Chesapeake slates deal; distressed bonds active; XM, Sirius higher

By Paul Deckelman and Paul A. Harris

New York, June 26 - In primary news, Chesapeake Energy Corp. unveiled plans to sell a half-billion-dollar issue of seven-year notes, part of a three-part financing initiative by the Oklahoma-based oil and gas exploration and production company that also includes issuing new common stock and selling convertible preferred shares. Also, price talk was heard on Windstream Corp.'s two-part, $2 billion-plus mega-deal.

In the secondary market, dealings were described as muted, with most of the activity coming from clearly distressed issues such as Adelphia Communications Corp., Owens Corning and Fairfax Financial Holdings Ltd., all of which were seen having firmed a bit. There was not much activity seen in the existing bonds of Chesapeake on the news of its big impending bond sale. Bonds of both Sirius Satellite Radio Inc. and its larger rival XM Satellite Radio Holdings, Inc. improved a little on merger and acquisition buzz after Sirius chief executive Mel Karmazin told an industry conference he'd be interested in acquiring his competitor, if the price were right - although such a deal would likely raise red flags from antitrust regulators.

A sell-side source marked the broad high yield market down a quarter of a point on Monday, conceding that junk is presently plowing through some pretty rocky soil.

Meanwhile the primary market saw no new issues price.

However terms did circulate on National Mentor Holdings, Inc.'s downsized $180 million issue of eight-year senior subordinated notes (Caa1/CCC+) which priced late Friday at par to yield 11¼%, at the wide end of the 11% to 11¼% price talk.

JP Morgan, UBS Securities and Bank of America Securities were joint bookrunners for the acquisition and debt refinancing deal that was downsized from $215 million.

The Boston-based company's new senior secured term loan will increase by $35 million to $335 million from $300 million.

Worse in the primary

The sell-sider who gave the spot on Monday's market said that when junk sells off the primary market tends to suffer more than the secondary market.

"That's just because you have no leverage with the accounts, and you have to move pricing a lot more than you normally would in order to get people's attention," the sell-sider explained.

At present, the source added, the "new issue premium" is three eighths of a point off current secondary levels, whereas a month ago that premium was approximately an eighth to a quarter of a point.

"And secondary levels are wider now than they were a month ago," the sell-sider added.

The source noted that the new issue market must be taken case by case. The suffering seems to take place at the extremes. Mega-deals, such as last week's restructured, downsized and delayed Intelsat/PanAmSat transaction ($2.915 billion, down from the $3.515 billion), as well as the very small deals get hurt the worst in market conditions such as those that now prevail, whereas deals in the $500 million range seem to fare somewhat better.

However the market remains open for issuers, the sell-sider added, asserting that things could be worse.

Asked whether the new issue market continues to make sense for issuers, the source simply said that certain deals, such as acquisition financings, have to get done.

As an example the sell-sider pointed to the Nortel Networks Ltd. $2 billion three-tranche fixed- and floating-rate senior notes deal (B3) via JP Morgan and Citigroup, proceeds from which will be partially used to repay the $1.3 billion one-year acquisition financing bridge loan the company entered into in February.

The deal is expected to price later this week, although no official price talk had been heard at Monday's close.

The sell-sider added that another factor that is stoking present primary market activity is a concern among issuers that their window of opportunity for selling junk bonds may be closing.

Windstream talks two-parter

Elsewhere in the primary market, Windstream Corp. released guidance for its $2.503 billion two-part senior notes offering (Ba3/BB-) on Monday.

The Little Rock, Ark.-based telecommunications company talked its $800 million tranche of seven-year bullet notes at 7¾% to 8% and its $1.703 billion tranche of 10-year notes to come 3/8% to ½% wide of where seven-year notes price.

The Merrill Lynch and JP Morgan-led acquisition deal is expected to price on Tuesday.

Chesapeake bringing $500 million

Oklahoma City-based Chesapeake Energy Corp. will hold a Monday-Tuesday roadshow for its $500 million offering of seven-year senior notes (Ba2/existing BB).

Banc of America Securities, Deutsche Bank Securities, Goldman Sachs, Lehman Brothers and Wachovia Securities are joint bookrunners.

Proceeds, along with a $500 million offering of convertible preferred shares and 20 million common shares to raise approximately $600 million, both led by Goldman Sachs, will be used to fund the $932 million Barnett Shale acquisitions, repay Chesapeake's revolver and for general corporate purposes.

Coalcorp brings notes and warrants

Finally Coalcorp Mining Inc. will be marketing its dollar-denominated notes and warrants units offering for the remainder of this week and into next week, according to an informed source.

The units will be sold in Canada, the United States and the United Kingdom. Emerging markets funds in addition to high yield funds will be canvassed.

Each unit will be comprised of a $1,000 senior unsecured note maturing in five years and one day and 190 common share purchase warrants.

The total deal size remains to be determined.

GMP Securities is leading the capital expenditures-funding deal from the Toronto-based mining, exploration and development company. Coalcorp has interests in the La Francia and La Caypa coal mines and related infrastructure projects, and a number of coal exploration properties, all located in Colombia.

National Mentor up in trading

When the new National Mentor 11 ¼% notes due 2014 were freed for secondary dealings, a trader saw the bonds at 100.75 bid, 101.25 offered, while a second saw them doing even better, firming to 101 bid, 101.5 offered.

Among other recently priced issues, traders were quoting Petrohawk Energy Corp.'s 9 1/8% senior notes due 2013 at 99 bid, 99.5 offered, up slightly from Friday's issue price at 98.735. They saw Stone Energy Corp.'s senior floating-rate notes due 2010 straddling their 99.75 issue price at 99.5 bid, 100.5 offered. And Baker & Taylor Inc.'s new 11½% senior secured notes due 2013, which also priced on Friday at par, were seen about unchanged at par bid, 100.5 offered.

Chesapeake higher despite deal plan

News of the big upcoming financing by Chesapeake Energy caused that company's existing bonds to do "nothing," a trader said. At another desk, a trader saw Chesapeake's outstanding bonds "actually up," quoting its 7% notes due 2014 at 98 bid, 98.75 offered, which he called a gain of 5/8 point, while its 6½% notes due 2017 were up ¾ point from Friday's levels at 91 bid, 91.75 offered.

Hertz rises

The trader also saw the outstanding bonds of auto-rental giant Hertz Corp. better - though he added "I don't know why" - even after the Park Ridge, N.J.-based company disclosed in a Friday filing with the Securities and Exchange Commission that its parent had received a commitment for up to $1 billion of new debt financing from a syndicate consisting of Deutsche Bank, Lehman Brothers, Merrill Lynch, Goldman Sachs, JPMorgan Chase and Morgan Stanley. Proceeds would go toward paying the shareholders of company parent Hertz Global Holdings Inc. a dividend. It should be noted that sources within both the junk bond and the bank loan markets said on Friday that despite its having received a funding commitment, no deal is seen as imminent.

The trader saw Hertz's 10½% notes due 2016 up half a point at 104.25 bid, 104.75 offered, while its 8 7/8% notes due 2014 were at 101 bid, 101.5 offered, which he called a 3/8 point gain on the session.

At another desk, however, a trader saw the 8 7/8s a quarter-point down at 101.25 bid, 101.75 offered and said that the 101/2s had retreated about 1¼ points to that same 104.25 bid, 104.75 offered level seen by the other source.

Owens Corning higher

Back among existing bonds without possible new-deal influences, a trader saw Owens Corning's 7½% notes due 2018 push up by three points to 84 bid, 86 offered, while the bankrupt Toledo, Ohio-based insulation maker's 7% notes due 2009 were up "about two or three points" to 82 bid, 84 offered. Another trader saw the company's 7½% notes that were to have come due last year at 85.25 bid, 86.25 offered, which he said was a two-point gain in the name.

The bonds got a boost from Friday's news that the bankruptcy court overseeing its reorganization had approved an agreement between the company and major creditor groups such as bondholders, trade creditors, asbestos claimants and shareholders, who will support the company's proposed reorganization plan.

The deal was approved by judge Judith Fitzgerald of the U.S. Bankruptcy Court in Wilmington Del., where the company filed for Chapter 11 protection nearly six years ago, pushed into bankruptcy under a deluge of thousands of asbestos injury-claim lawsuits.

The global settlement, first announced in late May and finally approved last week by Fitzgerald at a hearing in Pittsburgh, ended the threat of continued litigation that could have kept the company mired in bankruptcy for additional years. At this point, Owens Corning envisions an exit from Chapter 11 later this year, perhaps as early as Oct. 31.

Armstrong gains

A trader said that Armstrong World Industries Inc.'s bonds were up two points to 72.5 bid, 73.5 offered, although at another desk, a trader called them unchanged. The bonds of the Lancaster, Pa.-based floorcovering maker - which was driven into bankruptcy like Owens Corning, under a flood of asbestos-related lawsuits - frequently rise and fall in tandem with Owens Corning's securities.

Adelphia, Century bonds higher

Most of the other real activity in the junk market also seemed to come out of the distressed-debt segment.

"Not a heck of a lot was going on" in general, one trader said, although he did note that "there was some life in Adelphia and in Century" Communications Corp., an Adelphia subsidiary. He quoted the former's 10¼% notes due 2011 up 1½ points at 57 bid, 58 offered, while the Century 9½% notes that were due in 2005 were likewise up 1½ points, at 96 bid, 97 offered, "continuing the momentum from last week," when Adelphia's bonds, and those of its unit, rose in response to the news that the bankrupt Greenwood Village, Colo.-based cable operator had received the approval of the U.S. Bankruptcy Court for the Southern District of New York for an expedited process for the sale of its assets to rivals Comcast Corp. and Time Warner NY Cable, had accordingly amended the agreements under which its cable systems will be bought by the two cable giants, and had filed a modified plan of reorganization, hoping to assuage the concerns of some of its bankruptcy constituents about the process.

At another desk, a market source saw Adelphia's 9 7/8% notes due 2007 up a point at 54.

Fairfax up

And a trader saw what he described as a "dead-cat bounce" in Fairfax Financial Holdings' bonds, its 7¾% notes due 2012 up two points at 82 bid, 83 offered. The Toronto-based financial services company has struggled lately, and has been accused of securities fraud by the plaintiffs in a class-action suit. It said Friday that that it was not aware of any corporate developments to explain why its shares have fallen to their lowest level in more than three years.

Six Flags recovers a little

Apart from the distressed names, Six Flags Inc. bonds firmed a little after dropping several points on Friday on the theme park operator's warning that it would have difficulty reaching its prior outlook for adjusted EBITDA and that it could be in violation of some of its bank credit agreement covenants - which in turn brought lowered outlooks from the major ratings agencies. On Monday, its 8 7/8% notes due 2010 were seen up ¼ point at 93.75 bid, 94.75 offered.

Sirius, XM higher

And the bonds of satellite broadcast operators Sirius and XM were seen up about half a point across the board, fueled by takeover talk after Sirius chief Karmazin told participants at an industry conference he might be interested in buying out his chief rival, XM.

Sirius' 9 5/8% notes due 2013 firmed to 93 bid, 94 offered while XM's 9¾% notes due 2014 also ended the day better, at 91 bid, 92 offered.

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