Rite Aid firmer on earnings; several new deals hitting the road; funds see $327 million outflow

By Paul Deckelman and Paul A. Harris

New York, April 7 - Rite Aid Corp. bonds were seen a little firmer in generally featureless junk bond secondary market trading Thursday, after the Camp Hill, Pa.-based Number-3 U.S. drugstore chain operator reported better earnings for its fiscal fourth quarter and fiscal year - even though that was largely due to a one-time tax break the company received.

Elsewhere, bonds of AK Steel Corp. were seen up and Unisys Corp. bonds were off a little, although there was no firm news out on either company.

Although no new issues priced Thursday in the primary market, the new deal flow stepped up, with a handful of new issuers announcing roadshow starts.

Most notable in terms of size is Dayton, Ohio, paper-maker NewPage Corp., which will begin a roadshow on Monday for its three-tranche $900 million acquisition deal.

"The market is stronger today," one investment banker said late in the Thursday session.

"We have seen some real-money buying and some short covering today."

After the market had closed for the day, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that $327 million more left the funds than came into them in the week ended Wednesday - the eighth consecutive week in which the funds have bled money, although the latest week's outflow is a marked improvement over the whopping $1.131 billion hemorrhage seen in the previous week, ended March 30.

In those eight weeks, net outflows have totaled about $4.19 billion, according to a Prospect News analysis of the AMG figures.

Outflows have now been seen in 11 weeks out of the 14 since the start of the year. The year-to-date 2005 cumulative outflow ballooned to some $5.116 billion from $4.789 billion the week before, according to the Prospect News analysis. The figures exclude distributions and count only those funds that report on a weekly basis.

The fund flow numbers are considered a measure of junk market liquidity trends.

A parade of deals

The week to Thursday had seen just two dollar-denominated deals and one euro deal launch. However traffic on the high yield road picked up meaningfully during the Thursday session with announcements of five roadshow starts.

The biggest is NewPage, which will begin a roadshow on Monday for its three-tranche $900 million bond offering via Goldman Sachs & Co.

The company plans to sell $400 million of eight-year non-call-four senior subordinated notes. The offering also contains $500 million to be split between tranches of seven-year non-call-two second-lien senior secured floating-rate notes and seven-year non-call-four second-lien senior secured fixed-rate notes, with tranche sizes remaining to be determined.

Also stepping up to the starting line with a three-part deal was Alliance One International, Inc., a company to be formed by the merger of Dimon, Inc. and Standard Commercial Corp.

The company kicks off its roadshow on Friday for an offering that totals $650 million in size, with Wachovia Securities and Deutsche Bank Securities running the books.

Alliance One International will sell $400 million of eight-year non-call-four unsecured senior fixed-rate notes and seven-year non-call-two unsecured senior floating-rate notes, with tranche sizes remaining to be determined.

The company is also offering $250 million of 10-year non-call-five unsecured senior subordinated notes.

Proceeds will be used to repay debt.

Meanwhile the roadshow started Thursday for Cheniere Energy's $500 million offering of 10-year non-call-five senior notes via JP Morgan and Credit Suisse First Boston.

Elsewhere Ziff Davis Holdings Inc. will start a roadshow early next week for a $205 million offering of senior secured floating-rate notes via Bear Stearns & Co.

The New York City-based integrated media company, which focuses on the technology and videogame markets, will use the proceeds to repay debt.

And from Europe, Paris-based water treatment company Saur Group SA will start a roadshow on Friday for its €265 million offering of 10-year non-call-four senior notes.

BNP Paribas has the books for the debt refinancing deal.

A GM deal?

Elsewhere Thursday high-yield sources were batting back and forth scuttlebutt that General Motors Corp. may have an imminent bond deal in the works.

Lately GM has been a hot topic among high-yield players because both Moody's Investor Services and Standard & Poor's have lowered its credit ratings to the lowest reaches of the investment-grade universe: Baa3 from Moody's and BBB- from S&P.

One buy-side source told Prospect News early in the day that GM was heard to becoming Thursday night with five-year and two-year "straight bond deals," expected to price at 8.4% and 6.4%, respectively.

Later another source, this one from a high yield syndicate desk, said that GM was coming to the asset-backed market with 1.9-year- and 2.9-year deals.

Another investment banker, mulling the rumors, said: "The investment-grade guys here are a little skeptical.

"They say that only GMAC would issue paper that short. GM would not. And GMAC is actually in a blackout period right now, so I don't think they can issue right now.

"And the yields would only make sense if the issuer was GM, but GM does not issue short paper like that in front of GMAC."

Elsewhere another sell-side source said that the troubled U.S. auto maker may be testing the road surface in the bond market, which, given the recent pronouncements by the ratings agencies, is bound to be a little tricky.

"It's very natural for the lead underwriters to do some market sounding," this source said.

"Right now the spread for GM is pretty wide - like the high 400s. They have come in a little, but still that's very wide even for a weak investment-grade credit. It's the kind of spread you would see on a high-yield credit.

"So in a case like this the underwriter would be inclined to go out and whisper this kind of talk to its favorite accounts, just to see if there is even interest out there, because some managers don't even want to touch the name at this point."

Rite Aid gains on earnings

Back in the secondary arena, Rite Aid's bonds were seen a little bit better on its improved numbers, with a trader reporting a brisk two-point rise in the company's 7½% notes due 2015, to 95.5 bid, 95.75 offered, from 93.5 bid, 95.5 offered earlier in the day.

At that same shop, the company's 9½% notes due 2011 were seen to have firmed to 105 bid, 106 offered, from 104.5 bid, 105.5 offered; its 7 1/8% notes due 2007 were up slightly to 99.75 bid, 100.75 offered, a gain of ¼ point; and its 6% notes scheduled to come due this coming Dec. 15 were half a point better at par bid, 101 offered. The 8 1/8% notes due 2010 were unchanged at 101 bid, 102 offered.

At another desk, though a trader said that Rite Aid bonds had "done nothing." He quoted its 11¼% notes due 2008 as having "traded down slightly" to 106.5, while its 9¼% notes due 2013 "did nothing" at 98.5.

Rite Aid said Thursday that net income for the 2005 fourth fiscal quarter ended Feb. 26 was $228.6 million (35 cents per diluted share) on revenues of $4.34 billion, versus its year-earlier net profit of $59.4 million (nine cents per share). For the full fiscal 2005 year, net income was $302.5 million (47 cents per share, on $16.8 billion of revenue, versus $83.4 million (11 cents per share) on $16.6 billion of revenue in the previous fiscal year. The fiscal 2005 full-year and fourth-quarter results were boosted by a $179.5 million (29 cents per share) income tax benefit from the reduction of a valuation allowance for deferred tax assets.

The company meanwhile retains adequate liquidity, with most of its large revolving credit facility undrawn and available for borrowing should the occasion arise (see related article elsewhere in this issue).

AK Steel rises, Unisys falls

A trader saw "some movement" in AK Steel's bonds, although he saw no fresh positive news out about the Youngstown, Ohio-based maker of stainless steel and other specialty steel products.

He quoted AK's 7 7/8% notes due 2009 at 99.5 bid, up from 97 bid on Wednesday.

The trader also saw Unisys's bonds "slightly lower," again, on an absence of real news - especially negative - about the Blue Bell, Pa.-based technological solutions provider.

He quoted Unisys' 6 7/8% notes due 2010 at 99 bid, down from 100.75, and 7 7/8% notes due 2008 at 101.125, down 3/8 point.

Actually, there was some good news out about the company Thursday, as Wachovia equity analyst Edward Caso upgraded its New York Stock Exchange traded shares to "market perform" from "underperform," based on valuation, which sent those shares up 50 cents, (7.35%) to $7.30. Volume of four million was about double the norm.

But while upping his rating on the stock, the analyst said he had seen no evidence of a pick up in Unisys' contract-win rate, while the company continues to struggle with demand for its server products.

Analysts are expecting, on average, that Unisys will likely post a 10-cents per share loss - versus a year-earlier 9-cent profit, when the company reports quarterly results next Thursday.

Elsewhere, Cablevision Systems Corp. bonds - which had fallen Wednesday on the surprising news that the Bethpage, N.Y.-based cable operator plans to make a $16.5 billion all-cash bid for the bankrupt Adelphia Communications Corp. - were seen a little improved off Wednesday's lows.

Its 8% notes due 2012 were seen up 1½ points at 102 bid, while its CSC Holdings 8¼% notes due 2009 were up nearly a point, to just under 106 bid.

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