DigitalGlobe deal prices, moves up; market improves from soggy start; Tenet firmer on numbers

By Paul Deckelman and Paul A. Harris

New York, Apr. 21 - DigitalGlobe, Inc. successfully priced a modestly upsized offering of five-year secured notes on Monday, with syndicate sources noting that the deal came at a yield which was actually tighter than the original price talk. When they were freed for secondary dealings, the new bonds were seen by traders to have moved up by several points from their discounted pricing level.

Also seen moving up by several points was Georgia-Pacific LLC's new issue of seven-year notes, which came to market in an upsized form as a drive-by transaction on Monday, too late in the day for any meaningful aftermarket activity. Like the DigitalGlobe offering, Georgia-Pacific's bonds had priced several points below par.

Among the established issues, none really jumped out, traders said. But they noted how an initially weaker tone - in line with the stock market's early continuation of Monday's retreat - gave way to a slightly more positive feeling later in the day once equities regained their footing.

Among the beneficiaries was Tenet Healthcare Corp., whose bonds were mostly quoted better after the Dallas-based hospital operator issued better-than-expected preliminary first-quarter results and lifted its 2009 outlook.

However, better-than-expected results did nothing to lift the bonds of AK Steel Holding Corp., which were little changed on the session.

Tightening talk

For the second time in a week the primary market saw a deal price within downwardly revised yield talk.

DigitalGlobe, a first-time Rule 144A issuer, priced an upsized $355 million issue of 10½% five-year senior secured notes (Ba3/BB) at 96.269 to yield 11½%.

The notes priced on top of yield talk, which was revised down to 11½% from 11¾% to 12% earlier Tuesday.

Morgan Stanley ran the books for the deal which was upsized from $300 million.

Proceeds will be used for general corporate purposes, including the repayment in full of the outstanding senior secured credit facility and senior subordinated notes due April 18, 2012.

The outstanding subordinated notes came in the form of a $42.4 million private placement, and have a cash coupon of 14¾%, and a PIK coupon of 15¾%, according to market sources who added that most of the subordinated notes issue is held by Morgan Stanley.

Hence in taking out those subordinated notes DigitalGlobe is realizing substantial interest savings.

DigitalGlobe is a Longmont, Colo. space imagery company.

Last week Seagate Technology International priced a $430 million issue of 10% senior secured second-priority notes due 2014 (Ba1/BB+) at 95.317 to yield 11¼%, at the tight end of 11¼% to 11½% talk which had been lowered from 11¾% to 12%.

JBS tweaks covenants

With DigitalGlobe having cleared, only one deal remains on the active forward calendar.

JBS USA, LLC and JBS USA Finance, Inc. will reopen the order books for their $400 million offering of five-year senior notes (B1//B+) on Wednesday following covenant changes introduced on Tuesday, according to an informed source.

There is good demand, but there was some pushback on the covenants, the source said, adding that with the tweaks there is possibly some room for the deal to be upsized.

The books had been scheduled to close at 2:30 p.m. ET on Tuesday.

On Monday the company set price talk at the 13% area, with an original issue discount of approximately 5 points.

The 13% yield talk is substantially lower than the 15% rate scenario which the company anticipated when it first launched the deal, according to a market source. However, the JBS Friboi existing bonds due 2011 and 2016, which trade predominantly in the emerging markets space, have tightened nearly 150 basis points since the new deal was announced, the source added.

J.P. Morgan and Banc of America Securities are joint bookrunners for the non-callable notes.

Proceeds will be used to repay inter-company debt and credit facilities, and for general corporate purposes.

Sources profess visibility on deals into next week, however issuer names have been in short supply.

There has been some reverse inquiry on Sprint Nextel Corp., according to a buy-side source who added that the company needs to come to market.

New DigitalGlobal, Georgia-Pacific bonds move up

A trader said shortly after the DigitalGlobal deal priced that while he had not at that time yet seen any markets in the new 10½% secured notes due 2014, "I would imagine that they'll trade up" from their issue price of 92.269, "with a 10½% coupon to yield 11½%, and coming at a big discount to par."

He also agreed with the suggestion that the bonds would go up because most of the recent new deals which priced well south of par, subsequently rose by multiple points, some of them almost as soon as they were freed for secondary dealings.

His forecast proved to be prescient. Another trader a little later saw the new DigitalGlobal bonds having moved up to 98 bid, par offered.

He also saw Georgia-Pacific's 8¼% notes due 2016 trading at 98 1/8 bid, 98½ offered, well up from the 96.155 mark at which the Atlanta-based paper and pulp company's $750 million of bonds - upsized from the original $600 million - had priced late Monday to yield 9%.

Another trader quoted those new bonds at 97½ bid, 98½ offered, while a third said they traded at 98 bid, 98½ offered.

The new HCA Inc. 8½% first-lien senior secured notes due 2019, which priced last week in a massively upsized $1.5 billion issue at 96.755 to yield 9%, continued to ease on Tuesday.

A syndicate source spotted them at 98 bid. However a junk investor marked them 97 7/8 bid.

They were at 98¼ bid, 98¾ offered on Monday.

The new HCA paper traded as high as 99 bid late last week, the investor said.

Market indicators head south

In a reversal of fortunes from Monday when high yield outperformed stocks, junk underperformed equities on Tuesday, sources said.

There was some profit taking in on-the-run junk bonds, according to a portfolio manager from a high-yield mutual fund.

Meanwhile cash continues to pour into high yield, the investor added, specifying that there is pressure to stay invested.

"Cash is getting you less than 1%, so nobody is selling anything.

"HCA is not a big outperformer," the asset manager added.

"However it's a placeholder because it has an 8½% coupon."

A market source saw the CDX Series 12 High Yield index - which had slid more than a point on Monday - down another 5/8 point on Tuesday, closing at 73½ bid, 74 offered.

Meanwhile, the KDP High Yield Daily Index, which had risen by 6 bps on Monday, changed course Tuesday to fall 39 bps to 56.14, while its yield widened by 8 bps to 12.51%.

Advancing issues, which on Monday had given up their sizable previous gains to end actually trailing the losers by a narrow margin, lost further ground, trailing by a more than five-to-four ratio.

Overall market activity, measured by dollar-volume totals, jumped nearly 25% from Monday's level.

A trader said that generally, things were "lower - but there was definitely a rebound. This morning, I would say things were hit very aggressively right out of the chute, but then once equities turned, I think there was a sigh of relief. A majority of the sellers pulled out."

Junk players tracked the down-and-up movement in equities, which initially fell markedly, continuing Monday's slide, on worries about the health of the financial industry. However, bank stocks got a lift at mid-morning from Treasury secretary Timothy Geithner's comment that the "vast majority" of lenders have more than adequate capital to meet regulatory requirements. After that, it was pretty smooth sailing, with the bellwether Dow Jones Industrial Average ending up 127.83 points, or 1.63%, at 7,969.56. The broader Standard & Poor's 500 closed up 2.13%, and the Nasdaq composite index rose 2.22%.

The trader continued that against that better backdrop, "it was not a case, necessarily, that anything rallied - but it definitely was like someone hitting a light switch, and the selling stopped."

Tenet turns upward

One name which was seen mixed to higher was Tenet Healthcare, with a trader seeing its 9 7/8% notes due 2014, "their most active issue," up 1 to 1½ points at 84 bid, 85 offered, while its 9¼% notes due 2015 gained a point to end at 81 bid, 82 offered. "They were up across the board."

Another trader saw the '14s up 2 points to 85 bid, on $9 million traded, although he also saw its '15s actually down, at 82¾ from 86, on $6 million traded.

After the company said it would show a first-quarter profit when it reports full quarterly results on May 5 and upped its full-year earnings expectations by $25 million, Tenet's New York Stock Exchange-traded shares jumped 63 cents, or 44.37%, to end at $2.05. Volume of 33.3 million was six times the norm.

No earnings aid for AK

A trader said that AK Steel's 7¾% notes due 2012 "look pretty unchanged" at around 85, despite not so bad first-quarter results. "They were also trading around 85 since last week," he said. "They haven't moved at all."

Another trader saw them inch up to 851/2, on $14 million of volume.

West Chester, Ohio-based AK, a producer of stainless steel and other specialty alloys, swung to a first-quart loss of $73.4 million, or 67 cents per share, compared with year-earlier net income of $101.1 million, or 90 cents per share. However, the per-share loss was well inside of the roughly 75 cents per share Wall Street had been expecting.

AK executives also said that the company expects to report "substantially" better second-quarter results, helped by lower raw material costs.

MetroPCS moving around

Among the telecommunications and tech names, a trader saw MetroPCS Wireless Inc.'s 9¼% notes due 2014 "trading right around par," which he called "weird," given the Dallas-based wireless telecom operator's relatively low credit rating, at B3/B/NR.

He said there was no fresh news out on the company, wondering if "they're being taken out," or some other kind of news development. "It seems like for whatever reason they're trading right around par, a lot of trade for some reason."

Another trader, who also saw no fresh news out on the company, saw those bonds trading at par, which he said was actually down ¾ point, on volume of $7 million.

Also among the cellular names, the first trader saw Sprint Nextel Corp.'s 6% notes due 2016 "active" at 78 bid, 79 offered, "but down a couple" of points. That continues for another day the Overland Park, Kan.-based company's pullback from recent levels that included those 6% bonds in the mid 80s.

He also saw Sungard Data Systems Inc.'s 9 1/8% notes due 2013 "off a couple of points and active," quoting the bonds at 92 bid, 93 offered. Another market source pegged the Wayne, Pa.-based information technology solutions provider's bonds at 92 7/8 bid, on some $16 million traded as of mid-afternoon.

New gains for Nuveen; Zions zapped

A trader meantime saw Nuveen Investments Inc.'s 5% notes due 2010 trading at 79 bid - which he said was up around 10 points from previous levels. He explained that "people are short that Nuveen," which helped to boost the Chicago-based financial services company's bonds in the absence of any fresh positive news.

At the same time, he saw Nuveen's 10½% notes due 2015 trading in a 46-48 context.

"People are short the 5s that's for sure," he emphasized. "It's the first time bonds have surfaced [in a while] - and they traded 10 points higher."

Also among the financial names, a trader said that there was some junk market activity in what up till now has been the investment-grade rated bonds of Zions Bancorporation - paper which is now considered split-rated, after Monday's multiple-notch downgrade to junk levels by Moody's Investors Service, following the release of poor quarterly earnings.

He saw Zions 6% notes due 2015 finish at 51 5/8 bid, which he said was down from 76¾ back on April 8, the last recorded trade that he saw.

However, another market source said that the bonds had been trading around in the upper 60s as recently as a week ago.

Activity in the credit was very heavy, with high-grade accounts barred from holding junk-rated debt moving to dump it, and junk players seeing it for the first time doing some tire-kicking. One source - seeing the bonds dip as low as the upper 40s before coming back to end around 52 - said that at least $70 million had changed hands as of mid-afternoon.

Moody's cut the Utah-based regional banking company's senior unsecured bonds a breathtaking eight notches Monday to B2, with a negative outlook, as part of a an overall sharp lowering of Zions debt and that of its various banking subsidiaries, following the company's second consecutive quarterly loss.

"The magnitude of the downgrade and negative outlook reflects Moody's view that Zions' capital position will come under significant pressure in the short-term because of its large commercial real estate (CRE) lending concentration and CDO portfolio, consisting primarily of bank trust preferreds," the ratings agency declared in its downgrade message.

Moody's continued that although Zions "enters this challenging period with relatively sound capital ratios" - as of March 31, its Tier 1 risk-based level was 9.33% and Moody's tangible common equity ratio measurement was 5.96% -- Moody's nonetheless warned that it expects that "future credit costs in Zions' residential construction book and CDO portfolio cause a significant risk of the firm becoming undercapitalized."

That massive downgrade followed the company's report earlier Monday of a net loss of $806.5 million, or $7.29 a share, versus year-earlier net income of $104.3 million, or 97 cents a share. The results included a $634 million write-down of goodwill at Amegy Bank and $249 million in impairment and valuation losses on securities.

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