NOVA soars on Abu Dhabi buyout deal; Station Casinos up on Boyd interest; Chiquita downturn continues

By Paul Deckelman and Paul A. Harris

New York, Feb. 23 - The weeks-long soap opera surrounding the fate of NOVA Chemicals Corp. apparently came to a spectacular conclusion Monday, as the embattled Canadian chemical company announced that is to be acquired by the Abu Dhabi government-owned International Petroleum Investment Co. for around $500 million in cash. That news sent the company's bonds soaring, some issues more than doubling in price, and produced a similar sharp rise in NOVA's recently beleaguered shares.

Also on the mergers-and-acquisitions front, late news that Boyd Gaming Corp. has expressed an interest in possibly buying some of cash-strapped Station Casinos Inc.'s properties saw at least one of the latter's bond issues up solidly, although there was not much trading since the news broke as the day's dealings were winding down.

Sector peer MGM Mirage, along with its joint-venture partner, Dubai World, was meantime reportedly in talks with Deutsche Bank to line up the additional funding they need to complete their ambitious City Center development project in Las Vegas.

Chiquita Brands International Inc.'s bonds, which fell badly on Friday on bad quarterly numbers, mostly from its underperforming salad business, continued to retreat on Monday.

Things were reported quiet in the primary arena, where Tyson Foods Inc. is in the process of shopping a previously announced $500 million offering of five-year notes around to potential purchasers, a deal that is not expected to come to market until late in the week.

Market indicators turn mixed

A trader saw the widely followed CDX High Yield 11 index of junk bond performance slightly lower on Monday, quoting it down 1/8 point at 71 7/8 bid, 72 3/8 offered.

The KDP High Yield Daily Index, after falling sharply on Friday to 53.21, actually firmed by 4 basis points to 53.25, while its yield rose by 1 bp to 13.49%.

In the broader market, advancing issues remained behind decliners by around an 11-to-seven margin.

Overall market activity, measured by dollar-volume totals, rose nearly 16% from the levels seen in Friday's session.

Junk outperformed the rattled U.S. stock market on Monday, according to a high-yield syndicate source.

He saw the CDX High Yield 11 index ending the day ¼ point lower at 71 7/8 bid while cash bonds were ¼ point to ½ point lower.

Meanwhile all three major stock indexes sustained greater than 3.4% losses.

A trader characterized the session as "pretty quiet." He said that while there was "a fair amount of two-way activity earlier in the day, after [president] Obama spoke, the market kind of headed south, along with equities, but not on volume - just bids dropping."

The president met with leaders from business, labor and both political parties at the White House to talk about ways to improve the U.S. budget outlook and reduce the nation's massive deficit. Obama promised to halve the $1.3 trillion deficit by the time his term ends in 2013, but offered no specifics on how this would be done, particularly with the White House committed to the recently passed $787 million economic stimulus package. Wall Street also worried about the prospect of a de facto government nationalization of troubled major banks like Citigroup and Bank of America, even though the administration has said that this is not its intention in taking stakes in those institutions.

The mixed signals coming out of Washington helped push stocks down to their lowest levels since 1997, with the bellwether Dow Jones Industrial Average falling another 250.89 points, or 3.41%, to close at 7,114.78; the Nasdaq composite index plunged by 3.71%, while the Standard & Poor's 500 index lost 3.47%.

"I think all the comments coming out of Washington have been more discouraging than anything else," he declared.

He also noted that "earnings releases are very heavy this week, so that's got people's attention."

Overall, he said, it was "kind of an off day."

Another trader asked rhetorically "when are these equity markets going to turn around?" adding that things were "ugggggg-ly."

That having been said, he noted that in Junkbondland, it was "an extremely quiet day. Certainly, there was a negative tone, no question about it - but very quiet across the board, almost like a half day or long weekend."

As an example of that negative tone on lower volume, he said that the Community Health Systems Inc. 8 7/8% notes due 2015 - the issue sometimes looked upon as a representative bellwether for the overall market because of its overall size north of $3 billion and its widespread distribution - was last trading on a round-lot basis at 95.5 bid, down from 96.25 on Friday, on relatively sedate volume of $7 million.

First Data Corp.'s 9 7/8% notes due 2015, also sometimes viewed as a market barometer for pretty much the same reasons as Community Health's, ended at 56 bid, down 3/8 on the day, but on volume of just $5 million.

NOVA no longer a loser

There was, however, no shortage of trading activity in NOVA Chemicals' bonds, particularly its 7.40% notes slated to come due on April 1, which rose stunningly to levels near par on the news of the impending acquisition of the Calgary, Alta-based company by IPIC in a deal valued at $2.3 billion, including assumption by IPIC of Nova's $1.8 billion of debt, including the $250 million of 7.40s.

A trader saw those bonds shoot up to a final round-lot level of 97 bid, or a 37% yield to maturity, versus 58 on Friday, or a 701% YTM, on volume of $57 million.

He saw NOVA's 6½% notes due 2012 last trading at 82.5 bid, versus 37.5 on Friday, on volume of $15 million.

NOVA's floating-rate notes due 2013 jumped to 76.5 bid from 35.25 back on Feb. 10, with $10 million traded.

A second trader said that NOVA was "the big gainer." At his shop, he said, "we traded bonds in the 95-97 area, and left buyers at that 96-97 area."

A market source meantime saw the 61/2s at 83 bid, some 46 points better on the session, and pegged the 7.40s up 39 points on the day at 97, although earlier in the day those bonds got as good as par before easing slightly to that 96-98 context.

Those bonds had recently been swinging wildly, beginning the year at levels near par, but then cascading downward on investor fears that the company might not be able to raise the $100 million it has to get by the end of this month to remain in compliance with the recently amended terms of its credit facility. The bonds had moved back up several weeks ago on reports that NOVA had worked out details of the funding with a bank and a pension fund owned by the Alberta provincial government - but the bonds headed back downward, bottoming in the 50s, after the Alberta provincial officials said there was no plans to provide such funding to NOVA.

Still, some investors and analysts maintained that NOVA would be able to score the needed funding from somewhere - and they have apparently been proven right with the news that NOVA will be bought out by IPIC for $499 million in cash, or $6 per share, pending shareholder approval.

The deal will allow NOVA to meet those funding requirements set by its lenders earlier this year. NOVA will operate as an independent company, funded by a $250 million credit backstop facility from IPIC.

"This acquisition will provide enhanced balance sheet strength for NOVA Chemicals and facilitate NOVA Chemicals' growth internationally," said H.E. Khadem Al Qubaisi, managing director of Abu Dhabi government-owned IPIC, in a statement. "We can provide stability and allow NOVA Chemicals to meet its operational and financial requirements while continuing to expand and invest in its business."

NOVA also said Sunday it received $150 million in new financing from Export Development Canada and three Canadian banks.

Still, some market players had mixed reactions on the news.

"Miracles do happen," wrote Gimme Credit analyst Carl Blake in an afternoon comment. "The purchase price equates to a 5.2x LTM EBITDA and represents a significant premium to NOVA's stock price, but is still well below the replacement value of the company's plants. This possibly suggests management may not have been too confident about the company's ability to weather the current down cycle on its own."

Equity investors, however, were as thrilled as the NOVA bondholders were. NOVA's New York Stock Exchange-traded shares zoomed by $3.87 - a gain of some 288.81% -- to close at $5.21, well up from Friday's finish at $1.34. Volume of 34.9 million shares was more than 18 times the norm.

Station Casinos gets Boyd boost

The possibility that Boyd Gaming might be willing to buy some properties from cash-strapped Station Casinos pushed the latter's 6% notes due 2012 up to 35 post-news from 25 on Thursday, a trader said.

However, he noted that the 6s were the only Station paper to move up like that - and that was only on a relative handful of trades at the end of the day, when the Boyd news broke. He said that Station's 7¾% notes due 2016 had been trading at 25.5 pre-news in the morning, and stayed there, down from 26.25 last Thursday, on $1 million traded.

A market source saw Station's 6 5/8% subordinated notes due 2018, which have been languishing in the low single-digits, staying right there; the bonds were quoted at 5 bid Monday afternoon, about ½ point above Friday's finish, but below their opening levels.

Boyd said in its non-binding expression of interest that it is interested in acquiring struggling Station's assets after, or as part of, a bankruptcy reorganization. Station - which has missed two interest payments in the last month totaling about $30 million - has asked its bondholders to agree to a pre-packaged bankruptcy.

Boyd said that it is interested in most of Station's assets, except for those secured by certain loans. It has its eye on Station's Green Valley Ranch Resort, Aliante Station, Texas Station, Wild Wild West and two Fiesta properties, according to a filing with the Securities and Exchange Commission.

However, in its letter of intent, Boyd also said it would be willing to discuss acquiring additional properties.

However, initial reaction to the idea by Boyd bondholders was less than favorable; they took its 7 1/8% senior subordinated notes due 2016 down to 52 bid - a 4 point loss on the day - post-news.

Among other gaming credits, MGM Mirage's 6 5/8% notes due 2015 gained a point to the 48.5 level. MGM and partner Dubai World were reported in talks with Deutsche Bank AG to get a $1.2 billion loan they need to complete their City Center project on the Las Vegas Strip, which would let the companies finish the $11.2 billion project without spending more of their own cash.

Among the options reportedly being discussed are for Deutsche Bank to merge its Cosmopolitan Resort & Casino tower, still under construction, with the City Center project, and provide the loan in return for an equity and debt stake in the venture.

None of the companies said to be involved would comment on those news reports.

Chiquita resumes slide

A trader saw Chiquita Brands International's 7½% notes due 2014 - which had fallen on Friday in response to the company's poor earnings - down another 2 points to 73 bid, on $3 million traded. However, he saw its 8 7/8% notes due 2015 last traded at 77 bid, up ½ versus Friday, on $1 million traded.

The Cincinnati-based fruit and vegetable company's bonds had gotten mashed on Friday after it reported a fourth-quarter loss of $411.9 million, or $9.28 per share, widening from $26 million, or 68 cents per share, a year earlier, despite the fact that revenue for the quarter was little changed at $839.3 million, down about 1% from $840.4 million. The loss was mostly due to poor results from its Fresh Express salad line, which did so badly that it had to take a $375 million goodwill impairment charge related to that business.

Even excluding that big charge for the salad business and other unusual items, Chiquita lost 74 cents per share - nearly four times the loss that Wall Street had been expecting. That loss also compared unfavorably to Chiquita's ex-items profit of 2 cents per share in the fourth quarter of 2007.

For the full year, Chiquita lost $323.7 million, or $7.40 per share, versus its year-earlier deficit of $49 million, or $1.22 per share, even though revenue actually rose 4% to $3.61 billion from $3.46 billion.

Lamar surprises

A trader saw Lamar Advertising Co.'s 6 5/8% notes due 2015 - "one that I haven't seen in a while," he noted - having moved up to 66.25 bid from 65.5 on Friday on $10 million traded, despite no positive news out on the Baton Rouge, La.-based outdoor advertising company.

"It seems like an unusual move," he said. "If anything, you would expect advertising and media companies to trade lower in this environment," suggesting that short-covering might have pushed the bonds up.

AIG off on new troubles

American International Group Inc. bonds were off, presumably on the news that the problem-plagued New York-based insurance giant company may need further government assistance.

AIG's 6¼% bonds due 2036 traded on a round-lot basis at 52, down 3 points on the session, on $15 million, after first dipping as low as 47.

AIG's International Lease Finance Corp.'s 3½% notes coming due on April 1 dropped to 90 bid, or a 116% yield to maturity, from 98 on Thursday, on $10 million traded. Its 5% notes due 2010 dipped to 79 bid from 82.25 on Friday, on volume of $5 million, while its 5.65% notes due 2014 fell to 58 from Friday's close at 69, on volume of $5 million.

New deals give up ground

Elsewhere, a trader said that credits like Wm. Wrigley Jr. Co. "and some of the other names are still holding in there."

However, he added that "you have of the new issues coming off, like Forest Oil [Corp.] and Chesapeake [Energy Corp.], just giving up like a quarter to a half point a day."

For instance, the latter company's 9½% notes due 2015, $1 billion of which had initially priced at 95.071 on Jan. 28, with a $425 million add-on tranche pricing at 97.75 on Feb. 11, were seen Monday having opened around the 95 bid area, off slightly from Friday's last round-lot price but down nearly 2 points from Friday's late trading level. Those bonds gyrated around during the day before dropping as low as just above 91, in sizable trading volume. They finished up a little above 94, on nearly $10 million traded.

Eying Tyson

Monday's primary market produced no news, sources said.

Plummeting stock prices and apprehensions in the banking and financial spaces will likely make for a quiet week in the new issue market, a high-yield syndicate official said.

There is one deal on the active new issue calendar. Tyson Foods Inc. is marketing its first-ever straight-out junk deal, a $500 million offering of senior bullet notes due 2014 (Ba3/BB).

The deal, which is being led by J.P. Morgan, Banc of America Securities, Barclays Capital and Wachovia Securities is expected to price on Friday.

"So far it seems like they picked a bad couple of days to be on the road," an investment banker said late Monday, noting that Friday, the first day of the roadshow, and again on Monday, the stock market was in full retreat.

"We heard that [the Tyson deal] was going reasonably well, with people putting in orders at the right range relative to where the existings have traded," the source commented, adding that the expectation is that the Tyson notes will come with a yield somewhere in the 12% range.

Price talk could come out Wednesday, according to the banker.

Roadshow or no

Two sell-siders who spoke to Prospect News on Monday held different views as to whether Tyson needed to roadshow the deal.

Given the turmoil in the stock market, it probably is necessary, one banker said, but added that had the Arkansas food producer come a couple of weeks ago the deal could probably have been done as a drive-by.

However another sell-sider disagreed.

"They are a legacy high-grade name marketing to a new investor base," the banker said.

"There are some issues that investors need to get their heads around - for instance some hedging issues in their chicken operation.

"And this is [Tyson's] first deal with real covenants.

"That might make it a challenge to do as a drive-by."

The banker does not anticipate that the Tyson deal will be postponed, as was the fate of Precision Drilling Trust's $250 million offering of senior notes due 2015 last week.

However, the source said, it will be interesting to see whether it comes under pressure in terms of price, given what's going on in the capital markets.

January-February divide

Meanwhile sources have begun taking note of a gap in the post-pricing performances of bonds that were priced in February versus those that were priced in January and in December of 2008.

The latter, those which priced in December and January, tend to be trading at premiums of six points or more - in some cases dramatically more - to their respective issue prices.

Meanwhile the February deals, although some of them broke to sizable premiums, now are trading either near their issue prices, or at premiums that are much more modest than those of the December and January issues.

El Paso Corp.'s 12% senior notes due 2014 (Ba3/BB-) which priced at 88.909 to yield 15¼% on Dec. 9, now trading in a 108 context, a banker marveled late Monday.

Elsewhere Crown Castle International Corp.'s 9% senior unsecured notes due 2015 (B1/B), which priced at 90.416 to yield 11¼% on Jan. 22, are now at 97 bid.

Inergy Finance Corp.'s 8¾% senior notes due 2015 (B1/B+), which priced at 90.191 to yield 11% on Jan. 28, are now up nearly 9 points, a sell-sider said.

On the other hand, HCA Inc.'s 9 7/8% senior secured second-priority notes due 2017 (B2/BB-/B+) which priced at 96.673 to yield 10½% on Feb. 11, were spotted Monday at 96.75 bid.

Denbury Resources Inc.'s 9¾% senior subordinated notes due 2016 (B1/BB), which priced at 92.816 to yield 11¼% on Feb. 10, were at 94 bid on Monday.

CSC Holdings, Inc./Cablevision Systems Corp.'s 8 5/8% senior notes due 2019 (B1/BB), which priced at 95.196 to yield 9 3/8% on Feb. 9, were at 95.50 bid on Monday.

And the El Paso Corp. 8¼% senior unsecured notes due 2016 (Ba3/BB-), which priced at 95.535 to yield 9 1/8% on Feb. 4, a mere eight weeks after the above-mentioned 12% notes due 2014, were at 96.50 bid on Monday.

"There was so much pent-up demand for the deals that came back in December and January because the books were so big that people were chasing them up," a high-yield syndicate official said late Monday.

"I think some of that momentum is gone.

"Over the past week a lot of people have become more bearish on the high-yield. They are seeing equities down 20% for the year.

"Bonds are still up 5%, but people are wondering if that outperformance can last.

"They're becoming a little more defensive."

Another official from a different syndicate said that El Paso, Inergy, Crown Castle and other issuers that tested the market when it reopened in mid-December into January paid handsomely for doing so.

Drawing a metaphor from the Age of Discovery, this official likened those early issuers to "pioneers," and observed that: "Pioneers usually end up with a few arrows in their heads."

This source reasoned that the February deals, now trading at modest premiums or none relative to their new issue prices, were nevertheless priced much more in line with market technicals than had been the case with the January-December deals.

Should volatility in the capital markets once more send the high-yield primary into a state of suspension, this pattern is apt to repeat, the banker said.

"If the Tyson deal doesn't go through there could be another shutdown," the source said.

"And the first deals that open up the market, when it reopens, will have to pay up the same way El Paso and Crown Castle and Inergy did."

Stephanie N. Rotondo contributed to this report.

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