Downsized Community Health Systems prices; Magnum deal pulled; video rental names lower

By Paul Deckelman and Paul A. Harris

New York, June 27- Community Health Systems Inc. brought a mammoth $3 billion bond offering to market on Wednesday - although the mega-deal was downsized by about 10% from its originally planned volume. The company's new bonds were seen trading up around a point when they were freed for secondary dealings.

Also pricing was a more conventionally sized offering from Patec Holding Corp. Price talk emerged on CanWest MediaWorks LP's upcoming 10-year issue.

But for a second consecutive session, market players were acutely aware of the presence of the Grim Reaper, as yet another prospective new deal bit the dust and was postponed - this one for Magnum Coal Co. The reason given, "market conditions," was the same rationale heard on Tuesday, when deals for U.S. Foodservice Inc. and Catalyst Paper Corp. were pulled from the forward calendar.

In the secondary market, Blockbuster Inc.'s bonds were seen down several points after the Dallas-based Number-One U.S. video rental chain operator announced a settlement on undisclosed terms of all litigation between Blockbuster and rival video rental operator Netflix Inc., which had sued Blockbuster for patent infringement when the latter company moved to diversify away from brick-and-mortar stores and into Netflix's neighborhood, on-line rentals. Bonds of the Number-Two player in bricks and mortar behind Blockbuster, Movie Gallery Inc., fell even further.

And Trump Entertainment Resorts Inc.'s bonds were seen down about 1½ to 2 points on the session on press reports that the Atlantic City, N.J. -based gaming operator's talks with a potential buyer had run into trouble - even though one of the parties to the negotiations said that things are moving along nicely.

A high yield mutual fund investor said the junk indexes were unchanged by the close Wednesday after having plunged a point or so in the morning.

The investor specified, however, that the cash market conceivably might not have fared quite so well as the indexes.

In the primary market, meanwhile, two issuers raised $3.3 billion with two tranches of notes.

Community Health sells $3 billion

CHS/Community Health Systems Inc. raised $3 billion by placing a downsized, restructured issue of 8 7/8% eight-year senior unsecured notes (B3/B-) on Wednesday.

The notes priced at an original issue discount of 99.294, resulting in a 9% yield to maturity.

The yield was printed at the wide end of the 8¾% to 9% price talk.

The deal was downsized from $3.365 billion, with $365 million of the acquisition financing being shifted to the company's term loan.

Credit Suisse and Wachovia Securities were joint bookrunners for the deal which was undertaken to help fund the acquisition of Triad Hospitals Inc.

PaeTec prices $300 million

Elsewhere Paetec Holding Corp. priced a $300 million issue of eight-year senior notes (Caa2/CCC+) at par to yield 9½% on Wednesday - 25 basis points beyond the wide end of the 9% to 9¼% price talk.

Merrill Lynch & Co. was the bookrunner for the debt refinancing deal from the Fairport, N.Y.-based communications services provider to businesses.

Dollar General talks $1.9 billion

Turning to the forward calendar, Dollar General Corp. set price talk for its $1.9 billion offering of high-yield notes on Wednesday.

The Goodlettsville, Tenn.-based discount retailer talked a $625 million tranche of eight-year senior cash-pay notes (Caa1/CCC+) at the 10½% area.

Meanwhile Dollar General talked a $725 million tranche of eight-year senior PIK toggle notes (Caa1/CCC+) at the 11% area.

The company also talked a $550 million tranche of 10-year senior subordinated notes (Caa2/CCC+) at the 12% area.

The notes are expected to price Thursday afternoon.

Goldman Sachs & Co., Citigroup, Lehman Brothers and Wachovia Securities are joint bookrunners.

On Thursday morning a buy-side source said that the bonds priced in May by Claire's Stores Inc., which have traded off in the interim, were being used as a comparable for the Dollar General deal.

To recap, in May Claire's Stores priced $935 million of notes in a similarly structured three-part transaction.

The Pembroke Pines, Fla., specialty retailer priced $250 million of 9¼% fixed-rate cash-pay notes, $350 million of 9 5/8% senior toggle notes, and $335 million of 10½% senior subordinated notes.

The buy-side source said that the Claire's 9¼% cash-pay notes have lately traded at a yield of approximately 10% - and the Dollar General cash-pays are talked 10½%. The Claire's 9 5/8% toggle notes have lately traded at 11% - the Dollar General toggles are talked at the 11% area. And the Claire's 10½% subordinated notes have lately traded at 12% - the Dollar General subordinated notes are talked at the 12% area.

Throughout the Wednesday session the rumor mill buzzed with reports that the Dollar General deal was about to be pulled.

"Not so," said a mutual fund investor who spoke to Prospect News well after the Wednesday close.

The buy-sider added that the bookrunner is saying it will announce changes to the structure, the rates and possibly the covenants on Thursday.

CanWest talks $650 million

Elsewhere Wednesday CanWest MediaWorks set price talk for its $650 million offering of 10-year senior subordinated notes at 9% to 9¼%.

The Citigroup deal is set to price on Thursday.

Magnum Coal postpones

Magnum Coal postponed its $350 million offering of seven-year senior secured second-lien notes (B3/B-) due to market conditions.

Earlier in the week the Lehman Brothers debt refinancing and general corporate purposes deal was talked at 10¾% to 11%.

Magnum was the third junk offering to be pulled in two days.

On Wednesday U.S. Foodservice Inc. postponed its restructured $650 million offering, and Catalyst Paper Corp. postponed its $200 million offering of 10-year senior notes.

The $100 billion mark

According to Prospect News data, 2007 dollar-denominated high yield new issuance topped the $100 billion mark on Tuesday.

Hence, with half the year remaining to play out the market appears poised to smash last year's record-setting issuance of approximately $157 billion.

Hearing this news, a buy-side source more or less agreed that the 2006 record could be in trouble - if nothing happens to disrupt the pipeline of LBO deals the market is anticipating through the remainder of 2007.

However, the buy-sider added, the fate of the above-mentioned U.S. Foodservice LBO has implications for how the remainder of the year plays out in the primary market.

On Tuesday the company pulled what had originated as $1.55 billion of high yield bond financing and $3.365 billion of leveraged loan financing.

Subsequently sources told Prospect News that the entire financing - the funded portion of which came to approximately $4.3 billion, according to one source's reckoning - reverted to a bridge loan.

Late Wednesday a buy-side source said that such was indeed the case, and added that the bridge would likely have been syndicated, perhaps as much as 50% of it, among mutual funds, insurance funds and institutional lenders.

"It used to be easy money because all you did was put your name on a piece of paper, and you never really had to fund it," the buy-sider said, adding that the Foodservice deal introduces a new twist.

"Now you're funding," the source said, adding that whoever signed onto the bridge is contractually obligated to participate in funding it.

As for the LBO deals already contracted, the investor said, the bridge financing is in place, and don't expect much mercy on the part of the equity sponsors.

However, the source added, in light of what happened to U.S. Foodservice, underwriters may become less aggressive in their LBO-financing strategies.

Community Health up in trading

When the new Community Health Systems 8 7/8% notes due 2015 were freed for secondary dealings, a trader saw the new bonds push up to 100.25 bid, 100.5 offered, well up from its 99.294 issue price earlier in the session, after trading around 99.25 bid, 99.5 offered "for a while."

"It's the first new issue [in several sessions] that's come and actually traded above new issue." He called it "a good deal, and they kind of scaled allocations and left people looking for paper. It was well managed and well placed, and traded very well."

Another trader saw the bonds at 99.875 bid, 100.125 offered.

While the CHS deal looked like a winner, VWR [Varietal Distribution Merger Sub Inc.], whose 10¼% toggle notes due 2015 priced late Tuesday, "conversely priced at par - and opened at 98-98.5."

He saw the bonds "doing a little bit better" later on in the session, but below their par issue price, at 99 bid, 99.5 offered.

He said that he had seen neither hide nor hair of Telcordia Technologies Inc.'s new first-lien five-year notes. "A lot of people were asking - but we didn't see anything."

But another trader pegged those bonds at 98.25 bid, 99.25 offered, and also saw VWR's bonds firm off their lows at 97.75 bid, 98 offered to move back up to 99 bid, 99.5 offered - though that was still down a point.

A trader saw the new Fresenius Medical Care AG & Co. KgaA 6 7/8% senior notes due 2017, which opened at 98.25 Wednesday morning, not far from their 98.225 issue price, hang in later in the session around that 98.25 bid.

Among established healthcare names, he said, "HealthSouth [Corp.] and Tenet Healthcare Inc. is still offered. I think you'll still have sellers of that to buy this new Community Health Systems deal."

HCA Inc. "opened lower, but they're closing higher," he said, noting that the Nashville-based hospital operator's 9 1/8% notes moving up to 105 bid, 105.5 offered, improved from the previous session's 104.25 bid, 104.75 offered.

He saw its 9 5/8% toggle bonds open at 106.5 bid, and move up to 107 bid, 107.5 offered, "so they're all better."

Blockbuster, Movie Gallery lower

A trader said that he saw Movie Gallery bonds badly on the slide on Wednesday, pulled down by sector peer Blockbuster, which was out with news on two fronts.

He called Dothan, Ala.-based Number-Two U.S. video rental chain operator Movie Gallery's 11% notes due 2012 at 71 bid, 72 offered, down 5 or 6 points on the session, even as industry leader Blockbuster's 9% notes due 2012 were off 2½ points at 93.5 bid, 94.5 offered, "so that's down a couple [of points]."

Unlike some of the other distressed names, where he said there was a lot of quoting but not all that much trading going on, "there was a lot of trading in the Movies and the Blockbusters."

Another trader saw Movie Gallery's bonds at 70 bid, 72 offered, which he called down 3 points, while Blockbuster was down a deuce at 94.5 bid, 95.5 offered.

A market source at another desk saw the Blockbuster bonds end just below 94, down 2½ points on the session, while the Movie Gallery bonds were down some 3¼ points at 74, although they had firmed a little off earlier day's lows around 73 bid.

Yet another source called the Blockbuster issue down 2 points at 94.5, and pegged Movie Gallery ending 4 points lower at 73.

Blockbuster's bonds fell, and its shares were a little lower as well, against a backdrop of Blockbuster announcing that it had reached a settlement of all litigation with rival video-rental operator Netflix Inc., which had sued Blockbuster for patent infringement when the latter rolled out its competing on-line film rental business, claiming that Blockbuster had copied some of Netflix's proprietary features. Blockbuster in turn had sued Netflix, claiming the on-line video rental pioneer was trying to unfairly stifle competition and keep the burgeoning field all to itself. No terms of the settlement were released - but Netflix's shares were up solidly on the news, a possible sign that it was seen coming out the winner in the settlement.

Blockbuster also said that it was seeking revisions to covenants in its bank credit agreement.

Trump dumped, despite deal player's denial

Elsewhere, Trump Entertainment Holdings' 8½% bonds due 2015 were seen down around 2 points on the session in a 99-99.5 context. The bonds eased, along with the company's shares, when the Philadelphia Inquirer reported that the company's effort to sell itself was running into trouble. That weakness persisted even after former Trump executive Dennis Gomes, a bidder for Trump Entertainment, disputed the report. Gomes said that discussions to purchase the company are "far down the process" and "definitely not stalled."

Those Trump bonds - which recently hovered as high as 102-103 - got a big boost in March when the company announced that it had hired Merrill Lynch to beat the bushes and look for potential acquirers.

Overall, one of the traders said " the market seems to have caught a bid late in the afternoon," after having opened with CCC rated bonds down 1 to 2 points, and BB credits down a point and high BB-BBB stuff off ¼ to ½ point.

He said that after having opened down ½ point at 97.5-98, the widely followed CDX index of junk market performance came back from that nadir.

Another trader saw the CDX up 5/16 on the day at 98.25-98.40.

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