AES sells upsized deal, existing bonds mixed on tender; Six Flags bonds also split on exchange offer

By Paul Deckelman and Paul A. Harris

New York, May 14 - AES Corp. brought a quickly shopped, slightly upsized offering of 12-year notes to market on Wednesday. The new bonds were seen to have moved up moderately when they were freed for secondary market dealings. Meanwhile, the Arlington, Va.-based global power producer's established bonds were seen mixed in the wake of the company's announcement of a cash tender offer aimed at taking out a portion of its outstanding debt, with those bonds most likely to be bought back understandably rising and those least likely to be taken out under the terms of the deal seen retreating.

That was pretty much also the case with Six Flags Inc. debt after the theme park operator announced plans to exchange new 2016 debt for a portion of three series of outstanding bonds via a carefully structured offering; the issue at the top of the priority ranking was seen up handsomely, the next issue more modestly so, while the third issue, down at the bottom of the pecking order with little chance that any of its bonds will be exchanged, ended lower on the day.

Elsewhere, Solo Cup Co.'s notes were seen up around 4 points on the day after the Highland Park, Ill.-based maker of disposable plastic and paper cups, plates and utensils, posted better-than-expected results and said it had paid down some debt in the first quarter of the year and expects to continue cutting debt as the year moves along.

Better numbers also pushed up the bonds of Aleris International Inc.

Back in the primary sphere, Jabil Circuit Inc. sold an add-on offering of its 2018 bonds and price talk emerged on SandRidge Energy Inc.'s issue of 10-year notes. North American Energy Alliance was heard by high yield syndicate sources to be preparing to sell a $325 million note offering.

A high yield syndicate official said that the broad market looked better on Wednesday.

As forecast, the primary market saw more drive-by activity. And once again it emanated from the energy sector, although a different part than the oil and gas companies mostly seen previously.

On Wednesday it was Arlington, Va.-based electricity generator AES Corp. pricing an upsized $625 million issue of 12-year senior notes (B1/BB-) at par to yield 8%, in an a.m.-to-p.m. drive-by.

The yield was printed at the wide end of the 7 7/8% price talk.

The deal was upsized from $600 million.

Citigroup, Banc of America Securities LLC, Goldman Sachs & Co. and JP Morgan were joint bookrunners for the debt refinancing transaction.

An informed source said that the deal went well and priced in line with the company's existing bonds.

The source added that AES appeared to benefit from the fact that it is a well-known name in the high-yield universe.

SandRidge talks $500 million

Other primary market news also involved an energy name.

Oklahoma City-based oil and natural gas company, SandRidge Energy, Inc., set price talk for its $500 million offering of 10-year senior notes (existing B3/confirmed B) at 8% to 8 1/8%.

The deal, which launched on Monday, is expected to price Thursday.

Banc of America Securities, Barclays Capital and JP Morgan are joint bookrunners for the debt refinancing and general corporate purposes deal.

Jabil Circuit sold an add on to its 8¼% senior notes due March 15, 2018 at 97.5. Further details were not immediately available. The original $250 million was priced on Jan. 11 at 99.965, at which point Jabil was a split-rated name. Standard & Poor's subsequently downgraded the company, make it a full-fledged junk issuer.

AES electrifies secondary

When the new AES 8% notes due 2020 were freed for secondary dealings, a trader saw the new bonds open at 100.75 bid, 101 offered, although he said that 100.75 bid did get hit, with the bonds finally settling around 100.625 bid, 100.75 offered.

He enthused that "they [i.e. market participants] love it," noting that the offering had been upsized and had traded at a premium to its issue price.

Another trader saw those bonds ending at 100.5 bid, 101 offered. Yet another saw them finishing at 100.625 bid, 101.125 offered.

AES' existing bonds were meantime mixed with some up on the company's plan to tender for them and others down on the likelihood that those bonds will not be accepted in the tender offer - or the fact that they are not involved in the offer at all.

AES announced plans to use some of the proceeds from its new bond deal to buy back up to $377 million of its outstanding bonds from four series - its 8¾% second priority senior secured notes due 2013, its 9½% senior notes due 2009, its 9 3/8% senior notes due 2010 and its 8 7/8% senior notes due 2011. The company has bout $1.9 billion total of those four classes of bonds outstanding and thus can buy only a fraction of the bonds likely to be tendered, and it will buy the bonds in a priority ranking order, with the 83/4s on top, followed by the 91/2s the 9 3/8s and finally the 8 7/8s.

A trader noted that all four of those issues are already trading above par, around the levels at which they are slated to be taken out, and are likely to stay that way.

Another trader saw the 91/2s up a point at 104 bid, 105 offered, but saw the company's 8% notes due 2017, which are not included in the tender at all, losing a point to end at 102.5 bid, 103.5 offered.

"They're doing a 'waterfall' tender offer," with a vertical hierarchy of how bonds will be accepted, the trader said. The news "had a positive effect on the shorter issues and a negative effect on the longer bonds" not included in the buyback.

One such issue was the 7¾% notes due 2014. A market source quoted them down 1½ points at the 102 level.

Recent issues seen holding their own

A trader saw the new Jabil Circuit 8¼% notes due 2018 trading at 97.5 bid, 99.5 offered, versus their 97.5 issue price.

In fact, he said "all the new issues were doing well," a trader said, noting that the Newfield Exploration Co. 7 1/8% notes due 2018, which priced last week at par and had pretty much stayed there, "were trading at a premium today," moving up to 100.5 bid, 100.75 offered.

"Quite a few names were better today," he continued, including PetroHawk Energy Corp.'s 7 7/8% notes due 2015, which priced at par last week and then traded slightly upward. On Wednesday, he said, the bonds had advanced to around 100.75-100.875 before going home at 100.625 bid, 100.875 offered.

And he saw Copano Energy LLC's new 7¾% notes due 2018, which had priced on Tuesday at par, having moved up to 100.375 bid, 100.625 offered, "after trading into a 100.25 bid first thing out of the box."

They were "all better," he exclaimed - although there was one significant exception to the rule. Ace Hardware Corp.'s 9 1/8% notes due 2016 - which priced last Thursday at 98.60 and then got as good as 99 bid before coming off that peak and falling below issue - continued to struggle. He saw them at 98 bid, 98.5 offered - although was still up from the lows around 97.50 to which the bonds had fallen recently.

Even beyond the recent issues, "the whole market felt better today - even the financial names," like Residential Capital LLC, although he thought Countrywide Financial Corp. was "a little bit weaker." The latter's bonds, like the 6½% notes due 2013, were seen trading in a 49-51 context, while the latter's 6¼% notes due 2016 were seen at 79 bid.

He said utilities felt firmer, including such credits as NRG Energy, Dynegy Inc. "and obviously" AES.

Market indicators look up

A trader said the widely followed CDX junk bond performance index was up by 3/8 point, quoting it at 97 3/8 bid, 97 5/8 offered. The KDP High Yield Daily Index rose by 10 bps to 76.18, while its spread narrowed by 3 bps to 9.16%.

In the broader market, advancing issues led decliners by a narrow margin. Activity, represented by dollar volume levels, was up 48% from Tuesday's sluggish pace.

Six Flags 'a roller coaster'

"The big story of the day." a trader said, "was Six Flags' debt exchange, with a waterfall structure." He noted its similarity to the AES debt exchange, which also set up a priority order for which bonds will be accepted for purchase under the offer and which will be rejected.

The New York-based theme park operator will exchange new debt maturing in 2016 for a total of $400 million principal amount of its three series of bonds - its 8 7/8% notes due 2010, its 9¾% notes due 2013 and its 9 5/8% notes due 2014. Tendered bonds will be accepted for purchase in that order. With $280.3 million of the 8 7/8s outstanding, any such bonds tendered will be accepted for purchase. A certain pro-rata percentage of the 93/4s will be accepted, while it is thought unlikely that any of the 9 5/8s will be accepted for purchase, since the other two series block its way.

A trader saw the 8 7/8s up 4 points on the news to 89 bid, 90 offered. He said those bonds had traded as high as 93 bid during the session. The 9¾% notes were seen ending a point higher on the day at 66 bid, 68 offered, after having gotten as good as 73 earlier in the session.

But the 9 5/8s - the lowest bond in the priority order - were getting clobbered. One trader saw them initially shooting up into the 70s immediately after the debt exchange offer was announced - only to fall back to end down 3 points at 63 bid, 65 offered.

"Whoa - what a roller coaster ride," a second trader punned, noting that the 9 5/8s shot up to 70 from prior levels around 66 bid, 67 offered, before going home bid around 64.

Solo, Aleris better on numbers

Traders saw Solo Cup's bonds better after the company released better quarterly numbers and its outlook was upwardly revised to stable by Moody's Investors Service. Solo also said that it had paid down $7 million of debt in the first quarter and expects to make further debt reductions over the course of the year (see related story elsewhere in this issue).

A trader called its 8½% notes due 2014 up some 4 points on the session at 90 bid, while another saw them up around 2 points to the 90.25 level.

A trader also saw Aleris International's 9% notes due 2014 having "quite a move" up to 82.5 bid, from 78.5 bid on Tuesday after the Beachwood, Ohio-based aluminum processor reported better numbers.

And he saw its 10% notes due 2016 trading in a 70.5-73 range before going home at 71, still up about 3 points from Tuesday's closing levels around 68.

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