No pricings, but market awaits Kodiak, Entercom; new deals in narrow range; Jefferies jarred

By Paul Deckelman and Paul A. Harris

New York, Nov. 17 - After three busy days that produced nearly $4 billion of new junk bonds, mostly in quickly marketed drive-by deals, the high-yield primary arena took a little breather on Thursday as no new deals priced.

However, syndicate sources heard price talk on several pending issues, including at least two that could come to market as early as Friday.

They heard talk out on energy operator Kodiak Oil & Gas Corp., whose eight-year offering was upsized to $650 million.

And yield guidance also emerged on broadcaster Entercom Radio LLC's eight-year deal, which was heard to have been downsized to $220 million.

The sources further heard that chemical manufacturer Trinseo Materials Operating SCA's $450 million issue was being shortened to a six-year transaction. While price talk is out, books won't close until later on Friday, if even then.

Among the week's recent deals, Plains Exploration & Production Co.'s $1 billion of 10.25-year bonds, which came to market on Wednesday too late for trading, went home a little below their issue price. Another Wednesday deal, from American Greetings Corp., stayed up a little from its pricing level.

Away from the new deals, traders saw a generally listless and mostly lower secondary market with statistical performance measures bearing that assessment out.

Sears Holdings Corp. and Bon-Ton Department Stores Inc. were among the busiest bonds. Both retailers lost ground after reporting disappointing quarterly numbers and sales figures.

But the most fascinating story, some traders said, was the sharp fall in Jefferies Group Inc.'s bonds.

The still-nominally high-grade financial firm's paper lost multiple points on the day. Its yields and spreads ballooned out to very junk-like - and in some cases even distressed-like - levels.

Kodiak upsizes

For the first time in 16 sessions, the high-yield primary market put up a goose egg on Thursday, with no issues pricing.

However, price talk on three deals surfaced and they are expected to price on Friday.

Kodiak Oil & Gas upsized its offering of eight-year senior notes (Caa1/B-) to $650 million from $550 million, and set the yield talk at 8% to 8¼%.

Credit Suisse, KeyBanc, RBC and Wells Fargo are the joint bookrunners.

The Denver-based energy exploration and development company plans to use the proceeds to fund acquisitions, pay down debt and for general corporate purposes. The additional proceeds from the upsizing also will be used for general corporate purposes.

A concurrent equity offering was scheduled to price after Thursday's close.

Trinseo restructures

Trinseo restructured its $450 million senior notes offer on Thursday, reducing the maturity to six years from seven years and decreasing the call protection to three years from four years.

Yield talk came out at 12¼% area, including about three points of original issue discount.

The restructured deal continues to be rated B3 by Moody's Investors Service and B by Standard & Poor's.

The books close at 2 p.m. ET on Friday except for accounts seeing the company on Friday.

Barclays is the left lead bookrunner. Deutsche Bank, BMO, Citigroup and Goldman Sachs are the joint bookrunners.

The proceeds will be used to repay bank debt and for general corporate purposes.

Entercom downsizes bonds

Entercom Radio shifted $30 million of proceeds to its term loan from its bond deal, reducing its offering of eight-year senior notes (Caa1/B-) to $220 million from $250 million.

The deal is talked with a yield range of 10% to 10¼%.

The order books close at 11 a.m. ET on Friday.

Bank of America Merrill Lynch is the left bookrunner. Credit Suisse and Morgan Stanley are the joint bookrunners.

With the downsizing of the bonds, Entercom increased the size of its term loan B to $375 million from $345 million. The notes offering is conditioned on the entry into the new credit facilities.

The proceeds, together with proceeds from the term loan and a $50 million five-year revolver, will be used to repay the existing credit facilities and for general corporate purposes.

Run-up to Thanksgiving

The dealers have a sizable pipeline of deals that could be done during the run-up to Thanksgiving, sources said.

In fact, among those canvassed on Wednesday and Thursday, not a single one turned out empty pockets when asked if there were possible deals in the wings. Some were doubtful, but agreed that they did have at least one offering that could come should market conditions improve.

"It's not a big window," one investment banker commented shortly after the Thursday close. "Friday will be busy," the banker said.

If the markets rally on Monday and Tuesday, he said, "You could see some activity on those days."

Another sellside source had visibility on five sizable quick-to-market deals, totaling $2.4 billion.

The deals could get done before the markets break for the four-day Thanksgiving weekend, which begins on Nov. 24.

While none of the syndicate bankers professed a lot of confidence that primary market activity will actually be robust before Thanksgiving, each agreed that its transactions could come if market conditions permit.

Of course market conditions have been poor. The Markit CDX Series 17 North American index was down another 5/8 points on Thursday, according to one syndicate official.

However, at least one of the dealers said the primary market would remain open unless the present level of capital-markets turbulence increases.

"We are hearing that inflows are moderating," the banker said.

"But people still have big cash positions," the bank added. "We should be busy through Wednesday."

Mannkind mulls financing

Finally, with respect to a deal that has been on the calendar since late September, Mannkind Corp.'s board of directors met on Thursday to decide whether to proceed with its attempt to raise capital in the high-yield bond market with a notes-and-warrants transaction, according to an informed source.

The result of that meeting could be made known on Friday, the source added.

In late September, the Valencia, Calif.-based biopharmaceutical company ran a roadshow for a $370 million offering of six-year senior discount notes with warrants via left bookrunner Global Hunter Securities and joint bookrunner Knight Capital.

The interest-rate talk and warrants portion both moved higher while the deal was being marketed, market sources say.

It is possible that the company could elect to go forward with the bonds and warrants transaction, the informed source said on Thursday.

However, the bond deal is one of several options that the board is exploring, the source added.

No pop for Plains

When Plain Exploration & Production's new 6¾% notes due 2022 were freed for secondary activity, the Houston-based independent oil and gas operator's megadeal was quoted by a trader as trading between 99¾ and 100 1/8 "most of the day."

A second trader pegged those bonds at 99 5/8 bid, 100 1/8 offered.

The quick-to-market $1 billion issue, which doubled in size from the originally announced $500 million, priced at par on Wednesday afternoon, but came too late that session for any kind of aftermarket.

The company's existing 7% notes due 2017 were seen by a market source as falling about a quarter-point, to 1041/2, after having gained about 1 1/8 points on Wednesday.

Another source also saw those notes a little lower, at the 104 3/8 level. More than $12 million of the bonds changed hands, making it one of the busier Junkbondland issues of the day.

Greetings grinds higher

A trader said that American Greetings' new 7 3/8% notes due 2021 were trading at 100 3/8 bid, 100 7/8 offered.

A second trader saw the bid level around 1001/2.

A market source saw nearly $10 million of the bonds trading.

On Wednesday, the new bonds traded around 100¼ bid, 100 3/8 offered, after the Cleveland-based greeting-card manufacturer popped in with an opportunistically timed, rapidly marketed $225 million offering that priced at par.

Week's deals in narrow range

Among other bond deals that came to market this week, Monday's $1 billion issue of 8% notes due 2019 from Community Health Systems Inc. continued to trade below its issue price.

A trader said the Franklin, Tenn.-based hospital operator's deal, which had priced at par but proceeded to trade in a 99ish context when the bonds were freed, retreated further on Thursday, going home as low as 98½ bid, 99 offered. Although someone at another desk said they had gotten back up to 99 1/8 bid, 99 7/8 offered.

Host Hotels & Resorts, LP's 6% notes due 2021 were trading Thursday at 100½ bid, 101 offered. That was up a little from Tuesday's close around 100 1/8 bid, 100 5/8 offered.

The Bethesda, Md.-based lodging industry real estate investment trust brought its $300 million issue to market at par.

Houston-based oil and gas operator Swift Energy Co.'s 7 7/8% notes due 2022 and Wilmington, N.C.-based Pharmaceutical Product Development Inc.'s 9½% notes due 2019 were not seen in Thursday dealings.

They both priced at par on Tuesday with the $250 million of Swift bonds at 99.156 to yield 8%, and the $575 million of Pharmaceutical Product Development downsized from the original $700 million.

New deal non-events

One trader noted the relative lack of real movement in the recent crop of new issues.

"There's nothing really exciting about the calendar these days. A $200 million or $250 million issue for some company that goes up maybe a quarter- or a half-point doesn't do anything for me," the trader said.

"And even a $500 million deal that gets upsized to $1 billion and then trades up a quarter-point doesn't do anything for me either."

But a big drive-by deal that would excite everyone is always still a possibility, the trader added.

Another trader said that what's been happening lately is 'housekeeping.'

"When new issues get priced, then there's one or two days of housekeeping. Someone wants to get more of a bond or someone wants to get out of it - they do. And then they just disappear for a while," the trader said.

Weak indicators continue

Away from the new deals, the statistical secondary market performance indicators were off for a third consecutive session on Thursday.

A trader said the Markit CDX Series 17 North American high-grade index was down ¾ of a point on Thursday to close at 89 7/8 bid, 90 1/8 offered, after having been down 7/16 of a point on Wednesday.

The KDP High Yield Daily index lost 22 basis points on Thursday to finish at 71.84, after having eased by 2 bps on Wednesday.

Its yield rose 5 bps to 7.61%, after having been unchanged on Wednesday.

And the widely followed Merrill Lynch High Yield Master II Index lost 0.195% on Thursday, on top of the 0.114% downturn on Wednesday.

Wednesday's loss left the index's year-to-date return at 2.319%, versus Wednesday's 2.84% level.

The cumulative return remains below its high-water market for the year of 6.362%, which was set on July 26, but is still well up from its 2011 low point, a 3.998% deficit recorded Oct. 4.

Retailers get rolled up

Bon Ton, the York, Pa.-based department-store operator, reported weak earnings for the third quarter on Thursday and the bonds fell in response.

However, despite the "crappy numbers," a trader said the 10¼% notes due 2015 rebounded from the day's lows in the mid-50s, ending around 59.

Another trader said the paper opened trading around 55, but closed near "59ish," still down from levels of around 60 on Wednesday.

A third trader also saw the notes hitting a low of 55 before coming back to finish at 59 bid, 60 offered.

For the quarter ended Oct. 29, Bon-Ton posted a $22 million, or $1.21 per share, net loss. That compared to a loss of $6.3 million, or 36 cents per share, the year before.

EBITDA was $25 million, versus $48.7 million for the third quarter of 2010.

And same-store sales dropped 5.9%. Total sales were $656.1 million, a 6.3% decline.

For the year thus far, net loss was $90.3 million, or $5 per share. The year before, Bon-Ton posted a net loss of $63.5 million, or $3.60 per share.

EBITDA was $63.8 million, compared to $102.9 million previously. Same-store sales for the year were down 3%. Total sales dropped 3.5% to $1.9 billion.

"Our third-quarter performance did not meet our expectations," Bud Bergren, president and chief executive officer, said in the earnings release.

Also roiling the retailers were the poor earnings results reported by Sears Holdings. Its numbers showed a wider loss for the third quarter.

A trader said the earnings were "lousy," but like Bon-Ton, the company's bonds fell only to "bounce back" by the end of the day.

The trader said the 6 5/8% notes due 2018 dipped to a low of 75 before coming back to end around 78. Still, he said that was "down a couple points from the beginning of the week."

Another trader also saw the notes hitting a low around 75, but saw the paper close at 78 bid, 79 offered.

For the quarter, the Hoffman Estates, Ill.-based retailer posted a net loss of $421 million, or $3.95 per share. In the third quarter of 2010, Sears reported a net loss of $218 million, or $1.98 per share.

Revenues fell to $9.6 billion from $9.7 billion the year before. Same-store sales dropped 0.8% overall.

As of Oct. 29, Sears had cash and equivalents of $632 million between its U.S. and Canadian operations. That compared to $806 million in the year-earlier period.

Jefferies gyrations resume

A trader saw a lot of volume on Thursday in Jefferies Group's paper with one of its issues seen down as much as 8 points on the day and most of its bonds down anywhere from 5 points to 7 points on the session.

He said that "a lot of people have been lumping it into the MF Global camp," since Jefferies was the lead underwriter in the MF Global's $325 million of five-year notes in August.

Jefferies also took a position in MF Global's debt and had some positions in European sovereign debt; although Jefferies recently explained to investors it wasn't exposed as a group to the weakest and most potentially vulnerable European governments.

"They're not too big to fail," the trader said, "So some folks are getting spooked."

He said that with the continued problems at MF Global, "there's a lot of bad stuff in the wind."

The trader suggested that with the end of the year approaching, some portfolio managers might be looking to get the paper out of their holdings since it already suffered losses earlier in the month.

Whatever the reason, he said that many of the bonds were yielding more than 1,000 basis points above Treasuries across the board.

For instance, he saw the 5 7/8% notes due 2014 fall as much as 7¾ points, to 84 3/8 bid, on volume of $52 million, while the 5½% notes due 2016 dipped by 7¼ points to 781/4.

A second trader said that the Jefferies paper "got crushed."

"I don't know what to make of it," the second trader said.

Stephanie N. Rotondo contributed to this report

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