Muzak, Rite Aid price deals; secondary still muted

By Paul Deckelman and Paul A. Harris

New York, May 13 - Rite Aid Corp. and Muzak Holdings LLC came to market with new deals on Tuesday - the former an opportunistically timed $150 million 10-year offering - while their places on the forward calendar were more than filled, with the slating of coming new deals for Alon USA, Terra Capital Inc. and Apogent Technologies Inc., all of which begin road shows on Wednesday, and an upcoming quick-to-market placement by Dole Foods, which is expected to price Wednesday.

While things were buzzing along on the primary side of the fence, folks were sleepwalking in the secondary, with most issues that were trading seen holding around their recent levels and few market features seen. "Secondary trading was just about non-existent," was how a trader put it, with everyone's attentions still locked onto the continued new-deal roll-outs.

Late during Tuesday's hectic primary market activities one sell-side official trumped the previous session's debate over whether the present high yield is red hot, white hot or blue hot.

"You can forget about those colors," this source advised Prospect News. "It's more accurate to say that this market is explosive."

So it was that Tuesday's session saw five new deals burst from the investment banks, one of them pricing before the day's close: Rite Aid completed a $150 million drive-by transaction that priced to yield 9½%.

Also on Tuesday some junk investors took positions before the music stopped on an upsized deal from Muzak Holdings, which sold $220 million of seven-year paper to yield 10 1/8%.

And the deals kept coming throughout Tuesday's session, although four of the five new offerings that emerged during the session did so before 10.30 a.m. ET.

Roadshows begin Wednesday for deals from privately-held petroleum products refiner and marketer Alon USA, which will begin marketing $150 million of eight-year senior notes, Apogent, which is offering $250 million of 10-year paper, and for Terra Capital, which will commence a two-day regime of presentations to investors for its $200 million of seven-year bonds, which are expected to price on Friday.

Dole Food Co., Inc., meanwhile, announced $400 million of new seven-year notes on Tuesday, which it expects to price on Wednesday.

Market observers who spoke to Prospect News on Tuesday gave various counts of the number of new junk bond deals that are presently being marketed. Prior to terms emerging on Rite Aid and Muzak one source pegged the count at 17 deals.

Shortly before mid-session Prospect News inquired of Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, which of those deals she might be taking a look at.

"For the most part we're looking at all of them because we have to," she replied, declining to specify which of those deals the fund would take serious looks at.

Rieke said that presently the high-yield primary offers investors a comparatively extensive selection of deals, some of which have been coming with yields in the "six-handle and seven-handle ultra-good quality" range, and others with "11-handle, not-so-good quality" range.

"You're getting a lot of everything right now," the portfolio manager said.

With the large volumes of cash recently reported to be flowing into high yield, some market observers have been telling Prospect News that underwriters are being "aggressive" with regard to pricing deals.

Particularly pointing to LIN Television Corp.'s May 5 pricing of $200 million 10-year senior subordinated notes (B2/B) at par to yield 6 ½%, Prospect News asked the Waddell & Reed portfolio manager: "Does a 6½% yield compensate investors for the risk they are taking on a B2/B credit?"

"On LIN I don't know," she replied. "The market would tell you 'Probably not,' because it's still sitting at par, when all the other 6-handle paper that's gotten done, for the most part, is trading at a premium. That one probably got pushed a little too rich.

"The majority of the time that's not the case though," she added. "The majority of the time they're still leaving something on the table for the investor."

Finally Prospect News inquired of Rieke how long the present rally in high yield can be expected to last.

"Last month we had over $3 billion of cash inflows, and last week we priced $3 billion," she responded. "We can't do that for too long. There won't be that much cash out there.

"It may mean that everyone is trying to get through the eye of the needle right now. People are probably afraid that if the equity market starts picking up the money will leave fixed income and go back to equity. But if you're printing things with six- and seven-handles everybody's going to come wanting that money.

"That is a very cheap loan."

Junk bond investors made two loans during Tuesday's session.

Rite Aid's drive-by $150 million of 9¼% 10-year senior notes (Caa2/B-) priced at 98.399 to yield 9½%. Price talk on the deal, with Citigroup doing the bookrunning, was for a yield in the 9¼% area.

Also on Tuesday, Muzak Holdings LLC and Muzak Finance Corp. upsized to $220 million from $200 million their 10% six-year senior notes (B3/B) and priced them at 99.486 to yield 10 1/8%. The bookrunners were Bear Stearns & Co. and Lehman Brothers.

In addition to the Rite Aid drive-by, on Tuesday the market learned of four other deals. Privately held petroleum products refiner and marketer Alon USA will begin the roadshow Wednesday for an offering of $150 million of eight-year senior notes (B), expected to price on May 22 via Merrill Lynch & Co. and Credit Suisse First Boston.

A roadshow starts also starts Wednesday for Apogent Technologies Inc.'s $250 million of 10-year senior subordinated notes (Ba2/BB+), with pricing expected during the week of May 19. Lehman Brothers, Credit Suisse First Boston and JP Morgan are the bookrunners.

A two-day roadshow begins Wednesday for Terra Capital Inc.'s $200 million of seven-year second priority senior secured notes (Caa1) which are set to price on Friday via Citigroup.

And Dole Food's $400 million of seven-year senior notes (B2 expected/BB- confirmed) is expected to price on Wednesday, with Deutsche Bank Securities and Banc of America Securities running the books.

In addition to those deals that came into the market, Tuesday, other offerings were heard to be coming over the horizon. During a conference call, Calpine mentioned a long-term bond deal in the $275 million to $300 million range (see story on page one of this issue). And Packaged Ice Inc. was heard to be coming with $150 million in high yield debt, possibly via Credit Suisse First Boston, Bear Stearns and CIBC World Markets.

Also on Tuesday price talk was heard on several pending transactions.

Price talk of 7½%-7¾% emerged Tuesday on Forest City Enterprises, Inc.'s $200 million of 10-year senior notes, expected to price on Wednesday morning. Goldman Sachs is the bookrunner.

Meanwhile talk of 9% area was heard on Medex, Inc.'s upsized $200 million of 10-year senior subordinated notes (B3/B-), also expected to price Wednesday morning, with Lehman Brothers and Wachovia Securities running the books.

And the market heard price talk of 9½%-9¾%, Tuesday, on United States Steel Corp.'s $350 million of seven-year senior notes (B1/BB-), a transaction anticipated to take place Wednesday afternoon, via JP Morgan and Goldman Sachs.

Finally on Tuesday tranche sizes and price talk were heard on the split-rated offering from Semco Energy, Inc. of $300 million of senior notes (Ba2/BBB-). Talk is 8% area on the $150 million tranche of 10-year non-call-five notes. Meanwhile, the $150 million of five-year bullets are talked at 50-75 basis points inside the 10-year notes.

The deal, via Credit Suisse First Boston, is expected to price Wednesday afternoon.

Back among the established issues, Rite Aid's already outstanding bonds were heard to be "pretty much flat" just ahead of the late-afternoon pricing of the company's new notes, a trader said, quoting Rite Aid's 7 5/8% notes due 2005 at 98 bid/par offered; its 7 1/8% notes due 2007 were at 96.75 bid/97.75 offered, while its 6 7/8% notes due 2013 were at 85 bid/87 offered, with "not much happening there."

Levi Straus & Co.'s bonds were quoted quietly firmer, with its 7% notes up a point on the bid side to 83 bid/85 offered, its 11 5/8% notes seen a point-and-a-half better, at 86.5 bid, and its 12¼% notes, which usually shadow the 11 5/8% and trade a point-and-a-half behind it, hovering around 85 bid.

News of earnings results did not move bonds very much, according to the general consensus of market participants.

Cablevision Corp., for instance reported a first-quarter net loss of $140.4 million (50 cents per share) - wider than the 44 cents per share Wall Street had been anticipating, but still considerably narrower that the year-earlier loss of $249.6 million (87 cents per share). The Long Island-based cable operator's bounce-back from last year's losses was seen helped by a surge of new digital video and high-speed data subscribers.

But the company's 7 5/8% notes due 2011 hung around 104.25 bid/105.25 offered, while its 8 1/8% notes due 2009 were at 105 bid/106 offered, "pretty much how both of them opened and closed," a trader said.

Stater Brothers Holdings' rang up record sales for the fiscal second quarter ended March 30, as revenues increased 3.5% to $677.2 million, from $654.2 million a year earlier.

But net income for the fiscal second quarter ended March 30 of $3.8 million, compared with $4.3 million for the comparable year-ago period, and said that net income for the fiscal year-to- date periods amounted to $6.8 million in 2003 and $8.2 million in 2002. EBITDA dipped slightly in the latest time frame, to $27.9 million from $28.2 million.

Still, investors did not seem to mind much; the Colton, Calif.-based supermarket operator's 10¾% notes due 2006 went home at 105.5 bid/106.5 offered, "no great shakes there," a trader opined.

Even the news that Calpine Corp.'s first-quarter loss had narrowed from a year ago, and that it had received $105.5 million from Aquila Corp. following completion of a contract monetization and a restructuring of Calpine's joint-venture interest in Acadia Power Partners, LLC. failed to do very much for the San Jose, Calif.-based independent power producer 's bonds Tuesday.

Calpine's bonds were seen little moved on the session, with its 8½% notes due 2008 remaining in the 72-73 bid area, its 8 5/8% notes due 2010 steady at 70.5 bid/71.5 offered, and its 10½% notes due 2006 pegged at 84 bid/86 offered, "all flat, with no change," a trader said. "Calpine was quiet."

Calpine announced that for the quarter ended March 31, it had a $45.3 million net loss (12 cents per share), versus the year-earlier deficit of $75.7 million (25 cents per share).

The company notched approximately $2.2 billion of revenue for the first quarter 2003, compared with approximately $1.3 billion for the first quarter of 2002. Adjusted EBITDA jumped 160% to 238.9 million in the latest quarter from $92 million a year earlier.

Calpine also announced that it would reap the nearly $106 million from Aquila, which paid to be released from all of its obligations under the 20-year tolling agreement with Acadia Power Partners, Calpine's Louisiana power plant joint venture. Aquila had supplied natural gas to the Acadia plant and paid fixed capacity payments for the right to sell 580 megawatts of power generated by the plant on the wholesale market.

But Aquila gets some benefits as well. The transaction returned to Aquila $45 million in posted collateral and eliminates $843 million in payments which would have been due to Acadia over the remainder of the 20-year term of the agreement. between Calpine and Cleco Corp.

With that obligation now obliterated, Aquila's 2007 and 2012 bonds were "a little stronger," a distressed-debt trader said, "up a couple-three points."

Elsewhere among the power generators and utility operators, El Paso Corp. reported a first-quarter net loss of $394 million (66 cents a share) versus year-earlier income of $383 million (72 cents a share).

That caused its bonds to open a point or so lower, although by the end of the day, the debt was seen not having moved much. Its 8½% notes remained anchored around the 109 range they've recently held,

The Williams Cos.' 7 3/8% bonds due 2021 were at 89 bid and its 7% bonds due 2031 were at 83.5 bid/85.5 offered, both unchanged on the session; Williams reported first-quarter earnings of $22 million (four cents per share) , excluding charges, about two cents per share better than analysts had been looking for.

Dearborn, Mich.-based power operator CMS Corp. said that it plans to sell its field services unit to Cantera Resources Inc. for $115.5 million in cash plus a $50 million note, as part of a wider plan to sell assets and pay down debt.

But a bond trader, while noting the planned asset sale, quoted the company's 7 5/8% and 6¾% notes due 2004 at 99.5 bid/102 bid, while its 9 7/8% notes were at 103 bid/105 offered and its 8.90% notes were at 97 bid/99 offered, all essentially unchanged. "I didn't see any run-up in that credit at all."

Pacific Gas & Electric reported first-quarter earnings of $172 million (45 cents a share) - down from last year's $183 million (50 cent per share), but better than the 43 cents per share analysts had projected.

The San Francisco based utility noted that its troubled National Energy Group wholesale unit is continuing to talk with lenders and bondholders about restructuring options, but with no agreement reached yet. Company CEO Robert Glynn said that the company believes that any restructuring "would be implemented with a Chapter 11 proceeding," with a filing possible even before the current quarter ends in June. The defaulted NEG 10 3/8% notes due 2011 have recently traded around 51 bid, a market source reported.

And a trader said that Northwestern Corp.'s bonds were two to three points stronger, quoting its 8¾% notes due 2012 at 80 bid and its 7 7/8% notes due 2007 at 81.5 bid/82 offered.

Outside of the power operators, Salton Inc.'s 10¾% notes due 2005 were seen having tumbled to 99 bid from 104.5 previously.

The Lake Forest, Ill,-based small appliance maker meantime said that it had completed the refinancing of its bank revolving credit agreement and term loans via a new bank group that was co-led by Bank of America and Wachovia Corp., with Bank One, NA and Fleet Capital Corporation as co-documentation agents.

AirGate PCS's zero coupon notes due 2009 firmed four points on the session, to 31 bid.

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