Tenet bonds trade lower; Chaparral steel firmer on buyout; Quebecor deal shelved

By Paul Deckelman and Paul A. Harris

New York, July 11 - Tenet Healthcare Corp.'s bonds traded lower Wednesday, although junk in general was observed at stronger levels as it rebounded from its troubles Tuesday when jitters over the continuing subprime lending problem spooked most financial markets.

Among the upsiders, a trader said, were the bonds of Chaparral Steel Co. on the news that the Midlothian, Tex.-based steelmaker will be acquired.

A high yield syndicate source told Prospect News that the broad junk market - trailing a Wednesday morning start that was heavy, indeed - came well off its lows to end the day down only 1/8 to ¼ point.

Meanwhile just about the only news from the primary market was bad news: Quebecor Media Inc. became the sixth prospective issuer to postpone a bond deal since turbulence set into the new issue market in late June.

The Montreal-based media conglomerate postponed its $750 million two-part offering of senior notes (confirmed B2/existing B) due to market conditions, according to J.F. Pruneau, the company's treasurer.

When Prospect News asked if the company had alternative plans to meet its financing requirements Pruneau said that Quebecor Media would "let the dust settle," and added that if conditions improve, the company could re-access the high-yield market.

The postponed offering had been comprised of 8.5-year notes and 10.5-year notes.

Citigroup, Banc of America Securities and TD Securities were the joint bookrunners.

Proceeds were slated to be used for general corporate purposes including acquisitions, capital expenditures and debt repayment.

Pushback, ready or not

Primary market sources told Prospect News on Wednesday that that the present choppiness in the new issue market - with six issuers pulling a combined 11 tranches totaling $4.450 billion since June 26 - has much to do with unrealistic expectations on the part of issuers.

One high yield syndicate official explained on Wednesday that underwriters had been pitching some of the recent deals more than a month ago, during a period when the market was hot.

This source took his fellow investment bankers to task for not doing enough to prepare prospective issuers for the higher interest rates that the buy-side - now "pushing back" against what it saw as aggressive pricings from issuers and their underwriters during the spring and early summer - is presently exacting.

Not 'historically' bad

The official also asserted that judging strictly by the numbers the market is by no means in historically bad condition.

The source said that yields are presently at approximately the same place they were at the beginning of November 2006, just as the massive HCA Inc. $5.70 billion deal, and the even bigger Freescale Semiconductor Inc. $5.95 billion equivalent deal were coming into the market, both being sold as the record-setting year of 2006 was racing toward its close.

The numbers would seem to support this syndicate official's thesis.

On Oct. 26, 2006, just as the HCA and Freescale deals were hitting the market, the Bear Stearns High Yield Index posted a yield to worst of 8.27%.

Last Thursday, July 5, the BSIX yield to worst stood at 8.20%.

Neo-China sets talk

Aside from the Quebecor postponement, the market heard 9½% area price talk on the Neo-China Group (Holdings) Ltd. benchmark-sized offering of seven-year guaranteed bonds (B1/B+) with detachable warrants.

Deutsche Bank and Bank of China International are the bookrunners for the deal from the Hong Kong-based property developer, which is expected to price before the end of the week.

Also expected to price before the end of the week is the Cardtronics Inc.'s $125 million add-on to its 9¼% senior subordinated notes due Aug. 15, 2013 (Caa1/B-).

Banc of America Securities is leading that deal.

No price talk was heard as Prospect News went to press on Wednesday night.

And French real estate developer Groupe Akerys is expected to price its €300 million offering of seven-year senior notes before the end of the week.

BNP Paribas, Calyon Securities and SG Corporate & Investment Banking are joint bookrunners.

Trader sees new deal rebound

Talking about Quebecor's postponement, a trader said the current market "is just so dicey, that unless you absolutely need to get a deal done," it won't happen until conditions improve a little. "If this were December, they'd force it," to get the deal done before the end of the year.

Right now though, "it's the beginning of a new quarter. The market's going to go into a vacation mode, and this would be the environment for the next couple of weeks," which may lend itself to the decision to kill - for now - certain other transactions.

"With the prospect of things moving higher, the more time you put [between the present] and this subprime fiasco, the better."

Overall, he said, "every time our market trades off - it just comes right back.

"Our market gets hammered every day a little bit, but it seems to hang in - so my guess is it will find a bottom and try to move higher. You just postpone 'em, and see how they look in a month or so."

He said that Wednesday's market was "kinda more the same, flow-wise - we opened down a point in a spillover from [Tuesday's] trade."

However, he added, "the market rebounded basically into the close here, with the indexes up about a point [from early lows], so we're basically unchanged."

He called overall secondary trading "pretty robust, with decent amounts of names trading - all at sort of lower levels, but we're starting to see buyers coming in now for the first time. They had been quiet, and on the sidelines.

"We're starting to see more buyers, as opposed to just guys looking to hit bids," he added.

Tenet trades off

A trader called Tenet Healthcare "a name that was significantly lower," although he had no ready explanation by the slide.

While sector peer HCA Inc. "opened a little lower, but then traded a little higher, Tenet opened unchanged, but then moved lower and stayed lower. He saw the Dallas-based hospital operator's 9 7/8% notes due 2014 lose a point to end at 96 bid, 96.5 offered.

He also saw the company's 9¼% notes due 2015 at 93.25 bid, 93.75 bid, down ¾ point.

A trader at another desk quoted Tenet's 6 7/8% notes due 2031 off a point at 74.75 bid, 75.75 offered, opining that the slide might be due to the fact that Tenet "paid too much for a hospital" - last week Tenet paid $35 million to purchase Coastal Carolina Medical Center in Hardeeville, S.C., from LifePoint Hospitals Inc.

Tenet on Wednesday also announced that it had signed a national agreement with insurance provider Aetna Inc. to cover Tenet's approximately 60 facilities, including acute care hospitals, rehabilitation hospitals, specialty hospitals, outpatient centers, and employed physician practices.

Financial terms of the deal were not disclosed. The deal adds nine hospitals to Aetna's direct provider network. The coverage includes all of Aetna's insurance products.

The first trader said that Community Health Systems Inc.'s recently issued 8 7/8% senior notes due 2015, which had traded into a 99.75 bid earlier in the day, were going home at 100.5 bid, 100.75 offered, in active trading.

Trader sees Chaparral firming on Gerdau deal

Most market participants saw little real response to the announcement late Tuesday that Gerdau Ameristeel Corp. had agreed to buy Chaparral Steel for $86 per share, or $4.22 billion.

A source said Chaparral's 10% notes due 2013 had last been seen trading at around the 110 level on Monday and were still there Wednesday, while Gerdau Ameristeel's 10 3/8% notes due 2011 were last seen last week hovering just below 106.

However, another trader said that the Chaparral bonds "are going to go to a 112-113 context, trading up a little from the 109-110 current context, and well above their call level" at 105.

Gerdau expects to take out its bonds, which are callable July 15, and to tender for Chaparral's bonds because of change-of-control clauses.

Tampa, Fla.-based Gerdau Ameristeel, which is about two-thirds owned by Brazil's Gerdau SA, Latin America's biggest steelmaker, is the Number-Two mini-mill steel producer in North America. It has lined up $4.6 billion in financing commitments for the Chaparral transaction from its financial advisor, J.P. Morgan Securities Inc. It also said that it may issue equity securities after the transaction is complete, with the support of its majority shareholder, to defray some of the acquisition costs.

Gerdau estimated that the deal will yield over $55 million in annual operating savings by the end of next year, although its earnings per share this year and next will likely be down should it issue new stock in connection with the transaction.

Also in that steel sector, a source saw Middletown, Ohio-based AK Steel Corp.'s 7¾% notes due 2012 down a point at 99.5, although another source saw the bonds unchanged at 101.5, and pegged its 7 7/8% notes due 2009 at 99 bid.

Graphic Packaging holds gains

Elsewhere in the M&A sphere, Graphic Packaging Corp.'s bonds were seen hanging onto the gains notched Tuesday, when the Marietta, Ga.-based maker of food and beverage packaging announced that it had agreed to acquire Altivity Packaging LLC for about $659 million in stock from TPG Inc., in order to increase its capacity and expand into specialty bags.

Graphic Packaging's 9½% notes due 2013 were seen having pushed up 2 points to 103 bid in moderate trading on the news, while its 8½% notes due 2011were also at that 103 level, up a bit more than a point, though on lighter trading.

Graphic Packaging expects the combined company, which will be renamed Graphic Packaging Holding Co., to have revenue of about $4.4 billion and annual cost savings of more than $90 million. It will be 60% owned by current Graphic Packaging shareholders, while investors in Chicago-based Altivity will own the other 40%.

Tembec tumble continues

A trader saw the bonds of Canadian forest products company Tembec Inc. continuing to decline Wednesday, on top of the 2 to 4 point drop seen during Tuesday's session

He saw the company's 8 5/8% notes due 2009 dip 2 points on the day to 54 bid, 56 offered, on top of a 4 point drop seen the previous session, while its 8½% notes due 2011 and 7¾% notes due 2012 at 46 bid, 48 offered were each quoted down a point on the day, on top of the 2 point drop Tuesday.

Market participants point to the recent strength of the Canadian dollar, now at near-30 highs against the U.S. greenback at around 95 U.S. cents, as a factor, since the strong loonie increases the costs of products sold by Tembec and other Canadian companies in the U.S. and other foreign markets.

Auto parts names a mixed bag

Elsewhere, a trader saw Dana Corp.'s bonds "down a couple," although he saw no fresh negative news out on the Toledo, Ohio-based automotive parts maker. He quoted its 6½% notes due 2008 down 2 points at 102 bid, 103 offered.

Delphi Corp.'s bonds were down about ½ point, its 6.55% notes due 2006 at 117.5 bid, 118.5 offered, despite all of the recent not-unexpected drama about Cerberus Capital Management LP leaving the consortium of investors looking to pump $3.4 billion into the bankrupt Troy, Mich.-based parts maker, and Delphi reportedly holding talks with other investors in the group to rework the investment plan.

And he saw no movement in Tower Automotive Inc., although the courts have okayed the Novi, Mich.-based vehicle frame maker's reorganization plan, calling for Cerberus to buy its assets for $1 billion, clearing the way for its bankruptcy exit.

He said of its 12% notes due 2013 "3, 4 - out the door."

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