Geo Group, Solutia to Issue Debt in ‘Robust’ Junk-Bond Market

Geo Group Inc. (GEO), an operator of mental-health facilities and prisons, and Solutia Inc. are marketing notes this week as high-yield, high-risk companies take advantage of open credit markets to refinance debt.

Geo Group is offering $250 million of senior unsecured notes due in 2017, the Boca Raton, Florida-based company said in a statement yesterday. Proceeds will be used to repay $150 million of 8.25 percent senior notes due in 2013 and to pay down debt under a revolving credit facility, Geo Group said.

Solutia, the nylon maker that emerged from bankruptcy last year, will offer $300 million of senior notes due in 2017, the company said yesterday. The St. Louis-based company said it will use the proceeds from the sale to repay $200 million of its senior secured term loans.

“High-yield new issuance will continue to be robust for the rest of 2009,” Ashish Shah, U.S. credit strategist at Barclays Capital in New York, said in an Oct. 2 interview. Credit markets will remain active and then wind down at the end of the year after the boom in lending over the past months, according to Shah.

Barclays estimates the volume of new high-yield debt issues in the U.S. to be about $20 billion in the remaining three months of the year, Shah said. Companies issued about $43 billion of speculative-grade debt from July to September, according to data compiled by Bloomberg.

“There will be the earnings blackout period in part of October and new issuance will start tapering off in December as people gear down after a long year and leave something on the table for next year,” Shah said.

Junk Spreads

Comstock Resources Inc. (CRK), the Frisco, Texas-based oil and natural-gas producer, Hercules Offshore Inc. (HERO) and Nova Chemicals Corp. (NCX) also announced yesterday they are offering speculative-grade debt to investors.

Yields on speculative-grade bonds fell 5 basis points relative to benchmark rates to 815 basis points yesterday, according to Merrill Lynch & Co.’s U.S. High Yield Master II index. A basis point is 0.01 percentage point.

Junk-bond spreads jumped last week after economic reports cast doubt on the ability of the U.S. economy to recover from the first global recession since World War II. Spreads climbed 29 basis points to 820 basis points from Sept. 29 to Oct. 2.

High-yield, high-risk, or junk, bonds are rated below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.

Weekly Sales

United Air Lines Inc. also took advantage of low financing costs and sold $659.1 million of seven-year, pass-through certificates yesterday. The 10.4 percent certificates priced at par, according to Bloomberg data show.

The unit of Chicago-based UAL Corp. will use the proceeds from the sale to refinance existing, according to a filing with the U.S. Securities and Exchange Commission.

The carrier is doing the refinancing to “take advantage of current market conditions to strengthen our balance sheet and reduce our debt payment obligations over the next couple of years,” said Jean Medina, a company spokeswoman.

Yields on investment-quality bonds narrowed 1 basis point relative to benchmark rates to 238 basis points yesterday, according to Merrill Lynch’s U.S. Corporate Master index.

Companies sold $5.2 billion of bonds yesterday, compared with $1.3 billion a week earlier, Bloomberg data show. This year’s sales total about $990 billion, compared with $687 billion during the same period of 2008, the data show.

Borrowers are marketing at least $7.2 billion of dollar-denominated debt, Bloomberg data show. Following is a description of pending sales of corporate and other bonds in the U.S.

Investment Grade

LITHUANIA hired HSBC Holdings Plc and RBS for a planned sale of bonds in dollars, according to two people with knowledge of the deal. Representatives of the Baltic nation are meeting with investors this week, said the people, who declined to be identified because the deal hasn’t been completed. Lithuania last sold dollar-denominated bonds in 1997, according to the Bloomberg data. The Baltic nation is planning to sell bonds in a second international auction this year to finance a widening budget deficit. The government introduced spending cuts equivalent to about 7.5 percent of estimated gross domestic product this year to narrow the budget gap. The economy slumped an annual 20.2 percent last quarter, marking the worst recession in the European Union.

NORDDEUTSCHE LANDESBANK GIROZENTRALE hired Bank of America Corp., Goldman Sachs Group Inc., HSBC Holdings Plc and UBS AG to manage a sale of Tier 1 bonds in dollars, according to a banker involved in the transaction. The notes will be sold through Fuerstenberg Capital GmbH, the banker said.

SRI LANKA, which is rebuilding its economy after the end of a 26-year civil war, hired HSBC Holdings Plc, JPMorgan Chase & Co. (JPM), and Royal Bank of Scotland Plc to sell $500 million of bonds overseas, the South Asian island’s first in two years. The selection was made from among seven banks that submitted proposals to manage the sale planned for October, the Central Bank of Sri Lanka said in an e-mailed statement on Sept. 18. The government is seeking to raise funds to build roads, schools and hospitals on the eastern and northern parts of the island.

ISRAEL is considering selling bonds abroad, a Finance Ministry spokesman said, denying a Haaretz newspaper report that it canceled plans to raise money overseas because higher yields may raise costs. Any issuance would come after Standard & Poor’s, Fitch Ratings and Moody’s Investors Service file their annual reports on Israel, the spokesman, who couldn’t be named according to the ministry’s policy, said in a June 15 telephone interview. Israeli officials were in New York to hire three debt underwriters for the country’s first dollar-denominated bond sale since March, a Finance Ministry spokesman said on June 4.

Not Rated

PT ADARO ENERGY (ADRO), Indonesia’s second-biggest coal producer, plans to raise as much as $1 billion from a dollar bond sale and syndicated loan, according to people with direct knowledge of the matter. The Jakarta-based company hired DBS Group Holdings Ltd., UBS AG and Credit Suisse Group AG to help it sell as much as $500 million of bonds with a maturity of at least five years, said two people, who declined to be indentified before the sale closes.

High Yield

GEO GROUP INC., the Boca Raton, Florida-based prison operator, plans to sell $250 million of senior unsecured notes due in 2017 in a private offering. Proceeds from the offering will be used to fund the repurchase of GEO Group’s 8.25 percent senior notes due in 2013, pay down debt under its revolving credit facility and for general corporate purposes, the company said in a statement on Oct. 5.

SOLUTIA INC., the nylon maker that emerged from bankruptcy last year, said on Oct. 5 it will commence an offering of $300 million of senior notes due in 2017. The St. Louis-based company intends to use the proceeds from the sale to prepay $200 million of senior secured term loans and for general corporate purposes.

BANCO PANAMERICANO SA (BPNM4), a Brazilian bank controlled by media magnate Silvio Santos, plans to sell dollar-denominated bonds. Banco Itau, Banco Bradesco SA and Banco Espirito Santo SA will manage the sale, Luis Palhares, treasurer at the bank, said Oct. 5 in a phone interview from Sao Paulo. The issue is part of a $500 million bond program for notes with maturities of up to five years, he said. Panamericano has already issued $265 million under this program. The company will use the proceeds of the bond sale for general corporate purposes, Palhares said.

COMSTOCK RESOURCES INC., the Frisco, Texas-based oil and natural-gas producer, plans to offer $200 million of senior notes due 2017, the company said in a statement on Oct. 5. Proceeds from the sale will be used to repay outstanding borrowings under the company’s bank credit facility and for other general corporate purposes.

HERCULES OFFSHORE INC., a U.S. oil and natural gas drilling services company, plans to sell as much as $300 million of senior secured notes due 2017 via a private placement, “subject to market conditions,” it said in a statement on Oct. 5. The Houston-based company said it will use the proceeds from the deal to repay loan debt.

NOVA CHEMICALS CORP., the Canadian chemical producer owned by Abu Dhabi Investment Authority, plans to offer $500 million of senior notes due in 2016 and 2019 in a private offering, the company said in a statement on Oct. 5. Proceeds from the offering will be used to repay debt and for general corporate purposes.

DELUXE ENTERTAINMENT SERVICES GROUP INC., controlled by billionaire Ronald Perelman and a provider of film-processing and creative services to the motion-picture industry, plans to sell $600 million of senior secured notes due in 2017, according to a person familiar with the transaction who declined to be identified because terms aren’t set. The planned issue was rated B1 by Moody’s Investors Service and B by Standard & Poor’s. Deluxe Entertainment Services, which is owned by Perelman’s MacAndrews & Forbes Holding Inc., plans to use the proceeds from the sale to refinance its first-lien and second- lien credit facilities, according to Moody’s and Standard & Poor’s.

ALON REFINING KROTZ SPRINGS INC., (ALJ) a unit of Alon USA Energy Inc., plans to sell $205 million of senior secured notes due in 2014, according to a person familiar with the transaction. Proceeds will be used for general corporate purposes, including term-loan refinancing, said the person who declined to be identified because terms aren’t final.

GENERAL COMMUNICATION INC., (GNCMA) the Alaskan telecommunications provider, plans to sell $400 million of senior unsecured notes due in 2019 through its GCI Inc. unit, the Anchorage-based company said in a Sept. 30 statement. Proceeds from the sale will be used to retire existing senior secured credit facility debt, the company said.

VENEZUELA set a minimum price of 135 percent of face value on $3 billion of bonds it’s selling in local markets to ease demand for dollars and strengthen the bolivar in the unregulated currency market. The government set a maximum price of 140 percent on the securities, according to a statement posted on the central bank Web site. Individuals and companies have until Oct. 2 to put in their bids for the 7.75 percent notes due in 2019 and the 8.25 percent notes due in 2024. Venezuela is selling government dollar bonds for the first time in 18 months to meet demand for the U.S. currency after it scaled back dollar sales at the official rate of 2.15 bolivars early this year to preserve foreign reserves. Deutsche Bank AG and Citigroup Inc. will arrange the offering and the final price will be announced on Oct. 6, the statement said. Venezuela, the biggest oil producer in South America, last sold dollar- denominated bonds in April 2008, when it issued $4 billion of 15- and 20- year securities in the domestic market.

Offerings in Pipeline

ALROSA, Russia’s diamond monopoly, may sell as much as $1 billion in foreign-currency bonds in the second half of next year, RIA Novosti reported, citing Chief Executive Officer Fyodor Andreyev. The company is rated Ba3 by Moody’s Investors Service.

The PHILIPPINES may sell about $2 billion of dollar and yen debt to plug its budget deficit in 2010, Treasurer Roberto Tan said in an Aug. 14 interview. The Southeast Asian nation may take advantage of lower borrowing costs and surplus cash in global markets, Finance Secretary Gary Teves said on Sept. 23. “The government is looking into suggestions from investment banks and hedge funds for the issuance of global bonds for pre-funding requirements next year,” Teves said in a mobile phone message reply to questions from Bloomberg.

WARNER CHILCOTT PLC said it will use a combination of loans and cash on hand to fund its acquisition of Procter & Gamble Co. (PG)’s prescription-drug unit. Warner Chilcott, based in Ardee, Ireland, will use $102.6 million of a revolver, $2.15 billion of term loans, a $1.4 billion bridge loan, $380 million of existing subordinated notes and $138.2 million of cash on hand to fund the $3.1 billion purchase, refinance existing debt and pay fees and expenses, the company said Sept. 9 in a regulatory filing. JPMorgan Chase & Co. and Morgan Stanley (MS) are leading a group of banks in arranging the sale of the bridge loan, which will later be taken out by bonds, Warner Chilcott said in an Aug. 24 regulatory filing. Investors in the bridge loan would be paid 8 percentage points more than the London interbank offered rate, with a minimum Libor rate of 2.5 percent, according to the Aug. 24 filing. Libor is the rate banks charge to lend to each other.

PT BUKIT MAKMUR MANDIRI UTAMA, the Indonesian coal mining contractor that’s being acquired by PT Delta Dunia Petroindo, plans to sell bonds in dollars, according to a person familiar with the transaction. Barclays Capital, Deutsche Bank AG and ING Groep NV are arranging meetings with investors, said the person, who declined to be identified before a public announcement.

AGRIUM INC., (AGU) North America’s third-largest fertilizer producer, said it may raise as much as $1 billion by issuing various securities as it attempts to acquire competitor CF Industries Holdings Inc. The registration, filed Sept. 10, “has nothing to do with CF whatsoever,” Richard Downey, a company spokesman, said in a phone interview. Calgary-based Agrium is refiling a similar registration from 25 months ago that is about to expire and the company doesn’t plan to issue the securities, he said. Chief Executive Officer Mike Wilson repeated last month that Agrium is committed to buying CF Industries, offering $40 a share in cash plus one U.S. dollar-denominated Agrium share. Agrium has twice raised the cash portion since it launched the buyout bid in February. The regulatory filing on Sept. 11 said an issuance may include common and preferred shares, debt and subscription receipts. The proceeds would be used to repay debt, make acquisitions or finance capital spending, Agrium’s filing said.

SINOCHEM CORP., China’s biggest chemicals trader, plans to raise $1 billion from what may be the second dollar bond sale by a non-financial company in China’s interbank market, said two bankers familiar with the matter. Beijing-based Sinochem hired Agricultural Bank of China to help it sell floating-rate notes with maturities of at least three years that reference the London interbank offered rate, or Libor, said the bankers, who declined to be named because the plans are private. The securities will need to pay at least 80 basis points more than Libor, according to Shi Lei, a Beijing-based financial market researcher at Bank of China. Sinochem offered to buy Emerald Energy Plc, a London-based oil explorer, for 532 million pounds ($862 million) to boost revenue from oil and gas operations fourfold by tapping wells in Syria and Colombia, it said in an Aug. 12 statement.

MICHAELS STORES INC. (MIK) said it entered into a third amendment to credit agreement to its $2.4 billion senior secured term loan facility with Deutsche Bank AG New York Branch, as administrative agent, and the other lenders party to it. The amendment changes the term loan credit facility to permit the issuance or incurrence of indebtedness for the purpose of the repayment of existing term loans under the facility, which new indebtedness could take the form of additional term loans under the facility or secured or unsecured bonds or other loans, the company said in an Aug. 21 filing with the Securities and Exchange Commission.

MEXICAN BANKS Nacional Financiera SNC and Banco Nacional de Comercio Exterior SNC may sell bonds in international markets for the first time since 2004 as they seek $1 billion in long-term funding, the banks’ president Hector Rangel said in an interview in Mexico City on Aug. 13. The banks expect to announce their financing plans by the end of the year, he said.

MEXICHEM SAB (MEXCHEM*), the largest maker of plastic pipes in Latin America, is preparing to sell bonds in the U.S. for the first time. Chief Executive Officer Ricardo Gutierrez said in an interview July 10 the company may sell $500 million in bonds in August or September. The company may delay the international bond sale by as many as two weeks because of “paperwork,” spokesman Enrique Ortega said in an Aug. 26 telephone interview. The international bond sale “is still on track,” Ortega said. Mexichem announced plans in 2007 to spend $1 billion in five years to buy chemical, resin and pipe-making businesses in Latin America. The bond sale is meant to reduce short-term debt, Gutierrez said.

ENERGY FUTURE HOLDINGS CORP., formerly known as TXU Corp., amended its credit agreement to reduce the company’s first-lien capacity by $1.25 billion in exchange for the ability to issue an additional $4 billion of debt, according to a regulatory filing. The Dallas-based company also is allowed to issue new secured notes or loans, provided the proceeds are used to prepay certain borrowings at par under its existing credit agreement, according to the Aug. 10 filing. Energy Future Holdings had its outlook cut to negative from stable on the likelihood that it would use for the third time its payment-in-kind option for toggle notes during the October 2009 to April 2010 payment period, S&P said Aug. 31 in a statement.

The DETROIT INTERNATIONAL BRIDGE CO., owner and operator of the Ambassador Bridge connecting Detroit and Windsor, Ontario, plans to sell bonds in a private transaction to finance enhancements to the bridge. The Warren, Michigan-based company will issue the bonds, according to a person familiar with the offering who declined to be identified.

RUSSIA may sell bonds worth “a few hundred billion rubles” this year to cover a budget shortfall, the Moscow Times said, citing an interview with Arkady Dvorkovich, an economic adviser to President Dmitry Medvedev. The government may partly finance the deficit by selling dollar-denominated bonds, the newspaper said, citing Dvorkovich.

NIKE INC., (NKE) the world’s largest athletic-shoe maker, may sell as much as $760 million of debt in the company’s first offering in more than five years. Proceeds may be used for debt refinancing, working capital, capital expenditures, investments in units and other general corporate purposes, Beaverton, Oregon-based Nike said in a Dec. 22 shelf filing with the U.S. Securities and Exchange Commission. Derek Kent, a company spokesman, said April 7 that there are no new updates to last year’s announcement.

To contact the reporter on this story: Nikolaj Gammeltoft in New York at ngammeltoft@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at Agoldstein5@bloomberg.net

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