Ready cash pushes market higher in 2004's first full session; Paxson prices $365 million floaters

By Paul A. Harris

St. Louis, Jan. 5 - Strong market technicals - investment bank-jargon for piles of buy-side cash that needs to be put to work - made its presence felt in the secondary market, as the 2004 high-yield market got under way in earnest on Monday.

The roster of advancing credits included utilities, retail names and telecommunications firms, according to traders who, when asked for any bad news from the session, uniformly drew blanks.

And in the new issue market one deal priced, as Paxson Communications Corp. sold $365 million of six-year floating rate notes at par, to pay three-month Libor plus 275 basis points.

Meanwhile, four new or recently gestating deals boarded the forward calendar. And the new issue gang advised Prospect News to watch out because the same liquidity that greased the wheels of the secondary market on Monday will almost certainly result in quick-to-market deals in the primary.

"Everyone is just coming back from the holidays and things seem to be starting fresh," said one trader at the conclusion of Monday's session.

"The volume today was light but very firm.

"A lot of accounts are flush with cash. I spoke to a dozen or so accounts, today, that have gotten anywhere from $100 million to $400 or $500 million of cash in. And they have to find a place to put it."

Some of those accounts tracked the blue light, on Monday, said the trader, noting that Troy, Mich. discount retailer Kmart Holding Corp., now out of bankruptcy for more than half a year, saw its paper firm "across the board."

In a Monday press release the company announced that, "as a result of strong inventory management and the reduction of unprofitable promotions," is expects a significant profit for the first two months of its fiscal fourth quarter, November and December 2003.

The company also noted that it "continues to monetize the balance of its non-core real estate," and anticipates that it will complete over $100 million of fee and leasehold real estate sales during the fourth quarter of fiscal 2003.

"We saw firming in a lot of the structured Kmart lease paper," said the source, who declined to furnish levels.

Also firming Monday were issues from Bloomfield, Colo. communications and information services company Level 3 Communications, Inc.

In a Dec. 31 press release the company had announced the sale of the Midwest Fiber Optic Network to CenturyTel, adding that it expects to receive approximately $17 million from CenturyTel, including $16 million of cash for the business and $1 million in accounts receivable.

Level 3 was also presenting at Citigroup's entertainment, media & telecommunications conference in Phoenix, Ariz.

The trader told Prospect News that on Monday Level 3's 9 1/8% paper, which had recently been 91.5 bid, 92.5 offered, opened the session at 92 bid, 93 offered.

"The next thing I know they're 95.5 bid, 96 offered, so it was up dramatically, and I have no idea why," commented the trader.

"The Level 3 2011 paper, which had been 97 bid, 98 offered, I am now seeing 100.5 bids," said the trader.

Another trader saw bond issues of Adelphia Communications Corp. "up two to three points," on the session, although no explanation for the advance was forthcoming.

Adelphia founder John Rigas and sons Michael and Timothy headed for court in New York, Monday, accused of concealing the company's ailing finances from investors to the tune of $2.5 billion. The company sought bankruptcy protection in June 2002.

The trader had Adelphia's 9¼% notes of 2002 at 97.5 bid, 98.5 offered. The 81/4s due 2006 were the same. The 9 3/8% notes due 2009 and 101/4s due 2011 were 98.5 bid, 99.5 offered.

"The Century paper is all bid for without," added the trader, citing the 8 3/8s due 2007 at 99.5 bid, and the 8 7/8s due 2007 at 99.25 bid.

"Some of the Frontier paper was 107 bid, and the Olympus paper was 107 bid," added the trader.

One trader attributed the rise in Adlephia to the overall strong tone in the distressed market. In addition the Denver-based cable company was the subject of a Reuters article that linked buzz about Adelphia being a takeover target in 2004 to a surge in the bonds.

Also firming Monday were the notes of Telewest Communications, on reports that the United Kingdom's two biggest cable companies Telewest and NTL will merge before the end of 2005.

"I traded some of the 11% today," said a trader. "They went out 64.5 bid, 65 offered, and the 11 3/8% went out 49 bid, 50 offered, both a little better.

Another secondary market source had the 11% notes due 2007 and 11¼% notes due 2008 spotted at 64.

Elsewhere in the aftermarket the notes of distressed telecommunications firm WorldCom were "up about half a point."

Anther secondary source had WorldCom's 8¼% notes due 2031 having traded at 35.5, "up a point and a half from Friday.

"They moved up half a point on Friday," this source added.

Also benefiting for the overall positive energy in Monday's secondary market was the paper of San Jose, Calif. power company Calpine Corp.

"The 8½% of 2011, the benchmark unsecured issue, had been 79 bid, 80 offered," said a trader. "Today they finished up, 81.5 bid, 82.5 offered. So they were up two-and-a-half points."

Another secondary market source had the 8½% notes due 2011 moving up to 81 from 77 ("that was actual trades," the source noted), the 9 7/8% notes due 2011 rising to 104.5 from 102, and the 7¾% notes due 2009 up to 79 from 75.

Nor was Calpine the only energy company lunching at the positive terminal Monday.

Dynegy Inc.'s 8.316% notes due 2027 went to 83 from 74, said one source. Meanwhile Edison Mission's 13½% notes due 2008 went to 102.75 from 98 and the 10% paper of 2008 closed at 106.

"Everything was up big time today," one trader concluded.

"It seems as though there was some pent-up cash that got put to work in a major way.

"It feels technical," the trader added. "There is a lot of money flowing in and there is not a lot of new issuance; new issuance is just getting ramped up. So they just plugged in to the secondary."

The trader added that it is conceivable that rich-pricing deals in the new issue market at the end of 2003 might have drawn some eyes toward the secondary.

"The decent credits are not coming cheap," the source said of the recent new issue market. "Everything is expensive. You really have to do your homework just to make sure you're getting a decent deal."

"But we saw a dramatic snap to the positive today with stuff gapping up two to three points.

"I wouldn't be surprised if we give a little back."

Meanwhile one deal priced Monday in the primary. Paxson Communications sold $365 million of six-year senior secured floating-rate notes (B1/B+) at par to pay three-month Libor plus 275 basis points.

The Citigroup-run floater deal came right at price talk, according to a syndicate source.

One source who eyed the West Palm Beach, Fla.-based broadcaster's new notes in the secondary, pegged them at 100.25-bid, 100.75 offered, soon after Monday's close.

"The paper was priced at par," noted the source. "Personally I would have expected it up a little more, seeing that it's a secured piece of paper."

Four potential issuers announced pending roadshow starts during the session.

The roadshow for Alamosa (Delaware) Inc.'s $225 million of eight-year senior notes (CCC) runs Jan. 6-13.

UBS Investment Bank will be the bookrunner for the offering from the Lubbock, Tex.-based provider of wireless services under the Sprint PCS brand.

The roadshow starts Tuesday for CSK Auto Corp.'s $200 million of 10-year senior subordinated notes, with pricing expected early in the Jan. 12 week.

Credit Suisse First Boston, Lehman Brothers and JP Morgan are joint bookrunners the deal from the Phoenix-based automotive aftermarket products retailer.

The roadshow runs Jan. 7-15 for Premiere Entertainment Biloxi (Hard Rock Hotel & Casino Biloxi)'s $150 million of eight-year first mortgage notes, which are expected to price during the week of Jan. 12.

Banc of America Securities and Citigroup will run the books. The prospective issuer is a full-service entertainment resort company headquartered in Gulfport, Miss.

And the roadshow runs Jan. 7-15 for Communications & Power Industries, Inc.'s $125 million of eight-year senior subordinated notes due 2012, expected to price on Jan. 15 or 16 via UBS Investment Bank and Bear Stearns & Co.

Capital market sources also told Prospect News on Monday that Caxton-Iseman Capital's $570 million leveraged buyout of Ply Gem Industries from Nortek Inc. will be funded in part by the sale of $200 million of new bonds.

UBS Investment Bank and Deutsche Bank Securities will be joint bookrunners.

The transaction is expected to close during the first quarter of 2004, although no precise timing was heard on the deal. Ply Gem is a Kearney, Mo.-based residential construction products manufacturer.

One primary market official told Prospect News that at present there are no announced deals that are expected to priced during the remainder of the Jan. 5 week.

However, the official warned, don't spend too much time waxing your skis.

"The buzz is that people are working and that they have some things stored up. I wouldn't be surprised if things happen soon.

"It's not league table-driven anymore, of course. But the drive-bys and add-ons are still possible. You never know who might pop up before the end of the week.

Finally, in emerging markets action, Monday, Prospect News learned that the roadshow is expected to begin Thursday in Singapore for Excelcomindo Finance Co. BV's $250 million of senior fixed-rate bonds due 2009 (B+)..

Morgan Stanley, Credit Suisse First Boston and UBS Investment Bank are joint bookrunners for the deal from the Indonesian telecommunications company.

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