Ferrellgas prices downsized deal; Elan down on disappointing drug data; Idearc bounces from lows

By Paul Deckelman and Paul A. Harris

New York, July 30 - Ferrellgas, LP priced a downsized issue of 6¾% notes due 2014 Wednesday, although the new deal came at a steep discount to par, pushing its yield up into double-digit territory.

In the secondary arena, Elan plc's bonds were seen lower - in tandem with a sharp fall in the Irish pharmaceutical company's equity - pushed down by disappointing test data on a much-ballyhooed new Alzheimer's drug that Elan and partner Wyeth have been working on.

Late in the session, there was a flurry of downside activity in the bonds of troubled building products maker Masonite International Corp., as several large transactions were seen to have pushed those normally seldom-traded bonds down as much as 30 points on the session, according to one source, making them easily the big loser on the day. Another building products maker whose bonds were seen down a few points - though nowhere nearly as steep a plunge as the Masonite paper - was Nortek Inc. No fresh news was seen out on either company, both of which have been hurt by the downturn in homebuilding.

On the upside, Idearc Inc. - whose bonds and shares slid badly on Tuesday in response to poor second-quarter numbers - was seen having firmed from the lows below 50 bid which the bonds had fallen in Tuesday's trading. Bonds of sector peer R.H. Donnelley and the Donnelley-owned Dex Media Inc., which had also gone down on Tuesday, were likewise seen higher, helped out by Donnelley's own earnings figures - particularly the progress it reported in cutting its debt.

A syndicate official said that the broad high-yield market had a better tone on Wednesday, and added that on average junk was up ¼ point.

Ferrellgas downsizes

In the primary market, Ferrellgas priced a downsized $200 million issue of mirror notes that it launched more than a month ago.

Meanwhile the roadshow got underway for Allis-Chalmers Energy Inc.'s $350 million offering of 10-year senior notes - the only Rule 144A deal now on the road.

Ferrellgas priced a downsized $200 million issue of notes mirroring its 6¾% senior notes due May 1, 2014 at 85.00 to yield 10.267% on Wednesday.

The issue (Ba3/B+) was downsized from $250 million, but priced at the high end of the $175 million to $200 million range specified earlier in the day.

The issue was priced on top of the price talk which had specified both the 85.00 issue price and the 10.267% yield.

Banc of America Securities and JP Morgan were joint bookrunners for the debt refinancing deal.

The original $250 million priced at 99.637 to yield 6.8% in April 2004.

Asked to comment on the Ferrellgas deal, an informed source said that underwriters continued to work with investors throughout the month which transpired since it was first launched.

With improvement in the market, underwriters were finally able to bring it together and get it over the finish line, the source added.

The new Ferrellgas bonds came too late in the session for any meaningful aftermarket action, several participants said.

Ferrellgas was one of two deals which launched during the run-up to the July 4 Independence Day holiday in the U.S., and remained in the market during the interim on a day-to-day basis.

The other is Ferro Corp.'s $200 million offering of eight-year senior notes (B2), via joint bookrunners Credit Suisse, Citigroup and JP Morgan

On Wednesday a source close to that deal told Prospect News that it remains in the market on a day-to-day basis, and added that no changes to the debt refinancing and general corporate purposes deal have yet been announced.

On June 30, a month ago, the eight-year notes were talked 8¾% to 9%.

Dog days ahead

With one deal, Allis-Chalmers Energy, on the road, and another deal, Ferro Corp., in the market on a day-to-day basis, the final session of July will get underway on Thursday with a very thin calendar.

Although sources continued to forecast on Wednesday that the run-up to Labor Day will be quiet in the high-yield primary market, a couple of sell-siders said that it would be no surprise to see a few deals materialize.

However one of these sources specified that the window would not likely remain open very much longer than the end of the first full week of August, whereupon the vacation season will be fully underway.

The other sell-sider said that August in high yield occasionally produces deals of considerable size from opportunistic issuers, although that scenario did not materialize in August 2007, and isn't very likely to do so in August 2008.

This source added that volatility and low liquidity not withstanding, the month of August hardly ever turns up any heroics in the high-yield market.

Market indicators slightly easier

Back among the established issues, a trader said that the widely followed CDX junk bond performance was essentially unchanged on Wednesday, still quoting it at around 93 3/8 bid, 93 5/8 offered. The KDP High Yield Daily Index eased by 4 basis points to end at 70.96, while its yield rose by 1 bp to 10.51%.

In the broader market, advancing and decliners were about evenly matched. Activity, represented by dollar volume, rose by 21% from the levels seen in Tuesday's session

A trader said that activity "was mostly earnings driven, that's affecting things."

He said that during the morning, "generally, we saw things kind of fall off," which he attributed at least in part to "a hangover from Idearc" - although ironically, that company's bonds and those of its sector peers were up - "as well as the earnings this morning," which included downsiders such as United Rentals Inc.

As the day progressed, he said that junk bonds "bounced a little off their lows, but nothing too outstanding."

He said that "with a lot of companies reporting [earnings] in the next couple of days, it's more of a wait-and-see situation, what the next shoe-drop is."

He said, for instance that the gaming sector "was pretty quiet today, surprisingly," ahead of Las Vegas Sands Corp. posting its second-quarter numbers as trading was wrapping up for the day; the Nevada-based casino operator swung to a loss versus its year-ago profit, and missed analysts' consensus expectations, but the results came too late in the session to produce any movement in its bonds or other bonds in the sector.

He also that a lot of people would be watching for Thursday's quarterly earnings report for iStar Financial Inc. - nominally investment grade-rated but trading off the junk desks - "to see what it brings," since the New York-based financial services company, which lends primarily to real estate-related businesses could be seen as something of a bellwether as to the depth of the continuing mortgage-related downturn among the financials. Earlier this month, iStar said that it expects to report net income of no more than 5 cents to 15 cents a share, and excluding one-time gains from asset sales, it anticipates posting a per-share loss of between $1.45 and $1.55 - about double what Wall Street had been forecasting.

Donnelly, Idearc bonds rebound

Among the credits which were reporting numbers Wednesday, a trader said that R.H. Donnelly's paper - which had dropped around 4 to 6 points across the board on Tuesday in sector sympathy with the even more pronounced slide of competitor Idearc's bonds following the latter's disappointing second-quarter results - "kind of drifted lower at the start and then bounced a little bit near the end of the day," aided by positive investor reaction to its earnings. He saw the Donnelley 6 7/8% notes due 2013 at 50.25 bid, 51 offered and its 8 7/8% notes due 2016 at 48 bid, 50 offered, characterizing both as "a little better" from Tuesday when those bonds fell to 49 and 45, respectively.

Another trader declared that "there is no question" that the company's bonds were "up 1 to 3 points," seeing the 8 7/8s at 49.75 versus 46.5 on Tuesday; the 6 7/8s closed at 50.5 bid from 48.25; the 9 7/8% notes due 2013 gained ½ point to 80 bid, while the 8 7/8% notes due 2017 rose 3 points to 49. He said the bonds moved up because "they reported numbers - and [the numbers] weren't as bad as Idearc's."

Cary, N.C.-based telephone directory publisher Donnelley posted a second-quarter loss of $338.9 million, or $4.93 a share, versus its year-ago profit of $24.9 million, or 34 cents per share, although much of that loss was due to a pretax impairment charge of $660.2 million, reflecting the further decline in the market value of the company's equity securities, which are down some 92% on a year-to-date basis. Excluding that charge, profit was $89 million, or $1.29 per share. Excluding all unusual items, the company posted a profit of 6 cents a share, although that undershot the 10 to 12 cents a share that analysts were looking for.

While the earnings figures themselves were not particularly impressive, bond investors may have been cheered by company disclosures that it had lowered its net debt by $230 million during the quarter and had also reduced its leverage ratio.

Wholly-owned Donnelley subsidiary Dex Media's bonds were also improved; the Englewood, Colo.-based directory publisher's 8½% notes due 2010 pushed up more than a point to 97 bid in fairly busy round-lot trading, while its 9 7/8% notes due 2013 gained a point to 80 bid on their final round-lot transaction of the day, although subsequently a smaller trade left them going out unchanged at 79.

Meantime, Dallas-based directory publisher Idearc - whose 8% notes due 2016 had slid around 10 points during Tuesday's session on its bad numbers - were also a bit better Wednesday.

A trader saw them up a point at 50, rebounding a little from Tuesday's big slide.

At another desk, those bonds were seen to have pushed as high as a 51.25-51.5 context before coming off those peaks to end around 50.75, still up nearly 2 points at 50.75.

Masonite mauled, Nortek knocked lower

If Idearc was Tuesday's disaster of the day, that dubious honor would probably pass to Masonite International for Wednesday's dealings. Late Wednesday a market source saw the Mississauga, Ont.-based door and paneling maker's Masonite Canada Corp. 11% notes due 2015 - after having been untraded for some weeks - suddenly languishing down around the 34 mark, a dizzying plunge of some 29 points on several big-block trades at those lower levels.

However, another source indicated that the fall was pretty much old news - that the bonds had already cascaded down to around the 40 level by the end of last week, making the latest slide to the lower 30s considerably less dramatic.

There was no fresh news seen out Wednesday about the company, which warned earlier this month that it would likely not be in compliance with its credit facility financial covenants as of the end of the quarter ended June 30, and said that it was in talks with its lenders in an effort to get them to agree to an amendment to the terms of the credit facility, including a waiver of its non-compliance. Nothing has yet been agreed upon, however.

Another building supplies maker which, like Masonite, has been hurt by the severe downturn in the housing industry, is Nortek Inc., whose 8½% notes due 2014 were seen down 3 points to 57 bid, while another source saw the bonds at that same level but said it was a 4½ point fall. There was no fresh news seen out on the Providence, R.I.-based manufacturer of heating and ventilating equipment, although a trader did note that "it's part of that whole homebuilding sector."

United Rentals eases

Another company impacted by the sector's troubles has been United Rentals, which rents out construction machinery, among other industrial equipment.

The Greenwich, Conn.-based company's 7¾% notes due 2013 were seen little changed at 81 bid, although its 7% notes due 2014 dipped more than a point to around the 77 level, while its 6½% notes due 2012, the most actively traded of its issues, dropped 1¼ points before finally coming off their lows to finish down about ½ point at the 90 mark.

United Rentals said that its second-quarter net income slid 45% to $37 million from $67 million a year ago. It posed a big per-share loss of $2.33, versus its 60 cent year-ago profit, due to a $239 million preferred stock redemption charge. Excluding one-time items, the company earned 62 cents per share, although that was about a nickel short of what Wall Streeters had been expecting.

A victory for Visteon

A brighter earnings picture relatively speaking, came from Visteon Corp., whose bonds rose on a smaller loss versus a year ago, which also was less than analysts had feared.

A trader saw the Van Buren Township, Mich.-based automotive parts maker's 8¼% notes due 2010 up some 2 points at 86.5 bid, while its 7% notes due 2014 moved up to 51.125 bid from Thursday's close at 50.

Another trader quoted both issues up 1 point, at 84 and 50, respectively.

Another market source pegged the 7s 2 points higher at 52, while yet another had them up 1½ points at 51.5.

Visteon reported a second-quarter loss of $42 million, or 32 cents a share, versus a year-ago loss of $67 million, or 52 cents a share, as cost-cutting efforts helped the former Ford Motor Co. unit offset weak sales. Analysts had predicted per-share losses in the 40 cents area.

Elsewhere among the automotive names, former Visteon parent Ford's 7.45% bonds due 2031 were seen by a trader ½ point lower at 52 bid, 53 offered, although at another desk, the bonds were quoted down 2 points at 51 bid. Its financing arm, Ford Motor Credit Co.'s 7% notes due 2013 lost nearly a point to finish just below 72.

Ford domestic arch-rival General Motors Corp.'s benchmark 8 3/8% bonds due 2033 were seen down a point at 51 bid, 53 offered. Another trader - saying that "the autos were under pressure today," saw those bonds at 52.5 bid, 53.5 offered, but called that a 2 point drop.

GM's 7.20% notes due 2011 were seen off 2½ points at 68 bid, but its 7 1/8% notes due 2013 were quoted a point higher on the day at 58. A trader saw GM's 49%-owned loan subsidiary, GMAC LLC's 8% bonds due 2033 down 1 point at 56, while its 7% notes due 2012 lost 2½ points to 63.

Elan off on mediocre Alzheimer's drug data

Elan plc's 7¾% notes due 2011 were seen having fallen to about 96 from Thursday's late level above 98, with a moderate amount of round-lot trades accounting for most of the action.

Its 8 7/8% notes due 2013 were seen to have dipped almost 2 points to around 97.75

A second trader saw the 8 7/8s at 98.125, saying it was down from 99.5 on Tuesday, "so clearly, both were down over a point."

Another said that the Elan bonds "sold off a little," on Tuesday as a "first knee-jerk reaction" to the data it released about its new Alzheimer's drug, "because everyone thought it was going to be better, but then they started looking more at the press release and it pushed it a little lower" in Wednesday's dealings. He saw "very wide bid-ask spreads." He quoted the 8 7/8s offered at 99.75 without any bids, and its floating-rate notes due 2011 at a wide 91 bid, 95 offered.

"I think people are trying to figure out what the heck the news really does mean."

That bond downturn came in tandem with a dramatic drop in the European drugmaker's American Depositary Shares, which nosedived to $19.63 - down $14.12, or 41.84%, on heavy volume of 82.1 million shares, nearly seven times the usual turnover.

The bonds retreated and the shares were routed after Elan and partner Wyeth delivered their much-anticipated data on the phase 2 testing of their new medication, bapineuzumab, before the International Conference on Alzheimer's Disease on Tuesday in Chicago. While bullish investors in the two companies had expressed optimism that bapineuzumab might prove to be a breakthrough in the treatment of Alzheimer's when they released some preliminary findings back in June, the latest data proved to be underwhelming, at best.

It showed that the drug was essentially ineffective in treating people who have the ApoE4 gene that is most commonly found in Alzheimer's victims, although the drug did appear to slow down, if not reverse, mental deterioration among those patients lacking that gene.

Beyond that mixed bag of results, the findings also established a link between the use of the drug and a number of potential undesirable side effects, including brain swelling, paranoia, anxiety, vomiting and high blood pressure.

The general consensus of analyst opinion and reporting in the financial press seemed to be that the data was at best inconclusive - even the relatively small portion of the testing sample that seemed to respond positively to it.

The company's chief executive officer, Kelly Martin, defended the study results in a CNBC interview Wednesday, during which he called the sell off in Elan's securities "unjustified" and fueled by what he called "outsized" expectations on Wall Street that the phase 2 trials would produce spectacular results. He said that's not the way things work.

"Clearly, there is a gap in knowledge with the marketplace and the investors with the data," Martin declared. "A relatively small phase 2 Alzheimer's trial is never going to be able to answer all the questions about Alzheimer's that have existed." The mysterious disease, which inexorably erodes brain function, kills thousands of mostly elderly patients each year. There presently exists neither a reliable prevention nor a cure.

Despite the fact that the study didn't reach any significant endpoints, the CEO claimed that the companies had actually reached its goal by learning about the drug's efficacy and safety, and was now prepared to push on to a more widespread phase 3 trial of the drug.

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