Airline slide continues, market mulls Harrah's buzz; Chesapeake, OPTI Canada slate deals

By Paul Deckelman and Paul A. Harris

New York, Nov. 28 - Higher world oil prices and continued profit-taking after the sector's recent run-up combined to again push the bonds of airline companies lower on Tuesday. While the biggest losers were the names which had recently gained the most - bankrupt operators Delta Air Lines Inc. and Northwest Airlines Corp. - even the more financially secure AMR Corp.'s bonds were seen lower.

Traders varied in their assessments of news reports indicating that Wyomissing, Pa.-based racetrack and racino company Penn National Gaming Inc. might make a takeover bid for much larger rival Harrah's Entertainment Inc., with the reported possible help of deep-pocketed partners said to include a large hedge fund and two well-known investment banks.

On primary market activity, Chesapeake Energy Corp. unveiled details on an offering of euro-denominated 10-year notes, with pricing expected on Friday morning in Europe. Also seen bringing new deals to the forward calendar were OPTI Canada Inc. and Esco Corp., which were going to hit the road on Wednesday and Thursday respectively to market those offerings to prospective investors. Price talk emerged on VWR International Inc.'s planned offering of five-year floating-rate PIK notes.

Generally, traders said, activity levels remained low, a carryover from the recent Thanksgiving holiday break, and the market seemed to have a heavy feel to it, even though the equity market - whose sharp fall on Monday helped to pull bonds lower that session - rebounded modestly on Tuesday.

"The whole market in general felt soggy," one trader said, "weaker across the board."

A high yield syndicate official said that while the broad market had been softer on Tuesday morning it firmed up later in the afternoon.

The source added that there had been bids for some recent issues which had lately traded down, and mentioned Firestone Acquisition Corp. (Freescale Semiconductor Inc.), which priced a $5.95 billion four-part transaction on Nov. 16 in what market sources estimate may be the biggest single amount of issuance ever placed at one time by a U.S. issuer.

The official also said that the Hercules Holding II/HCA Inc. bonds which priced on Nov. 9 in a $5.70 billion three-part transaction, and lately traded down, also saw better buyers on Tuesday afternoon.

Oil greases skids under airline bonds

While one trader said that "not much" was going on, he did see the formerly high-flying airline sector continuing to be pushed lower, partly on profit-taking off recent gains, and partly due to higher world oil prices, which are seen as a possible harbinger of higher jet fuel prices down the road.

Light, sweet crude for January delivery rose 67 cents to settle at $60.99 a barrel on the New York Mercantile Exchange. Prices have risen more than $5 a barrel just since Nov. 17, when the December contract settled and expired at $55.81 a barrel, pushed up by market concerns about forecasts for a cold winter in the United States, the upsurge in violence in Iraq, and the possibility that the Organization of Petroleum Exporting Countries - whose ministers are scheduled to meet in Nigeria next month - could enact further output cuts.

The trader saw the 9% notes due 2012 of Fort Worth, Tex.-based American Airlines parent AMR at 105.25 bid, down about a point on the session, continuing a downside move seen the past several days, and saw a similar move in the bonds of Atlanta-based Number-Three U.S. carrier Delta, although he allowed that there was "not much volume at all." He said that Delta's bonds, and those of the equally troubled Number-Four U.S. carrier, Eagan, Minn.-based Northwest, had "gotten a little ahead of themselves" over the past week or so, and were now being taken back down by the profit-takers.

At another desk, a trader said that Delta and Northwest "continued their slide," with Delta's most widely quoted issue, its 8.30% notes due 2029, having opened at 59 bid, 61 offered, then having dropped as low as 57 bid, before coming off that low to close at 58 bid, 60 offered. He saw the company's other bonds likewise down a point across the board.

But the bigger loser, he said was Northwest, whose bonds had pushed even higher than Delta's, into the mid-80s. On Tuesday, he saw those bonds, including the company's 8 7/8% notes that were to have come due this year, down 4 points across the board, with the 8 7/8s settling in at 83 bid, 85 offered, after having dipped as low as 82 bid, 84 offered during the session.

Yet another trader saw the Delta bonds down 2 points on the day, with the 8.30s ending at 58 bid, 59 offered, and Northwest's bonds off 3 points, with its 10% notes due 2009 at 83.5 bid, 84.5 offered.

The Delta bonds had shot up solidly earlier in the month - including a gain one session of more than 20 points - and had taken Northwest up with them in sector sympathy on the news that US Airways Group Inc. had offered to acquire Delta for about $8.6 billion - $4 billion in cash and the remainder in US Air shares. The Delta bonds got a follow-up boost last week on the news that some of the larger bondholders were banding together to form their own informal committee - as opposed to the official creditors' committee - to urge the company's management to give serious consideration to the US Air offer and to not just dismiss it out of hand, as Delta seemed to do when the idea first surfaced and chief executive officer Gerald Grinstein and other Delta executives indicated that the company's gameplan was to restructure and emerge as a leaner, less-debt-burdened standalone company. Delta has mentioned possible regulatory problems as one reason why it does not favor the US Airways option.

Lawyers for the court-appointed official creditors' committee - which has been cool toward the US Airways takeover offer - said that US Airways would get its chance to pitch its plan to Delta's management and the creditors at a meeting this week. They said that the takeover plan would be given a fair hearing.

The creditors committee includes such varied groups as bondholders, banks and aircraft makers like Boeing Corp. With differing interests at stake among these groups, no decision on the takeover idea from the creditors is immediately expected.

Harrah's M&A possibility

A trader said it was his impression that "gaming stuff was up" on intensified merger and acquisition speculation, after CNBC reported that a group led by Penn National Gaming and hedge fund D.E. Shaw is considering making a cash and stock offer for Harrah's Entertainment. The network said that Lehman Brothers and Wachovia Corp. would provide financing and have some equity in the company if a deal were to go ahead.

CNBC attributed its information to unidentified sources that it said were familiar with the matter.

Harrah's declined comment on the report. The Las Vegas-based company - the world's largest gaming operator - already is studying a buyout offer it received some weeks ago from private equity firms Apollo Management and Texas Pacific Group, which originally offered $15 billion but which have since sweetened that offer to about $15.5 billion.

The trader had no firm quotes on specific issues, but said that gaming was "firm across the board" to the tune of ¼ to 3/8 point, spurred by the M&A rumors.

Noting the size disparity between Harrah's and Penn National - which operates racetracks, racetrack-based racino slot machine gaming and some riverboat gambling in various jurisdictions, but which currently has no presence in either Las Vegas or Atlantic City, the two biggest U.S. gaming markets - the trader laughed that given the recent intense activity generated by private equity companies, hedge funds and others in making buyout bids for major companies, "nothing surprises me anymore. This market is so rumor-oriented, it's ridiculous."

Another trader, however, said that Harrah's "pretty much hung in there, and Penn Gaming is not one that trades a whole hell of a lot. They have a couple of tranches [of bonds outstanding] but it definitely doesn't trade much at all."

He said other gaming names such as MGM Mirage and Mandalay Resort Group were "status quo," while Trump Entertainment Resorts Inc. and Isle of Capri Casinos Inc. were "quiet."

"I didn't see major movements," he said, with Boyd Gaming Corp. "not doing much" and Station Casinos Inc. "off a touch," with the latter's 6½% notes "actually off a little bit" at 92.75 bid, 93.75 offered, down from last week's 94.5-95.5 context.

A market source saw Harrah's busiest issue as its 6½% notes due 2016, which fell as low as 89 bid before closing around 91.875, down just slightly from Monday's 92 finish. Its 5¾% notes due 2017 were the only Harrah's bond to show significant price movement on the session, the source said, moving down to about the 83 level before closing at 87, up around 2 points on the day. Other Harrah's bonds were little moved on the session, in light dealings,

Dole, Chiquita drift lower

A trader said that Dole Food Co. Inc.'s bonds "continued to drift lower" in the wake of weaker earnings recently reported by the Westlake Village, Calif.-based fruit and vegetable company. He saw its 7¼% notes due 2010 around 93.25 bid, 93.75 offered, down from recent levels in the 94.5 bid, 95 offered area. He also saw its 8¾% notes due 2013 down ½ point to a point at 93.5 bid, while its 8 7/8% notes due 2011, which "doesn't trade that much," off 5/8 point to ¾ point at 95.875.

Besides the weaker earnings, he noted that "a lot of people have to unwind" trades in the credit default swaps market, which he said was also a factor in pushing Dole down.

He meantime saw Dole rival Chiquita Brands International Inc.'s 8 7/8% notes due 2015 at 92 bid, and its 7½% notes due 2014 at 87.5 - down ½ point for each of the Cincinnati-based banana giant's bonds, in "light trading - not much volume."

Stage-setting

Meanwhile in the primary market two sessions have come and gone in the wake of the long holiday weekend without any new issues pricing.

Nevertheless the forward calendar continued to build on Tuesday as the stage was set for a post-Thanksgiving week that is expected to produce a purposeful amount of issuance.

OPTI plans a billion

Energy resources developer OPTI Canada Inc. will begin a roadshow on Wednesday for a $1 billion offering of eight-year senior secured notes (B1/BB) which are expected to price late next week via Credit Suisse and RBC Capital Markets.

Proceeds will be used to refinance debt and expenditures related to the Long Lake oil sands project in Canada, which is a 50-50 joint venture between OPTI and Nexen Inc.

Roadshow for Esco

Meanwhile Esco Corp. will start a roadshow on Thursday for its $275 million offering of seven-year senior notes (expected ratings B2/B) in two tranches.

The Portland, Ore.-based issuer is offering tranches of fixed-rate and floating-rate notes in a deal being led by Goldman Sachs and Morgan Stanley.

Proceeds will be used to fund the LBO by its employee stock ownership plan and pay a special dividend to common shareholders.

Talk on VWR

On Tuesday VWR International put out price talk on its $350 million offering of senior floating-rate PIK notes: Libor plus 437.5 basis points area at a 99.00 to 99.25 dollar price.

The deal, which is being led by Banc of America Securities, is expected to price on Wednesday afternoon.

Also in the market with deals that have been talked and are expected to price in the mid-week time-frame is Momentive Performance Management (General Electric's advanced products business) with $1.95 billion in five parts via JP Morgan, GE Capital and UBS Investment Bank.

The deal is comprised of $1.355 billion of eight-year senior notes (B-) in three tranches.

A dollar-denominated cash-pay tranche is talked at the 9½% area. A tranche of dollar denominated toggle notes is talked to price 25 to 37.5 basis points behind the cash-pay notes. And a euro-denominated tranche of cash pay notes is talked price 75 to 100 basis points inside the dollar-denominated cash pay notes.

In addition Momentive Performance Management is offering $595 million of 10-year senior subordinated notes (CCC+) in dollar-denominated and euro-denominated tranches, both talked 150 basis points behind their respective tranches of cash pay senior notes.

Pricing is expected on Wednesday.

And Complete Production Services Inc. has talked its $600 million offering of 10-year senior notes (B2) at 8% area, and is expecting to price the deal on Wednesday afternoon via Credit Suisse.

Late week business

Meanwhile a quartet of prospective issuers also plans to price notes later this week

Angiotech Pharmaceuticals, Inc. is marketing a $325 million offering of seven-year senior floating-rate notes via Credit Suisse and Banc of America Securities.

The remainder of the week's prospective issuance is expected to come in euro-denominated deals.

TNT Logistics is marketing €730 million in a two-tranche deal being led by Credit Suisse, Bear Stearns, Goldman Sachs & Co. and ABN Amro.

Chesapeake Energy plans to price its €400 million offering of senior notes due Jan. 15, 2017 (expected Ba2/confirmed BB/expected BB) on Friday via Barclays Capital, Credit Suisse, Deutsche Bank Securities and Goldman Sachs International.

Also in the market with a $400 million offering is Finnish pulp and paper group, M-Real Corp.

Deutsche Bank and BNP Paribas are leading the deal which features four-year senior floating-rate notes (B2/B+).

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