Samson is sole feature of quiet pre-holiday primary; tanker names fall again, MF bounces

By Paul Deckelman

New York, Nov. 23 -The high-yield market headed home for the Thanksgiving holiday after a quiet session Wednesday - though one which, surprisingly, actually saw a prospective new deal hit the radar screens.

Samson Investment Co. was heard to be getting ready to shop around a $2.25 billion junk bond offering as part of the financing for the energy company's planned leveraged buyout. However, additional details were sketchy.

Aside from that news - unexpected on a day when many market participants were absent and others were just watching the clock, aiming for an early exit - the new deal arena was silent.

The prospective offering from chemical manufacturer Trinseo Materials Operating SCA - the only actual item on this week's forward calendar - remained in a "day-to-day" mode after having not priced.

The upcoming Optima Specialty Steel, Inc. deal meanwhile remains on a roadshow, and is expected to price its $200 million offering next week.

Among recently priced deals, traders saw Superior Energy Services Inc.'s $800 million offering of 10-year notes having come down from the peak level those bonds had jumped to on Tuesday after their late-Monday pricing.

Away from the new-deal arena, traders saw oil tanker operators' bonds continuing to sink, in a continuation of the sector-wide slide seen on Tuesday after major industry player Frontline Ltd. reported bad numbers and warned that it would have to hold talks with creditors to restructure its obligations.

That in turn led to further erosion in tanker sector peers like Teekay Corp., Overseas Shipholding Group, Inc. and Ship Finance International Ltd. - particularly after the latter company released its own disappointing quarterly results.

On the upside, bonds of beleaguered MF Global Holdings, Inc. were seen up as much as 3 or 4 points on a rare bit of good news about the failed financial firm.

Statistical measures of junk market performance continued to slide lower on the session.

Samson stands out

The only real news to come out of an otherwise pretty much comatose junk bond primary arena was that Samson Investment, a privately held Tulsa, Okla.-based energy exploration and production company, is expected to float a $2.25 billion high-yield bond deal as part of the financing for the company's $7.2 billion leveraged buyout by a consortium of Kohlberg Kravis Roberts & Co. LP, Natural Gas Partners, Crestview Partners and Itochu Corp.

Syndicate sources noted that the financing will also likely include a new $2.25 billion asset-based loan facility.

Details as to the structure, timing and tenor of the financing have not yet emerged, nor have details on whether the issuers will do a drive-by deal or market the transaction in a more leisurely manner.

The sources heard that a number of banks are going to be involved in that LBO financing - J.P. Morgan Securities LLC, Bank of America Merrill Lynch, Barclays Capital Inc., BMO Capital Markets, Citigroup Global Capital Markets Inc., Credit Suisse Securities (USA) LLC, RBC Capital Markets LLC, Wells Fargo Securities LLC, Mizuho Securities USA Inc. and Jefferies & Co. are all lead banks on the financing.

Trinseo hangs back

Elsewhere in the primary arena, Wednesday was another day of no-show for the $450 million six-year offering from Trinseo Materials Operating.

The Berwyn, Pa.-based chemical company's restructured offering - it was originally supposed to be a seven-year bond, but was shortened last week to a six-year tranche - is currently listed as day-to-day.

It surfaced in the market all the way back before Veterans Day, and the company began shopping its planned deal around to would-be buyers via a roadshow in the Nov. 4 week. Price talk emerged on the offering last Thursday, envisioning a yield of 12¼%, including 3 points of original issue discount.

It's been radio silence since then - although a sellside source reported on Monday that the timing of the deal was now "TBD - to be determined."A trader elsewhere confirmed that on Tuesday.

The Rule 144A/Regulation S deal is being brought to market via Barclays Capital Inc, which is the left lead, as well as Deutsche Bank Securities Inc., BMO Securities, Citigroup Global Markets Inc., Goldman Sachs & Co. and HSBC Securities (USA) Inc.

Trinseo - currently known as Styron LLC, although it plans a name change shortly - plans to use the anticipated deal proceeds to repay existing term-loan debt and for general corporate purposes.

Optima still on the road

There was also no news out on Wednesday about Optima Specialty Steel's planned $200 million offering of six-year senior secured notes - not that anyone was actually expecting any, because the roadshow effort marketing those bonds to potential investors continued, uneventfully. That roadshow runs through Nov. 30.

The Rule 144A-for-life deal is scheduled to come to market after that via sole bookrunner Jefferies.

Optima - a steel products manufacturer based in Akron, N.Y., a suburb of Buffalo - plans to use the anticipated deal proceeds, together with $34.9 million of sponsor equity from Optima Acquisitions, LLC, to fund its acquisition of Buffalo-based steel bar producer Niagara Lasalle Corp.

Superior comes off peak level

High-yield traders and primaryside sources alike saw absolutely nothing else going on in the new-deal segment.

One source said that ahead of the holiday weekend, "people have been disappearing all day long," keeping anything from gaining much traction.

U.S. financial markets were scheduled to close completely on Thursday for Thanksgiving, with Friday's scheduled abbreviated session expected to be only lightly attended and uneventful.

Among recently priced new deals, traders saw the new 7 1/8% notes due 2021 of Superior Energy Services having come off from the peak levels around 101 bid which the New Orleans-based oilfield services company's bonds rose to on Tuesday after being freed for pricing.

That opportunistically timed and quickly shopped $800 million issue - upsized from an originally announced $700 million - priced at par late Monday but did not trade around until the following day.

In Wednesday's dealings, a trader saw the bonds moving around between par and 101.

A second trader quoted the issue at 100 5/8 bid, 101 3/8 offered.

Kodiak, Entercom ease off

Last Friday's $650 million offering of 8 1/8% notes due 2019 from Denver-based exploration and production operator Kodiak Oil & Gas Corp. was quoted on Wednesday having given up the last of the solid gains which that new issue had notched right after it priced.

A trader saw it going out on Wednesday at par bid, 101 offered.

The deal - which was upsized from the originally announced $550 million - priced at par on Friday, and then shot above the 102 bid level, traders said, before coming to rest around 102 bid in initial aftermarket dealings.

However, with the overall junk market easier all week, it was all downhill from there - the bonds had given up half their premium on Monday, settling at 101 bid, 102 offered, and then retreated further Tuesday to 100 5/8 bid, 101 5/8 offered.

The easing continued Wednesday, leaving the bonds back at their issue price by the end of the day.

Friday's other new deal - the $220 million offering of 10½% notes due 2019 from Bala Cynwyd, Pa.-based broadcasting company Entercom Radio LLC - continued to lose ground on Wednesday, with a trader seeing the bonds at 95 bid, 96 offered.

That offering - downsized from the originally announced $250 million - priced on Friday at 98.672 to yield 10¾%, but did not begin trading around till Monday.

On Monday levels ranged anywhere from a 99 bid, 99¼ offered level on the high side, to a 98½ offered, with no bids seen, on the low side. But on Tuesday, they lost several more points to end in the mid-90s.

Market continues to sag

Away from the new-deal arena, a trader said that Wednesday's junk market had "a weak tone again," with most names down anywhere from a ½ point to one full point.

"There was not a lot of volume at all," he said. "It's a generic down ½ to 1 point.

"It was pretty quiet," a second trader agreed.

"We saw a few things here on the desk, but there was no real trend."

He said that "bid-offer spreads have widened out. Nobody's really trying to do anything."

Yet another trader asserted that there was "only light volume - but we got a clear direction on what the market is doing, where it's heading."

After pausing a beat, he added: "That would be down."

All told, "it's been dead. Everybody just wants to go home."

He added that "with everything that's been going on in Europe and the U.S. - it's just been a pain in the ass."

Numbers knocked lower

Statistical secondary market performance indicators were off for a seventh consecutive session on Wednesday.

A trader said the CDX North American series 17 High Yield index was off by ¾ point on Wednesday to end at 87¾ bid, 88 offered, after having been down by ½ point on Tuesday.

The KDP High Yield Daily index eased by 4 basis points Wednesday to go home at 70.84, on top of the 39 bps swoon seen on Tuesday.

Its yield rose by 2 bps on Wednesday to 7.97%, after having jumped by 17 bps on Tuesday.

And the widely followed Merrill Lynch High Yield Master II Index lost 0.36% on Wednesday, just about matching Tuesday's 0.355% downturn. Wednesday's loss was its seventh in a row.

That loss left the index's year-to-date return at 1.186%, down from 1.552 on Tuesday.

That was the lowest the index has been since Oct. 19, when it showed a 1.061% cumulative return.

The year-to-date return remains below its recent peak level of 4.28%, recorded on Oct. 28, and is well below its high-water mark for the year of 6.362%, which was set on July 26.

However, it is still well up from its 2011 low-point, a 3.998% deficit recorded Oct. 4.

Junk continued to be taking a cue from stocks which retreated for a sixth consecutive session, hurt by renewed jitters about the European debt crisis after a weak auction of even normally robust German government debt.

The bellwether Dow Jones Industrial Average - which on Tuesday had lost about 53 points - plunged by 236.17 points on Wednesday, or 2.05%, to close at 11,257.55. The S&P 500 and Nasdaq indexes were down by 2.21% and 2.43% respectively.

Tankers continue to tank

Among specific names, traders saw continued weakness in the bonds of oil tanker operators, as companies in that industry report third quarter results that are lackluster at best and, in some cases, showing clear deterioration in the companies' finances.

A trader saw Ship Finance International's bonds - which had already fallen anywhere from 5 to 7 points on Tuesday amid a general downturn in all of the oil-tanker operator names - down an additional "4 or 5 points" following the Bermuda-based tanker company's release of disappointing third-quarter numbers.

A second trader saw Ship Finance's 8½% notes due 2013 down to 83 bid, 84 offered,

A market source pegged the bonds around 84 bid, with over $12 million traded, making it one of the busiest issues in Junkbondland on Wednesday.

"A lot traded today," yet another trader said, seeing the bonds in an 83½ to 86½ range. "It's crazy - they're down 3 or 4 points."

Those bonds, he said, had been offered around 90 "just a couple of days ago, so they got hit too."

Ship Finance, with a fleet of 59 tankers currently in the water and another 10 under construction, earned $27.5 million, or 35 cents per share, during the calendar third quarter - down from $34.6 million, or 44 cents per share, during the same period last year.

Excluding non-recurring items, earnings were $31.4 million, or 40 cents per share, undershooting Wall Street's expectations of around 42 cents per share.

Revenue eased slightly to $73.3 million from $73.5 million a year ago and badly missed analysts' forecasts of as much as $85.9 million.

The company's bonds eased from Tuesday's levels around 85¼ bid, and in the lower 90s on Monday, before the whole tanker sector began sinking after another big operator - Frontline Ltd. - posted a sizable third-quarter loss and said it would have to seek talks with its creditors on restructuring its liabilities.

Bermuda-based Frontline's own bonds - its 4¼% convertible notes due 2015 - were quoted Wednesday offered at 311/2. That paper had fallen to around 31 bid on Tuesday, down from 43 last week.

'"Everyone is jumping on Frontline now," a trader said. "A couple of weeks ago, they were in the 50s."

After it released its numbers, Frontline warned that "if the current weak market continues and no solution can be found, there are significant uncertainties linked to Frontline's sustainability in the present form."

Yet another tanker company paying the price for the weak conditions in the tanker industry - a toxic combination of overcapacity coupled with falling petroleum demand amid a slowing global economy - was New York-based Overseas Shipholding, which earlier in the month reported lower revenues and wider losses in the latest quarter.

On Wednesday, a trader saw its 8 1/8% notes due 2018 trading around 73 bid, 74 offered, down a little from 73½ on Tuesday and down even more from levels around 77-78 before the sector slide began.

Overseas Shipholding's 7½% notes due 2024 traded in a wide 58 to 62 context, lower than both the 68 level seen in odd-lot trading Tuesday, and the 64 level where the last sizable trades had taken place earlier this month.

One of the traders saw Vancouver, B.C.-based tanker operator Teekay's 8½% notes due 2020 trading around 95 bid, noting that "a week or two ago, they had a 98 handle. Months ago they were at 110, but then they got hit" by all of the problems endemic to the tanker industry.

He said that Teekay was getting killed with all of its sector peers even though "it's a good company."

MF Global moves upward

An exception to the day's generally downward trend in most names was the recently hard-hit bonds of failed financial firm MF Global.

Its bonds continued to swing wildly around in Wednesday's dealings, with over $11 million changing hands, putting the paper near the top of the most-actives list.

The 6¼% notes due 2016 were seen by a trader as low as 30½ bid, 31½ offered, near Tuesday's close - but others in the market saw those battered bonds get better on positive news about the troubled company, rising as high as 36 bid during the session, although a trader quoted them going home at 34½ bid.

"They've been up and down," a trader said, pegging the bonds at 34½ bid, 35½ offered. "They went down because the amount of assets [that may be] lost doubled, but they seem to be rebounding today."

"They were up as much as 5 points today, back into the mid 30s," another trader said.

Those bonds had been trading in the 70s a month ago before falling sharply at the end of October on poor quarterly numbers, followed by revelations of shaky finances from risky bad bets on rapidly eroding European sovereign debt. That was then followed by a bankruptcy filing.

The bonds - already beaten down into the 30s by all of that negativity - opened the week on Monday by tumbling anew, plunging as low as the upper 20s and then going out around 31, on new bad news about the failed New York-based commodities and futures brokerage company run by ex-Goldman Sachs chairman and New Jersey governor Jon Corzine. The bankruptcy trustee appointed to oversee the company's liquidation said that some $1.2 billion was apparently missing from customer accounts - double earlier estimates of around $600 million gone AWOL - and he cautioned that the figure could rise further.

However, on Wednesday, the bonds rose back up to the mid-30s, helped by news that CME Group, which runs the Chicago futures exchange where MF did much of its trading, more than doubled the size of a fund to help expedite the return of client cash, raising it to $550 million from an original $250 million.

CME also said the $1.2 billion missing-money estimate was likely too high.

Jefferies generally better

New York-based investment bank Jefferies Group Inc. - whose bonds have been getting slapped around over the last few weeks in tandem with the troubles of MF Global, both due to worries about its own potential exposure to the kind of faltering sovereign European debt that was MF Global's undoing, as well as its role as the lead underwriter when the MF Global bonds were sold over the summer - was seen by a trader on Wednesday to be better by between 3/8 and ½ point.

He saw its 7¾% notes due 2012 trading first at 99½ bid, then at par and then at 100 1/8, "so they're back" - the bonds had been trading at 98 bid a week ago, ballooning the yield on that four-month paper up to as much as 13% at one point and carrying its spread way up to well over 1,000 basis points over Treasuries, the traditional demarcation point for distressed debt. Wednesday's closing levels dropped the bonds' yield back below 6% and its spread to a much more respectable level under 600 bps.

He also saw Jefferies' 8½% notes due 2019 push back up to around 92 bid from 89 "a couple of days ago."

Jefferies has consistently maintained that it has relatively little exposure to the debt of either MF Global or the troubled European economies known as the PIIGS - Portugal, Ireland, Italy, Greece and Spain.

Harrah's is busy, lower

A trader said that Caesars Entertainment Corp.'s 10% notes due 2018 at 60¼ bid, 61¼ offered - down from Tuesday's levels just below 62 bid.

A market source said the Las Vegas-based gaming giant's most widely traded issue was the busiest purely junk bond of the day split-rated Anadarko Petroleum Corp.'s 6 3/8% notes due 2017 were even busier - but the $14 million turnover in the Harrah's issue was less than half of Tuesday's $30 million changing hands.

The company's 11¼% secured notes due 2017 continued to trade at a premium, at 101¼ bid, 102¼ offered.

Sara Rosenberg contributed to this report

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