Hollinger, Iron Mountain price deals as activity pace slows

By Paul Deckelman and Paul A. Harris

New York, Dec. 16 - Hollinger International Publishing Inc. and Iron Mountain Inc. combined to bring a total of $400 million of new debt to the junk bond market Monday - normally a fairly respectable sum, but a sharp letdown from the torrid pace seen on Friday when nine - count 'em - nine deals collectively valued at $1.93 billion came clattering down the chute.

But even that reduced primary market pace was clearly the most exciting thing happening in the high yield world on Monday; secondary market activity seemed to start winding down ahead of the end-of-year holidays, traders said, with mostly featureless dealings. AES Corp. bonds were again being quoted at firmer levels at some desks, riding the momentum from last week's big exchange offer-related gains.

Of the two new deals transacted Monday - one of them anticipated by the market and the other one a surprise: Hollinger International Publishing Inc. printed a 9% yield on its new $300 million of eight-year senior notes while Iron Mountain Inc. yodeled 7¾% talk to investors in a conference call and investors in turn yodeled back an affirmative response.

In the most recent issue of Deutsche Bank's high yield research organ, One-Stop Weekly, that institution's co-heads of high-yield research, David Bitterman and Andrew W. Van Houten, addressed one of the few negative nuggets of news affecting the primary market during the past week, namely that a two-month run of inflows to high-yield mutual funds came to an end with AMG Data Services reporting an outflow for the week ending Dec. 11.

Characterizing the about-face in the funds flows as a "slight breather," Deutsche Bank expressed a sanguine take.

"We welcome this slight breather and think that a seesaw pattern is much healthier in the long term than long streaks of inflows followed by a tremendous outflow, or vice versa, as we have seen so often during 2002," the Deutsche Bank report stated. "Although $400 million is no insignificant outflow for one week it must be remembered that mutual funds took in over $4.9 billion during the preceding eight-week period. Therefore, what we lost over the prior seven days does not even correspond to 10% of the last rally's inflow, and even a few more weeks of such losses shouldn't give investors much of a worry."

Meanwhile during Monday's session in the primary market Hollinger priced $300 million of new eight-year senior notes (B2/B) at par to yield 9%, at the tight end of the 9%-9¼% price talk. Bookrunner was Wachovia Securities, Inc.

Also on Monday, in drive-by action, Iron Mountain priced an off-the-shelf $100 million of senior subordinated notes due Jan. 15, 2015 (12-year maturity) (B2/B) at par to yield 7¾%, spot on to the 7¾% price talk, via Bear Stearns.

One of the topics treated in Monday's edition of the Banc of America Securities' Situation Room report (Monday's issue was subtitled "Fallen Angels on the Christmas Tree") David Goldman, head of that institution's Global Markets Group Research noted that "For the first time in years, the high yield market is setting the pace for credit markets in general. Investors are putting fallen angels at the top of their Christmas lists. Dynegy's return to the market in the form of a high yield issuer typifies a market in which most of the new supply of high yield debt consists of former investment grade issuers. This improves the risk-reward profile of the high yield market just as investors' risk appetite has increased," Goldman noted.

Price talk of 12%-12¼% emerged Monday on the new junk bond deal from Dynegy subsidiary Illinois Power Co. The Decatur, Ill.-based electric utility looks to price its deal Tuesday via Merrill Lynch & Co. and Credit Suisse First Boston.

Also on Monday, price talk of the 103 area was heard on the Sinclair Broadcast Group, Inc.'s add-on offering of up to $150 million 8% senior subordinated notes due March 15, 2012 (existing: B2/B). The Baltimore broadcasting company expects to price its deal Tuesday via joint bookrunners JP Morgan, Deutsche Bank Securities and Wachovia Securities.

There was price talk of 11% area heard Monday for United Rentals, Inc.'s $200 million add-on to its 10¾% senior notes due April 15, 2008 (B1 existing/BB-). That deal, via Credit Suisse First Boston, is expected to price Tuesday afternoon.

And finally the price talk is 10¼%-10½% on Sanmina-SCI Corp.'s $450 million of senior secured notes due 2009 (Ba2/BB-), via Goldman Sachs & Co., which is slated to price late Wednesday.

Back in the secondary arena, a threatened Monday transit strike in New York was first postponed and then later in the day averted altogether (pending a rank and file union vote, of course - and union votes can often un expectedly throw a wrench in the works, as United Air Lines investors can testify). So trading desks in The Big Apple mostly had their full compliment of people as the last full trading week of the year began. But they might as well have not bothered, for the amount of the activity that actually took place, both in New York and elsewhere.

"It was very quiet," a trader said. "We expect the rest of the year to be very quiet. Already, a lot of people are traveling or on vacation."

Another opined that "it seems like most accounts - unfortunately - have already closed their books for the year. I personally think it's a little early for that - but that's the way things are."

The high yield secondary seemed to cool off a bit last week after some eight solid weeks of hefty advances, propelled in no small part by the easy liquidity coming into the market, as illustrated by the eight-week long inflow surge in high-yield mutual funds, which coincided with the market's impressive recovery from the late-summer doldrums. With the funds - finally - showing an outflow last week, the time seemed right for some players, at least, to walk away from the table and pocket their gains, or at least to refrain from taking any further risks ahead of year-end. As Kenny Rogers famously sang, "you've got to know when to hold 'em, and know when to fold 'em."

"I think most guys are kind of where they want to be" right now, another trader ventured. You had a big outflow last week in cash ($447.3 million), and we kind of sense that maybe there's been some timer money leaking out as well. I think that's going to keep kind of a lid on the secondary market to the upside."

For instance, he saw AES' bonds, which had been going great guns last week as the Arlington, Va.-based global independent power producer dodged a possible bankruptcy bullet by extending the maturities on $500 million of debt through an exchange offer (including $300 million that would have come due on Monday), just holding at the higher levels to which they had risen Friday on that news but not really extending those gains. He quoted its 9¼% notes at 58 bid/59 and its subordinated debt at 42 bid/44 offered, unchanged on the session but still up about six or seven points from where they had traded before AES announced completion of the debt deal.

Likewise, he said, "I didn't see anything crazy" in the homebuilding sector, even though the stocks of most of the names in the group, such as Beazer Homes, Hovnanian Enterprises, KB Homes and Pulte Homes were up anywhere from 4% to 5% Monday, with Ryland Group leading the way on the strength of its announcement that it had increased its share buyback program by one million shares. Also helping was the news that the National Association of Homebuilders index of housing activity reached 65 in December from a downwardly revised 64 reading in November; the December level is the highest in the industry barometer since November 2000.

On the other hand, he noted, "by the same token, you've got this January type of effect too, people wanting to be invested for the new year and that kind of thing. So anything that trades off, you tend to have buyers come in, looking for bonds at the lower levels."

And some secondary bonds, he said, continue to trade at nearly stratospheric levels, such as the new Dex Media East and R.H. Donnelley bonds which priced just a few weeks ago, moved up smartly - and have stayed there ever since. "These things are on the moon," he said, noting that the Dex bonds are still hovering around 107, for a yield in the 8.35% neighborhood. "I don't think that [lofty level] can last - but it's fairly indicative that people who have money to invest see it as a fairly safe thing."

Looking at the most recent new bonds, he quoted the new Hollinger bonds as having traded up to 101 bid from their par issue price before settling back in at 100.75 bid/101 offered. The new PerkinElmer Corp. 8 7/8% notes due 2013, which priced at 99.173 on Friday, traded at "only a slight premium" Monday, around 99.25 bid/99.75 offered.

Another trader also quoted the new Hollingers at 100.75 bid/101.5 offered, but saw the recently priced Insight Midwest LP 9¾% senior notes due 2009 "offered at their issue price (95.236), with no bid."

Among established issues, he said United Airlines "continues to be one of the more active names," with its unsecured bonds in the same recent 11-12 context, and "a pickup in activity" in trading of municipal bonds issued by local airport authorities to finance the building of hangars, gates and other UAL facilities.

He also saw little change in the AES bonds, although at another desk, the utility's 8¾% notes due 2008 were seen up some five points to 55 and its 8 3/8% notes due 2007 were quoted a point higher, at 44.

No movement was observed in WestPoint Stevens Corp.'s 7 7/8% notes due 2008 and 2011, despite the Georgia-based textile maker's announcement that it had paid $39 million in interest due on the two issues, and still had $205 million of borrowing availability after the coupon payments.

WestPoint also said that it is "comfortable" with the belief that it will remain in compliance with all of its financial covenants.

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