Ahold firms on rights issue buzz; Standard Pacific upsizes quickie deal

By Paul Deckelman and Paul A. Harris

New York, Sept. 23 - Ahold NV's bonds firmed Tuesday on market speculation that the Dutch-based international supermarket and retailing giant will mount a rights issue as part of a financing package. Levi Strauss & Co. debt, which retreated Monday after the company's debt ratings were cut by Moody's Investors' Service, were seen having bounced back.

In the primary arena, Standard Pacific Corp. announced plans to sell $100 million of new five-year notes, intending to use the proceeds to repay existing bonds (see Tenders and Redemptions elsewhere in this issue for details), but was heard by syndicate sources to have upsized that quickly marketed offering to $150 million and priced it at the tight end of talk. From Europe ASPropulsion Capital BV announced plans to sell €200 million of 10-year notes to help fund The Carlyle Group-sponsored LBO of Fiat's aircraft engine business.

"It was kind of quiet out there," said one official from the sell-side. "I was expecting a couple of discount note offerings to be announced and a healthcare issuer to come."

Another source from the sell-side said late in the session: "It was just quiet.

"The market was trading slightly better this afternoon," the source added. "The Treasury market was up a little bit and that should spur some activity.

"Right now I would say it's just hard to read."

Only one new issue story was heard during the session, as Irvine, Calif.-based homebuilder Standard Pacific announced a $100 million offering of five-year senior notes (Ba2/BB) in the morning, via Credit Suisse First Boston, and upsized the deal to $150 million early in the afternoon.

A 6½% yield was printed on the par-pricing notes, the low end of the 6½%-6 5/8% price talk.

One informed source told Prospect News that the company had the intention of selling $150 million all along - the upsizing being a foregone conclusion.

News also surface from the far side of the Atlantic Ocean with ASPropulsion Capital planning €200 million of 10-year senior notes (B2) via Lehman Brothers, Citigroup and Goldman Sachs.

The deal to help fund the leveraged buyout of the FiatAvio SpA aviation engine business, principally by The Carlyle Group, will roadshow this week in Europe, according to an informed source who added that it is expected to price during the week of Sept. 29.

"The eurobond market is empty at the moment," a source in London told Prospect News Tuesday.

"With European economic conditions less rosy than people believe, there should be a good fixed income bid out there."

Looking ahead to Wednesday, one deal is expected to price. Dallas-based wireless company MetroPCS, Inc. will attempt to sell $150 million of eight-year senior notes (B3/CCC+).

Price talk is 10¾% area on the deal led by Bear Stearns and UBS Investment Bank, with proceeds going to fund capital expenditures.

One sell-side source not on the MetroPCS syndicate commented Tuesday that "a first-time issuer doing a build-out strategy" makes the Dallas firm's deal an interesting one to watch.

Nor is MetroPCS the only telecom expected to sell bonds during the present week.

Broomfield, Colo.-based Level 3 Communications, Inc. was expected to begin a roadshow Tuesday for $500 million of eight-year senior notes, via Citigroup and Credit Suisse First Boston.

That deal is expected to price Thursday or Friday.

"They were always thinking of coming to market and they saw Nextel get great execution last week," said a sell-side source, referring to Nextel Communications, Inc.'s massively upsized $1 billion add-on to its 7 3/8% senior serial redeemable notes due Aug. 1, 2015 which priced on Sept. 17 at 101 for a yield to worst of 7.204%. The offering was increased from $500 million.

"That's a deal that is going to have to be rated," the source added, referring to Level 3. "Because of everything that has been going on with the company over the past couple of years they are going to have to get everything refreshed and get people comfortable with the credit."

In the secondary market, the new Hines Nurseries Inc. 10¼% senior notes due 2011, which priced Monday at par and were then heard to have gotten as good as 103.75 bid when they were freed, "traded up to 104 this morning but then just died," a trader said. "There was nothing in the street after that - they just kind of died out."

Standard Pacific's new 6½% senior notes due 2008 were not seen trading around - one trader said that he "never sees" the company's existing paper, and noted the relatively small and illiquid size of the Irvine, Calif.-based homebuilder's new deal at $150 million.

The existing 8½% notes due 2007, which are to be taken out with the proceeds of the new deal, were quoted at another desk as having firmed slightly from Monday's closing level of 102.75 to 103 bid - just above the 102.833 level at which the company plans to call the bonds after the new issue officially closes.

Another trader characterized that whole homebuilding sector, most of whose bonds trade above par, and in some cases, well above par - above 110 even - as "a dead market," noting that those bonds are too pricey for many retail (i.e. non-institutional) investors and the high prices drive the yields on many issues down to levels that high yield accounts find unattractive.

"They may be busy building homes," he quipped, "but they're not trading bonds."

A trader said that Ahold "opened stronger" on the rights-issue talk and stayed that way all session. He quoted its 6 7/8% notes due 2009 at 87.5 bid, 89 offered, up one-and-three-quarter points from Monday's levels; he saw the 6¼% notes due 2010 a point better at 107.5 bid, 108.5 offered; and pegged Ahold's 6¼% notes due 2009 at 98.75 bid, 99.75 offered, up three-quarters of a point.

"They were up pretty strongly," he said, "and I think they're going to have a rights offering."

At another desk, Ahold Finance USA Inc.'s 8¼% notes due 2010 were quoted up more than two points on the session at 107 bid.

Amsterdam-based Ahold - which operates the Stop & Shop and Giant food chains in the U.S., as well as other chains abroad - was reported by European newspapers to be planning a rights issue of as much as €2 billion ($2.29 billion) as part of a massive refinancing package which could be as much as €6 billion ($7 billion) - more than analysts had expected. The news reports out of Europe said that Ahold might also issue a convertible bond around the same size and another €2 billion via asset sales.

A company spokesman declined comment on the rights-sale talk, which has been making the rounds of financial markets for some time. Ahold is expected to definitively announce its plans after it releases its much-delayed 2002 earnings results next week. Ahold must report its earnings by next Tuesday - Sept 30 - in order to remain in compliance with requirements spelled out in its €2.65 billion credit facility.

The audited figures are expected to show the extent of a damaging accounting scandal which rocked the company and its investors when it was disclosed in February.

Levi Strauss bonds - which were battered Monday after Moody's Investors Service dropped the San Francisco apparel maker's debt ratings (including its senior unsecured bond debt ratingto Ca from B3) - "were starting to rebound," a trader said, quoting Levi's 7% notes due 2006 as having opened around 82 bid, 84 offered but then having been lifted to 84 bid by day's end.

He saw Levi's 11 5/8% notes due 2008 moving up to 88.5 bid, 89.5 offered from prior levels at 87 bid, 89 offered, "showing they have some life to them." He also saw the company's 12¼% notes due 2012 initially offered in the 85-86 range, but then, he said, the offers were lifted to 88.5, with players "trying to test them, trying to see how much life they have."

Another trader agreed that Levi paper "caught a little bit of a bid today," quoting the 7% notes offered at 84, the 11 5/8% notes at 88.5 bid, 89.5 offered and the 12¼% notes "up a little" at 86.5 bid, 88.5 offered.

Elsewhere the market was pretty quiet, with some bonds holding steady even though there may have been news out on them.

Lucent Technologies Inc.'s 7¼% notes due 2006 continued to hang in above 95 bid and Nortel Networks Corp.'s 6 1/8% notes due 2006 remained just above par with "no weakening," a trader said, even though giant regional Bell operating company Verizon Communications Inc. cut its 2003 capital expenditures guidance by $1 billion to about the $12 billion-$12.5 billion range. Both Lucent and Nortel supply telecommunications gear to Verizon, the largest U.S. RBOC.

A trader said that The Pep Boys' 6.40% notes due 2007 were unchanged around par levels, even after Manny, Moe and Jack issued lower guidance for the third and fourth quarter.

The Philadelphia-based auto parts and service center chain said that it would likely earn between 23 and 25 cents per share in the third quarter, missing analysts' estimates of profits in the 30 cents per share range. In the fourth quarter, Pep Boys said it expects to earn just two to four cents per share - well under Wall Street's expectations of 12 cents per share (see report elsewhere in this issue).

The company blamed the wide divergence between analysts' expectations and its own considerably more conservative estimates on Wall Street having over-estimated the immediate benefit of a corporate restructuring that Pep Boys announced in July. And it said that the financial community was at the same time underestimating the investment that will be needed to fulfill the company's strategies.

Pep Boys' New York Stock Exchange-traded shares fell 38 cents (2.5%) to $16.49, on volume of 3.2 million - more than six times the usual turnover.

But a trader said that he hadn't "seen any bonds for sale. We saw some buyers this morning, but then they disappeared. I think you're going to see some paper offered in the not too distant future."

He said that the auto parts seller's 7% notes due 2005 had recently pushed up to levels around 102 bid from prior levels at 100.5 bid,101.5 offered, "but I can't understand why the stuff has been grinding up so high compared to where it had been traded [before]."

He said that on Tuesday he "saw a couple of million bonds in the street at a 102 level - but no one cared.

"I think they're going to re-surface [Wednesday] cheaper. That's my feeling."

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