Upsized Level 3 prices, rises; BreitBurn follows; AAR slates deal; Kodak climbs on revamp

By Paul Deckelman and Paul A. Harris

New York, Jan. 10 - Making up for the lack of pricings on Monday, the junk market primary arena stepped up its pace on Tuesday with a pair of well-received drive-by deals.

Familiar issuer Level 3 Communications Inc. announced plans for a $350 million bond issue, but the final deal was radically upsized to $900 million. The telecommunications company's new issue was seen by traders to have firmed smartly when it reached the aftermarket. The existing bonds were also up by 1 point or more - relatively unusual for an issuer bringing in a bond deal.

The day's other pricing came from oil and gas operator BreitBurn Energy Partners, LP, which came to market with $250 million of 10.25-year paper. Those bonds, too, moved up when they were freed to trade.

The primaryside also saw one prospective deal slate: supply and logistics provider AAR Corp. hits the road on Wednesday to shop around a 10-year issue that could price by the end of the week.

Away from the new-deal realm, Eastman Kodak Co.'s bonds and shares firmed after the troubled photographic products company announced a corporate restructuring aimed at making it more competitive in the new digital-era market.

On the downside, Health Management Associates, Inc. tumbled, along with its shares, after the company's general counsel resigned in the wake of a lawsuit pitting the company against a former employee-turned Medicare whistleblower.

Overall, the market felt better, with statistical performance measures back on the upside.

Level 3 massively upsizes

Tuesday's action in the primary market came in the form of two drive-by deals, which generated $1.15 of proceeds.

Level 3 Financing Inc. priced a greatly upsized $900 million issue of 8.5-year senior notes (B3/CCC) at par to yield 8 5/8% on Tuesday in a deal that was many times oversubscribed, according to an informed source.

The yield printed at the tight end of price talk, which had been set in the 8¾% area.

Citigroup and Bank of America Merrill Lynch were joint bookrunners for the debt refinancing and general corporate purposes deal.

BreitBurn at the tight end

BreitBurn Energy Partners and BreitBurn Finance Corp. priced a $250 million issue of 7 7/8% 10.25-year notes at 99.154 to yield 8%, at the tight end of the 8% to 8¼% price talk.

Wells Fargo was the left bookrunner. Citigroup, Barclays, BMO and RBC were the joint bookrunners for the bank debt refinancing and general corporate purposes deal.

Datatel sets talk

Looking ahead to the Wednesday session, Datatel Inc. talked its $530 million offering of seven-year senior notes (Caa1/CCC+/) with a yield in the 9¾% area.

That's tighter than discussions that were under way late last week, according to a trader from a high-yield mutual fund who said whispers in the 10% area were making the rounds at that time.

The deal is set to price on Wednesday.

J.P. Morgan, Bank of America Merrill Lynch, Barclays, Citigroup and Credit Suisse.

AAR starts Wednesday

Finally, the forward calendar took aboard a single deal on Tuesday.

AAR will open a brief roadshow on Wednesday in New York for its $175 million offering of 10-year senior notes, which is expected to price on Friday.

Bank of America Merrill Lynch and Morgan Stanley are the joint bookrunners.

The Wood Dale, Ill.-based aviation products and services company plans to use the proceeds to repay revolver debt incurred during its acquisition of TelAir International GmbH and Nordisk Aviation Products Ltd..

Level 3 leads the way

When Level 3's new 8.5-year notes were freed for secondary dealings, a trader saw the issue trading at bid levels between par and 1003/4.

At another desk, a trader said that the Broomfield, Colo.-based telecom and internet backbone company's radically upsized $900 million of new paper was at 100 3/8 bid, 100¾ offered.

Seeing the degree of upsizing, a trader remarked that Level 3 "is a big, liquid name" that everyone in Junkbondland likes as one of the few telecom companies that survived the collapse of the tech bubble about a decade ago - and the resulting shakeout, which saw so many other rivals fall by the wayside.

Traders saw the existing Level 3 bonds, meantime, mostly firming in the wake of the new deal - something that doesn't happen that often, since news that a company will add additional leverage frequently leads holders of the existing bonds to sell their debt.

But this time, a trader said, Level 3's 11 7/8% notes due 2019 were up about 1½ points on the day, at 108 bid.

A second trader called Level 3 "topical. All of them were up by 1½ to 2 points," he said,

The first trader saw the 10% notes due 2018 "pretty much unchanged" at 106 bid, while the 9¼% notes due 2014 - a portion of which will be redeemed using the proceeds from the new deal - were a quarter-point higher, trading at 103 bid, the presumed takeout level.

However, Level 3's floating-rate notes due 2015 were up by 1½ points, last trading at 92½ bid.

Those notes were the busiest in the Level 3 capital structure, with a market source seeing some $16 million of them trading at 92½ bid, making the issue among the most active junk bonds on the day.

He saw the 10% notes at just over 106 bid, with $7 million of the bonds changing hands.

Around $6 million of the 9 14s were moving around, he said, quoting them at 103 1/8 bid.

BreitBurn burns brightly

While Level 3's new deal easily dominated the attention of high-yield investors, the day's other new deal - from Los Angeles-based oil and gas exploration and production company BreitBurn Energy Partners - also got some notice.

A trader saw the new bonds at 100½ bid in the aftermarket, calling it a pretty good move up from the 99.154 level at which the $250 million deal had priced.

A second trader pegged the new notes between 100 3/8 and 100 7/8.

Recent deals hold gains

Traders said that the generally firmer market also helped recently priced deals remain strong.

For instance, one saw Chesapeake Midstream Partners LP's 6 1/8/% notes due 2022 up a little on the session.

He said that bonds had gone home on Monday night trading around 102 bid, but had edged up to 102¼ bid, 102½ offered.

The Oklahoma City-based natural gas operator priced $750 million of those bonds - upsized from an originally announced $600 million - at par on Friday afternoon, and they were heard to have popped up by two points when they were freed for secondary dealings.

The 6 1/8% notes due 2021 issued by Chesapeake Midstream's 46% owner, Chesapeake Energy Corp., were seen having firmed to just under the 104 mark on Tuesday on active volume of over $6 million.

A trader said that last Thursday's deal from AmeriGas Finance LLC and AmeriGas Finance Corp. was about unchanged on Tuesday after having firmed handsomely after they had priced.

He saw the company's 6¾% notes due 2020 at 101 1/8 bid, 101½ offered, while its 7% notes due 2022 were at 101¾ bid, 102¼ offered.

He called the latter bond "either unchanged or up one-eighth point."

The Valley Forge, Pa.-based retail propane distributor priced $550 million of the 63/4s and $1 billion of the 7s, both at par, although they arose more than 1 point in their initial foray into the aftermarket.

Calendar-based market

A trader, looking at the overall market, opined that "right now, most accounts are waiting for the calendar to come.

"The market is sort of better without a lot of volume, although some stuff is getting done. But a lot of the trades are in higher-quality names, with few exceptions," he added.

He reiterated that market participants "are really saving themselves for the calendar here, as far as I can tell."

Indicators point upward

Statistical measures of junk market performance - mixed over the previous three sessions - were back in the black on Tuesday.

A trader saw the CDX North American Series 17 High Yield index up by 3/8 of a point, to end at 93 7/8 bid, 94 1/8 offered, after having eased by 1/8 point on Monday.

The KDP High Yield Daily gained 12 basis points on Tuesday to end at 73.85, after having edged up by 1 bp on Monday. Its yield was in by 5 bps on Tuesday to 7.22%, after having been unchanged on Monday.

And the widely followed Merrill Lynch High Yield Master II Index notched its 18th consecutive gain on Tuesday - an amazing streak that dates to the middle of December. It rose by 0.193%, which followed Monday's 0.122% advance.

The gain lifted the index's year-to-date return over the psychologically potent 1% mark for the first time this year, to 1.081%, versus Monday's 0.887%, its previous high for the year so far.

Kodak climbs

A trader said that Kodak's bonds were higher on the day after the struggling company - desperately trying to avoid being forced into bankruptcy - shuffled its corporate structure.

"We saw some bids for their paper, and it looked like everything moved up a little bit," he said.

"There was some volume there."

He saw Kodak's 7¼% notes due 2013 trade up into the lower 30s, in a range of 31 to 32, after having been below 30 bid on Monday.

However, he saw "a lot of odd-lot trading, smaller lots. A lot of retail trading, and a few [larger] institutional trades."

Among the senior bonds, he saw Kodak's 9¾% notes due 2018 opening the day trading between 76 and 78, but moving up to a firm 78 bid by later in the day post-news. He said they "look to be up 1½ points."

Kodak's 10 5/8% notes due 2019, after trading at 77½ bid, 78 offered, moved up to 73¾ bid, 79 offered going out. However, he said it was difficult to really gauge the activity level in the latter bond since it's a 144A issue, whose details don't show up on Trace.

An active mover was Kodak's 7% convertible notes due 2017, which had previously been at 27 bid, but firmed up to around the 28-29 area, with busier round-lot trading than was seen in the other Kodak issues.

Kodak's New York Stock Exchange-traded shares jumped nearly 20 cents, to 60 cents a share, on volume of 67 million, nearly seven times the norm.

Kodak zoomed after the iconic Rochester, N.Y.-based photographic products and digital imaging technology company announced that starting from the first of the new year, it had restructured itself into just two divisions: the commercial segment and the consumer segment.

The company was previously organized into three divisions: the graphic communications group, the consumer digital imaging group and the film, photofinishing and entertainment group.

Beyond the streamlining, Kodak, which is trying to reinvent itself as a purveyor of digital technology and a manufacturer of digital printers following the virtual demise of its traditional camera and film business, did not announce any other changes to its operations.

The junk trader was skeptical, suggesting that he was "not sure what this accomplishes, by splitting the company into two parts."

HMA gets hit

Elsewhere, a trader saw Health Management Associates' 6 1/8% notes due 2016 drop as low as 100¾ bid, 101 offered from recent levels around 105 bid, 106 offered.

A second trader quoted the notes down three points on the day, at 101¼ bid.

That followed the news that the company's general counsel, Tim Parry, had resigned. The resignation comes at an unfortunate time for the Naples, Fla.-based hospital operator, which is currently embroiled in a lawsuit involving Medicare billing and a former employee-turned-whistleblower.

HMA also released less-than-stellar guidance, telling investors that it expects to report that for the fourth quarter and for 2012, admissions at hospitals open at least a year will fall 3.5 to 4%, considered by analysts to be weak volume.

The company also projected earnings of 25 cents to 26 cents per share in the fourth quarter, excluding restructuring costs, write-offs of deferred debt issuance costs and other items.

HMA's NYSE-traded shares plunged by 91 cents, off 13.07%, to $6.05, after having swooned as much as 30% earlier in the day. Volume of 68.3 million shares was 14 times the usual turnover.

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