Baseline prices upsized deal at heavy discount; Hovnanian gains on sales gimmick; SunCom up on buyout

By Paul Deckelman and Paul A. Harris

New York, Sept. 17 - Two full weeks after Labor Day, Baseline Oil & Gas Corp. became the first high-yield issuer to go where others feared to tread, pricing a slightly upsized offering of five-year senior secured notes on Monday. However, the San Antonio-based independent oil and gas exploration and production company priced its new deal at a big discount to par and the offering was not seen as a good gauge of the high-yield market's health.

In the secondary arena, Hovnanian Enterprises Inc.'s bonds were seen at mostly higher levels, on the heels of what the Red Bank, N.J.-based homebuilder called the "huge success" of its three-day sales bonanza, which saw it move over 2,000 housing units by also offering big discounts - in this case, by slashing prices of some homes by $100,000 or more.

On the other hand, sector peer Beazer Homes USA Inc.'s bonds were seen down across the board, perhaps on generalized homebuilder malaise, or perhaps in response to the latest bad news to hit the troubled Atlanta-based company, as banks sharply slashed a short-term credit line for Beazer's mortgage subsidiary.

Elsewhere, bonds of SunCom Wireless Holdings Inc. were seen having firmed smartly on the news that German phone giant Deutsche Telekom AG's U.S. wireless operation, T-Mobile, will buy the Berwyn, Pa.-based U.S. regional wireless carrier for $1.6 billion, plus debt assumption. Out of that same sector, there didn't seem to be much happening with the bonds of Cricket Communications Inc., even though parent company Leap Wireless International Inc. rejected a recent unsolicited takeover bid from MetroPCS Communications Inc. as inadequate.

An investment banker spotted the high yield-tracking CDX index at 95¾ bid late Monday, up one-sixteenth on the day.

Elsewhere high yield market sources continued to eye the First Data Corp. $13 billion term loan. One sell-sider remarked that presently it's "the only thing to watch."

Baseline atop price talk

Baseline Oil & Gas priced its $115 million issue of 12½% five-year senior secured notes (Caa1/CCC+) at 96.447 to yield 13½%, on top of price talk, although with a significant discount.

Jefferies & Co. ran the books.

Baseline concurrently priced a $50 million issue of senior subordinated convertible notes.

Proceeds will be used to acquire oil and natural gas assets from DSX Energy Limited, LLP and related parties, with remaining proceeds to refinance existing debt and for general corporate purposes.

Although the bookrunner declined to comment on how the deal went, market sources told Prospect News that Jefferies is to be applauded for successfully taking the deal on the road.

However two sell-siders suggested that the Baseline deal was not particularly useful as a barometer for the present primary market.

One source said that the size of the deal was small, the paper is secured, the interest rate is "huge" and the oil & gas sector is one of a very few to which the high yield market is possibly open at present.

None for the road

With the Baseline deal having cleared the market sources say there are presently no junk bond deals on the road.

That's not surprising, one high yield syndicate official remarked during a Monday morning conversation.

Right now the road is no place for a deal.

Issuers and their underwriters are apt to pre-market deals now because it's just not a good environment to roadshow a deal without having some accounts anchoring the order book, the official asserted.

Downstream on the radar

An informed source told Prospect News late last week that the Downstream Development Authority of the Quapaw tribe of Oklahoma remains in the market with its $235 million offering of eight-year senior notes (B-), even though the roadshow ended in August.

The source added that there appears to be sufficient interest among accounts focused on the gaming sector to get the deal done.

On Monday a sell-side source not in the Downstream deal told Prospect News of hearing that there were several large orders for the eight-year notes at around 11%.

No price talk has been heard.

Banc of America Securities LLC is the left bookrunner for the project financing and debt repayment deal with Merrill Lynch & Co. as joint bookrunner.

Focus on First Data

Even though there are presently no bonds in the deal, and none are expected to surface in the near future, high yield market sources told Prospect News on Monday that the junk market remains keenly focused on the First Data Corp. $13 billion term loan.

Its success would indicate that the leveraged markets could begin to regenerate in spite of an estimated $300 billion-plus of "risk overhang" on underwriters' books resulting from unplaced bonds and unsyndicated loans.

An informed source said that First Data held a bank meeting/lunch on Monday, and is currently marketing the $5 billion B-2 tranche of the term loan.

"There were a lot of people there, and there are generally a lot of accounts calling around on that deal," the source said, adding that "all signs are good."

Fed expectations

Trailing Monday's close a high yield syndicate official professed the expectation that the Federal Reserve's Federal Open Market Committee will lower the Fed Funds rate by 25 basis points on Tuesday.

Other sources are anticipating a cut of 50 basis points.

The change, if any, would represent the first Fed Funds rate move since late June 2006, when the Fed hiked the rate by 25 basis points to 5¼%.

The official who spoke after Monday's close does not believe that a 25 basis points cut would have much of an impact on the high yield market.

"Most people have priced in that cut," the official said.

"A lot of accounts are saying that even if the Fed cuts rates it's uncertain what kind of an impact it will have. You might see a little bit of a pop, but nothing huge.

"Interest rate changes take a long time to work their way through the economy."

Hovnanian up on home-sale promotion

Back in the secondary sphere, a trader saw Hovnanian's 8 5/8% notes due 2017 up 2 points at 78 bid, 80 offered.

A market source at another desk pegged the company's 6 3/8% notes due 2014 also up a deuce, at 74.5 bid.

However, another trader reported having seen "no trading at all" in the name - "no trading in Hovnanian of any size in any of their issues today. They should have been better, I would guess" on the good news. "They anticipated selling 1,000 homes and then sold almost 2,400," but at the end of the day, at this shop anyway, there was "no change."

Hovnanian - reeling like many other homebuilders from the recent troubles of the sector, which were exacerbated by the collapse of the subprime lending industry that offered credit to homebuyers shut out from traditional sources of capital - ran what amounted to a 60-hour fire sale, running from Friday morning to Sunday night, aimed at slashing its inventory of unsold homes. With prices cut by as much as 25%, that amounted to savings in the six figures for many savvy, or just plain lucky, homebuyers.

The company trumpeted what it called its "huge success" with the nationwide "Deal of the Century" promotion, noting that by the time it was all over, it had made more than 2,100 sales, consisting of about 1,700 contracts and 400 deposits. Hovnanian's agents took deposits when they did not have time to finish the paperwork for contracts before the 9 p.m. deadline on Sunday.

"The high level of traffic we saw in our sales offices and models over the weekend and over the past several weeks convinces us that there are interested buyers in the market today," the company's president and chief executive officer, Ara K. Hovnanian said in a statement. "However, with all of the negative publicity about the housing market, many homebuyers were hesitant to buy because they worried that even lower prices might be offered later."

Others a bit firmer - but not Beazer

The successful Hovnanian sales gimmick may have given a little strength to some other sector names. D.R. Horton Inc.'s 8% notes due 2009 were seen up about ½ point to around the par level, and even the somewhat troubled Tousa Inc.'s bonds - the former Technical Olympic - were a bit firmer, the Hollywood, Fla.-based builder's 8¼% notes due 2011 up ½ point at 67.5 bid, 69.5 offered, and its 9% notes due 2010 unchanged at 69 bid, 71 offered.

However, that did not do much for Beazer's bonds. A trader said that paper was down about "1 to 2 points across the board," with its 8 5/8% notes due 2011 falling to 74 bid, 76 offered, its 8 3/8% notes due 2012 to 73.5 bid, 75.5 offered, and its 6 7/8% notes due 2015 to 71.25 bid, 73.25 offered.

The fall is likely related, at least in part, to the latest bad news to come down the pike - action by Beazer's banks cutting its mortgage subsidiary's available credit by 82.5%, to just $17.5 million from $100 million. Beazer said in a regulatory filing that the number of banks providing the credit line has been reduced from eight to one, with Guaranty Bank becoming the sole lender. Beazer also said it received waivers of potential defaults arising from potential breaches of certain covenants and representations relating to matters underlying the previously disclosed investigation by its audit committee.

SunCom soars on T-Mobile buyout

Elsewhere, the news that national wireless carrier T-Mobile will augment its coverage in the Southeastern United States by buying regional player SunCom Wireless for $1.6 billion, and assuming $800 million of SunCom debt sent the latter company's bonds up solidly, a trader said. He quoted its 8½% notes due 2013 up 4 points on the day at 104.5 bid, 105.5 offered.

And he said sector peer Centennial Communications Inc.'s 10 1/8% notes due 2013 were "likewise" up a point at 105.5 bid, 106.5 offered, on "strength in the sector" as the SunCom news revived investor hopes of more consolidation ahead.

That apparently more than outweighed the setback those hopes had received on the news that San Diego-based Leap Wireless, Cricket Communications' parent, had rejected the recent unsolicited $4.7 billion acquisition bid from Dallas-based MetroPCS. When news of the latter's interest in Leap first came out several weeks ago, the bonds of both companies had risen moderately. However, news of Leap's brush-off only pushed Cricket's 9 3/8% notes due 2014 down about ½ a point, a trader said, to 100.5 bid, 101.5 offered. He did not see any action in MetroPCS' 10¾% notes due 2011.

Satellite broadcasters fly high

In other names, a trader saw satellite broadcaster's XM and Sirius each up about a point, XM's 9¾% notes due 2014 at 99 bid, par offered and Sirius' 9 5/8% notes due 2013 at 98 bid, 99 offered.

The two companies' bonds have recently firmed as several analysts have opined that the Justice Department is likely to rule soon - and probably positively - on the request of XM and Sirius to merge, despite possible antitrust implications.

Broad market firmer

Overall, traders said that activity was fairly quiet ahead of Tuesday's widely anticipated Federal Reserve meeting, which is expected to result in at least a 25 basis point cut in the Fed's key interest rate.

"We put up bids all over the place on bid-wanted stuff," a trader said, "but only won a couple of things - just because things really aren't trading," with nobody being too willing to stick their neck out and bet on the size of the rate cut that will be announced. Early estimations of a 50 bps cut, or bigger, seem to have faded in the light of economic data indicating that the impact of the recent mortgage market credit crunch has been limited.

Among the indexes that track bond performance, the Bank of America Securities High Yield Broad Market Index was up 0.13%, for a 1.62% year-to-date gain. The KDP High Yield Daily Index finished at 78.67, up 0.10 on the day, while the index's yield narrowed 3 bps to 8.22%.

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