Equistar prices upsized $450 million; Levi descends more, Better Minerals soars on sale of unit

By Paul A. Harris

St. Louis, April 16 - Three significantly upsized deals priced during Wednesday's high yield primary market session, as sources on both the buy- and sell-sides of the market advised Prospect News that the level of cash in the market is "amazing," and that demand for new paper is "huge."

Houston-based Equistar Chemicals, LP hit upon one solution for bond hungry investors, on Wednesday, as it upsized its deal by $125 million to $450 million. Also pricing was Alpharma Inc.'s $220 million eight-year note offering - already increased on Tuesday from $200 million - and, from the other side of the Atlantic, Fresenius AG's €400 million of notes, increased from the planned €300 million with the addition of a €100 million bullet tranche.

Meanwhile sources who focus on the high-yield secondary market reported that the bonds of Levi Strauss & Co. continued to descend - albeit more gradually than was reported to have been the case Tuesday - on news that the privately-held clothing giant from San Francisco is being sued by two of its former tax officials who allege they were fired for not going along with what they say were shady accounting tactics.

Also in sickbay, Wednesday, one trader said, was the paper of Tenet Healthcare Corp., which is being scrutinized by investigators over its billing practices.

And bonds of the troubled St. Louis cable operator Charter Communications, Inc. were seen trading rather briskly during the session, although by its conclusion one source had them slightly down.

However, the big mover of the day, according to one source, was paper from Better Minerals & Aggregates Co., which advanced more than 10 points on news that its Better Materials Corp. subsidiary would be acquired by British building materials group Hanson plc for $152 million cash.

Wednesday's session was still young when word began to circulate that remarkable demand was being seen for at least three of the new deals that were then left to price during the remainder of the holiday-abbreviated week of April 14. Sources advised Prospect News that Equistar Chemicals and Alpharma both of which eventually priced upsized deals during Wednesday's session, and XTO Energy, which is poised to price an upsized $400 million 10-year deal on Thursday, were "hugely oversubscribed."

That information seemed to come as no surprise to Kathleen Gaffney, vice president and portfolio manager of the Loomis Sayles High Income Funds, when reached by Prospect News early in Wednesday's session.

"There is so much cash out there," stated Gaffney. "It's just amazing."

When Prospect News further related that word was circulating through the sell-side that price talk of 6 3/8% area was out on XTO's upsized $400 million offering - increased from $300 million - the Loomis Sayles portfolio manager again seemed nonplussed.

"You have a lot of crossover people buying that name," she said.

XTO is bringing 10-year senior notes (Ba2 expected/BB) and is set to price them Thursday morning via Lehman Brothers and JP Morgan.

And as high grade investors might be expected to cross over into junk-land to play a credit such as XTO Energy, Gaffney added, so too are some lower-tier investment-grade issues attracting the fast eyes of the high-yield accounts.

"Recently we saw the Toys 'R' Us deal, and PSEG Energy, both triple-Bs that were priced cheaply because there is so much high yield demand out there. But I would consider those cuspy investment grade credits. I think they are taking advantage of the market right now because there is so much high yield cash out there."

Gaffney said that the present rally in high yield is being driven by technicals - all the cash in the market - rather than by widely held positive outlooks on such fundamentals as the economy and corporate earnings.

"It's kind of a funny period," she said. "You have diminishing uncertainty about the war. And we're going to go through earnings season. Then we're going to go into the summer.

"So it's hard to get a read on what the economy is really doing."

Whatever the economy is doing, high yield investors on Wednesday were unleashing their notable - Gaffney called it "insatiable" - appetites for new paper on the three upsized deals which the investment banks were to transact through the course of the session.

First came Equistar Chemicals' upsized offering, increased to $450 million from $325 million. The eight-year senior notes (B1/BB/B) priced at par to yield 10 5/8%.

Price talk on the Houston-based chemical company's deal, which came via bookrunners Citigroup, Banc of America Securities, Credit Suisse First Boston and JP Morgan, had tightened Wednesday to the 10 5/8% area from the 10¾% area.

Also pricing in the U.S., Wednesday was Alpharma's offering $220 million of eight-year senior notes. It had already been increased on Tuesday from $200 million. The deal priced at par to yield 8 5/8% via bookrunner Banc of America Securities and co-manager CIBC World Markets.

Price talk on the Fort Lee, New Jersey-based pharmaceutical firm's deal was said by a market source to have tightened to 8 5/8% from the 8¾%-9% released Tuesday.

Meanwhile in the eurobond market, terms emerged on a restructured and upsized offering from Fresenius AG. It increased its deal to €400 million Wednesday by adding a €100 million bullet tranche to its €300 million offering of senior notes due April 30, 2009 (Ba1/BB+).

The €300 million six-year non-call-three senior notes at par to yield 7¾%. Price talk was for a yield of 7½%-7¾%.

The company also sold €100 million of non-callable senior notes at par to yield 7½%.

Deutsche Bank Securities was the bookrunner.

"One of the reasons this deal was so strong is that investors perceived the possibility that this company is a candidate for a possible upgrade," a sell-side official told Prospect News not long after the Fresenius terms emerged.

"People were looking at the Fresenius Medical 8 7/8% of June 2011 as a comparable," the source added. "That deal was a trust preferred Ba2/BB-, and people looked at it as a benchmark. That deal was quoted at 7.44% yield to worst.

"On the back of that very strong demand Deutsche Bank hit another pocket of investors with the addition of the €100 million tranche.

"And the order book on the €300 million deal was heavily oversubscribed. Deutsche Bank priced the callable bonds to yield 7¾%, on the wide end of the price talk. They could have priced tighter, but people said they did the right thing, given the addition of the €100 million bullet tranche."

As Wednesday's primary market session came to a close one new offering made an appearance. Cleveland-based polymer services company PolyOne Corp. will begin the roadshow Tuesday on $250 million of Rule 144A senior notes due 2010 (existing ratings B2/BB-), according to a market source.

The syndicate will be comprised of Citigroup, NatCity Investments and McDonald. The roadshow is set to conclude on April 30.

Meanwhile during Wednesday's secondary market session, traders reported to Prospect News that the notes of San Francisco clothing giant Levi Strauss continued the slide - albeit not nearly as precipitously - they began Tuesday when the San Francisco Chronicle reported that two former tax managers that the company recently fired are claiming in a lawsuit that Levi booked questionable income and tax deductions that served to artificially balloon profits by hundreds of billions, and are suing the company.

"Levis continue to be active," said one trader. "The bonds last traded at 82, which is down a couple of points on the day. It's still a reaction to that story in the San Francisco Chronicle Tuesday."

Another secondary market source had the company's 7% at 76 bid, down from 80 on Tuesday, he said the 11 5/8%s went to 80 late in the session from 84.

Levi has strongly denied the accusations, saying its accounting is proper and promising to vigorously defend against the claims.

Meanwhile Better Minerals & Aggregates 13% senior subordinated notes due 2009 were seen closing in the high 40s, up from 36 on the sale to Hanson, a source said.

Hanson said it will buy Better Materials Corp. from Better Minerals & Aggregates for $152.0 million in cash, plus the assumption of $3.0 million of debt.

Better Materials, a Penns Park, Pa. producer of construction materials, had sales of $115.3 million in 2002 and EBITDA of $21.1 million.

Also on Wednesday a trader reported that the paper of Tenet Healthcare Corp., which is being scrutinized by investigators over its billing practices, was seen to be in decline during the session.

"The stock was down a point," said the source. "They were put on watch for downgrade."

He saw Tenet's 7 3/8% of 2013 moving "a couple" of points lower on the day to 96.

"Following HealthSouth's problems, and HCA's sort-of problems, people are just nervous," the trader added. "So Tenet is taking it on the chin a little bit."

Another source had Tenet "down about a point and a half to two points," quoting the 7 3/8% bonds of 2013 at 95 bid, 96 offered.

Moody's Investors Service put Tenet on review for possible downgrade because of uncertainty about its financial performance in light of its fiscal third quarter results.

In particular, Moody's cited identification of higher than anticipated malpractice expenses, delays in payments by managed care payors, and acknowledgement that Tenet expects additional charges in future quarters.

The ratings agency observed "that unusual third quarter charges totaling about $530 million and the company's indication that they will take additional charges going forward raise concerns regarding the quality of earnings."

Moody's rates Tenet's subordinated notes at Ba1 and senior unsecured notes at Baa3.

But even if HealthSouth's problems have added to the market's nervousness about Tenet, the cause of the concern has actually seen its debt perform better recently.

"HealthSouth has been rallying a little though," this source injected, noting that 6 7/8%s of 2005 went to 63 from 61.5.

Meanwhile the bonds of Charter Communications, Inc. were seen trading rather briskly during the session, although by its conclusion one source had them slightly down.

"They have been moving up a lot lately," the trader said. However, the 8 5/8% of 2009 moved to 63 during Wednesday's session, according to this official, down from 63.75.

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