Crown Castle, Petrohawk, El Paso unit price deals, bonds trade up; NOVA bounces; funds rise by $218 million

By Paul Deckelman and Paul A. Harris

New York, Jan. 22 - The primary market revival continued Thursday as Crown Castle International Corp, and Petrohawk Energy Corp. brought upsized deals to market and Tennessee Gas Pipeline Co. - a unit of El Paso Corp - priced a split-rated issue. Traders said that all three deals traded up when they were freed for aftermarket action.

In the secondary realm, NOVA Chemicals Corp.'s bonds slated to come due on April 1 bounced back solidly from the oversold levels to which that paper had fallen on Wednesday amid investor concern about possible liquidity problems, after the Calgary, Alta.-based chemical manufacturer sought to allay such concerns.

Tenet Healthcare Corp.'s shorter bonds shot upward on the news that the company wants to exchange them for new notes.

On the downside, Freescale Semiconductor Inc.'s bonds continued to deteriorate badly, battered by news that the Austin, Tex.-based high-tech company had drawn on its revolving credit line.

Funds see $218 million inflow on week

And as trading was wrapping up for the day, market participants familiar with the high yield mutual fund flow statistics generated by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday, $218.2 million more came into the weekly reporting funds than left them. It was the eighth consecutive inflow and the third inflow of 2009, coming on the heels of the $535 million cash infusion seen last week, in the period ended Jan. 14.

During that eight-week span of cash additions, dating back to the week ended Dec. 3, net inflows have now totaled $3.553 billion, according to a Prospect News analysis of the AMG figures, with a market source noting that this was the biggest sustained inflow since May 2003. While there have been longer winning streaks since then, such as the 11-week inflow binge seen last spring, the current upturn is larger in dollar terms than any of them; last spring's long inflow run, from early April to mid-June, totaled just over $3 billion.

On a year-to-date basis, 2009 inflows now stand at $1.741 billion so far this year, up from the previous week's total of $1.523 billion, according to the analysis.

That healthy inflow figure means the year is certainly off to a better start than was 2008, which began with several consecutive outflows, although last year ultimately ended with a cumulative net inflow total of $2.123 billion, its peak level for the year. It should be noted, however, that most of that total gain was recorded in the final weeks of the year, the surge of funds coming in reflecting the junk market's upturn after the Federal Reserve announcement of a sharper-than-expected interest rate cut and the central bank's pledge to take other measures to stabilize and revive the credit markets and the overall economy.

Funds which report on a monthly basis, rather than weekly, saw no change in their flows in the latest week, and their year-to-date inflow thus remains at $1.362 billion.

Consolidation of the cumulative inflow totals for the weekly reporters and the monthlies yields a year-to-date total of $3.103 billion.

All of the figures typically exclude distributions, but include any revisions and adjustments to previous weeks' totals.

Another fund-tracking service, EPFR Global, said that by its calculations, weekly-reporting junk fund inflows in the latest week came to $329.9 million, on top of a $766.3 million inflow last week. Cambridge, Mass.-based EPFR's methodology is somewhat different than AMG's, since it includes European, Asian and other international funds, even though the bulk of the funds surveyed are domestic. Its managing director, Brad Durham, noted that for the latest week's figures, four of the top 10 funds getting inflows were domiciled outside of the United States, the likely source of the discrepancy between his company's number and AMG's.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they comprise considerably less of the total monies floating around the high yield universe than they used to - because there is no reporting mechanism to accurately track the movements of cash to and from the junk market from other, larger sources seen in recent years such as insurance companies, pension funds and hedge funds.

200-plus accounts play Crown Castle

The primary market on Thursday saw its most intense deal volume since late June 2008, depending upon how you count, sources say.

Two junk issues and one split-rated issue that was priced off the high-yield desk cleared during the session, which saw issuers combine to raise $1.57 billion of proceeds.

Bringing the biggest corporate junk deal in half a year was Crown Castle International Corp., which priced a massively upsized $900 million issue of 9% six-year senior unsecured notes (B1/B) at 90.416 to yield 11¼%.

The coupon came on top of the coupon talk while the yield came at the tight end of the 11¼% to 11½% yield talk. The deal was increased from $600 million.

Over 200 accounts put in for the notes, filling an order book that totaled over $2 billion, informed sources said.

Morgan Stanley was the left bookrunner for the quick-to-market SEC registered issue which was upsized from $600 million.

Banc of America Securities LLC was joint bookrunner.

Proceeds will be used for general corporate purposes including the repayment or repurchase of certain outstanding debt of the company's subsidiaries.

Crown Castle was the biggest deal since May 7, 2008, when DirecTV Holdings LLC and DirecTV Financing Co., Inc. priced a $1.35 billion issue of seven-year senior notes (Ba3/BB) at par to yield 7 5/8%, one high-yield syndicate source said.

Gangbusters, but...

One high-yield mutual fund manager who put in for the Crown Castle deal said that it went gangbusters, but added that the investor call was pretty interesting.

"They got hammered on the call," said the investor, who went on to explain that the buy-side pressed Crown to specify when it would need to come back to the market to ask for more money.

"They have two commercial mortgage-backed securities out there," the investor said.

"One is $1.9 billion, the other is $1.55 billion. They have anticipated refinancing dates of June 2010 and November 2011. If they haven't refinanced those by that time money gets trapped at the [Towers LLC] entity, and can't be used to pay interest on the notes they issued today."

The mortgage-backed issues are collateralized by 11,708 towers, the investor added.

"What you have to decide is whether they are going to be able to refinance [the commercial mortgage backeds] in the high-yield market because the collateralized market is gone," the investor said.

"They couldn't do a commercial mortgage-backed security refinancing today if they wanted to, no matter what the ratings.

"So they need to refinance $1.9 billion in the high-yield in June 2010.

"Basically, in getting in this deal, you are betting the high-yield market will be open at that point."

A steady business

The buy-sider agreed with Prospect News that the deal provided plenty to think about.

However, the investor said, the tower business is a good business.

"The cash flows are almost automatic," the investor reasoned.

"No carrier is going to shut down any towers if there is any chance of it affecting coverage."

Also, said the investor, Crown Castle argued during the call that even if they have to leave the commercial mortgage-backed securities outstanding, and the money got trapped at the Towers LLC subsidiary, there is still enough cash flow from the other businesses to cover the interest on this new note.

"That's probably true," the investor said.

"But they have some other cash calls, too.

"They could have swaps on those commercial mortgage-backed securities, to lock in the interest rate. If so they're under water on those swaps by $600 million right now. And if rates stay where they are right now they basically have to come up with $37 million in 2009 and $228 million in 2010. That's on top of having to refinance these other issues."

Total debt is $7.3 billion, including preferred stock, the fund manager said.

"It's seven-times leveraged, but the tower business is as steady as it gets.

"It's hard to break into that business; there are barriers to entry. And it is the lifeline of the wireless companies."

Petrohawk: Make mine a double

Elsewhere Thursday, Petrohawk Energy priced a massively upsized $600 million issue of 10½% senior notes due Aug. 1, 2014 (B3/B) at 91.279 to yield 12¾% in a drive-by.

The coupon and issue price were in line with price talk for a mid-10% coupon pricing in the low 90s, while the yield came at the tight end of the 12¾% to 13% yield talk.

JP Morgan, Banc of America Securities, BMO Securities, BNP Paribas and Wachovia Securities were joint bookrunners for the Rule 144A issue.

The offering was doubled in size from $300 million.

Proceeds will be used to repay part of Petrohawk's revolver, as well as to fund acquisitions and for general corporate purposes.

Shortly after the deal broke a buy-side source saw the new notes at 91¾ bid, 921/2.

One syndicate source said the double-sized deal was well oversubscribed while another said there were over 100 accounts in the order book.

Split-rated Tennessee Gas Pipeline

Finally, Tennessee Gas Pipeline priced a split-rated $250 million issue of 8% seven-year senior notes (Baa3/BB) at 94.881 to yield 9% on Thursday.

The coupon came at the tight end of the 8% to 8¼% coupon talk. The yield came at the tight end of the 9% to 9¼% yield talk. And the issue price came on top of talk.

Participation in the deal came predominantly from high-grade accounts, which represented 75% of the orders, while high-yield accounts represented the remaining 25%, sources said.

Deutsche Bank Securities was left bookrunner for the capex deal from the Houston-based pipeline company, a wholly owned subsidiary of El Paso Corp.

If you count the split-rated Tennessee Gas Pipeline deal in the mix - as most high-yield sources were on Thursday afternoon - the Jan. 22 session was the first time since June 26, 2008 that three deals were priced.

Technicals drive deals

The burst of activity in the primary market, which is expected to continue in the near term, is a function of "technicals," sources said Thursday.

Consistent with this take, AMG Data Services reported $218.2 million of inflows for the week to Wednesday, continuing an eight-week uninterrupted string of inflows.

"We have yet to have a day this year that we've seen a negative flow," said a high-yield mutual fund manager.

"We continue to get money in. The companies that have fundamental problems or liquidity problems are getting taken out to the woodshed. And any highly respected company is too rich.

"People have money that they have to put to work. You're going to have enough new issues come into the market to soak up some of the cash. But when is the point at which the cash gets soaked up? When it happens I expect the market to sell off a little."

Meanwhile sell-side sources say that there is a window open in the high-yield primary market - pried open by acceptable issuers willing to pay double-digit interest rates.

There are plenty of other such issuers out there, sell-siders say, adding that in the suddenly open high-yield primary, some of them are apt to come sooner than later.

New deals trade up

When the new issues were freed for secondary dealings, all three moved up by several points, traders said.

One saw Crown Castle's 9% notes due 2015 push as high as 94 bid, 94.5 offered from its pricing level at 90.416.

He also saw Petrohawk's 10½% notes due 2014 improve to 91.5 bid, 92.5 offered, versus 91.279 at the pricing, while the Tennessee Gas 8% notes due 2016 firmed to 97 bid, 98 offered from their pricing level at 94.881.

Another trader saw the Crown Castles at 94 bid, 95 offered, the Petrohawks at 92.5 bid, 93.5 offered, and also saw the Tennessee Gas bonds at 97 bid, 98 offered.

Yet another market source saw the latter bonds get as good as 97.5 bid, 97.75 offered.

And one of the traders saw the new Nielsen Finance LLC/Nielsen Finance Co. 11 5/8% senior notes due 2014 trading at 91 bid, 91.5 offered. The New York-based media information company's $330 million of bonds priced on Wednesday at 90 to yield 14.5%.

"Most of the new issues [seen so far this year] have moved up," another trader said. "They've been priced to sell."

Market indicators modestly lower

Back among the established issues, the widely followed CDX High Yield 11 index of junk bond performance, which lost 3/8 point on Wednesday, was off by ¼ point on Thursday, a trader said, quoting it at 74½ bid, 75 offered. The KDP High Yield Daily Index declined by 4 bps to 54.19, although its yield tightened by 11 bps to 13.65%.

In the broader market, advancing issues continued to trail decliners, though only by a narrow margin. Overall market activity eased about 2% from the levels seen in Wednesday's session.

"The market seemed like it was a bit cheaper," a trader said, citing "weakness in the equity market, the calendar, and earnings season. There's nothing forcing people to jump up and take offerings up and keep them up."

He also said that the revived primary calendar - which so far this year has seen the equivalent of over $4 billion come to market, well ahead of the tepid year-ago pace, "is absorbing some of the cash that's out there.

NOVA Chemicals comes back

Probably the biggest gainer on the day was NOVA Chemicals' 7.40% notes slated to come due on April 1, which had fallen badly on Wednesday on market fears about the company's liquidity, plunging nearly 20 points intraday to levels in the lower 60s before finishing that session still well-down - in the mid-60s on a round-lot basis, and in the lower 70s counting some of the smaller late trades.

But apparently helped by a company statement aimed at reassuring investors that NOVA is not running out of money, the bonds headed back up on Thursday. A market source estimated that they were probably among the most actively traded high-yield credits on the day, with over $32 million having traded hands by the early afternoon, far more than any of the other bonds up to that point. The source pegged the bonds at 83 bid, versus levels in the upper 60s on Wednesday.

A trader saw the 7.40s finishing at 80 bid, 81 offered, which he called up 10 points on the day, while the company's 6½% notes due 2012 were 5 points better at 39 bid, 40 offered.

At another desk, a trader saw the 7.40s at an 80.5 bid, 82 level, which he opined "still looks pretty cheap versus where they were a couple of days ago," before the latest round of market torment began.

Another trader, while seeing the 7.40s trading at 83 bid, which he called up 10 points on the day, dismissed it as just "a small print," and said that there had been "a lot of trading" in an 80-82 range, which he called up 6 to 8 points from Wednesday.

Noting the role which investor fears about the liquidity situation had played in Wednesday's debacle - particularly worries about the company's capacity to pay off the $250 million of 7.40% bonds when they come due - he observed that "the market can get pretty brutal on any kind of negative news."

Seeking to assuage investor angst, NOVA put out a statement after the markets closed on Wednesday in which it said that it had some $575 million of available liquidity as of the last day of 2008, and continues to have full access to its credit facilities.

NOVA also said that while it would find purchase of the April 1 bonds "attractive at current prices, consistent with our insider trading policy we do not intend to consider purchasing any bonds until next week's release of our fourth quarter 2008 results."

NOVA is scheduled to release its quarterly figures next Thursday, and said that it plans to give investors a liquidity update during the conference call which will follow those results.

Tenet offer boosts bonds

A trader said that Tenet Healthcare's 6 3/8% notes due 2011 and its 6½% notes due 2012, "which trade on top of one another," were each up some 8 to 9 points on the day, apparently given a lift on the news of the company's exchange offer for those bonds. He saw the two issues going out in a 90-93 context.

A market source said the '11s were up more than 6 points to the 92 level.

Tenet said that it had begun an offer to exchange up to $1.6 billion total principal amount of two new series of senior secured notes maturing in 2014 and 2019 for the $1 billion of outstanding 2011 bonds and $600 million of outstanding 2012s. The new notes will be guaranteed by and secured by a pledge of the capital stock and other ownership interests of certain of Tenet's subsidiaries.

At another desk, however, a trader said he was "not seeing very much" of the Dallas-based hospital operator's bonds, "and I didn't hear any noise" on them.

A market source saw the 2011s at 86 bid and the 2012s just under 84, but characterized that as essentially unchanged. Tenet's 9 7/8% notes due 2014, on the other hand, were being quoted down around 81 - well down from recent levels in an 84-85 context.

Univision up on suit settlement

A market source saw Univision Communications' 7.85% notes due 2011 up as much as 7 points on the session to around the 64 level after the Los Angeles-based Spanish-language media company announced that it had settled its long-running lawsuit with Grupo Televisa SAB.

That was seen also giving a boost to the company's term loan B bank debt, which popped up to 51 bid, 53 offered from Wednesday's levels of 46 bid, 48 offered.

As part of the settlement, Univision and Televisa revised their current Program License Agreement, which runs through 2017, resulting in increased payments to Televisa in exchange for incremental rights for Univision.

"We are pleased that today's settlement concludes this time-consuming litigation," the companies said in a statement.

"This settlement serves the best business interests of both Televisa and Univision. It assures the public that Univision will continue to have access to consistently top quality Hispanic programming. It enables Televisa to continue utilizing Univision's extensive television networks as an important distribution channel for its content into the U.S. marketplace. For Univision, it assures that there will be no disruption in some of its most popular and valuable programming, as well as affording Univision an ongoing pipeline of future content developed by Televisa."

Freescale freefall continues

On the downside, a trader called Freescale Semiconductor's bonds "much weaker today" on news of its revolver drawdown; he saw the 10 1/8% notes due 2016 drop as low as 12 bid in intraday trading, although they recovered most of their lost ground to end at 18 bid, 20 offered, down 3 points on the day.

Another said they were "actively trading down," with the 10 1/8s falling to 12 bid before finishing at 16 bid, 20 offered.

Another market source saw the bonds ending down 4½ points at 17.5.

Freescale was among the most actively traded issues on the day, a source said, seeing the 10 1/8s with over $12 million traded, over $18 million of its 9 1/8% notes due 2014 changing hands and over $20 million of its 8.875% notes due 2014 moving around. The latter two bonds were seen having ended at 13 bid and 25 bid.

Freescale - whose bonds had been cascading lower anyway over the past few sessions - said that it drew down $184 million under its revolver to improve financial flexibility.

The company previously received $460 million under its revolver in October 2008.

Lehman, which has a $60 million commitment under the revolver, did not honor the company's borrowing request.

Auto bonds remain parked

A trader saw General Motors Corp.'s benchmark 8 3/8% bonds due 2033 down a point at 14 bid, 15 offered, while seeing domestic arch-rival Ford Motor Co.'s 7.45% bonds due 2031 at 22 bid, 24 offered., down 2½ points.

A trader saw GMAC LLC's bonds "not much changed" from recent levels, quoting the "old" 8% bonds due 2031 - those which remained outstanding after the company's recent debt reduction - in a 53-54 range, while the "new" bonds issued in place of notes accepted for purchase were at 57-59. "The new bonds all seem to be at least 2 points or so better" than the corresponding old bonds, he said, while seeing them unchanged on the day.

He also saw GMAC's 6¾% notes due 2014 were likewise unchanged at 60 bid, 62 offered. "There were quotes, but not a lot of real trading," he said.

However, at another desk, a market source saw the GMAC long bonds down more than 2 points on the day at the 53 mark.

Preferred bidder little help to Tribune

A trader said that Tribune Co.'s unsecured bonds were trading at 3 bid, 4 offered and its bank debt in a 26 bid, 28 offered context, which he called "not a lot different" than where they had been on Wednesday and apparently not affected by news reports during the day that the bankrupt media and sports entertainment company had selected a preferred bidder for its Chicago Cubs baseball franchise, and had forwarded that information to its creditors' committee.

News reports Thursday night indicated that Tribune had selected Chicago investment banker Tom Ricketts as the lead bidder for the Cubs. Selling the National League team and its historic ballpark, Wrigley Field and a stake in a cable TV network could bring the reorganizing Tribune as much as $1 billion.

Sara Rosenberg contributed to this report.

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