Trustreet starts big primary week with $50 million; airlines off on Delta worries, Charter up on exchange

By Paul A. Harris

St. Louis, Sept. 12 - High yield held basically unchanged Monday even as Treasuries came under pressure, sources said.

Meanwhile, what is expected to be a busy week in the primary market got underway with a single $50 million issue pricing, as Trustreet Properties tapped its 7½% notes due 2015.

With the primary market hogging the stage, the secondary market has been relatively quiet, sources said. However airlines paper was on the move as Delta Airlines was seen taxiing toward the Chapter 11 hangar.

And on the bright side, Charter Communications short-dated paper traded up on perception that the company's mammoth bond exchange is a success.

Welcoming issuance

One trader remarked Monday morning that the market was basically unchanged, and added that the secondary market is "so tight at this point you are almost welcoming primary issuance just to focus on something with a little bit of yield."

Only one company did issue during the session, however.

Trustreet Properties priced a $50 million add-on to its 7½% senior notes due April 1, 2015 (B1/B+) at 102.375 resulting in a yield of 7.152%.

Banc of America Securities ran the books for the debt refinancing deal from the Orlando, Fla., real estate investment trust.

The original $250 million issue priced at par on March 17, 2005. The total issue size following Monday's add-on is $300 million.

Elsewhere in the primary market, Select Medical Holdings Corp. talked its $250 million of 10-year senior floating-rate notes (Caa1/B-) at six-month Libor plus 575 basis points on Monday, and word was heard that the deal could downsize.

Meanwhile the company restructured the call premiums, maintaining two years of call protection but increasing the first call premium to 104 from 102, and the second premium to 102 from 101.

The offering is expected to price on Tuesday.

JP Morgan, Merrill Lynch & Co. and Wachovia Securities are joint bookrunners for the dividend-funding deal from the Mechanicsburg, Pa., specialty and long-term acute care provider.

Calendar continues to build

The pre-Labor Day forecast that a substantial calendar would build in the wake of the holiday continues to prove correct as four prospective issuers headed for the starting blocks with five tranches on Monday.

The roadshow starts Wednesday for DriveTime Automotive Group/DT Acceptance Corp.'s $150 million offering of eight-year senior notes (expected ratings B2/B-).

UBS Investment Bank and Bear Stearns & Co. are joint bookrunners for the debt refinancing and general corporate purposes deal from the Phoenix-based chain of automobile dealerships that sell and finance used vehicles to sub-prime customers.

Elsewhere Comsys IT Partners, Inc. will start a roadshow Wednesday for its $150 million offering of eight-year senior notes (confirmed B2/expected B-) via Wachovia Securities and Merrill Lynch & Co.

The Houston-based information technology staffing company will use the proceeds to repay debt.

Pacific Energy Partners will begin a three-day roadshow on Tuesday for its $150 million offering of 10-year senior notes (Ba2/BB-).

Lehman Brothers and Banc of America Securities are joint bookrunners for the acquisition financing from the Long Beach, Calif., master limited partnership

Finally, a roadshow is expected to start next week for a two-part offering from Pregis Corp.

The deal, which is part of the funding for AEA Investors LLC's approximately $530 million acquisition of Lake Forest, Ill.-based Pactiv Corp.'s North American and European protective and flexible packaging businesses, is being led by Credit Suisse First Boston.

The transaction will include €100 million of 7.5-year senior secured second-lien floating-rate notes, non-callable for one year (B3/B-) and $150 million senior subordinated notes due 2013, non-callable for four years (Caa1/CCC+).

Delta, Northwest expected to file

In the secondary market, news was focused on airline names as Delta Airlines' bankruptcy filing is seen happening this week, and Northwest Airlines may not be too far behind, sources say.

Elsewhere the shorter paper of Charter Communications received a boost as one trader characterized the company's mammoth bond exchange as a crowning success.

"Everybody is expecting Delta to file this week and for Northwest to file before Oct. 17, when the bankruptcy laws change," one trader commented.

The trader saw Delta's 8.30% notes due 2029 at 15.25 bid, 16.25 offered, and added that the airline's bond prices were all "pretty much all compressed to that context, trading flat, unchanged from Friday on a dollar-level, but now you are not getting accrued interest."

Meanwhile the trader saw Northwest's 10% bonds due 2009 trading in 31.0 bid, 33.0 offered-context, off about two points. And the 8 7/8% due 2006 were 43 bid, 44 offered, off about four points from 46.0 bid, 47.0 offered at the end of last week.

"It's going to be an interesting environment where you have four old 'hub-and-spoke' airlines operating in bankruptcy," the trader commented.

Another trader also commented that now Delta's bonds are trading flat it is assumed the company will not be paying any interest.

This source saw Delta's 8.30% bonds trading around 16.0 bid.

That trader added that Northwest's bonds "took it on the chin," with the 8 7/8% notes due 2006 trading at 44.0 bid, and the 8.7s due 2007 at 30.50 bid, both "a lot lower."

This trader added, however that the bonds of the two relatively healthy 'hub-and-spoke' airlines, Continental and American Airlines, were holding their own, with the Continental 8% due 2005 trading "right around par" and American Airlines' 9% due 2012 trading at 77.0 bid, 78.0 offered, "unchanged if not a little better."

Breathing room for Charter

On Monday morning Charter Communications, the troubled St. Louis cable TV and high-speed internet services provider, announced that as of the early tender deadline of 5 p.m. ET last Friday, $6.83 billion, or 81%, of the notes involved in its mammoth exchange offer, had been successfully tendered. Of that amount approximately $3.39 billion are notes maturing in 2009 and 2010 and approximately $3.44 billion are notes maturing in 2011 and 2012.

"If operations stay the way they are, Charter is basically fine through 2008," a trader commented.

"The speculation is that there is nothing that matures between now and then, and they can do a few asset sales to deal with the maturities of 2008.

"After 2008 you have to seen some underlying operational improvement in the credit."

The trader said that the shorter-maturity Charter bonds bounced the most, and spotted the 8 5/8% note due 2009 showing the biggest gains, around 85.0 on Monday, up from 81.50 bid, 82.50 offered-context on Friday.

"I think this exchange went as well as the company could have hoped," the trader added. "They had such good participation that it gave them some breathing room and time to improve operations."

AK Steel smarting from Katrina

Asked about the seeming resilience in the capital markets in the face of the devastation wreaked by Hurricane Katrina, which struck the U.S. Gulf Coast on Aug. 29, one trader said Monday that easy answers are hard to come by.

"Everybody got amped up thinking that the Fed would be on hold, which is probably what gave a bid to the stock market," the trader remarked, adding that the expectation, given the recent drop in oil price and the recently rallying stock market, is now that the Fed will tighten short-term interest rates by another 25 basis points when the Federal Open Market Committee meets on Sept. 20.

The trader added that most of the present data still looks backward to before the hurricane hit New Orleans and the Gulf Cost.

"When the backward-looking data factors in Katrina, then things could change," the trader said.

In spots such as airlines, however, Katrina's impact is unmistakable, the trader added.

And the ripple effect seems to be taking hold.

AK Steel Corp. cited rising natural gas and scrap metal expenses caused by Hurricane Katrina in projecting a $33.5 million loss for the third quarter.

The trader spotted the Ohio-based company's 7 7/8% bonds due 2009 at 96.50 bid, 97.0 offered Monday, down from 98.50 bid, 99.50 on Friday. Meanwhile AK Steel's 7¾% notes due 2012 were seen at 92.0 bid, 93.0 offered, down from 94.50 bid on Friday.

The trader added that autos felt a little weaker because of some of the concerns about scrap steel prices.

Homebuilders softer with Treasuries

Elsewhere Monday, the higher-rated - and therefore more Treasury-sensitive - bonds of home building companies were seen tighter on a spread basis but slightly down on a dollar basis, according to a trader.

The source spotted D.R. Horton's 5¼% bond due 2015 trading at 95.50, late Monday, a 173 basis points spread.

Meanwhile Beazer Homes USA's 6½% bond due 2013 traded at 98.75 bid, the trader added.

And Hovnanian's 6¼% bond due 2015 traded at 95.625 bid, a 273 basis points spread.

Weakness in pulp & paper names

Meanwhile, late Monday, the trader also reported seeing some weakness in the existing paper of some pulp & paper names.

The source had Millar Western Forest Products Ltd.'s 7¾% notes due 2013 a lot softer, trading at 88.50 bid, after having recently changed hands at 92.50 bid.

Also down on Monday, said the trader, were Abitibi-Consolidated Inc.'s 8.55% notes due 2010, which traded at 104.0 bid, and the 6% bond due 2013, spotted at 91.75 bid.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.