Market quiet heading into holiday break; Albertson's up as deal is dead

By Paul Deckelman and Paul A. Harris

New York, Dec. 23 - "We didn't really have any high expectations for today - and we weren't disappointed."

That was how one trader put it in describing the general lack of activity in the junk bond market heading into the Christmas holiday break. Trading was described as extremely quiet, in an abbreviated session. While the market officially closed at 2 p.m. ET ahead of Monday's full market closure for the legal holiday, in reality, traders said, everything was pretty much done by noon, at the latest.

Sources marked the broad market unchanged on ultra-thin volume as Friday's abbreviated pre-holiday session drew to a close.

Primary market activity was meantime seen as nil, with that market having gone into its end-of-year hibernation mode. Sources suggested Friday afternoon that 2005 new issue business is likely concluded.

Most of the familiar names that normally trade around were seen hovering at the same levels at which they had finished on Thursday, including issuers such as Calpine Corp., General Motors Corp. and Ford Motor Co.

One name which was seen moving around was Baa3/BBB- supermarket operator Albertson's Inc., whose bonds were seen to have risen about three or four points on Thursday on reports that talks between the Boise, Ida.-based company and a would-be leveraged buyout group had broken off. In Friday's dealings, those bonds pushed up another 1½ to two points, traders said, reacting to the company's official confirmation Thursday night that the talks had ended, and the planned acquisition of the company had been scrubbed.

The prospect that the underperforming Number-Two U.S. supermarket operator might be bought by a group led by Cerberus Capital and Kimco Realty Corp. for about $9.6 billion, plus the assumption of an additional $7 billion of debt, had caused potential fallen angel's bonds to previously fall sharply from their levels around par, while the cost of buying credit default protection had widened out substantially earlier in the month. Debt market players feared that a big LBO would load the company up with more debt and drive its credit ratings down into the single-B area.

But once The New York Times reported Thursday that Albertson's talks with the Cerberus group had fallen through, and that the company would no longer entertain the notion of selling itself - although it will still look to move underperforming assets - the bonds came back up, and they kept firming on Friday on the official confirmation of what the Times and other news outlets had reported.

A trader saw Albertson's 7½% notes due 2011 at 101.5 bid, 102.5 offered, up 1½ points on the session. He also saw the company's 8% notes due 2031 finishing up two points Friday at 98 bid, par offered. Those bonds had finished Wednesday at 87, and then were seen mostly moving in a 93-95 bid context Thursday, although several sizable trades in the 96-97 area were seen later that session, setting the table for Friday's two-point rise to 98 bid.

A trader at another desk saw Albertson's 7¼% notes due 2013 at 98.625 bid, although he had seen no prior quotes to which that level could be compared.

Albertson's 7.45% notes due 2029 - which on Thursday had gone up to 88.25 bid at the close, better more than four points on the day - continued to climb on Friday, with a number of round-lot trades around the 94.5 bid area, up smartly from their Thursday finish. Late in the abbreviated session, though, the Nasdaq Trace bond reporting system showed a couple of trades for several million dollars of bonds each at levels above 98, a trader said.

While bondholders greeted the demise of the Cerberus buyout scheme with sighs of relief, it was quite another story in the equity market, where Albertson's New York Stock Exchange-traded shares slid $2.74 (11.77%) to close at $20.54. Volume of 35 million shares was nearly nine times the norm.

Albertson's said late Thursday that even though it had not gotten an offer for the entire company it deemed suitable, it would continue talks with "several parties" interested in buying its underperforming divisions, although it did not identify the parties or the divisions involved. Drugstore giant CVS Corp. had reportedly been in talks about acquiring Albertson's Sav-On pharmacy chain as part of the larger Cerberus deal, but it withdrew when the larger deal was spiked, according to published reports.

Calpine holds

Apart from Albertson's, "nothing was going on," a trader said. "People were leaving by 11 [a.m. ET]."

After surging sharply over the previous two sessions following its Chapter 11 filing late Tuesday night, Calpine Corp.'s bonds were seen having steadied, with its 8½% notes due 2008 seen at 33 bid, 34 offered, its 8½% notes due 2011 at 27 bid, 29 offered, and its shorter-tenored debt, such as its 10½% notes due 2006, at 38.5 bid, 39.5 offered, all unchanged on the session.

At another desk, a trader said that the bankrupt San Jose, Calif.-based power generating company's bonds "continued to be well bid for," although there was little price movement.

He said, for instance, that the '08s were at 33.25 bid, 34 offered, "about where they had been, but there still seems to be buying interest out there."

He saw Calpine's 8 5/8% notes due 2010 offered at 28.75, while the 10½% 2006s were at 38 bid, 29.5 offered. He said that he "didn't really" see any quotes on the company's secured bonds.

Another trader saw the 2nd lien notes "all in the 80s," although he modified that to around 80 bid, 82 offered.

Calpine's 8¾% notes due 2007 were quoted a point better at 39 bid.

A trader at yet another desk reported "having a hard time even finding any [quotes on] Calpine notes."

Calpine's nearly-worthless penny stock continued to meanwhile lose a big chunk of its little remaining value; those Pink Sheets-traded shares retreated slightly more than two cents (9.67%) to 22.5 cents. Volume was 13 million shares.

Ford, GM unchanged

Elsewhere, a trader said, "nothing was trading, outside of Ford and GMAC [General Motors Acceptance Corp.]."

Ford's benchmark 7.45% notes due 2031 were at 97.25 bid, 98.25 offered, while its Ford Motor Credit Corp. 7% notes due 2013 finished at 86 bid, 87 offered, both unchanged on the day.

Meanwhile, GM's flagship issue, the 8 3/8% notes due 2033, closed out at 67.5 bid, 68.5 offered, also unchanged, as were GMAC's 8% notes due 2031, at 97.25 bid, 98.25 offered.

Level 3 Communications Inc.'s 9 1/8% notes due 2008 were seen unchanged at 91.25 bid, 92.25 offered. The Broomfield, Colo.-based fiber optic telecommunications network operator said Friday that it completed a $696.5 million cash-and-stock acquisition of WilTel Telecommunications Group.

Level 3 paid $386 million in cash and 115 million shares in acquiring the rival network operator - formerly a part of The Williams Cos. - from Leucadia National Corp.

The deal was considered a coup for Level 3, since it only bought the valuable telecom assets it wanted and did not end up getting stuck with any of WilTel's debt or its white elephant headquarters building in Tulsa, Okla.

The acquisition will also add $50 million to $90 million to overall cash flow next year and as much as $150 million in incremental cash flow per year beginning in 2007, Level 3 Chief Financial Officer Sunit Patel said. Integration costs were estimated to be from $100 million to $150 million.

Just over a billion on the week

With no deals pricing Friday, the week came to a close having seen a total of slightly less than $1.08 billion price in three dollar-denominated tranches.

The high-volume week of Dec. 12 had seen just under $7 billion.

At Friday's close, 2005 issuance stood at $103.57 billion, 27.3% below that of 2004 which, in its entirety, saw $142.38 billion of issuance.

A look at early January

The close of the year left a forward calendar that was not quite wiped clean.

When the lights come back up in the new issue market on Jan. 3, two deals will be pending.

Downtown Resorts LLC and Downtown Capital Corp. are expected to begin a roadshow during the first week in January for a $140 million offering of eight-year senior secured notes (B3/B-), via Lehman Brothers

Proceeds will be used to fund development and construction of The Downtown Casino, formerly the Lady Luck Casino, in Las Vegas.

Also Art Five BV, Inc., a special purpose vehicle for Italy's Wind Telecommunications, is in the market with a €250 million equivalent of nine-year blended-rate senior secured notes (implied ratings B1/B+), in dollar and euro tranches.

The blended rate is anticipated to be three-month Euribor plus 300 basis points until 2013 and three-month Euribor plus 325 basis points until 2014.

ABN Amro and Deutsche Bank Securities are joint bookrunners.

Proceeds will be used to support the acquisition of Wind by Weather Investment.

In November Wind Acquisition Finance SA priced €1.25 billion of 10-year senior notes (B3/B-) in two tranches. It included an €825 million issue at par to yield 9¾% and $500 million at par to yield 10¾%.

Proceeds from that transaction were also used to support the acquisition.

A source in Europe had professed the expectation, early in the Dec. 19 week when the deal was announced, that Wind terms would emerge before the holiday break. However, as of Friday's close, no terms had been heard, sources said.

NRG likely the first big LBO

Also, a source told Prospect News on Friday that the first big LBO deal likely to come in 2006 will likely be NRG Energy Inc.'s $3.6 billion senior unsecured notes transaction.

Morgan Stanley and Citigroup are expected to be involved.

The deal will help to finance the Princeton, N.J.-based independent power producer's $5.8 billion acquisition of Houston-based Texas Genco.

Over $11 billion of outflows in 2005

Also on Friday, sources continued to digest the $160.7 million outflow from high-yield mutual funds for week ending Wednesday, as reported by AMG Data Services.

Two sources told Prospect News that with one week remaining in 2005 the tally of net flows, from accounts reporting on a weekly basis to AMG, comes to negative $11.2 billion.

One source added that 2005's net outflows figure to dwarf the $3.1 billion of net outflows seen in 2004.

However, the source added, there is a widely held perception in the market that the high-yield mutual funds flows are no longer a highly accurate indicator of the asset class's liquidity, and that it is widely believed that there remains significant cash to put to work in junk.

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