Nortek, Copano Energy deals price; Land O' Lakes up on numbers, Pilgrim's Pride gains after share sale

By Paul Deckelman and Paul A. Harris

New York, May 13 - Nortek Inc. priced a $750 million issue of secured bonds on Tuesday; the new bonds were seen not much changed when they were freed for secondary dealings. Meanwhile, its existing bonds were lower on supply concerns.

High yield syndicate sources meantime said that Copano Energy LLC also set terms on a new deal; those bonds traded a little higher when they were freed.

Laureate Education Inc. wrapped a three-part mega-deal, but none of those bonds were seen in the secondary.

Among the established issues, Land O' Lakes Inc.'s bonds rose after the Arden Hills, Minn.-based agricultural cooperative and dairy producer reported strong first-quarter numbers and upped its guidance.

Also up were the bonds of another food firm - Pittsburg, Tex.-based dairy processor Pilgrim's Pride Corp., which successfully priced a stock offering aimed at raising some $180 million, much of which is slated to go for debt reduction.

On the downside, Clear Channel Communications Inc.'s bonds were seen off several points, though not in terribly active dealings, on news reports that the giant San Antonio, Tex.-based radiocaster, its prospective buyers and the banks which had committed to financing the acquisition were close to completing a deal settling all of the outstanding legal issues between the parties, thus allowing the buyout to occur.

High yield sources were marking cash bonds marginally higher on Tuesday.

A source from a high yield mutual fund commented that presently there does not seem to be a lot of activity in the secondary market.

"The technicals remain very positive," the source added.

"The ironic thing is that earlier this year it wasn't clear how bad the fundamental backdrop was, and the spreads were wider."

Asked to clarify the comment on "bad fundamentals," the source merely pointed to crude oil lately trading in the range of $125 per barrel.

$1 billion prices

While the high price of crude oil may be bad news for the economy, sources roundabout the market say that it has created a wide open window of opportunity for energy companies to raise cash in a junk bond market that presently extracts very little new issue premium from them.

The Tuesday primary market saw a pair of issuers raise slightly more than $1 billion of proceeds by pricing one tranche of junk apiece. Included in that amount was more paper from the energy sector.

Copano Energy LLC, a Houston-based midstream natural gas company, priced an upsized $300 million issue of 10-year senior notes (B1/B+) at par to yield 7¾%.

The issue was upsized from $250 million and was priced at the wide end of the 7 5/8% to 7¾% price talk.

An informed source said that it was a very strong deal, and added that the order book was three-times oversubscribed.

Banc of America Securities LLC and JP Morgan were joint bookrunners for the quickly shopped debt refinancing deal.

A buy-side source said that the notes were up ¼ point going out on Tuesday.

Meanwhile the session's largest amount of issuance came from Providence, R.I.-based building supplies company, Nortek, Inc., which priced $750 million of 10% first-lien senior secured notes due Nov. 15, 2013 (B1/B) at 98.957 to yield 10¼%, in a quick-to-market deal that was oversubscribed. The deal came on top of price talk of 10¼% at a discount.

Credit Suisse, Banc of America Securities LLC and Goldman Sachs & Co. were joint bookrunners for the debt refinancing.

A source from a high yield mutual fund said "We got 20% of our allocation in Nortek," and added "There was a big reverse inquiry, up to 60%.

"So they only had to sell about $300 million."

Laureate refinances bridge

Laureate Education, Inc.'s high-yield bridge loan was refinanced with $1,005,822,000 of bonds in three par-pricing tranches which settled on Tuesday.

The Baltimore-based provider of services to higher education priced a $260 million tranche of 10% senior cash-pay notes due Aug. 15, 2015.

In addition the company priced $435.822 million of 10¼% senior PIK toggle notes due Aug. 15, 2015. The toggle notes pay an 11% coupon when the company elects to make an in-kind, as opposed to cash, interest payment.

Laureate Education also priced $310 million of 11¾% senior subordinated notes due Aug. 15, 2017.

Goldman Sachs & Co., Citigroup, Credit Suisse and JP Morgan were joint bookrunners.

A source from a high yield mutual fund reported putting in for some of the Laureate senior cash-pay bridge a few weeks ago at 91 - an offer than was spurned - and noted that the new 10% cash pay notes due Aug. 15, 2015 were trading at 93½ bid late Tuesday.

Meanwhile another source said that the 10¼% toggle notes were trading in a 90 bid context on Tuesday, while the 11¾% subordinated notes were in a context of 91 bid, 92 offered.

Apart from the Laureate news the backlog-grapevine remains generally quiet.

However one sell-sider professed the expectation that news on the First Data Corp. bonds - a portion of an overall amount that this official reckons to be $5.8 billion - might soon be heard.

Deal flow to continue

Market sources look for a continued deal flow in the high yield primary. A couple of high yield syndicate officials claim to have visibility on "energy names," although they declined to specify what those names are.

"There will continue to be drive-bys from energy companies," a buy-side source said.

"They will continue to access the capital markets to spend their brains out.

"Energy is perceived as safe. And maybe it is. However I think you have to make some pretty aggressive assumptions that oil and gas prices are going to remain high.

"But it's obvious that right now portfolio managers can't seem to own enough energy paper."

Meanwhile an official from a high yield syndicate desk said "I think we'll see corporates come while the window is open, and that includes anything that is perceived as defensive, or that plays to the preferences of the market."

And another sell-sider, an official from a different high yield syndicate desk, spoke of deals on the horizon, "definitely in the energy sector."

Nortek trades near issue price

When the new Nortek 10% notes due 2013 were freed for secondary dealings, a trader said that the bonds were quoted around 99 bid, par offered, a touch above their issue price of 98.957.

"This one surprises me," he said, "based on the business that it is in" - the Providence, R.I.-based company makes residential and commercial heating, ventilation, air conditioning, security and other home technology products, a business whose sales have been hurt by the problems of the homebuilding industry - "and based on the reason for the deal," which is to pay off debt under its existing senior secured credit facility, using the bond proceeds and proceeds from a new credit facility. The refinancing takes place against a backdrop of the company struggling to maintain the required interest coverage and leverage ratios to remain in compliance with the current facility's financial covenants. The company acknowledged on Monday that it does not anticipate being in compliance with the covenants as of the end of the second quarter, requiring an equity cure to remedy the situation.

"In order to stay in line [with those covenants], they have to pay off that bank debt. To me, this is like the first [red] flag going up. I am personally shocked at where this was priced," he continued, "meaning how tight, how rich."

He noted that the new bonds are classified as senior secured notes, which could account for junk investors being able to accept a yield of 10¼% on new bonds issued by a company having problems and carrying such low debt ratings - Moody's Investors Service has Nortek's existing unsecured bonds at Caa1 and Standard & Poor's at CCC, with no rating from Fitch - rather than holding out for greater yield to adequately compensate investors for the greater risk. How impressive the collateral securing the notes is - or is not - will be "a key question in this deal" in terms of how well the new bonds will do in the marketplace, the trader said. According to syndicate sources, the security consists of a first lien on Nortek's plant, property and equipment and a second lien on its accounts receivable and inventory.

Meanwhile, Nortek's existing bonds traded off, "and appropriately so," the trader said, "based on the way homebuilders [and presumably, allied companies like building components producers like Nortek] have gotten beaten up and all of the bad news in the sector, and based on the internal negative credit direction."

A market source saw the established Nortek 8½% notes due 2014 lose a point to finish at 73.5 bid on Monday, when news of the upcoming bond issue began circulating around the market, and then fall another point in early trading Tuesday before coming off their lows to end down ½ point on the session at 73. At another desk, a source saw the bonds fall 1¼ points Tuesday to finish just above 72. A trader meantime saw the company's zero-coupon issue at 47 bid, 49 offered.

New Copano bonds firm slightly

A trader saw the new Copano Energy 7¾% notes due 2018 trading at 100.5 bid, 101.5 offered.

A second trader said that the bonds had broken at 100.5 bid, then traded at 100.5 bid, 101 offered, until the 100.5 bid got hit. He had no further quotes on the issue.

Sovereign Bank issue a little firmer

That junk trader also got a reading on the new Sovereign Bank 8¾% notes due 2018 - nominally a six-B rated investment-grade issue, but one which priced at a bloated junk-like spread of 491.7 basis points over comparable Treasuries, several percentage points above where high-grade financials are generally found these days. He saw those bonds firm up to a par bid, where they were left, from their 99.664 issue price earlier in the day.

Market indicators quietly mixed

Back among the established issues, a trader said, the widely followed CDX junk bond performance index was up by ¼ point, quoting it at 97½ bid, 98 offered. The KDP High Yield Daily Index eased by 1 bp to 76.08, while its spread widened by 5 bps to 9.19%.

In the broader market, advancing issues led decliners by a narrow margin. Activity, represented by dollar volume levels, was up 21% from Monday's anemic pace.

Even so, he said, it was still "a pretty quiet session." He saw little change in the big automotive benchmark issues, with General Motors Corp.'s 8 3/8% bonds due 2033 parked at 74 bid, 75 offered and domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 idling at 73.5 bid, 74.5 offered.

"It was another quiet day, unfortunately," said another trader, who pegged the GM benchmarks unchanged at 73.5 bid, 75 offered and Ford's flagship issue at 73 bid, 74 offered, "down a little but essentially unchanged."

Land O' Lakes is loved

Land O' Lakes "had great numbers," a trader enthused. While he saw the company's 9% notes due 2010 and 8¾% notes due 2011 not much moved, continuing around their anticipated call price at levels above par, he saw the good numbers pushing its 7.45% capital securities due 2028 up solidly.

"That's the big thing [for Land O' Lakes], the 7.45s - and it's all 'liar's poker,'" he said, since that particular issue, unlike the other two, is not listed on the Trace bond-tracking system and "nobody wants to really tell you" where they are. He estimated that the bonds may have risen perhaps as high as 85 bid, 87 offered, post-numbers, before settling in at 83 or 84 bid, 86 offered, well up from pre-results levels that saw bid levels around 81-82. "They did have good numbers," he reiterated.

At another desk, the 9s were seen little moved from the levels around 104 that they've recently held. The 83/4s were seen having pushed as high as the 102 area from prior levels just below par, before finishing around 101, but all on fairly small-sized odd-lot trades.

Land O' Lakes, an agricultural cooperative whose eponymous product is the top-selling butter brand in the United States, reported first-quarter net earnings of $61.3 million, up 16.4% over year-earlier earnings of $52.6 million. Net sales for the quarter were $3.3 billion, versus $2.2 billion for same period a year ago. EBITDA for the quarter came in at $107.4 million for the quarter, compared with $98.2 million for the 2007 first quarter.

The company's results were helped by the strong market for agricultural commodities.

Pilgrim's Pride no turkey

Another agriculture-related name, Pilgrim's Pride, also saw its bonds go up, a trader seeing its 8 3/8% notes due 2017 rising to 88 bid 89 offered and its 7 5/8% notes due 2015 at 93 bid, 94 offered, which he called up a point from Monday's levels, and from the levels seen last week.

At another desk, the 8 3/8s were seen having moved up in large-block trades to around the 89-90 area - well up from Monday's finish around 87-87.5.

The top U.S. poultry producer said that it had priced 7.5 million new shares of its common stock at $24 each, for $180 million of proceeds. It plans to use the money to reduce credit-facility debt and for general corporate purposes.

However, while bond investors were pleased, stockholders upset by the potential dilution of their own holdings thought the new offering was for the birds and reacted accordingly; its New York Stock Exchange-traded shares fell $1.74, or 6.73%, to $24.12. Volume of 2.7 million shares was more than double the norm.

Deal clears the way for Clear Channel buyout

On the downside, traders saw Clear Channel's bonds in retreat, likely in response to news reports that the big broadcasting company, the private-equity shops that want to acquire it and the banks which agreed to put up the needed money, only to balk later on, had reached a deal "in principle" to settle the long-running legal battle surrounding the transaction, clearing the way for the LBO to eventually go through.

A trader said the company's 5½% notes due 2014, which traded Monday at bid levels around the 66 mark, was being offered at 66 on Tuesday, with no bid, while its 5½% notes due 2016, after having been bid between 57.5 bid and 59.75 offered, were at 58.25 Tuesday. "I'd call those lower, though it's hard to clarify how much lower," he said.

At another shop, the 4.90% notes due 2015 - which didn't trade Monday but which had been trading at bid levels around 66 at the end of last week - gyrated around at mostly lower levels Monday, with some round-lot trading seen down around the 60-61 region. The company's 5¾% notes due 2013 were about 1½ points lower at 73 bid.

Clear Channel and would-be acquirers Thomas H. Lee Partners and Bain Capital have been locked in a legal battle with a coalition of major banks over the latter's alleged attempts to back out of previously announced funding commitments for the $20 billion deal. The banks - which signed on enthusiastically when the buyout was first announced some two years ago - were said to have gotten cold feet after the credit markets deteriorated badly in the interim. The lenders denied any wrongdoing. The battle has stretched from the banks' home turf in New York to Clear Channel's Texas home base, with actions filed in the courts of both states.

News reports Tuesday said that the parties reached agreement in principle on settling the case and striking a new deal at a lower price of $36 a share, down from the originally announced $39.20.

Market observers see the prospect that the buyout deal may be back in business as a potential negative for Clear Channel bondholders, since most of the purchase price will be funded by large dollops of additional new debt.

Thornburg quiet despite bad news

From out of the distressed-debt market came word that Thornburg Mortgage Inc.'s 8% notes due 2013 were essentially unchanged around 80, despite its announcement late Monday that the Santa Fe, N.M.-based mortgage provider it would delay its 10-Q filing with the Securities and Exchange Commission and anticipates a "substantial" first-quarter net loss.

A trader said he "didn't see any [substantial] trades, just odd lots." Given the latest bad news about the company, he said, "they should be lower - but I see nothing to verify that."

He meantime saw Countrywide Financial Corp.'s 6¼% notes due 2016 some 3 points lower at 78 bid, 80 offered.

WCI bonds, shares better on no news

WCI Communities Inc.'s 9 1/8% notes due 2012 rose solidly to around 43-44 bid from Monday's late levels just above 40, a market source said, although it should be noted that the rise came on odd-lot trades, some as small as five bonds. The gain was not so significant when compared with Monday's final round-lot trade, just above 43.

A trader at another desk saw the 9 1/8s at 42 bid, 43.75 offered, while another saw them at 43 bid, 45 offered.

The company's NYSE-traded shares meantime jumped 44% in intraday dealings before finishing up 37 cents, or 24.03%%, at $1.91, although there was no fresh definite news seen out on the troubled Bonita Springs, Fla.-based builder.

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