Energy excels as Denbury, Crosstex, Hilcorp price, trade up, Manitowoc also; Tesoro tumbles

By Paul Deckelman and Paul A. Harris

New York, Feb. 3 - The energy sector was the dominant group in Junkbondland on Wednesday as new deals from Denbury Resources Inc. and Crosstex Energy, LP/Crosstex Energy Finance Corp. priced - the former a quickly shopped $1 billion offering of subordinated notes - and were heard by traders to have been oversubscribed before pricing and to have firmed smartly when they moved into the aftermarket.

Late in the day, another energy drive-by deal, for Hilcorp Energy I, LP/Hilcorp Finance Corp., also priced, just hours after surfacing. The issue came too late in the day for any kind of secondary dealings.

And yet another energy name - Houston-based Stallion Oilfield Holdings Inc. - was heard to have begun a roadshow for its offering of five-year first-year senior secured notes. Syndicate sources heard Dutch coal producer New World Resources NV hitting the road in Europe and then the United States to market a two-tranche deal denominated in dollars and euros.

Away from the energy patch, heavy equipment maker Manitowoc Co. priced a $400 million issue of eight-year notes, which, like the Crosstex and Denbury deals, also traded up in the aftermarket.

Terms surfaced on a split-rated (Ba3/BBB-) $250 million offering of senior secured notes from roofing products maker Building Materials Corp. of America, which actually priced late Tuesday.

Price talk was heard on issues from McClatchy Co. and CNG Holdings, Inc., which are both expected to price during Thursday's session.

Besides the upcoming new offerings from Stallion Oilfield and New World Resources, the forward calendar swelled by another prospective deal, for electronics manufacturer Kemet Corp.

In the secondary market, apart from the hot trading in the day's new issues, Tesoro Corp.'s bonds were battered around after the San Antonio-based petroleum refiner reported that it fell into the red in the fourth quarter and would scrap its dividend to conserve cash.

General Motors Corp.'s bonds were taking an upside ride, and bringing sector peer Ford Motor Co. along, with traders seeing both of the U.S. automotive giants helped by the well-publicized stuck-accelerator pedal woes of Japanese rival Toyota.

Denbury prices $1 billion, beats talk

The energy sector dominated primary market news on Wednesday.

Denbury Resources Inc. priced a $1 billion issue of 10-year senior subordinated notes (B1/BB) at par to yield 8¼%.

The printed 12.5 bps below the tight end of the 8 3/8% to 8½% price talk.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch, RBC Capital Markets Corp., UBS Investment Bank and Wells Fargo Securities were joint bookrunners.

Proceeds will be used to help fund the acquisition of Encore Acquisition, including the repayment of Encore debt.

Crosstex comes tight to talk

Crosstex Energy, LP and Crosstex Energy Finance Corp. priced a $725 million issue of 8 7/8% eight-year senior notes (B3/B+) at 97.907 to yield 9¼%.

The yield printed at the tight end of the 9 3/8% area price talk and the amount was increased from $700 million.

Bank of America Merrill Lynch, BNP Paribas Securities Corp., RBC Capital Markets Corp., Wells Fargo Securities, UBS Investment Bank and Goldman Sachs & Co. were joint bookrunners.

Proceeds will be used to repay the company's outstanding senior secured notes.

Hilcorp at tight end

Hilcorp Energy I, LP and Hilcorp Finance Co. priced a $300 million issue of 8% 10-year senior unsecured notes (expected ratings B2/BB-) at 98.315 to yield 8¼%, on Wednesday, according to an informed source.

The yield printed at the tight end of the 8 3/8% area price talk.

Deutsche Bank Securities was the left bookrunner for the quick-to-market deal. Barclays Capital, JP Morgan, BMO Nesbitt Burns and Wells Fargo Securities were joint bookrunners.

Proceeds will be used to pay down the company's credit facility and for general corporate purposes.

Manitowoc prices at wide end

Away from the energy sector, Manitowoc Co., Inc. priced a $400 million issue of eight-year senior unsecured notes (Caa1/BB-) at par to yield 9½% on Wednesday.

The yield printed at the wide end of the 9¼% to 9½% yield talk. However the reoffer price came at the rich end of the zero to 2 points of discount talk.

J.P. Morgan Securities Inc., Deutsche Bank Securities Inc. and Bank of America Merrill Lynch were joint bookrunners.

Proceeds will be used to repay bank debt.

Building Materials brings split-rated deal

In the crossover sector, Building Materials Corp. of America sold $250 million of split-rated 10-year first lien senior secured notes (Ba3/BBB-) at par to yield 7%, an investment-grade market source said.

The yield printed at the tight end of the 7% to 7¼% price talk.

Deutsche Bank Securities, Citigroup Global Markets and Wells Fargo Securities were bookrunners, with the sale being run off high-yield desks.

McClatchy talks $875 million

Meanwhile the Thursday primary market session began to take shape.

McClatchy Co. talked its $875 million offering of seven-year senior secured first-lien notes at the 11¾% area, on Wednesday.

The reoffer price is talked at a discount of between zero and 2 points.

Pricing is set for Thursday.

J.P. Morgan Securities Inc., Bank of America Merrill Lynch and Credit Suisse are joint bookrunners for the newspaper company's debt refinancing deal.

CNG Holdings sets talk

CNG Holdings, Inc., the holding company for alternative financial services provider Check 'n Go, set price talk for its $200 million offering of five-year senior secured notes (B2/B), on Wednesday.

The notes are talked with a coupon of 12% to 12¼% at an issue price of 95, to yield 13.399% to 13.657%.

Jefferies & Co. has the books.

Proceeds will be used to repay debt and for general corporate purposes.

Kemet roadshow starts Thursday

New deals continued to roll out during the mid-week session.

Kemet Corp. will begin a roadshow on Thursday for a $275 million offer of eight-year senior notes.

The deal is expected to price during the middle part of the Feb. 8 week.

Bank of America Merrill Lynch has to books for the debt refinancing deal.

Stallion to bring $225 million

Also Stallion Oilfield Holdings, Inc. is on the road with a $225 million offering of five-year first-lien senior secured notes, this week.

Pricing is set for the week ahead.

Credit Suisse, Bank of America Merrill Lynch and Jefferies & Co. are joint bookrunners for the debt refinancing and general corporate purposes deal.

Stallion exited a prepackaged Chapter 11 reorganization on Tuesday.

New World Resources plans deal

New World Resources NV is coming to market with a €700 million equivalent offering of eight-year senior secured notes, which are coming in dollar- and euro denominations.

The European roadshow runs through the remainder of this week. The deal then roadshows in the United States during the week ahead.

Goldman Sachs & Co. is the left bookrunner. JP Morgan and Morgan Stanley are joint bookrunners.

Proceeds will be used to repay the company's senior secured loan facilities and for general corporate purposes.

The prospective issuer is a Netherlands-based company which produces coal for the central European steel industry.

SNAI postponed

Finally in Wednesday's primary, Italian gaming technology company SNAI SpA postponed its €350 million offering of seven-year senior secured notes (Ba3) due to market conditions and because of a damages claim filed by Bridgepoint Capital Ltd.

Bridgepoint is claiming damages resulting from SNAI's non-acceptance of an offer Bridgepoint made to acquire SNAI's gaming business.

BNP Paribas, UBS Investment Bank and UniCredit Bank were joint bookrunners.

Proceeds from the notes had been earmarked to refinance debt, to fund the acquisition of VLT rights and for general corporate purposes.

Denbury deal is red hot

When Denbury Resources' new 8¼% senior subordinated notes due 2020 were freed for secondary dealings, a trader saw the Plano, Tex.-based energy exploration and production company's $1 billion offering almost immediately jumping out to bid levels at or above 101 from their par issue price.

But the mega-deal's secondary star turn had only just begun.

Within minutes, another trader saw the new bonds at 102¼ bid, 102½ offered, while a third said that the issue was "flying," getting as good as 102¾ bid, 103¼ offered.

"That really had a nice debut," a trader said.

Yet another trader said that he had heard that Denbury's deal, along with Crosstex Energy's offering, which had priced a little earlier in the day, and the quickly moving Hilcorp Energy deal, which at that point had not yet priced, were "all oversubscribed by three to four times."

He described the strong upside movement in Denbury, Crosstex and in a non-energy deal, Tuesday's $525 million offering from Reader's Digest Association, Inc., as "a feeding frenzy for all new issues."

Crosstex deal does well

With Denbury's deal leading the way, fellow energy credit Crosstex's 8 7/8% notes due 2018 were also being bid up solidly, traders said, with one seeing the bonds at 100¾ bid, 101½ offered -- a big jump from the 97.907 level at which the Dallas-based natural gas company had priced its $725 million deal - slightly upsized from the originally announced $700 million size - the yield 9¼%.

Later on in the session, a trader saw those bonds get even better, going out at 101½ bid, 102½ offered.

Other new deals firm up

A trader saw Manitowoc Co.'s new 9½% notes trading at 101½ bid, 102½ offered. The Manitowoc, Wis.-based maker of cranes and other industrial equipment had priced its issue earlier in the day at par.

Also seen up was Readers' Digest Association's new floating-rate notes due 2017, with a trader quoting the bonds at par bid, 100½ offered. That was well up from the 97 level at which the Pleasantville, N.Y.-based magazine publisher and direct marketer had priced its issue during Tuesday's session.

However, another trader who was queried about the new deal but who had not seen it, quipped "the last time I saw Reader's Digest was about 25 years ago, on a table at my grandmother's house."

Appleton remains below issue

A trader said that it's "interesting to see that the Appleton Papers [Inc.] deal was down, and stuff like this Denbury deal popped up so much." He suggested that "maybe the sectors have a difference of favor" among the investors. "Nobody's really trading paper [companies] and they love oil and gas and industrials right now."

For instance, while he quoted the new Denbury bonds as trading at 103 bid, he saw the Appleton 10½% senior secured notes due 2015, which priced Friday, at 96¼ bid, 96¾ offered, well under its 98.035 issue price. The $305 million offering from the Appleton, Wis.-based coated-paper manufacturer came to market with a yield of 11%.

"It's an 11% coupon, rated B1/B+, and senior secured - exactly the kind of stuff the market has been looking to take up, so you're wondering why that got weaker. It looks too cheap"

Two other traders also quoted the issue near the end of the day around the 96¼ bid, 96¾ offered area, although at another desk, a trader pegged the bonds a little higher, around 96¾ bid, 97 offered, which he said was "down a little bit" from Tuesday's levels, "but not a ton. There was not a lot of volume."

Market measures move higher

Back among the established bonds with no new-deal connections, a trader saw the CDX Series 13 index up ¼ point Wednesday to 97 5/8 bid, 97 7/8 offered, after having gained 3/8 point on Tuesday. The KDP High Yield Daily Index meanwhile rose by 2 basis points on Wednesday to end at 71.07, after having risen by 4 bps on Tuesday. Its yield narrowed by 1 bp to 8.21%, after having tightened by 3 bps the session before.

Advancing issues remained ahead of decliners by a nearly four-to-three margin for a second consecutive session on Wednesday.

Overall market activity, as measured by dollar-volume levels, fell about 18% from Tuesday's pace.

A trader said that apart from the suddenly very busy new-deal market, particularly in the energy names like Denbury and Crosstex, there was "not too much to say."

He said that while the market "felt kind of soft all day," I don't want to say that it got sold down." He saw some activity in split-rated "five-B" credits or "solid BB paper" attracting crossover investors on both side of the junk/high-grade divide, including such names as Zions Bancorporation, DirecTV Holdings LLC, or Qwest Corp., along with "hybrid" issues from high-grade financial names like Wachovia, UBS, and Capital One.

"If you look at the top 20 [volume] names, I think 17 or 18 of them are five-Bs."

Tesoro tanks, but partly rebounds

A fairly actively traded "solid BB" name on Wednesday was Tesoro Petroleum, which initially traded off about 2 or 3 points across the board on news of a swing into the red in the fourth quarter -- it lost $179 million, or $1.30 per share, versus a year-earlier profit of $97 million, or 70 cents a share, hurt by a falloff in consumer demand for fuel. Tesoro executives told analysts on a conference call that the company will suspend its dividend as a cash-saving measure, and projected that first-quarter refinery capacity usage would only total, on average, between 69% and 75%, due to continued reduced fuel demand.

Tesoro's 6¼% notes due 2012 moved as low as the 98 level during the day, well down from Tuesday's close around 101, although the bonds did come back to end down perhaps a point at just over par.

Its 6 5/8% notes due 2015 fell by as much as 4 points intraday down to a 92 context, after having closed at 96¾ the day before - but by the end of the day, they had regained most of those losses and were down only marginally, with one of the traders suggesting it was a "small dead-cat bounce."

Tesoro's 6½% notes due 2017 ended up down a deuce on the day at just above the 93 level, after having been more than 4 points under earlier in the day, while its 9¾% notes, after initially losing more than 3 points on the day, in heavy round-lot trading, bounced back to finish almost unchanged.

Toyota trouble fuel GM gains

After years of seeing Toyota grab an ever-increasing slice of the car-market pie away from the once-invincible General Motors Corp. and even watching the beleaguered GM ignominiously slide into bankruptcy last year, while its Japanese rival cruised along relatively untouched by the auto industry downturn, GM bondholders could be forgiven if they indulged in a little schadenfreude -- getting a kick out of someone else's misfortunes -- with the shoe finally on the other foot and Toyota in the hot seat over its cars' widely publicized stuck-accelerator pedal problems. GM's bonds were up solidly Wednesday, with traders attributing the gains mostly to Toyota's mounting troubles, which at one point included a call by the U.S. transportation secretary for owners of millions of recalled Toyota vehicles to leave their cars parked, other than to drive them to their dealers for repairs.

A trader said GM's bonds "continued to be fairly strong," seeing its benchmark 8 3/8% issue due 2033 going out at 29½ bid, 30 offered, which he said was up another ½ to ¾ point on the day.

Another trader said that GM was "a little active in the morning," seeing the bonds up ¼ point in the morning to around 291/2, with the paper then rising further to 29 7/8 bid by the end of the day.

"Since Toyota's won't stop," he said, "GM may be able to take advantage."

"I would think that the rally over the past couple of days in GM has probably been fueled by all of the negative news surrounding Toyota," the first trader agreed.

The top Japanese carmaker - which has displaced GM from its long-held position as the world's top carmaker and has also gained a sizable share in the U.S. car market, at the expense of domestic producers like GM, Ford and Chrysler - has been plagued by the bad publicity surrounding its cars' accelerator problems since the fall. In October, it recalled about 5 million vehicles over problems with floor mats trapping gas pedals, and on Jan. 21, announced a further recall of some 2.3 million vehicles amid concerns that gas pedals could become stuck or slow to return to the idle position. That helped to send Toyota reeling to a 16% year-over-year sales loss in a month when most carmakers, foreign or domestic showed hefty gains. GM and Ford were among those jumping in to pick up some of the slack at their wounded rival's expense, with GM January sales up 14% from a year earlier and Ford's 25% higher.

U.S. Transportation Secretary Ray LaHood added further fuel to the fire on Wednesday, when he suggested that owner's of recalled Toyota vehicles leave their cars in the driveway, unless they are driving them to a lock deal for repairs. LaHood later partially backtracked on his comment, saying he meant that motorists in doubt should go to their dealers, and the cars would be fixed. But LaHood also indicated that his department would expand its investigation of the situation to look into reports of braking problems with Toyota's most lucrative model, the environmentally friendly Prius hybrid, which up till now has not been a part of the recall situation. Japan's transport ministry is also looking into reports of Prius braking problems.

The trader said that Toyota's well-publicized woes "maybe wind up having a positive bias toward American cars, which GM would benefit from."

He said that the Detroit auto giant's bonds were being helped by "a combination of them announcing [improved] sales, as well as what's going on with Toyota."

However, he added that the big question is "whether or not it sticks - whether they continue to have good sales numbers month-to-month," and noted that "a lot of the sale rise is in fleet [sales], not necessarily retail." Fleet sales to car-rental companies, police departments and other government agencies and taxicab and car-service operators and other big buyers, while boosting overall numbers, are considered generally less profitable for carmakers than retail sales to individual motorists because they give quantity discounts to the fleet buyers, cutting their own profit margins on each car in such transactions.

A trader said that GM domestic arch-rival Ford's 7.45% bonds due 2031 were trading around an 89 to 90 level, up about a point from the beginning of the week, although he said that the Ford paper is "not as up on a percentage basis nearly as much as GM," whose bonds had been seen languishing in the mid-20s a few days ago and thus have risen nearly 20% to 25% in that time. However, "we are seeing some positive upward moves on both of them."

He also saw Ford Motor Credit Co.'s paper "a little better as well." The latter's recent offering of 8 1/8% notes due 2020 were seen hanging in around the 101 level, though on limited volume.

Another trader saw the Ford 7.45s up a handsome 2 points on the session to 89 bid, 91 offered.

Cooper-Standard surge flames out

A trader saw Cooper-Standard Automotive's 8 3/8% senior notes due 2014 unchanged at around the same 41-43 area to which those bonds had jumped on Tuesday on heavy volume after the bankrupt Novi, Mich.-based auto components maker filed its reorganization plan giving its bondholders a big chunk of the restructured company with the Delaware bankruptcy court overseeing its restructuring, and announced that it had received commitments for a $245 million backstopped rights offering as part of its financing.

Unlike Tuesday, when over $25 million of the bonds traded and they rose around 10 points on the session into the low 40s, Wednesday saw just "light volume, not much action. Nothing like [Tuesday]."

Another trader said that Wednesday's dealings in the name "were pretty quiet today, really unchanged for the most part."

Rite Aid rises despite industry sag

A surprise gainer was Rite Aid Corp., whose bonds were seen up around a point across the board, even though no fresh positive news was seen out on the Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator -- and even though the industry's top player, Walgreen Co., reported sales declines in January, same-store sales at outlets open at least a year, a key retailing metric, down 1.1% year-over-year. Those Walgreen numbers echoed similarly dismal Rite Aid January results released recently - same-stores were down 2.1%, while overall sales fell 3.3%.

Despite that negative drugstore industry background noise, a market saw Rite Aid's 7 ½% notes due 2017 up nearly a whole point at 91 bid, on brisk volume. Rite Aid's 8 5/8% notes due 2015 gained a point to end at 83, while its 9 3/8% notes due 2015 gained more than 2 points, ending at 85.

Blockbuster busy as rival goes belly-up

A trader saw Blockbuster Inc.'s bonds largely unchanged, quoting the Dallas-based movie-rental company's 9% senior subordinated notes due 2012 in a 23 1/2-25 context, with "a fair amount of activity," while its 11¾% senior secured notes due 2014 stayed in a 71-72 range.

With an estimated more than $12 million of the 9s having changed hands by mid-afternoon, most of the trades within the range took place at 24.

However, at another desk, a trader saw the company's paper "a little bit better" on the day, saying the 24 level represented an improvement from a 221/2-23 level on Tuesday.

He said that news that Blockbuster's main rival - at least among the traditional brick-and-mortar movie-rental store operators - Movie Gallery, Inc., had filed for bankruptcy for the second time in three years and plans to close more than 800 of its over 2,400 Hollywood Video stores, came as no real surprise to anyone who has been following the industry. "That stuff [i.e., the brick-and-mortar stores part of the business] has been suffering for such a long time," he said. "That could have a negative impact on Blockbuster as well - but you're also taking away some of the competition, as Hollywood closes stores, so maybe they benefit."

But the real challenge to Blockbuster, he said, is not its already smaller and weakened rival, but the upstarts who have come in and grabbed much of the movie-rental business through non-traditional distribution channels, like Netflix Inc.'s online ordering and mail delivery of DVDs or Coinstar Inc.'s ubiquitous Redbox rental kiosks. While Blockbuster has tried to re-invent itself and get into these areas, industry observers say it faces an uphill battle against the more entrenched competitors.

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