Market mostly range-bound, though airlines, power off; Park Place split-rated deal prices

By Paul Deckelman and Paul A. Harris

New York, April 8 - With many financial market players seemingly more interested Tuesday in speculating about "is he or isn't he?" - the he, of course, being Saddam Hussein, and the question being whether he's dead or alive - traders reported not all that much activity in the secondary sphere, although there was a slide in the bonds of Calpine Corp., which had previously run up so strongly, as well as a retreat in the airline issues, which had also been climbing skyward recently.

In the primary market, the world's largest gaming operator, Park Place Entertainment Corp., rolled the dice with a sale of $300 million of split-rated (Ba1/BBB-) 7% senior notes due 2013 that sources said was priced off the high-yield desk.

And two new junk bond deals surfaced during Tuesday's session in the high yield market. Alpharma Inc. began roadshowing a deal, hoping to dose high-yield investors with $200 million of new eight-year notes. And Iron Mountain Inc. is hoping to rappel down to a lower interest rate with a $250 million add-on to its 7¾% notes due 2015.

In addition to significant interest from junk bond accounts in Park Place's $300 million offering, sources said speculative-grade investors are also eyeing six-B PSEG Energy Holdings LLC, which issued 8% area price talk on $250 million of four-year notes it figures to price on Wednesday.

Meanwhile Tuesday Tom Parker, high-yield portfolio manager for Barclays Global Investors, told Prospect News that war and uncertainty, among other factors, are slowing down the supply of new high yield issuance, in the face of the glut of cash that has come into the asset class.

"The monthly inflow in March 2003 was the highest as a percentage of the asset class since 1986 (as was the latest 6 months)," Parker noted. "There were higher average inflows as a percentage of assets in 1985 to 1986, but that was off of a much smaller base and there were many new high yield mutual funds being started (these were at the height of the Drexel high yield go go years).

"It is important to note that mutual fund inflows are just one of the sources of new money," Parker explained. "Pension funds and insurance companies have dramatically increased their allocations to high yield in 2003, and there are increased levels of equity fund activity, hedge fund activity, and Warren Buffett.

"The war has slowed down new issuance due to uncertainty," the Barclays Global Investors portfolio manager commented. "Corporations are doing less capital spending and are reducing leverage. Bank debt is really cheap and high yield is at a high relative spread. Most of the companies that have come to high yield have come because the banks have said no to increased commitments (in fact many of the deals have been the substitution of secured bonds for bank debt). There has been adverse selection in new issuance: good companies do not need it, bad companies do.

"And new issuance always shuts down from mid-December to mid-January, which is the same time most new allocations to high yield are made (and this year they were large)."

During Tuesday's session New Jersey specialty pharmaceutical firm Alpharma began roadshowing $200 million of eight-year non-call-four senior notes. The deal, via bookrunner Banc of America Securities and co-manager CIBC World Markets, is expected to conclude marketing on April 14.

Also on Tuesday Boston-based information services firm Iron Mountain announced it plans to sell a $250 million add-on to its 7¾% senior subordinated notes due Jan. 15, 2015 in an off-the-shelf offering via Bear Stearns.

The deal will be marketed via an investor conference call rather than a roadshow.

Terms emerged Tuesday on a split-rated offering of Park Place Entertainment Corp. $300 million of 10-year senior notes (Ba1/BBB-). The deal - over half of which was sold to high yield investors, according to one source - priced at par to yield 7%, at the tight end of the 7%-7¼% price talk.

Banc of America Securities and Deutsche Bank Securities Inc. were joint bookrunners on the deal that was reported to have priced off of the high yield desk.

And price talk of 8% area emerged Tuesday on the six-B rated PSEG Energy Holdings LLC $250 million of four-year non-callable senior unsecured notes (Baa3/BBB-/BBB-) - a deal that is also expected to generate participation among a significant number of high yield accounts according to an informed source.

Lehman Brothers is running the books on the PSEG deal, which is expected to price Wednesday.

One sell-side source who spoke to Prospect News on Tuesday noted compared the PSEG deal with iStar Financial Inc.'s $35 million add-on to its senior notes due March 15, 2008 (Ba1/BB+/BBB-), which priced at 102.75 to yield 6.339% during Monday's session.

Although iStar is lower rated, its deal achieved a significantly lower yield than the 8% area talk on PSEG's 6-B offering.

The source said in some cases the division between high yield and high grade seem to be getting "seriously blurred.

"I think people are paying less attention to ratings these days, and more attention to the credit," the sell-side official commented.

When the new Park Place bonds were cleared for secondary dealings late in the session, they were heard to have firmed to 101 bid/101.25 offered from their par issue price earlier.

Back among already established issues, Calpine was "down big today," one market source said, quoting the San Jose, Calif.-based independent power producer's 7 7/8% notes due 2008 and its 8 5/8% notes due 2010 as having fallen to 63 bid, down from prior levels at 67.5 bid and 66.5 bid, respectively.

At another desk, Calpine's 8½% notes due 2011 were quoted as having tumbled to 62.5 bid/63.5 offered, down from 66 bid/67 offered on Monday.

A trader noted that the bonds might be expected to ease, since they had had "had a major run-up" over the last week or so, on speculation that the company would likely soon announce a refinancing deal, which would make it only the latest in a string of other utilities and merchant energy companies which have recently been able to get their bank lenders to front them some additional money, despite industry problems that include a glut of producing facilities in some areas, weak wholesale electricity prices, large debt loads and the continued shadow of the Enron Corp. Collapse hovering over the industry.

Even with those negatives, a number of power companies have recently announced refinancing deals, including Dynegy Inc., Allegheny Energy, Reliant Resources Inc., El Paso Corp., and AES Corp.

AES' bonds have also recently been climbing along with those of other sector players, but on Tuesday, a trader said, its 9½% notes "opened and closed" at 90 bid/91 offered, while a market observers quoted AES' 10¼% notes due 2006 half a point lower, at 89 bid, while its 9½% notes due 2009 were also down half a point, at 91.

Also apparently retrenching after a strong recent upward run was the airline group, led by the largest and most troubled company in the sector (other than those operators already in bankruptcy), AMR Corp.

AMR's 9% notes due 2012, which had risen as high as the upper 30s lately and which had been quoted Monday still hovering around 35 bid/36 offered - more than double bid levels around 16-17 seen in mid-March - fell back Tuesday to 33 bid/34 offered.

Meantime, the Fort-Worth-based Number-One U.S. carrier's shares swooned 65 cents (15.19%) in New York Stock Exchange dealings Tuesday, to close at $3.71 on volume of 15.9 million shares, double the norm. American Airlines parent AMR- which is trying to wring $1.6 billion of concessions from its three major unions, has been hearing rumblings of dissatisfaction from some members of the unions with the decision by their union chiefs to go along with the concessions or face an imminent bankruptcy.

AMR warned the unions that it would not renegotiate the concessions they had agreed to, and a company spokesman said American would file for bankruptcy "very soon" if any of the unions rejected the givebacks.

Following AMR on the downside was Continental Airlines' 8% notes due 2005, down 1½ points at 52.5 bid.

Traders reported little movement in the debt of Levi Strauss & Co., which announced that it would tender for its 6.80% notes coming due on Nov. 1 (see Tenders and Redemptions elsewhere in this issue for full details).

One market source quoted the bonds unchanged at 101.5 bid, although a trader did see quotes as high as 102 bid. The San Francisco-based apparel market's other debt is already well bid for, with its 11 5/8% notes due 2008 hovering in the 95-96 area and its 7% notes due 2006 unchanged at 89 bid.

Elsewhere, Charter Communications Holdings LLC bonds were "up again," at one desk, its benchmark 8 5/8% notes due 2009 firming to 58 bid from 57.25 and its 9.92% notes due 2011 moving up three-quarters of a point to 47.5 bid.

Lyondell Chemical's 9 7/8% notes due 2007 were quoted down two points, at 99 bid/par offered.

And Tenet Healthcare's 7 3/8% notes were seen three points easier, at 98 bid, after the troubled healthcare company announced that chief executive officer Jeff Barbakow would give up the chairman's position, amid federal probes of the Santa Barbara, Calif.-based hospital operator. But Barbakow will stay on as CEO.

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