Chesapeake brings add-on to new bonds; HIT deal pulled; Calpine better

By Paul Deckelman and Paul A. Harris

New York, Aug. 11 - Chesapeake Energy Corp. - fresh from having sold $500 million of new 12-year bonds on Thursday, went back to the well just a day later, selling a $100 million add-on tranche to those bonds.

The only other real news among the new dealers was the decision by children's TV producer HIT Entertainment plc to scrap its planned offering of eight-year subordinated notes and do a bank debt deal instead.

In secondary dealings, things were so sleepy that a trader laughed that trying to report on the session would be "an exercise in creative writing." One of the few features that stood out was the rise in Calpine Corp. bonds, which had gotten oversold earlier in the week on revelations contained in a regulatory filing by the San Jose, Calif.-based power generating company.

Overall, one market source said, high yield was unchanged to slightly softer during a very quiet Friday session, as the stock market was also slid into the weekend on a down-note.

The source added that Thursday's report of a substantial $475 million outflow from the high yield mutual funds for the week to Aug. 10 should be a one-time event.

Meanwhile Friday's primary market session produced terms on two unexpected deals, as Chesapeake Energy Corp. tapped the 6½% notes due 2017 that it priced on Thursday for another $100 million, and Chicago insurer First Mercury Holdings drove through with a $65 million floater.

Chesapeake Energy taps 61/2s

Chesapeake Energy priced a $100 million add-on to its 6½% senior notes due Aug. 15, 2017 (Ba3/BB-/BB) at 99.50 on Friday to yield 6.561%, bringing it via the same bookrunners that managed Thursday's sale of the original $500 million issue: Banc of America Securities, Bear Stearns & Co., Lehman Brothers and UBS Investment Bank.

The original $500 million issue came at 98.977 to yield 6 5/8%, so the add-on, which came a day later, came with a lower interest rate.

Also on Friday, First Mercury Holdings priced $65 million of seven-year senior floating-rate notes (B2/BB) at 99.00, with a coupon that floats at three-month Libor plus 800 basis points.

JP Morgan ran the books for the deal that primarily funds a stock repurchase.

$1.7 billion week

The $165 million that priced on Friday brought the week of Aug. 8 to a close having seen $1.7 billion of dollar-denominated issuance in nine tranches, well below the previous week's slightly more than $3 billion in 12 tranches.

The combined total for the first two weeks of August, approximately $4.65 billion in 21 tranches, although is has been described as brisk business for an ordinarily sleepy month in junk, is well short of the $7 billion in 25 tranches seen during the same time period in 2004.

At Friday's close, the high-yield market had seen $64.68 billion of year-to-date issuance in 252 dollar-denominated tranches. Hence issuance on a year-over-year basis continues to slip further and further behind that of 2004, which had seen slightly less than $93 billion price in 372 tranches.

Past the August mid-point

The consensus among sources, that late August will be a relatively quiet period in high yield, continued to build as the Aug. 8 week wound down.

Only three deals are parked on the forward calendar as business expected to be wrapped up by Friday's close. All have at least one triple-C rating.

They include:

* Intcomex's $130 million offering of five-year second-priority senior secured notes (Caa1/B-) via Banc of America Securities. The price talk is for a yield in the 11¼% area, with pricing expected on Monday;

* CitiSteel USA Inc.'s $170 million of five-year senior secured floating-rate notes (B3/CCC+) via Jefferies & Co., with pricing expected late in the week; and

* Columbus McKinnon Corp.'s approximately $136 million of eight-year senior subordinated notes (B3/CCC+) via Credit Suisse First Boston, also expected to price late in the week.

Chesapeake firm in trading

When the new Chesapeake Energy 6 ½% notes due 2017 were freed for trading, the bonds hovered "right around par," a trader said, seeing them at 99.75 bid, 100.25 offered, up a little from the add-on tranche's 99.5 issue price, but about unchanged from where the new issue had traded Thursday, when it firmed a point from its 98.977 issue price. Another trader saw the new bonds with an even tighter spread, at 99.875 bid, 100.125 offered.

Traders saw the new Charter Communications Inc. 8¾% add-on notes due 2013, which priced Thursday at 98.001, holding steady around that level on Friday.

The new Ahern Rentals Inc. 8¼% notes due 2013 - which priced Thursday at par and promptly rose about two points in aftermarket dealings - were not much changed from those levels Friday, a trader said, closing at 101.75 bid, 102.25 offered.

Calpine rises

Back among the established issues, Calpine, a trader said, "got hit [Thursday], but was up [Friday]." He quoted Calpine's 9 7/8% notes due 2011 a point better at 74.5 bid, 75.5 offered.

Calpine "did have a little recovery - though not that much," another trader said, quoting the company's Calpine Canada Energy Finance 8½% notes due 2008 "a little better" at 66.5 bid, 68.5 offered, up from 64.25 bid, 65.25 offered, although he saw "no news" out on the company - which revealed in its latest 10-Q filing earlier in the week that some of the proceeds from Calpine's recent sale of its Saltend Energy Centre in Britain were used to purchase gas, as opposed to paying down second-lien debt, as bondholders and other debtors had apparently been counting on. That brought into question the company's oft-repeated projections that it will be able to take out $3 billion of debt by the end of the year using asset sale proceeds, and the sudden uncertainty caused both the bonds and Calpine's bank debt to fall at mid-week.

But on Friday, a market source said, the 81/2s of 2008 advanced to 66.75 bid from 65 previously, while the company's 8½% notes due 2010 were two points ahead at 73 bid, while its 8½% notes due 2011 gained a point to close at 63.5 bid. He further saw the Calpine 8 ¾% notes due 2013 firm to 72.5 bid from 70, while its 8 ¾% notes due 2007 closed at 74.5 bid, up from 73.

"They were up a point or two across the board."

However, at another desk, a trader said that Calpine's 8½% notes due 2011, which he saw unchanged at 61.5 bid, 63.5 offered, "were up earlier - but then they came back down."

Maytag creeps higher

A market source saw Maytag Corp.'s 5% notes due 2015 firm slightly to 92.375 bid from prior levels at 92, while another trader saw the bonds edge up to 92 bid, 92.5 offered from 91.5 bid, 92, although he called the movement no great shakes and said he would characterize the bonds as essentially unchanged - where several other market participants also pegged those bonds.

The small movement might have merely been in response to Thursday's news that would-be suitor Whirlpool Corp. had upped its cash and stock bid by $1 per share to $21, clearly outpacing the earlier $14 per share buyout offer by an investor group led by Ripplewood Holdings, a New York-based private equity firm.

After the market closed on Friday, Maytag announced that it had decided the Whirlpool bid for the Newton, Iowa-based appliance maker was in fact superior to the Ripplewood offer, and it was withdrawing its previous endorsement of the Ripplewood deal, and postponing the scheduled Aug. 19 shareholders' meeting at which the Ripplewood transaction was to be voted upon until Aug. 30 to allow for time to prepare new proxy materials. Ripplewood still has the right to come back and match or beat Whirlpool's offer.

As part of the improved Whirlpool offer - which Whirlpool says is "binding and irrevocable" - Whirlpool offered to pay the $40 million breakup fee that will be owed to Ripplewood should Maytag ultimately not sell itself to the investor group, and further offered a $120 million "reverse breakup fee" to Maytag, to be paid by Whirlpool if their proposed merger cannot be completed due to regulatory problems, namely, antitrust objections that might arise from the combination of the largest and the third-largest U.S.-based appliance makers.

Blockbuster active

Elsewhere, Blockbuster Inc.'s 9% notes due 2012 were being buffeted around by conflicting news, pushed upward by the Dallas-based movie rental company's morning statement - attempting to reassure financial markets made jittery by a disappointing earnings report earlier in the week that drove its shares down to the lowest they've ever been in its six years as an independent stand-alone company - while being simultaneously dragged downward by Moody's Investors Service's multi-notch downgrade of the company's credit ratings.

A market source saw those bonds firm modestly to 86.25 bid from 85.5 previously.

However, another trader saw the bonds bouncing around between highs of 87 bid, 88 offered and lows about a point below that, before finishing at 86.5 bid, 87 offered. "It looks like they were even lower earlier, although they recovered by the end of the day," he said.

Yet another trader agreed with that assessment,, saying the bonds had been "jumping" between lows around 82-83 and peaks around 85-86 area, before ending around 84.

Blockbuster's chairman and chief executive officer, John Antioco, declared in the statement that although things would likely remain rough in the lackluster movie and game rental industry, Blockbuster would return to profitability in the fourth quarter.

"For the balance of 2005, we are clearly focused on maximizing profitability and cash in a difficult industry environment," he said in a statement, "and as I have stated earlier, we expect to be profitable in the fourth quarter of this year and for the full-year 2006."

He also said that Blockbuster would be spending less money than it had a year ago.

Moody's was not much impressed with Blockbuster's intentions, cutting its subordinated bond rating three full notches to Caa3 from B3, while dropping its corporate family rating to B3 from B1; the ratings agency warned of the "significant" drop in earnings and cash flow, as well as the possibility of future debt covenant violations,

Movie Gallery unchanged on earnings

Blockbuster rival The Movie Gallery Inc., reported second-quarter numbers, which are very difficult to judge against year-earlier levels, since the Dothan, Ala.-based movie and game rental chain has in the interim bought larger rival Hollywood Entertainment Corp.

Movie Gallery's 11% notes due 2012 were unchanged at 102.25.

Curative Health lower

A trader said that Curative Health Services Inc.'s 10¾% notes due 2011 were down about a point on the session at 82 bid. He noted that the bonds of the Hauppauge, N.Y.-based specialty pharmaceutical distributor and wound care provider had already "dropped a lot the other day" from prior levels as high as 87, after it reported sharply wider second-quarter losses than Wall Street was looking for, causing Southwest Securities to downgrade its shares, which plunged 30% that mid-week session.

Southwest warned that among other things that the company's long-term debt-to-capital ratio is now just above 100% - a sharp deterioration from just 18.9% in March 2004, and further cautioned that although Curative had obtained debt covenant waivers for the third and fourth quarters, it would likely not to be able to obtain further waivers in 2006.

Another trader said that Curative's bonds "had been trading up around 86-86.5 post-their conference call - which was terrible. Here's a company that's way over-levered, and its business is going nowhere, and they're relying on receivables from California to come through - and I think it's all wishful thinking.

"It's another house of cards that's just going to come crashing down, and they're running out of dough quickly."

He said one of the few things keeping the bonds even at their current levels is "it's a big coupon - if it weren't a 10¾% coupon, and one large holder, these things would be a lot lower."

He quoted them Friday afternoon in the low 80s, "down four or five points" from prior levels - and warned that "they're going nowhere, and they're likely to trend lower."

He compared Curative in that respect to another company that reported numbers this past week and that had what he called "a terrible [conference] call" in which executives failed to offer much reassurance to the financial markets - Granite Broadcasting Inc. The company, which doesn't have too much cash on hand, is facing a major coupon payment in several months, and is trying to sell assets in order to try to improve its capital structure and liquidity picture.

"When people wise up and realize that these guys have no ability to get out from under their problems . . ." - and left the end of the sentence dangling ominously.

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