Range Resources, SandRidge price deals; market mostly down; Rite Aid off despite analyst boost

By Paul Deckelman and Paul Harris

New York, May 11 - The energy sector grabbed the center stage in Junkbondland on Monday, as two quickly shopped deals for Range Resources Corp. and SandRidge Energy Inc. priced - the latter an upsized issue.

Late in the session, another oil and gas exploration and production company, Linn Energy, LLC, announced plans for a $200 million bond sale. And earlier in the day, independent power producer Calpine Corp. said that two indirect wholly-owned subsidiaries, Calpine Construction Finance Company, L.P. and CCFC Finance Corp., plan to sell $800 million of new bonds.

When the new SandRidge Energy paper was freed for secondary dealings, it was seen by traders continuing to hover around where the deal came to market, despite the steep discount from par at which it had priced - unlike some other recent deals which priced well under par and then shot skyward, leading some in the market to believe they had been priced unrealistically cheaply.

No immediate aftermarket activity was seen in the new Range Resources bonds.

Most other recently priced issues, for names such as Goodyear Tire & Rubber Co. Inc. and Crown Holdings Inc., were seen little changed from the levels at which they had ended last week.

Among the established issues, an easier overall tone was seen in high yield, borne out both by various statistical measures, as well as by lower levels at which many issues were being quoted.

One of the biggest decliners, traders said, was Rite Aid Corp.'s recently strong paper, seen down 4 points or more pretty much across the board, despite a lack of any negative news about the Camp Hill, Pa.-based drugstore chain operator; if anything, there was positive news out, with a Citigroup analyst declaring that it now seems less likely than it did before that Rite Aid will have to file for Chapter 11 - a vote of confidence that sent the company's shares winging northward, even though the bonds did not follow suit.

While a bankruptcy filing by the Number-Three U.S. drugstore operator is now seen as a less likely scenario, the likelihood that the Number-One U.S. automaker will wind up in Wilmington - or, possibly, in the bankruptcy court in New York or its hometown of Detroit - is increasing day by day, causing General Motors Corp.'s bonds to continue to erode. However, activity in them has fallen off, a trader said - because such a filing is now considered a virtual certainty.

Domestic arch-rival Ford Motor Co.'s bonds, meantime, continued their recent strengthening trend, even as most of the rest of the market was softer.

SandRidge oversubscribed

It was a busy day in the primary market as two issuers combined to price a face amount of $665.5 million of bonds.

SandRidge Energy priced an upsized $365.5 million issue of 9 7/8% seven-year senior notes (B3/B-) at 95.773 to yield 10¾% on Monday.

The yield came on top of yield talk, and the issue price came within the context of price talk for an original issue discount of 4 to 5 points.

The order book was two-times oversubscribed at the upsized amount, according to an informed source.

The quick-to-market issue came at approximately a 25 basis points concession to the company's outstanding bonds.

Barclay's Capital was the lead bookrunner for the Rule 144A/Regulation S with registration rights issue that was upsized from $300 million.

Banc of America Securities LLC, JP Morgan, RBC Capital Markets and RBS Greenwich Capital were joint bookrunners.

Proceeds will be used to repay revolver debt.

Range Resources: aggressive pricing

Elsewhere in the new deal market, Range Resources came with a deal that market sources characterized as "aggressively priced."

The Fort Worth, Tex.-based oil and gas company priced a $300 million issue of 8% 10-year senior subordinated notes (Ba3/BB) at 95.067 to yield 8¾%.

The yield was printed at the wide end of the 8 5/8% area price talk.

J.P. Morgan, Banc of America Securities and Wachovia were joint bookrunners for the debt refinancing deal.

With the S&P 500 stock index down 2.15%, it wasn't the best day to bring a deal, commented a sell-sider not in the Range transaction.

Calpine Construction launches $800 million

Meanwhile, two deals were rolled out for Tuesday pricings.

Calpine Construction Finance Co. LP and CCFC Finance Corp. launched an $800 million offering of seven-year senior secured notes (B1).

Morgan Stanley is the lead bookrunner for the debt refinancing. Credit Suisse, Deutsche Bank Securities and Goldman Sachs are joint bookrunners.

Elsewhere Linn Energy Finance Corp. plans to host an investor call on Tuesday morning for its newly announced $200 million offer of eight-year senior unsecured notes.

The deal is set to price later on Tuesday.

Citigroup, Barclays Capital, BNP Securities, Calyon Securities, RBC Capital Markets and RBS Greenwich Capital are joint bookrunners for the debt refinancing deal.

Parent LINN Energy, LLC is doing a concurrent public offering of 4.5 million units. The units offer is being run by joint bookrunners RBC Capital Markets, Barclays Capital and Citigroup.

Calpine and LINN join Ameristar Casinos, Inc. which launched a roadshow on Monday for its $500 million offering of five-year senior notes.

Pricing is set for Wednesday.

Banc of America Securities, Wachovia Securities and Deutsche Bank Securities are joint bookrunners for the Las Vegas-based gaming and entertainment company's debt refinancing deal.

New SandRidge bonds stay around issue

When the new SandRidge Energy 9 7/8% notes due 2016 were freed for secondary dealings, a trader saw the bonds at 95¾ bid, 96¼ offered, staying around the 95.773 level at which the company had priced the upsized offering of notes earlier in the session.

The new Range Resources issue hit the market well after 5 p.m. ET, too late in the day for any meaningful aftermarket dealings.

New Goodyear bonds bounce around

Among recently priced issues, a trader saw Goodyear's 10½% notes due 2016 having retreated to 98 1/8 bid on a round-lot basis, from 99 on Friday. He said that some $15 million of the bonds traded, making it one of the busier names.

However, other traders said that the bonds had already moved down on Friday into the 98 range from the 99-plus levels to which they had initially risen on Wednesday and Thursday after the Akron, Oho-based tiremaking giant priced its $1 billion issue - upsized from an originally expected $500 million - at 95.846, to yield 11 3/8%.

However, a market source at another desk actually pegged the bonds as once more trading above the 99 mark.

New deals mostly hang in there

The first trader saw several other of the recent new deals mostly continuing to trade around the levels at which they had been seen on Friday, including Philadelphia-based packaging maker Crown Holdings' 7 5/8% notes due 2017. That $400 million issue, upsized from the original $250 million, priced last Tuesday at 97.097 to yield 8 1/8, and was then seen to have firmed to above the 99 level. On Monday, he saw the bonds offered at 1011/2, although with no bid seen, versus the 99 bid level at which the bonds ended the week.

He also saw no activity Monday in Nalco Holding Co.'s 8¼% notes due 2017, noting that they had last been seen at a par bid level on Friday. The Naperville, Ill.-based provider of water treatment services and technology has priced that $500 million issue, upsized from the original $300 million, last Wednesday at 97.863 to yield 8 5/8%. The bonds had firmed smartly afterward to around par, and were seen managing to hold those lofty levels, even while some of the other new deals priced last week were coming down from their own peaks.

One example of the latter was Teck Resources Ltd., which priced a humongous three-part mega-deal last Tuesday - totaling a whopping $4.225 billion - with the Vancouver, B.C.-based mining and energy company's deeply discounted bonds then jumping 5 or 6 points over the next several sessions to all trade at or above par. However, some of those bonds, like its $1.315 billion of 9¾% notes due 2014, had backed away from such peak levels by Friday, and were heard ending that session trading in a 99ish context. On Monday, the trader saw those bond offered in a 98-99 range.

The same trader also saw Inverness Medical Innovations Inc.'s 9% notes due 2016 trading between 96 and 97 bid, with about $2.8 million of the bonds traded, mostly in blocks of several hundred thousand dollars - sizable, but not quite round-lot material. He noted that the bonds had closed on Friday at 96 7/8 bid. The Waltham, Mass.-based provider of healthcare technology had priced its $400 million of bonds, upsized from the originally planned $200 million, on Thursday at 96.865 to yield 9 5/8%.

He also saw no transactions Monday in Owens-Brockway Glass Container Co.'s 7 3/8% notes due 2016. The bonds had finished Friday at 96 5/8 bid, 96 7/8 offered. The Perrysburg, Ohio-based unit of Owens-Illinois Inc. priced $600 million of those bonds, upsized from the original $300 million, on Thursday at 96.724 to yield 8%. Neither the Inverness bonds nor the Owens-Brockway issue were heard to have moved much when those bonds were freed for aftermarket activity post-pricing.

One recent issue which did move after pricing - but not upward - was Starwood Hotels & Resorts Inc. Worldwide Inc.'s 7 7/8% notes due 2014. The White Plains, N.Y.-based international lodging giant's $500 million of bonds priced on April 30 at 96.285 to yield 8¾% -- but was then heard to have traded down by as much as 2 points from its issue price, before coming off those lows and more or less stabilizing about a point below issue. A market source on Monday saw the bonds trading at 951/4, a point below issue, with over $7 million of the bonds having changed hands by mid-afternoon.

Market indicators gain again

Back among the established issues, a trader saw the CDX Series 12 High Yield index - which was little changed on Friday -- down 3/8 point to finish Monday at 81 3/8 bid, 81¾ offered.

However, the KDP High Yield Daily Index, which had risen by 10 basis points on Friday, meantime lost 25 bps on Monday to end at 60.59, while its yield widened by 8 bps to 11.22%.

After a run of eight straight sessions in which they led decliners, advancing issues finally surrendered their lead, falling behind by around a six-to-five margin.

Overall market activity, measured by dollar-volume totals, fell by 18% from Friday's levels.

It was "sort of a boring day today," one trader exclaimed.

Another noted that "there was an early flurry of activity, but then it just died - it was strange. I'm not sure what the catalyst was there." After that, he said, "it got really quiet."

He said that in the morning, "it still seemed like there was plenty of cash being put to work - but there definitely was an easier tone."

Widely followed market "barometer" issues like Community Health Systems Inc.'s 8 7/8% notes due 2015 and First Data Corp.'s 9 7/8% notes due 2015 were each seen lower on around $11 million of trading - Community Health's bonds off by 1¼ points to 97¼ bid, while First Data's paper lost 2½ points to drop to 681/2.

"Ouch!" the trader exclaimed.

He suggested that profit-taking after junk's recent strong gains might be the reason why many bonds - certainly most of the most-active issues - were points lower.

Rite Aid in retreat

For instance, he saw Rite Aid's 9½% notes due 2017 fall to 57 5/8 from 62 on Friday, with some $15 million traded - this despite the 17% rise in its shares, after a Citigroup analyst downplayed the likelihood that Rite Aid would be forced into bankruptcy.

Another trader saw Rite Aid's bonds, like the 91/2s, the 9 3/8 notes due 2015 and the 8 5/8% notes due 2015 "mostly quoted in the mid-50s. There was a lot of volume, a lot of activity." He said that after hitting levels in the low 60s late last week, they were all "down a few points" and ending in a 57-58 range, on "decent volume."

A market source at another desk estimated that the 91/2s had lost more than 4 points on the day, down to around the 57½ mark, while the 8 5/8s tumbled more than 6 points to finish at 58.

However, while this was going on, Rite Aid's New York Stock Exchange-traded shares rose by 16 cents, or 17.78%, to end at $1.06, on volume of 19.6 million shares, more than triple the norm.

The shares were seen having risen on reassuring commentary from Citigroup - even as bond investors chose to ignore such glad tidings. A team of analysts led by John Fenn wrote in a Friday research note that the company's lenders were unlikely to push it into bankruptcy. "Clearly the balance sheet is highly levered but it is hard to contemplate a scenario in which bankruptcy follows," the research piece said. "Suddenly a business on a crash course once again looks worthy of investment."

The analysts cited "stronger-than-expected" fourth-quarter results as a positive factor, in declaring that because "bank negotiations are progressing ... we see little reason why lenders would file the company."

Nearly bankrupt GM being ignored

With a General Motors bankruptcy seen as becoming increasingly more likely with every passing day, the carmaker's bonds continue to erode.

A trader saw GM's benchmark 8 3/8% bonds due 2033 down a point at 6½ bid, 7½ offered, while seeing domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 up 2 points on the day at 55 bid, 57 offered.

At another desk, a trader saw the GM long bonds fall to 6 bid from 7 on Friday, though on only $2 million traded, while the company's 7.20% notes due 2011 also eased to 6, from 6¼ on Friday, with $10 million changing hands.

He saw the Ford long bonds up a point to 55 bid on a round-lot basis, from 54 on Thursday, the last time a big trade was seen. He put Monday's volume in the credit at $4 million.

Another trader - who saw GM's benchmarks trading "in the low single-digits, around 6-8," said that he "didn't even see many quotes" in the name. He said its trading activity was "no great shakes," and opined that many market players "are not even paying any attention to them - they're just waiting for it [i.e. the expected bankruptcy filing] to happen."

That trader meantime saw the Ford long bonds at 55, which he called "up a little, about a point" from previous levels in the 52-54 range, on "some trading."

And the trader saw GM's 49%-owned auto-loan arm GMAC LLC's 8% bonds due 2031 "right around" the 67-68 range, "not much higher" than they had been, "but a little, maybe a point, on some volume."

As for GMAC subsidiary Residential Capital LLC, he quoted ResCap's 8½% notes due 2010 trading around in an 87-88 context, ending around 88 bid, versus their 88-90 range on Friday. "Maybe they're a point lower," he said, "slightly lower - but it doesn't seem to be that big a deal."

Capmark one of the few gainers

A trader also saw former GMAC subsidiary Capmark Financial Group Inc.'s bonds as "not only among the most active today, but probably the best performers."

He said its 5 7/8% notes due 2012 had pushed up to 283/4, versus 27 on Friday, on $35 million traded. He also said its floating-rate notes due 2010 rose to 47¾ from 43 on Friday, with $24 million traded.

Another trader saw the 2010 floaters having "traded as high during the session as 49 bid, 50 offered, well up from 43 bid, 44 offered at Friday's close. However, he said that "after they spiked up, they settled down," closing Monday around 47 bid, "3 to 4 points higher than they were, on good volume."

He said that it was "the same story" for the 2012s, which got up to 30 bid, 30½ offered from 26 bid, 27 offered on Friday, before coming off the peak to close around 28 bid. "There was really good volume in that one as well," he added.

Both bonds, he said "were higher than they were [Friday], but off their top [levels] of the day, on a lot of volume."

Developers Diversified does well

A trader saw Developers Diversified Realty Corp.'s normally lightly traded bonds as "about the only one of the most-actives on the upside, other than Capmark."

He saw the Beachwood, Ohio-based real estate investment trust's (REIT)'S 5 ¼% notes due 2011 gain 1¼ points to 81½ bid. Some $16 million of the split-rated issue (Baa3/BB+) changed hands.

Sears Roebuck rises

Another upside mover was Sears Roebuck Acceptance Corp.'s 7% notes due 2011, which were seen by a market source to have gained 3 points to end at 94 bid in busy dealings.

Another source saw the company's 6¾% notes due 2011, which moved up to 85 bid.

There was no fresh positive news that might explain such a move seen out about the company, a unit of Hoffman Estates, Ill.-based retailing giant Sears Holdings Corp., which operates the eponymous Sears department store chain, as well as discount retailer Kmart.

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