saw them continuing to come in, in line with the lower GM levels, as well a sense of the anti-climactic, now that the sale deal has been successfully brokered.

A trader saw GMAC's flagship 8% notes due 2031 fall to 94 bid, 95 offered from their opening levels around 96 bid, 97 offered. He saw the financing arm's 6¾% notes due 2014 little changed at 90 bid, 91 offered, but said the 6 7/8% notes due 2011 were a point down on the day at 92 bid, 93 offered.

Another trader saw the 8s down 1½ points at 94.5 bid, 95 offered, and the company's 6 7/8% notes due 2012 at 92.25 bid, 93.25 offered, down 1¼ points. A market source at another desk saw the 2012 6 7/8% notes down half a point at 93.

Also weighing on GM and, indirectly, GMAC were investor concerns that bankrupt former GM subsidiary Delphi Corp.'s move Friday to ask the bankruptcy courts to let it void the contracts of its 34,000 hourly employees - as well as what it called unprofitable contracts to supply GM with electronic components and other automotive parts - could disrupt GM's production, should Delphi's unions decide to answer any rejection of their contracts with a strike. Troy, Mich.-based Delphi is GM's largest single parts supplier.

Auto names weak

Other automotive names were seen unchanged to heavier on Tuesday. A trader called Delphi's 6.55% notes due 2006 unchanged at 61.75 bid, 62.75 offered, while its 7 1/8% notes due 2029 were up ¼ at 62.25 bid, 63.25 offered. He also saw GM rival Ford Motor Co.'s 7.45% notes due 2031 unchanged at 73.25 bid, 73.75 offered, while Ford's credit division's 7% notes due 2031 were off ¾ point at 88.5 bid, 89 offered.

Calpine gains on sale plans

Apart from the autos, the answer to the nagging question "why have Calpine Corp.'s bonds been steadily rising over the past several weeks?" seems to have emerged Tuesday, with Calpine's announcement that it will sell 20 of its power plants - about one fifth of its total fleet - and take other measures to streamline itself in order to restructure as a leaner, more efficient company centered around its most profitable operations. Calpine envisions savings of some $100 million annually from the measures announced Tuesday.

Traders and other market sources have been watching Calpine with interest for some weeks now, noting a steady rise in its notes - a "grinding upward" as one called it - even with a lack of any announced news up until now, leading them to speculate that something big was in the works, with investors in the know - or even just those making a lucky educated guess - pushing the bonds upward.

Calpine's 8¼% notes due 2011, for instance, have been rising steadily since early March, closing on Monday at 41.625 - well up from the 32.25 level they had held a month earlier. However, those bonds were seen having retreated to 38.5 on Tuesday, perhaps validating the old financial market dictum "buy on the rumor, sell on the news."

Calpine's 7 7/8% notes due 2008 had moved up to levels around 60.5 by Tuesday - up 15 points from where they had been in early March.

And its 7¾% notes due 2015, which had traded at lows around 15 in early March, had nearly doubled in price by the beginning of this month.

On Tuesday, a trader saw the company's 8½% notes due 2008 "up a couple" of points at 60 bid, 62 offered, although he saw the 7¾% notes due 2009 little changed at 61 bid, 63 offered, and its 8½% notes due 2011 still at 38 bid, 40 offered.

Another trader saw the 8½% notes due 2008 at 60 bid, 61 offered, unchanged, while Calpine's secured 8½% notes due 2010 were up ¾ point at 92.5 bid, 93.5 offered. Its 8¾% notes due 2007 were a point better on the day at 62, apparently helped by the asset-sale news.

When Calpine, groaning under the weight of some $22 billion of debt, sought protection from its junk bond holders and other creditors in a Dec. 20 filing with the U.S. Bankruptcy Court for the Southern District of New York, it said it owned 92 power plants and had interests in five more under construction.

The 20 plants that the company said that it will sell have been designated as non-core and non-strategic. Some are currently in operation, others are still being built. Calpine said that they are no longer considered to be core operations due to a combination of factors, including financial performance, market prospects, and strategic fit. It will be seeking to sell the majority of these assets by the end of the year, leaving the company with a fleet of 70-odd gas-fired and geothermal plants in what it considers to be its "key" North American markets, particularly in such Sun Belt states as Texas and its home base of California.

Besides the plant sales, Calpine is also closing three offices, in Atlanta, Boston and in Dublin, Calif., near Oakland. Day-to-day business operations will be primarily consolidated into Calpine's corporate headquarters in San Jose, as well as its offices in Houston and in Folsom, Calif., near Sacramento. As the company sells plants and completes construction activities, it will eventually reduce its workforce by 775 employees. The majority of the job cuts will take place by the end of the year, although about 100 employees will be immediately affected.

The latest cuts come on top of cost-cutting actions announced on Feb. 1, when the company said that it would be reducing activities and curtailing expenditures in certain non-core areas and business units, resulting in the elimination of some 300 positions. Calpine estimated at that time that it would garner around $50 million in annual savings.

Robert P. May, Calpine's chief executive officer, said Tuesday that the new initiatives, combined with the measures in February, will produce total savings of over $150 million annually.

AES mixed on earnings

A Calpine sector peer, AES Corp., was also making news on Tuesday, announcing better 2005 fourth-quarter and full-year results versus a year earlier. But the Arlington, Va.-based global power generating company also said that it had to restate its 2003 and 2004 results due to accounting errors. Those restatements put the company in default of its senior credit facility covenants, forcing it to seek a waiver from its lenders. It also issued 2006 earnings guidance - which was below analysts' expectations.

A trader saw its 8½% notes due 2008 unchanged, at 60 bid, 61 offered, while its 8½% notes due 2010 were ¾ point better at 92.5 bid, 93.5 offered.

A trader at another shop saw its 8 7/8% notes due 2011 down half a point at 107 bid, 108 offered, while yet another trader said that the results and the restatement problem produced "no material change" in AES' bonds, from where he sat.

AES said that for the 2005 fourth quarter ended Dec. 31 it had net income of $177 million (27 cents per share), up from $101 million (16 cents per share) a year earlier. On a continuing operations basis, fourth-quarter net income was $179 million (27 cents per share), up from $19 million (three cents per share) in the year-ago period. Adjusted earnings per share in the latest quarter, excluding special items such as accounting gains and losses, certain currency impacts and debt extinguishment costs, were 28 cents, beating Wall Street's average estimate of 19 cents.

On a full-year basis, net income was $630 million (95 cents per share), more than double 2004's $298 million (46 cents per share). Income from continuing operations was $632 million (95 cents per share), versus $264 million (41 cents per share) a year earlier. Adjusted earnings per share for the year were 91 cents, up from 59 cents in 2004.

While touting the strong results in the latest quarterly and yearly figures, AES acknowledged that it had identified certain errors in its 2003 and 2004 financial results during its 2005 year-end closing process that resulted in a need to restate those earlier results. 2003 net income was reduced by $17 million (three cents per share) and 2004 net income increased by $6 million (one cent per share).

As a result of the restatement of the 2003 results, AES said that it was in default under its senior bank credit facility as of March 31, with $200 million of the debt under that facility classified as current on the balance sheet as of Dec. 31, 2005. AES said that it is seeking a waiver of the default and an amendment of the representation relating to the 2003 financial statements.

For 2006, AES said that it expects earnings per share from continuing operations of 90 cents and adjusted earnings per share of 95 cents. Wall Streeters, on average, are looking for earnings of $1.02 per share. It also expects net cash from operating activities of $2.2 billion to $2.3 billion and subsidiary distributions of $1 billion. AES said it is increasing its business development efforts and parent growth investments in 2006 "consistent with its long-term growth objectives."

AES also said that it entered into a new four-year, $600 million credit facility lead arranged by Merrill Lynch. The credit facility will be used for general corporate purposes and to provide letters of credit to support AES' investment commitments as well as the underlying funding for the equity portion of its investment in its Maritza coal-fired generation plant in Bulgaria.

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