Videotron, IMCO, B/E price upsized deals; AK bonds tumble; funds see $80 million inflow

By Paul Deckelman and Paul A. Harris

New York, Oct. 2- High yield new issuance continued at a rapid-fire clip on the second day of the new quarter Thursday, with three deals heard to have priced - Videotron Ltee., IMCO Recycling Inc. and B/E Aerospace Inc. All were heard to have been upsized, illustrating the brisk demand for new paper in a cash-heavy market.

And those cash positions apparently got heavier - if only by a little - as market participants familiar with the weekly high yield mutual fund-flow statistics compiled by AMG Data Corp. of Arcata, Calif. told Prospect News that junk bond mutual funds - considered a reliable barometer of overall high yield market liquidity trends - saw a net inflow of $79.7 million in the week ended Wednesday.

It was the second straight weekly inflow; in the week ended last Wednesday (Sept. 24), $152.9 million more came into the junk funds than left them, breaking a two-week skid in which total net outflows from the funds was approximately $565 million, according to a Prospect News analysis of the AMG figures.

The weekly numbers reflect only those funds which report on a weekly basis, and exclude distributions.

Counting the latest week, inflows have now been seen in 24 of the 39 weeks since the beginning of the year; according to the Prospect News analysis of the data, the year-to-date net inflow total, while still down from the peak level of $17.312 billion seen in the week ended July 16, grew to approximately $16.482 billion from $16.402 billion the week before.

High yield traders have suggested that the market is currently in a "new-deal" mode, with many secondary issues having been pushed up to extremely tight levels (for junk bonds), although here and there, issues do go down, such as AK Steel Corp., whose bonds continued to fall Thursday after it had released bearish guidance late Wednesday.

Still, that was the exception to the rule; traders said most of the market's attention seemed to be riveted on what was going on in the primary arena.

Not long after the conclusion of Thursday's session one sell-side source told Prospect News that in light of the day's three reported transactions-as well as others that have priced during the Sept. 29 week-the $79.7 million that was reported by AMG Data Services to have flowed into high yield mutual funds for the week ending Oct. 1, was somewhat puzzling and perhaps a little disappointing.

"The last four weeks have been pretty tepid with regard to the funds flows," said the sell-side official.

"I thought this week it would be a little bigger because it seemed as though the deals have been getting done pretty well.

"B/E Aerospace upsized and came inside of talk. Videotron and IMCO were both slightly upsized.

"Koppers was upsized," the source added, referring to the $320 million - increased from $300 million - 10-year notes issue (B2/B) from Koppers Inc. which priced Tuesday at par to yield 9 7/8%, inside of the 10%-10¼% price talk.

"Intrawest also upsized by $100 million," the official added," referring to the $350 million offering of 10-year senior notes (B1/B+) from Vancouver, B.C. resort operator Intrawest Corp., which priced Wednesday at par to yield 7½%, on top of the 7½% area price talk.

"Liquidity in the market is obviously good," said the sell-sider, "so I expected to see a pretty good funds flow number."

Thursday's primary market session saw terms emerge on three upsized junk bond deals, although the only one that was substantially increased came from Florida aircraft parts company B/E Aerospace, which upsized its offering of seven-year notes by $25 million.

The company sold $175 million of senior notes (B3/B+) at par to yield 8 ½%, inside of the 9% area price talk, with Credit Suisse First Boston at the stick. The deal was increased from $150 million.

Montreal cable operator Videotron sold a slightly upsized $335 million of 6 7/8% senior notes due Jan. 15, 2014 (Ba3/B+) at 99.0806 to yield 7%. The size was upped from $325 million.

The notes, via Banc of America Securities and Citigroup, came at the tight end of the 7%-7¼% price talk.

And Irving, Tex. aluminum and zinc recycler IMCO Recycling priced a slightly upsized offering of $210 million of 10 3/8% seven-year senior secured notes (B3/B-) at 99.383 to yield 10½%. The JP Morgan-led deal came spot on to the 10½% area price talk. The original size was $200 million.

Shortly after terms emerged, one source reported seeing the new IMCO paper trading at 100.25, 100.75 in the secondary market.

One new deal appeared Thursday, a quick-to-market offering of zeros from LBI Media Holdings, Inc. The Burbank, Calif.-based privately held Spanish language radio and television operator plans to sell $40 million of 10-year senior discount notes, with a five-year zero coupon, by the time the market closes on Friday.

Credit Suisse First Boston and UBS Investment Bank are joint bookrunners.

Also expected to price on Friday is Parker Drilling Co.'s $175 million of 10-year senior notes (B2/B-). Price talk of 9½%-9¾% emerged Thursday on the Houston firm's notes. Lehman Brothers and Deutsche Bank Securities are joint bookrunners.

A trader said that when the new Videotron 6 7/8% senior notes due 2014 were freed for secondary dealings, they traded up from their par issue price to 102.125 bid, 102.25 offered.

"Wow, that's tight," he exclaimed.

The new IMCO 10 3/8% senior secured notes due 2010 fared less well; while the bonds traded as high as 101.25 bid from their 99.383 issue price, the trader heard that after that, bids started getting hit and the bonds went home straddling par.

Back among the established issues, AK Steel was clearly the dog of the day, in the wake of the announcement late Wednesday by the Middletown, Ohio-based producer of specialty steels warning that it expects to post a wider-than-expected third-quarter loss in the 82 cents to 86 cents a share range, before one-time items, due to higher energy and raw material costs. That's a sharp deterioration from analysts' projections of about 62 cents per share of red ink.

A market source said that AK paper was "movin' all around" before ending solidly lower on the day. He quoted the company's 7 7/8% notes due 2009 as having dipped to 65.75 bid, while its 7¾% notes due 2012 retreated to 63.75 - about five points below Wednesday's closing levels.

A trader saw the 7 3/8s "kinda wide" at 63 bid, 66 offered, before the bonds tightened up and firmed to 65 bid, 66 offered. He saw the 73/4s ending as low as 61.5 bid, 63.5 offered.

"AK keeps getting hammered," a trader exclaimed, "down points on the day." He pegged the steelmaker's 7 7/8% notes at 64.5 bid, 66 offered, while he put the 73/4s at 62.5 bid, 64 offered.

AK shares likewise took it on the chin Thursday, dropping 19 cents (9.05%) to $1.91 in New York Stock Exchange trading of about four million shares, four times the usual turnover.

AK was once almost revered among junk investors as that rarity in the high yield steel sector - a well- run, financially stable company whose bonds traded at levels around par, while virtually the whole rest of the sector was in, or shambling toward, bankruptcy (with the exceptions of United States Steel and Oregon Steel Mills Inc, which stayed solvent but which were still considered as weaker credits than AK).

But all of that started to change earlier this year, when the accumulated problems of the American steel industry - too much low-priced foreign competition and too heavy a burden of pension obligations to retired workers and other "legacy costs" - began to get to AK as well.

It received a sharp setback this past spring when it was unable to buy the assets of bankrupt rival National Steel Corp. because it could not come to an agreement with National's workers; U.S. Steel was able to strike a deal with the National employees and pick up its assets at bargain-basement prices through the bankruptcy process.

And last month, investors were surprised by the abrupt announcement that chief executive officer Richard Wardrop and president John Hritz were leaving the company.

Elsewhere, Levi Strauss & Co. bonds "felt a little better," a trader said, quoting the San Francisco-based blue jeans maker's 12¼% notes due 2012 as having moved up to 81.625 bid, 82.5 offered from 81 bid, 82 previously. He saw Levi's 11 5/8% notes due 2008 up a point, at 84 bid, 85 offered.

International supermarket giant Ahold NV's bonds were better Thursday, "even with the company's poor financial condition," a market source said, following the release of Ahold's long-awaited 2002 audited results.

The numbers were not pretty - Ahold posted a consolidated loss of €1.208 billion, most of it attributable to problems arising from its U.S. Food Service unit.

However, investors seemed relieved to have the delayed results finally out of the way, and the release of the numbers clears the way for Ahold to proceed with its previously announced recapitalization plans, which are said to include a €2 billion rights offering.

A trader quoted Ahold's 6¼% notes due 2009 as having firmed to 99.75 bid, 100.75 offered after release of the data, while its 8¼% notes due 2010 got up to 108.25 bid, 109 offered. Its 6 7/8% notes due 2029 were at 90 bid, 92 offered. The trader said Ahold was up on the day, although about a point down from its earlier peak levels.

At another desk, Ahold's secured 7.82% bonds due 2020 and its 8.62% bonds due 2025 - pass-through securities backed by leases on the company's store locations - pushed up to 101 bid from 98.5 previously.

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