Citgo deal in trouble; loans upsized; Cablevision plans junk sale; secondary seen mostly firm

By Paul Deckelman and Paul A. Harris

New York, June 14 -- Citgo Petroleum Corp. was heard by sources in the bank loan market on Monday to have radically downsized its planned offering of seven- and 10-year secured notes to $300 million from the previously announced $1.5 billion.

This came as the Houston-based energy refiner and marketer, at the same time, sharply upped the size of its planned bank debt financing.

Sources in both the junk and bank loan markets said that shrunken bond deal could be a mighty tough sell in the current market and may just be rolled into the bank deal, depending on market conditions. The downsized bond deal was facing a "perfect storm" of negative factors that includes the latest strange edicts coming from the volatile and ever-unpredictable leader of Venezuela, which owns Citgo lock, stock and barrel.

The considerably much better-liked Cablevision Systems Corp. is meantime expected to market high-yield bonds as part of a $1 billion financing, which the Bethpage, N.Y.-based cable systems operator is said to have lined up to fund its roughly $1.4 billion purchase of Bresnan Communications LLC.

Meanwhile, Cablevision's existing bonds were seen not much moved on the news of the pending acquisition of Bresnan, an operator of cable systems in the western part of the United States.

Traders said that the overall secondary market had a nice firm tone, although activity was restrained. The recent TransUnion Corp. bond deal was seen continuing to push higher.

L-3 Communications Holdings' bonds, which had been in retreat on Friday, were seen mixed Monday as investors continued to digest the news about the New York-based defense contractor. L-3 last week was ordered suspended by the Pentagon from participating in any contracts following charges that some company employees improperly monitored other people's e-mails to advance L-3's commercial interests.

Citgo ups loan; bonds to be determined

No new issues priced on Monday, and no new offerings were announced.

Citgo increased the size of its five- and seven-year term loans, market sources said.

The five-year term loan is now sized at $600 million, up from a most recent size of $500 million to $550 million, and the seven-year term loan is now sized at $650 million, up from a most recent size of $500 million, sources said.

Citgo's senior secured credit facility (Ba2/BB+/BB+), now sized at $2 billion, also includes a $750 million revolver.

The upsizing of the bank portion of Citgo's debt refinancing led some in the market sources to infer that it still includes a $300 million, down from $1.5 billion, offering of secured notes.

However, as of midday Monday, Citgo had not authorized a bond sale, an informed source said.

RBS Securities Inc., UBS Investment Bank, BNP Paribas Securities Corp. and Credit Agricole CIB were the joint bookrunners for the Citgo deal that came to market on April 18.

Opportunistic deals sidelined

A market ripe for issuers to opportunistically refinance debt by selling new junk bonds has gone cold, thanks to volatility in the global capital markets and the risk aversion it has engendered, sellside sources said on Monday.

Any issuance that does come will likely be related to mergers and acquisitions or to equity sponsor-related activity.

"No one is issuing opportunistically at the moment," a high-yield syndicate official said.

"That's not likely to change until there is a better pulse across all the capital markets - equities and high-grade bonds included."

Noting several days of strength in the stock market, another banker from a different high-yield syndicate said that primary market news could be forthcoming.

Everybody has deals lined up and ready to go, the source said.

Opportunistic issuers are understandably reluctant to be the first to go, the source added.

'Hell of a year'

Although June 14 may seem like an early date upon which to assuage an entire year in any market, one debt capital markets banker seemed inclined to do it anyway during a Monday conversation with Prospect News.

"We had a hell of a year in the first four months," the official asserted.

According to Prospect News data, the high-yield market saw nearly $103.35 billion of junk-rated dollar-denominated 2010 issuance to the April 30 close, which represents nearly 64% of 2009's entire amount of issuance.

However, the banker said, the buyside lately is acting as though the year is substantially older than the calendar indicates.

"The buyside is defensive, given how early in the year it is," the official said.

"You would think it was November or December of a lousy year, and they needed to put up some numbers. But the market has been so volatile over the past month [that] you can't blame them."

Cablevision largely unseen, softer on Bresnan news

A trader said that he didn't see much trading in Cablevision bonds on the news of the company's pending purchase of Bresnan Communications.

He estimated that maybe the bonds were down a half-point on the back of the news, quoting its 7 5/8% notes due 2018 off by 1/2, at 99½ bid, par offered.

Another trader, also seeing Cablevision down a half point, said that "a couple of million traded, but there was no really large volume. There weren't millions upon millions trading in the name."

New TransUnion trades up, again

Among recently priced issues, a trader said that TransUnion's 11 3/8% notes due 2018 "continued to push higher," seeing the bonds get as good as 102½ bid.

The Chicago-based consumer credit reporting agency priced its $645 million offering at par on Thursday. The new bonds shot up to 101¼ bid, 102 offered in initial aftermarket dealings later that same session and continued to firm on Friday, heard going home at 101½ bid, 102¼ offered.

Spectrum Brands deal still strong

A trader said that Spectrum Brands Inc.'s recently priced offering of 9½% senior secured notes due 2018 "continue to improve as well," seeing them as good as 101 bid.

Spectrum, the Madison, Wis.-based maker of Rayovac batteries and other consumer products, priced its $750 million deal, upsized from the originally announced $500 million, on June 4 at 98.634 to yield 9¾%.

The bonds began moving up on the break to 99¾ bid, par offered and continued to firm over the following week to 10 days.

Triumph stays around issue

While the TransUnion bonds and Spectrum's were seen on the rise on Monday, a trader said that Triumph Group, Inc.'s 8 5/8% notes due 2018 were "still hovering slightly above issue; they really didn't do anything today."

Triumph, a Wayne, Pa.-based aerospace company, priced its $350 million of the bonds last Tuesday at 99.27 to yield 8¾%. Since then, the bonds have traded in a relatively tight range just above the issue price.

Market indicators mostly easier

Back among bonds not related to the new-deal realm, a trader saw the CDX North American HY Series 14 Index up 5/8 point on Monday to finish at 94¼ bid, 94¾ offered, after having held steady on Friday.

The KDP High Yield Daily Index, meantime, gained 12 bps on Monday to end at 69.45, after having risen by 6 bps on Friday. Its yield came in by 4 bps to 9.08%, after having narrowed by 3 bps on Friday.

Advancing issues beat decliners for a second straight session on Monday, holding an eight-to-five edge, widening their lead from Friday's six-to-five margin.

Overall market activity, represented by dollar-volume levels, rose by 21% on Monday, after having plunged by nearly 45% on Friday from the previous session's pace.

That pickup in dollar volume notwithstanding, a trader declared that "it seems as though we have entered the season of the three-day weekend," with many market players absenting themselves from trading either on the day before a normal weekend or the day after.

"This is one of those days that I should have stayed out," he quipped.

Besides the early summer lassitude - summer begins in the market for all intents and purposes with the Memorial Day break, no matter what the calendar may say - he noted that the enormous distraction of having the World Cup soccer matches on TV, easily visible on trading-room monitors, just gave market participants one more excuse for not doing too much of anything.

A second trader agreed, "We had a very quiet day."

However, another trader said, "There was a good tone in the market for most of the day, with a little bit of a fade towards the end, but it was definitely firm on the session." He suggested that generically, the market was up by ¼ to ½ point on the day.

ATP higher, BP busy

A trader said that amid a generally subdued junk bond market on Monday, "it seemed to even be quiet in the Gulf [of Mexico energy-drilling] names, " as investors awaited President Obama's speech on what's being done about the environmental damage from the April 20 oil rig accident in the Gulf.

Investors also anticipated this week's Capitol Hill appearance by major oil company executives, including the head of BP plc, whose blown deepwater oil well 40 miles off the Louisiana coast is at the epicenter of the problem.

The trader saw "a lot" of ATP Oil & Gas Corp.'s 11 7/8% second-lien senior secured notes due 2015 trading between 68 and 70 bid, with "most of the paper" trading first at a 69 bid, 69½ offered level and then in a 69½ bid, 69¾ offered context "as the day progressed."

At another shop, a trader said that he saw the Houston-based independent oil and natural gas exploration and production company's bonds go almost back to the 70 level after having spent almost all of last week bouncing around the low-to-mid 60s. They had fallen there from the 70s.

ATP had no role in the accident and resulting oil spill, but is expected to be among the firms hardest hit by the current federal moratorium on further deepwater drilling in the Gulf, where ATP has most of its reserves, and by any other moves to tighten drilling regulations.

Among the nominally still-investment grade bonds of BP Capital Markets plc, he said it seems like there are more bids out there now for this paper: "Over the last couple of days, we had always been seeing offerings, but the paper is still down."

He said that the most active BP credit was its 3 1/8% notes due 2012, which saw over $60 million traded on the session. He quoted the bonds around 94¼ bid, down about ¼ point on the day.

BP's 3 5/8% notes due 2014 were last seen trading around 88¾ bid, down ¾ point on the day "on pretty good volume," while its 4¾% notes due 2019 were off by around 1/8 point to ¼ point, last trading around the 90 level.

He also saw Deepwater Horizon owner Transocean Inc.'s 5¼% notes due 2013 "pretty much unchanged" around the 91 level "on some pretty good volume."

The Swiss deepwater drilling rig operator's 6% notes due 2018 were unchanged to ¼ higher, around the 86 3/8 level, while its 6.80% bonds due 2038 gained 1½ points to end around 85 bid.

L-3 bonds seen mixed

Market participants saw mixed activity in the bonds of L-3 Communications, which had been pushed several points lower on Friday on the company's troubles with the U.S. government.

A source quoted its 6 3/8% notes due 2015 as having fallen nearly a point, to 98¾ bid, after having traded above par before the news last week.

However, at another desk, a trader said that L-3's 5 7/8% notes due 2015 gained 1¼ points to end just below the 99 level, after having retreated about 2 or 3 points on Friday.

L-3 found itself the center of controversy in news reports indicating that the Pentagon had suspended L-3's participation in contracts over illegal e-mail monitoring by some of the company's employees.

L-3 disclosed in a regulatory filing last week that it received notice from the Air Force that its Special Support Programs Division has been temporarily suspended from receiving new orders or contracts from U.S. agencies amid a probe of alleged improper use of email.

The government said that an audit found that the L-3 division "purposefully and intentionally" monitored emails of its own employees with other contractors and U.S. government employees.

MGM moves as stock upgraded, Harrah's higher

A trader said that MGM Mirage's bonds rose by a point or two on Monday, given a lift by the Las Vegas-based gaming giant's stock, which rose after it was upgraded.

"That equity traded fairly well, and the bonds did also," he said.

He saw MGM's 9% notes due 2020 firm to par bid, 101 offered.

At another desk, a market source quoted MGM's 6 5/8% notes due 2015 up nearly a point, to end at 77½ bid.

MGM's New York Stock Exchange-traded shares rose as much as 7.3% in intraday dealings, hitting a high of $12.45, before going home up 35 cents, or 3.02%, at $11.95. Volume of 44.4 million shares was a 27% jump from the usual activity level.

The MGM shares shot up, taking the bonds with them, after Soleil Securities upgraded the stock to hold from sell, noting that the company has taken steps to improve its balance sheet. Citing that the debt maturities have been pushed out while the Las Vegas economy the company depends so heavily upon is improving, the company set a price target of $13 per share.

MGM's Vegas rival, Harrah's Entertainment Corp., was also up on the session Monday, with its Harrah's Operating Co. Inc. 10% notes due 2018 up 2 points to the 82 range. At another desk, those same bonds were seen up 2¼ points, at just under the 82 mark.

Blockbuster seen mixed as bankruptcy threatens

A trader saw Blockbuster Inc.'s 9% subordinated notes due 2012 as "pretty active." In fact, among the busiest junk names on Trace, he saw them down ½ point, at 8½ bid.

Another trader saw the troubled company's 11¾% senior secured notes due 2014 up another point at 62 bid, 63 offered, citing "continued talk about bankruptcy and a DIP [funding]." But he said the 9s "didn't go anywhere," staying around 8½ to 91/2.

Over the weekend, The Wall Street Journal published an article claiming that the Dallas-based movie rental chain was seeking up to $150 million in DIP financing, citing "people familiar with the matter."

Blockbuster has already admitted that it was talking to bondholders holding about $630 million of debt in hopes of reaching some form of an agreement. It is expected that an update on those talks will be given at the company's annual shareholder meeting, scheduled for June 24.

Also, the article noted that the company could also be seeking a strategic equity partner, citing "a person familiar with the matter" who claimed that if such a partnership was achieved, junior bondholders would possibly convert their holdings into stock.

Blockbuster has about $40 million in debt payments coming due July 1. As of April 4, it had just $110 million in cash and equivalents.

Stephanie N. Rotondo contributed to this report.

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