Tenet brings upsized $1 billion offering; Calpine, Salton bonds higher

By Paul Deckelman and Paul A. Harris

New York, June 15 - Tenet Healthcare Corp. sold a sharply upsized issue of new 10-year notes Tuesday - and then proceeded to use a portion of the deal's proceeds to buy back some $450 million of outstanding bonds scheduled to come due in 2006 and 2007.

Tenet's short-term outstanding debt - which had not shown much appreciation when the proposed new issue was announced on Monday - were seen solidly higher on Tuesday once it became apparent that the Santa Barbara, Calif.-based hospital operator's financing maneuver would indeed take place.

Elsewhere in the secondary market, another healthcare name - Hanger Orthopedic Group Inc. - was seen sharply lower, after the Bethesda, Md.-based provider of orthotic and prosthetic patient-care services announced that it was looking into claims of alleged billing irregularities by one clinician in one of its 608 patient-care centers. Back on the upside, Calpine Corp. bonds were firmer, as were the bonds of Salton Inc. - the latter on positive financing news.

In total, investors bought $1.4 billion of new junk bonds during Tuesday's primary market session - the lion's share going to Tenet Healthcare Corp. in a massively upsized deal.

And while the economic numbers, in particular Tuesday's Consumer Price Index for the most recent month, came in line with economists' expectations, kindling a rally that saw the yield on the 10-year Treasury note retract to 4.68% from 4.87%, sources told Prospect News that the junk asset class failed to get in on the festivities.

Giant infusion for Tenet

Tenet Healthcare Corp. priced a hugely upsized $1 billion issue of 9 7/8% 10-year senior notes at 97.674 to yield 10¼%, right on top of the 10¼% area price talk.

Citigroup ran the books for the debt refinancing deal from the Santa Barbara, Calif.-based owner-operator of acute care hospitals. The deal was upsized from $500 million.

Shortly before terms circulated the market, Mike Difley, vice president and portfolio manager of the American Century High Yield Fund, commented that investors seemed to be finding the 10¼% area price talk attractive.

"I heard that even at a billion it's going to be allocated," Difley said. "So it seems that there was reasonable demand at that talk."

Meantime, an informed source from the sell-side told Prospect News that the market seemed receptive to the Tenet deal. At the close of the session the source spotted the new 101/4s at 100.50.

Surprise floater from Huntsman

Elsewhere on Tuesday Huntsman LLC restructured its $400 million high-yield bond offering into two tranches (B3/CCC+).

The Salt Lake City-based petrochemical company sold $300 million of eight-year fixed-rate senior notes at par to yield 11½%. Price talk was for a yield of 11¼%-11½%.

The company also sold $100 million of seven-year senior floating-rate notes at par to yield Libor plus 725 basis points.

Credit Suisse First Boston, JP Morgan, Citigroup, Deutsche Bank Securities and UBS Investment Bank ran the books for the debt refinancing deal.

The company had originally been in the market with a single $400 million tranche of fixed-rate notes.

Wornick to work the accounts

One roadshow start was heard during the session.

The Wornick Co. hit the road with a $125 million offering of seven-year senior secured notes (B2), which is expected to price late in the week of June 21.

Jefferies & Co. will run the books for the acquisition financing deal from the Cincinnati-based provider of military food rations and other packaged food products.

Meanwhile TUI AG announced in a Tuesday press release that it intends to offer €250 million of five-year floating-rate notes "in the near future."

The Royal Bank of Scotland and WestLB will be the underwriters of the Regulation S-only offering.

The Hanover, Germany-based tourism company will use the proceeds to refinance short- and medium-term debt.

Argo-Tech, Cornell talk

The latter reaches of the June 14 week began taking shape during the Tuesday session.

Price talk of 9¼%-9½% emerged on Argo-Tech Corp.'s upcoming $250 million of seven-year senior notes (B1/B), expected to price Thursday afternoon via JP Morgan.

Meanwhile, the price talk is 10½% area on Cornell Cos. Inc.'s offering of $110 million of eight-year senior notes (B3/B-), also expected to price on Thursday, also via bookrunner JP Morgan.

Numbers fail to ignite junk

In spite of the rally in the 10-year Treasury note, little cheering was heard in junk land on Tuesday.

"Prices seem to be quoted up a little, but nothing close to the rally in the 10-year Treasury," portfolio manager Difley said.

"It's obvious that people are just not finding the asset class quite as attractive as it was last year, which is why you're seeing more muted fund flows."

Meanwhile, a sell-side source told Prospect News that in spite of the apparent demand for the Tenet deal, which allowed it to double in size, the market overall was up less than one-quarter of a point.

New Tenet bonds up in trading

When the new Tenet Healthcare 9 7/8% notes due 2014 were freed for secondary dealing, they were heard to have moved up to 98.5 bid, 99.5 offered, from their 97.67 issue price earlier in the session.

Meanwhile, "Tenet's short end was up on the new issue, and its long end was down," a market source said.

Among the short bonds which benefited from the company's doubling the size of its offering into a $1 billion mega-deal and then using some of the extra proceeds to buy somewhat more than the $400 million of bonds it had originally planned to repurchase, were Tenet's 5 3/8% notes due 2006, which jumped to 98 bid from 95.75 bid previously, and its 5% notes due 2007, which moved up to 95 bid from 92.75. Other short-term issues not being bought back showed less appreciation, its 8% notes due 2005 and 8 1/8% notes due 2008 both firming to 100.75 bid, up a quarter-point and three-quarters of a point, respectively.

The market source also saw "the long end dropping," with the longest of those bonds, the Tenet 6 7/8% bonds due 2031, falling to 73 bid from 77, and its 6 3/8% notes due 2011 easing to 85.125 bid from 86.5 bid.

A trader at another shop said "the short end was trading up, although he quoted issues like the 5 3/8s and the 5s only around the 98-99 bid area, "so they're right in there."

As for the longer-term bonds, he opined, "the long end has gotten beat up over the past couple of days but it's almost back to where it was before the news [Monday] that Tenet was going to bring the new paper and use it to pay off the short stuff."

He quoted the Tenet 7 3/8% notes due 2013 as having traded 89.5 bid, 90.5 offered before Tenet's announcement Monday, and said that the bonds had fallen after that to 87 bid, 88 offered. But by Tuesday afternoon, he said, they were back up to bid levels around 89.

Calpine gains on possible sale

Elsewhere, the trader saw Calpine's bonds "having a little movement," and attributed that to "asset sales" - an apparent reference to the San Jose, Calif.-based independent power producer's announcement Thursday that it would look into selling its natural gas reserves in the Canadian province of Alberta, reserves that represent about 230 billion cubic feet equivalent of proven reserves producing about 70 million cubic feet equivalent of gas per day.

Calpine did not say at that time how much it would expect to get by selling the reserves, although it has indicated it would use the proceeds to pay down debt.

Besides those Albert reserves, the company is also considering selling its 25% stake in about 80 bcfe of proved reserves owned by the Calpine Natural Gas Trust, as well as certain unidentified U.S. natural gas reserves.

The trader quoted Calpine's 8½% notes due 2011 as having moved as high as 64 bid from prior levels at 62.5 bid, 63.5 offered, before ending at 63 bid, 64 offered. He saw Calpine's 8¼% notes due 2005 as having pushed up to 94.5 bid, 95 offered from 92.5 bid, 93.5 offered, with the bonds "up at least a point on the short end," around 94 bid, 95 offered.

At another desk, Calpine's 7 7/8% notes due 2008 were seen having firmed to 63 bid from 61.75 previously. Its 8 5/8% notes due 2010 were a point better at 63 and its 8¾% notes due 2007 were half a point improved at 69 bid.

Salton better on bank deal

Also on the upside, - Salton's bonds were heard to have firmed smartly after the Lake Forest, Ill.-based maker of the popular George Foreman home hotdog and hamburger grills and other small appliances announced that it had reworked its credit facility to give it more financial flexibility.

Salton's 10¾% senior subordinated notes due 2005 were seen having pushed up to 86 bid from prior levels around 79, while its 12¼% senior subs due 2008, which trade 10 points behind the 103/4s likewise followed suit by rising to 76 bid from 69.

A trader at another shop quoted the 103/4s at 84 bid, 87 offered and the 121/4s at 76 bid, 78 offered, and said that was "as close as they got." He said that he "did not see a lot of activity in it."

Besides the reworked $275 million revolving credit agreement with Silver Point Finance LLC, which gives Salton more flexible financial covenants and will let the company borrow about $30 million more than its previous facility, the trader said the Salton bonds also got a boost from the company having made the $6.7 million June 15 interest payment on the 10¾% notes, as allowed by the forbearance agreement the company and its senior lenders entered into last week.

A trader quoted the Salton bonds "up five or six points on the day, depending on the coupon," with the 103/4s at 85 bid, 88 offered and the 121/4s at 75 bid, 78 offered.

Under the terms of Salton's reworked credit facility with Silver Point, which expires in three years, Salton will have more flexible financial covenants and borrowings under the agreement. Interest is at 500 basis points above Libor, with a minimum rate of 7%.

While the facility will initially limit total borrowings to $207 million, it will allow Salton to borrow $30 million more than under its previous bank credit agreement. The agreement includes the ability to refinance tranches of the loan to reduce borrowing costs.

Salton's New York Stock Exchange-traded shares were up 18 cents (2.86%) on the news to $6.48, on volume of 496,000, about two-thirds of the usual turnover.

Hanger drops sharply

On the downside, Hanger Orthopedic's bonds "got creamed," a market source exclaimed, quoting the company's 10 3/8% notes due 2009 as having fallen all the way down to 101.5 bid from prior levels at 108.5, while its 11¼% notes due 2009 backpedaled to 104.5 bid from 106 earlier.

A trader saw the 10 3/8s "down a couple of points" to 101.75 bid, 103.25 offered, from earlier offered levels north of 106, "so I guess the news had some effect."

Hanger, in announcing the internal probe, said that it had become aware of the billing problems when an employee in the office involved reported the alleged irregularities on a company hotline established for precisely that purpose.

"The company, in conjunction with its outside counsel, has initiated a prompt and thorough investigation of these allegations," Hanger said in a statement.

The company said the investigation in this case "is not yet complete. Once all the facts are known, a full report will be presented to the board of directors and appropriate actions will be taken."

Hanger's NYSE-traded shares tumbled $1.66 (11.52%) Tuesday to end at $12.75, on volume of 2.4 million shares, almost 20 times the normal turnover.

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