Primary tops $2 billion of issuance; Avis Budget brings three tranches tight to talk; Levi Strauss trades up

By Paul A. Harris

St. Louis, April 11 - Sources gave various marks on the broad high-yield market on Tuesday - some saw it slightly higher in defiance of spiraling oil prices and falling equities while others saw pockets of substantial weakness.

On one count, however, sources seemed to concur: all eyes Tuesday were focused on the new issue market.

Five junk tranches totaling $2.075 billion were priced, with four coming tight to talk and the other one on top of talk.

One trader, confirming late in the day that people had been focused on new issues, said that the entire market seemed pretty resilient in the face of rising crude oil prices and a "lackluster" equity market.

"After all this time, with spreads where they are, there is still some cash to put to work out there," the trader added.

"Right now the bond market and the stock market seem like they're on top of the mountain, looking over the cliff.

"There is a plethora of different ways you could go over the edge, but it just keeps going."

A blowout from Avis Budget

Two billion-dollar junk issuers completed transactions on Tuesday.

Avis Budget Car Rental LLC priced $1 billion of senior unsecured notes (Ba3/BB-) in three tranches.

The company, formerly know as Cendant Car Rental LLC, priced a $250 million tranche of eight-year floating-rate notes at par to yield three-month Libor plus 250 basis points, at the tight end of the Libor plus 250 to 275 basis points price talk.

Avis Budget also priced a $375 million tranche of eight-year fixed-rate notes at par to yield 7 5/8%, on the tight end of the 7¾% area price talk.

In addition, the company priced a $375 million tranche of 10-year fixed-rate notes at par to yield 7¾%, again on the tight end of the 7 7/8% area price talk.

JP Morgan, Deutsche Bank Securities, Wachovia Securities, Banc of America Securities and Citigroup ran the books for the debt refinancing.

After terms had circulated late Tuesday a trader saw the new Avis Budget floating-rate notes due 2014 trading at 101.75 bid, looking for an offer.

Meanwhile the new 7¾% notes due 2016 were at 101.50 bid, the trader added.

And the 7 5/8% due 2014 were seen going out at 101.25 bid, 102 offered.

A source said that Avis Budget had been a blowout, with all bonds pricing tight to talk and trading up.

ResCap prices $1 billion junk tranche

Elsewhere in the Tuesday primary market, Residential Capital Corp. (ResCap), the mortgage-lending unit of General Motors Acceptance Corp. (GMAC), priced a $3.5 billion corporate bond transaction to refinance debt.

It included a $1 billion issue of three-year senior subordinated floating-rate notes (Ba1/BB+/BB+), which priced at par to yield three-month Libor plus 183 basis points, on the tight end of the three-month Libor plus 185 basis points price talk.

Bear Stearns & Co. and Citigroup were the global lead managers for the subordinated notes.

In addition to the high-yield tranche, ResCap priced two tranches of Securities and Exchange Commission-registered investment-grade notes (Baa3/BBB-/BBB).

They included a $750 million issue of three-year senior floating-rate notes that will bear interest at three-month Libor plus 110 basis points, and a $1.75 billion issue of 6½% seven-year senior fixed-rate notes which priced at a 163 basis points spread to Treasuries.

The transaction was upsized from $3 billion.

A trader saw the ResCap Libor plus 183 basis points junk tranche going out at 180 basis points bid, 170 basis points offered.

Ainsworth prices $75 million on top of talk

Apart from Tuesday's mega-deals, Vancouver, B.C., forest products company Ainsworth Lumber Co. Ltd. priced a $75 million issue of seven-year senior floating-rate notes (B2/B+) at par to yield three-month Libor plus 400 basis points, on top of the price talk.

Deutsche Bank Securities ran the books for the construction financing.

In other primary market news, a deal from NPC International, Inc., which had been anticipated, stepped up with news of timing.

The Lenexa, Kan.-based franchisee of Pizza Hut restaurants will begin a roadshow on Monday for its $200 million offering of eight-year senior subordinated notes (Caa1/B-).

Merrill Lynch & Co. and JP Morgan are joint bookrunners for the LBO deal.

Levi Strauss up on earnings

With all of the activity in Tuesday's primary market, sources were giving various spots on the secondary, ranging from "treading water to slightly better" to off a point or two.

One company on which sources were in concurrence was Levi Strauss & Co., seen as trading higher in response to its release of results.

In its earnings report the company stated that net income for the first quarter of 2006 rose 14% to $54 million compared to $47 million in the same quarter of 2005.

The company reported better-than-predicted results, with EBITDA of $189 million versus the $166 million estimate.

"First-quarter results were in line with our expectations," Phil Marineau, Levi Strauss chief executive officer, said in a press release accompanying the earnings report.

"Sales were down, but net income was up," Marineau added. "We planned on lower revenues because we are in the midst of transforming the business in Europe, and in the U.S. some of our retail customers are consolidating. We lost some fixtures at U.S. Wal-Mart stores to private label, but continued to grow the Levi Strauss Signature brand with other retail customers and gain share overall in the channel. I am pleased that the Dockers brand grew for the second consecutive quarter. And our Asia Pacific business remains a steady source of both revenue growth and profits."

A market source who spoke to Prospect News mid-morning, noting that "everything is down a touch in the morning with equities," spotted the Levi Strauss 9¾% notes due 2015 trading at 105.50 bid, 106.00 offered, up 0.25 and the company's 8.11% notes due 2009 at 94.75 bid, up 1.50.

At the close a trader, noting that the company still faces consolidation of its retail customers and a weakened European retail environment, spotted the 9¾% bonds maturing in 2015 up a point, trading at 105.50 bid, 106.50 offered.

Meanwhile this source saw the Levi Strauss 12¼% bonds maturing in 2012 at 113.25 bid, 114.25 offered, up 0.75 at the close.

Jean Coutu gains on results

Better than expected earnings from drug store chain Jean Coutu Group (PJC) Inc. turned its bonds into a ray of sunlight in an otherwise gloomy retail sector.

Reporting for the quarter ended Feb. 25, the Quebec-based company noted that its Canadian network continues to perform well with a 7.4% increase in pharmacy sales (in Canadian dollars). Third quarter Canadian operating income increased 15% year over year even factoring in the impact of currency exchange fluctuations.

Same-store sales growth improved in the U.S. network due to improving pharmacy sales trends, the company added.

"The numbers didn't look that great but they weren't as bad as anticipated," a trader commented, spotting the company's 8½% notes and its 7 5/8% notes up 1.50 late in the session.

The 8 ½% notes closed the day 91.50 bid, 92 offered, the trader said, adding that 7 5/8% senior notes rallied about a point, and were going out 97.50 bid, 98.50 offered.

JC Penney down

Meanwhile, the trader said, spread-related paper continued to widen somewhat on the session.

The source saw the JC Penney 6 7/8% notes due 2015 down half a point on the day at 104.50 bid, 105.50 offered

"There is no real news," the trader added, "retail has just been widening out a little."

The source also saw bonds issued by Chiquita Brands, Inc. and Dole Food Company off a point to 1½ points over the past two days, although they did not move significantly lower on Tuesday.

The Chiquita 7½% bonds due 2014 were down about half a point at 86.50 bid, 87.50 offered.

Meanwhile Dole Foods' 7¼% bonds due 2010 were off a point at 93.50 bid, 94.50 offered.

Health care seen grinding back up

This trader said that some names which had recently come under pressure in the health care sector regained some ground on Tuesday.

"Imaging paper is all over the place," the source asserted, making reference to Radiologix, Inc. and Alliance Imaging, Inc.

The source spotted the Radiologix 10½% bonds late Tuesday trading at 77 bid, 78 offered, and added that last week the paper was trading at 72 bid, 73 offered, with a ton of sellers.

Elsewhere in the imaging sector, the paper of MedQuest was up about two points on the day, the trader said.

Gaming shows Treasury sensitivity

This trader also said that gaming paper has possibly traded too tight for comfort, and spotted MGM Mirage's new notes, its 6¾% due 2013 and its 6 7/8% notes due 2016 "stuck in the mud" at 100 bid, 100.50 offered.

Those issues both priced at par in March in a $750 million deal.

Meanwhile the trader saw MGM's 6% due 2009 trading at 98.25 bid, 98.75 offered in "half-point markets" and added that those levels were off of the highs of the year of 100 bid, 100.25 offered.

"High yield is not going to trade through Treasuries," the trader said. "Spreads can only stay so tight for so long before they start giving it up.

"The Treasury curve is not so flat anymore," the source added. "There are 15 basis points between the 2009 and the 2036.

The trader characterized the Tuesday session as a "slow grind," and added "There are not as many participants out here, so it exaggerates some of the moves."

Sensitivity to oil prices

This trader said that with crude oil trading in a context of $69 per barrel the high-yield market seems to be hanging in.

"If you see oil over $70 a barrel, things will widen out a little," the trader added.

"But then things have to widen out a little. It only makes sense."

A short time later another trader seemed to agree with this take.

"I'm not seeing a lot of oil-related weakness out there," the source said, while professing the expectation that oil could soon be headed north of $70 per barrel, and perhaps $75 by the end of the summer, "depending upon the hurricane season."

However when asked for a spot on an "oil-sensitive bond," this source pointed to the existing paper of AMR Corp., an carrier which, like others in the airlines sector, has traditionally demonstrated extreme sensitivity to spikes in the price of crude.

On Tuesday, however, the source spotted AMR's existing paper unchanged, "hanging in despite oil and equities."

The trader conjectured that the airlines have been raising their prices, "and the prices are sticking."

Strength in auto parts

News that troubled Lear Corp. might unload its North American interiors business, coupled with a forecast that its 2006 earnings could rise 23% to 35% versus 2005 gave some lift the Southfield, Mich., company's existing paper.

A trader spotted Lear's 8.11% bonds maturing in 2009 up a point at 93.50 bid, 94 offered.

This source also spotted Delphi Corp. bonds recovering, after having been "crushed" on Monday.

Specifying that each issue was one to two points better on Tuesday the source spotted Delphi's 6½% bonds maturing in 2013 at 64.50 bid, 65.50 offered, its 6.55% bonds maturing in 2006 at 65.25 bid, and its 6½% bonds maturing in 2009 at 66 bid.

"There are definitely dark clouds looming on the horizon but we always seem to dodge the bullet," the trader said.

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