Denbury brings new deal, bonds trade up; Chesapeake off on upcoming new issue; Coventry Health big gainer

By Paul Deckelman and Paul A. Harris

New York, Feb. 10 - Denbury Resources Inc. on Tuesday became the latest high yield issuer to conform to Junkbondland's recent primary pattern: bringing a quickly shopped "drive-by" offering to the market, priced at a discount to par in order to boost the yield. And as has been the case with most of the new deals seen so far this year, the independent oil and gas exploration and production company's new bonds were seen higher when they were freed for secondary dealings.

Meanwhile rumors that Chesapeake Energy Corp. was going to bring an add-on tranche to its recently priced issue of seven-year notes helped to drive those bonds lower; late in the day, high yield syndicate sources confirmed that the Oklahoma City-based exploration and production company would indeed come to market with such an issue, on Wednesday.

Back among the established bonds, traders saw Coventry Health Care Inc.'s bonds solidly higher on favorable quarterly results - not so much the profit figure itself, down sharply from a year ago, but the fact that the Bethesda, Md.-based managed healthcare company managed to beat analyst expectations, and reiterated its prior guidance.

In that same sector, Tenet Healthcare Corp. gained on asset-sale news.

On the downside, bad numbers did in Aramark Corp.'s bonds. Freescale Semiconductor Inc. retreated on news the company is adding another $1 billion to its bank debt load - even though some of that amount may come from an exchange of its existing bonds.

Denbury upsizes

The new issue market remained active on Tuesday.

Denbury Resources Inc. priced an upsized $420 million issue of 9¾% seven-year senior subordinated notes (expected B1/confirmed BB) at 92.816 to yield 11¼%.

The yield came on top of yield talk while the coupon came within the "nine-handle" coupon talk, and the discount came within the 5 points to 10 points OID talk, according to a market source.

JPMorgan and Banc of America Securities were joint bookrunners for the bank debt refinancing deal, which was upsized from $350 million.

The deal was half-driven by reverse inquiry, according to a high-yield mutual fund manager.

It was pretty much circled up by a couple of accounts before it launched, according to an informed source.

Phil Rykhoek, chief financial officer of Denbury Resources, said that the deal was oversubscribed and went very well.

"The investor call was very quiet," the CFO said. "I went through the presentation, and only had two or three questions came up, which related to the business of the company.

First sub since July

One thing that did not come up during the call was the senior subordinated structure of the deal, Rykhoek said.

Nevertheless, Denbury priced the first senior subordinated note to clear the high-yield primary since DynCorp International LLC/DIV Capital Corp. priced $125 million of 9½% notes due Feb. 15, 2013 last July.

Rykhoek did say that the 11¼% yield, which was in line with Tuesday's price talk, represented an interest rate that was "quite a bit better" than the company anticipated as it began preparing to come to the market.

The CFO declined to specify how much better, but allowed that from the time Denbury began to prepare for the deal the market had fortunately improved.

Easy, popular and lucrative

With Denbury pricing the first senior subordinated note to clear the primary market in seven months on Tuesday, and CSC Holdings, Inc./Cablevision Systems Corp. pricing the first 10-year bond in almost eight months on Monday, Prospect News quizzed its sources as to whether issuers and their underwriters have begun to push the envelope with respect to how much risk the buy-side is willing to accept.

A high-yield mutual fund manager, who did not play the Denbury deal, suggested that were one to focus on such structural nuances as maturities and positions in the capital structure, one would risk missing the point entirely.

"Virtually all of these deals have been automatic profit-makers for investors," the fund manager said.

"And there is nothing like making money.

"The primary market has been easy and popular and lucrative, especially when a deal is in such demand that you often don't get full allocations, so that should you be inclined to flip the paper it's easy to do.

"If you have a deal where everybody makes money, then everybody is going to have an open mind to another deal," the investor added.

Chesapeake's $300 million tap

Two weeks after it priced an upsized $1 billion high-yield deal, Chesapeake Energy Corp. is returning to the primary market.

The Oklahoma City gas company plans to price a $300 tap of its 9½% senior unsecured notes due Feb. 15, 2015 (expected ratings Ba3/BB) on Wednesday.

Banc of America Securities LLC and Deutsche Bank Securities are joint bookrunners for the debt refinancing deal.

The original $1 billion issue priced at 95.071 to yield 10 5/8% on Jan. 28.

In addition to Denbury Resource and Chesapeake Energy, the primary market buzzed with a couple of other names from the energy sector, late Tuesday.

There has also been talk of possible deals from Forest Oil Corp. and Plains Exploration & Production Co. LP a trader said on Tuesday.

New Denbury bonds head higher

When the new Denbury Resources 9¾% senior subordinated notes due 2016 freed for secondary dealings, a trader saw them move up to 94 bid, 95 offered on the break, well up from the 92.816 level at which the $420 million of new bonds had priced earlier in the session.

Another trader later on saw them continuing to hover at those levels.

At another desk, a trader said that "people were all over the map on that, hoping for anywhere from 11¼% [as a yield] to 12¼% to 12½%. The deal finally came "in the middle of the range. It traded up a couple of points, but there was not much trading in the name at all."

Recent Chesapeakes off on rumored new deal

A trader said that Chesapeake Energy's recently priced 9½% notes due 2015 were off about a point on the session; he attributed that decline to rumors that the company would bring a new deal on Wednesday - actually, an add-on to its 91/2s. Primaryside sources later confirmed that there would be a new deal scheduled for Wednesday.

Another trader noted that the Chesapeake bonds were one of the most heavily traded issues on the day. He saw them off 1¼ points to 99.25, on busy volume of $25 million.

Chesapeake's more established 7¼% notes due 2015 meantime eased to 87.25 bid.

Cablevision bonds push higher

CSC Holdings Inc.'s new 8 5/8% notes due 2019 were seen by a trader to have moved up to 97.25 bid, 97.75 offered.

The Bethpage, N.Y.-based subsidiary of cable-TV system operator and sports Cablevision Systems Corp. priced $500 million of those bonds on Monday at 95.196 to yield 9 3/8%, becoming the first junk issuer this year to come back to the market for a second issue.

At another desk, a trader saw the CSC bonds at 97 bid, 97.5 offered.

Market indicators mixed

Back among the outstanding issues, the widely followed CDX High Yield 11 index of junk bond performance, which rose by ½ point on Monday, reversed course on Tuesday, with a trader quoting the market measure down 1 point at 73¼ bid, 74¾ offered.

However - demonstrating what some in the market are seeing as a growing disconnect between the CDX and other measures that focus on the cash market (see related story elsewhere in this issue) -- the KDP High Yield Daily Index was meanwhile actually up by 1 bp on the day at 54.61, while its yield tightened by 3 bps to 13.11%.

In the broader market, advancing issues continued to lead decliners, though by only a narrow margin.

Overall market activity, measured by dollar-volume totals, rose by nearly 44% from the levels seen in Monday's session.

A trader, asked how he was doing, replied facetiously "better than the equity market" - and he was quite right. Spooked by market disappointment with the lack of concrete details from Treasury secretary Tim Geithner's presentation outlining the government's plans for stabilizing the credit markets, the bellwether Dow Jones Industrial Average plunged 381.99 points, or 4.62% on the day, to 7,888.88. It was the biggest drop for the Dow since Dec. 1, when the blue chips fell 680 points, or 7.7%. Meanwhile, broader market indexes did no better, with the Standard & Poor's index down 4.91% and the Nasdaq composite off by 4.20%.

However, another trader said "it was almost like high yield was ignoring equities." He suggested that this was due to the "technical phenomenon" of "so much cash in the hands of investors."

The first trader said that he was impressed by the junk market's resiliency, even as "stocks were getting clobbered."

He said that while "some issues were lower, there was no widespread selling."

"High yield, the second trader said, "was kind of a mixed bag. Some names did well, others" did not. Prices, he said, "might look pretty much unchanged. There were things that moved down like the Aramarks and a few other names - but there was nothing [else] as dramatic as Aramark, which was the big loser."

He added that "we did see some of the people continuing to reach for some of the recent new issues."

He said that secondary volume was meanwhile "still so much lighter than they've been over the past couple of weeks."

Aramark a black mark on the market

The trader saw Aramark bonds' beat up pretty bad. He quoted the 8½% notes due 2015 as having opened the session around 96 bid, 97 offered, but then having got sliced down to 91.25 bid, 92.25 offered, down about 5 points on the day.

At another desk, a trader quoted those bonds down 4.75 points to the 91 level, on volume of $42 million, making it by far the most active bond.

He said that the issue's swoon was due to "earnings - or the lack of same," and said the sharp decline in the bonds "are not indicative of the high yield market today."

That plunge followed the release of the results by the food-service and uniforms provider, and the subsequent conference call. A market source said that "it didn't sound like [the call] was very good."

Another trader, calling the debt active, placed the issue at 91.5 early on in the session, a decline of over 5 points. However, the bonds rallied a bit to close at 93.

Sales for the first quarter fell 5% to $3.2 billion, attributed to a foreign currency exchange lag. Net income dropped to $8.2 million, versus $26.1 million the year before.

Freescale dips on new loan news

Also on the downside, Freescale Semiconductor's debt weakened during the trading session as the Austin, Tex.-based computer-chip manufacturer revealed its intention to obtain a new term loan.

The company's existing term loan was quoted at 48 bid, 50½ offered by late day, down from early Monday levels of 52 bid, 53 offered, a trader said.

On Tuesday morning, shortly after the news first hit, the term loan was being quoted pretty wide at 46 bid, 51 offered, the trader continued.

The trader went on to explain that the term loan softened since bank debt guys don't really want more bank debt at the company.

In the bonds, a trader said the 8 7/8% notes due 2014 "opened OK," around 21 bid, 24 offered. But once the news came out, "the bids initially pulled out."

"The bids gradually came back, but there was not a whole lot of trading," he added, given that there were no bids in the market. He saw the bonds close the day at 21 bid, 22 offered.

Another trader quoted the 8 7/8% notes at 20 bid, 21.5 offered, down from 21 bid, 24 offered earlier and from 23 bid, 24 offered on Monday.

Freescale's proposed new up to $1 billion incremental term loan due Dec. 15, 2014 will carry a coupon of 12.5%, according to an 8-K filed with the Securities and Exchange Commission.

The same guarantors of its senior secured credit facility will guarantee the new term loan.

Holders of the company's existing notes, including the senior floating rate notes due 2014, the 9 1/8%/9 7/8% senior PIK-election notes due 2014, the 8 7/8% senior fixed rate notes due 2014 and the 10 1/8% senior subordinated notes due 2016, were invited to participate in the new incremental term loan in exchange for surrendering their notes at a deep discount.

Also invited to participate in the new loan are the company's existing credit facility lenders.

Bank lenders have a deadline of 5:00 p.m. ET on Feb. 19 to commit to the new loan, and funding of these orders must take place by 11:00 a.m. ET on March 17.

Commitments from the existing bank group would reduce the amount of term loan available to noteholders, meaning that if the bank lenders commit to all $1 billion, noteholders would be unable to participate in the deal.

Proceeds from the new incremental term loan will be used by Freescale to refinance its existing notes.

Coventry Health bonds are robust

Back among the gainers, a trader said the biggest credit in that category was Coventry Health; he saw its 6.30% notes due 2014 at 75.5 bid, up from 70.25 on Monday, which he called "quite a pop" on $20 million.

The trader saw Coventry's 5.95% notes due 2017 pretty much unchanged at 68 bid, on $8 million traded, although at another desk, a trader said Coventry was "one of those names that doesn't trade around for a while, but then moves right up."

He said the '17s had recently been as low as the mid-50s, before having come back into the 60s by the end of January, and then having jumped five or more points on Monday.

A trader at another desk said that Coventry was up on "great earnings," although he had seen no trading.

While the company's fourth-quarter gain slid 52% from year-ago levels to $88.2 million, or 60 cents per share, compared with $184.3 million, or $1.18 per share, a year earlier, traders noted that the latest quarterly earnings did slightly exceed Wall Street expectations, and the company reiterated its previously announced guidance.

Tenet gains on hospital sale

A trader saw Tenet Healthcare's 7 5/8% notes due 2013 at 88 bid, up almost a point on the day. He saw the Dallas-based hospital operator's 9 7/8% notes due 2014 up nearly a point at 83.25 bid, although both issues saw "only light volume, despite the news" that the company agreed to sell two hospitals to the University of Southern California for $275 million.

At another desk, a market source saw Tenet's 6 3/8% notes due 2011 up a point at 92.5 bid.

Ticketmaster seen untraded

Several traders said they saw no trading in Ticketmaster Entertainment Inc.'s 10¾% notes due 2016, despite the big news that the West Hollywood, Calif.-based live-event ticket industry leader is to be acquired by concert promoter Live Nation Inc. in an all-stock deal worth $800 million.

One said that the bonds were last seen trading over-the-counter about a week ago in a 63-65 context.

Lack of activity could be linked to the fact that the deal is structured to avoid having to pay a change of control put at 101 to the bondholders (see related story elsewhere in this issue)

Lively trading in deathcare giant

A trader saw "fairly heavy" turnover in Service Corp. International. He saw "some decent action" in the case of the Houston-based funeral home industry leader's paper, although he quoted its 7 3/8% notes unchanged in a 96-97 context.

Hawker Beechcraft nosedive is over

The trader said that "we had some guys playing around in the distressed area," trying to buy Hawker Beechcraft Inc. He saw its 8½% notes due 2015 in the upper teens, perhaps a little better than they had been" on Monday, when the Wichita, Kan.-based general aviation jet manufacturer's paper swooned to the mid-teens from prior levels around 30, hurt by investor concern over its recent ratings cut and signs that the already tight market for the pricy business jets is about to get even tougher.

"There was no follow on selling" after Monday's big slide, he said.

Another trader actually saw the bonds improve to 18.625 bid from 16.875 on Monday.

Stephanie N. Rotondo and Sara Rosenberg contributed to this report.

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