Superior Energy deal prices; Tenet gyrates on suit settlement news; market sinks after inflation data

By Paul Deckelman and Paul A. Harris

New York, May 17 - Superior Energy Services Inc. was heard by high-yield syndicate sources to have successfully priced its new deal Wednesday.

Elsewhere in the new-deal arena, price talk emerged on two other prospective issues - Range Resources Corp.'s offering of 10-year notes, which could appear as soon as Thursday, and Education Management Corp.'s two-part issue.

In secondary trading, Tenet Healthcare Corp.'s bonds rose about two or three points in early trading, on the news that the Dallas-based hospital operator had settled a long-standing civil dispute with the Justice Department over the operations of one of its hospitals in Southern California. However, those bonds eventually gave up most of those gains, as the whole junk market moved lower in line with lower stocks and Treasuries following a worse-than-expected report on April's consumer price inflation. Tenet ended up only marginally on the day - but that still left it better than most issues, which finished lower.

One name which was not finishing lower was Movie Gallery Inc. - whose bonds had fallen over the prior two sessions on profit-taking off last week's handsome gains. Those bonds on Wednesday were better, in line with the company's New York Stock Exchange-traded shares, which jumped nearly 10 points on the session after one of its largest shareholders revealed in a Securities and Exchange Commission filing that it had increased its stake - and would like to see an equity rights offering to raise some capital.

Overall the higher than expected Consumer Price Index numbers spurred a sell off in junk on Wednesday, with one sell-side official marking the benchmark names ¼ to ½ point lower on the session, or about an eighth wider, in terms of yield.

Superior Energy prices $300 million

In the primary market, SESI LLC, a financing unit of Superior Energy Services Inc., priced a $300 million issue of 6 7/8% eight-year senior unsecured notes (Ba3/BB-) at 98.489 to yield 7 1/8%, on the wide end of the 7% to 7 1/8% price talk.

Bear Stearns & Co. and JP Morgan were joint bookrunners for the debt refinancing and general corporate purposes deal from the Harvey, La.-based provider of specialized oilfield services and equipment.

Education Management re jigs deal

Meanwhile the Thursday primary market session started to take shape.

Education Management Corp. shifted the tranche sizes of its $760 million two-part offering of notes.

The company has upsized to $375 million from $320 million its offering of eight-year senior notes (B3/CCC+), while downsizing to $385 million from $440 million its offering of 10-year senior subordinated notes (Caa1/CCC+).

Price talk is 8¾% to 9% for the eight-year senior notes, while the 10-year senior subordinated notes are talked 150 basis points behind the senior notes.

Both tranches are expected to price on Thursday via Credit Suisse, Goldman Sachs & Co., Merrill Lynch & Co. and Banc of America Securities.

Elsewhere Range Resources Corp. talked its $200 million offering of 10-year senior subordinated notes (B2/B) at the 7¼% area.

The JP Morgan-led offering is expected to price mid-morning on Thursday.

Beyond Thursday the market anticipates that before the end of the week terms will emerge on:

• Reynolds American Inc.'s $1.65 billion senior notes in three tranches (expected ratings Ba2/BB) via Lehman Brothers, JP Morgan and Citigroup

• Edison Mission Energy's $1 billion senior notes in two tranches (B1/B-) via JP Morgan, Citigroup, Credit Suisse, Merrill Lynch and Goldman Sachs; and

• American Greetings Corp.'s $200 million of 10-year senior notes (Ba2/BB+), via UBS Investment Bank and JP Morgan.

Superior steady in trading

When the new Superior Energy Services 6 7/8% senior notes due 2014 were freed for secondary trading, a trader saw the bonds bid around the 98.25-98.5 level, "right around issue" of 98.489.

Another trader saw the Harvey, La.-based oilfield services and equipment provider's new bonds offered at 98.5 at the end of the day, opining that bids "were pretty scarce, going out."

The first trader lamented that "these new issues are taking a beating." For instance, he said Amkor Technology Inc.'s new 9¼% senior notes due 2016, which priced a week ago at par and then immediately proceeded to start heading south, traded as low as 96.25 bid on Wednesday. While they were "up a little off the bottom," he said, it wasn't very much, as the bonds headed home at 96.5 bid, 97 offered.

He also saw Allied Waste North America Inc.'s recently priced 7 1/8% senior notes due 2016 at 96.25 bid, 96.75 offered after they "came at par" - actually at 99.123 - on May 4.

"There was a little bit of a drop in the market today [Wednesday]," the first trader said, "so we had a little bit of volatility that sparked some trading," I think.

The bonds fell in line with a severe slide in the equity market - the bellwether Dow Jones Industrial Average tanked to the tune of 214 points its biggest single-day loss in three years, while the Nasdaq slid 33 points to show a cumulative loss for the first time this year - and in the government bond market, where with the yield on the 10-year Treasury note surged to 5.16% from 5.10% late Tuesday after the Labor Department reported a sharper-than-expected 0.6% increase in April consumer prices. That rise - which also included a bigger-than-forecast 0.3% gain in core CPI, which excludes food and energy costs, stoked investor fears that the Federal Reserve may decide to keep tightening interest rates to keep incipient inflation down, rather than bringing its two-year tightening campaign to a close soon something many in the markets were hoping for.

The trader assessed the market overall as down about a point in Wednesday's dealings, although there were significant exceptions.

Tenet up on settlement

One was Tenet, whose bonds "were up two or three points from Tuesday's close" in the early going, a trader said, on the news that Tenet had settled the Justice Department's long-running case against the company regarding its Alvarado Hospital Medical Center in San Diego. The feds had alleged that Tenet had made improper kickback payments to physicians there, a charge the company denied. Two federal trials on criminal charges ended in hung juries, one just a couple of weeks ago.

Under the terms of the settlement, Tenet will pay $21 million and agreed to sell or close the hospital.

"The market reaction was positive," he said, but after the initial rise - the company's 9¼% notes due 2015, for instance, pushed up to 101.5 bid, 102.5 offered from a prior close of 99.75 bid, 100.25 offered - "the market got heavy" and the bonds gave up most of those initial gains, ending up just half a point at 100.25 bid, 100.75 offered.

Tenet's NYSE-traded shares rose 62 cents (8.37%) to close at $8.03. Volume of 6.7 million shares was slightly less than double the norm.

Movie Gallery up on Schultze stake

Elsewhere, Movie Gallery's 11% notes due 2012 were seen at 72 bid, 73 offered, up from levels around 70 on Tuesday. The bonds of the Dothan, Ala.-based video chain rental company rose in tandem with its shares, which were up 40 cents (9.35%) to $4.68, on heavier-than-usual volume of 4.4 million.

The securities were helped by an SEC filing by Schultze Asset Management, which earlier this month had filed a 13-D report, saying it would suggest to management raising capital via a rights offering or through some other means.

Schultze reiterated this intention in the latest filing - and disclosed that it had meantime raised its stake in the company to 13.4% from 8.6% earlier in the month, with the purchase of about 1.5 million additional shares in the interim.

GM down on staff changes

In the automotive arena, a trader saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 down 1¾ points at 73.25 bid, 73.75 offered, while another trader pegged those bonds down a point at 73.5 bid, 74. A market source at another desk saw the Detroit automotive giant's 7 1/8% notes due 2015 likewise sliding 1½ points to 77 bid.

A trader linked the retreat to the news that GM - under scrutiny recently by the SEC due to accounting errors - announced personnel changes involving key financial officials, and said it was bringing in outside help.

GM said that its controller, 37-year GM veteran Paul Schmidt, will retire this year, and its chief accounting officer, Peter Bible, will resign from the company effective June 1, although he will stay on in a consulting role as GM restructures its controller's office, which will include combining the two positions into one.

GM said that it has retained the financial advisory company AlixPartners to improve its internal financial controls. The trader, noting that Alix is well-known as a turnaround and restructuring specialist company, said that "they're supposedly working on [GM's] financial controls - but I don't think it's ever a good sign when these guys have to come into the picture."

Elsewhere on the automotive front, a trader saw the 8% notes due 2031 of GM's financing arm, General Motors Acceptance Corp., down a point at 92 bid, 92.5 offered, and saw GM rival Ford Motor Co.'s 7.45% notes due 2031 a point lower at 72 bid, 72.5 offered. Ford Motor Credit Co.'s 7% notes due 2013 were ¾ point lower at 86 bid, 86.5 offered.

Delphi drops again

A trader saw former GM subsidiary Delphi Corp.'s bonds down around a point across the board, with its 6½% notes due 2009 dipping to 76 bid, 77 offered. At another desk, a source saw those bonds at 77 bid, 79 offered, but called them down two points on the day, while its 7 1/8% notes due 2029 were 1½ points down at 75.25.

Market participants cited Tuesday's news that the unionized hourly workers at the bankrupt Troy, Mich.-based parts supplier had voted to give their union leaders the authority to call a strike against the company - which the union chiefs have threatened to use should Delphi try to unilaterally junk its negotiated contracts with the unions to impose a sharply lower wage and fringe-benefit scale. Those pacts don't expire until next year, but the beleaguered company has said it might have to act if current negotiations between Delphi, former corporate parent GM - which buys a huge amount of parts from Delphi and thus has a vested interest in preserving labor peace there to protect its own production - and the United Auto Workers union fail to produce a voluntary agreement on cutting labor costs. Delphi has asked the courts for permission to take such a step, although this might just be a negotiating tactic.

Dana resists market decline

A trader saw Dana Corp.'s bonds little changed on the day but noted that "that's a big deal in [Wednesday's] market," since almost everything else was down. "Firm today was pretty much the equivalent of up."

The company's 6½% notes due 2009 hung in at 85.25 bid, 86.25 offered, while at another desk a trader saw those bonds at 84 bid, 86 offered.

The bonds were seen having improved on the news - alluded to by one or two participants on Tuesday - that billionaire financier Carl Icahn had bought at least $101 million of Dana's $2.25 billion of unsecured debt, and seeks more, in apparent hopes of positioning himself to become a major equity holder in the bankrupt Toledo-based automotive parts supplier once it likely gives equity to bondholders as part of its restructuring.

However, another trader said that the news of Icahn's debt purchases "has been in the market for a couple of days." Of more interest, he said, was the outcome of Dana's legal efforts to restrict the one-time corporate raider's purchases and trading in its debt. On Wednesday, a judge denied Icahn's request for an immediate decision on whether Dana can in fact restrict such debt trading, saying a ruling would be "premature."

American Axle slips

And a trader saw American Axle & Manufacturing Holdings Inc.'s 5¼% notes due 2016 off a point at 81.5 bid, 82.5 offered, although the Detroit-based automotive components company's 2% convertible notes shot up 17 points, to 99.25 bid, 99.75 offered, "one of the most active" issues that the trader saw on the day. Convertibles traders saw a similar rise but spread over Tuesday's and Wednesday's sessions. The company announced that according to the indenture on the $150 million of notes, its holders are entitled to convert those securities to cash, following Standard & Poor's recent downgrade of the company's credit ratings to BB from BBB- previously. The S&P move - citing the company's heavy dependence on sales to GM - followed a similar move earlier by Moody's Investors' Service, triggering the conversion entitlement.

But convertible market players are looking at an October 2004 notice it which the company said it would pay the accreted principal amount on conversion, more than the value of the shares. American Axle has not specifically responded to that expectation.

Published reports said the company has sufficient liquidity to cover payments.

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