Capella Plans Debt as VIX Signals Wide Spreads: New Issue Alert

Capella Healthcare Inc., the hospital operator backed by private-equity firm GTCR Golder Rauner LLC, is marketing debt as volatility in the stock market could raise relative yields on speculative-grade corporate bonds.

Capella plans to sell $500 million of seven-year notes to refinance its existing first-lien credit facilities and second-lien term loan, Moody’s Investors Service said in a report. The debt may be sold this week, according to a person familiar with the sale who declined to be identified because terms aren’t set.

The extra yield investors demand to own high-yield, high-risk debt instead of U.S. Treasuries may increase if the Chicago Board Options Exchange Volatility Index, or VIX (VIX), remains near the 31-point level reached May 14 on investor concerns about Europe’s debt crisis, Moody’s Capital Markets Group said yesterday in a report.

“Such a steep VIX level has been associated with above-average corporate credit spreads,” Moody’s analysts led by chief economist John Lonski wrote in the report. “The record suggests that if VIX remains at 31, the high-yield bond spread may increase by at least 135 basis points from recent levels.”

The benchmark index for U.S. stock options had the biggest weekly percentage gain in its two-decade history during the period ended May 7. The Standard & Poor’s 500 Index (SPX) erased its gains for the year that week as Europe’s worsening debt crisis triggered a plunge that has resulted in probes by regulators. A rise in the VIX reflects an increased cost of using derivatives as insurance.

Junk Spreads

Spreads on debt rated below BBB- by S&P and Baa3 by Moody’s Investors Service widened 3 basis points yesterday to 636 basis points, according to the Bank of America Merrill Lynch High-Yield Master II Index. The index jumped 19 basis points on May 14 when the VIX rose to 31, and surged 21 points when the VIX reached its 2010 high on May 7. A basis point is 0.01 percentage point.

The jump in volatility may explain why several speculative-grade companies postponed offerings during the two-week period ending May 14, the Moody’s analysts wrote in the report.

Penske Automotive Group Inc., Jones Apparel Group Inc. and Transnet Ltd. were among the companies that said they were delaying offerings during the two-week period. High-yield, high-risk debt is rated below Baa3 by Moody’s and BBB- by S&P.

Capella’s B3 rating on the proposed $500 million offering is one level lower than the B2 corporate family rating, Moody’s said yesterday in a report. The company ranking “reflects Capella’s limited scale and diversity, relatively short operating history, considerable debt leverage, and acquisition-based growth strategy,” Moody’s said.

Calpine Sale

Calpine Corp., the provider of power fueled by natural gas, sold $400 million of notes in yesterday’s only high-yield offering. Junk-bond sales last week were $3.1 billion, below the 2010 average of $5.7 billion.

Investment-grade spreads were unchanged at 179 basis points, according to the Bank of America Merrill Lynch U.S. Corporate Master Index. The index narrowed 5 basis points last week.

EOG Resources Inc. sold $1 billion of debt in a two-part offering and Franklin Resources Inc. issued $900 million of notes in a three-part sale to lead $2.45 billion of investment-grade offerings.

Following is a description of $6.52 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

THE WORLD BANK plans a benchmark offering of five-year notes, according to a person familiar with the transaction. The debt may be priced to yield 5 basis points more than the mid-swaps rate, said the person, who declined to be identified because terms aren’t set. A benchmark offering is usually at least $500 million.

SABIC CAPITAL (SABIC), a unit of Saudi Basic Industries Corp., hired HSBC Holdings Plc, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to sell a benchmark-sized bond, Sabic Chief Financial Officer Mutlaq al-Morished said in a May 17 telephone interview.

KOREA RESOURCES CORP., the state-run minerals developer, hired HSBC Holdings Plc, Korea Development Bank, Morgan Stanley and Standard Chartered Plc to help it sell $300 million of bonds, according to three people familiar with the matter. Moody’s rates the proposed offering A1 and S&P gave the notes an A rating.

CHILE plans to sell $1 billion of 10-year bonds, along with its debut sale of peso securities, Finance Minister Felipe Larrain said. The country will “certainly” issue the debt this year, Larrain said.

DOHA BANK QSC, Qatar’s third-largest bank, plans to sell senior notes in dollars, the lender said in a statement on the Qatari bourse, without disclosing the size of the offering.

FORETHOUGHT FINANCIAL GROUP INC. plans to sell $150 million of 10-year bonds, according to a person familiar with the transaction, who declined to be identified because terms aren’t set. S&P assigned the notes a grade of BBB- in a March 24 report.

Not Rated

IRSA INVERSIONES Y REPRESENTACIONES SA, Argentina’s biggest real-estate company, said it plans to sell $150 million of senior notes. The offering may be increased to as much as $250 million, the company said in a May 17 statement distributed by PR Newswire.

INTERNATIONAL CONTAINER TERMINAL SERVICES INC. (ICT), the Philippines’ largest port operator, plans to sell as much as $200 million of 10-year bonds, according to a person familiar with the matter. The company said in a regulatory filing it will add the notes to the $250 million of 7.375 percent bonds it sold in March. The filing didn’t disclose the planned size.

The PROVINCE OF CORDOBA, Argentina, plans to sell as much as $350 million of bonds in international markets once the federal government completes a restructuring of defaulted debt, Banco de Cordoba said.

SENSIENT TECHNOLOGIES CORP. said it entered into an agreement with a group of four financial institutions for the issuance of $110 million in fixed-rate, senior notes, according to a Nov. 19 statement distributed by Business Wire. The company plans to issue seven-year debt in May with a fixed coupon rate of 4.91 percent and proceeds will be used to repay existing indebtedness, Sensient said in a March 1 regulatory filing.

High Yield

CAPELLA HEALTHCARE INC., the hospital operator backed by private-equity firm GTCR Golder Rauner LLC, plans to sell $500 million of seven-year notes, according to a person familiar with the transaction. Proceeds will be used to refinance Capella’s existing first lien credit facilities and second lien term loan, Moody’s Investors Service said in a report.

AMERICAN TIRE DISTRIBUTORS HOLDINGS INC., the supplier of tires being acquired by TPG Capital for $1.3 billion, said it plans to offer $250 million of senior secured notes due in 2017. Proceeds will be used to pay for the Charlotte, North Carolina-based company’s acquisition and to repay debt, it said in a May 17 statement distributed by Business Wire.

INDOSAT PALAPA CO., a unit of Indonesia’s second-largest phone operator, may sell 10-year senior notes in a benchmark offering, according to a person familiar with the transaction. Moody’s assigned a provisional Ba1 rating to the notes and S&P rated them BB, one step lower.

TITAN INTERNATIONAL INC. (TWI), the maker of tire and wheel systems for off-highway equipment, said it plans to sell at least $150 million of senior unsecured notes. Proceeds will be used to repurchase the 8 percent senior unsecured notes due in 2012 and for general corporate purposes, the Quincy, Illinois-based company said in a May 13 statement distributed by Business Wire.

DAVE & BUSTER’S INC., the closely held operator of restaurant entertainment complexes, may sell $200 million of eight-year senior notes, according to a person familiar with the offering. Proceeds will be used to fund Oak Hill Capital Partners’ acquisition of the Dallas-based company from Wellspring Capital Management LLC. JPMorgan Chase & Co. and Jeffries & Co. are managing the sale.

SKILLSOFT PLC, the provider of education software for businesses, plans to sell $310 million of eight-year notes, according to a person familiar with the offering.

BWAY HOLDING CO., the paint-container and aerosol-can maker being acquired by Madison Dearborn Partners LLC, plans to sell $200 million of notes to help pay for its acquisition, according to a person familiar with the offering. It’s also seeking $565 million in bank debt, said the person, who declined to be identified because terms aren’t set.

INVENTIV HEALTH INC., the provider of sales and marketing services to science companies that is being acquired by Thomas H. Lee Partners, may sell $275 million of senior notes to back the purchase, it said in a regulatory filing.

CITGO PETROLEUM CORP., a U.S.-based unit of Petroleos de Venezuela SA, plans to sell $1.5 billion of notes due in 2017 and 2020, according to a person familiar with the offering.

HILLMAN COS. may sell $150 million of eight-year notes to help pay for its acquisition by Oak Hill Capital Partners, according to a person familiar with the offering.

AMERICOLD REALTY TRUST (ACRE), the operator of temperature-controlled warehouses owned by billionaire Ron Burkle’s Yucaipa Cos., plans to sell $325 million of 10-year notes, according to a person familiar with the transaction. Proceeds from the sale of senior secured debt will be used to purchase assets from Versacold International Corp., said the person, who declined to be identified because terms aren’t set. Yucaipa owns 49 percent of Versacold with an option to purchase the rest, according to an April 15 filing with the Securities and Exchange Commission. Moody’s ranks the debt Ba3.

RENAISSANCE CAPITAL, the commercial banking arm of Renaissance Group, is selling $225 million of three-year bonds with a 13 percent coupon, according to a banker with knowledge of the transaction. Moody’s assigned Renaissance an issuer rating of B2 and S&P affirmed its B ranking on the company.

LEARNING CARE GROUP NO. 2 INC. is planning to sell $265 million of payment-in-kind notes that can pay interest in the form of additional debt, according to a person familiar with the transaction. The company plans to issue five-year senior secured notes, of which 10.5 percent can be paid in cash and 2.5 percent in additional debt, said the person, who declined to be identified because terms aren’t set.

COMMUNITY EDUCATION CENTERS INC. plans to sell $210 million of six-year, senior secured notes that may yield 12.75 percent to 13 percent, according to a person familiar with the offering. The notes, which can’t be called for the first 3 1/2 years, will be sold in a private placement, said the person familiar with the transaction. The company, which initially planned to sell the debt in a 144A transaction, will borrow the money through a private offering. Proceeds from the sale may be used to repay debt, the person said. Jefferies & Co. is underwriting the sale.

PT CILIANDRA PERKASA, an Indonesian palm-oil company, may sell dollar bonds, a person familiar with the matter said. Ciliandra is a unit of Singapore-based First Resources Ltd.

AO ASTANA FINANCE will offer senior creditors $350 million of new bonds, as well as recovery notes and 58.9 percent of voting shares, the lender said in a statement published through the Kazakhstan Stock Exchange. Holders of Astana Finance’s domestic notes will be offered 20-year tenge-denominated bonds with an 8 percent coupon, the lender said in the statement, which was dated Oct. 16.

Offerings in Pipeline

EURASIAN NATURAL RESOURCES CORP., a London-based iron ore and alumina producer with operations in China and Russia, hired Deutsche Bank AG and Morgan Stanley to help it sell dollar bonds for the first time, according to a person familiar with the transaction. The company will begin meeting with investors in Hong Kong on May 17, followed by Singapore on May 18, Frankfurt on May 19 and London on May 20, said the person, who asked not to be identified as details are private.

KAZAKHSTAN plans to sell between $500 million and $750 million in bonds to investors abroad in the autumn, Kazakh Finance Minister Bolat Zhamishev said in a May 14 interview in Zagreb. The bonds will probably be denominated in dollars and will be used to set a benchmark for corporate borrowing, Zhamishev said.

TRANSNET LTD., the South African state-owned transportation company, delayed a sale of dollar bonds after meeting with U.S. and European investors because of adverse market conditions, according to Barclays Plc-owned Absa Capital, which advised on the transaction. Transnet didn’t respond to e-mailed questions seeking comment on the postponement the bond sale and its spokesman was unavailable when contacted on his mobile phone. The transport company is rated BBB+ by S&P, the third-lowest investment grade. Transnet said in February that it planned to sell $2 billion of international debt to help fund infrastructure.

QATARI DIAR REAL ESTATE INVESTMENT CO. may raise about $1.5 billion by selling global bonds backed by Qatar, according to a person familiar with the sale plan. The developer may offer 10-year conventional bonds and 5-year Islamic securities, said the person who declined to be identified because details of the transaction haven’t been finalized. HSBC Holdings Plc and Barclays Capital are among banks expected to manage the sale, according to the person.

CREDIT EUROPE BANK LTD. plans to sell three-year bonds in dollars, according to people with knowledge of the sale. The notes may be priced to yield 7.75 percent to 8 percent, the people said. Citigroup Inc. is managing the sale.

JONES APPAREL GROUP INC. postponed an offering of $250 million of senior notes due 2018. The New York-based retailer is paying $180 million for a 55 percent stake in Stuart Weitzman Holdings LLC, a closely held maker of women’s apparel, according to a May 6 statement distributed by PR Newswire. Proceeds from the notes sale will be used for general corporate purposes and to help fund the acquisition, the company said. Citigroup Inc., JPMorgan Chase & Co., SunTrust Banks Inc. and Wells Fargo & Co. will manage the sale.

ESSAR STEEL HOLDINGS LTD. postponed a sale of dollar-denominated bonds amid rising investor concern over contagion from Europe’s debt crisis. Essar “decided to postpone their planned financing,” company spokesman Manish Kedia said in a statement.

BANCO CRUZEIRO DO SUL SA postponed an offering of 10-year dollar bonds after global market turmoil pushed up borrowing costs, the company said.

CHINA ORIENTAL GROUP CO. plans to sell senior notes to provide working capital and the possibly to finance the purchase of steel mills and iron ore assets in China. Deutsche Bank AG will manage the sale with ING Groep NV, according to a statement to the Hong Kong stock exchange.

DSW HOLDINGS INC., a unit of DS Waters Enterprises LP, postponed a $475 million sale of senior secured notes due in 2017, according to a person familiar with the transaction, who declined to be identified because the marketing is private.

OAO SBERBANK hired DZ Bank AG, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to organize meetings with bond investors, according to a banker involved in the transaction.

TPG CAPITAL is planning to sell high-yield bonds to back its purchase of American Tire Distributors Holdings Inc., according to people familiar with the financing. Bank of America Corp. is leading both the asset-based loan and the bond offering, said the people, who declined to be identified because the discussions are private.

BANK FOR INVESTMENT & DEVELOPMENT OF VIETNAM received approval from the central bank to issue 7 trillion dong ($369 million) of notes and another 3 trillion dong ($158 million) worth of dollar-denominated notes in 2010, according to a statement on State Bank of Vietnam’s Web site.

BOLIVIA plans its first international bond sale in more than 70 years as early as the end of 2011, Finance Minister Luis Arce said. He didn’t disclose the size of the offering.

GLORIOUS PROPERTY HOLDINGS LTD. (845) postponed its first sale of dollar-denominated bonds, citing unfavorable market conditions. The postponement was disclosed in an e-mailed statement by an external spokeswoman for the Hong Kong-based bank. Glorious Property had planned to sell five-year bonds denominated in U.S. dollars, according to a person familiar with the matter, who declined to be identified before a public announcement. Glorious said in a filing that it had hired Deutsche Bank AG, JPMorgan Chase & Co. and Standard Chartered Bank to manage the offering.

FIRSTRAND LTD. (FSR), South Africa’s second-largest banking group, said it postponed a planned sale of dollar bonds because of volatile market conditions. The sale may now take place later this year, Andries du Toit, group treasurer at FirstRand in Johannesburg, said in an interview.

KOREA FINANCE CORP. plans to sell $100 million to $200 million of foreign-currency bonds in its first overseas debt sale since October, Edaily reported, without citing anyone. The state-run agency also plans to sell $1 billion of global bonds in the U.S. in the second half of the year, the Korean-language online newspaper said.

NATIONAL AGRICULTURAL COOPERATIVE FEDERATION of South Korea, also known as Nonghyup, plans to raise as much as $500 million from foreign-currency bonds to repay debt, according to a person with direct knowledge of the matter. The federation, which provides credit and banking services to farmers, plans to sell notes to help refinance about $600 million of bonds and loans, said the person, who asked not to be named as the plan is private. The bonds will probably be denominated in dollars, they said.

PTT PRODUCTION & EXPLORATION PCL (PTTEP), the Thai oil explorer, hired Credit Suisse Group AG and Royal Bank of Scotland Group Plc to help it sell global bonds, according to two people familiar with the matter who asked not to be identified as the plan is private.

UNION BANK OF INDIA LTD. (UNBK) plans to sell bonds denominated in U.S. dollars, according to a person familiar with the matter. Barclays Plc, Citigroup Inc., Deutsche Bank AG and Standard Chartered Plc will manage the sale, the person said.

MALAYSIA may raise $1 billion to $1.5 billion from the sale of dollar-denominated Islamic bonds, its first global offering in almost eight years, according to a finance ministry official with direct knowledge of the plan. The Southeast Asian nation is raising less than originally planned as it needs fewer funds to plug its budget deficit given the country’s economy is recovering, said the official who declined to be identified because the deal has yet to be completed. The government is still aiming to start the debt sale in June, the official said.

POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORP. of the Philippines may sell between $750 million and $1.5 billion of dollar-denominated bonds “anytime” to help refinance maturing debt thru next year, Vice Chairman Jose Ibazeta said. The company manages the finances of state utility National Power Corp.

BRISBANE AIRPORT CORP., owner of Australia’s third-busiest airport, may sell bonds in the U.S. later this year as it pursues new markets to help refinance debt and pay for a new runway. The company is considering a 10- or 15-year U.S. private placement and a five- to seven-year Australian dollar bond sale in late 2010 or early 2011, Chief Financial Officer Tim Rothwell said in a phone interview from Brisbane.

VIETNAM NATIONAL COAL-MINERAL INDUSTRIES GROUP, the state-owned coal producer known as Vinacomin, plans to sell as much as $500 million of bonds overseas this year to fund mining and energy projects, according to Deputy Chief Executive Officer Nguyen Van Hai.

FINLAND may sell five-year bonds denominated in dollars this year, the Finnish Treasury said in a document posted on its Web site.

POLAND will probably sell at least $1 billion of five-year bonds denominated in dollars in June, PAP newswire reported, citing Deputy Finance Minister Dominik Radziwill. The bond may be Poland’s last sale of foreign-currency denominated debt from Poland in the first half of this year, Radziwill told PAP. The country is rated A2 at Moody’s and A- at S&P and Fitch Ratings.

MONGOLIA plans to sell as much as $1.2 billion of bonds overseas this year to fund infrastructure to support its mining industry, Finance Minister Sangajav Bayartsogt said. This is Mongolia’s first benchmark offering of dollar-denominated debt. Investment banks are advising Mongolia to issue debt with maturities of between five and 10 years, Bayartsogt said in an interview. The securities may offer a yield of between 8 percent and 11 percent, he said.

BIRCH COMMUNICATIONS INC. is offering $100 million of senior secured notes due in 2015, with proceeds going toward refinancing debt, buying outstanding warrants for its common stock and general corporate purposes, including acquisitions, the Atlanta-based company said Nov. 30 in a statement. On Feb. 1, Moody’s withdrew its B3 rating assigned to the company’s notes, citing “recent indications” that Birch “will complete its note issuance under terms that are different than those that supported the rating assignment,” analysts Gerald Grnovsky and Russell Solomon wrote in a note. Birch is rated B- by S&P, the ratings company wrote Dec. 4 in a statement. “We’re currently holding discussions with interested parties and expect to finalize our offering in the near term,” Greg Corwin, director of marketing for Birch, said in a Jan. 11 telephone interview. Corwin said the status of the deal was “unchanged” in a Feb. 17 interview.

(Updated Feb. 17.)

VIETNAM SHIPBUILDING INDUSTRY GROUP, the state-owned company known as Vinashin, won government approval to sell as much as $600 million of bonds overseas to fund construction of ships. Vinashin plans to raise between $400 million and $600 million in a dollar-denominated bond sale “with a government guarantee,” Chief Business Officer Nguyen Quoc Anh said in a phone interview from the northern port province of Quang Ninh.

ALROSA, Russia’s diamond monopoly, may sell as much as $1 billion in foreign-currency bonds in the second half of 2010, RIA Novosti reported, citing Chief Executive Officer Fyodor Andreyev. The company is rated Ba3 by Moody’s.

To contact the reporter on this story: Craig Trudell in New York at ctrudell1@bloomberg.net.

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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