SBA, Eagle Rock Energy price deals; WOW! Restructures; Interline to launch; more ATP erosion

By Paul Deckelman and Paul A. Harris

New York, July 10 - The high-yield primary market had its second active day in a row as it continued to shake off the rust from last week's holiday hiatus. Two single-tranche deals priced for a total of some $1 billion.

SBA Communications Corp. brought a quickly shopped and upsized $800 million offering of eight-year notes to market. Traders said the communications antenna tower operator's new deal moved up when the bonds were freed for aftermarket dealings.

Eagle Rock Energy Partners LP added a quick-to-market $250 million deal, restructured as an add-on to the midstream natural gas company's existing bonds rather than the originally planned new tranche of eight-year notes.

Eagle Rock wasn't the only issuer doing some tinkering with its deal to make it more attractive to would-be investors. High yield syndicate sources heard that WOW! Internet Cable & Phone's upcoming $1.02 billion offering, also originally seen as a simple eight-year deal, had been overhauled into a two-part issue of senior and subordinated paper.

The sources also heard that Interline Brands Inc. - lurking deep in the forward calendar for weeks - will finally launch its planned bond deal with a Wednesday conference call.

Away from the new deals, the overall market was mixed, as reflected in the behavior of statistical performance measures.

Radiation Therapy Services Inc.'s bonds were sharply lower for a second consecutive session, hurt by plans for big cuts in the amount of reimbursements the government is willing to pay such health care providers for treating Medicare patients.

ATP Oil & Gas Corp.'s bonds and shares fell for a second straight day on investor skepticism and disappointment over company claims to have finished a lengthy maintenance program at one of its Gulf of Mexico wells and its projections for putting the well back online.

SBA upsizes

The drive-by market remained active on Tuesday with two quick-to-market issuers, each one bringing a single-tranche deal.

SBA priced an upsized $800 million issue of eight-year senior notes (B1/B+) at par to yield 5¾%.

The reoffer price and yield came on top of price talk that had tightened from earlier talk of 5¾% to 6%.

J.P. Morgan, Barclays, Citigroup, Deutsche Bank, RBS, TD and Wells Fargo were the joint bookrunners for the debt refinancing deal which was upsized from $650 million.

Although the deal came with high single B ratings, it attracted a crossover crowd, a buyside source said, adding that crossover investors tend to find cell tower deals to their liking.

"Liquidity is tough and people are dying for paper," added the high-yield investor, who expected to be cut back on a meager enough order for SBA.

"If you ask me, you're hardly being paid to take risk right now," the investor added, noting that the high-yield index has a 7 1/8% yield to worst, while the SBA notes pay a coupon of 5¾%.

As to the hunger for new notes, the investor pointed to Monday's upsized Community Health Systems, Inc. $1.2 billion issue of senior notes due 2020 (B3/B/B), which priced at par to yield 7 1/8%, and said that although it was a big deal, it was heavily driven by reverse inquiry from accounts already being taken out of the CHS 8 7/8% notes, currently being tendered.

So even though the deal was upsized from $1 billion, there was little leftover for others, the source said.

Eagle Rock taps 8 3/8% notes

In a restructured quick-to-market Tuesday transaction, Eagle Rock priced a $250 million add-on to its 8 3/8% senior notes due June 1, 2019 (B3/B) at 98.501 to yield 8.666%.

The reoffer price came on top of price talk.

Earlier in the day prior to the restructuring, the Houston-based natural gas company launched into the market a proposed new issue of eight-year notes.

Wells Fargo was the left bookrunner for the debt refinancing deal. Bank of America Merrill Lynch, Citigroup and RBS Securities Inc. were the joint bookrunners.

The original $300 million issue priced at 99.279 to yield 8½% on May 24, 2011.

Baytex prices C$300 million

In the Canadian high-yield realm, Baytex Energy Corp. priced a C$300 million issue of 10-year senior debentures (B1/BB-/) at par to yield 6 5/8%.

TD and RBC were the lead managers.

Proceeds will be used to repay debt under Baytex's credit facilities, which will be drawn upon to fund the redemption of the company's U.S.-dollar denominated $150 million outstanding principal of 9.15% series A senior debentures due Aug. 26, 2016 and for general corporate purposes.

WOW! brings new structure

WOW! Internet Cable & Phone, which had roadshowed $1.02 billion of eight-year notes in late June, returned to the market on Tuesday with a restructured dual tranche deal of the same size.

The revised offering is comprised of a $700 million tranche of seven-year senior notes and a $320 million tranche of 7.25-year senior subordinated notes.

Order books close at 5 p.m. ET on Wednesday, and the deal is set to price on Thursday.

Credit Suisse, Morgan Stanley, RBC, SunTrust and Mitsubishi-UFJ are the joint bookrunners for the acquisition financing and debt refinancing deal.

Pricing discussions on the $700 million tranche of seven-year senior notes is 11%-plus, according to a buyside source.

Interline sets investor call

Interline Brands plans to hold an investor call on Wednesday morning for its $365 million offering of senior notes, according to a high-yield mutual fund manager.

An investor roadshow is set to run through July 17.

Goldman Sachs and Bank of America Merrill Lynch are the joint bookrunners.

Proceeds will be used to help fund the acquisition of Interline by GS Capital Partners LP and P2 Capital Partners LLC.

Although official timing has yet to surface, the fund manager expects Party City Holdings Inc. to show up before the end of the week with a $700 million offering senior notes to help fund the buyout of the company by Thomas H. Lee Partners LP, according to a trader.

Also, Hologic Inc.'s $750 million offering of senior notes, backing the acquisition of Gen-Probe Inc., could come before the end of the week ahead, the investor added.

SBA shows strength

When the new 5¾% notes due 2020 from SBA Communications were freed for secondary dealings, traders reported that the paper firmed in the aftermarket.

One saw the quick-to-market $800 million deal having moved up to 101½ bid, 102½ offered from the par level at which it priced, after it was upsized from an original $650 million.

A second trader saw the Boca Raton, Fla.-based communication antenna tower operator's new issue at 101¾ bid, 102 offered.

Traders meantime said that Eagle Rock Energy Partners LP's new $250 million add-on offering of 8 3/8% notes due 2019 came to market too late in the day for any kind of secondary dealings.

Monday deals hold levels

The traders said that the three deals priced on Monday were pretty much around the same levels to which they had initially moved after pricing.

One trader saw the new CHS/Community Health Systems Inc. 7 1/8% notes due 2020 at 101¾ bid, 102 offered, with over $100 million of the bonds traded, making it easily the most active issue in Junkbondland on Tuesday.

A second trader saw those bonds at 102 bid.

The Franklin, Tenn.-based hospital operator priced its $1.2 billion drive-by deal - upsized from an originally announced $1 billion - at par on Monday, with several traders having then seen the bonds trading around the 1013/4-to-102 level.

Wellington, Fla.-based aircraft interior and components maker B/E Aerospace Inc.'s 5¼% notes due 2022 were at 103 bid, while a second saw two-sided markets at 103 bid, 103½ offered, on volume of $35 million.

That opportunistically timed and quickly shopped $800 million add-on to the company's existing series of 2022 bonds priced on Monday at 102 to yield 4.934%, after being upsized from an original $675 million. The new bonds were seen having gained a little altitude in initial aftermarket dealings, moving up to 103 bid.

And a trader saw Icahn Enterprises LP's $300 million add-on to its 8% notes due 2018 at 106¼ bid on Tuesday, although a second pegged those bonds at 105¾ bid, 106¼ offered.

The New York-based diversified holding company priced its quickly shopped deal - upsized from an originally announced $200 million - at 105.5 on Monday. Despite its split rating, the issue attracted some junk market interest and was quoted as high as 106½ bid, 106¾ offered in the aftermarket.

Market measures turn mixed

Away from the new-deal arena, statistical market performance measures reverted back to being mixed on Tuesday, just as they had been at the end of last week, after having turned upward on Monday.

A trader saw the Markit Group CDX North American Series 18 High Yield Index give up 1/8 of a point on Tuesday to end at 96 5/16 bid, 96 9/16 offered, after having gained a quarter-point on Monday.

The KDP High Yield Daily Index eased by 4 basis points on Tuesday to end at 73.59. That broke a string of eight straight advances, including Monday's 4 bps gain. However, its yield came in for a ninth consecutive session, declining by 2 bps to close at 6.41%, after having come in by 8 bps on Monday.

And the widely followed Merrill Lynch U.S. High Yield Master II Index continued to churn higher for an 11th consecutive session on Tuesday, gaining 0.131%. on top of Monday's 0.064% rise.

That lifted its year-to-date return to 7.852%, up from Monday's 7.711% reading.

Tuesday's finish also set yet another new 2012 high for the index, eclipsing the old mark set on Monday. The index is thus at its highest point since the end of 2010, when it returned 15.19%.

Navistar knocked around

Despite the generally positive market tone reflected in a number of the statistical measures, a trader said that a number of names "remained under pressure."

For instance, he saw Navistar International Corp.'s 8¼% notes due 2021 falling another 2½ points on Tuesday, to end at 90¾ bid.

He saw the Lisle, Ill.-based bus, truck and diesel engine manufacturer's bonds having racked up over $40 million of turnover, tops in junk other than the new Community Healthcare bonds.

Navistar's bonds having been steadily sliding, most recently on investor disappointment with the company's plans to finally bring its heavy diesel engines into compliance with Environmental Protection Agency clean-air mandates after two years of bureaucratic wrangling and millions of dollars in fines paid to the government.

Analysts said that the investors were fretting over both the continued delays in implementing those plans as well as the projected heavy costs of compliance by the money-losing company.

Navistar's New York Stock Exchange-traded shares lost $1.72, or 7.27% on Tuesday, ending at $21.95, on volume of 6.3 million shares, about twice the usual activity level.

Besides Navistar's own problems, its shares and bonds were also undermined by the news that major engine-making rival Cummins Inc. - considered one of the strongest players in the sector - had warned of likely lower earnings going forward.

ATP angst continues

ATP Oil & Gas' 11 7/8% second-lien senior secured notes due 2015 continued to erode on Tuesday, on top of the fall on Monday, although volume was considerably diminished.

A trader called them down another 1 point, to 45½ bid, while a second situated them between 45 and 46, off a point. He saw some $12 million of the bonds traded.

Another market source said that only about $4 million or $5 million of that was actually round-lot dealings, with the rest mostly smallish odd-lots and, hence, not representative. He marked the bonds going home around 46, after having seen them dip as low as a 44-handle trade.

Those bonds have slid steadily from recent levels around 48-49.

The Houston-based offshore energy company's bonds had lost about 2 points on Monday on apparent investor disappointment with the company announcement that it had completed extensive maintenance on one of its Gulf of Mexico wells, which has been closed since late February, and expects the well to be producing between 4,000 and 5,000 barrels of oil equivalent a day - somewhat less than the company's earlier estimates in the 5,000 to 7,000-barrel range.

ATP's Nasdaq-traded shares, which had lose more than 6% on Monday on the news, were down another 25 cents, or 7.25% on Tuesday, ending at $3.20, though on normal volume of 2.2 million shares.

Radiation Therapy is routed

A trader said that Radiation Therapy Services' 9 7/8% notes due 2017 fell about 6 points, finishing in a 58-to-60 context - although "not a whole lot traded - it's a small deal" - totaling about $360 million.

A second trader said that the Fort Myers, Fla.-based radiation oncology services provider's bonds "continue to get hit" and are trading below 60. He said that the paper fell after the government body that sets Medicare and Medicaid reimbursement rates for providers released its preliminary 2013 rate schedule on Friday, calling for sharp cuts in the amount that Washington will pay such companies for providing radiation therapy services to Medicare patients.

A market source at another desk said that the bonds, which had been trading as high as the 78 level at the beginning of the month, opened around 74 on Monday and then swooned to the 65 bid level, although volume was light at only $5 million or so.

On Tuesday, he said, the bonds continued to fall, with over $10 million traded, finally bottoming late in the session at 59¾ bid.

On a late-afternoon conference call on Monday, the company's chief financial officer, Brian J. Carey, declared: "Much to our surprise, the proposed fee schedule included some drastic cuts to radiation oncology, which had not been part of any previous discussions" or other rate-setting processes used by the Centers for Medicare & Medicaid Services.

Carey told analysts and members of the financial media on the hastily scheduled call that the government body had taken "an unprecedented approach as CMMS cited concerns in the media about alleged overutilization" of radiation therapy services, largely in the area of prostate cancer, as the primary driver for the potential cuts.

He said that the government took its data from newspaper articles and then also used data from patient-education websites as the basis for reducing the assumed number of minutes per treatment used in calculating the reimbursement formulas from 60 minutes per session to 30 minutes.

"Most importantly," he added, "CMMS did not factor in the very significant cost increases - the cost of equipment and facility costs, service contracts [with medical personnel] and other resources, which had not been updated since the original assumptions in 2002."

He said that "a key" to any reimbursement rate setting process "is to use actual survey and cost data, and factor in both activity and resources, in arriving at an appropriate payment. Simply, you can't update the numerator [in the formula] without updating the denominator."

He said that as a result of the changes the government's methodology, proposed payment levels for some forms of radiation oncology would be reduced by almost 30% from today's levels - and other levels by as much as 40%.

Interested parties will have 60 days from the publication of the proposed rates last Friday to make their objections or other concerns known, with the permanent rates for the coming year to be announced after that, likely sometime in September or October.

Carey also protested as "incredible from a public policy standpoint" the fact that CMMS has proposed the reductions for payments made for treatments at free-standing radiation therapy centers of the type that Radiation Therapy and its competitors operate, but at the same time is proposing increases to payments for certain similar treatments in a hospital setting - meaning hospitals would be paid $484 per treatment by Medicare, versus $285 per treatment at a free-standing center.

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