El Paso brings first new deal in almost a month, bonds move up; Harrah's gains on better terms; autos await bailout

By Paul Deckelman and Paul A. Harris

New York, Dec. 9 - High yield market primaryside players were greeted Tuesday with a sight they had not seen in nearly a month - a new bond deal pricing, even in the midst of some of the worst-ever junk market conditions, as El Paso Corp. successfully brought a $500 million offering to market - the first new deal since Catalina Marketing Corp.'s two-part transaction back on Nov. 14. However, the El Paso placement had to come at a stiff discount to par in order to boost its yield sufficiently to interest buyers. Traders saw the new bonds firm by several points after they were freed for aftermarket activity.

The secondary market also saw Harrah's Entertainment Inc.'s bonds generally, and its shorter-dated issues in particular, trading better after the casino company somewhat sweetened the terms of its previously announced offer to exchange new debt or pay cash for those existing bonds. Harrah's is running the offer to try and sharply cut the amount of its outstanding bond debt.

Elsewhere, automotive names were seen mostly unchanged to slightly better as General Motors Corp., Ford Motor Co. and Chrysler LLC anxiously awaited the outcome of talks between the Democratic-led Congress and the Bush administration on what just what form the bailout which they are seeking will take. While both sides have generally expressed support for extending billions of dollars of loans to the struggling Big Three, the devil is in the details when it comes to things such as the range of powers the proposed "car czar" overseeing the bailout would have, and where the nation's taxpayers would rank in the pecking order in the event one or more of the carmakers defaults on its new loans or in a worst-case scenario, even falls into bankruptcy.

Tribune Co.'s bonds settled into a single-digit range, a day after the big Chicago-based media and sports entertainment company filed for Chapter 11. Meanwhile, the recently bankrupt Pilgrim's Pride Corp.'s bonds were seen continuing to push higher, as they have ever since its Dec. 1 filing.

El Paso prices $500 million

El Paso priced a $500 million issue of 12% five-year senior notes (Ba3/BB-) at 88.909 to yield 15¼% on Tuesday.

The yield came at the tight end of the price talk for a 12% coupon at a discount to yield 15¼% to 15½%.

The quick-to-market issue, which was the subject of significant reverse inquiry, was three-times oversubscribed, according to an informed source.

Morgan Stanley was left bookrunner for the deal. Proceeds will be used for general corporate purposes, including debt refinancing.

Market reopening event

The El Paso deal got a very robust reception, according to a source close to the deal, who added that the 39-day drought between Oct. 30's MGM Mirage deal and Tuesday's El Paso trade marked the longest dormant period in the high-yield primary market since 1991.

The deal played to an order book that was for the most part filled with traditional long-only high-yield accounts, the source added.

"El Paso is a well-known seasoned issuer," the source commented, adding that investors like the natural gas sector as well as the company.

"This is a market reopening event," the source asserted.

"It shows that there is money available for the right deal from seasoned corporate issuers with existing benchmark bonds."

The new issue premium for Tuesday's deal was between 50 bps and 200 bps, depending upon which of El Paso's existing issues serves as the benchmark, the source added.

A little time left

It is possible that other seasoned issuers familiar to the high-yield investment community could bring deals before the shutters go up on the 2008 market, the source added.

"A transaction like El Paso proves the market is open, and will probably stir some activity," the source said.

"However, the amount of time left is limited."

More forced selling

Apart from the El Paso deal, sobering words were not hard to come by on Tuesday.

More forced selling of high-yield bonds and leveraged loans can be expected going forward, according to a high-yield mutual fund manager.

In particular there are hedge funds that have been fending off redemptions by reverting to contractual language in their agreements with investors, the buy-sider said.

"Those gates are up, now, but only for a short time," warned the fund manager.

"When they come down, watch the supply come.

"It's going to be a buyers' market until all of this gets flushed," said the manager, who is looking for the downward pressure on prices to continue to get worse before it gets better.

New El Paso bonds move up

When the new El Paso 12% notes due 2013 were freed for secondary activity, a trader quoted the bonds at 90 bid, up from the 88.909 level at which those bonds had priced. The deal priced "cheaper than expected," he suggested.

Traders said that they continued to firm after that, with one seeing them get as good as 91.5 bid before going out at 91 bid, 92 offered.

Market indicators seen mixed

The widely followed CDX High Yield 11 index of junk bond performance, which firmed more than a point on Monday, was seen to have lost ½ point on Tuesday, with a trader quoting it at 73½ bid, 74 offered. The KDP High Yield Daily Index meantime rose by 7 bps to 47.82, while its yield tightened by 1 bp to 17.57%.

In the broader market, advancing issues led decliners by a five-to-four margin. Overall market activity, reflected in dollar volumes, was up 26% from the pace seen in Monday's session.

Even so, one of the traders did not see much in the way of market movements, calling the session "extremely quiet."

Another described it as "a boring day."

On the other hand, a trader said that Tuesday's session "definitely seemed like a busier day today, but I wouldn't categorize it as positive, of course," not with equities in retreat after two days of solid advances. The bellwether Dow Jones Industrial Average lost 242.85 points, or 2.72%, to end at 8,691.33. Broader market measures were also down, with the Standard & Poor's 500 index down 2.31% and the Nasdaq composite off 1.55%, as investors worried that companies' difficulties could make an economic turnaround more difficult.

The trader said that he "did see some weakness in response to the sell-off in equities."

He saw Community Health Systems Inc.'s 8 7/8% notes due 2015 - sometimes seen as a something of a market proxy because of the issue's large size, widespread distribution and easy tradability - off by 3/8 point at 79.75 bid. Some $17 million of the Franklin, Tenn.-based hospital operator's bonds changed hands - the busiest it has been in several sessions.

Harrah's higher on sweetened swap offer

Harrah Entertainment's shorter-dated bonds - the company's most pressing priority for takeout in its current exchange offer for its existing notes - were seen solidly better after the Las Vegas-based gaming giant modified the terms of its previously announced offer and extended it to give the bondholders more time to consider participating. The offer will now expire at the last possible moment on Dec. 19, midnight ET, pushed back a few hours from 5 p.m. ET, with an extended early deadline of Dec. 12 instead of Dec. 5.

A market source saw Harrah's 7 7/8% notes due 2010 push up to 60.5 bid, a more than 10 point gain, on fairly busy trading. However, another trader saw those bonds - originally issued by the old Park Place Entertainment Corp., which was later absorbed by Harrah's - up perhaps 5 points on the day, at that same 60 level.

Meanwhile, its Harrah's Operating Co. Inc. 5½% notes due 2010 were seen up more than 4 points at the 58.5 bid level.

Those two issues are right at the top of the four-rung priority ladder which Harrah's established when it announced the exchange offer on Nov. 14. Harrah's is offering to swap new 10% second-priority senior secured notes due 2015 for its existing notes maturing between 2010 and 2013, and is alternatively offering to pay cash for holders electing to sell the bonds back to the company rather than receive new debt. Harrah's is also offering new debt for longer-dated existing bonds, but they are further down the priority ladder and thus less likely to be taken out.

Both the cash-payment offer and the exchange offer for the new debt would take place at a steep discount to the existing notes' face value. Harrah's is making the offer to the holders of approximately $11 billion of existing bonds maturing between 2010 and 2017, but will issue only a maximum $2.1 billion aggregate principal amount of new bonds, split between the 10% 2015 notes and a series of 10% second-priority senior secured notes due 2018.

Harrah's said on Dec. 1 that the offer was oversubscribed, with $4 billion of its outstanding bonds, or about 36%, having been tendered for the exchange offer and another $286 million of the existing 2010 and 2011 bonds, or 19%, having been submitted for the cash consideration as of the original early-tender deadline of Nov. 28.

Looking to boost those participation figures, particularly for the holders of the shorter-dated bonds, Harrah's late Monday announced that it was making modifications to its offer, boosting the total amount of cash that it will pay out to holders of the 2010-2011 bonds who choose to redeem their bonds for cash to $525 million from the original $325 million, and also setting the cash price at it will pay at $670 per $1,000 principal amount, scrapping the cumbersome modified Dutch auction price-setting process which it had originally announced. Should the amount of cash be insufficient to cover all of the 2010 and 2011 bonds submitted for cash payment, tendering holders will be paid in cash on a pro-rata basis and will receive the remainder of their consideration in new 2015 notes.

Elsewhere in the gaming sector, a trader saw Wynn Las Vegas LLC's 6 5/8% notes due 2014 at 73 bid, up ½ point, on busy volume of $21 million, while MGM Mirage's 6 ¾% notes due 2013 moved up to a round-lot level of 57.5 bid from 54 on Friday. Some $9 million of the bonds traded. MGM's 6% notes coming due next Oct. 1 also had "a little pop," moving up to 87.5 bid from 84, with about $8 million of the bonds turning over.

Beazer is better

A market source saw strength in Beazer Homes USA Inc.'s bonds, although there was no fresh positive news out that might explain the gains posted by the troubled Atlanta-based homebuilder.

Beazer's 6½% notes due 2013 were quoted up as much as 6 points at 34 bid, while its 6 7/8% notes due 2015 were also up around the 34 mark, a point better on the day.

However, Beazer's New York Stock Exchange-traded shares lost 22 cents, or 10.28%, ending at $1.92. Volume of 1.6 million was about 20% below normal.

Freeport McMoRan rebound continues

Also on the upside was Freeport McMoRan Copper & Gold Inc.'s bonds, which continued the rally seen on Monday in the Phoenix-based metals mining company's paper.

A trader saw its 8¼% notes due 2015 at 69 bid, up ½ point, on $19 million of the bonds traded. And he saw the company's floating-rate notes due 2015 active, relatively speaking, with $6 million traded. Those floaters were up a point at 59.

However, he said that the most active credit in the company's capital structure, for yet another day, was its 8 3/8% notes due 2017; some $21 million of those bonds changed hands on Tuesday, but were unchanged at 66.5. He said that it was "unusual to have over $20 million traded, and still be unchanged."

The company's bonds had gotten hammered last week after the big mining operator said that slowing industrial demand for copper and rising costs would force it to cut its output of the metal in 2009 and by an even larger amount in 2010.

However, Freeport's bonds, as well as its hard-hit shares, bounced back on Monday, along with many other commodity-sector names, as Wall Street reacted favorably to president-elect Barack Obama's plans for the biggest infrastructure spending program since the 1950s - a program expected to lead to increased demand for things like wiring and pipes, made from the copper and other metals that companies like Freeport McMoRan produce.

Autos meander around as bailout awaits

A trader said that "all of the autos have caught a little [bid] the last few sessions," in anticipation of closure on the federal bailout issue. He saw General Motors' benchmark 8 3/8% notes due 2033 unchanged at 19 bid, 21 offered, while its 7.20% notes due 2011 were "up a little again" at 25 bid, 27 offered, a 2 point gain.

He also saw GM's 49%-owned GMAC LLC auto financing arm's 8% bonds due 2031 "up maybe a point" at 27 bid, 30 offered, while seeing its 5.85% notes coming due next month at 94.5 bid, 96.5 offered, noting that the bonds are yielding around 50%. "It's due in 3 weeks, but there's 3½ points there."

He saw Ford Motor Co.'s 7.45% bonds due 2031 up a point at 23 bid, 25 offered.

Another trader saw GM's benchmark bonds at 21 bid on a round-lot basis, up a point from Monday's close, though on a relatively sedate $8 million traded. He saw the 7.20s up ½ point at 25, while GMAC's 31s gained 1½ points to 30.5, on a relatively busy $12 million traded. "GMAC's short bonds were the most active," he said, seeing its 5 5/8% notes coming due on May 15 unchanged at 72.5, on $10 million traded, while its floating-rate notes also coming due on May 15 were up 1½ points at 71.5, with $9 million changing hands.

Among Ford's bonds, he saw the 7.45s up 1½ points at 26 .5 bid, though on only $4 million of volume, while Ford Motor Credit Co.'s 5.80% notes maturing on Jan. 12 gained ½ point to 98.5. Some $3 million of the bonds traded.

However, yet another trader pegged the GM benchmark issue down 2 points at 16 bid, 18 offered, while Ford's 7.45s were off 1½ points at 24.5 bid, 26.5 offered.

Among the parts suppliers, a trader saw ArvinMeritor Inc.'s 8¾% notes due 2012 up 2¼ points in round-lot trading at 49.5, while its 8 1/8% notes due 2015 were 1½ points better at 44, though both bonds only had around $1 million changing hands; the bonds firmed despite the Troy, Mich.-based parts and components company's announcement that it was withdrawing its previously announced 2009 guidance due to uncertain market conditions.

Visteon Corp.'s 7% notes due 2014 were up 2 points at 14 bid.

News reports Tuesday night said that congressional leaders were negotiating with White House officials over just what form the bailout would take. Among the names being floated around for the so-called "car czar" who would oversee the recovery effort is that of former Federal Reserve chairman Paul Volcker. However, there is disagreement over the scope of the "car czar's" powers.

Another bone of contention is the insistence of politicians on both sides of the aisle that if the taxpayers loan the carmaker's money, the taxpayers would move to the head of the line in the event of a loan default, an arrangement not likely to sit well with the banks who currently are in a superior position, or bondholders, who would be pushed further to the back of the line.

Tribune settles in

A trader saw Tribune Co.'s 4 7/8% notes due 2010 trading flat, or without the accrued interest, at 6 bid, 9 offered, a day after its bankruptcy filing, and said that all of the company's other bonds were "pretty much all the same"

Another saw "decent-sized volume" in the name, with the bonds in a 6-7 range.

He also saw the company's bank debt around 28 bid, 30 offered, "about where it's been hanging out."

A trader put Tribune's 5¼% notes due 2015 down 1 1/8 at 6.5 bid, on $19 million of the bonds traded.

He also saw its 4 7/8% notes due 2010 having moved up to 8 bid, up ¼ point.

Pilgrim's Pride pushes upward

A trader saw Pilgrim's Pride's bonds continuing to move up after last week's bankruptcy filing, with its 7 5/8% notes due 2015 "as high as 32," up perhaps 3 points. "They filed [on Dec. 1] and since then, they've doubled," he said, "from the mid-teens to up here. Of course they're trading flat - but 100% is still 100%."

Among other troubled names, despite a warning from Fitch Ratings that General Growth Properties Inc. is in "imminent" peril of a default, a trader saw the shopping-mall owner's Rouse Co. 8% notes coming due on April 30 at 34 bid, up from 28.5 offered, on $3 million of bonds traded, and had its 5 3/8% notes due 2013 at a round-lot level of 28.5 bid, up from 26.5 on Monday, on $6 million traded.

He also noted that its NYSE-traded shares were up 3 cents, or 1.94%, at $1.59 - even though "with equities getting hit [today], you'd think this one would go down also." Volume of 15.2 million shares was 36 times the usual turnover.

Another trader saw the company's bonds around a 28-31 context.

A trader, calling them "a new addition to high yield" saw Motorola Inc.'s 5.22% bonds due 2097 fall to 32.75 bid from last week's levels around 36, on $15 million of volume (S&P cut Motorola two notches into junk territory on Friday, in line with its existing Fitch rating, although Moody's continues to rate the bonds at Baa2).

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