Downsized Citgo prices, moves up, DynCorp slates; soccer quiets secondary, but junk ends firm

By Paul Deckelman and Paul Harris

New York, June 18 - Citgo Petroleum Corp. priced its long-awaited issue of secured notes - finally - on Friday, high yield syndicate sources said.

Despite earlier misgivings about the deal in some quarters of the market, the Houston-based refining company's new bonds were seen to have firmed solidly when they went into secondary dealings.

The sources also heard that DynCorp. International Inc. plans to sell nearly half a billion dollars of new notes during the upcoming week as part of the financing for the Falls Church, Va.-based defense contractor's pending leveraged buyout

In the secondary market, apart from the good reception seen for the new Citgo bonds, traders said that things were mostly quiet - a combination of the usual summer Friday lassitude, particularly with very nice weather the norm in New York and other Northeastern business centers, and the enormous distraction caused by the televised World Cup soccer matches, particularly with the U.S. national team unexpectedly in the thick of things.

Away from that, secondary levels continued the week's overall firming trend, and there was another round of brisk activity in energy names like ATP Oil & Gas Corp. and OPTI Canada Inc., extending the week's major market pattern.

From deep in the distressed-debt precincts, Chemtura Corp.'s bonds had an impressive move to levels well above par after the Middlebury, Conn.-based chemical company submitted a Chapter 11 reorganization plan that would pay its lenders and unsecured creditors in full.

Citgo prices downsized deal

Friday's session in the primary market saw two deals cross the finish line. One of them was dollar-denominated, while the other came in euros.

Citgo Petroleum priced a downsized, restructured $300 million issue of 11½% seven-year senior secured first lien notes (Ba2/BB+) at 98.822 to yield 11¾%.

The yield printed at the tight end of the 11¾% to 12% price talk.

RBS Securities Inc., UBS Investment Bank, BNP Paribas Securities Corp. and Credit Agricole CIB were the joint bookrunners.

The deal, which was downsized and restructured from a $1.5 billion two-part offering - originally including a 10-year tranche - was presented on an investor roadshow in mid-May and subsequently sidelined due to market conditions, as well as other factors pertaining specifically to the deal, sources say.

In conjunction with downsizing the notes, the Houston-based refiner upsized its credit facility.

Proceeds will be used to repay debt and for general corporate purposes.

Remy Cointreau in quick sale

Meanwhile French spirits distiller Remy Cointreau priced a €205 million issue of 5.18% 6.5-year senior notes (Ba2/BB-) at 97.745 to yield 5.6%.

The yield on the Remy deal also printed tight to the price talk, in this case for a yield in the 5 5/8% area.

Credit Suisse and Credit Agricole CIB were joint bookrunners for the quickly shopped debt refinancing.

$443 million week

Figuring Friday's Citgo deal into the tally, the June 14 week turned out to be another anemic one in the primary market, with just two issuers raising a combined total of $443 million, each bringing a single, junk-rated dollar-denominated tranche.

Hence it was the thinnest week in terms of issuance since the week of May 24, which saw just $161 million in a single tranche.

The week closes with year-to-date dollar-denominated high-yield issuance at $114.6 billion in 273 tranches.

DynCorp plans LBO deal

Looking to the week ahead, Dyncorp International Inc. plans to price a $455 million offering of seven-year senior unsecured notes via Citigroup.

The company is concurrently in the market with a $715 million senior secured credit facility.

Proceeds will be used to help fund the buyout of the company by Cerberus Capital Management LP for $17.55 in cash per share. The transaction is valued at about $1.5 billion, including the assumption of debt.

Other financing for the acquisition will come from $591.6 million in equity.

DynCorp is one of just two deals on the calendar as the June 21 week gets underway.

Michael Foods Group, Inc. is also roadshowing an LBO-financing junk bond deal.

The Minnetonka, Minn.-based food company is marketing $430 million of eight-year senior notes via Goldman Sachs.

Proceeds will be used to help finance the leveraged buyout of the company by GS Capital Partners from Thomas H. Lee Partners LP.

That deal is expected to price on Tuesday.

Beyond Michael Foods and DynCorp, the dealers anticipate a modest increase in primary market business during the week ahead, sources said after Friday's close.

Citgo goes higher

When the new Citgo 11½% senior secured notes due 2017 were freed for secondary dealings, a trader saw the bonds break at 100¾ offered, and then saw a two-sided level at par bid, 100½ offered, versus the 98.822 level at which the bonds had priced earlier in the session..

A second trader said that "the deal did well," quoting it at 99½ bid, 100½ offered.

Yet another trader pegged the new bonds at 100¼ bid, 100¾ offered.

"I'm surprised it's up," he said. Indeed, he added that he was even surprised "that they got the deal done" in the wake of market skepticism earlier in the week, when Citgo was heard by market sources to have radically downsized the deal to $300 million from the originally announced $1.5 billion, with the concurrent bank-debt deal accordingly increased in size. Some doubters even expressed the opinion that the downsized bond deal was by no means a certainty, as it might be just folded into the bank financing to avoid the difficulties of doing a bond deal under current market conditions.

But, he said, the deal did get done, the skeptics were proven wrong, "and now the bonds are at par bid,."

He said that could bode well for the overall primary market, which had recently taken a breather.

"A lot of companies have been doing the right thing this year, refinancing their debt while they could, while there was a window. Then the market paused for a little while, but slowly but surely things are coming back," although he added that "the caution flag is still out" among many market participants.

Market indicators improved again

Back among bonds not related to the new-deal realm, a trader saw the CDX North American HY Series 14 Index up ¼ point on Friday to end at 96 7/8 bid, 97 3/8 offered, after having firmed by ½ point on Thursday. The index thus was solidly higher on the week from the 93½ bid, 94 offered level at which it had ended the previous week on Friday, June 11.

The KDP High Yield Daily Index, meantime, rose by 28 basis points on Friday to end at 70.85, this on top of a 43 bp jump during Thursday's session. The index ended well up from its week-earlier 69.33 finish. Its yield narrowed by 9 bps to 8.56%, after having tightened by 15 bps on Thursday. The yield ended the week having come in considerably from 9.08% at the previous Friday's close.

Another market measure, the Merrill Lynch High Yield Master II index, closed the session showing a year-to-date gain of 4.645%, up impressively from the 2.777% level at which it had finished the previous week. The average index price in the latest week was 96.148, versus 94.552 a week ago. Its yield to worst narrowed over the week to 8.93% from 9.387% while its spread to worst versus comparable Treasuries tightened to 688 bps from 726 bps a week ago.

Advancing issues beat decliners Friday for a sixth consecutive session, although their roughly eight-to-five advantage seen on Thursday narrowed a little to about a seven-to-five margin.

Overall market activity, represented by dollar-volume levels, fell by 13% on Friday, after having slowed by 4% on Thursday

GOOOOOOOOOOAL!

When asked what was going on in the high-yield market on Friday, a trader succinctly answered in one word: soccer.

"Yeah, it seemed like everyone was watching soccer," a second trader said - particularly because the underdog U.S. national team was doing unexpectedly well, battling powerful Britain to a draw and then eking out another tie against Slovenia, despite some questionable officiating, to keep its hopes for advancing to the next round alive.

Win, lose or draw the televised games gave bond market players a perfect excuse to do nothing, and to rest on the laurels they'd earned earlier in the week, when junk advanced strongly from the prior week's anemic levels.

"We've had a very strong week," one of the trader said. Away from the good reception given to the Citgo deal, "the rest of the market was firm."

One name which he saw doing particularly well, as a sort of proxy for the rest of the market, was Ford Motor Co. and its Ford Motor Credit unit.

He saw the Ford Credit 7% notes due 2015, for instance, trading at par, up from 98¾ bid earlier in the week and 98 the previous week.

"That paper continues to be on a roll," he said, :"especially seeing that it's short paper," He saw another short-dated issue, the 7.80% notes due 2012 up around 103¾ bid, versus 102 7/8 "a couple of days ago - a pretty big move for such short paper,."

Another name he saw trading around actively at a higher level was Harrah's Operating Co. Inc.'s 12¾% notes, which began the week around 92 bid, had moved up to 92¾ bid, 93¾ offered by mid-week, and were going home of Friday at 96¾ bid, 97 offered.

Overall, he said, the junk market had benefited :"from the relative stability in the stock market," as it steadied from recently volatile trading, "and in the euro."

ATP fluctuates

In the energy sphere, a trader saw ATP Oil & Gas debt continuing to fluctuate in Friday trading.

The trader said the Houston-based energy exploration and production company's 11 7/8% notes due 2015 hit an intraday low of 71 before heading back up to 72½ bid, 73 offered, "kind of where they went out [Thursday]."

Another trader saw the bonds trading around 72, but added "they went out a touch better than that."

ATP bonds have been volatile of late, as the market deals with BP plc and its Gulf of Mexico oil leak. ATP also has drilling rigs in that area, but at least one of its drills has been halted due to the six-month moratorium on offshore drilling. The moratorium was a direct result from the mid-April explosion at the BP-owned Deepwater Horizon rig.

A trader also saw some dealings in OPTI Canada's bonds, although they were largely unchanged at the levels to which the Calgary, Alta.-based oil sands company rose at mid-week after holding out the prospect of doing an asset sale or other strategic transaction to lower its debt.

He saw the 9% secured notes due 2012 at 101 bid, 102 offered, while its 7 7/8% notes and 8¼% notes both due 2014 were unchanged in an 87-90 context.

Chemtura climbs post-plan filing

A market source quoted Chemtura Corp.'s 6 7/8% notes due 206 up as much as 12 points on the day, in brisk trading, at 111½ bid.

A trader elsewhere noted that Chemtura "had a nice pop" after the company filed its reorganization plan and related disclosure statement.

The trader quoted the 6 7/8s at 114 bid, 116 offered, versus 109¼ bid, 109½ previously.

Another trader said the bonds ran up anywhere from 2 to 6 points following the news of the filing, seeing the 7% notes that were to have matured in 2009 around 112. He meantime placed the company's 2016 paper at 115 and the 6 7/8s at 1111/2.

The second trader added that, when combining all of the issues, about $50 million to $60 million in bonds changed hands.

Yet another market source said Chemtura bonds were "up a bunch," as the 2026 notes moved up to 111 from the high-90s. The trader also saw the 2016 paper at 115 and the 7% notes around 112.

The chemical maker filed its reorganization plan on Friday. The company said the plan offers "the potential to satisfy all creditors' claims in full, as well as offering value to equity holders," according to a press release.

Chemtura hopes to emerge from bankruptcy protection in the next few months.

Stephanie N. Rotondo contributed to this report

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