Brigham bonds hot, El Paso not on M&A deal news; Atlantic Power, Acadia, J.M. Huber slate

By Paul Deckelman and Paul A. Harris

New York, Oct. 17 - Brigham Exploration Co. bonds soared strongly on Monday on the news that Norway's Statoil ASA has agreed to buy the U.S. shale oil producer in a deal valued at $4.7 billion, including debt assumption. Brigham's bonds were the most busily traded high-yield paper on the day.

The energy sphere was where things were happening on Monday, as El Paso Corp. agreed to be acquired by Kinder Morgan Inc. in a deal valued at $38 billion. However, El Paso's bonds fell on news that they will remain outstanding.

There was also activity in the split-rated bonds of Anadarko Petroleum Corp., which reached a settlement with British oil giant BP on claims arising from last year's Gulf of Mexico oil-spill disaster at a well the two companies operated jointly.

Away from energy, traders said that Junkbondland's secondary was fairly quiet, with statistical indicators mixed.

But the primary arena was popping, with new deals heard to have launched from independent power producer Atlantic Power Corp., behavioral health care provider Acadia Healthcare Inc. and engineered materials supplier J.M. Huber Corp.

The Atlantic Power and J.M. Huber deals could price as soon as later this week, while Acadia will market its prospective deal via a roadshow that runs through next week.

The Friday primary market saw a single deal cross the finish line.

Emdeon Inc. priced a $375 million issue of eight-year senior notes (Caa1/CCC+) at par to yield 11%.

The yield printed at the tight end of the 11% to 11¼% price talk.

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

Timing on the deal was moved ahead. Initial timing would have extended the roadshow into the early part of the Oct. 17 week.

The notes, which were issued via special purpose vehicle Beagle Acquisition Corp., will rank pari passu with the $375 million of the 11¼% senior notes due 2020 that affiliates of Goldman Sachs have agreed to purchase, as previously reported.

Proceeds from the 11% notes and the 11¼% notes are 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 is valued at about $3 billion.

Fearing the squeeze

Emdeon also priced its $1.224 billion term loan at 97 on Friday, and the paper broke to 99¾ bid, par ¾ offered, eventually ending the day three points above issue.

A mutual fund manager who plays both bank loans and junk bonds was watching the loan streak higher and carping about a crummy allocation during a Friday morning call.

The investor had also put in for the Emdeon bonds and expressed apprehensions that the strong secondary market performance of the loan, which "was priced to move," would prompt Emdeon and its dealers to squeeze some yield out of the $375 million of junk.

"They might even try to bring it with a 10-handle, although they shouldn't," the investor said.

That squeeze failed to materialize, of course.

And it would appear that the dealers left at least a modicum of juice on the table because a trader spotted the par-pricing 11% notes at 102¼ bid at Friday's close.

Of the nominal $375 million amount of Emdeon bonds that priced on Friday, $125 million had been spoken for before the lights came up on Friday morning, the buy-sider said.

$577 million week

With Emdeon in the tally, the Oct. 10 week came to close having seen $577 million of dollar-denominated junk price in two junk-rated tranches.

That extends 2011 issuance to $217.9 billion in 488 tranches, to Friday's close.

In the week ahead, the market will be keenly tuned into Kinetic Concepts' $1.65 billion-equivalent offering of second-lien senior secured notes (B3/B/) in euros and dollars.

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 second-lien notes portion of the financing was itself upsized to $1.65 billion from $1.25 billion last week, when the term loan portion of the Kinetic Concepts LBO deal was downsized to $2.2 billion from $2.6 billion.

The overall bond deal in the market was cut from $2.55 billion, with the dealers withdrawing $900 million of unsecured notes from the market.

At least part of that amount of unsecured paper is the subject of club-style marketing more germane to the true private placement market, an informed source said.

Such an execution would bear some resemblance to Emdeon's $375 million tranche of 11¼% senior notes due 2020, which was marketed private placement-style prior to last Friday's launch of $375 million of eight-year senior notes to qualified institutional investors.

In the case of Emdeon, Goldman Sachs Asset Management agreed to purchase the $375 million of 11¼% notes.

Cara brings C$75 million

Elsewhere on Monday, Cara Operations Ltd. announced plans to sell C$75 million of senior second-lien guaranteed notes via Scotia.

The deal is set to roadshow on Thursday and Friday.

Proceeds will be put into escrow to acquire the outstanding shares of Prime Restaurants for C$6.75 a share, repay Prime's credit facility and finance the cash settlement of Primes' restricted share units. The acquisition is valued at C$58.9 million.

Emdeon bonds hold above issue

Among recently priced deals, a trader quoted the Emdeon 11% notes due 2019 trading in a 102-103 context.

He noted that the Nashville-based health care administrative services provider's $375 million issue had traded up to around the 1021/2-103½ area in initial aftermarket dealings after pricing Friday at par, "so maybe they were in slightly."

A second trader, though, was quoting the bonds on Monday around the 103 level.

Laredo offering unseen

Several traders said that they saw neither hide nor hair of the $200 million offering, which Tulsa, Okla.-based energy operator Laredo Petroleum, Inc. priced last Wednesday.

That drive-by deal - a fungible add-on to the $350 million of 9½% notes due 2019 the company had sold back in January - priced at 101 to yield 9.252%, after having been upsized from the originally envisioned $150 million.

A trader opined that "it may have been put away" and then noted that the Emdeon deal had originally been sized at $750 million, before half of the transaction was grabbed up by affiliates of Goldman Sachs & Co., one of the underwriters, with the remainder publicly offered to investors.

"That seems to be kind of the 'in vogue' way," he mused, "so [Laredo ] may have been done something like that in the sense that they had [the deal] placed before they announced it."

He further noted: "They're talking about Kinetic possibly being done that way as well."

While he said that he had seen no confirmation of that, "there's talk of that as well," theorizing that given the current somewhat chancy environment for doing deals, "you want to make sure you've got part of it done, if you're one of these banks, before you go out there and commit to the whole thing.

"There's been enough volatility that you don't want to get caught long $400 million or $500 million on one of these things, without knowing that you've got the majority of it put somewhere."

Brigham bonds boom

Away from the news deals, the big news in the junk secondary was the spectacular rise in Brigham Exploration's 6 7/8% notes due 2019 on the announcement that the Austin, Texas-based energy operator will be bought out by Statoil ASA, Norway's state-controlled oil company.

A trader said that the Brigham bonds shot up by 11 points, to 109¾ bid, with over $30 million traded, making it the most heavily trafficked pure junk bonds of the session.

He also saw the company's 8¾% notes due 2018 gain 8½ points, moving up to the 117¼% level near the end of the day. He saw about $10 million of those bonds changing hands.

A second trader proclaimed that Brigham "had a really good day," with the 19s up more than 10 points.

The bonds jumped on the news that Statoil will buy Brigham for $36.50 per share in an all-cash transaction worth $4.4 billion. Including Brigham's $238 million of debt, the enterprise value swells to $4.7 billion.

The deal will give Stavanger, Norway-based Statoil - two thirds owned by the Oslo government - access to Brigham's potentially lucrative shale fields in the Baaken and Three Forks formations in North Dakota.

EP off on deal news

While Brigham's bonds were sizzling, EP's were fizzling despite the news that the Houston-based natural gas exploration and production company and pipeline operator is also to be bought, by Kinder Morgan Inc., in a $21.1 billion cash and stock deal. The enterprise value of that transaction, including debt, swells to $38 billion.

But a trader said that El Paso's issues "traded up - but then were back down by as much as six points, after the company said that the debt will remain outstanding."

A second trader, quipping that there was "a lot of energy in its market, saw El Paso's 7% notes due 2017 down a point at the end of the day, at 111¼ bid, on $10 million traded, making it the most active EP issue.

He also saw the company's El Paso Natural Gas 7¼% notes due 2018 trading around $10 million on the day, ending down 1½ points at 1111/4.

Yet another trader declared that the El Paso bonds "opened up down around 8 [points] actually, but it ground back to close only down around 2 [points], so that [and Brigham] were definitely the two names of the day.

Houston-based Kinder Morgan will buy El Paso for $14.65 per share in cash, plus enough of its stock to bring the value of the deal up to $26.87 per share.

The transaction will create the fourth largest U.S. energy company and the combined entity will operate the largest U.S. natural gas pipeline. Kinder Morgan outlined its financing plans, which include some incremental debt issuance, but said it will sell El Paso's energy and production gas assets to help defer some of the cost of the deal.

Kinder Morgan's own 5.15% notes due 2015 were down a deuce at par, a trader said, but on only about $1 million traded.

Anadarko gets busy

Also in the energy arena, traders saw heavy activity in Anadarko Petroleum's 6¼% notes due 2040, which firmed by several points to just under the 110 level on volume of nearly $40 million, and its 6 3/8% notes due 2017, likewise better at 1161/2, with about $16 million having changed hands.

However, they noted that the Woodlands, Texas-based oil company's split-rated (Ba1/BBB-/BBB-) debt usually draws considerable interest from crossover high-grade investors reaching for yield as well as from junk accounts.

The bonds firmed on the news that Anadarko, the junior partner in the Gulf of Mexico deepwater well, which disastrously ruptured in April of 2010, had reached a $4 billion settlement with the majority owner of the well, British oil giant BP, settling all claims between the two companies arising from that accident.

Indicators turn mixed

Away from the energy patch, a trader said that the CDX North American series 17 High Yield index lost 1 1/8 points on Monday to end at 89 15/16 bid, 90 3/16 offered, after having risen by three-quarters of a point on Friday.

The KDP High Yield Daily index firmed by 6 basis points to close at 71.06 on Monday, on top of Friday's 39 bps gain.

Its yield tightened by 3 bps on Monday to 8.15%, after having come in by 13 bps on Friday.

And the Merrill Lynch U.S. High Yield Master II index notched its second consecutive gain on Monday, rising by 0.311% on the session, which followed Friday's 0.433% rise.

That lifted the index's year-to-date gain to 0.313% from 0.002% on Friday - the first time the index had been back in positive territory since Sept. 23.

That's a considerable improvement from its widest reading of the year, the 3.998% deficit recorded Oct. 4 But it still stands in stark contrast to the peak gain for the year of 6.362%, which was set on July 26.

A trader said that "with equities down as much as they were" - the bellwether Dow Jones industrial average dropped 247.49 points, or 2.13%, to end at 11,397.00 - "you would have expected a lot more weakness than we saw in high yield, all things being equal. High yield still maintained a very good bid to it, despite stocks falling by 250.

"While there were a couple of things that were down, a large majority of its market was still better bid for."

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