Mostly up with stocks; Telemundo firms on NBC buy news; Alaris upsized

By Paul Deckelman and Paul A. Harris

New York, Oct. 11 - The high yield secondary market followed the equity markets higher Thursday, with most names up at least a point or so on the session, traders said. One name which has trended notably higher over the past two sessions has been Spanish-language TV broadcaster Telemundo Group/Holdings, which is to be bought by NBC. One of the few downsiders was funding-challenged Adelphia Business Solutions Inc.

In the primary market, Alaris Medical Systems, Inc. upsized is offering of five-year senior secured notes to $170 million from $150 million, the third new deal in a row to be upsized. Late in the session, word circulated about an upcoming offering from Advance Stores Co., Inc. which was said to be planning a $150 million add-on to its existing 10¼% senior subordinated notes (B3/B-) due April 2008. Bookrunners were said to be Morgan Stanley, Credit Suisse First Boston and Lehman Brothers with pricing the week of Oct. 22. Officials at the bookrunners could not be reached late Thursday to confirm the information.

"Today was a continuation of yesterday's rally," a trader said. "While there was some short-covering, there was also definitely legitimate customer buying, and the market was up one to two points."

Besides the usual short-covering, he said, there had also been CBO (collateralized bond obligation accounts) buying, as well as retail customer interest, "mirroring the equity rally" (the bulls dominated from the opening to the closing bell, with the Dow Jones Industrial Average up 169.59 and Nasdaq up 75.21, or more than 4% on the day).

The trader further noted that unlike recent upturns, which mostly would see some decent gains in the morning, only to surrender most of them in afternoon dealings, "there was very little pullback from the highs."

Among the gainers he saw was Nextel Communications Inc., whose various senior debt issues had traded as low as 62.5 bid during Wednesday;'s dealings before coming back to finish Wednesday at bid levels around 64-65, up around a point on the day. In Thursday's action, he noted, the big wireless company's bonds moved up again to closing levels around 68 bid.

Even the more badly battered telecom issues - what the trader called "the thermonuclear stuff" because it has been blasted so badly - "started to see a lift," with XO Communications Inc.'s bonds, which had been offered in the mid-teens Wednesday, ending bid at 17. McLeodUSA Inc. paper, like its 11.375% notes, pushed up from Wednesday's close at 17 to 21.

Even Global Crossing Holding Inc.'s notes firmed to 17.75 bid from prior levels around 16, despite a three-notch downgrade in the senior unsecured junk bonds by Moody's Investors Service to B2 from prior levels at Ba2. The ratings agency questioned whether the Hamilton, Bermuda-based global long-haul communications provider can remain in compliance with its bank covenants.

But another trader, who also saw Global Crossing's debt stronger amid a generally firmer market, dismissed the downgrade, and one-notch downgrade this past Friday by Standard & Poor's, as "a mere formality" which had been essentially anticipated by the market when it dropped the bonds - trading near par earlier around the beginning of the year - into the teens.

Also anticipated, he said, and thus no big deal were the generally dismal same-store sales numbers reported by a number of high yield issuers in the retailing field, given the already softening economy and the after effects of the Sept. 11 terrorist attacks in the U.S. For that reason, he said, the retailers had been among a number of groups firming Thursday, even though most had negative same-stores figures. One of the stronger performers in the group, he said, were the Rite-Aid Corp. bonds; while most retailers reporting Thursday had negative same-store figures (except for Kmart Corp., whose results were flat), Camp Hill, Pa.-based drugstore chain operator Rite-Aid had earlier in the week actually posted a 6.1% gain in same-store results.

Besides the retailers, he said, the market "was definitely firmer across the board." While he saw certain isolated pockets continuing to just tread water, such as the steels, many other sectors, including most telecoms, gas producers and deathcare companies such as Service Corp. International and Stewart Enterprises Inc. were all better.

Telemundo Group and Telemundo Holdings debt had been heard to have firmed solidly in very late trading Wednesday, ahead of the announcement that NBC will buy the No. 2 U.S. Spanish-language TV broadcaster for $2 billion in cash and GE stock, plus the assumption of $700 million of Telemundo debt. It continued to gain in Thursday's activity, the company's zero-coupon/11.5% senior discount notes due 2008 jumping more than 12 points over the two sessions to about 90.5 bid.

Two names which are the subject of current tender offers were also among Thursday's gainers. There was some belated upside in the bonds of Level 3 Communications Inc., whose 9.125% benchmark senior notes due 2008 rose a pair to 36 and whose zero-coupon/10.5% notes were up a point to 21, after the Broomfield, Colo.-based long-haul carrier announced revised terms for its previously announced "modified Dutch auction" tender, nearly doubling the face amount of bonds it is tendering for to just under $3 billion.

Meanwhile, United Pan Europe Communications N.V.'s cash-pay bonds were up two points, to 16 bid, and its zero-coupon bonds rose to seven cents on the dollar from a nickel on the dollar before; Liberty Media announced plans to buy a minimum of $1.55 billion of the Dutch-based cable operator's debt.

But bonds of two other Eurocablers were also higher, even without a tender offer - NTL Inc.'s bonds were up two points, while Telewest PLC's paper was up even further - about six points across the board.

On the downside, Adelphia Business Solutions Inc,. bonds "got killed," one market participant said, quoting its 12.5% notes due 2004 as having dropped half their value to around the 25 bid level, while its zero-coupon/13% discount notes were languishing around 15 bid from their former levels in the 30s. Several other traders had not really seen much trading in the Coudersport, Pa.-based telephone carrier's paper. There was also no fresh negative news out about the company, although there has been considerable investor angst in recent weeks over whether it would be able to line up sufficient funding to continue fulfilling its business plan.

However, corporate parent Adelphia Communications Inc.'s bonds were all up about two to three points on the day, in line with a strong cable sector; its 10.5% notes moved up from 99 to 101.5 bid.

In the primary, volume continues to lag behind what traders are hoping to see, but those deals that actually price seem to be demonstrating considerable pent-up demand.

Alaris' $170 million of notes that priced Thursday afternoon at a yield of 11 5/8% represents the third deal in a row to hit the primary upsized in the past seven days. On Thursday, Oct. 4, the Fleming add-on came in at $150, up from the announced $100 million. The following day Luscar Coal's senior notes were upsized to $275 million from $250 million.

"This tells you that there's a very thin secondary market and that people were pretty heavy cash, anticipating very substantial liquidation in the mutual funds, which really didn't show up," commented Prescott Crocker, fund manager of the Evergreen High Yield Funds.

"They're finding they can't get their cash to work in the secondary and so they're trying to pile into some quality primaries."

Indeed, a source told Prospect News just before press time that the AMG fund flow figures showed an outflow of a comparatively low $53.8 million for the most recent week. That is against an outflow of $163.8 million the previous week and more than $1.3 billion in the previous two weeks.

Crocker added: "I think the high yield market has bottomed. I think that this was a week of great markets. And they'll all be trading at substantial premiums next week."

The Evergreen high-yield fund manager said the Alaris deal was appealing.

"We thought senior secured, for Alaris, was very attractive," he commented. "We'll be buying into the secondary market.

"It's two-times coverage, and there is a lot of free cash flow. And it looks like the market position share is stabilized," he said, adding: "The health care sector is a nice place to be."

An informed sell-side source close to the Alaris deal said the upsizing reflected good demand.

"There was a high degree of interest," the source said. "There are a lot of funds sitting on cash, and not a lot of places to put it."

Evergreen funds vice president and health care analyst Bob Rifkin said: "You have really good leverage characteristics through these bonds. I think the senior level of debt is only about 1.6-times EBIDTA. So that gives you some good cushion.

"This issue is also giving this company some breathing room for the next several years, so that they can transition to this new product that they're marketing, right now. They had a bank payment coming at the beginning of '02, along with a convertible bond payment. So by doing this issue they were able to clear that out, and give themselves some breathing room."

End

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