Level 3, J. Crew, Key Energy, American Renal price deals; Baker & Taylor postpones; ATP Oil up

By Paul Deckelman and Paul A. Harris

New York, March 1 - A quintet of deals, most of them quickly shopped drive-by offerings, combined to start March off with a lion-like roar on Tuesday. It was the busiest primary session in at least three weeks.

The biggest deal of the day came from the most familiar name among the issuers: Level 3 Communications, Inc., which massively upsized its opportunistically timed $500 million issue of eight-year notes.

Also bringing upsized, quick-to-market transactions were Key Energy Services, Inc., which priced $475 million of 10-year notes, and health-care operator American Renal Holdings, Co., Inc., which brought a $135 million offering of five-year PIK toggle notes.

The sole scheduled forward calendar deal was also the only transaction not upsized. Clothier J. Crew Group Inc. priced $400 million eight-year notes in support of the company's leveraged buyout deal.

China's Shimao Property Holdings priced a downsized $350 million issue of seven-year notes. The company had planned to bring up to $500 million.

But while those deals were pricing, syndicate sources heard that prospective issuer Baker & Taylor had postponed its $240 million senior secured notes deal.

When the new J. Crew notes were freed to trade, they were seen up marginally from their issue price.

On the other hand, the new Key Energy bonds firmed smartly in the aftermarket, no doubt helped by a generalized firmness in energy credits linked to rising world oil prices as the Middle East remains unstable.

In the secondary market, another energy credit - ATP Oil & Gas Corp. - firmed solidly on Tuesday, helped by higher oil prices as well as more company-specific news relating to a possible resumption of Gulf of Mexico energy drilling operations.

Level 3 massively upsized

The primary regained its legs amid choppy market conditions on Tuesday, sources said.

Five issuers, each bringing a single dollar-denominated tranche of junk, raised $1.85 billion.

Volatility in the equity markets notwithstanding - the major U.S. indexes each sustained losses well north of 1% - Tuesday was the biggest day in the new issue market since Feb. 8.

Level 3 Communications' Level 3 Financing, Inc. priced a massively upsized $500 million issue of 9 3/8% eight-year senior notes (expected Caa1/confirmed CCC) at 98.001 to yield 9.735%.

The yield printed in line with price talk that was set in the 9¾% area.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., Morgan Stanley & Co. Inc. and Deutsche Bank Securities were the joint bookrunners for the quick-to-market debt-refinancing deal, which was upsized from $300 million.

Key Energy upsizes

Meanwhile Key Energy Services priced an upsized $475 million issue of 10-year senior notes (B1/BB) at par to yield 6¾%, on top of the price talk.

Credit Suisse Securities, J.P. Morgan Securities LLC, Bank of America Merrill Lynch and Morgan Stanley were the joint bookrunners for the quick-to-market debt-refinancing deal, which was upsized from $450 million.

The deal played to a big order book that was only open for five hours, according to an informed source, who added that Tuesday volatility in the stock market appeared not to impact the Key Energy transaction.

The deal walked between the raindrops, actually benefiting from a mid-day bounce in stock prices, the source remarked, adding that the dealers hit the print button on the Key Energy bonds before it became absolutely clear that equities were headed for a genuine plunge.

J. Crew, at the tight end

Away from debt refinancings, J. Crew priced a $400 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 8 1/8% on Tuesday.

The yield on the acquisition financing printed at the tight end of price talk, which had been set in the 8¼% area.

Goldman Sachs & Co. was the left bookrunner. Bank of America Merrill Lynch was the joint bookrunner.

American Renal's PIK toggles

Elsewhere, American Renal Holdings priced an upsized $135 million issue of five-year senior PIK toggle notes (Caa2/CCC+) at 98 in a quick-to-market Tuesday deal.

The notes carry a cash coupon of 9¾% and a PIK coupon of 10½%.

The cash yield is 10.273%, and the PIK yield is 10.944%.

The cash yield came toward the wide end of the cash yield talk of 10¾% to 11%.

Bank of America Merrill Lynch and Barclays Capital were the joint bookrunners for the dividend deal, which was upsized from $125 million.

Shimao downsizes

Finally, Shimao Property Holdings priced a downsized $350 million issue of seven-year senior notes (B1/BB-) at par to yield 11%.

The yield printed on top of the yield talk.

Morgan Stanley and Standard Chartered were the joint bookrunners for the issue, which was downsized from $500 million.

The Hong Kong-based property developer plans to use the proceeds to redeem its floating-rate notes due in 2011 and to fund property development.

Isle of Capri for Wednesday

Looking toward the Wednesday session, Isle of Capri Casinos, Inc. talked its $300 million offering of eight-year senior notes to yield in the 7¾% area.

In addition to price talk, there were changes to the bond covenants, the source added.

Credit Suisse Securities, Wells Fargo Securities and Deutsche Bank Securities are joint bookrunners for the quick-to-market debt-refinancing deal.

Perpetual Energy to price

Turning to the Canadian market, Perpetual Energy Inc. announced plans to sell C$150 million of seven-year senior notes (/B-/) in an upcoming private placement deal in Canada and the United States.

The roadshow starts on Wednesday in Vancouver and continues in Toronto on Thursday and Friday, a source said. The roadshow will hit the United States on March 8 in New York.

Standard & Poor's said in its ratings notice on Tuesday that if the deal is upsized, the agency will lower the rating to CCC+.

BMO Capital Markets Corp. is the lead manager. Co-managers are CIBC World Markets Inc., Scotia Capital Inc., TD Securities Inc., National Bank Financial Inc. and Peters & Co. Ltd.

The deal is expected to close March 10.

Proceeds will be used to repay existing debt under the company's existing credit facility and provide flexibility with the maturity of its 6½% convertible debentures due June 2012.

Baker & Taylor postpones

Finally, Baker & Taylor postponed its $240 million offering of five-year senior secured notes late Tuesday due to market conditions.

Jefferies & Co. had the books for the debt-refinancing deal.

Key Energy trades up

When they were freed for secondary dealings, a trader saw Key Energy Group's new 10-year notes get as good as 101½ bid before settling in at a bid level around 101 to 101 3/8, still well up from their par pricing earlier in the session.

"They were pretty active," he said, "they went right to the top."

A second trader quoted the bonds in a 100¾ to 101 bid complex, while a third observed them at 101 bid, 101½ offered.

J. Crew issue edges up

A trader saw the new Chinos Acquisition Corp. eight-year bonds - the J. Crew issue - open at par when they were freed for the aftermarket and then edge up to 100¼ bid, 100½ offered from the notes' par issue price.

A second trader called the new J. Crew deal "the only thing exciting right now," estimating the bonds trading at par bid, 100½ offered.

Yet another trader saw the bonds get as good as 100¾ offered.

No shows

Traders said that Level 3 Communications' new eight-year notes came to market too late in the day Tuesday for any kind of aftermarket activity.

That was also the case for American Renal's five-year PIK toggle notes.

Comstock holds near issue

A trader said that Comstock Resources Inc.'s new 7¾% notes due 2019 were trading around 100½ to 100¾ and "weren't very active."

The Frisco, Texas-based energy exploration and production company had priced $300 million of the bonds, upsized from the originally announced $250 million, at par on Monday in a quickly shopped deal. They got as good as 100¾ bid, 101½ offered when they initially hit the aftermarket.

But a second trader on Tuesday also saw the bonds as having dropped back from those highs to stand around 100¼ bid, 100½ offered.

United Refining holds gains

A trader saw Friday's $365 million offering of United Refining Co.'s 10½% senior secured notes due 2018 at 99¾ bid, 100½ offered.

That was about to level to which the bonds had jumped on Friday after the Warren, Pa.-based petroleum products refiner and marketer priced its deal - upsized from an originally announced $350 million - at 96.444 to yield 11¼%.

Secondary indicators mixed

Away from the new-deal world, a market source saw the CDX North American Series 15 HY index down by ½ point on Tuesday to end at 103¾ bid, 103 7/8 offered after it gained ½ point on Monday.

The KDP High Yield Daily index meantime gained 6 basis points on Tuesday to finish at 75.98 after having risen by 1 bp on Monday. Its yield came in by 1 bp Tuesday for a second straight session, ending at 6.64%.

The Merrill Lynch High Yield Master II index moved up by 0.118% on Tuesday on top of Monday's 0.156% gain. That lifted its year-to-date return to 3.59%, yet another new peak level for the year, from 3.468% on Monday, the previous high point.

Advancing issues topped decliners for a third straight session on Tuesday, although their roughly six-to-five margin was narrower than the seven-to-five advantage that they had enjoyed on Monday.

Overall market activity, as measured by dollar-volume levels, jumped by 67% on Tuesday after having risen by 4% on Monday from the previous session's activity level.

A trader said that Tuesday's junk market "started off continuing what it was doing [Monday] - it was strong." However, he said that after that promising beginning, "equities began to back off and bids backed up." Stocks continued to head lower amid investor fears that oil prices could hurt the already lackluster economic recovery, with the bellwether Dow Jones Industrial Average closing down 168.32 points, or 1.38%, at 12,058.02, and other, broader stock indexes following suit.

However, he said that the offerings "did not follow the bids lower" and prices were only off modestly from their early levels.

The annual JPMorgan high-yield leveraged finance conference, one of the major conferences on the Junkbondland annual calendar, was continuing in Miami on Tuesday.

A trader said that having so many decision makers at that conference "doesn't help" the trading picture since "there are enough people out of the market."

Another said that "with the [JPMorgan] conference, a lot of guys are out of the pocket. Only a couple of deals came, and there's not a lot to talk about."

He noted, though, that high-yield mutual funds, considered a good barometer of overall junk market liquidity trends, had a net cash inflow of $492 million in the latest week, "and the calendar is light, so right now, as long as the money keeps coming in and you keep getting coupon flow, there's nothing you can do but buy, especially if you're a mutual fund manager."

Another trader said that while there was still a fair amount of activity in the secondary issues that had dominated Monday's proceedings, such as Solo Cup Co.'s bonds and Energy Future Holdings Corp. - the old TXU Corp. - "the new issues kind of took over seemingly a lot of the focus."

He said that overall, "it seemed like there was a lot of, lotta strength early, and now it's sort of waning just a little bit."

ATP bonds improve

Among specific issues, a trader said that ATP Oil & Gas "had an interesting day" with its 11 7/8% second-lien senior secured notes due 2015, suggesting that they were helped by the company's presenting at the JPMorgan conference.

He saw that paper get as good as 105 bid, versus the first print of the day at 102¾ offered. He saw the bonds going home somewhere in a range of 104½ to 1051/4.

He also noted that "it's a big coupon, if you like [the company]." Even at the 105 level, he said, the yield would still come out around 10%.

Also helping, he said, was the latest news out of Washington concerning deepwater oil drilling in the Gulf of Mexico, which had been shut down since the big BP oil rig fire and explosion there last April - news that holds out the possibility that Houston-based ATP might once again be able to drill in the gulf before too long.

On Monday, the Interior Department said it had granted a permit to Noble Energy Inc. to resume drilling in 6,500 feet of water off the coast of Louisiana - the first such permit granted since the April 2010 accident involving the Deepwater Horizon drilling rig, which resulted in an underwater blowout at the BP well, causing considerable environmental damage in the gulf and surrounding coastal areas.

In the aftermath of that accident and the government's moratorium on deepwater drilling, ATP - which, ironically, had priced its $1.5 billion issue of 11 7/8% bonds on April 19, just one day before the BP accident - saw those bonds, which had come to market at 99.531 to yield 12%, get hammered all the way down into the 60s in the subsequent weeks on investor fears that the drilling ban would cripple ATP, which has much of its proven oil and gas reserves in deepwater areas of the gulf.

However, as the environmental damage was largely cleaned up and the courts directed the Obama administration to lift the drilling ban, the bonds began gradually coming up from that bottom and had reached the mid-90s by the start of the year as the investors gambled that a drilling resumption was in the cards.

The government move to allow Noble's drilling is not a blanket resumption - the official in charge, Michael R. Bromwich, the director of Interior's Bureau of Ocean Energy Management, Regulation and Enforcement, stressed that each request for a drilling permit would be closely reviewed on a well-by-well basis, adding that the pre-accident system of rapid approvals of drilling permits had been permanently changed.

But on Tuesday, the New Orleans federal judge who had overturned the deepwater drilling ban last year, Martin Feldman - who last month had ruled that Interior must act within 30 days on five pending permit applications - further said that the department had to also consider two more drilling permit requests, both of them from ATP.

The first trader meantime said that other drillers would likely be helped by the breaking of the drilling-permit logjam, mentioning that Key Energy, among others, would probably benefit.

Beyond the possible resumption of drilling in the gulf - where Washington last year had suspended already-started drilling work on 33 exploratory wells in addition to refusing any new permit requests - the trader also mentioned that the continued Middle East unrest that has driven international oil prices north of the $100-per-barrel mark would be a positive factor.

"All of these energy-related companies should be a beneficiary of higher oil prices - unless they get so high that people can't spend money on them."

TXU active but steadier

A trader said that Energy Future Holdings' bonds "continued on" from what they were doing on Monday, when the Dallas-based utility company's paper was roiled by an investor's accusation that a unit of the company had defaulted on one of its issues.

But he said that "the seniors that were up the most [Monday] gave a teeny bit back, and the subs that were off the most got a teeny bit back - but it was kind of a sleeper."

He saw "marginal change" in the bonds, with the 10¼% notes due 2015 the most active issue both on Monday and again on Tuesday. He saw about $30 million to $40 million having traded Tuesday - but that was "a lot less trading" than was seen on Monday, when, he said, "well over" $100 million changed hands.

At the end of the day, he said, the bonds had firmed a little to around 56 bid, 56½ offered. That half-point gain, he said, lifted the bonds back up to where they were before they lost ground on the default speculation.

He said that "the only other one that really traded more than $1 million or two" was the 10% notes due 2020. He saw them at 104½ bid, 105 offered, up ¼ on the day.

All the rest [of the issues] "were onesies and twosies" - small, isolated, one-off transactions.

He meantime said that the argument about the alleged default "is ongoing. I don't think very many people consider it a true active default. There's only one person claiming that what they have is technically defaulted upon. There isn't enough follow-through to make me think that anything will come of it, other than that they may extract some sort of a concession [from the company], although what form that would take and whether it was monetary or not, I don't know."

As previously reported, Aurelius Capital Management LP, a lender under the credit facility, is alleging that Energy Future Holdings unit Texas Competitive Electric Holdings Co. LLC is in default as a result of certain intercompany loans that were made. The firm is claiming that the loans do not comply with the arm's-length basis requirement and that the non-compliance has resulted in a failure to make certain mandatory prepayments under the credit facility.

Aurelius has hired law firm Dechert to pursue the alleged default and is trying to put together an informal group of lenders to join in the complaint, a source remarked.

A call is scheduled to take place on Wednesday for lenders that want to join the fight.

There was already a conference call with Citigroup, the administrative agent on the credit facility, late Monday. According to the source, Citi claimed it was doing what was required under the credit agreement, but for now, everything is staying status quo.

Texas Competitive has said in filings with the Securities and Exchange Commission that the default allegations are without merit and that it will defend itself against the accusations.

AES unit gyrates around

A trader said that the 9.67% notes issued by TXU sector peer AES Corp.'s AES Eastern Energy LLC - which had dropped on Monday down to around 66¾ - "popped back up" to end Tuesday around 74 bid, suggesting that short-covering might be the cause.

"There were not a lot of trades, but, they're gyrating quite a bit. The space between the trades is pretty big."

Activity in the credit the past two sessions, he said, has been "kinda wild."

On Monday, AES Eastern's corporate parent, AES, said it would look to sell the company's four power plants, which provide power to customers in the New York area. Speaking on the Arlington, Va.-based independent power producer's fourth-quarter conference call on Monday, its chief executive officer, Paul Hanrahan, said that those coal-fired plants, which sell power under short-term contracts and on the spot market, would be better owned by a closely held company rather than AES, a public company that has far-flung operations in 29 countries.

AES wrote down the value of AES Eastern by $827 million, contributing to the parent's slide into the red in the fourth quarter, when AES suffered a net loss of $169 million, or 56 cents a share, versus year-earlier net income of $283 million, or 7 cents per share. AES cited falling power prices, prospects for lower prices and a recent credit-ratings cut for the unit by Standard & Poor's, which downgraded the unit's rating to B- from B+ in late January.

The ratings agency cited increased pressures on the company's credit profile due to a change in hedging policy that had increased its merchant exposure. It also cited the decline in market prices since the fourth quarter of 2009 and declining debt service coverage, S&P said

The trader opined that "there is pressure on these guys - they're not able to hedge their costs, and spread between the cost of their coal and what they can get for [the power output] is getting really tight and uneconomical. That probably pushed them down - and the pop in the market [Tuesday] indicates there might be some short-covering."

Solo continues to go so low

A trader said that Solo Cup "is one of those names that for the last month has been trading off without a lot of news - I presume somebody has been doing some work on it."

The Lake Forest, Ill.-based paper and plastic cup, plate and utensil maker's 8½% notes due 2014 were trading at bid levels between 83 and 84, which he said was "about unchanged, or on the weak side."

He pointed out that when the year began, Solo was in the low-to-mid 90s, "so they've been sort of drifting off by a point or two kind of regularly, and here we are - they're down 10-plus points from their highs."

A second trader said that the sell-off in Solo Cup continued Tuesday, although he said that unlike Monday, "the new issues sort of took over a lot of the focus."

He saw about $30 million or $40 million of the 81/2s traded, pegging them down another 1½ points as they went home at 83½ bid, "so they're continuing to suffer a bit."

Sara Rosenberg contributed to this report.

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