Intelsat, Ford's FCE Bank price '07's first deals; Canadian dollar droop lifts Abitibi, Tembec; AES drops

By Paul A. Harris

St. Louis, Jan. 9 - Sources marked the broad high yield market firm on Tuesday.

A trader said that junk was up ½ point to a point away from issues impacted by headline news.

As to the headlines, it was good news and bad news, sources said.

The Canadian dollar sinking to an 11-month low against the U.S. dollar brought out buyers in the paper and pulp sector, with existing bonds of Tembec Inc. and Abitibi-Consolidated Inc. firming.

However Venezuelan president Hugo Chavez created a voltage drain in the debt of AES Corp. with threats to nationalize the country's electric utilities.

Meanwhile the primary market sparked to life during the Tuesday session with two tranches pricing in drive-by transactions from two issuers.

Intelsat (Bermuda), Ltd. priced $600 million while FCE Bank plc, the financing arm of Ford Motor Co., priced €1.0 billion.

Intelsat rockets up

Sources told Prospect News that the Intelsat deal, a $600 million issue of eight-year senior unguaranteed floating-rate notes (Caa1/B) which priced at par to yield six-month Libor plus 350 basis points, was around four times oversubscribed.

One trader said that the new bonds, which came tight to the Libor plus 350-375 basis points price talk in a deal led by Deutsche Bank Securities, Lehman Brothers, Citigroup and Credit Suisse, rocketed rapidly over the 101 threshold and remained there throughout the day.

Shortly after the deal priced a trader had the new Intelsat Libor plus 350 bps notes due 2015 spotted at 101.375 bid, and said that, indeed, the deal had gone well.

Mid-afternoon a source from a hedge fund gave a spot of 101.375 bid, 101.625 offered.

Shortly after the close another trader had the bonds at 101.25 bid, 101.375 offered.

FCE Bank's €1 billion

Also oversubscribed in excess of four times was the Tuesday drive-by from Ford's FCE Bank.

The financing arm of Ford priced a €1.0 billion issue of 7 1/8% five-year notes (B1/B+/BB-) at mid-swaps plus 300 basis points, at the tight end of the mid-swaps plus 300 to 310 basis points price talk.

The notes came at a dollar price of 99.939 resulting in a 7¼% yield to maturity.

BNP Paribas, HSBC and The Royal Bank of Scotland were joint bookrunners.

A source said that there was in excess of €4.75 billion of orders for the new bonds.

Pulp, paper and oil

Over in the secondary market the most remarked-upon paper Tuesday was that of Abitibi.

At mid-morning a trader said that Abitibi's 6½% notes due 2013 were trading at 82 bid, up 1.50.

Late in the afternoon another trader spotted the Abitibi 8 3/8% notes due 2015 up 2 points at 89.50 bid.

This trader said that the Canadian dollar had fallen to an 11-month low versus the U.S. dollar due to the continuing decline in oil prices.

"Canada is a first-world country, but it's still a commodities country," the trader quipped.

Sources also saw the distressed issues of Tembec trading higher on the Canadian dollar's weakness.

One trader had the Tembec 8 5/8% notes due 2009 up as much as 3 points and spotted them at 75.0 bid.

Meanwhile the trader said that the Tembec 8½% notes due 2011 were 2 points higher at 65.75 bid.

This source conceded that the fortunes of the Canadian dollar were no doubt in play, but added that with regard to Tembec there was likely a technical force more native to the junk market in play: "There is a lot of cash out there, and Tembec is one of the few bonds that trades under 70 cents on the dollar," the trader asserted.

"It gets bid up just because of cash technicals."

Jean Coutu trades up

Existing issues of drug store chain The Jean Coutu Group were also higher on Tuesday, traders said, although they were loathe to produce an explanation.

"There was a conference call today," one trader remarked.

"We heard that the trustee made remarks that were viewed as favorable to bondholders.

The move, sources reminded Prospect News, takes place against a backdrop of Rite Aid Corp.'s bid to acquire more than 1,850 of Jean Coutu's stores.

A trader said that the Jean Coutu 8½% notes due 2014 closed Tuesday at 103.625 bid, and added that they had been seen at 101 bid, 102 offered on Monday

"Before the holiday they were trading below par," the trader added, noting that at $800 million it is a significant-sized issue.

"There has been some contentiousness about a 101 change-of-control put on this paper," the source said.

"But since Christmas we've blown right past there."

Another trader said that the Jean Coutu 8½% notes "touched 103.50 bid" on Tuesday - up 4 points since the beginning of the year.

Hugo Bondbuster

Since the beginning of the week, sources in both the high-yield and emerging markets have paid rueful heed to recently re-elected Venezuelan president Hugo Chavez.

These fixed income capital markets sources suggest that Chavez, riding what he perceives to be a reinvigorated mandate from Venezuela's voters and flush with proceeds from the country's prodigious petroleum reserves, may now be emboldened to press his leftist agenda.

In any case traders said that Chavez's pledges to nationalize the electricity and oil industries, which he sees as being dominated by foreign interests, had a negative impact Tuesday on existing issues of AES Corp.

In the late morning a trader said that AES' 7¾% notes due 2014 were trading in a context of 105.50 bid, down 0.875 from the Monday close.

The source recounted that in 2000 AES acquired C.A. La Electricidad de Caracas from Endesa, SA for $162.7 million, and added that Electricidad de Caracas represents 10% of AES's cash flow.

Subsequently another trader saw the AES 73/4s at 105 bid, down ½ point to a point on the session.

Later in the session another trader said that the AES 9 3/8% notes due 2010 were 108 bid, down from Monday's 108.75 bid, while the AES 8 7/8% due 2011 were 107 bid, down from 107.50 bid on Monday.

Anticipating a building calendar

One trader, asserting that the market was up ¼ to 1/2, except where there is news, said that junk players are anticipating a building new issue calendar.

He mentioned having seen some selling of short-dated paper, and added; "Cash that was hoarded toward year end in short paper is being sold off, and people are spending their money on the longer end of the curve."

And indeed the new issue calendar built out substantially.

Four prospective issuers unveiled deals that they expect to market for one, two or three days and price before the Friday close.

Chaparral Energy, Inc. plans to price a $275 million offering of 10-year senior notes (CCC+) on Thursday.

JP Morgan, Banc of America Securities and The Royal Bank of Scotland are joint bookrunners for the debt refinancing deal from the Oklahoma City-based energy exploration and production company.

Elsewhere Las Vegas-based equipment rental firm Ahern Rentals plans to price a $75 million add-on to its 9¼% second priority senior secured notes due Aug. 15, 2013 (B3/B-) on Thursday, a debt refinancing via CIBC World Markets.

Euro market ramps up

From Europe word circulated early Tuesday morning that Germany-based plumbing fixtures manufacturer Grohe Holding GmbH is expected to price an €800 million offering of seven-year senior secured floating-rate notes (B2) late this week in a debt refinancing deal via Credit Suisse and Lehman Brothers.

And Boston-based Iron Mountain Inc. plans to price a €175 million add-on to its 6¾% senior subordinated notes (B) due Oct. 15, 2018 on Thursday. The debt refinancing and general corporate purposes deal will come via Bear Stearns.

Finally, one roadshow start was heard.

Baldor Electric Co. began a roadshow for its $550 million offering of 10-year senior notes (B3/B) via BNP Paribas and Lehman Brothers.

The Fort Smith, Ark., manufacturer of industrial electric motors, drives, and generators will use the proceeds to finance the acquisition of the Reliance Electric and Dodge businesses from Rockwell Automation, Inc.

Goldilocks - but no bears

Hard-bitten traders reverted to a familiar character from folklore Tuesday as they remarked upon the present strength of the junk market.

"The high yield has become just a yieldier version of the high-grade market," a trader asserted after the Tuesday close.

"We're in a Goldilocks scenario for sure," he added.

"There is lots of cash. No one seems to know what inflation is doing. Stocks are at an all-time high and earnings are decent.

"I don't think the market rallies a lot from here. But there are a lot of reasons that it won't get kicked in the teeth, barring the unforeseen."

Meanwhile a source from a hedge fund, specifying that the broad market was trading one-sixteenth higher on the session, said that everything seemed firm, but activity was light.

This source spotted General Motors Corp.'s 8 3/8% notes maturing in 2033 at 92.50 bid, up ½ point.

Meanwhile Ford Motor Co.'s 7.45% notes due 2031 were up 0.25 at 79 bid, 79.50 offered, the source said.

A little later a trader spotted GM's 8 3/8% notes at 92 bid, 93 offered, unchanged.

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