Ship Finance, Couche-Tard, six others price; Goodyear slides; funds see $385 million inflow

By Paul Deckelman and Paul A. Harris

New York, Dec. 11- The December high-yield new-deal surge continued rolling on during Thursday's session, as Ship Finance International Ltd., Couche-Tard Inc., Sensus Metering Systems Inc., Kraton Polymers LLC, FPL Energy Wind Funding LLC, WMC Finance Co., Bombardier Recreational Products and United Agri Products Inc. were heard by syndicate sources to have priced new offerings. Several of the deals were upsized.

The continued parade of new deals has been fueled by a cascade of liquidity, and it shows no signs of abating; late in the session, market participants familiar with the weekly mutual fund flow statistics compiled by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday, $384.5 million more came into the funds than left them. That follows the $324.7 million of inflows seen in the previous week, ended Dec. 3.

It was the sixth straight week in which more money entered the funds than left them, according to a Prospect News analysis of the AMG figures, the 11th week out of the last 12 in a stretch that dates back through the week ended Sept. 24 - interrupted only by a tiny $1.1 million outflow in the week ended Oct. 29 - and the 33rd week out of 49 since the beginning of the year.

The latest week's inflow - which includes only those funds that report on a weekly basis and which excludes distributions - brings the year's cumulative inflow total to a hefty $19.661 billion, according to the analysis. By way of contrast, the cumulative inflow total just a year ago was some $7.429 billion. Over the past six weeks alone, inflows have totaled $2.139 billion, and in that stretch since Sept. 24, $3.419 billion, according to the Prospect News analysis.

Although mutual fund money represents a relatively small portion of the high yield universe, it is considered by market watchers to be a stable and reliable barometer of overall junk market liquidity trends.

The strong surge of money coming into the funds has been directly linked to the resurgent new-deal market, which year-to-date stands around a near-record $134 billion mark in total issuance, more than double the anemic $59 billion level seen in 2002.

Secondary market attention meanwhile was focused on Goodyear Tire & Rubber Corp., whose bonds were sharply lower in the wake of fresh accounting problems at the Akron, Ohio-based tire-making giant, and the likely delay of its badly needed financing.

One investment banker swore an oath while reviewing Tuesday's business in the primary market, shortly after the session closed.

"This market is on fire," the official stated, as the new issue market was seen to have turned out an astonishing $2.155 billion worth of paper in eight separate transactions.

Three of them came upsized while two were downsized. Two priced inside of talk, and two came at the tight end, while one went wide.

And fanning the flames to which the sell-sider alluded: another reported bundle of cash into the high yield mutual funds, the $384.5 million reported by AMG for the week ending Dec. 10.

"It's the sixth straight inflow," one remarked in a late Tuesday email message.

Another sell-side source said earlier in the session: "There has been a lot of trading activity going on and it has been a good week."

This source added that in spite of recent talk among market observers concerning the possibility of 2003 new issuance setting a new all-time record - surpassing that of 1998 - in the end it will fall short.

"We have the number at $151 billion," said the official, "which includes some of the euro deals.

"I imagine we will come close but I don't think we're going to make it. From my calculation we're about $12-$14 billion shy. We have $6.5-$7 billion on the calendar now but I don't think you're going to see a lot of activity once we reach the end of next Thursday or Friday."

In any case, the sell-side extended a remarkable effort Thursday at launching an assault on the record, with $2.155 billion pricing.

The largest of the day's transaction came for Ship Finance International, which sold $580 million of 10-year senior unsecured notes (B2/B) at par to yield 8½%.

Jefferies & Co. ran the books for the Norwegian oil tanker company's deal which priced in the middle of the 8 3/8%-8 5/8% price talk.

Canadian convenience store company Couche-Tard, was second in size at $350 million in an offering upsized from $340 million. The new 10-year senior subordinated notes (Ba3/B) - part of an acquisition financing - priced at par to yield 7½%, at the tight end of the 7½%-7 ¾% talk. CIBC World Markets and Scotia Capital manned the cash register.

Third place, size-wise, went to Sensus Metering, which also priced an upsized offering of $275 million (from $225 million). The Raleigh, N.C. water meter company sold its 10-year senior subordinated notes (Caa1/B-) at par, to yield 8 5/8%, inside of the 8¾%-9% price talk. Credit Suisse First Boston and Goldman, Sachs & Co. watched the dials.

United Agri Products, of Greely, Colo. was fourth with an upsized issue of $225 million of new eight-year senior notes (B2/B). The UBS Investment Bank-led acquisition deal priced at par to yield 8¼%, at the tight end of the 8¼%-8½% price talk. It was increased from $215 million.

Three $200 million deals tied for fifth place.

Bombardier Recreational Products sold $200 million of 10-year senior subordinated notes (B3/B-) at par to yield 8 3/8%. Merrill Lynch & Co. and UBS Investment Bank ran the books for the deal from the Montreal recreational products-maker, which priced at the tight end of revised talk of 8 3/8%-8½%, in from 8 5/8% area.

Houston chemical company Kraton Polymers LLC/Kraton Capital Corp. priced a downsized $200 million of 10-year senior subordinated notes (B3/B) at par to yield 8 1/8%. The deal was reduced from $230 million.

Goldman Sachs & Co. and UBS Investment Bank led the deal which priced inside of the 8¼%-8½% price talk.

And WMC Finance Co. also priced a downsized issue: $200 million of five-year senior notes (B2/B-) at par to yield 11¾%, reduced from $250 million.

Credit Suisse First Boston and Merrill Lynch & Co. ran the books for the deal from the Woodland Hills, Calif.-based on-line mortgage lender, which came wide of the 11% area price talk.

Finally, FPL Energy Wind Funding LLC sold $125 million of 6.876% senior secured amortizing notes due July 27, 2017 (Ba2/BB-) at 99.99 on Thursday. The bonds pay an annual coupon; the annual yield is 6.888% and the semi-annual yield is 6.773%.

Credit Suisse First Boston ran the books.

Price talk emerged Thursday on the $230 million two-tranche offering from Young Broadcasting Inc., which is expected to price on Friday.

Talk is 6½% area on a $90 million add-on to the New York City-based television broadcasting company's 8½% senior notes due Dec. 15, 2008 (B2/B), via Wachovia Securities and Deutsche Bank Securities.

Meanwhile price talk is 8¾% area on $140 million of 10-year senior subordinated notes (Caa1/CCC+). The bookrunners switch positions on the subordinated tranches, Deutsche Bank Securities, on the left, along with Wachovia Securities.

Talk also emerged on a rejigged deal that Viasystems Group Inc. intends to price on Friday. Price talk is 9½%-9¾% on the $200 million of senior subordinated notes (Caa2/CCC+) via Goldman Sachs & Co.

The St. Louis-based electronics manufacturing services company extended the maturity of the notes to seven years from six years, and lengthened call protection to four years from three years.

The price talk is 7¾%-8% on Great Lakes Dredge & Dock Corp.'s $170 million of 10-year senior subordinated notes (B3/B-), expected to price on Friday, via Lehman Brothers, Credit Suisse First Boston and Banc of America Securities.

Talk is 9% area on Land O'Lakes, Inc.'s $150 million of seven-year senior secured second lien notes (B2/B), expected to price Friday afternoon. JP Morgan is the bookrunner.

And a number of modifications emerged Thursday on the deal in the market from Mechelen, Belgium-based communications company Telenet Communications. Early in the session the company was heard to have dropped the dollar tranche on its €400 million of 10-year senior notes (B3/B-), via JP Morgan, Goldman Sachs & Co., Merrill Lynch & Co. and Royal Bank of Scotland. A little later word circulated that the deal had upsized to €500 million, with price talk of 9%-9¼%.

Then after Thursday's session had come to a close in the U.S. sources told Prospect News that Telenet is also expected to bring $290 million proceeds of 10.5-year discount notes, to be issued at the holding company level. A triple-C area rating is expected. JP Morgan and Goldman Sachs will run the books.

Both deals are expected to price Friday morning in London.

Finally, market sources told Prospect News that Portola Packaging, Inc. has delayed the marketing of its bond deal until January, pending its completion of an amended 10-Q form presenting its final first quarter 2003 number, according to market sources.

The San Jose, Calif. plastic container company was reported to be offering $180 million of eight-year senior notes, via JP Morgan and UBS Investment Bank.

When the new Couche-Tard 7½% senior subordinated notes due 2013 were freed for secondary dealings, they moved smartly up to 103 bid, 104 offered from their par issue price earlier in the session.

Kraton Polymer's new 10-year bonds were likewise considerably firmer in initial dealings at 103.5 bid, 104.5 offered, up from par; and United Agri Products' 8¼% senior notes due 2011, which had also priced at par, closed at 102 bid, 102.5 offered.

"Allocations were pretty thin on all of them," offered a trader, who also said that he had not seen the new Ship Finance 8½% senior notes due 2013 in the aftermarket.

Among the established bonds, a notable upsider was Ikon Office Solutions Inc., whose 7¼% notes due 2008 - described by one trader as normally "tremendously illiquid - we rarely see them" - were quoted as high as 107 bid, well up from prior levels around par, after the Malverne, Pa.-based provider of office documentation systems announced plans to sell its equipment leasing business to an arm of General Electric Corp. for $1.5 billion.

That also sent Ikon's shares soaring; they jumped $1.75 (19.89%) to $10.55, on New York Stock Exchange volume of 7.7 million shares, nearly 14 times the usual turnover in the name.

But market attention was more focused on a downside mover - Goodyear, whose bonds retreated after the world's largest tire maker on Wednesday announced that accounting problems found in its European operations would delay its filing of an amended 2002 10-K earnings report with the Securities and Exchange Commission - which in turn was seen likely to stall its efforts to tap the capital markets for at least $250 million of bonds and $75 million of equity until early 2004, putting Goodyear in technical violation of the terms of its labor contract. The company said it had opened discussions with its union on alternatives to the capital markets schedule outlined in the contract.

All of that caused Goodyear's bonds - which had been unchanged Wednesday in the face of the first reports of the problems - to skid badly in Thursday's dealings.

Goodyear's bonds plummeted in the early going, and then came off their lows to recover a little bit of the lost ground - but they were still down points, traders said.

Its 6 5/8% notes due 2006 fell as low as 95 bid, 98 offered from Wednesday's close at 100.25 bid,101.25 offered, before firming slightly from its depths to end at 96.5 bid, 98.5 offered. Its 8½% notes due 2007 ended the session at 97 bid, 99 offered, down from 101.5 bid, 102.5 offered on Wednesday. Its 6 3/8% notes due 2008 closed at 90 bid, 92 offered, its 7.857 notes due 2011 at 87 bid, 89 offered and its 7% notes due 2028 at 76 bid, all down anywhere from three to five points on the day.

The bad news also caused Goodyear's NYSE-trades shares to deflate by 84 cents (11.41%) to $6.52, on volume of 11 million shares, more than five times the usual activity level.

Investors were distressed because it was the second time in slightly over a month that Goodyear had been forced to admit that it had notable accounting problems.

Overseas, Italian food products maker Parmalat's mostly euro-denominated bonds plunged in the wake of a gigantic 11-notch ratings dowengrade laid on the company by Standard & Poor's over two days earlier in the week. The ratings agency lowered the company's credit rating to CC from BBB- after Parmalat did not repay a €150 million bond issue that came due on Monday; it said that it would redeem the bonds, but said that it would do so by this coming Monday, a week late. Parmalat - which earlier in the year had said in a filing that it had €4.2 billion of cash or cash equivalents on hand, more than enough to pay off the bond issue - was reported to be in talks with its banks in hopes of securing a loan to pay off the bonds and fund its operations, leading S&P to suggest that it may have misled the ratings agency and its investors about its actual financial status.

Parmalat's dollar-denominated 6 5/8% notes due 2008 were quoted at 62 bid, 66 offered, around the same level as its euro-denominated 6.80% notes due 2008, which fell to 63.5 bid, 66.5 offered, down from 72.5 bid, 75.5 offered previously. Its 6 1/8% notes due 2010 dropped to 62.5 bid, 64.5 offered from 69 bid, 71 offered, while its 6¼% notes due 2005 were at 67 bid, 70 offered, down from 79 bid, 81 offered.

Another continental name in the news was Royal Ahold NV, which reported that its $3.5 billion rights offering was better than 94% taken up by its shareholders. However, even though the Dutch-based international supermarket operator plans to use the proceeds from the offering to cut its debt, the news did not help the bonds, which in fact were quoted weaker.

A market source quoted Ahold's 6¼% notes due 2009 at 97 bid, 98 offered, its 8¼% notes due 2010 at 107 bid, 108 offered and its 6 7/8% bonds due 2029 86.5 bid, 88.5 offered, all down about two or three points from the previous close.

Collins & Aikman Products Co., whose bonds had jumped about four points across the board on Wednesday, probably on investor sentiment about the likely improvement in the automotive sector and in component suppliers like C&A, gave back some of those gains as the bond moved lower - the 11½% notes due 2006 were down two points at 89.5, while its 10¾% notes due 2011 were half a point off at 96.25.

Land O' Lakes Inc.'s 8¾% notes due 2011 "have been all over the place and got clocked," said a trader, who quoted the Minnesota-based dairy products maker's bonds 89 bid, 91 offered, off from Wednesday's 92.5.

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