Tenet lower on earnings warning; Huntsman, Mobile Mini, Gerdau-Ameristeel deals price

By Paul Deckelman and Paul A. Harris

New York, June 23 - Troubled hospital operator Tenet Healthcare Corp.'s bonds and shares showed a sickly pallor on Monday, after the company warned that it expected second-quarter earnings to come in "significantly" below analysts' expectations.

In the primary market, Huntsman Advanced Materials priced a restructured $345 million offering featuring fixed- and floating-rate tranches, and Gerdeau AmeriSteel Corp. and Mobile Mini Inc. also brought new paper to market. Gerdau Ameristeel priced with terms which included an uncharacteristic structuring of the call protection.

First, the Huntsman deal: the company, which had been marketing $345 million of fixed-rate notes ended up pricing $245 million of seven-year senior secured notes (B2/B) at par to yield 11% (price talk was 11%-11¼%), and $100 million of five-year floating rate notes. The floaters priced at 98.0, coming with an interest rate of Libor plus 800 basis points, with a Libor floor of 2%.

Deutsche Bank Securities and UBS Investment Bank were joint bookrunners on the Huntsman deal.

Gerdau Ameristeel meanwhile, priced $396.9 million proceeds, $405 million principal of 10 3/8% eight-year senior notes (B2/B+) at 98.001 to yield 10¾%, wide of the 10% area price talk, via JP Morgan and Banc of America Securities.

According to an informed source the deal came with a somewhat uncharacteristic call structure in which the call features were fixed off the yield as opposed to the coupon, rendering the notes callable on July 15, 2007 at 105.375, one year later at 103.583, the following year at 101.792, and at par on July 15, 2010 and thereafter.

The source, although hesitant to use the word "pushback," to describe investors' response to the Ameristeel deal, said that in terms of covenants and security the investors were looking for "as much protection and value as they could get."

"This is more of a question of the sector," added the source. "The steel sector has never been a darling of the high-yield market. The fact that it got done the way it did is pretty impressive."

The source added that regardless of the reception that Ameristeel got, high yield, itself continued to maintain a vigorous appearance on Monday.

"As to the rest of the market I haven't seen any weakness whatsoever," the official commented. "The secondary market is still firm. And the way these deals are being lapped up by the buy-side there still appears to be plenty of cash out there.

"Mobile Mini came at the tight end of talk," the official added. "In fact that could have been pushed a little more, if they had really been aggressive about it because that was huge blowout. It was a small deal - $150 million in size. But the book was about three- to four-times oversubscribed."

The deal in question, Mobile Mini's $150 million of 10-year senior notes (B2/BB-), priced at par to yield 9½%, at the tight end of the 9½%-9¾% price talk via Deutsche Bank Securities and CIBC Worlds Markets.

A duo of high yield deals dropped onto the forward calendar, Monday, both of them expected to price during the week of June 30.

LNR Property Corp., a Miami-based REIT, began the roadshow Monday for $250 million of 10-year senior subordinated notes via Citigroup and Credit Suisse First Boston.

And Dulles, Va. rocketeer Orbital Sciences Corp. will launch its roadshow on Wednesday for $135 million of eight-year senior notes, with Banc of America Securities manning mission control.

News of a lower-tier investment grade deal also generated some discussion Monday. Arrow Electronics is in the market with $250 million of 10-year notes (Baa3/BBB-), with Goldman Sachs, JP Morgan, Banc of America Securities and Credit Suisse First Boston among the names on the syndicate. The deal is expected to price during the present week.

Although Prospect News heard various opinions as to the likely interest in Arrow Electronics among the high yield accounts, one source alluded to recent reports of strong inflows to the high yield mutual funds, along with other anecdotal evidence pointing to a strong cash position on the buy-side, and commented that all of the lower-rated investment grade deals presently seem to be generating some interest among high-yield investors.

Also on Monday Standard & Poor's issued a BBB and Moody's Investors Service a Ba1 on Medco Health Solutions, Inc.'s $500 million of 10-year senior notes, expected to price in the coming month, via Goldman Sachs, JP Morgan and Citigroup.

Sources are reporting considerable interest in this crossover deal.

However back in the universe of unadulterated high yield, price talk of 7¾% area was heard on Aviall, Inc.'s $200 million eight-year non-call-four senior notes (B1). That offering, led by Citigroup, is expected to price on Wednesday afternoon.

Price talk of 9 5/8%-9 7/8% also emerged Monday on a downsized offering from Worldspan LP. The $280 million eight-year senior notes (B-) - reduced from $315 million - are expected to price on Tuesday via Lehman Brothers and Deutsche Bank Securities.

Prospect News learned from an informed source that $25 million of Worldspan's financing was shifted to its bank deal, "due to strong demand and attractive pricing." The remaining $10 million was shifted to the capitalized lease deal.

Finally on Monday price talk of 12¾%-13% emerged on Romanian cellular telephone services provider Mobifon Holdings BV's $230 million of six-year non-call-three senior notes (CCC+), expected to price on Tuesday or Wednesday via Goldman Sachs.

A trader said that the new Gerdeau AmeriSteel deal "didn't trade too well" once it was freed for secondary market activity. In fact, he bluntly put it, "it traded like crap."

He quoted the new 10 3/8% senior notes due 2011, which already priced at a notable discount to par, at 98.001, as falling further, to 97 bid, 97.5 offered.

He had not seen the new Mobile Minis, or the Huntsman bonds, which had not yet priced as of that time.

Back among the established issues, Tenet was clearly a big mover. The trader described Tenet as "obviously weaker on the news" after the company's pessimistic forecast, coupled with a warning from Standard & Poor's that it might drop the company's BBB- ratings back to junk-bond land, from whence the once high-flying Tenet had emerged in the fall of 2001.

After that, he said its 6 3/8% notes due 2011 were "down a couple of points" at 94.5 bid, 95.5 offered and its 6½% notes due 2012 also down about two or three points to around the same levels.

At another desk, where the bonds had initially been pegged a little higher, the 6 3/8s were being quoted having gone home at 96 bid, down more than four points on the session.

Tenet's 7 3/8% notes due 2013 were being quoted at 101.375 bid, off more than three points on the session.

Tenet's New York Stock Exchange-traded shares plunged $4.22 (26%) to $12.01, on volume of almost 37 million shares, nearly eight times the average daily turnover.

Analysts had been looking for Santa Barbara, Calif.-based Tenet to earn about 34 cents per share in the current second quarter, which is scheduled to end on June 30 - but the company warned that its earnings would be "significantly" below that level, with operating earnings for the first two-thirds of the quarter - April and May - at just two cents per share after figuring some 15 cents per share of charges.

This picture gets no better further along the timeline; Tenet warned that it now expects earnings per share from continuing operations for the second half of its fiscal year ending Dec. 31 to be in the range of 40 to 50 cents, well under the approximately 67 cents that Wall Street is looking for. And for the 12 month period beginning July 1 Tenet expects to earn only between 80 cents and $1, while the Street had been projecting about $1.45.

Tenet has been brought low by a combination of factors, chief among them, it said, being "the pricing practices pursued by the company's hospitals in recent years [which] are making it difficult for many of our hospitals to obtain managed care price increases at normal industry levels in 2003."

The company also cited "significant industry-wide pressures, including nurse shortages, increasing salaries and benefits costs, higher costs for technology and supplies, escalating malpractice expense and continuing competition from physician-owned surgery and diagnostic centers."

Tenet's problems are further exacerbated by an ongoing government probe of its billing practices; the feds allege that Tenet inflated charges to the Medicare program for seniors to enhance revenues.

Tenet was formerly junk rated, but crossed over to investment grade in 2001 - but its regulatory and financial troubles began soon after that, threatening to dislodge it from its precarious high-grade perch at Baa3/BBB- .

S& P said Monday after the company's announcement that it was putting the ratings on CreditWatch with negative implications.

"Two key factors contributing to the profitability revision are the company's managed care pricing, which is significantly below expectations, and ongoing cost pressures, which may be more severe than previously anticipated," S&P analyst David Peknay wrote.

He said that other items expected to affect future profitability would be weak Medicaid reimbursement and some softening of patient volumes. In addition, "Tenet expects to incur restructuring and impairment charges. The effect of the reduced level of outlier payments on the company's financial performance is fully considered in the rating."

The analyst added that "although some of these issues are already considered in the rating, the growing list of concerns and their uncertain magnitude creates the possibility that the credit profile may be more risky than indicated by the current investment-grade rating,"

Elsewhere, investors in jeans maker Levi Strauss & Co. were singing the blues Monday as the weakness the San Francisco-based apparel company's bonds had shown at the tail end of last week carried over into the new week. Levi's 11 5/8% notes due 2008 were pegged by a trader at 82 bid, 83 offered, down at least four points, while its 7% notes due 2006 were also off about two to three points, at 80.5 bid, 81.5 offered, continuing to soften despite a lack of fresh news about the company.

On the upside, Sirius Satellite Radio's 15% notes due 2007 were seen having moved up to 97 bid, up about three points, "and may go even higher," a market source said, after the satellite radio broadcaster announced that at the close of last week, it had crossed the psychologically significant 100,000 paid subscriber mark.

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