Chesapeake, Inergy sell upsized deals, new bonds move up; Rite Aid bounces back; American Media moves up

By Paul Deckelman and Paul A. Harris

New York, Jan. 28 - Chesapeake Energy Corp. priced a greatly upsized offering of new six-year notes on Wednesday, as the junk bond primary sphere's new-deal parade resumed with a vengeance after a hiatus of several sessions.

Beside's Chesapeake's mega-deal, Inergy LP priced a considerably smaller six-year offering, although this too was upsized. Another deal heard banging around the market, although it had not yet priced by the time trading wound down for the day, was Intelsat Subsidiary Holding Co., Ltd.'s offering of new five-year notes.

Secondary traders said that the Chesapeake and Inergy bonds both firmed smartly when they were freed for aftermarket action.

They also saw the new bonds issued by Crown Castle International Corp., which priced a week ago, continuing to move steadily upward on sizable volume.

Back among the established issues, Rite Aid Corp.'s bonds - which had fallen sharply on Tuesday as investors worried about the Camp Hill, Pa.-based drugstore operator's liquidity position in the face of a weak retail environment - rebounded Wednesday.

Also among the gainers, American Media Operations Inc.'s two issues of bonds were being quoted at higher levels as the newspaper publishing company seemed to be nearing its goal of taking out most of those bonds by means of a tender offer.

Chesapeake prices $1 billion

The primary market saw a mid-week burst of activity as two issuers priced upsized drive-by deals which generated a combined total of $1.137 billion of proceeds.

Chesapeake Energy priced a massively upsized $1 billion issue of 9½% six-year senior notes (Ba3/BB) at 95.071 to yield 10 5/8%.

The yield came at the middle of the 10½% to 10¾% yield talk, while the coupon came on top of the coupon talk.

Deutsche Bank Securities, Banc of America Securities LLC, Credit Suisse, Goldman, Sachs & Co., Morgan Stanley and Wachovia Securities were joint bookrunners for the debt refinancing and general corporate purposes deal.

The Chesapeake deal, which was driven by reverse inquiry, was oversubscribed when launched at $500 million, according to an informed source.

One high-yield mutual fund was allocated 10% of the bonds it requested.

However a source close to the deal said that allocations were severe pretty much across the board.

A sell-sider not in the deal said that investors were clamoring to get in, hoping to own a liquid issue from such a well-known high-yield name as Chesapeake Energy.

"Who wouldn't want to own Chesapeake with a double-digit yield?" the sell-sider demanded to know.

Inergy refused to grow

Elsewhere Inergy financing subsidiary Inergy Finance Corp. priced an upsized $225 million issue of 8¾% six-year senior notes (B1/B+) at 90.191 to yield 11% in a quick-to-market Wednesday transaction, according to an informed source.

The yield came at the tight end of the 11% to 11¼% yield talk, while the coupon came in line with coupon talk in the 8% range.

JPMorgan, Banc of America Securities and Wachovia Securities were joint bookrunners for the debt refinancing deal, which was upsized from $200 million.

The deal was more than five-times oversubscribed, according to a high-yield mutual fund manager who added that even though there was in excess of $1 billion of orders in the book, Inergy refused to grow the deal beyond the $200-odd million of proceeds it intended to raise because the company is not inclined to sell any more 11%-yielding paper than it absolutely has to.

That attitude is perhaps understandable, given that the last time Inergy came to the high-yield primary, in early April of 2008, it priced a $200 million add-on to its 8¼% senior notes due March 1, 2016 (B1/B+) at 102, resulting in a yield of 7.813%, nearly 319 basis points below Wednesday's print.

Cash keeps coming in

Meanwhile cash continues to move into the high-yield asset class, the mutual fund manager said.

It would be no surprise on Thursday should AMG Data Services report another big inflow for the week ending Wednesday, the buy-sider added.

AMG has now reported eight consecutive inflows dating back to the week ended Dec. 3, totaling $3.553 billion, according to a Prospect News analysis of the AMG figures - the biggest sustained inflows since May 2003.

Economic circumstances notwithstanding, all of this cash is creating a demand for paper that likely will have to be satisfied in the primary market, the buy-sider said.

Given these circumstances, the buy-side - which since mid-December has seen deals mostly from defensive sectors - is bracing for the potential appearance of more challenged issuers that need to refinance. For example, there could be one from the gaming sector which is considered more than a little vulnerable to a protracted economic downturn, the buy-sider said.

There is no shortage issuers such as that which need to refinance debt, the investor said.

Intelsat for Thursday

Finally on Wednesday Intelsat Subsidiary Holding Co., Ltd. set price talk on Wednesday for its $200 million offering of notes mirroring the company's 8 7/8% senior notes due Jan. 15, 2015 at a dollar price of 88.00 area to yield 11¾% area.

The deal is expected to price on Thursday.

Moody's Investors Service assesses the existing notes at B3. Standard & Poor's rates the existing notes at BB-. Those ratings are expected to be assigned to the mirror notes.

Goldman Sachs & Co. was the bookrunner.

Proceeds will be used to fund the tender for $200 million of Intelsat's outstanding 7 5/8% senior notes due 2012 and its 6½% senior notes due 2013.

The original $681.012 million of 8 7/8% senior notes due January 2015 was priced at par on June 24, 2008.

New Chesapeake bonds break higher

When the new Chesapeake Energy 9½% notes due 2015 were freed for secondary dealings, a trader quoted the bonds at 98 bid, 99 offered, well up from the 95.071 price at which they had been issued earlier in the session.

Another trader said that the bonds had gotten as high as 98 bid, 98.75 offered, before dropping back from that peak to 96.25 bid, 97.25 offered level, which he called "still a spectacular break."

Activity in the new bonds was brisk, he said; "when you have a hot deal like the Chesapeakes, you get a lot of different accounts involved, from hedge funds to flippers [looking to quickly cash out of the deal at a higher price] to investment managers," attracted by the Oklahoma company's status as one of the premier names in the high-yield energy sector.

"They're in the news at least once a week, if not even more often, and lately, they've actually been in the news because of rumors that they might be a takeover target after the stock got hammered so badly when the CEO had to meet margin calls."

In October, at the height of the stock market's autumn meltdown, the company announced that its chief executive officer, Aubrey McClendon, had sold approximately 33.4 million shares, or essentially all of his Chesapeake holdings, for $16.52 per share to meet a margin call. That price contrasted sharply with the 52-week high of $74, reached back in July when, not so coincidentally, oil prices were also at their peak; the drop between the two levels accounted for over $1.92 billion of lost value.

Buoyed by the financing news, Chesapeake's New York Stock Exchange-traded shares gained $1.11, or 7.10%, to finish at $16.75, on volume of 23 million shares, a little under the usual turnover.

The trader said that Chesapeake's outstanding 6½% notes due 2017 closed at 82.625, down from 83 on Tuesday.

New Inergy bonds better

The trader also said that the new Inergy 8¾% notes due 2015, which had priced at 90.191, had moved up to 93 bid, 94 offered, which he said was "another successful pricing and another great break, no question about it."

He said that the new issue was "definitely not as active as the Chesapeakes, which is not a surprise, because the Chesapeake issue was $1 billion and this was $225 million.

A second trader also saw the new Inergy paper at 93-94.

Crown Castle rise continues

Among recently priced issues, Crown Castle International's 9% notes due 2015 continued their virtually uninterrupted rise, which has been going on since the Houston-based antenna tower operator priced an upsized $900 million of those bonds nearly a week ago.

A market source quoted the bonds at 96.5 bid, up from around the 95 level at the close of trading Tuesday. While trading was fairly busy, including a number of round-lot transactions, activity levels were well down from Tuesday, when $29 million changed hands.

At another desk, a trader saw the bonds going out at 95.5 bid, 96.5 offered, which he saw as up ½ point.

The bonds priced last Thursday at 90.416 to yield 11¼%, and then began to immediately move up when freed for aftermarket dealings. They traded in the mid-94s on Monday, and moved as high as 97-plus in intraday trading on Tuesday, although they later came down from those outlier levels to end at 95. They began moving up again from the get-go on Wednesday, and didn't look back.

Market indicators head north

Back among the established issues, the widely followed CDX High Yield 11 index of junk bond performance, which gained 3/8 point on Tuesday, pushed up by another full point on Wednesday, a trader said, quoting it at 76 1/8 bid, 76 5/8 offered. The KDP High Yield Daily Index meanwhile rose by 43 bps to 54.23, while its yield came in by 8 bps to 13.52%.

In the broader market, advancing issues widened their lead over decliners to nearly two to one. Overall market activity jumped almost 44% from the levels seen in Tuesday's session.

A trader said there was a "definitely better tone, I think with the backdrop of the confidence in equities, more of the accounts that were sitting on the sidelines dipped their toe in [Wednesday] - and as long as their toe doesn't get bitten off in the next few days, I'm sure they will be coming back for more. No one can resist yield."

He saw several issues which could be considered bellwether indicators for the broader market because of their great size in the several billions of dollars, widespread distribution among accounts and easy, liquid tradability should someone want to get out, as pushing higher, in line with the better tone.

Community Health Systems Inc.'s 8 7/8% notes due 2015 moved up to a round-lot close of 97.5 bid from 95.75 the previous session, while First Data Corp.'s 9 7/8% notes due 2015 were up ¾ point to 56.5 bid.

However, at another desk, a trader said that he had seen "nothing extraordinary. I didn't see any bond jumping up a lot - only one point or two points, nothing spectacular up or down," He did see "some things better than [Tuesday], citing Chesapeake and calling them up by about ½ to 1 point, because of the new issue, "but other stuff is in the context of the market [up or down from Tuesday's levels] within a point or two."

Rite Aid rebounds

A trader said that Ride Aid's bonds - which had fallen by multiple points across the board on Tuesday - were in the recovery room on Wednesday, with the 10 3/8% notes due 2016 at 62 bid, 64 offered and its 9½% notes due 2017 at 25.5 bid, 27.5 offered, which he characterized as "up a bit," around 2 to 3 points.

He said the 10 3/8s had traded in a range of 60 to 63, and characterized them as "the indicator" pointing to the better levels for all of the Rite Aid bonds, but said that there was "not a lot of trading" in it on Wednesday.

At another desk, the 10 3/8s were pegged up more than 3 points to nearly 63, while the company's 8 5/8% notes due 2015 were seen up more than 2 points at 22.5 bid,

However, another trader said that Rite Aid's 7½% notes due 2017 "were the only losers" among the day's most active issues, seeing them at 54.5 bid, down 3 points, on $6 million traded.

Rite Aid's bonds had fallen on Tuesday despite a lack of any fresh negative news about the company, with market participants theorizing that investors were having second thoughts about their recent romance with Rite Aid following a ratings downgrade by Moody's Investors Service and Rite Aid's having to obtain a new credit line to make up for a lender-imposed reduction in its credit availability under a recently extended asset-backed revolving credit facility.

American Media moves up

A market source quoted American Media's 10¼% notes slated to come due this May 1 at 35 bid - an astounding 24-point jump from prior levels - theorizing waggishly that "maybe they're set to run a world-shaking exclusive story they've discovered: Elvis is alive and fathering a child by today's hottest Hollywood actress, take your pick whoever," in a nod to the kind of sensational headlines frequently splashed across the Boca Raton, Fla.-based publisher's widely read supermarket celebrity gossip tabloids like the National Enquirer, the National Examiner, Globe, Sun, Star and, before its demise as a separate publication, the wildest of them all, Weekly World News.

A trader at another shop said he had not seen any trading in the bonds on Wednesday - but he had seen them trading at 35 on Tuesday, while before that, "they were in the single digits."

Yet another market source agreed that the bonds had zoomed to the 35 level on Tuesday from prior levels around 4 or 5, while the company's 8 7/8% notes due 2011 had moved up to 30 from around the 5 bid level.

The company said on Tuesday that its ongoing tender offer for the two series of notes had been extended from its Tuesday expiration deadline to Thursday morning and its minimum tender conditions had been amended so the company expects to fully meet those conditions and thus complete the tender offer.

Active issues post gains

A trader saw the market's most active issues generally in the gainers' column, including Motorola Inc.'s 8% notes due 2011, up 1½ points at 88.25 on volume of $15 million.

Another gainer was MetroPCS Wireless Inc., whose 9¼% notes due 2014 gained a point to 93, on $13 million.

Also in that same telecommunications sector, the trader said, Sprint Nextel Corp. bonds were "pretty active" the 8¾% notes due 2032 at 64.375, up from 62, which he called "quite a pop," up 2 3/8 points on $13 million traded. Sprint's 7 5/8% notes due 2011 were up more than 3 points around the 85 level.

Broadband operator Windstream Corp.'s 8 1/8% notes due 2013 rose to 98 bid from 97, on $11 million traded.," so as you can see, the market really took off."

Ahold a bond to hold onto

One of the largest price moves was Royal Ahold NV's 6 7/8% notes due 2029, which were trading at 102.375 on a round-lot basis - "but the highlight," a trader said, is that the bonds were trading two days ago at 88 bid, "a huge jump in two days," on $7 million.

There was no immediate word on why the bonds of the Dutch multinational supermarket giant - which operates the far-flung Stop & Shop store chain in the northeastern United States - were up so strongly .

Auto issues in gear

A trader saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 up 1 point to 15 bid, 16 offered, and saw Ford Motor Co.'s 7.45% bonds due 2031 also up 1 point to 23 bid, 24 offered.

Another trader saw the GM benchmarks "up a little" at 14.5 bid, 15.5 offered, while the Ford long bonds gained 2 points to 23 bid, 24 offered.

Distressed market doings

A trader saw Smurfit Stone Container Corp.'s bonds steady at the 12.25 bid, 13.25 offered level to which those bonds fell on Tuesday, after having risen to around 14-15 on Monday in the wake of the company's Chapter 11 filing.

A trader saw the bankrupt Nortel Networks Ltd.'s bonds "pretty much unchanged" at 17 bid, 18 offered for its 10¾% notes due 2016.

However, a trader saw Charter Communications Inc.'s bonds were being quoted better, with its 10¼% notes due 2010 lifted more than 5 points on the session to the 60 level, and its 8% senior notes due 2012 up more than 2 points to the 85 area.

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