Universal Health Services Plans Junk Debt as Yields Slide: New Issue Alert

Universal Health Services Inc., the operator of more than 100 U.S. hospitals and other medical facilities, plans to sell high-yield, high-risk notes as Treasury-bond yields have fallen to their lowest this year and investors shun the stock market.

Universal Health may sell $400 million of debt to help finance its acquisition of Psychiatric Solutions Inc., according to a June 24 company filing with the Securities and Exchange Commission.

The yield on the 10-year Treasury note fell to 2.95 percent yesterday, the lowest in 14 months, on evidence of a slowing global economic recovery. Stocks dropped, with the Standard & Poor’s 500 Index tumbling 3.1 percent to its lowest since October 2009. Bonds have outperformed stocks this year, with the exception of emerging-market equities, according to Jeffrey Rosenberg, head of global credit strategy for Bank of America Merrill Lynch.

“In an environment where credit outperforms, and interest rates are zero, there’s no incentive to get out of credit,” Rosenberg said during a press briefing on June 28.

High-yield, high-risk bonds have returned 4.75 percent in 2010, including reinvested interest, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. The S&P 500 has fallen 5.71 percent.

Spreads Widen

The extra yield investors demand to own junk debt instead of Treasury bonds rose to 706 basis points from 693 basis points, according to the Bank of America Merrill Lynch U.S. High Yield Master II Index. Investment-grade spreads widened 1 basis point to 209 basis points, Bank of America Merrill Lynch index data show.

Rosenberg said in the presentation at his New York office that he expects spreads on bonds to tighten through 2010 to about 500 basis points for high-yield and 140 to 150 basis points for investment-grade.

Junk bonds are rated below Baa3 by Moody’s Investors Service and BBB- by S&P. A basis point is 0.01 percentage point.

S&P cut its corporate credit rating on Universal Health Services to BB from BBB- and assigned a BB+ ranking to the company’s existing unsecured notes on June 25, citing the debt- financed acquisition.

There were $980 million of junk-bond sales yesterday in the U.S. corporate bond market and none of investment-grade debt, according to data compiled by Bloomberg.

Bankrate Boosts Offering

Bankrate Inc., the online consumer personal finance network, sold $300 million of five-year notes. The North Palm Beach, Florida-based company boosted the offering from $280 million offered earlier, according to a person familiar with the transaction who declined to be identified because the marketing was private.

DynCorp International Inc., the speculative-grade-rated defense contractor, sold $455 million of notes that mature in 2017, and Vanguard Health Systems Inc. priced $225 million of debt due in 2018 in a reopening of an issue originally offered in January.

“People are hungry for yield because government rates are at such a low level,” said Martin Fridson, a global credit strategist at BNP Paribas Asset Management in New York.

Companies have issued $1.26 billion of high-yield debt this week, down from $2.43 billion in the comparable period last week. Investment-grade sales are $450 million this week, down from $11.2 billion.

Following is a description of at least $4.44 billion of pending sales of dollar-denominated bonds in the U.S.

Investment Grade

LLOYDS BANKING GROUP PLC plans to sell $300 million of so- called public income notes due 2050. The lender filed a shelf registration on June 28 with the U.S. Securities and Exchange Commission allowing it to sell notes to individuals in the U.S. for the first time, according to Sara Evans, a London-based spokeswoman for Lloyds. The notes may yield about 7.75 percent, according to a person with knowledge of the transaction.

CHILE plans to sell $1 billion of 10-year bonds, along with warrants and peso debt, according to a filing with the U.S. Securities and Exchange Commission. Chile will use the proceeds for general purposes, the filing said. The country, which hasn’t sold international bonds in six years, is seeking financing for repairs after a Feb. 27 earthquake and subsequent tsunami killed more than 400 people and caused as much as $30 billion of damage.

DOHA BANK QSC, Qatar’s third-largest bank, may raise as much as $1 billion from bond sales, its chief executive officer said. The money is likely to be raised for five years and is meant to “fix the maturity mismatch” on the bank’s balance sheet, Raghavan Seetharaman said in a June 16 telephone interview from Doha. The bank hasn’t decided which currency to sell the bonds in, he said. The lender said in April that it planned to sell senior notes in dollars 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

OXEA FINANCE & CY S.C.A. plans to sell the equivalent of 500 million euros of seven-year bonds in dollars and euros, according to two people with knowledge of the offering. Proceeds will be used to repay debt, shareholder loans and a payment to shareholders, and for general corporate purposes, the people said.

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 to repay existing indebtedness, Sensient said in a March 1 regulatory filing.

High Yield

INSIGHT COMMUNICATIONS CO., the cable television operator partly owned by Carlyle Group, plans to sell $400 million of eight-year notes to pay a distribution to holders of its capital stock, according to a person familiar with the transaction. The company will use $300 million of proceeds for the distribution and the remaining funds to repay debt, said the person, who declined to be identified because terms aren’t set. The debt may yield 9.25 percent to 9.5 percent, the person said.

GENTIVA HEALTH SERVICES INC. may sell $305 million of eight-year notes, according to Moody’s Investors Service. Moody’s assigned the notes a grade of B2 and ranked $925 million of loans three steps higher at Ba2, it said in a report.

UNIVERSAL HEALTH SERVICES INC., the operator of more than 100 U.S. medical facilities that’s buying Psychiatric Solutions Inc., plans to sell $400 million of senior unsecured debt to help finance the acquisition, it said in a filing with the Securities and Exchange Commission.

PROMSVYAZBANK OJSC, Russia’s third-largest private bank, hired banks to arrange investor meetings, according to a banker with knowledge of the matter. S&P affirmed its B counterparty credit rating on the company in April and revised its outlook to positive from stable, citing “improved liquidity and strengthening risk management.”

PT BERAU COAL, the Indonesian mining company, may market five-year notes in Singapore and London, according to an e-mail from company director Thomas Shreve. Moody’s assigned a provisional B2 rating to the notes.

CKE RESTAURANTS INC. may sell $600 million of eight-year notes, according to a person familiar with the transaction. The senior secured second-lien notes may be sold next week, said the person, who declined to be identified because terms aren’t set.

AKBANK TAS, the Turkish bank part-owned by Citigroup Inc., plans to sell five-year, dollar-denominated eurobonds worth up to $1 billion, according to a filing with the Istanbul Stock Exchange.

CEDAR FAIR ENTERTAINMENT CO., the operator of amusement parks that called off a takeover by an Apollo Management LP affiliate, said it plans to sell $500 million of senior unsecured notes due in 2020. Proceeds will be used to repay existing debt, the Sandusky, Ohio-based company said in a May 20 statement distributed by PR Newswire.

IRSA INVERSIONES Y REPRESENTACIONES SA, Argentina’s biggest real-estate company, extended an offer to sell $250 million in 10-year bonds until June 24, the company said in a regulatory filing in Buenos Aires on June 14. S&P assigned the notes a grade of B-, six steps below investment quality.

TITAN INTERNATIONAL INC., 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.

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.

Offerings in Pipeline

GEORGIAN RAILWAY LTD. hired Bank of America Corp. and JPMorgan Chase & Co. for a sale of bonds in dollars, according to a banker involved in the transaction.

JORDAN plans to sell about $500 million of bonds, Finance Minister Mohammad Abu Hammour said in an interview on June 23. The sale will be denominated in U.S. dollars “as it’s a stable currency and the Jordanian dinar is pegged to it,” Abu Hammour said.

BANK OF EAST ASIA LTD. hired Citigroup Inc. and JPMorgan Chase & Co. to help it sell subordinated 10-year bonds in dollars, according to a person with direct knowledge of the matter. The banks are meeting potential investors in Hong Kong and Singapore, the person said.

URUGUAY may sell as much as $1 billion of bonds in 2011, including $500 million of dollar-denominated debt, Carlos Steneri, director of public credit at Uruguay’s Ministry of Economy and Finance, said June 3 at a LatinFinance conference in London. The dollar-denominated bonds may have a maturity of 20 years or more, Steneri said.

MALAYSIA plans to raise about $1 billion from its first sale of conventional dollar bonds in eight years after drawing bids for five times the Islamic debt it offered, a finance ministry official said. The government may hire the same banks, including CIMB Group Holdings Bhd. and HSBC Holdings Plc, to arrange the sale by Sept. 30, said the official, who declined to be named as the discussions are private. Malaysia raised $1.25 billion from its first Shariah-compliant dollar bond in eight years on May 27. Malaysia is rated A3 by Moody’s and A- by S&P.

INDOSAT PALAPA CO., a unit of Indonesia’s second-largest phone operator, delayed a planned dollar bond sale until market conditions improve, a person familiar with the matter said May 26. Indosat began meetings with investors in Asia, the U.S. and Europe on May 12 to gauge demand for a global bond sale, according to a company statement sent to the Indonesian stock exchange that day. Moody’s assigned a provisional Ba1 rating to the notes and S&P rated them BB, one step lower.

SABIC CAPITAL, a unit of Saudi Basic Industries Corp., will sell bonds when market conditions and rates are favorable, its vice president for corporate finance Mutlaq al-Morished told al- Arabiya television in Dubai on June 16. Sabic delayed a bond sale because of unfavorable spreads, al-Morished said in a May 26 telephone interview. Sabic Capital had hired HSBC Holdings Plc, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc to manage a benchmark-sized offering.

GHANA is considering selling its second dollar bond next year to tap investor demand as the start-up of oil production boosts economic growth and narrows the budget deficit, Deputy Finance Minister Fifi Kwetey said. The government is considering a “no-deal roadshow” as early as the fourth quarter to gauge international investors’ appetite, Kwetey said in a May 26 interview in Abidjan. Ghana sold its first global bond in 2007, raising $750 million to help fund the construction of roads and power plants.

ANGOLA received credit ratings from Moody’s, S&P, and Fitch Ratings that put it on par with Nigeria, Lebanon and Belarus, and paved the way for a planned sale of international bonds this year. The southern African nation’s creditworthiness was rated at B+ by S&P and Fitch, four levels below investment grade. Moody’s assigned an equivalent ranking of B1.

EURASIAN NATURAL RESOURCES CORP., a London-based iron ore and alumina producer with operations in China and Russia, said it delayed its first dollar bond sale. The company is “postponing meetings with investors regarding a potential bond issuance under its Euro Medium Term Note program until further notice,” Charlotte Kirkham, a spokeswoman for ENRC, said in an e-mail. The company had hired Deutsche Bank AG and Morgan Stanley to manage the sale, according to a person familiar with the transaction.

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. The bonds will probably be denominated in dollars and will be used to set a benchmark for corporate borrowing, Zhamishev said.

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 completed. HSBC Holdings Plc and Barclays Capital are among banks expected to manage the sale, according to the person.

CHINA ORIENTAL GROUP CO. plans to sell senior notes to provide working capital and 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.

OAO SBERBANK , Russia’s biggest lender, may sell $1 billion of dollar-denominated bonds for the first time in two years when debt markets improve, Deputy Chief Executive Officer Anton Karamzin said. Sberbank will consider selling $1 billion of “five-year senior unsecured” notes to establish a benchmark “if the price is right,” Karamzin said. Sberbank hired DZ Bank AG, JPMorgan Chase & Co. and Royal Bank of Scotland Group Plc for the sale of five-year bonds, according to two people with knowledge of the transaction said April 29.

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 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.

KOREA FINANCE CORP. hired BNP Paribas SA and Standard Chartered Plc to help it sell dollar bonds backed by Korean residential mortgages, according to a person familiar with the transaction. The banks will help arrange meetings with investors in Asia, Europe and the U.S., the person said. Edaily reported in April that the company planned to sell $100 million to $200 million of foreign-currency bonds in its first overseas debt sale since October, without citing anyone. The state-run agency also plans to sell $1 billion of global bonds in the U.S., the Korean-language online newspaper said.

PTT EXPLORATION & PRODUCTION PCL, 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.

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 through 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 may sell dollar bonds if markets stabilize, Deputy Finance Minister Dominik Radziwill said. The European Union member earlier planned to sell $1 billion in five-year debt denominated in the U.S. currency as early as April.

MONGOLIA plans to raise $500 million selling bonds this year and the remainder of a planned $1.2 billion program will be sold according to market conditions, Batbayar Balgan, director general of the financial and economic policy department of Mongolia, said at a forum in Ulan Bator on June 16. The government scaled back its plans for global bond sales this year after Europe’s debt crisis drove up borrowing costs. Investment banks are advising Mongolia to issue debt with maturities of 5 to 10 years, Bayartsogt said in a Feb. 9 interview. The securities may yield between 8 percent to 11 percent, he said.

To contact the reporter on this story: Katie Evans in New York at Kevans28@bloomberg.net.

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