Petroleum Development deal prices; Freescale continues rebound; junk market generally firmer

By Paul Deckelman and Paul A. Harris

New York, Feb. 1 - Petroleum Development Corp. was heard by high yield syndicate sources to have brought a somewhat downsized offering of 10-year notes to market on Friday, offering to pay a nice fat coupon and pricing the bonds at a discount to boost the yield even further and get the deal - just the fourth issue of the new year - done. The deal priced fairly late in the session and was not seen in Friday's aftermarket.

The sources meantime also heard that Elyria Foundry Co. was getting ready to begin marketing an issue of five-year notes to potential investors, starting Monday, while Axcan Pharma Inc. hit the road Friday to do likewise for its offering of eight-year paper.

In the secondary market, a generally firmer tone was seen, but traders said that volume was light, certainly when compared with Thursday's levels, and nothing really stood out as a feature. If they had to talk about something, they noted that Freescale Semiconductor Inc.'s bonds were once again firmer, continuing to recover from the pounding which the tech names had taken the previous week.

Level 3 Communications Inc. bonds were being pushed upward, although there seem to be no fresh news out about the Broomfield, Colo.-based internet backbone service provider that might explain the move.

A generally firmer market tone helped to lift such homebuilder names as KB Home, Hovnanian Enterprises Inc. and Standard Pacific Corp.

Petroleum Development prices

Sell-side sources not in the Petroleum Development deal admired Friday's transaction as a determined effort on the part of the underwriters to get across the finish line in a very tough market.

The Bridgeport, W.Va., independent energy company priced a downsized $203 million issue of 12% 10-year senior unsecured notes (B3) at 98.572 to yield 12¼%.

The issue, which generated approximately $200 million of proceeds, was downsized from $250 million.

Shortly before the terms were made available a market source told Prospect News that the deal was heard to have been launched at 12¼%.

Morgan Stanley was the left bookrunner for the debt refinancing and general corporate purposes deal.

$6.5 billion week

With the primary market having seen a trickle of issuance heading into late January, the January-February crossover week generated a mega-burst of new paper: $6.535 billion in three tranches.

In addition to the Petroleum Development deal, underwriters priced $6.335 billion of Harrah's Entertainment Inc. junk bonds in two tranches. The Harrah's senior notes, comprised of cash-pays and toggle notes, were priced at par, following which portions were sold into the market at dramatically discounted prices.

The deal included $4.9 billion of 10¾% eight-year senior cash-pay notes which, after pricing at par, were reported to have traded down into the high 80s.

On Friday a hedge fund manager told Prospect News that Harrah's cash-pays continue to improve, and spotted them at 91 3/8 bid, 91 7/8 offered.

With the week's $6.535 billion in the tally, year-to-date issuance to Friday's close comes to just under $7.4 billion in five tranches.

Hence, with the month of January in the books, the 2008 new issue market has seen a severe lag of issuance compared to that of the previous year: at the Feb. 1, 2007 close issuance stood at just over $13.8 billion in 44 dollar denominated tranches.

Even more dramatic is 2008's paltry issuance total when compared to that of the first month of the record-setting year of 2006, which had seen slightly less than $15.6 billion of issuance in 33 tranches price by the Feb. 1 close.

Elyria Foundry launches

Elyria Foundry will start a roadshow on Monday for a $100 million offering of five-year senior secured notes (B3/B).

The roadshow for the Jefferies-led acquisition financing deal is expected to run into the week of Feb. 18.

It is one of only three deals in the market as the first full week of February gets underway.

Forbes Energy Services LLC began a roadshow early in the week for a $200 million offering of seven-year senior secured notes.

Jefferies is also leading that deal, which the Alice, Texas-based energy company is bringing in order to repay debt and for general corporate purposes. (Of the three deals in the market, two are being led by Jefferies).

Elsewhere Axcan Pharma Inc. began a roadshow on Friday for its $240 million offering of eight-year senior unsecured notes (B3/B-), an LBO transaction being led by Banc of America Securities.

New Harrah's busy - but little changed

Traders did not see the new Petroleum Development 12% senior notes due 2018 trading around in the secondary arena late Friday.

A trader noted some brisk activity in the recently priced Harrah's Entertainment Inc. - but not a lot of price action. "There seemed to be quite a few [of the new 10¾% cash-pay notes due 2016] changing hands, but the prices aren't moving."

He noted that during Thursday's dealings, the bonds seemed to hover in a 90.25-90.75 context for most of the day "and then they traded up" to the 91 level - the same level where they stayed for most of Friday. The bonds had priced Jan. 28 at par but then dropped sharply from there later that session to around 90.

"We opened this morning, and it looked like they traded up a little bit. Then they moved up and down after the employment number [U.S. non-farm payrolls unexpectedly fell 17,000 in January - the first decline since 2003] and kind of settled in to straddle 91. But a lot of them traded today."

He did not have any information about the other Harrah's issue that priced this past Monday, its 10¾% payment-in-kind toggle notes due 2018. Those PIKs also priced at par, but then nosedived down to the mid 80s.

Among established Harrah's bonds, a market source saw its Harrah's Operating 5¾% notes due 2017 down ½ point at 60 bid, while its 8 1/8% notes due 2011 firmed some 2 points on the day to 87.5 and its 7 7/8% paper due 2010 lost about 3/8 point to end at 94.

Market indicators point upward

A trader called the session "sort of weird," while a second characterized it as "a mixed bag."

Numeric indicators seemed to point northward. Although the widely followed CDX index of junk bond performance was slightly negative - a trader saw it down 1/16 point at 92 1/8 bid, 92 3/8 offered - the KDP High Yield Daily Index was up 0.21 to 76.28, while its yield came in by 6 basis points to 9.03%.

In the broader market, advancing issues topped decliners by an almost two-to-one ratio. Overall activity, as reflected by dollar volumes, was down some 28.5% from Thursday's levels.

A trader saw "very little activity. Bonds stayed pretty much were they were." However, another said that the market "had a better tone" to it.

Freescale continues to firm

One of the notable names of the day was Freescale Semiconductor, whose bonds rose for a third straight session following its release of fourth-quarter numbers on Wednesday which showed a smaller loss for the Austin, Texas chipmaker than it posted a year ago. Those bonds and other tech names had gotten hammered the previous week on bad news coming from computer-chip industry leader Intel Corp. and former Freescale corporate parent Motorola Inc.

Freescale's 10 1/8% notes due 2016 were seen by a trader up a point at 74 bid, 75 offered. Two other market sources saw its 8 7/8% notes due 2014 up more than a point to just below the 84 level. Trading activity in the latter credit was described as "brisk."

That continued a rebound which started on Wednesday, when Freescale said that it had a net loss of $525 million for the three months ended Dec.31 - far less than the $2.7 billion of red ink seen in the 2006 fourth quarter, although it should be noted that the year-earlier period included a $2.26 billion charge for in-process research and development.

Excluding such special charges, Freescale said its adjusted EBITDA improved to $406 million in the fourth quarter, versus a year-earlier $1.31 billion loss. Sales rose to $1.54 billion from $1.45 billion a year earlier, and gross profit margins saw a five percentage-point improvement.

Company executives also expressed confidence that their $751 million cushion of cash, cash equivalents and short-term liquid investments on the books at year-end would allow the company to meet all of its operations, expansion and debt-service obligations.

Level 3 seen firmer

Elsewhere, Level 3's bonds were being quoted higher, although there was no fresh news out on the company that might explain such movement. A market participant saw the company's 9¼% notes due 2014 up nearly 2 points to just below the 89 level.

Another source pegged its 8¾% notes due 2017 up nearly 2 points at 84 bid.

Builders get a bounce

A trader said that Standard Pacific was higher - proof to him that "the homebuilders seemed to move up a little bit." He saw the sector up around a point on the day.

The Irvine, Calif.-based builder's 6¼% notes due 2014 and 7% notes due 2015 were at 69.25 bid, 70.25 offered, which he called a 1 point gain.

However, a source at another desk saw the credit easier, quoting the 5 1/8% notes due 2009 down ½ point at the 80 level.

Beazer Homes USA Inc's bonds were "about the same" as they had been on Thursday, although "the longer stuff, like the 8 1/8% notes due 2016 were seen a point better at 74.25 bid, 75.25 offered, versus prior levels at 73 bid, 75 offered on Thursday."

Bankrupt builder Tousa's bonds were "on a little ride," with the 9% notes due 2010 up a point at 57.5 bid, 58.5 offered.

Among somewhat better-situated building companies, KB Homes' 5 5/8% notes due 2008 were seen up a point at just above par, while Hovnanian's 6 3/8% notes due 2014 were up better than a point at 72.25.

Among the mortgage names, Residential Capital LLC was "active," a trader said, but the bonds ended pretty much at the same levels, with its 6½% notes due 2012 and 2013 "pretty much the same" at 63.25 bid, 64.25 offered. At another desk, ResCap's 8 3/8% notes due 2015 were seen ½ point better at 63.5 bid.

A trader saw Countrywide Financial Corp.'s 6¼% notes due 20915 at 83.25 bid, 84.5 offered, but said he had seen "not much in cash trading," as opposed to credit-default swap spreads.

Thornburg Mortgage Inc.'s 8% notes due 2013 were up a point around the 87 level.

Auto CDS busy, but not the bonds

A trader said that the benchmark automotive names like ResCap parent GMAC LLC, its 49% owner General Motors Corp., GM domestic arch-rival Ford Motor Co. and the latter's Ford Motor Credit Co. "were really active [Friday] morning, they were whipping around" - at least in the credit-default swaps market. "They were active first thing in the morning, even before the open, then it seemed like it quieted it down."

The underlying bonds, on the other hand, were considerably more restrained. The trader saw GM's benchmark 8 3/8% bonds due 2033 unchanged at 84 bid - "no great shakes there and not a lot of trading. There was not as much trading in the cash market as the CDS market."

Among other automotive issues, GMAC's 6 7/8% notes due 2012 were quietly quoted up as much as 1½ points at the 86 level, while Ford Credit's 7% notes due 2013 were seen a point better at 84.5 bid. Another market source saw those same Ford Credit bonds at about the same level, but up 2 points on the day, while GMAC's 5.85% notes due 2009 were up more than 1½ points to near the 99 level.

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