Clearwire bonds fall as Sprint looks to dump partner; Clear Channel gains momentum; ATP up

By Paul A. Harris and Stephanie N. Rotondo

Portland, Ore., Oct. 7 - The secondary high-yield market continued to gain strength as the week came to a close on Friday.

A trader said that decent unemployment numbers were pushing the market up early in the session, though there was a bit of "swooning" towards the end of the day.

A topical mover of the day, however, was not a climbing credit but a falling one. Clearwire Corp. bonds got smashed after majority stockholder Sprint Nextel Corp. held an investors' day, during which the company "said a number of things that were negative for Clearwire," a trader said.

Sprint debt ended mixed.

Meanwhile, Clear Channel Communications Inc. paper was trending higher, though on no fresh news.

Also continuing to trend higher - after getting beat down earlier in the week - were ATP Oil & Gas Corp.'s bonds.

Market indexes mixed

Though the market seemed to be trading higher, market indicators were ending mixed, according to market sources.

The KDP High Yield Index moved up to 69.44, with an 8.72% yield, from 69.28, with an 8.76% yield on Thursday.

But the CDX North American Series 17 High Yield index lost a quarter-point, closing at 87 15/16 bid, 88 5/16 offered.

Kinetic launches $2.55 billion

The high-yield primary market ended the extremely volatile week with no issues pricing. There were, however, two long-anticipated LBO deal announcements.

Kinetic Concepts Inc. will begin marketing its upsized $2.55 billion three-part offering of notes on a European roadshow scheduled for the Oct. 10 week.

A roadshow in the United States will follow during the week of Oct. 17.

The LBO financing deal includes an upsized $1.65 billion-equivalent tranche of eight-year second-lien senior secured notes (B3/B/), which will be offered in dollar and euro denominations. The tranche was upsized from $1.25 billion.

The deal also includes a dollar-only $900 million tranche of eight-year senior unsecured notes (B3/CCC+/).

Morgan Stanley, Bank of America Merrill Lynch, Credit Suisse and RBC are the joint bookrunners. UBS is the co-manager.

Proceeds will be used to help fund the buyout of the company by Apax Partners, Canada Pension Plan Investment Board and the Public Sector Pension Investment Board for $68.50 per share in cash in a transaction valued at $6.3 billion, including outstanding debt.

The overall notes amount was upsized from $2.15 billion when the company downsized its term loan by an identical $400 million amount, reducing the loan to $2.2 billion from $2.6 billion.

The Kinetic Concepts bond deal is the biggest to hit the primary market since July 26, when HCA Inc. priced $5 billion in two tranches.

Emdeon starts Wednesday

Emdeon Inc. will begin a roadshow on Wednesday in the Mid-Atlantic states and New Jersey for its $375 million offering of eight-year senior notes (confirmed Caa1/expected CCC+).

The deal travels the East Coast during the Oct. 10 week and will be on the West Coast during the early part of the following week.

Barclays, Bank of America Merrill Lynch, Citigroup, Goldman Sachs and SunTrust are the joint bookrunners.

The notes, which will be issued via special purpose vehicle Beagle Acquisition Corp., will rank pari passu with the $375 million of the 11¼% senior notes due 2020, which affiliates of Goldman Sachs have agreed to purchase. That agreement was announced in a schedule 14 A document filed on Oct. 6 with the Securities and Exchange Commission.

The placement of the 11¼% notes halved the $750 million amount of the senior unsecured bridge loan, which is part of the financing for the buyout of Emdeon by Blackstone Capital Partners VI LP and Hellman & Friedman LLC for $19.00 per share in cash in a transaction that is valued at about $3 billion.

The coupon on the 11¼% notes, which are being taken down by Goldman Sachs Asset Management, may be signaling to the market where the shorter-maturity eight-year notes, as well as the $1.2 billion term loan B, might price, according to a mutual fund manager who invests in both junk bonds and bank loans.

Emdeon's term loan B launched on Wednesday at Libor plus 550 basis points to 575 bps with a 1.25% Libor floor and an original issue discount of 96 to 97.

Thin calendar for week ahead

The week to Friday saw no junk-rated issues price, joining the final two weeks of August as the only three weeks thus far in 2011 to put up goose eggs.

With the primary market shut out, the week closed exactly where it left off on Oct. 1, with $217.28 billion of year-to-date issuance in 486 junk-rated dollar-denominated tranches.

Only one deal is on the calendar for the week ahead.

Biotech firm MannKind Corp. intends to raise $370 million through the placement of six-year senior discount notes via bookrunners Global Hunter and Knight Capital.

Also, one euro-denominated deal is in the market.

In an offering steered toward German retail investors, German equipment rental company Albis Leasing AG still has available a portion of its €50 million offering of 7 5/8% five-year notes, according to a Friday email message from the company.

German investors are invited to subscribe to the deal via the company's website.

Apart from those deals and Kinetic Concepts and Emdeon, which are slated to price during the week of Oct. 17, sellside sources are not looking for a meaningful pickup in new issue activity in the near term.

Despite the market rallying on Wednesday and Thursday, high-yield bonds sustained dramatic price drops on Monday and Tuesday, according to a debt capital markets banker.

Until there is some clarity on a growing list of travails weighing upon the market, including, but not limited to, the ongoing credit situation in the euro zone, primary market activity is expected to remain muted.

"Emdeon and Kinetic Concepts are committed financings, so they had to put them out there," said the banker.

"Those deals will have to brave the market. And who knows what next week will bring? As far as any opportunistic activity is concerned, issuers that can wait almost certainly will choose to do so."

Sprint to dump Clearwire

A trader said that Clearwire paper dropped considerably after Sprint Nextel executives made comments that were not viewed to be in Clearwire's favor.

Sprint holds a majority interest in the Kirkland, Wash.-based wireless network provider.

The trader said the 12% first-lien notes due 2015 fell to levels below 70, before settling in around the 70 mark. The 12% second-lien notes due 2017 declined to levels in the mid-30s.

For its part, Sprint bonds did not fare so well either.

One trader said the 8 3/8% notes due 2017 were up 1½ points, ending around 941/2.

But at another desk, the 8¾% notes due 2032 were seen falling 2 to 3 points to levels around 84.

"They are up a lot from their lows," a trader conceded regarding Sprint's debt. "It was sideways most of the day."

He noted that both Clearwire and Sprint saw their stock slipping in Friday trading.

Sprint's equity (NYSE: S) fell 60 cents, or 19.77%, to $2.42 per share, while Clearwire's stock (Nasdaq: CLWR) lost 65 cents, or 31.71%, to $1.40.

At an investor meeting in New York on Friday, Sprint's executives said that it would discontinue selling phones and devices compatible with Clearwire's WiMax network by the end of 2012. The company intends to move customers to its own 4G network that uses LTE technology.

The announcement came just days after it was confirmed that Sprint would soon be offering Apple Inc.'s coveted iPhone.

Clearwire has been struggling of late and just last month Sprint was reportedly in talks with cable companies to secure an investment that would then allow Sprint to buy up the remaining equity of Clearwire that it doesn't already own.

Clear Channel gains steam

There was no fresh news out on Clear Channel Communications on Friday, but as "a lot of stuff was up a couple points" during the session, Clear Channel reaped the benefits.

A trader called the 9% notes due 2021 up a deuce at 82. Another trader quoted the issue at 81 bid, 82 offered, "up a couple points."

The second trader also saw the 10 ¾% notes due 2017 "a bit better" at 57 bid, 58 offered, compared to 55 bid, 56 offered previously.

Clear Channel is a San Antonio-based multimedia company.

ATP rally rolls on

After spending the beginning of the week tanking, ATP Oil & Gas' 11 7/8% notes due 2015 have rebounded nicely.

The rally continued into Friday's session and a trader called the notes "up almost 4 points" around 73.

The Houston-based oil exploration company saw its bonds start to get hammered out of the gate on Monday, as investors reacted negatively to a report that Moody's Investors Service put out on Sept. 23. The report alleged that there was a "high likelihood" that the company would have to restructure ahead of its 2015 debt obligations because it did not have the free cash flow to redeem the debt.

However, the company - which holds 66% of reserves in the Golf of Mexico - has said that its recent production schedule should be enough to generate positive cash flow in the near term, positioning itself to be able to handle the payment when it arrives.

Elsewhere in the energy realm, a trader saw Patriot Coal Corp.'s 8¼% notes due 2018 rising 3 points to 901/2.

Another market source called the notes up 3½ points at 90¾ bid.

Intelsat orbits higher

A trader said Intelsat Ltd.'s debt was up 3 to 4 points on the day, though on no news.

The 11½% notes due 2017 were deemed up 3 points at 923/4. The 11¼% notes due 2017 gained 4 points, closing at 933/4.

Intelsat is a Luxembourg-based satellite provider.

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