El Paso, Algoma, Plains Exploration deals price; Alltel active on deal financing news

By Paul Deckelman and Paul A. Harris

New York, June 13 - El Paso Corp. brought a two-tranche "drive-by" mega-deal to market Wednesday. It priced too late in the session for any meaningful aftermarket activity.

Earlier in the day Plains Exploration & Production Co. - which restructured its bond deal and first downsized it, but then upsized it back to its original amount - and Algoma Steel Inc. brought their respective more moderately sized offerings to market. The new bonds of both companies moved up moderately when they were freed for secondary activity.

Elsewhere on the primary scene, Community Health Systems Inc., which is buying Triad Hospitals Inc. to form the largest investor-owned U.S. hospital operator, unveiled details of its upcoming $3.365 billion three-part bond issue.

And Alltel Corp. did likewise, outlining its plans to bring a massive $7.7 billion of new junk to market, along with over $15 billion of bank line financing, to fund the Little Rock, Ark.-based telecommunications company's planned leveraged buyout. Alltel's existing bonds were seen mixed in very active trading.

Also on the secondary side, Movie Gallery Inc.'s 11% notes due 2012 were seen by a source as having moved up nearly a full point on the day, despite the news - which hit the financial markets late Tuesday, after the day's dealings had wrapped up - that the Dothan, Ala.-based Number-Two U.S. video rental chain operator's shareholders had blocked a company plan to sharply increase the number of shares it is authorized to issue - in theory a negative from a debtholder perspective.

A high yield syndicate official said that the junk market regained a little traction during the Wednesday session, trailing Tuesday's substantial swoop in junk bond prices.

Meanwhile the primary market saw slightly more than $2.3 billion of new issuance in four dollar-denominated Rule 144A tranches from three issuers.

And the new deal calendar swelled above the $10 billion mark, as measured by the amount of issuance believed to presently be in the market.

"This is going to be an interesting test," one sell-side source commented on Wednesday morning, as news circulated through the market that - trailing a raft of big LBO deals which were announced Tuesday - Community Health Systems Inc. was getting set to hit the road with a $3.365 billion deal.

The sell-sider, noting Tuesday's sell-off in junk, said that the asset class may not be as robust as it was six weeks ago, and added that the some of the recently launched mega-deals are LBO transactions which will substantially increase leverage on the respective issuers.

"It will be interesting to see if these deals can get done without substantial restructuring, or shifting proceeds to the bank loan market," the source added, noting that in the largely secured universe of syndicated loans the capital markets volatility which has been moving junk is hardly being felt.

This sell-sider also said that two or three "drive-by" type issuers which had been poised to bring deals in the near term are now considering backing away for the time being.

El Paso prices $1.275 billion

Quick-to-market issuance represented the greater portion of Wednesday's primary market action.

In an a.m.-to-p.m. drive-by, El Paso Corp. priced $1.275 billion of senior notes (Ba3/BB-) in two tranches.

The Houston-based natural gas company priced a $375 million tranche of 6 7/8% seven-year notes at a 175 basis points spread to Treasuries, on top of price talk that was increased from 165 basis points area. The seven-year notes were offered at an original issue discount of 99.646, resulting in a yield of 6.94%

El Paso Corp. also priced a $900 million tranche of 7% 10-year notes at a 190 basis points spread to Treasuries, again on top of price talk that was increased from 185 basis points area. The 10-year notes were offered at an original issue discount of 99.224 resulting in a yield of 7.11%.

Deutsche Bank Securities, Citigroup, Morgan Stanley and RBS Greenwich Capital were bookrunners for the debt refinancing deal.

Plains Exploration (re)upsizes

Also completing a quickly shopped deal was Plains Exploration & Production.

The Houston company priced an upsized, restructured $600 million issue of eight-year senior notes (B1/BB-) at par to yield 7¾%, on the wide end of the 7 5/8% area price talk.

The issue had been downsized to $400 million from $600 million on Tuesday, as the company abandoned a proposed tranche of 12-year notes.

On Wednesday, however, the oil and gas exploration and production company increased the remaining eight-year notes tranche by $200 million.

JP Morgan and Lehman Brothers were joint bookrunners for the general corporate purposes deal.

When the par-pricing notes were released for trading, a trader spotted the new notes at par ½ bid, par 7/8 offered.

Algoma in the middle of talk

Meanwhile, Algoma Steel Inc. priced a deal which had been marketed via an investor roadshow.

The Sault Ste. Marie, Ont.-based steel producer priced a $450 million issue of eight-year senior unsecured notes (Caa1/B-) at par to yield 9 7/8%, in the middle of the 9¾% to 10% price talk.

UBS Investment Bank ran the books for the acquisition financing.

NIS places $200 million

Finally, in a Regulation S deal from a Japanese financial services firm, NIS Group Co. Ltd. priced a $200 million issue of 8.06% five-year senior notes (BB+) at a 235 basis points spread to mid-swaps on Wednesday.

The issue, which came at a dollar price of par, priced 10 basis points beyond the middle of the price talk for a spread of the mid-swaps plus 225 basis points area.

Goldman Sachs & Co. and Barclays Capital were joint bookrunners for the debt refinancing.

Versatel sets talk

German broadband provider Versatel AG set price talk for its €525 million offering of seven-year senior secured floating-rate notes (B2/BB+) at Euribor plus 275 basis points on Wednesday.

The deal, which is being led by JP Morgan and Merrill Lynch, is expected to price on Thursday.

Community Health plans $3.365 billion

One roadshow start was heard during the mid-week session.

Community Health Systems will begin a roadshow on Monday for its $3.365 billion three-part offering of senior notes (B3/B-).

The Nashville-based operator of acute care hospitals is offering tranches of eight-year floating-rate notes, eight-year fixed-rate notes and 10-year fixed-rate notes.

Tranche sizes remain to be determined.

Credit Suisse and Wachovia Securities are the underwriters for the acquisition financing.

Plains bonds push upward

When the new Plains Exploration 7¾% senior notes due 2015 were freed for secondary dealings, a trader saw those bonds at 100.125 bid, 100.375 offered, up slightly from their par issue price.

The issuer "had to back it up, obviously, and change the structure," he said, but said that the new issue "seemed to trade well in the secondary market," even though it "met a lot of sellers up there" at 100.375.

While a gain of 1/8 point on the bid side doesn't seem like very much, the trader pointed out that "it's a tough market. It's pretty volatile."

With Treasuries having widened out on Tuesday to yield levels well above 5%, rates not seen in some five years, the issuer, he said, "went to the part of the curve where they'd give up the least amount of yield, so they shortened a 12-year deal to [eight years]. They met some demand when they backed up the yield to 7¾%.

"I guess in this market, if it cleared the market and traded to a slight premium, it's a moral victory."

Another trader saw those new Plains Exploration bonds going out at 100.375 bid, 100.75 offered, and yet another quoted them all the way up at 100.5 bid, 101 offered.

The second trader also saw the new Algoma Steel 9 7/8% notes due 2015 at 100.625 bid, 101.125 offered.

Better tone with Treasury recovery

Back among the established issues, a trader said that the overall market was "better on the day, with governments better and the stock market better."

After being beaten down over the past several sessions, Treasuries tightened solidly on Wednesday, the 10-year yield falling to 5.20% after ballooning out to a five-year high at 5.29% Tuesday. Stocks, which had been taking a pounding along with Treasuries on inflation fears and investor concerns that rising interest rates would throttle the economy, on Wednesday roared back with their biggest one-day gain in 11 months, propelled by the Treasury rally and unexpectedly strong May retail sales data.

The trader saw the closely followed CDX index of junk market performance up 1/8 on the day to 100 3/16 - 100 5/16. Widely traded automotive benchmark General Motors Corp. 8 3/8% notes due 2033 were 5/8 point better at 90.375 bid, 90.875 offered, while arch-rival Ford Motor Co.'s 7.45% notes due 2031 were also up 5/8, at 80.375 bid, 80.875 offered.

'Mixed bag' seen

Other traders, however, were not quite so sanguine. One said that the day was "a real mixed bag. I think customers were reluctant to step in because they see the calendar building, and Treasuries were very volatile. They just got coupon payments [at the beginning of the month], so they have a little cash. I think they're very selective about what they'll buy."

Continuing in that same vein, he said that "I didn't see an overall rush back into the market today to buy" even while stocks were again booming. "But I did see some nibbling." He said that it did not seem to be "the fast money, but more of the traditional-type accounts that were in today, adding to positions, hoping to buy bonds at [Tuesday's] prices, and maybe settling for paying a little bit more than [Tuesday's] levels."

He said that the market was "much busier [Tuesday] than today. They wanted to know where the market was going and were selling their lower-coupon debt, the higher-quality 4- and 5B stuff, because they thought that would be affected the most."

Meanwhile, "the single Bs to the triple hooks [CCC paper] was pretty much unchanged. And now it seems like the market is grinding back up."

Movie Gallery moves up

One name grinding higher was Movie Gallery, whose 11% notes were being quoted up nearly a full point on the day, even though management failed in its effort to get shareholders to greenlight a major enlargement of its authorized share count, from the current 65 million to 250 million. The reason for the extra shares was not explained in the proxy statement for the shareholder meeting and Movie Gallery declined to comment further when contacted by Prospect News.

That would seem to be a negative development for bondholders, since there has been recent talk that the company might try to cut its debt load by swapping equity for outstanding debt.

But while the bonds were seen down 1½ points in early trading around the 81.5 area, a source saw that by day's end they had bounced off those lows and pushed past Tuesday's close around 83 to end at 83.75.

A trader at another desk saw those bonds having gone home on Tuesday at 82 bid, 83 offered, but having bounced back to 83.5 bid, 84.5 offered at the close Wednesday. Yet a third trader saw similar numbers.

The defeat of the company's plan to greatly upsize the number of its authorized shares was seen by industry-watchers as something of a surprise, given that much of the company's float is already in the hands of management - at last count, the chairman, chief executive officer and president, Joe T. Malugen, owned about 3.7 million of the 33 million shares outstanding, while his co-founder, vice-chairman H. Harrison Parrish, had another 1 million - or is held by institutional allies such as Shultze Asset Management LLC, which has over 4 million more.

Even with that reversal, the plan to somehow take out debt is not yet dead, with an analyst opining in a research note that "we still think there is something in the works," noting that "informed buyers" of bonds believe that some sort of transaction will be announced "soon."

Alltel bonds busily diverge

Another notable name was Alltel; a source said that both its 7 7/8% notes due 2032 and its 7% notes due 2012 were among the most actively traded of all issues on the day, heading in opposite directions.

The former bond was seen up 2¼ points at the 90 bid level, while the latter bonds were off by about that same amount, at around 96.5.

Alltel on Wednesday unveiled some details about what promises to be a truly huge junk bond at $7.7 billion. At that size it will beat the $6 billion priced by Freeport McMoRan Copper & Gold Inc. in March.

Other names move higher

A trader saw New York-based jewelry retailer Finlay Enterprises Inc.'s 8 3/8% notes due 2012 a point better at 90 bid, 91 offered, for no particular reason, and also quoted Six Flags Inc.'s 9¾% notes due 2013 up a point at 95 bid, 96 offered, and saw no news out on the big New York-based theme park operator.

And he saw Dave & Buster's Inc.'s 11¼% notes due 2012 up ¾ point at 105.125 bid, citing the Dallas-based restaurant operator's improved first-quarter sales results.

Among homebuilder names, Standard Pacific's 7% notes due 2016 were steady at 92 bid, 93 offered, Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017 were unchanged at par bid, 101 offered, and Beazer Homes' 8 1/8% notes due 2016 were a point better, at 101 bid, 102 offered.

Also in that sector WCI Communities Inc. was seen trading stronger, "moving towards its highs," a high yield trader told Prospect News on Wednesday.

The trader pegged the 9 1/8% notes due 2012 at 99.5 bid, par ½ offered, and the 6 5/8% notes due 2015 at 94.5 bid, 95.5 offered.

The source also saw the 7 7/8% notes due 2013 at 95.75 bid, 96.75 offered.

The trader expressed amazement that the company - along with home builders in general - were performing so well given the recent bad numbers and higher interest rates, which have been dogging that sector.

"These guys should be getting killed," the trader remarked.

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