Post-holiday primary quiet, Everest Acquisition on tap; market soft but Open Solutions soars

By Paul Deckelman and Paul A. Harris

New York, April 9-Monday was officially a work day in Junkbondland, but traders said that things were slow and sleepy as people straggled back in after a long holiday weekend.

That comes after not much activity last Thursday, followed by a severely truncated and little-attended bond market session last Friday.

No new deals priced Monday, although there was some forward-calendar building, with units of outsourced business services provider Sitel Worldwide Corp. embarking on a whirlwind marketing campaign for the company's $200 million of 5.5-year notes, which are expected to price Wednesday.

Also hitting the road Tuesday will be health care provider Physiotherapy Associates, Inc., which is shopping a $210 million offering of seven-year notes. Unlike Sitel, however, this deal isn't expected to price until late next week after a full roadshow.

Participants also awaited Tuesday's expected pricing of El Paso Energy Corp. unit Everest Acquisition LLC's giant-sized two-part offering of senior secured and unsecured bonds; on Monday, that deal was downsized a little to $2.75 billion and price talk emerged on the secured seven-year tranche and the unsecured eight-year piece.

Among recently priced deals, traders saw a little bit of activity in HD Supply, Inc.'s seven-year first-priority secured notes, but no dealings in the building supplies and tool distributor's new eight-year second-priority notes. Both notes priced last Thursday.

There likewise were no dealings seen in electric utility truck provider Nesco LLC's new five-year secured notes, which also priced last Thursday.

Away from the new deals, traders saw Monday's market mostly easier, although Chesapeake Energy Corp.'s bonds firmed in late dealings on the news that the natural gas operator had monetized some assets in a trio of deals worth nearly $2.6 billion.

Software and information technology provider Open Solutions Inc.'s bonds were quoted sharply higher on news that it is exploring strategic alternatives, which could include the outright sale of the whole company.

EP Energy downsizes, sets talk

The primary market put up a goose egg on Monday, as players resumed their positions after the three-day holiday weekend in the United States.

There was a modicum of news, however.

EP Energy Corp. shifted $250 million to its bank loan from its two-part bond offering, trimming the overall size of the notes offer to $2.75 billion from $3 billion and upsizing the loan to $750 million from $500 million.

The secured tranche of the bond offer is upsized to $750 million from $500 million. The seven-year senior secured notes, which come with three years of call protection, are talked with a yield in the 7% area.

Moody's Investors Service assigned a Ba3 rating to the secured notes. Standard & Poor's assigned a BB- rating, a downgrade from the previous rating of BB.

The unsecured tranche was downsized to $2 billion from $2.5 billion. The eight-year senior unsecured notes, which come with four years of call protection, are talked with a yield in the 9½% area.

Moody's assigned a B2 rating to the unsecured notes, a one-notch downgrade from the previous B1 ratings. The Standard & Poor's rating on the unsecured notes remains unchanged at B.

In addition to the resizing and price talk, the notes underwent covenant changes, the source said on Monday.

The books close at 11 a.m. ET on Tuesday, except for Chicago accounts. The deal is set to price on Tuesday.

Citigroup is the left bookrunner. The joint bookrunners are J.P. Morgan, Credit Suisse, Deutsche Bank, BMO, RBC, UBS and Nomura.

The downsizing of the unsecured tranche reflects a less robust appetite for that paper, according to a trader from mutual fund that is involved in the deal.

Meanwhile, the lowered credit ratings are a reflection of the impact that the upsizing of the secured bond tranche has on the company's capital structure, according to a syndicate source.

Physiotherapy starts Tuesday

Physiotherapy Associates Inc. plans to begin a roadshow for its $210 million offering of seven-year senior notes (B3/B-) on Tuesday.

That roadshow is scheduled to conclude late in the week of April 16.

Jefferies and RBC are the joint bookrunners.

The proceeds will be used to help fund the buyout of the company by Court Square Capital.

Other funding will come in the form of a $125 million credit facility.

Sitel to price Wednesday

Sitel, LLC and Sitel Finance Corp. plan to price a $200 million offering of 5.5-year senior secured notes on Wednesday.

The deal will be marketed on Tuesday during an investor breakfast in Boston and a lunch in New York.

Bank of America Merrill Lynch and Goldman Sachs are the joint bookrunners for the debt refinancing.

Secondary snoozefest

In the secondary market, traders pretty much unanimously agreed that not much was going on Monday.

"It was just a dead day," one opined. "You had a lot of people still missing."

He said the market's quietude was intensified by the fact that European markets were closed for the observance of Easter.

"It was just a lot of nothing," a second trader said of Monday's dealings.

"Everyone was still shaking off Easter and Passover." The latter holiday, which began on Friday night, continues for the rest of this week.

A trader at another desk said the overall market was "softer by a half [point], but on not a lot of volume."

Yet another observed that it was "pretty dead -just a lot of one-off names."

HD a little higher

With no new deals having priced during the session, the main focus of the market turned to the recently priced issues. But even there, not much was going on.

For instance, HD Supply's 8 1/8% first propriety senior secured notes due 2019 were seen by a trader at 100¼ bid, 101 offered. Although, he said the $950 million issue, which priced at par on Thursday, was a little higher earlier in Monday's session at 100½ bid, 101 offered.

A second trader saw the 8 1/8s a bit better, up around the 101 bid level.

Traders did not see any secondary activity in the other half of the Atlanta-based building products supplier's $1.625 billion two-part deal - its $675 million of 11% second-priority senior secured notes due 2020.

Those bonds priced last Thursday at par after that tranche was downsized from an originally shopped $775 million.

Nesco a no-show

Traders meantime saw no activity at all on Monday in Nesco's $280 million of 11¾% senior secured second-lien notes due 2017.

The Bluffton, Ind.-based supplier of specialty trucks to the electric utility industry priced its deal - issued with the company's Nesco Holdings Corp. unit - on Thursday at 98.164 to yield 12¼%.

The bonds initially firmed to 99½ bid, par offered, but did not resurface on Monday.

Chesapeake Energy churns

Away from the new-deal realm, a trader said things were "fairly dull."

However, he did see some movement in Chesapeake Energy's 6.775% notes due 2019, helped by news that the Oklahoma City-based natural gas operator signed three separate deals to monetize some of its assets, bringing as much as $2.6 billion to its coffers.

He saw the bonds first at 99½ bid, par offered, but said later they moved up to the 99¾ bid level.

A market source estimated that nearly $20 million of those bonds changed hands by mid-afternoon, making it one of the busiest junk-market issues.

The largest of the three asset transactions announced Monday was a $1.25 billion deal with an affiliate of the Blackstone Group, TPG Capital and other investors; they'll pay Chesapeake for preferred shares in a newly-formed subsidiary called CHK Cleveland Tonkawa LLC and a royalty interest in the first 1,000 oil wells drilled on CHK Cleveland Tonkawa's holding in Ellis County and Roger Mills County, Okla.

Chesapeake said the investors also will get an initial annual distribution, while Chesapeake retains an option until 2019 to repurchase the preferred shares at a set rate.

Separately, Chesapeake sold a volumetric production payment to an affiliate of Morgan Stanley for $745 million. That transaction includes about 160 billion cubic feet of natural gas equivalent.

The third deal, and the smallest of the three, is with a unit of Exxon Mobil Corp., which will pay Chesapeake $590 million under a purchase and sale agreement covering currently producing leases on 58,400 net acres in Oklahoma. That deal will close at month's end.

Open Solutions up on sale buzz

An even bigger gainer was Open Solutions' 9¾% senior subordinated notes due 2015.

A trader said he heard they were "up a ton" in trading Monday, quoting them in a 93- to 95-context and citing news reports that the company's private equity owners have put the Glastonbury, Conn.-based software and IT services provider up for sale, looking to get at least $1 billion, or maybe more.

However, while he heard the bonds were up, "I didn't actually see that."

A second trader said he too heard of bond-price movement, but did not actually see trading in it.

At another desk, a trader noted that the Rule 144A bonds don't show up on Trace, so it's difficult to keep track of them.

Yet another trader said the bonds were now circulating around in the 90s, versus levels in the upper 70s at the end of last week.

As he traced the timeline of events, the bonds opened on Thursday trading in a 79- to 81-context and that's where the last trade of the day went off, somewhere around 1:30 p.m. EDT.

With market activity shutting down early last Thursday, ahead of Friday's virtual market holiday, there really wasn't anyone around to trade in them when The Wall Street Journal's website ran a late-afternoon story indicating that Carlyle Group and Providence Equity Partners were shopping the company around via Credit Suisse Group. That partnership took Open Solutions private in early 2007 for $1.3 billion, including debt.

The Journal said the sale process began about a month ago and has drawn interest from technology-focused buyout firms and financial technology companies. It reported that initial bids valued Open Solutions at more than $1 billion, including debt. But, it quoted unidentified "people familiar with the matter" as saying that the company is expected to fetch less than $1.3 billion.

Open Solutions later confirmed through a statement that it is considering a range of strategic initiatives. With all of that news, the bonds rose right out of the gate on Monday, the trader said.

He said the first opening quote was 91½ bid, 93½ offered.

"At one point, they were as good as 94-95," the trader said.

After that, he said they found a range and closed at 90-92. "They were trading in that context," he said.

He added that the $325 million issue "never was a very active bond to begin with, to be honest with you." Last month, he said, it was trading in an 80-82 range.

Mortgage insurers move down

Elsewhere, a trader said that Radian Inc.'s bonds "dropped in price," although he saw no actual trading in the Philadelphia-based mortgage insurer's paper, only quotes.

He pegged the company's 5 5/8% notes due 2013 "down a couple of points" at 88-89, while its 5 3/8% notes due 2015 were off three points at 74-75.

"They were quoted only - they're small issues. Radian bought back some bonds last month, but I just saw them quoted lower [Monday]. That turned my head," he said.

The trader saw Radian's Armonk, N.Y.-based sector peer, MBIA Inc.'s 14% surplus notes due 2033 quoted at 59-61, which also is down a point or so. There too, he said, it was a matter of being quoted lower. He said no trading volume was seen because it's a Rule 144A issue and the information is not available.

Market signposts mostly lower

Statistical measures of junk-market performance were mostly headed lower on Monday, after suffering a down day last Thursday, the last real day of trading last week.

A trader saw the Markit Group CDX North American Series 18 High Yield Index about unchanged on Monday from Friday's level at 95 1/8 bid, 95 3/8 offered. However, he said the index was well down from Thursday's reading of 96 bid, 96¼ offered.

The KDP High Yield Daily Index showed its third consecutive loss, down 17 basis points on Monday to 73.55, after falling 9 bps on Thursday at 73.81. Its yield rose by 6 bps on Monday, on top of Thursday's 4 bps rise.

And the widely followed Merrill Lynch High Yield Master II Index fell on Monday by 0.203%, its third consecutive loss, including Thursday's 0.048% retreat.

That left the index's year-to-date return at 4.966%, down from 5.126% at the close last Thursday. It was the first time the cumulative return dipped below the psychologically potent 5.00% mark since March 9, when it stood at 4.966%.

It was down as well from its 2012 peak level of 5.361% recorded March 2.

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