Iron Mountain, Six Flags deals price; secondary softer on profit taking

By Paul Deckelman and Paul A. Harris

New York, April 9 - Saddam Hussein bit the dust Wednesday - literally - as cheering crowds of Iraqis, with a timely assist from some U.S. Marine tank crewmen, pulled the 40-foot high statue of the former Great Man which had dominated central Baghdad off his pedestal, bringing a figurative end to his long and violent regime. The event mesmerized Western television viewers - but one bond market participant dismissed the spectacle, saying that in the view of the financial markets, "yeah, we pulled the statue down. So? Now the economy will start to be the focus again" as the war winds down into a mopping-up phase.

He said that overall, "everything was weaker. It felt blah, with a lot of profit-taking" after the recent run-up in some areas and the even more recent Victory Bounce.

In primary market activity, a pair of transactions priced Wednesday in the high yield primary market, both of them quick-to-market deals. Investors saluted $430 million of new 10-year paper from Six Flags, Inc., which came yielding 9¾%. And Iron Mountain Inc. achieved a successful descent in its interest rate as it priced an upsized $300 million add-on to the 7¾% senior subordinated notes due Jan. 15, 2015 at 104 to yield is 7.066%. The deal was announced at $250 million. Proceeds from both are slated to be used to take out existing bonds.

Amusement park operator Six Flags' $430 million senior notes (B2/B) priced at par to yield 9¾%, on the tight end of the 9¾%-9 7/8% price talk.

Lehman Brothers was bookrunner on the deal.

The Oklahoma City-based firm will use the proceeds to refinance its $401 million of 10% senior discount notes due 2008.

Iron Mountain's $300 million add-on to its 7¾% senior subordinated notes due Jan. 15, 2015 (B2/B) priced at 104 to yield 7.066%. Price talk was 103.75-104.

Bear Stearns was the bookrunner. Proceeds from the off-the-shelf deal will be used to fund the Boston-based information management firm's tender, and for general corporate purposes including possible acquisitions.

Drive-by deals such as the ones that priced Wednesday are presently the preference among issuers, sources have been telling Prospect News. Prior to and since the onset of hostilities in Iraq market sources have said that high yield issuers have all but lost their appetites for taking deals on the road - not because of lousy meals but because negative headlines on geopolitical events could interfere with or even detract from the credit story that a company wishes to present to investors.

One sell-side source told Prospect News on Wednesday that even though the U.S. military seems to be achieving its near-term goal of displacing the regime of Iraqi dictator Saddam Hussein, issuers can be expected to continue to demonstrate a preference for letting their fingers do the walking for the foreseeable future.

"Issuers would much rather do an investor conference call than be on the road for five days," said the source. "If they can get away with not marketing I wouldn't expect to see it."

This source also said that an anticipated favorable outcome to the U.S. military effort in the Mid East and the massive tide of cash that has lately been reported to have flowed into the asset class do not necessarily foretell a significant buildup in the new issuance calendar.

"Most people were thinking that the market was going to pick up after the war is over. But you look at the technicals and you look at the fact that companies aren't exactly blowing the doors off when it comes to reporting the numbers.

"I think people will want to see some of the fundamentals turn around in terms of corporate operations and start to see earnings pick up and get a good earnings season behind them. I think you would see a dramatic pick up with that.

"I think you'll see some pick up. But I don't think it will be the kind of market where we are seeing four and five new deals each day.

"I think it's a 'wait-and-see' market."

In addition to terms on the Six Flags and Iron Mountain deals, the market heard price talk of a yield in the 9¾% area Wednesday on Town Sports International's upcoming $250 million of eight-year senior notes (B2/B-). Deutsche Bank Securities is doing the lifting on the heath club operator's deal, which is expected to price Thursday.

Also, late Wednesday nursing home operator Manor Care announced a refinancing deal that will include $200 million of 10-year senior notes (Ba1/BBB), to price Thursday via JP Morgan, Merrill Lynch & Co. and UBS Warburg.

Among the sources who spoke to Prospect News about the split-rated Manor Care deal, late Wednesday, the preponderance did not anticipate significant play in the deal from high-yield accounts. One source, however, differed.

No price talk was heard on the deal, but one source said Manor Care would likely come with a six-handle.

When trading began in the new Iron Mountain bonds, the issue "didn't seem to get out of its owns way; most of the trading was around 104," where it priced, a trader said.

On Six Flags, the trader said the offering "didn't look very well-distributed," and didn't go anywhere afterward, with "par bids seen all day" once it was cleared for secondary dealings. However, Six Flags' 8 7/8% notes due 2010 - which are not involved in the tender offer - were being quoted elsewhere up a point at 97, one of the few issues seen moving up.

The secondary market, the trader said "opened up kind of sloppy in the morning but then settled down," settling into a range on most issues down about half a point or so.

Then, attention moved to the flurry of new issue activity toward the end of the day.

Generally, he said, the secondary market "was a little bit softer because the calendar is picking up and it's easier for accounts to sell paper. We got a little out of hand on the upside when there wasn't any [new] paper around and there was too much cash."

One of the issues which could be said to have recently "gotten out of hand" has been Calpine Corp., whose bonds have been firming of late - along with those of the whole merchant energy sector - on a wave of recent refinancings by the San Jose, Calif. -based independent power producer's sector peers, such as AES Corp., El Paso Corp., Reliant Resources Inc., Dynegy Inc. and Allegheny Energy Inc.

Those utility and merchant energy companies 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.

Calpine's bonds had been going up on the assumption that the company would be the next sector player to announce a big refinancing deal.

But those bonds - which had retreated both Monday and Tuesday - continued to head downward on Wednesday, its 8½% notes due 2011 dropping to 60 bid/60.5 offered from prior levels at 62.75 bid/63.75 offered.

Elsewhere, Levi Strauss & Co.'s recently strong paper was coming off of its highs, its 12¼% notes dipping to 92 bid/93 offered from 94.5 bid/96 offered.

Also on the downside was American Airlines parent AMR Corp.'s 9% notes due 2012, which had risen as high as the upper 30s last week on expectations that the troubled Number-One U.S. airline company would be able to wring the needed cost-cutting concessions out of its unions. Those bonds had been slowly coming back to earth this week, going from levels of around 35 bid/36 offered on Monday to Tuesday's 33 bid/34 offered. On Wednesday, they lost still more altitude, closing around 31.5 bid/33.5 offered, on probable profit-taking - even at those lower levels, the bonds are still about double the bid levels around 16-17 seen in mid-March.

AMR shares, however were 16 cents better (4.41%) to $3.79 in New York Stock Exchange dealings of 15 million shares, about double the norm.

One upsider Wednesday among the bonds was AK Steel Corp., whose bonds traded off in the morning - a trader quoted its 7¾% notes due 2012 opening at 91 bid/92.5 offered, and its 7 7/8% notes due 2009 opened at 92 bid/93.5 offered.

AK has been trying to buy the assets of bankrupt National Steel Corp. for about $925 million, but has not been able to reach agreement with the United Steelworkers Union on a new contract that would cover the National workers it would inherit in the event of a purchase. The trader said that when rival bidder U.S. Steel Corp. announced that it had struck a deal with the steelworkers, "the [AK] bonds traded back up - the 73/4s traded up as high as 93.75 bid and were left at 93.5 bid/94.5 offered, while the 7 7/8s finished at 94.5 bid/95.5 offered, up a couple of points on the day.

He said that it "looks like U.S. Steel taking over National Steel. I think the market sees AK not getting involved in [National Steel] as a positive," which pushed its bonds up, along with the Youngstown, Ohio-based steelmaker's shares, up 43 cents (12.43%) to $3.89 on the NYSE; volume of 1.5 million was about double the usual.

AK which along with U.S. Steel has been one of the few high-yield steelers able to avoid the pitfalls that drove National Steel and such other industry peers as LTV Corp. and Bethlehem Steel Corp. to ruin - is in "kind of a damned if you do, damned if you don't position. If they don't buy National's assets [and rival U.S. Steel does], they're less competitive than they were before in a tough market. And if they do, they'll have to spend a lot of money."

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