PCS firms off as Sprint sprints away from woes; fund inflows end; add-on deal parade continues

By Paul Deckelman and Paul A. Harris

New York, Dec. 12 - Bonds of Sprint PCS Group affiliates were easier on Thursday after the telecommunications giant declared that it would not bail the affiliates out of their current troubles financially. Trading otherwise was considered quiet.

On the primary side of the scales, another two drive-by add-on deals came to market, continuing the recent trend of opportunistic borrowers striking while the iron is hot and market conditions are favorable.

Those favorable conditions have been fueled by a two-month surge of liquidity - but the latest measure of cash coming into the junk market suggests the possibility that the party may be over, or may at least be beginning to wind down.

Market sources reported after the close that high-yield mutual funds saw a net outflow of $447.3 million in the week ended Wednesday (Dec. 11), according to statistics compiled by AMG Data Services of Arcata, Calif. Those weekly numbers are considered a reliable barometer of overall junk market liquidity trends.

The latest week's outflow brings to an abrupt end a fabulous eight-week winning streak which saw a net total of $4.51 billion more come into the funds during that time than leave them. This included the $600.8 million inflow seen in the week ended Dec. 11.

During that long stretch of inflows, the junk market was definitely on a roll, with all of the indexes put out by the major investment banking companies showing a sustained secondary market upturn in that time.

In the primary market, a number of large deals priced during that stretch, including nearly-billion-dollar offerings from R.H. Donnelley Corp. and Dex Media East LLC, as well as numerous smaller deals from lesser borrowers, many of them quickly-shopped add-ons to existing issues.

Despite the latest week's loss of capital from the junk funds, the funds still show an overwhelmingly positive year-to-date inflow total of $7.429 billion (excluding distributions and only counting funds that report weekly). That's down though, from the previous week's $7.876 billion cumulative inflow - the peak level for the year.

During Thursday's brisk session in the high yield primary market Del Monte Corp. upsized its deal by $150 million but sources told Prospect News that the can may have emptied before investors got all the paper they wanted from the San Francisco-based credit.

Terms also came on deals from Insight Midwest, LP/Insight Capital, Inc. and Roundy's Inc.

Two new deals took places on Friday's busy calendar, as Boyd Gaming Corp. and Salt Holdings announced offerings Thursday.

In a deal that was reportedly five-times oversubscribed, Del Monte priced upsized to $450 million from $300 million its offering of 10-year senior subordinated notes (B2/B) and priced them at par to yield 8 5/8%, in the middle of the 8½%-8¾% price talk. Morgan Stanley, JP Morgan, Banc of America Securities and UBS Warburg were joint bookrunners.

Also upsized was Insight Midwest's deal, to $185 million from $175 million. The add-on to its 9¾% senior notes due Oct. 1, 2009 (B2/B+) priced at 95.236 for a 10¾% yield to worst. Price talk was 10½%-10¾%. Credit Suisse First Boston was the bookrunner.

And Roundy's priced a $75 million add-on to its 8 7/8% senior subordinated notes due June 15, 2012 (B2/B) at 99.50 on Thursday for an 8.954% yield to maturity, via Bear Stearns & Co.

Two new deals appeared Thursday, both of which figure to price by the time the shutters come down on the week of Dec. 9

Boyd Gaming Corp. plans to sell $300 million of senior subordinated notes due 2012 (B1/B+) on Friday afternoon via Lehman Brothers, Deutsche Bank Securities Inc. and CIBC World Markets. Price talk is 7¾%-8%.

And Salt Holdings, a holding company for the Overland Park, Kan. salt and potash producer Compass Minerals, announced $60 million of senior discount notes due 2012, with a five-year zero coupon, which will price Friday via a syndicate comprised of Credit Suisse First Boston, JP Morgan and Deutsche Bank Securities.

Meanwhile Thursday, price talk of 7¾%-7 7/8% emerged on Chesapeake Energy Corp.'s $150 million of senior notes due 2014 via Bear Stearns, Credit Suisse First Boston and Lehman Brothers. It is set to price Friday.

Price talk of 9 5/8%-9 7/8% was heard Thursday on Hollywood Entertainment Corp.'s $200 million of senior subordinated notes due 2011 (B3/B-), set to price Friday via UBS Warburg.

The price talk is 9¾% area on K&F Industries, Inc. $250 million of eight-year non-call-four senior subordinated notes (B3/B) expected to price Friday afternoon via Lehman Brothers.

And price talk of 9%-9¼% was heard Thursday on PerkinElmer, Inc.'s $225 million 10-year senior subordinated notes (Ba3/BB-), which will price Friday via bookrunner Merrill Lynch & Co.

"There are a lot of deals coming to the market now in a short period of time, and everyone's cranking to get the orders in," one busy sell-side official commented, taking just a minute to speak Thursday afternoon to Prospect News.

"People are just looking to put money to work," the source added.

Back in the secondary market, activity was muted, as traders suggested that players were still catching their breath from the whirlwind of quickly shopped drive-by offerings that have recently popped up, including three on Wednesday and two more Thursday. "It was pretty quiet after 10 a.m. (ET)," one suggested.

Alamosa Holdings Inc.'s 13 5/8% notes due 2011 were seen three points lower at 35 bid, and AirGate PCS Inc.'s zero-coupon bonds due 2009 were a point easier at 16 bid, although on very limited volume, after Sprint PCS - whose wireless phone service the affiliates sell - said that it had no intention of riding to the rescue of those companies or their peers such as UbiquiTel Inc. and US Unwired Inc..

All of the affiliates have seen their bonds tumble deeply into distressed territory and their shares become penny stocks in the wake of the telecom industry slowdown. Earlier in the week, news reports - quoting unidentified sources - said that AirGate was mulling legal action against Sprint, claiming that the cost of affiliation with the nation's fourth-largest wireless operator has become too high.

On Thursday, Sprint was reported to have said that it had no obligation to try to prop up the falling stock and bond prices of its Sprint PCS Network Partners. Reuters quoted Sprint President Ron LeMay as having told investors and investors at a meeting in New York "are we prepared to financially help them? No. We're not prepared to do that. They need to fix their issues on their own."

The news service reported that recently, "the affiliates have asked Sprint PCS for more favorable contract terms to help keep their businesses afloat during an industry-wide slowdown in customer growth."

The response from Overland Park, Kans. -based Sprint has been chilly at best, with Sprint Chairman William Esrey telling reporters "we are in a strong position here. We own those frequencies [of the radio spectrum which wireless carriers like the Sprint affiliates operate on]. They built out facilities on our frequencies. We have no obligation to do anything."

"We'd like to see them succeed. And if something works out for them and for us, we'll see," Esrey said.

Reuters also quoted another Sprint executive as having said that Sprint has no plans to acquire any of the affiliates, all of whose shares currently trade around or below the $1 level.

Parent Sprint Corp.'s own investment-grade bonds were up Thursday, its 7 5/8% notes due 2011 pushing up to 91 bid from 86 bid/87 offered. Besides its refusal to bail out the affiliates, both the wireless division of Sprint and the basic long-distance division reported positive guidance Thursday, with Sprint Corp. boosting its estimate of fiscal 2002 free cash flow to around $1 billion, double its earlier projections. Sprint PCS meantime reiterated its plans to become cash-flow breakeven (after years of sizable losses) in 2003, and raised its EBITDA outlook for 2002 by $100 million, to at least $2.8 billion.

Elsewhere, AES Corp. debt - which had risen solidly Wednesday in response to the news that the troubled Arlington, Va.-based power company has moved substantially closer to its goal of extending maturities on $500 million of debt coming due this year and next - continued to firm Thursday. Its 9 3/8% notes due 2010 were seen up about three points on the session to 53 bid. Its 9½% notes were up a point, to 52 bid/ 54 offered.

Also in the power generating sector, Calpine Corp.'s 8 5/8% notes due 2010 were seen up more than a point to 42.50 bid.

Charter Communications Holdings LLC's bonds - which were being quoted lower on Wednesday in response to the weak valuations that the St. Louis-based No. 4 U.S. cabler has reportedly been getting for assets it is attempting to sell - were firmer Thursday, with a trader pegging Charter's bonds "up half a point today off yesterday's [Wednesday's ] lows."

Lucent Technologies Inc. bonds - which had fallen back sharply last week from recent highs - were back on the upside Thursday, its 6.45% notes due 2029 two-and-a-half points better, at 42 bid. Fellow telecom equipment provider Nortel Networks Corp., whose bonds move pretty much in tandem with Lucent, was likewise higher, its 6 1/8% notes due 2006 also up 2.50 to 63.

No further erosion was seen in the bonds of Bally Total Fitness Holding Corp., which slid on the news that Chief Executive Officer Lee Hillman is retiring - and the company is taking a $5.8 million charge to cover his lucrative severance package . The Chicago-based health club operator's 9 7/8% notes due 2007 were still being quoted at the 87.5 bid/88.5 offered level to which they had dropped Wednesday from 94 bid/95 offered on Tuesday.

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