E-mail us: service@prospectnews.com Or call: 212 374 2800
Bank Loans - CLOs - Convertibles - Distressed Debt - Emerging Markets
Green Finance - High Yield - Investment Grade - Liability Management
Preferreds - Private Placements - Structured Products
 
Published on 6/29/2004 in the Prospect News High Yield Daily.

MedCath, Speedway price deals; Levi continues firming

By Paul Deckelman and Paul A. Harris

New York, June 29 - MedCath Holdings Corp. and Speedway Motor Sports were heard by high yield syndicate sources to have successfully priced new deals on Tuesday, with Speedway's offering a quickly shopped, opportunistically priced $100 million add-on to its existing 6¾% notes due 2013.

Among established issues, traders said there was not much going on, with the market looking like it was already winding down ahead of the upcoming July 4 holiday.

One of the few names seen doing anything was Levi Strauss & Co., continuing the recent rise that the San Francisco-based apparel maker's bonds have been enjoying.

As had been predicted, Tuesday's session brought drive-by primary business, as Speedway Motorsports pulled into the high yield pit area to top off its 6¾% notes of 2013 with a $100 million add-on.

Speedway was one of two deals that priced during a quiet session in the primary market.

The other was MedCath Holdings, which brought $150 million of eight-year senior notes (Caa1/B-). The deal had been marketed via a full roadshow.

The Charlotte, N.C.-based healthcare provider's debt refinancing deal priced at par to yield 9 7/8%, at the tight end of the 9 7/8%-10 1/8% price talk. Bookrunners were Banc of America Securities, Wachovia Securities and Citigroup.

Small deals hard to flip

A market source, who specified that the MedCath book appeared to be "a couple of times over subscribed," commented that the market has recently seen "a rash" of small $125 million to $150 million-sized deals.

"All of them have performed pretty well but not until about a week or two after they price," the source added. "Obviously you are exposed to the market in the form of interest rate risk while you are waiting for it to lift its head.

"These deals only make sense as a trading vehicle if you have a way to hedge your interest rate risk."

When Prospect News ran that color past a high-yield mutual fund portfolio manager, the investor bristled.

"That strategy implies that you're really not going along with the credit," said the portfolio manager, who spoke on background. "You're just in there for a flip.

"If yields go up or spreads widen out, then you don't want to be in these small illiquid deals," the investor added.

"But the vast majority of high yield investors don't hedge. Mutual funds don't hedge.

"But a hedge fund could come in and flip around a little bit."

Speedway Motorsports zooms in

Also pricing during the Tuesday session was Speedway Motorsports' $100 million add-on to its 6¾% senior subordinated notes due June 1, 2013 (existing ratings Ba2/B+).

The Concord, N.C.-based motorsports company's deal priced at par, on top of price talk 6¾%, with Banc of America Securities running the books.

Proceeds, together with cash on hand, will be used to pay for the acquisition of North Carolina Speedway. The acquisition of North Carolina Speedway by the company from International Speedway Corp. is part of the settlement of a lawsuit brought by a company shareholder against NASCAR and ISC.

The original $230 million issue priced at par on May 8, 2003, so of course the company walked away from Tuesday's transaction with an identical interest rate, though the spread was much lower at 252 basis points versus 310 basis points.

A sell-side source who was not involved with the transaction said that at present a 6¾% print is no small feat.

"The market has definitely backed up from where it was," the sell-sider said. "Generally you're not seeing six- and seven-handle prints, so it's pretty surprising where that Motorsports deal got done."

"The market is feeling good. People are putting money to work and deals are getting done pretty well," the investment banker added.

Extremely narrow spreads

However the high yield mutual fund portfolio manager, quoted above, contended earlier in the session that companies presently seem to be printing yields on junk bonds that are about as low as they can go.

"Spreads are as narrow as they have been all year," the investor said. "They're extremely narrow.

"As long as defaults stay low and as long as the performance of these lower-tier issues holds up, you will continue to see a big appetite.

"But spreads are right back where they were in January. And in some ways the triple-Cs have outperformed, which you would expect. High yield is doing its job by outperforming Treasuries.

"But the spreads now are extremely narrow and from this point on you would have to anticipate that they will take on some sensitivity to Treasuries, if Treasury yields go up.

"It's hard to see how they could narrow much from here."

Talk on Horizon, Allied Security

Finally on Tuesday, price talk of 9%-9¼% was heard on Horizon Line Holding Corp.'s upcoming $250 million of eight-year senior notes (B3/B-), expected to price on Wednesday via Goldman Sachs & Co. and UBS Investment Bank.

And price talk of 11½%-11¾% emerged on Allied Security, Inc.'s $175 million offering of seven-year senior subordinated notes (Caal/B-), expected to price on Thursday via Bear Stearns & Co.

Aside from Horizon Line and Allied Security, the market also anticipates possibly hearing terms on the $192.5 million eight-year senior secured notes offering (B3) from North Canton, Ohio natural gas and oil exploration and production company Belden & Blake.

The debt refinancing deal hit the road on June 24.

That, sell-side sources say, should conclude the week's business.

One sell-sider who spoke to Prospect News well after the Tuesday session closed said expressed the opinion that drive-by business during Wednesday's session seemed unlikely.

MedCath quoted higher

When the new MedCath 9 7/8% senior notes due 2012 were freed for secondary dealings, a trader said that he had heard the bonds quoted at 101 bid, up from their par issue price earlier in the session, but had not seen them actually trade.

Given the small size of the deals that came, and the lack of any really recognizable "go-go" name, the new issues "traded like crud," he said.

Some see Levis higher

And the secondary market not linked to new issuance was not much better.

While Levi's 11 5/8% notes due 2008 were being quoted in some quarters up nearly two points to around the 99 level, other market players weren't seeing much additional excitement in the blue jeans maker's bonds.

One saw the 11 5/8s and the Levi 12¼% notes due 2012 both hanging in at 98 bid, 99 offered, while its 7% notes due 2006 were at 93.25 bid, 94.25 offered, "the same place they've been for a couple of days."

Levi's bonds had recently been firming smartly on renewal of market speculation that the company might be nearing a sale of its Dockers line of khaki clothing, at a price anywhere from $500 million to $1 billion.

Levi has been shopping Dockers around since at least May, and there has been no indication from the company that a sale is near.

News last week that apparel giant Jones Apparel Group Inc. had lined up $1 billion of new financing from Citigroup and J.P. Morgan Chase sent some pulses racing - but it appears that the maker of Anne Klein clothing and Nine West Shoes appears to have other purposes in mind for the money; it has not been mentioned as a potential buyer of dockers, as such companies as VF and Kellwood have been.

American Greetings little moved by earnings

Elsewhere, the news that American Greetings had posted a rise in first quarter operating income, excluding costs connected with a debt repurchase, had little impact on the Cleveland-based greeting card company's bonds Tuesday.

A trader said that its 6.10% bonds due 2028 had last been offered around 105, but he added that this had been some time ago.

"They haven't been seen for some time, now," he said. "It's a name that investors bought and put away and that never gets sold."

And he had not even any kind of quote on its other issues, the 11¾% notes due 2008. A market watcher at another desk saw those bonds unchanged at 115.

American Greetings said that for the fiscal first quarter ended May 31, it had net income of $4.2 million (six cents per share) on net sales of $445.7 million, versus year-ago results of $19.7 million, on net sales of $454.3 million.

The company said its latest results included $39 million in pretax costs ($23.9 million after tax) incurred during the quarter for debt repurchases totaling $186.2 million. That was a major increase in debt-retirement costs from last year, which then totaled $4.6 million ($2.8 million after tax) associated with the early pay down of $118 million of term debt.

Excluding after-tax costs associated with debt repurchases from both periods, American Greetings said it would have achieved net income of $28.1 million this year versus $22.5 million in the first quarter last year.

Nortel lower, Flextronics unchanged

Nortel Networks Corp.'s 6 1/8% notes due 2006 were quoted at 99.375 bid, down from par on Monday, following the news that the Brampton, Ont.-based telecommunications equipment maker plans to get out of the manufacturing business, by selling its factories and inventories to Flextronics International. The Singapore-based electronics manufacturer will pay Nortel between $675 million and $725 million in cash for the manufacturing operations in Canada, Brazil and, it is expected, France and Northern Ireland, with Nortel becoming primarily a distribution company.

Nortel - still trying to recover from the difficulties the telecommunications industry has had in recent years and rocked by an accounting scandal earlier this year that led to the departure of its then chief executive officer, Frank Dunn, and extensive earnings restatements - envisions eventual savings by year four of $75-$100 million and a positive impact on net earnings before tax on an annualized basis.

Flextronics' bonds were seen mostly unchanged on the news, its 9¾% and 9 7/8% notes both due 2010 both steady at 107, while its 6½% notes due 2013 firmed slightly to 97.5.


© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.