RDS Ultra-Deepwater shops notes; New World, ITC pull deals; Blockbuster better, NewPage not

By Paul Deckelman and Paul A. Harris

New York, Feb. 10 - With the big blizzard smacking New York and other Northeastern business centers on Wednesday throwing a snowy wet blanket over junk market activity levels, no deals were seen having priced, in contrast to the nearly $4 billion of new paper which clattered down the chute on Tuesday.

But there was some movement in primary market, with offshore energy drilling contractor RDS Ultra-Deepwater Ltd. heard by syndicate sources to be hitting the road to market a $260 million offering of seven-year senior secured notes.

Price talk emerged on Community Education Centers Inc.'s $210 million offering of six-year senior secured notes, which is expected to come to market on Friday morning. Kemet Corp. and Bombardier, Inc., among others, were expected to price deals either Thursday or Friday.

Market participants were also gearing up for a $1.5 billion split-rated offering, expected to price on Thursday in three tranches, from Life Technologies Corp., a Carlsbad, Calif.-based biotechnology tools company.

However, two planned offerings bit the dust on Wednesday, as syndicate sources heard that ITC DeltaCom Inc. and New World Resources NV had pulled their respective bond deals, citing changed market conditions.

Stallion Oilfield Holdings' new issue was seen trading well under its Tuesday pricing level.

Away from new-deal related names there was brisk activity in Blockbuster Inc.'s beleaguered bonds, with the Dallas-based movie-rental operator's notes seen having firmed a little from the lows at which they had ended trading on Tuesday, although there was no firm positive news out about the troubled company.

NewPage Corp.'s bonds were bouncing around busily on Wednesday, first falling in an apparent continuation of the recent slide seen in coated-paper sector credits, but then coming off their session lows following a midday company announcement that it had hired a new president and chief executive officer, although they still finished down on the day.

At intervals during the Wednesday session, a lot of high-yield bonds were for sale, according to a mutual fund manager.

The buy-side is trying to raise cash, the investor added, predicting that the weekly funds flows numbers, when on Thursday by AMG Data Services, would show that redemptions are afoot.

"People are trying to raise cash," the investor added, giving, as evidence, an increase among sellers in T+1 settlement requests.

Recent executions

Some of the recent executions have not gone particularly well, the buy-sider said.

Freescale Semiconductor, Inc.'s new 10 1/8% first-lien notes due in 2018, which priced Tuesday at par in a restructured $750 million issue (B2/B-) to yield 10 1/8%, were 2 points lower at Wednesday's close, the source said.

Meanwhile, Stallion Oilfield Holdings, Inc.'s new 10½% senior secured notes due 2015 (B3/B-), which also priced Tuesday, in this case a $225 million issue that came at 99.049 to yield 10¾% - 25 bps beyond the wide end of the 10¼% to 10½% price talk - were down big, by Wednesday's close, according to the investor who spotted them at 95¾ bid.

"You combine that with the fact that we're seeing deals pulled, and things are getting kind of interesting," the fund manager remarked.

The buy-sider noted one exception.

Severstal Columbus Escrow, LLC's new 10¼% first-priority senior secured notes (B3/B), which priced on Monday at 98.008 to yield 10 5/8%, in a $525 million issue, were 2 points above issue price on the bid-side at Wednesday's close, the source said.

"It's senior secured paper, secured by one of the newest steel mills in the country," the investor said.

"And it was a $525 million deal, so it wasn't small.

"They had $200 million of orders, the morning of the deal. They backed up the price and changed the covenants, which ultimately generated over $1 billion of orders."

Two deals pulled

The Wednesday session got underway with news coming from Europe that a benchmark-sized deal had been pulled due to market conditions.

New World Resources NV postponed its €700 million equivalent offering of eight-year senior secured notes, which were to have been issued in dollar and euro denominations.

"Despite strong investor interest, negative market volatility warranted withdrawing the offering at this time," the company stated in its press release.

Then, late in the New York day, ITC^DeltaCom, Inc. withdrew its $325 million offering of six-year senior secured first-lien notes.

"When we initially embarked on this process, the anticipated cost of capital for the new senior secured notes was in the range of 9% to 9 ½%," commented Richard Fish, the company's chief financial officerm in a news release.

"However, as a result of the significantly weaker market conditions that have occurred over the last several days, the pricing on the new senior secured notes would have increased by an additional 2% to 2.5%."

Price talk of 10¾% to 11%, with 2 to 3 points of original issue discount surfaced Monday on ITC^DeltaCom. However talked had moved out to 12% by the time the company walked away, according to a buy-side source.

Two from Jefferies

Most of Wednesday's positive primary market news came courtesy of Jefferies & Co.

Community Education Centers, Inc. set price talk for its $210 million offering of six-year senior secured notes.

The notes are talked to yield 12¾% to 13%, with an original issue discount of about 2 to 3 points.

The books for the debt refinancing deal close at 5 p.m. ET on Thursday. Pricing is set for Friday morning.

Meanwhile, RDS Ultra-Deepwater, Ltd. will begin a roadshow on Thursday for a $260 million offering of seven-year senior secured notes.

Proceeds will be used to purchase PetroRig III, a sixth generation ultra-deepwater semi-submersible drilling rig.

The company will enter into a long-term charter contract for the lease of the Rig with Pemex Exploracion y Produccion, a wholly owned sub of Petroleos Mexicanos, the national petroleum company of Mexico.

Jefferies is bookrunner for both the Community Education Centers and RDS Ultra-Deepwater deals.

Stallion seen a lame horse

Traders said that the new Stallion Oilfield Holdings 10½% notes due 2015, which priced at 99.094 on Tuesday but then immediately began falling 1½ to 2 points in the aftermarket, continued to head downward on Wednesday. One was quoting the Houston-based oilfield services company's $225 million offering at 96¼ bid, 97 offered, although he saw them later at 96½ bid, 97½ offered.

At another desk, a trader said that the new Stallion bonds, after having finished Tuesday at 98, plunged as low as 95 bid, 96½ offered on Wednesday, before coming off their lows to finish at 97, still down 1 point on the day and 2 points from the bonds' issue price.

GMAC, Freescale trade off

Stallion wasn't the only one of Tuesday's new deals to be seen lower on Wednesday, although it was the most prominent example.

A trader saw GMAC Financial Services' 8.30% notes due 2015 starting the day at 99 1/8 bid, 99½ offered, versus the 99.19 level at which the Detroit-based automotive and consumer mortgage lender had priced its $2 billion issue on Tuesday to yield 8½%. However, he said that trading in the credit dried up "as people ran home for the storm," leaving it at 98½ bid, 99 offered.

GMAC, another trader declared, "traded up [from the Tuesday close], then it came in to 99, and ended below issue."

Yet a third trader, also quoting the GMAC new deal a bit below issue at 99 bid, 99¼ offered, suggested that "it pushed the rest of the [GMAC] capital structure down a point. As the new deal goes, so goes the existing bonds.

Another Tuesday new deal seen going nowhere fast was Freescale Semiconductor, which priced $750 million of 10 1/8% senior secured notes due 2018 at par to yield 10 1/8%.

A trader saw the Austin, Tex.-based computer-chip manufacturer's deal trading at 98¾ bid, 99 offered, more than a full point below issue.

"It opened at par," another trader said, "and the bid got hit." He said the new deal traded between 98¼ and 98¾ for most of the day.

Market indicators ease again

Back among the established bonds with no new-deal connections, a trader saw the CDX Series 13 index lose ¼ point on Wednesday to end at 94¾ bid, 95¼ offered, after having gained ¼ point on Tuesday.

The KDP High Yield Daily Index meanwhile eased by 9 basis points on Wednesday to finish at 69.71, after having fallen by 25 bps in each of the previous two sessions. Its yield widened by 3 bps to 8.61%, after having widened by 8 bps on both Monday and again on Tuesday.

Advancing issues remained behind decliners Wednesday for a fifth straight session, by about a seven-to-five margin.

Overall market activity, as measured by dollar-volume levels, fell by about 14% from Tuesday's pace.

A trader said that "the market felt weaker, with not a lot of trading."

Another said that with a giant blizzard expected to dump at least a foot of snow over most of the Northeast, with the snowfall continuing late into the evening on Wednesday, "a lot of people came in early and then made a mad dash for the exits" around mid-afternoon. Some, he added, never even made it in in the first place, either calling in sick or working from home. The bottom line, he said, was reduced market activity, particularly as the afternoon wore on.

Blockbuster bonds busy, and better

A trader said that Wednesday's market was characterized by "some of the same names [as seen on Tuesday] bouncing all around," among them Blockbuster's 9% senior subordinated notes due 2012 and its 11¾% senior secured notes due 2014.

The movie-rental company's bonds "bounced around pretty good today," he said, seeing the 113/4s in a 63-64 context and the 9s around 16-18, with a last trade around 17 on "plenty of volume." He also saw "a decent amount" of trading going on in the 113/4s.

The Blockbuster bonds were up by several points from Tuesday closing levels around 60½ for the 113/4s and 15 for the 9s, though there was no fresh positive news out on the company, which is expected to post a sizable loss for the fiscal fourth quarter and 2009 fiscal year ended Jan. 3 when it reports its numbers and holds a conference call in exactly two weeks, after the market close on Feb. 24.

Blockbuster's bonds have been sliding precipitously since Jan. 21, when the company revealed that its all-important December sales were much worse than expected and thus warned that it will post a full-year loss of somewhere between $183 million and $193 million - nearly double the roughly $100 million of red ink analysts had been forecasting, on average. Before that negative guidance, the 9% notes had been trading in the lower 60s, and the 113/4s traded just under par.

NewPage knocked down, despite news

It was another tough day for holders of NewPage Corp.'s bonds - even though the troubled Miamisburg, Ohio-based coated-paper manufacturer had huge news, released during the afternoon - it has hired a new president and CEO to take the place of the executive whose sudden resignation last month has been seen as one of the key factors that threw those bonds into the tailspin they have suffered over the past few weeks.

Even with the company's announcement that E. Thomas Curley will come aboard as president and CEO, "NewPage got beat up," a trader said, pegging its 10% notes due 2012 down around a 46-47 context, which he said represented a 6 point loss on the day

He saw not much activity in its 12% notes due 2013, which continued to languish in the mid-30s. "The activity was in the 10s," he said.

Another market source saw over $13 million of the 10s trading on Wednesday, quoting them going home at just a shade over 47, versus the previous day's close at 53, although strictly on a round-lot basis, it was around a 4 point loss on the day. But the source saw even more activity - estimating over $40 million worth - in NewPage's 11 3/8% notes due 2014. Those bonds gyrated as low as 85 before coming back later in the day to close around 87, down about a point on the session.

"The 11 3/8s were bouncing around," a trader said, "and then news [of the Curley appointment] came out around noon [ET] and they started bouncing back." He too saw the bonds bottom at 85 pre-news, and then come back up to 87, off a point on the day but about unchanged on the open.

He likewise saw the 10s fall from an opening level of 49½ to a nadir of 46, before coming back later in the day to end at around 47 - off the lows, but still well down from the Tuesday closing level around 50-51.

NewPage announced that Curley will take over the positions vacated last month by Richard D. Willet, Jr., whose unexpected and only vaguely explained resignation, announced on Jan. 19, sent the company's bonds tumbling. The 10s had been trading around 82 and its 11 3/8s around par before the news of Willet's resignation, which came along with quarterly numbers regarded by market observers as weak.

While Curley is respected as a veteran manager, none of his experience is directly connected to running a paper company. After starting his executive career with General Electric Co., he later joined Caterpillar Inc., Cooper Cameron Corp. - the latter a maker of industrial valves - and Rolls-Royce plc, where he most recently served as president of the Rolls-Royce Energy business.

Elsewhere in the paper sphere, NewPage sector peer Appleton Papers recently priced issue of new 10½% senior secured notes continued to struggle, with one trader quoting the bonds as having fallen as low as 91½ bid, 93½ offered, while another saw them offered at 93 - down a little from recent levels in the 92-93 area, and well down from the 98.035 level at which the Appleton, Wis.-based paper company priced its $305 million issue of the bonds on Jan. 29 to yield 11%.

"It seems like the whole paper sector is taking a beating," he opined.

Another sector name, Memphis, Tenn.-based coated-paper maker Verso, was also seen lower on Wednesday. Its 9 1/8% notes due 2014 were seen around 88½ bid, off from 89¼ on Tuesday.

Claire's climbs on numbers

Away from the paper sector, a trader said that Clare's Stores' "held up pretty well" despite an overall negative tone in the market, quoting its 9 5/8% notes due 2015 as having risen to 75 bid from Tuesday's 70-71 range.

Another market source saw the company's 10½% notes due 2017 close at 72½ bid, up from around 70 previously.

The notes rose in the wake of Tuesday's late-session release of preliminary quarterly numbers. For the quarter ending Jan. 30, the Pembroke Pines, Fla.-based specialty retailer said it expects to post net sales of $411 million, a 4.5% increase year over year. Consolidated same store sales meantime improved by 2.1% for the time period.

Adjusted EBITDA is expected to be between $91 million and $95 million, compared to $76 million for the same quarter of fiscal 2008. Cash and equivalents were also better at $199 million.

Claire's said it would file its full results on or before April 30.

Gaming's losing streak continues

Back on the downside, bonds of such big gaming companies with exposure to the underperforming Atlantic City market as MGM Mirage and Harrah's Entertainment continued to struggle on Wednesday.

A market source quoted Harrah's 10% notes due 2018 down nearly a point at 72½ bid, while its 11¼% notes due 2017 were marginally easier around the 101 level.

At another desk, the 10s were seen having fallen about 1¼ points to the 72 area, while Las Vegas-based Harrah's 10¾% notes due 2016 were seen even further down - off as much as 5 points to the 71 level.

MGM Mirage fared no better, with its 6 5/8% notes due 2015 closing down nearly 2 points at 78 bid, its 8½% notes coming due in September down almost a full point to 99, and its 11 3/8% notes due 2018 pegged as 5 point losers at 88.

Harrah's and crosstown rival MGM's bonds were continuing the downturn seen on Tuesday after the publication of monthly gaming results by authorities in Atlantic City, where both companies have a presence. For the month of January, the Jersey Shore gaming center's dozen casinos won $294.2 million from their customers - an 8.5% decline from January 2009 levels, and the 17th straight month in which the casinos have reported weakening revenue.

News reports Tuesday also indicated that MGM is looking into the idea of selling its valuable 50% stake in Atlantic City's glitziest and most profitable casino resort, the Borgata, which it runs as a joint venture with Boyd Gaming Corp. The reports say that MGM is considering the step in order to settle questions raised by New Jersey gaming regulators over its ties to a controversial Chinese casino family whom MGM has as a partner in its casino operations in Macau.

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