Chesapeake plans $200 million 13-year issue; secondary stilled by holiday

By Paul Deckelman and Paul A. Harris

New York, Nov. 11- Chesapeake Energy Corp. said Tuesday that it plans to sell $200 million of new senior notes due 2016 in a Rule 144A private placement. The Oklahoma City-based energy company said it planned to use the deal proceeds to tender for its 8½% senior notes due 2012 (see tenders and redemptions elsewhere in this issue for full details).

Secondary market activity was meanwhile muted, with The Bond Market Association having recommended that the market be closed for the Veterans' Day Holiday.

A few news sources responded Tuesday to entreaties from the Prospect High Yield Daily primary market desk. However most of them turned out empty pockets, as the quiet Veterans Day session unfolded.

Not until late in the afternoon did Chesapeake Energy pipe in with a quick-to-market $200 million 12-year senior notes offering (expected ratings Ba3/BB-) that is expected to price on Wednesday afternoon, via Banc of America Securities, Lehman Brothers and Deutsche Bank Securities.

In addition to funding its tender for $111 million of 8½% senior notes due 2012, Chesapeake will also use proceeds to repay debt incurred in its acquisition of south Texas natural gas properties from Laredo Energy, LP and its partners.

Meanwhile, earlier on Tuesday Prescott Crocker, managing director of Evergreen Investment Management, told Prospect News that present conditions in the high-yield market favor the interests of those selling junk bonds over those buying them.

"The market is still skewed in favor of the issuer because there is an imbalance between supply and demand and pricing behavior is reflecting that," commented Crocker.

Meanwhile, as far is his fund is concerned, he commented: "We are about to enter into a period of confirmed rising longer-duration interest rates. So we have a focus on trying to roll out of the lower-coupon stuff that trades with the yield curve."

The last time Crocker spoke with Prospect News, in early October, the Evergreen managing director said that when the investment banks set new deals on the table investors seldom go away with a full meal. Those dynamics of early October, he added, are still in play.

"All the new issues get way oversubscribed," said Crocker. "You've got $10 million to put to work on every new deal and you get $2 million allocated, which leaves you to go wandering into the woodlands."

Having raised the specter of rising interest rates, Prospect News asked Crocker whether he sees a reversal ahead in the Federal Reserve's long, history-making string of rate reductions.

"The Fed may loosen the front end faster than people expect," he responded. "But the back end can go up the minute people start focusing on inflation.

"There may not be inflation in the national accounts, but there is inflation in the (Consumer Price Index). Car prices are going to be stunningly higher next year. They're going to make you pay for all the stuff that used to be free.

"Inflation is going to go up," Crocker added. "That's why gold is going up."

Given an expectation of rising rates, said Crocker, an investor may need to face slightly more risk than would be the case in other circumstances.

"You get out of longer-duration, low-coupon paper and try to get spread," he said. "You probably even go into things that are more risky because they are going to outperform.

"If 10-year bonds go up 100 basis points you're going to lose a lot of money in the stuff that has a 6% or 7% coupon.

"But you better watch out that you're not buying junk," he warned.

"It's going to be tough, particularly for the larger funds because there is not enough liquidity to move around."

In the secondary market, prices were seen anchored in a very narrow range around where they had ended on Monday - which itself was one of the quieter sessions of the year.

There was some news out on high yield issuing companies on Tuesday - but it didn't seem to have much impact on the bonds, with most shops either closed or operating with skeleton crews for a couple of quiet hours in the morning.

"We thought that EchoStar might have had movement, because its stock was off, a market source said, "but it didn't." He pegged the Littleton, Colo.-based satellite television broadcaster's 9 3/8% notes due 2009 at 105.75, unchanged on the session.

EchoStar shares slid $4.75 (12.91%) to end Nasdaq trading Tuesday at $32.05, on volume of 31.2 million shares, more than 12 times the usual turnover. EchoStar had reported lackluster third-quarter results, particularly its new-subscriber numbers. It reported that during the quarter, it added 285,000 new Dish Network subscribers - less than the 300,000 that Wall Street analysts had been looking for, and far less than the 326,000 new customers DISH competitor DirecTV, claimed to have added.

The weak new-subscriber numbers overshadowed EchoStar's third-quarter profit of $35.1 million (seven cents a share), a turnaround from the year-earlier loss of $168 million (35 cents a share) - especially because EchoStar admitted that things aren't looking so favorable for the current fourth quarter,

It said that delays in deliveries of high definition television products would mean likely weak sales during the all-important holiday consumer-shopping season.

EchoStar CEO Charlie Ergen told a conference call that one reason the company failed to do a better job at getting the required HDTV gear for its customers was that that it had been distracted by its failed efforts last month to buy bankrupt satellite operator Loral Space & Communications Ltd.

Elsewhere in the communications constellation, Cablevision Corp.'s 8½% notes due 2010 were quoted at 92 bid, "nothing in the way of movement," the market source said. At another desk, however, its CSC Holdings 8 1/8% notes due 2009 were down almost a point at 103.75.

The Woodbury, N.Y.-based cable television and sports franchise operator posted a third-quarter net loss of $104.6 million (36 cents per share), wider than the year-ago net loss of $79.5 million (26 cents a share).

Tent Healthcare Corp.'s 6 3/8% notes due 2011 held steady at 91.5, "with no one even trading them," a market observer said; the Santa Barbara, Calif.-based hospital operator reported a net loss of $308 million (66 cents per diluted share) for the third quarter ended Sept. 30 - a sharp deterioration from the $328 million profit (66 cents per share) seen in the year-earlier quarter. It also represented a sequential widening of the $195 million (28 cents per share) loss which Tenet had posted in the second quarter. Tenet attributed the loss primarily to provisions it had to take for non-paying patients, as well as costs associated with the various investigations the company is under - by the SEC, the Justice Department, and California health authorities, among others - and the numerous lawsuits it is a party to (see related story elsewhere in this issue.)

Calpine Corp.'s 8½% notes due 2010 were unchanged at 92 bid, although its 8 5/8% notes due 2010 were heard to have eased half a point to 73.5. The San Jose, Calif.-based independent power operator completed a $140 million 15-year term loan for its 300-megawatt Blue Spruce Energy Center located in Aurora, Colo. The new financing replaces a construction loan, which the company entered into in August 2002.

Standard & Poor's however, said that while the transaction alleviates some refinancing pressure on the company, it does not materially affect the company's credit quality. Its rating is B, with a negative outlook.

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