Primary perks up as Harvest sells $250 million; Charter steady despite guidance; $256 million funds inflow

By Paul A. Harris

St. Louis, Oct. 7 - A high-yield primary market that sat becalmed during the first three sessions of the pre-Columbus Day week - distracted by conferences and the upcoming three day break, with an early Friday close - sprang to life somewhat on Thursday with $625 million pricing in three deals, including a $200 million drive-by from D.R. Horton that sources said was high grade in every aspect save its ratings.

Meanwhile in the secondary market, the bonds of Charter Communications more or less held water after the company announced that it will miss earlier estimates of its full year cash flow. Steel names were seen on firm footing. And recent issues, seen swooping earlier in the week, regained some traction.

Meanwhile sources told Prospect News just after Thursday's close that AMG Data Services reported the seventh consecutive inflow to the high-yield mutual funds - this one a "respectable" $256 million - for the week ended Oct. 6.

The fund flows are considered by many in the market to be a reliable barometer of overall market liquidity trends, even though the aggregate amount of money in the junk funds represents only a relatively small percentage of funds in the broader high yield universe.

Although the year-to-date funds flow picture remains decidedly negative, with outflows seen in 20 of the 40 weeks since the start of 2004, for a cumulative net loss from the funds of $3.658 billion, momentum seems to have shifted to the upside of late. In the past seven weeks, a total of about $1.456 billion more has come into the funds than left them in that time.

"This one may foretell the resumption of a building forward calendar," one sell-side source suggested, adding that, although "big M&A deals" seem scarce at the moment, new issue business is expected nonetheless to pick up during the post-Columbus Day week.

Ready for close to 2004

One buy-side source told Prospect News on Thursday that nothing is likely to derail the strong 2004 junk market save decidedly bad news about the U.S. economy.

"As long as the Fed is saying that the economy is doing swell, and that they will take a break or won't take a break but they'll do measured increases because the economy is good enough, the junk bond market ought to be fine," said the investor who spoke to Prospect News on background.

"The time when it starts to have trouble is when it looks like the economy is genuinely going to get weaker. And so far it's just nervousness and a little bumpiness on the climb. All of the consensus forecasts tend to have the economy getting stronger.

"That said, November is usually the beginning of a pretty decent seasonal in high yield. So it would not surprise me to see the calendar build.

"And the market is being pretty receptive, they're getting triple-C and single-B deals done, and not at outrageous prices.

"It doesn't feel like when PanAmSat came and the market held them up for that extra yield. Things are coming close to price talk. The inflows have been okay. And everybody knows the seasonals, they want to buy some deals in November, and then ease off the gas in December."

Harvest upsizes

Thursday's biggest transaction came from Calgary, Alta.-based energy royalty trust Harvest Operations Corp. (Harvest Energy Trust) which priced an upsized $250 million of 7 7/8% seven-year senior notes (B3/B-) at 99.339 to yield 8%.

The Morgan Stanley-led debt refinancing deal came in the middle of the 7 7/8%-8 1/8% price talk.

AirGate prices, trades up

Meanwhile Atlanta-based Sprint affiliate AirGate PCS Inc. sold $175 million of seven-year first priority senior secured floating-rate notes (B2/CCC+) at par to yield three-month Libor plus 375 basis points.

The debt refinancing deal, which came via Bank of America Securities and Credit Suisse First Boston, priced right on top of the three-month Libor plus 375 basis points price talk.

Just after the Thursday close a trader spotted the new par-pricing AirGate floater "up around 101.50 bid, 101.75 offered."

D.R. Horton brings drive-by

Finally on Thursday D.R. Horton priced a quick-to-market $200 million of 4 7/8% 5.25-year senior notes (Ba1/BB+) at 99.30 on Thursday to yield 5.03%, in a Citigroup-led deal that was said by sources to be high grade in every aspect save the credit ratings.

The deal priced at a 153 basis points spread to Treasuries, at the tight end of the Treasuries plus 150-175 basis points.

Abraxas Petroleum to hit road

News of a single roadshow start emerged during the final full session of the Oct. 4 week.

A roadshow is scheduled to begin during the coming week for Abraxas Petroleum's $125 million of five-year senior secured notes, with pricing expected to take place in mid-to-late October.

Guggenheim Capital Markets will run the books for the debt refinancing deal from the San Antonio, Tex.-based oil and gas exploration and production company.

B&G ups bonds, cuts IDS price

In the continuing (an seemingly intensifying) saga of income securities, more news was heard on Thursday on B&G Foods's concurrently running bond and IDS deals.

B&G Foods Holdings Corp. upsized its offering of seven-year senior notes (B2/B) to $240 million from $200 million. Price talk remains 8%-8¼%.

Pricing of the Lehman Brothers-led deal remains contingent upon completion of the company's concurrent offering of Enhanced Income Securities (EIS), and is expected to be Friday business, according to an informed source.

Meanwhile the Parsippany, N.J.-based food company decreased the size of its EIS offering to approximately 17.4 million shares from 20.8 million shares, and reduced the price to $15.00 per EIS from a $15.50-$17.00 range.

On Wednesday the company announced changes in the dividend-payment structure of its EIS. A key provision specifies a $6 million cash holdback requirement that must be met before dividends can be paid to holders of the company's class B shares, which are not part of the EIS deal.

The move serves to subordinate the class B shares relative to the rest of the company's capital structure, a source close to the deal told Prospect News.

Valor pulls IDS

Meanwhile the market heard that Valor Communications Group has opted to obtain a $1.74 billion credit facility in lieu of abandoning its attempt to go public via an $875 million offering of income deposit securities (IDS), according to a market source.

Valor Communications joins American Seafoods Corp. and Iowa Telecommunications Services Inc., which have also recently scrapped plans to selling income securities.

Charter bonds hang in

Although secondary market sources conceded that Charter Communications Inc.'s announcement that it would miss its full-year cash flow estimates because of higher expenses for programming and for customer service caused its bonds to initially slip, they insisted that the move was no big deal.

One trader had the troubled St. Louis cable TV and internet provider's 8 5/8%, "the benchmark," off approximately half a point at 79.25 bid, 80 offered, from 78.75 bid, 79.50 offered, on Wednesday.

"They've definitely been on a tear recently, but they gave back a little bit today.

"Everybody was anticipating those numbers."

Another trader also reported that the bonds were basically unchanged.

This source had the 8 5/8% bond at 78.50 bid, 79.50 offered from 79 bid, 80 offered on Wednesday

"They're lower levels but better buyers," commented the trader.

"If you look at this thing, and you are valuing Adelphia at $3,200 per sub, and you put the same number on Charter, the bonds are covered.

"If they do buy Adelphia assets it probably means that Paul Allen is going to have to pony up some more cash. Or they restructure the debt.

"Either way I don't see it being bad for the bonds.

"What would you rather own - Charter paying a coupon or Adelphia paying no coupon?"

Firmer footing for steel

Elsewhere, continued strong demand for commodities helped give lift to the existing issues of steel companies.

One trader had the AK Steel Corp.'s 7¾% due 2012 were at 100 bid, 100.50 offered, up about half to three quarters of a point, while the 7 7/8% due 2009 were at 101.50 bid, 101.75 offered, up about half a point.

Also up in a similar context were the existing bonds of Oregon Steel, at 110 bid, 111 offered, the trader added.

Level 3 gains, XM steady

Elsewhere the unsecured paper of Level 3 Communications Inc. was a little better, a trader said. The 9 3/8% notes were seen at 95 bid, 96 offered, up from Wednesday's 93.50 bid, 94.50 offered.

"The secured paper actually came under a little pressure," the source added, spotting the 10¾% notes due 2008 at 93.75 bid, 94.75 offered, up from Wednesday's 94.5 bid, 95.5 offered.

Meanwhile news that satellite company Sirius will bring aboard left-wing raconteur Howard Stern for $500 million beginning 2006 has failed to knock XM Satellite Radio out of orbit.

"I haven't seen any weakness after Howard Stern went to Sirius. People were thinking that might weaken up - that Sirius would pick up some subscribers at XM's expense. But it hasn't happened."

The trader spotted the XM's 0% note due 2014 at 99 bid, 100 offered, unchanged.

Recent issues see lift

Finally a trader told Prospect News that some of the recent issues had traded off over the past few sessions but were seen recovering on Thursday.

The trader had the new PanAmSat Corp. 10 3/8% notes, a dividend deal, trading above 60 on Thursday, after having traded as low as 58.50 bid, 58.75 offered on Wednesday. They priced at 59.46.

Meanwhile the new Denny's 10% notes opened Thursday around 101.50 bid, 102 offered, after having traded as low as 99.75 bid, 100 offered, the trader said.

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