Station Casinos prices small add-on; big calendar builds more; aaiPharma slides on sales probe

By Paul Deckelman, Paul A. Harris and Reshmi basu

New York, March 1 - March came in like a lamb Monday for the high-yield primary market, still catching its breath after a whirlwind of deals of Friday put more than $2 billion of new paper into investors' hands; by way of contrast, only a relatively small add-on deal, for Station Casinos Inc., priced Monday. However things weren't entirely quiet, with deals for Visteon Corp., Clondalkin Industries and American Achievement joining an already bulging forward calendar.

In the secondary market, aaiPharma Inc.'s announcement of "sales abnormalities" in key product lines, and the resulting withdrawal of earnings guidance while the Wilmington, N.C.-based specialty pharmaceuticals company investigates the matter sent its stock tumbling and its bonds tumbling, the main feature in an otherwise generally sedate session.

It was the size and scope of that pipeline that sparked a good deal of discussion among primary market sources during the week's opening session: 15 dollar-denominated deals for a total of just under $3.122 billion, along with two euro offerings totaling €520 million scheduled to price before the close of business on Friday.

A sell-sider noted late Monday that no official price talk had been heard on any of the 17 offerings, and that none are expected to price during Tuesday's session.

"It's not necessarily that this is such a big calendar, in terms of the dollar amount," another sell-side source reasoned. "But there are certainly a lot of deals out there."

Still plenty of cash

Another sell side official said that it is conceivable that not all 17 deals would be completed by Friday's close.

"If one of these deals didn't get done it wouldn't be shocking," the official said.

"A lot will depend on the market technicals on the day that each respective issuer tries to price. If it's a strong day maybe they'll go ahead and price it. If it's weak maybe they'll hang on to it."

This official specified, however, that the high yield mutual funds-picture, in which outflows from the funds have been reported in three of the past four weeks, do not figure to factor large into the week's new issue business.

"The outflows haven't been good," said the source. "But the trend is still positive. Accounts still have plenty of money after raising so much last year. And given how much the accounts raised last year we still have not had a meaningful shock to the system.

"If we had five weeks of billion dollar-plus outflows in a row, even though that would still not take away all the funds' money, that would be a big shock.

"As it is, just two big outflows, then reverting back to a positive week, followed by a minor outflow, there is no clear pattern right now. We're not in a negative funds flow environment yet."

Station reopens $400 million deal

In Monday's only completed transaction Station Casinos Inc. priced a $50 million add-on to its 6½% senior subordinated notes due Feb. 1, 2014 (B1/B+) at 100.50, resulting in a yield of 6.417%.

The Banc of America Securities-led deal came on top of the 100.50 area price talk.

Although the Las Vegas hotel and casino owner had recently completed a quick-to-market issue of $350 million 12-year issue (B1/B+) just one week ago, the issue that it reopened, Monday, originally priced on Jan. 15 - an upsized $400 million issue that came at par.

Swelling pipeline continues to fill

News of three new offerings circulated the primary market during the opening session of March 2004.

Visteon Corp. is in the market with $400 million of 10-year high yield notes (existing Ba1/confirmed BB+) which it expects to price on Thursday, via JP Morgan and Citigroup.

The Dearborn, Mich.-based supplier of automotive systems, modules and components will use the proceeds to refinance debt.

The roadshow is expected to get underway on March 9 for American Achievement Corp.'s $150 million of eight-year senior subordinated notes (B-).

Goldman Sachs & Co. and Deutsche Bank Securities will run the books for the offering from the Austin, Tex.-based manufacturer and seller of high school and college class rings and yearbooks.

And the roadshow started Monday for Condalkin Industries BV's €170 million of 10-year senior notes (B-), which will possibly price late this week.

Deutsche Bank Securities, Barclays Capital and Lehman Brothers are joint bookrunners.

The Dublin, Ireland-based producer of specialty packaging and printing products will use the proceeds to help fund the €630 million acquisition of Clondalkin by Warburg Pincus from Candover.

Reader's Digest higher

Among recently priced new issues, Reader's Digest Association Inc.'s new 6½% notes due 2011"traded a little bit better," moving up to 101.75 bid, 102 offered Monday, a trader said. The notes had priced at par late Friday and actually broke at 101 3/8 bid, 101 5/8 offered, but "there was no real trading" then, the trader added.

However, he said, around the 102 level, "that means its [yield] is right around 6%, so my sense is it's not gonna get much higher than that. They traded right up to the high end. We saw some sellers, and it traded around a bit, but that was it."

He also saw Nebraska Book Co.'s new 8 5/8% senior subordinated notes due 2012, which priced Friday at par, traded at bid levels around 100.25-100.5. "They basically left them bid for," the trader said, "but it was pretty thin trading. They seemed to be better bid, and there was not a lot of re-trading on that one."

aaiPharma "crushed"

Back among the established issues, aaiPharma's bonds "got crushed" after the company revealed its bad news; he saw its 11% notes due 2010 as having fallen to around par bid from levels as high as 108 on Friday.

At another desk, a trader quoted the bonds at 99.25 bid, 100.25 offered, down from bid levels Friday around 105-107, although he said the bonds had recently been as good as 111.

The company said that its board of directors had "become aware of sales abnormalities in the company's Brethine and Darvocet product lines during the second half of 2003." It did not specify what kind of "abnormalities" it had uncovered, but said that it has appointed an independent committee of directors to conduct an inquiry into these matters.

The committee has retained King & Spalding LLP, an independent law firm, to assist in this investigation. Pending resolution of the investigation, aaiPharma said it "believes these matters will materially affect its previously announced guidance for the first quarter and full year of 2004 and is withdrawing its guidance for these periods."

Both Standard & Poor's and Moody's Investors Service were eying the company's ratings for possible downgrades; meantime, aaiPharma shares swooned $5.51 (36.06%) in Nasdaq dealings to $9.77 on volume of 8.3 million, about nine times the norm.

Tenet down

Also on the healthcare front, Tenet Healthcare Corp.'s bonds were seen lower, after Moody's Investors Service cut the debt ratings on the beleaguered Santa Barbara, Calif.-based hospital operator, lowering its senior implied rating a notch to B2 and its senior unsecured debt rating two notches to B3, both from B1 previously, with a negative outlook.

A market source quoted Tenet's 6 3/8% notes due 2011 as having dipped to 87.5 bid from 88.75 previously, while its 6½% notes due 2012 finished down more than a point at 86.5 bid.

A trader quoted Tenet's 7 3/8% notes due 2013 as having dipped to 90 bid, 91 offered from 92 bid, 93 offered previously.

"The front-end bonds, like the '06s and the '07s may have been down about a point, and the longer end down two points," the trader said.

Even with the downgrade and the slight erosion in the bonds' prices, he said, "it seems to be firm. Every time there's some kind of news that takes it down, the buyers come in and it trades right back up. I don't think anything has fundamentally changed. Moody's cited liquidity concerns in their downgrade report. With negative free cash flow, they're a little concerned about the credit going forward."

The ratings agency, while noting that Tenet has said it will sell 27 hospitals to help shore up its finances, warned that "a variety of unfavorable issues" facing the facilities could delay the sales and leave Tenet unable to meet its cash obligations over the next 12 to 18 months.

Gap up on sale-leaseback

On the upside, a trader said Gap Inc. bonds were up, citing news that the San Francisco-based apparel retailer had conducted a sale-leaseback transaction and had garnered greater-than-expected proceeds from the deal.

He quoted Gap's 7¾% notes due 2007 at 93 bid, 94 offered, up from 90.5 bid, 91.5 offered on Friday.

AK Steel gains on sale

And AK Steel Corp.'s bonds strengthened on news that the Middletown, Ohio-based steelmaker has agreed to sell its Douglas Dynamics LLC unit, which makes snow and ice removal equipment, to Aurora Capital Group.

Terms of the deal were not disclosed.

However, AK Steel said proceeds from the sale and from another deal announced in February - its sale of a Houston-area industrial park - would be more than previously expected. The company had been anticipating about $300 million from the sale of the non-core assets, but now says it will reap about $340 million total.

AK's 7¾% notes due 2012 were a point better at 86 bid, while its 7 7/8% notes due 2009 were half a point up at 87.5.

A trader said that Oregon Steel Mills Inc. bonds were up on sector sympathy, quoting them a point better at 95 bid.

Overall, the market "was firm, pretty much across the board, there seemed to be interest," a trader said, adding that "it seemed to be Street interest; there weren't a lot of customers in shooting at bonds. So the market was up half a point, three-quarters of a point, on thin trading with light flows."

NTPC talked at 200 to 210 bps

In Monday's emerging market news, price talk of 200-210 basis points surfaced on National Thermal Power Corp. (NTCP)'s $200 million seven-year bond (Ba2/BB/BB+).

The deal is expected to price on Tuesday, via Merrill Lynch & Co. and ABN Amro.

Indonesia talked at 7%

Meanwhile the Republic of Indonesia is in the market with a $500 to $1 billion 10-year global bond offering (B2/B).

The roadshow makes Tuesday stops in New York and Frankfurt, Germany, with pricing expected on March 4, via JP Morgan and Citigroup.

The deal is being talked at a yield of 7%.

One investor, speaking on background, expressed the opinion that Indonesia at 7% would not be hard to watch go by and wave at.

"They are having parliamentary elections in October," said the investor. "There are too many uncertainties. And the yield we're getting is too low."

Mexican telecom benefits from "strong credit ratios"

America Movil SA de CV of Mexico is offering an upsized $1.3 billion in two tranches due 2009 and 2014 (expected Baa1/BBB-), expected to price Tuesday.

The deal, increased from an original $1 billion, is comprised of a $500 million of five-year-bonds expected to price at a spread of 118 basis points over Treasuries and $800 million of 10-year bonds expected to price at a 160 basis points spread.

"The deal is priced tight to the Mexican sovereign," said one emerging markets source who is watching the deal.

"The book was oversubscribed because of very strong credit ratios.

"The deal is doing fairly well because of the lack of corporate exposure among some of the large institutional investors. This is probably credited to very strong credit ratios.

"And it's easier to get involved in the new issue market than trying to get in the secondary market."

Finally, a source told Prospect News, that Gazprom is rumored to be in the market with a deal secured by receivables.

It will probably be investment grade, the source said.

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