Upsized Gazprom, Doane deals price; Extendicare lower following conference call

By Paul Deckelman and Paul A. Harris

New York, Feb. 21 - Russian natural gas producer OAO Gazprom's 10-year note issue - which had already been a mega-deal at $1 billion - was heard by high yield syndicate sources Friday to have inflated to $1.75 billion when it priced - making it one of the largest junk deals so far this year, and the largest corporate bond deal ever to come from a Russian borrower. Doane Pet Care Co.'s much smaller and lower profile seven year note deal also upsized when it priced, to $213 million.

In the secondary market, things were mostly quiet and most trading featureless, although health facilities operator Extendicare Inc.'s bonds seemed to have something of a sickly pallor after the company's conference call.

So many bond-guzzling investors from the high yield and emerging markets asset classes lined up at the pump for Gazprom's offing that it was highly oversubscribed, even after being massively upsized.

Gazprom's offering of 10-year notes (B+) priced at par to yield 9 5/8%. The deal, which had been marketed to high yield and emerging markets accounts worldwide, via Dresdner Kleinwort Wasserstein and Morgan Stanley, came at the inside end of the 9 5/8%-9¾% price talk.

The issuer was said by one market source to have had a book filled with $6.5 billion worth of orders. The source said that around mid-afternoon on Friday the new Gazprom notes were seen trading at 102-102.5 in the secondary.

Also pricing Friday was a more moderately upsized offering from Doane Pet Care, a privately held pet food firm from Brentwood, Tenn. Under the wing of underwriters Credit Suisse First Boston and JP Morgan, it sold $213 million of 10¾% seven-year senior notes (B2/B-) at 98.80 to yield 11%, spot on the 11% area price talk. The deal was increased from a planned $200 million.

As the market began to turn its focus to the week of Feb. 24 it saw price talk of 8¼%-8½% emerge on DirecTV's $1.4 billion of 10-year senior notes (B1/B), which are expected to price on Tuesday via joint bookrunners Deutsche Bank Securities, Banc of America Securities, Credit Suisse First Boston, Goldman Sachs and Salomon Smith Barney.

One market source expressed the belief that the talk could be seen as "aggressive" for the new notes from the El Segundo, Calif.-based digital satellite television service provider, a subsidiary of Hughes Electronics Corp.

Another sell-side official seemed inclined to agree somewhat, but added that such pricing is characteristic.

"The broadcasting sector trades pretty tight," this official commented. "And they wouldn't be out there with talk like that if they didn't think it was going to get done, is my guess."

And one new deal appeared on the horizon Friday, as sell-side sources began piecing together recent bond market activities of Radnor Holdings Corp. The packaging firm redeemed two of its issues of bonds on Nov. 19 and 20: $100 million of 10% senior notes due December 2003 issued in 1996, and an additional $60 million issued in 1997.

In a recent press release the company announced it will bring $135 million of new senior notes. Standard & Poor's rated $135 million of senior notes due 2010 B- with a positive outlook.

No names or timing were heard on Radnor's new bonds, however one sell-side source told Prospect News that it will likely be sooner than later, given the call of the 2003 notes.

As one sell-side official took a look at the forward calendar shortly after the conclusion of Friday's session, what stood out was the DirecTV deal. Although this source reported being aware of some acquisition financings on the horizon, none approached DirecTV's $1.4 billion size.

One of those acquisition financings, the source said, is Dole Food Co.'s $450 million. Dole's bank deal began during the week of Feb. 17, the official added - and the bonds won't be far behind.

This source added that as the week of Feb. 17 came to a close the high-yield market appeared to be in decent shape. If you want an indicator of the present market, this official advised, look at the DirecTV price talk, not at FastenTech, Inc., the deal that was postponed in the middle of last week due to market conditions (its problems, sources told Prospect News, had to do with the fact that it had designated proceeds from the bond deal to make a dividend payment).

"That was a small deal ($175 million)," the official commented. "Given that, and the use of proceeds, the market just couldn't get behind it.

"Right now I think high yield looks to be in good shape."

Back in the secondary market, "it was pretty quiet overall," a trader noted. "We started out of the gate kind of firm, and then this whole explosion on Staten Island kind of took the focus away from stuff and we never really got it going again. The market kind of just quieted down."

He referred to a mid-morning explosion of a gasoline barge being unloaded at an oil depot located in an industrial neighborhood in New York City's outermost borough. That blast sent plumes of thick, black smoke visible for more than 30 miles into the air, closed the busy Arthur Kill channel between Staten Island and New Jersey, shook up a city already on high alert because of terrorism fears, and drove oil prices and refined gasoline prices higher on commodity markets, even though no part of the Exxon-Mobil oil facility itself was damaged and the company said it did not expect the incident to cause significant interruptions in gasoline supplies. Stocks initially fell on the news, with investors fearing a possible terrorist strike, but then reversed course after officials said there was no evidence of a terrorist connection.

Perhaps coincidentally - or perhaps not - the junk bonds of two petroleum refiners - Tesoro Petroleum Corp. and Premcor Refining Group Inc. - were quoted lower in Friday's dealings. Tesoro's 9 5/8% notes due 2012 were pegged at 75 bid, down about a point, while Premcor's 8 7/8% notes due 2007 were half a point lower, at 94 bid.

Neither company is known to have any operations in Staten Island that were directly affected by Friday's accident.

Apart from that, the trader said that Extendicare, a Markham, Ont.-based healthcare facilities operator, released fourth-quarter earnings data and held a morning conference call, and the bonds were lower afterward.

The earnings results were a sort of mixed bag; while net earnings for the full year rose to $18.9 million (26 cents per share) from a loss of $36.4 million (52 cents per share) in 2001, fourth-quarter net earnings $3 million (four cents per share), down from $6.9 million (nine-cents per share) in the quarter ended December 31, 2001.

The trader said that the conference call did not provide very much reassurance - "cash flow came in negative, and they seemed to be kind of gearing up to take market share at the expense of profitability, and their whole focus seems to be growth oriented, in this very difficult, challenging environment."

He quoted the company's 9.35% subordinated notes as having traded as low as 73.5 bid/75 offered during the session, lower than recent levels.

"They'd been in the mid-to-high 70s, and we definitely have sellers [now] in the mid-70s. We had a print around 79 a couple of weeks ago, and prior to that, they'd been in the 80s, so they've just kind of deteriorated, so they seem to be offered now at 75 without a bid," he said.

Extendicare's 9½% senior notes, meantime were being quoted offered in the 92-94 context, after having recently been up around 96 bid/97 offered.

The company's little-traded stock was off 30 cents (11.11%) in New York Stock Exchange dealings, to $2.40; volume of 4,200 shares was about seven times the norm.

Extendicare, the bond trader said, "is a name that barely trades, but its one of these nursing care names like Beverley Enterprises that people been having their eye on recently."

He said that Fort Smith, Ark.-based nursing home operator Beverley on Thursday reported "not necessarily good news-but no bad news on their conference call, so their bonds are up two or three points."

Beverley said it posted a quarterly loss of $91 million (87 cents per share), versus a loss of $266.6 million ($2.56 per share), a year ago. The latest results included a pre-tax charge of $76.1 million for asset impairments and a loss of $24.7 million for discontinued operations. The year-ago totals were impacted by heavy costs associated with job cuts, discontinued operations and a settlement of disputes over the federal Medicare program.

Beverley also said that it had reached an agreement with its lenders to provide relief under its debt covenant, and it said it would continue to sell assets to pay down debt.

Beverley's 9 5/8% notes due 2009 were seen a point better Friday at 77.5 bid, while its 9% notes due 2006, which had risen to that same level in Thursday's dealings, pushed up by the results, were seen holding steady. Its shares firmed 25 cents (14.29%) Friday to $2 even in NYSE dealings. Volume of 1.17 million shares was double the usual.

Beverly's bonds, the trader said, "after trading in the low-mid 70s, at a 5-6 context two weeks ago, now they're around 78-80, so they're up two or three points. Extendicare is meanwhile going the opposite way, they're down two to three points. That was kind of the real mover in the healthcare sector."

In the new deal sector, new Doane Pet Care bonds were not seen trading around. A trader saw Citgo Petroleum Corp.'s new 11 3/8% senior notes due 2011, which priced late Thursday at 99.38, trading right around their issue price, or slightly below; given the generous liquidity of the $550 million offering" that was kind of a disappointment for a lot of people."

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