E*Trade bonds get whacked on analyst's warning; Key Energy restructures deal

By Paul Deckelman and Paul A. Harris

New York, Nov. 13 - E*Trade Financial Corp.'s bonds fell sharply Tuesday - even as the New York-based on-line banking and financial trading company's shares recovered most of the ground they had lost on Monday, when they surrendered nearly 60% of their value after an analyst said that bankruptcy was a possibility. However the bonds did end well above their panicky early lows.

Elsewhere, Six Flags Inc.'s bonds - which had fallen notably on Friday in response to the amusement park operator's poor quarterly numbers - continued to head lower on Tuesday.

Trump Entertainment Resorts Inc.'s bonds were actively traded, and moved lower, apparently on continued investor angst over the recently reported failure of takeover talks for the underperforming Atlantic City, N.J.-based gaming company.

A senior high yield syndicate official said that junk was up an eighth of a point late in the day.

In the primary arena, things were fairly quiet as the market returned to full strength following the long Veterans' Day holiday break.

No new deals were seen to have priced by the close; however, Key Energy Services, Inc. was heard to have restructured its upcoming $400 million bond offering, and Quebecor World Inc. was expected to hit the road Wednesday to market its own $400 million bond offering, consisting of seven-year notes. Windstream Regatta will meanwhile sail into the market with a $217 million offering of 10-year subordinated bonds.

Indexes end mixed

A trader saw the widely followed CDX index of junk bond performance up ¼ point at 95 5/8 bid, 95 7/8 offered. However, The KDP High Yield Daily Index ended down 0.10 at 78.52, while its yield widened by 2 basis points to 8.37%.

Overall, declining issues led advancers by about a three-to-two ratio.

"The market has been a little bit of a roller coaster," a trader said - though he wasn't necessarily referring specifically to Six Flags' bonds in particular. "We were heavy Wednesday, Thursday and Friday of last week, and we came in [Tuesday] morning expecting [upside] with the stock futures up pretty sharply. [But] our market didn't follow through initially - we were lower."

E*Trade takes its lumps

He pointed to the negative effects of the E*Trade story.

The company's Nasdaq-traded shares had fallen badly on Monday - when the bond market was for all intents and purposes closed - after a Citigroup equity analyst raised the possibility that customers "may withdraw assets, and ask questions later," given the company's troubles in connection with the ongoing mortgage industry debacle. Analyst Prashant Bhatia also warned that there was an estimated 15% chance that E*Trade could be forced into a bankruptcy filing somewhere down the road. E*Trade angrily denounced the analyst's statements as "irresponsible," likening his prediction that customers might stage a bank run on the company to yelling "fire" in a crowded theater. Company officials moved to reassure the market that there was no need for such speculation and on Tuesday the shares moved back up smartly, helped by more positive words from another analyst, Michael Vinciquerra of BMO Capital Markets, who called the bankruptcy scenario "highly unlikely."

By the time the day was through, the battered shares had gotten back nearly two-thirds of what was lost on Monday, jumping $1.45, or 40.85%, to end at $5, on very heavy volume of 236 million shares, more than 11 times the usual traffic.

Over on the bond side of the fence, market earlybirds, taking their cue from what had happened Monday, when there was virtually no bond trading going on, initially beat the company's bonds down badly in active size trading - its 8% notes due 2011, which had finished Friday's abbreviated session at 95, were seen by a market source to have opened as low as 70, and the bonds traded below 80 for much of the day, in very active dealings, before finishing at around 83 - still down 12 points on the day.

Its 7 3/8% notes due 2013 likewise initially opened down at least 15 points on the day, in the lower 70s, before getting half of that back as they eventually fought their way back to around the 80 mark, also in busy dealings.

"The news was out," the first trader said, and those [8%] bonds were off from the mid-90s down to the low 70s - we saw a trade at 71 - and they're closing in the mid-80s. So it was a wild ride on E*Trade. We didn't trade any here - but there certainly was a significant amount of trading going on in all of their issues."

He noted that the shares and the bonds came back on "news that their liquidity situation is fine, they're certainly not going to file for bankruptcy, and the company could be sold."

Another trader quoted the 8s going out at a wide 80 bid, 85 offered, down 10 points on the session and "off a considerable amount" over the last several sessions. He pointed to the company's acknowledgement Friday that the Securities and Exchange Commission is looking into its mortgage holdings and the probability that it will have to write down a substantial portion of its mortgage loans.

After the markets closed on Tuesday, E*Trade said that its chief executive officer, Mitch Caplan, had canceled Wednesday's scheduled presentation at a Merrill Lynch & Co banking conference in New York. The company's shares rose in after-hours dealings, possibly on the theory that the cancellation could mean that some sort of corporate transaction may be in the works; takeover speculation, along with the BMO analyst's more positive take on the company, was seen as a key driver in Tuesday's stock rebound, as well as the bounce its bonds took off their lows.

"They began the day down 20 points," a trader said "but ended it down only 10."

Six Flags still struggling

Elsewhere, a trader saw Six Flags' bonds continuing on the downside, even as its shares - which had also gotten whacked around after Friday's poor numbers - had improved a little, closing unchanged. "The equity for Six Flags was better," the trader said, but high yield was still lagging behind.

He saw the company's 9 5/8% notes due 2014 - which had fallen about 3 points on Friday, down another point at 71 bid, 72 offered.

Six Flags sank on Friday as the company reported that its net income fell 46% year over year to $89.7 million, or 61 cents per share, from $164.7 million, or $1.08 per share, a year ago. Wall Street had been expecting the company to show a profit this time around in the $1.40 per share range.

Pilgrim's Pride bonds a turkey

Also on the earnings front, a trader saw Pilgrim's Pride Corp.'s bonds down about 2 points on disappointing numbers. He pegged both the 7 5/8% notes due 2015 and the 8 7/8% notes due 2017 at 98 bid, 99 offered.

The bonds dropped a deuce after the chicken producer announced earnings of 61 cents per share in the fiscal fourth quarter - well below company expectations of earnings around the same 94 cents per share it earned in the third quarter.

Company executives said higher retail prices in the fourth quarter offset grain costs - but weren't enough to overcome higher fuel expenses and operational inefficiencies.

Trump seen easier

The Trump Entertainment Resorts 8½% bonds due 2015 were seen having experienced "a fair amount of trading," the trader said, although he did "not see much go on " in terms of price movements, slotting the bonds into the same 80 bid, 81 offered area seen last week.

Another market source saw the bonds dip down to about 79.5-79.75.

Those bonds had recently been trading in the upper 80s, but have come down notably since a newspaper report last month indicated that talks with Baltimore-based real estate operator Cordish Co. which might have led to the sale of one or more of Trump's three casino properties in Atlantic City had broken down, after Cordish's financial backer, Goldman Sachs, withdrew. It was the second time this year that talks aimed at finding a buyer or investor for the underperforming company had ended in failure.

Overall, Tuesday was "kind of an up and down day," a trader said. "It started out heavy and felt like we were going to continue to go lower. But then strength in the equity markets gave strength to our market and we traded higher off it."

He said that the market buzz was that "there's a bunch of hedge funds out there that have been shorting, or that are short the S&P [500 Index] that got wrung out today, and that might have been a lot of the strength that we saw."

Quebecor World $400 million

Primary market watchers had mainly to satisfy themselves during the Tuesday session with rumors, which were in plentiful supply, although the session did produce some actual news.

Quebecor World will start a roadshow on Wednesday for a $400 million offering of seven-year senior unsecured notes (Caa1).

Citigroup is the left bookrunner. Banc of America Securities LLC, BNP Paribas and JPMorgan are joint bookrunners.

The Montreal-based marketing and advertising company is concurrently in the market with a $250 million equity offering and a $100 million sale of convertibles.

Proceeds from the notes and convertibles, and a portion of the proceeds from the equity offering, will be used to repay the company's bank debt and to redeem preferreds.

Elsewhere Reliance Intermediate Holdings LP was heard to be in the market with a $293 million offering of senior secured notes (Ba2/BB-).

The deal is part of a transaction that also includes a sale by Reliance LP of C$1.075 billion senior secured notes due 2012 and 2017 (Baa3/BBB-).

All of the bonds, including those of the high yield-rated tranche, will be priced off the investment grade desk.

Citigroup is the lead bookrunner for the deal to refinance an acquisition-related bridge.

Key Energy restructures

Meanwhile, although the forward calendar is topping with deals expected to price during the remaining three sessions left before the pre-Thanksgiving week thins out the high yield crowd, very little news about those deals surfaced during the Tuesday session.

Key Energy Services set price talk for a restructured $400 million offering of seven-year senior unsecured notes (B1/B) at the 8¼% area on Tuesday.

The maturity of the notes was decreased to seven years from 10 years. Meanwhile call protection was decreased to four years from five years.

Lehman Brothers is the lead bookrunner for the debt refinancing and general corporate purposes from the Houston-based oil rig services provider. Banc of America Securities LLC and Morgan Stanley are joint bookrunners.

Pricing is expected Wednesday.

The rest of the field

Apart from the Key Energy price talk and structure news, it was "crickets," on Tuesday, with respect to the forward calendar.

There was plenty of chatter regarding United Rentals Inc.'s $2.55 billion offering of seven-year second-priority senior secured notes (B2/B).

Late last week the company revised the price talk to a 10 5/8% coupon at an original issue discount of between 97.00 and 97.50.

Sources commented that the revision amounted to a big move, given that previously the notes had been talked to price at par with a yield of between 10½% and 103/4.

Some had expected the deal, which is being led by Credit Suisse, Banc of America Securities LLC, Lehman Brothers and Morgan Stanley, to price before the end of last week.

On Monday sources told Prospect News that rumors of increased price talk were circulating the market.

However a syndicate source said that there have been no official changes.

Nor was there any news, Tuesday, on Alltel Communications/Alltel Communications Finance, Inc.'s offering of a portion of the $5.2 billion of cash-pay notes that are part of the LBO financing for the Little Rock, Ark., provider of wireless voice and data communications services.

Citigroup, Goldman Sachs, Barclays and RBS Securities are leading that deal.

Buy-side sources told Prospect News last week that the underwriters are expected to attempt to price between $2 billion and $3 billion.

Late in the week, given the sell-off in equities and a corresponding swoop in junk, a money manager said that $2 billion seemed nearer the mark.

Another deal pushed into the present week from last week was Novamerican Steel Finco Inc.'s $315 million offering of eight-year senior notes (B3/B-), which are talked at 12% to 12¼%.

Ditto Apria Healthcare Group Inc.'s $265 million offering of 10-year senior subordinated notes (B1/BB-), talked at 8% to 8¼%.

No hard news on the holdover deals was heard on Tuesday.

In addition to the holdover deals, Connacher Oil & Gas plans to sell $600 million of eight-year second-lien senior notes via Credit Suisse, RBC Capital Markets and BNP Paribas, before the Friday close.

And Gastar Exploration USA, Inc. began a roadshow on Friday for its $100 million offering of five-year senior secured notes, via Jefferies & Co. That roadshow is scheduled to wrap up on Nov. 16.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.