Intelsat, Telesat lead new-deal parade; autos, casinos lead secondary lower; Pilgrim's Pride rebounds

By Paul Deckelman and Paul A. Harris

New York, June 24 - Intelsat, Ltd. priced a giant $7 billion deal while Telesat Canada priced a smaller but still sizable issue on Tuesday, leading a new offering binge which also saw issues from Quicksilver Resources, Inc., Atlas Pipeline Partners LP and Linn Energy, LLC come to market. All told, approaching $9 billion of new paper came clattering down the chute.

Traders saw the new Quicksilver bonds - the first of the day's deals to price - trading in the secondary market, although they were not much moved from the offering's discounted issue price. The other offerings were not seen having freed by the time trading rolled up for the evening, leading to expectations that those deals should trade around starting on Wednesday.

Among the established issues, it was another tough day for automotive names, including the big benchmark issues of sector leaders General Motors Corp. and GM's domestic arch-rival, Ford Motor Co., pushed down amid renewed investor worry about the health of the economy. It was also pretty rough sledding for such gaming names as Harrah's Entertainment, Trump Entertainment Resorts Inc. and Isle of Capri Casinos Inc. Besides the economic weakness that has affected the whole gaming industry, the latter company, which has several facilities in the Midwest, was already forced to close one of them - twice - due to the flooding going on there.

On the upside, Pilgrim's Pride Corp.'s bonds, which had been in retreat for several sessions, were seen bouncing back from their oversold condition on Tuesday.

Primary hits 2008 high

The high yield primary market saw its biggest day of issuance thus far in 2008 on Tuesday, as eight issuing entities combined to price a face amount of slightly more than $8.97 billion of notes in 10 dollar-denominated tranches, topping the previous daily high total by more than $2.6 billion.

However Tuesday's issuance can be meaningfully divided into two categories.

Corporate issuers, each of them emanating from the energy sector, priced slightly over $980 million.

The remainder - and lion's share - of Tuesday's issuance came from the LBO backlog, as underwriters rolled bridge financing into bonds totaling just under $8 billion.

The corporate deals

All three of Tuesday's corporate issuers came from the energy sectors, a significant fact according to one buy-side source.

First the terms.

Quicksilver Resources priced a massively upsized $475 million issue of 7¾% senior notes due Aug. 1, 2015 (Ba3/B) at 98.655 to yield 8%, on top of price talk.

The issue was upsized from $300 million.

A source close to the deal said that the order book was sufficiently oversubscribed to warrant the upsizing.

Credit Suisse and Banc of America Securities LLC were joint bookrunners for the debt refinancing deal.

Tuesday's remaining two corporate deals were downsized.

Linn Energy priced a downsized $256 million issue of 9 7/8% 10-year senior notes (B3/B-) at 97.684 to yield 10¾%.The yield was printed on top of price talk that was increased from earlier yield talk of 9¾% The issue was downsized from $400 million.

Lehman Brothers was the lead bookrunner for the debt refinancing.

Elsewhere Atlas Pipeline Partners priced a downsized $250 million issue of 10-year senior notes (B3/B-) at par to yield 8¾%. That yield was printed 12.5 basis points beyond the wide end of the 8½% area price talk.

The issue was downsized from $300 million.

Wachovia Securities and JP Morgan were joint bookrunners for Atlas's debt refinancing deal.

Sufficiently energized

A source from a high-yield mutual fund, looking at the terms to Tuesday's trio of energy-sector trades, claimed not to be surprised.

This source quickly dispensed with the good news, i.e. the upsized Quicksilver deal. Shortly after the close the source saw it straddling issue price, and reckoned that the deal was jammed, with not very much left on the table for investors.

As to the session's pair of downsized deals, the buy-sider said: "People have had enough of these energy deals.

According to Prospect News data at Tuesday's close 19.4% of all 2008 issuance, including the backlog, came from the energy sectors.

"They keep pounding them," said the buy-sider, "and people just can't take it."

The buy-sider pointed to the Targa Resources Partners LP and Targa Resources Finance Corp. 8¼% senior unsecured notes due July 1, 2016 (B2/B), which priced on June 12 in a $250 million issue.

"You can buy those now at 97.50," the buy-sider said.

"The market is heavy, but the energy stuff had been holding in pretty well.

"That's maybe beginning to change."

$8 billion of bridge rolls

The Tuesday session also heard terms emerge on two bridge roll deals - that is, hung bridge financing which the underwriters rolled into high yield bonds.

Intelsat, Ltd. priced approximately $7.08 billion of notes on Tuesday, issuing via three entities.

Credit Suisse, Morgan Stanley and Banc of America Securities LLC were the initial purchasers.

Intelsat Subsidiary Holding Co., Ltd. priced approximately $1.56 billion in two tranches of notes (B3/BB-), including $883.346 million of 8½% senior notes due Jan. 15, 2013 and $681.012 million of 8 7/8% senior notes due Jan. 15, 2015.

Both tranches were priced at par.

Intelsat (Bermuda), Ltd. priced approximately $5.036 billion in two tranches of notes (Caa2/CCC+), including $2.805 billion of 11¼% senior notes due Feb. 4, 2017 and approximately $2.231 billion of 11 ½% senior PIK election notes due Feb. 4, 2017; the PIK coupon steps up by 100 basis points.

Both Intelsat (Bermuda) tranches were also priced at par.

Meanwhile Intelsat Intermediate Holding Co., Ltd. priced $481.020 million (at maturity) of senior discount notes that mature on Feb. 1, 2015 (Caa1/B-). The notes, which priced at 86.24, have a zero coupon until Feb. 1, 2010, then bear interest at 9½%.

The $7 billion proceeds makes the Intelsat offering one of the biggest ever in the junk bond market, trailing the record-holder, the $7.5 billion brought in October last year for the leveraged buyout of TXU Corp. but ahead of the $6 billion sold in March 2007 by Freeport McMoRan Copper & Gold Inc.

Also Telesat Canada and Telesat LLC priced $910 million of high-yield notes (Caa1/B-) in two tranches.

A $692.825 million tranche of senior notes due Nov. 1, 2015 priced at par to yield 11%.

Meanwhile a $217.175 million tranche of senior subordinated notes due Nov. 1, 2017 priced at par to yield 12½%.

Morgan Stanley, UBS Investment Bank and JP Morgan were joint bookrunners.

New Quicksilver bonds hang around issue

A trader said he saw the new Quicksilver Resources 7¾% notes due 2015 trading around after the bonds had priced at 98.655. Market participants "hit the issue bid a few times," bringing the bonds to the level at which he saw them, 98.5 bid, 98.75 offered. He did not see trading in any of the other new issues.

Another trader saw the bonds at 98.5 bid, 99 offered, "which the bid side is below where they priced - and that's a little bit surprising right out of the chute, especially for a name in the energy sector."

Market indicators continue falling

Back among the established issues, a trader said that the widely followed CDX junk bond performance index was down ½ point during Tuesday's session, quoting it at 94½ bid, 95 offered. The KDP High Yield Daily Index meantime plunged 56 bps to 73.34, while its yield ballooned out by 15 bps to 9.97%.

In the broader market, advancing issues once again trailed decliners by a more than two-to-one margin. Activity, represented by dollar volume levels, was about 31% above Monday's levels.

A trader said that "the market opened up - and it went lower almost immediately." That "put in a bottom - a couple of things that traded down the most [saw] bids filled in here and there, but I wouldn't say the market got materially better."

Apart from trading driven by specific news, he said, "the market was soft. The focus was on the calendar. It was sloppy."

"The market is just ugly," another trader declared. "I would be shocked if AMG [Data Services' weekly high yield mutual fund-flow numbers put out every Thursday afternoon] was not negative a few hundred million [dollars] this week. I would be shocked."

He said there were a variety of negatives weighing junk bond land down. "We're hearing market-timers are pulling out, and some bonds are dropping by points at a time."

It's his view that the slide is "an over-reaction because of a lack of liquidity. Accounts - meaning the buyside - are not stepping in here. They're for the most part staying on the sidelines, waiting for things to settle in.

"I believe it's mostly dealer-driven, either unloading long positions or creating short positions for hedges versus their long positions - but regardless, bonds are just trading down."

He said that "bonds are just offered without a bid in a lot of cases, and typically, when there is a bid, a point or two lower, it's from someone who got a short off [Monday] and is just looking to cover. Bonds trade down, and there is no follow-bid."

Gaming sector slippage continues

In the gaming sector, a trader said that "Harrah's opened up, and traded down," with the Las Vegas-based casino giant's 10¾% notes due 2016 going as low as 81-81.5 at one point, before closing at 82-82.25, "so that was off the bottom - but these things were trading as high as 87 at the top, and have continually backed off ." He attributed the pullback to the "beating" that the whole gaming sector has been taking of late, caught in a crunch between rising fuel prices and increased consumer worries about the strength of the economy and their own place in it.

"The higher gas prices go, the harder it is for people to make the trip [out to Las Vegas, Atlantic City or other gaming destination ] and the carriers that go out there are pulling planes out of there. I think Harrah's in particular gets a good chunk of its revenue out of Las Vegas, so that's a problem for them."

Harrah's has its own unique problems, including a Lehman Brothers report projecting that the gaming operator "are gonna PIK their toggle bonds" - that is, pay the interest coming due soon on its 10¾% notes due 2018 by issuing holders more of the same bonds rather than making the usual cash payment, something usually taken by the market as an ominous sign of potentially diminished liquidity. "So they were kind of lower across the board." Harrah's Operating's 5¾% notes due 2017 meantime closed down 1 point at 53.

Besides Harrah's, he also saw Boyd Gaming Corp.'s bonds down "a point or two," and MGM Mirage bonds were easier as well, and he saw Isle of Capri's 7% notes due 2014 hitting a low of 71. He noted that St. Louis-based Isle was forced to temporarily close one of its casinos, the Rhythm City in Davenport, Iowa, because of intense flooding on the nearby Mississippi River. The casino re-opened Tuesday afternoon. It was the second time this year that the Davenport casino was closed due to flooding.

Isle's flooding problems may not be over, depending upon how long the flooding will continue and how far it will go, since the company has other properties in cities further downriver - its riverboat in Caruthersville, Mo., as well as casinos in Lula and Natchez, Miss.

Another market source saw the Isle bonds just above 71, down 2 points on the day.

Also in the gaming sphere, a trader saw Trump Entertainment Resorts' 8½% notes due 2015 fall a full 5 points on the session to 63 bid. Its shares closed at $2.13, a new all-time low, down about 8½%.

Another trader acknowledged that the casinos "have been pretty weak." He saw the Isle of Capri 7s drop as low as 70.75 bid from prior levels around 73 on Monday, before closing out the day at 71.25

Auto bonds continue to spin their wheels

A trader saw General Motors' 8 3/8% bonds due 2033 down 2½ points on the day at 62. GM's 7 1/8% notes due 2013 lost 3 points to close at the 66 level.

Another trader saw the GM benchmarks get as low as 61.5 bid, before rebounding off that low to end at 62 - still well down from 64.5 bid on Monday. He saw Ford's 7.45% bonds due 2031 fall as low as 58.375, before coming back from that low to end at 60. That was down 1¼ points from where they had finished on Monday.

Visteon Corp.'s 7% notes due 2014, which fell 4 or 5 points to around the 59-60 level on Monday on no news, just a generalized investor angst about the autosphere, were seen by a trader unchanged at 59 bid, 61 offered. However, another market source pegged the bonds at 58 bid, down 2 points on the day.

Spectrum bonds drop

A trader saw Spectrum Brands Inc.'s 12% notes due 2013 trading around 90-91 as recently as Monday morning in the aftermath of its recent announcement of a large asset sale and accompanying debt reduction, which had boosted the bonds into the 90s. However, the bonds fell abruptly from that level "5 or 6 points" to the mid-80s, and were offered there on Tuesday. He said he had seen no news and had heard nothing about it, suggesting that a holder might be liquidating a position.

The trader said that there have been "a number of weird trades out there over the past couple of days - bonds trading several points below where they had been trading just the day before." He thought that Catalyst Paper Corp.'s bonds had undergone similar gyrations, with the company's 7 3/8% notes due 2014 plummeting from levels around 76-77 down to about 70 on Monday, in late large-block trading.

Pilgrim's Pride no turkey

While most issues were listing to the downside, and some of them heavily so, one of the few bonds heading the other way was Pilgrim's Pride, whose 7 5/8% notes were bouncing back smartly from their previously oversold levels.

A trader quoted the Pittsburg, Tex.-based poultry producer's bonds as having firmed to 84.75 bid from prior levels around 83, while its 8 3/8% notes due 2017 were up 2 points on the day at 75, all on no news. Another market source saw those latter bonds up more than 3 points, though at that same level.

"In this environment," the trader said, "that was a very impressive bounce."

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