US Investigations prices; Angiotech slides on earnings warning; Trump, GMAC ease in active dealings

By Paul Deckelman and Paul A. Harris

New York, Oct. 19 - US Investigations Services, Inc. (USIS) brought a two-part offering of eight- and nine-year notes to market on Friday - although both tranches, despite fat coupons in the double-digits, priced well below par.

Also on the new-deal front, Hilcorp Energy I LP opportunistically came to market with a quickly shopped add-on to its existing 7¾% notes due 2015.

And Guitar Center Inc. was tuning up in preparation for a roadshow, to begin Monday, for its $750 million multi-part offering.

In the generally quiet and mostly lower secondary market, Angiotech Pharmaceuticals Inc.'s bonds were seen having nosedived, along with the Vancouver, B.C.-based medical device maker's Toronto-traded shares, after it released bearish guidance.

More familiar names seen moving lower included Trump Entertainment Resorts Inc., starting to come in after its recent run-up, and GMAC LLC, seen going in reverse after J.P. Morgan predicted that auto loan delinquencies could hurt its profits and those of rival auto financier Ford Motor Credit Corp., whose bonds were also riding in the breakdown lane on Friday.

The broad high yield market traded lower on Friday, with sources citing a variety of factors including negative earnings news from most of the big dealer brokers, sliding stock prices, the soaring price of crude oil and the growing amount of supply in the high yield new issue market.

More on the supply, below.

One high yield syndicate official spotted the CDX High Yield 9 going out at spreads to Treasuries of 435 bps bid, 429 bps offered, contrasted with Thursday's close of 397 bps bid, 391 bps offered.

The primary market generated a decent amount of news on the final day of the Oct. 15 week.

Two issuers priced a combined total of three tranches generating a total of slightly less than $540 million of proceeds.

Underwriters priced US Investigations Services, Inc. (USIS)'s $440 million of notes in a restructured two-part transaction that saw $40 million shifted to the senior notes tranche from the senior subordinated notes tranche.

And in a Friday drive-by Hilcorp Energy I LP priced a $125 million add-on to its 7¾% notes due Nov. 1, 2015 (B3/B) at 98.01 to yield 8.09%.

USIS restructures, prices

Underwriters priced USIS's $440 million of notes in a restructured two-part Friday transaction that saw $40 million shifted to the senior notes tranche from the senior subordinated notes tranche.

The deal included an upsized $290 million issue of 10½% eight-year senior notes which priced at 95.47 to yield 11 3/8%.

The senior notes' yield came 12.5 basis points beyond the wide end of the 11% to 11¼% price talk.

Moody's had assigned its Caa1 rating to the senior notes. However due to retranching the rating is expected to change to Caa2. Standard & Poor's assigned its CCC+ rating to the senior notes.

Meanwhile a downsized, restructured $150 million issue of 11¾% 8.5-year senior subordinated notes (Caa2/CCC+) priced at 93.666 to yield 13%. The yield came 25 basis points beyond the wide end of the 12½% to 12¾% price talk. The tranche was downsized from $190 million and the maturity was decreased to 8.5 years from 10 years.

Lehman Brothers and Banc of America Securities were joint bookrunners for the LBO related deal.

An informed source said that the USIS transaction went pretty well, and added that a good portion of the notes were spoken for before the deal was launched.

The source added that there had been good demand for the senior notes, while the subordinated notes did okay, but went much better once the tranche was downsized.

Hilcorp taps 7¾% notes

Hilcorp Energy priced a $125 million add-on to its 7¾% notes due Nov. 1, 2015 (B3/B) at 98.01 to yield 8.09% in a Friday drive-by.

Price talk was for the deal to come at 98.

Deutsche Bank Securities, JP Morgan and Wachovia Securities were the bookrunners for the debt refinancing and general corporate purposes deal.

The original $175 million issue priced at par in October 2005. The company priced a previous $300 million add-on at 98.75 to yield 7.948% in February 2007.

The total issue size following Friday's transaction is $600 million.

$3.7 billion week

Including Friday's business, the Oct. 15 week came to a close having seen just under $3.7 billion of issuance in seven dollar-denominated tranches, bigger than the previous week's $3.3 billion, but less than the Oct. 8 week which saw just under $4 billion.

At Friday's close year-to-date issuance stood at $132 billion in 337 dollar-denominated tranches, nearly 27% ahead of the $104 billion which had priced by the Oct. 19 close in the record setting year of 2006.

Guitar Center launches

Guitar Center will start a roadshow on Monday for its $750 million two-part offering of high-yield notes.

The company is offering $375 million of eight-year senior cash-pay notes (Caa1/CCC) and $375 million of eight-year senior PIK notes (Caa2/CCC).

JP Morgan is the bookrunner for the bond financing related to the LBO of Guitar Center.

A lot of supply

Sources said Friday the broad high yield market had eased, a move they attributed to a variety of reasons.

The one that came up most often was the burst of new issue supply.

Two deals, in particular, came up during conversations:

Last Tuesday underwriters priced a $2.2 billion tranche of First Data Corp. 9 7/8% eight-year senior cash-pay notes (B3/B-/B-) at 94.796 to yield 10 7/8%.

Meanwhile in the week to come underwriters are expected to price the combined $4.5 billion of senior cash-pay notes which are part of the TXU Corp. LBO financing,

Energy Futures Holdings is offering $2 billion of 10-year notes (B3/CCC+).

Morgan Stanley, Goldman Sachs & Co., Citigroup, JP Morgan, Lehman Brothers and Credit Suisse are joint bookrunners.

The notes come with five years of call protection.

In addition, Texas Competitive Electric Holdings is offering $2.5 billion of eight-year notes (B3/CCC).

Goldman Sachs & Co., Morgan Stanley, Citigroup, JP Morgan, Lehman Brothers and Credit Suisse are joint bookrunners for the Texas Competitive Electric Holdings notes, which come with four years of call protection.

That combined $6.7 billion burst of issuance could be creating some indigestion, one investment banker reasoned on Friday.

However another banker expressed doubts, pointing out that in the wake of last summer's hung bridge loans such amounts of supply are hardly unexpected.

First post-correction European deal

It also merits mention that the week to come may produce terms on the first European issuance to be seen since the market went into correction.

U.K.-based oil and gas exploration and development company Melrose Resources plc will start a roadshow on Monday for its €250 million offering of eight-year senior subordinated notes, via Merrill Lynch.

Proceeds will be used to refinance debt and provide working capital for the company's projected exploration and development program.

New Indiana Downs bonds go down

A trader said late in the day that he had not seen the new U.S. Investigations Services deal break into the secondary market.

He did see the new Indiana Downs LLC/Indiana Downs Capital Corp. 11% notes due 2012, which priced at par on Thursday and then quickly moved up to 101.75 bid, 102.25 offered on the break. However, he saw those notes having traded down ½ point Friday from those lofty levels, at 101.25 bid, 101.75 offered, and remarked that they were "probably lower," given the overall negative tone of the market.

He noted that the widely followed CDX index of junk market performance fell 1 3/8 point to 97 7/8 bid, 98¼ offered.

Among other market gauges, the KDP High Yield Daily Index slid 0.34 to 79.69, while its yield ballooned 10 bps to 7.987%. Declining issues meantime led advancers by a better than five-to-three margin.

Angiotech takes turn for the worse

One of the biggest losers on the session was Angiotech, whose normally modestly traded 7¾% notes due 2014 were being quoted down 11 points at 85 bid, in fairly busy trading, in line with a 34.8% plunge in its share price to $4.98.

That debacle followed the company's announcement lowering its 2007 outlook. It anticipates weaker full-year sales, blaming delays in regulatory approval of an implanted mesh for patients with vascular disease. It also projected lower sales by partner Boston Scientific Corp. of stents coated with Angiotech's paclitaxel drug. The devices are used to keep diseased or weakened blood vessels open.

Angiotech originally projected medical product sales of $190 million, but has now cut that to no more than $173 million, and said that it will earn no more than $120 million - also less than its earlier predictions - in royalties for the drug coating used in stents sold by Boston Scientific.

GMAC, Ford Credit off on Morgan report

Away from Angiotech, GMAC - the former General Motors Acceptance Corp. - was seen sharply lower Friday, a trader pegging its 8% notes due at 90 bid, 91 offered, down from 93.5 bid on Thursday.

Another market source saw the bonds at 90.875, down nearly 3 points on the session.

At another desk, GMAC's 6 7/8% notes due 2012 were 2 points lower at 91.

Trading in the credit was described as very active.

GMAC - already reeling from the problems of the home mortgage industry, in which it participates through its ownership of Residential Capital Corp., a large mortgage lender - was further battered Friday by a J.P. Morgan research report which warned that increasing delinquencies by borrowers of prime auto loans may cut into GMAC's profits, and those of competitor Ford Motor Credit, which could potentially hinder improvement in the auto financiers' credit spreads.

The Morgan study said that more than 2.5% of borrowers of prime auto loans were at least 30 days delinquent on those obligations.

The Morgan analysts further pointed out that domestic automobile sales are likely to remain weak for at least the next six months, limiting the amount of business that GMAC and For Motor Credit might be able to generate from this area.

Ford Credit's 7% notes due 2013 were seen down ½ point at 90.5, also in active trading.

A trader meantime saw their respective automotive parents, General Motors Corp. and Ford Motor Co., also on the downside. He saw GM's benchmark 8 3/8% notes due 2033 down 1¼ points at 89 bid, 89.5 offered, and Ford's 7.45% notes due 2031 at 78.5 bid, 79 offered, down 1½ points.

Trump gets dumped

Elsewhere, Trump Entertainment Resorts' 8½% notes due 2015 were seen having fallen about 1½ points to 86.5, from prior levels above 88.

Another source saw the bonds at 87, down a point-and-change, with trading described as active.

Traders saw no fresh negative news out on the Atlantic City, N.J.-based gaming operator, but noted that the bonds had recently had a strong run-up to the 88-89 area - one remarked that it was "not so long ago that they were trading in the upper 70s" - on renewed buyout buzz, generated by a report earlier this month in the Newark Star-Ledger that the company was holding preliminary talks with Cordish Co., a real estate development firm involved in the development of two Hard Rock-branded hotel casinos. The Wall Street Journal reiterated Thursday that Baltimore-based Cordish is in "serious talks" to acquire Trump, which operates three hotel/casino resorts in the seaside gaming center.

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