Corrections Corp. prices 8-year deal; Revlon up on favorable numbers

By Paul Deckelman and Paul A. Harris

New York, March 8 - Corrections Corp. Of America priced a quickly offered issue of new eight-year bonds Tuesday, high-yield syndicate sources said, with the Nashville, Tenn.-based private prisons operator locking in a favorable interest rate on its deal and planning to use the deal proceeds to take out existing higher coupon bond debt.

Also in the primary sphere, DaVita Inc. was heard to have extended the current roadshow for its billion-dollar-plus two-part deal, after the company received a subpoena from federal probers investigating the business practices of the El Segundo, Calif.-based dialysis treatment chain operator.

In the secondary market, Revlon Inc.'s bonds were seen smartly higher after the New York-based cosmetics company reported its first quarterly profit in six years. On the downside, aaiPharma Inc.'s bonds were on the slide despite an apparent lack of fresh negative news about the Wilmington, N.C.-based pharmaceuticals company.

The slow Tuesday primary market session saw a single deal price, as Corrections Corp. of America took an unannounced walk in the high-yield big yard with $375 million of junk, and locked up a yield of 6¼%, right on top of the price talk.

Meanwhile three more deals were booked onto the forward calendar, as roadshow dates and other information emerged during the session.

Still a seller's market

The steady stream of new deals added to the forward calendar since the beginning of March has done little to impress one fund manager who spoke to Prospect News on background during the Tuesday session.

"It's extremely quiet," the investor said. "Tenet bonds are up a point because of the numbers.

"High yield has been rallying because you have had Treasuries go up and there is a lull in supply.

"Money comes in. Prices go up."

The investor said that the build-up of the new issue pipeline could foretell "a little bit of softness."

However when Prospect News asserted that at present there are no dividend-funding deals on the calendar and asked the investor whether that absence signifies an overall improvement in the credit quality of new issues, the buy-sider was having none of it.

"I'm not looking for quality to stay high," the investor said.

"The market will take dividend deals, so why wouldn't issuers do them at these levels?"

Corrections Corp. locks up $375 million

Tuesday's sole transaction was a drive-by deal from Nashville private prison operator Corrections Corp. of America.

The company priced $375 million of eight-year senior notes (B1/BB-) at par yield 6¼%, right on top of price talk, at a spread to Treasuries of 196 basis points.

Lehman Brothers, Banc of America Securities and JP Morgan were joint bookrunners for the debt refinancing issue.

One source close to the transaction said that it was a solid deal in a melting market, and added that there was tons of price sensitivity at a spread of 200 basis points over Treasuries.

Three roadshow starts

A trio of prospective issuers announced details on their upcoming deals during the session.

M/I Homes, Inc., a Columbus, Ohio, single-family home builder, will begin a roadshow on Monday for its $200 million offering of 10-year senior notes (Ba2/BB).

Citigroup and JP Morgan are leading the bullet deal, proceeds from which will be used to refinance debt.

Elsewhere a brief roadshow got underway Tuesday for Revlon Consumer Products Corp.'s $205 million offering of six-year non-call-three senior notes (Caa2/CCC), which are expected to price on Thursday or Friday via Citigroup.

The New York City-based cosmetics company will use the proceeds to refinance debt.

And more potential euro-denominated issuance was announced as HLI Operating Co. Inc. (Hayes Lemmerz International Inc.) said it will start a roadshow Thursday in London for €120 million of seven-year non-call-four senior notes.

Citigroup and Merrill Lynch & Co. will be joint bookrunners for the debt refinancing and general corporate purposes deal from the Northville, Mich., automobile wheel-maker.

Talk on two small deals

Details also surfaced during the session on a pair of smaller deals set to price during the present week.

Delta Petroleum Corp.'s $150 million of 10-year non-call-five senior notes (B3/B) are talked at a yield in the 7% area, and are expected to price Wednesday afternoon via JP Morgan and Citigroup.

And Fraser Papers Inc.'s $150 million of 10-year non-call-five senior notes (B3/B) are talked at 8½% to 8¾%, and are expected to price Thursday afternoon via Credit Suisse First Boston.

Meanwhile one deal that was expected to price during the present week, the biggest offering on the calendar, was heard to have extended its roadshow.

DaVita Inc. will continue the roadshow for its $1.350 billion offering of high-yield notes into next week after receiving a subpoena from the U.S. Justice Department, according to a source close to the deal.

In a March 6 press release the company announced that it received a subpoena requiring it to produce "a wide range of documents relating to the operations of the company and its subsidiaries from December 1, 1996 to the present."

Levi's new notes steady above par

Secondary market sources said that the new Corrections Corp. 6¼% notes due 2013 priced way too late in the session for any kind of aftermarket activity.

Once source said that the new Levi Strauss & Co. floating- rate notes due 2012, which priced Monday at par and then moved up to around 100.5 bid, 101 offered after they were freed for secondary dealings, had settled in to a range of 100.375 bid, 100.625 offered.

The San Francisco-based blue jeans maker's existing 12¼% notes due 2012 meantime hung in around the same 114.5 bid, 115.5 offered level where they went home on Monday, and its 9¼% notes due 2015 were steady at 104.25 bid, 105.25 offered.

Revlon higher on earnings

Revlon - which was heard by primary market sources to be bringing a new issue of six-year bonds to market - reported fourth-quarter 2004 numbers, and its bonds got a boost from the good news found therein, particularly the Revlon Consumer Products Corp. 8 5/8% notes due 2008.

A trader saw those notes at 97 bid, 97.5 offered, well up from their recent levels at 93 bid, 94 offered.

At another desk, a trader saw the 8 5/8s settling in at 96.5 bid, 97.5 offered, this after having traded as high as 97.5 earlier on. Even though the bonds finished off their peak level, the gain was still at least several points on the session.

The first trader also saw the two issues expected to be taken out with the proceeds from Revlon's new deal, the 8 1/8% notes due 2006 and the 9% notes due 2006, also firmer on the day, with the former rising to 100.5 bid and the latter to 100.75. Both issues, he said, "had been trading just under par," at 99 bid, 99.5 offered, but now, with the prospect of redemption at hand, "they're both definitely over par."

The trader said that the interesting thing with Revlon "will be to see where the 13s shake out. That's the holding company paper" coming due this December. He saw the bonds recently bid around 93, "but nothing traded today. I saw some offered at par. I bid 93, but didn't get a response, so I'm not sure where those are ultimately, but that will be interesting to see," particularly whether Revlon principal owner Ronald O. Perelman decides to take them out before their maturity the same way he took out the holding company's 12% notes last year - which left a lot of bondholders grousing after the wily New York billionaire dragooned most of them into accepting new bonds in an exchange offer by warning that Revlon didn't have the money to take out the 12s - and then rewarding those 12% holders with steely enough nerves not to go for the exchange offer by paying off their bonds in cash at par.

Anyway, he said, "it's kind of like the sign of the Apocalypse, when Revlon actually makes money."

That's exactly what Revlon did in the fourth quarter - the first time in six years that it posted a quarterly profit.

The company generated net income in the fourth quarter of $46 million (12 cents per diluted share) - a sharp turnaround from its net loss of $13 million (18 cents per share) in the year-ago fourth quarter.

Operating income in the fourth quarter was $72 million versus operating income of $37 million in the fourth quarter of 2003. Adjusted EBITDA in the fourth quarter of 2004 was $99 million compared with adjusted EBITDA of $64 million in the same period a year earlier.

Revlon attributed the net income turnaround to the growth in operating income, coupled with significantly lower interest expense due to Revlon's capital structure improvements achieved during the year, as it aggressively cut debt via its debt-for-equity exchange offers consummated in March 2004.

Tenet higher on results

Also on the earnings front, Tenet Healthcare Corp. reported fourth quarter and year-end results, and although the Dallas-based hospital operator showed a $2 billion loss for the quarter, mostly on large non-cash charges, and lost some $2.6 billion for the year, company officials on the conference call that followed the release of the earnings were upbeat, touting Tenet's progress in shedding unwanted assets, and the company's progress in improving its capital structure, resulting in an expected unrestricted cash position of some $1.3 billion, once Tenet gets an expected income tax refund next month (see related story elsewhere in this issue).

Tenet's bonds were being quoted up at least a point on the day with its 7 3/8% notes due 2013 firming to 95.25 bid, 96.25 offered from prior levels at 94 bid, 95 offered, while its 6 7/8% notes due 2031 were quoted two points better at 84 bid, 85 offered.

aaiPharma drops

On the downside, traders at several desks saw a slide in aaiPharma's bonds, although nobody had seen any fresh negative news out about the pharmaceutical company, which has been wrestling for the past year with the fallout from accounting problems and what seems to be a revolving door in the executive suite, which saw several key executives leave in quick succession over a matter of months last year.

One trader saw the company's 11% notes due 2010 dropping to 64 bid, from 69.5 previously.

Another saw an even more precipitous fall, as the bonds "started off offered at 69 first thing in the morning, and then falling to 67, to 64 and finally shaking out at a wide 59 bid, 63 offered," although this trader saw one afternoon trade at 64. The trader saw "no news," but added "we'll probably see [what's up with the company] tomorrow."

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