Ahold continues rebound; Buffet likes junk bonds; FairPoint deal prices inside talk

By Paul Deckelman and Paul A. Harris

New York, March 3 - Royal Ahold NV's bonds - which were getting pounded just a week ago - were on the upside for a third straight session Monday, with investors apparently convinced that the international supermarket operator's accounting problems are limited to just one part of the giant retailer. Elsewhere, the secondary market continued to bask in the warm afterglow of last week's reported billion-and-a-half dollar inflow to junk bond mutual funds, and got a further psychological boost from favorable comments by legendary investment guru Warren Buffet.

In the primary arena, FairPoint Communications Inc. priced its $225 million issue of seven-year notes inside of pre-deal market price talk, while a slew of new deals were heard by syndicate sources to have joined the forward calendar.

"The primary market is primed with cash," one sell-side source told Prospect News at the end of Monday's purposefully paced session.

Another source attributed Monday's burst of activity to news late last week that high-yield mutual funds took in $1.54 billion of cash.

"We're of the opinion that the primary market is primed and ready to go," said a sell-side official, adding that the inflow number provides the most easily discernible evidence.

"It supports all of the fundamentals that we see," the official commented. "There is strong demand in the secondary market which is ultimately going to drive your pricing in the primary market.

"Most underwriters are encouraging clients to take advantage of this market because it really is quite hot right now."

Terms emerged Monday on FairPoint's $225 million of seven-year senior notes (B3/B), which priced at par to yield 11 7/8%. Price talk on that deal, via Credit Suisse First Boston and Salomon Smith Barney, was for a yield in the 12% area.

An informed source told Prospect News that the FairPoint transaction is indicative of current circumstances in the new issuance market.

"That's a pretty good example of where the markets are right now," source commented. To bring that at the tight end of price talk is indicative of what people are willing to do."

The official added that when the Charlotte, N.C.-based telecom's deal first hit the road it encountered "significant pushback" but came together remarkably as investors absorbed the news of last week's massive inflow.

As FairPoint exited four issuers stepped forward to take its place.

Florida cancer diagnostics firm AmeriPath Inc. was heard to be coming into the presently well-heeled high yield with $210 million of 10-year notes. Standard Pacific Corp. figures to price $125 million of 10-year paper in a drive-by on Tuesday. Global eXchange Services, Inc. was heard to be roadshowing $175 million of five-year floaters. And Barney's, Inc. announced it would come with $90 million of five-year notes.

Standard Pacific doesn't figure to be around long as it looks to price its $125 million of 10-year senior notes on Tuesday via Salomon Smith Barney. The single-family homebuilder, based in Irvine, Calif., had been on the so-called "shadow calendar" of deals anticipated to be coming since early in the fourth quarter of 2002.

In other news on the new-issuance front, the roadshow is presently underway for Global eXchange Services' $175 million of five-year senior secured floating rate notes. The deal, via Credit Suisse First Boston, is set to price late in the present week or early in the week of March 10.

The Rule 144A floaters, proceeds from which will be used to refinance the Gaithersburg, Md. automation and software services company's debt, are callable after 18 months.

Meanwhile the roadshow starts Tuesday for AmeriPath's $210 million of 10-year senior subordinated notes (expected ratings B3/B-), via Credit Suisse First Boston and Deutsche Bank Securities. The proceeds from that deal will be used to help fund the $839.4 million LBO by Welsh, Carson, Anderson & Stowe, to be completed before April 30.

Finally on Monday Barney's, Inc., a wholly-owned subsidiary of Barney's New York, Inc., announced it will bring $90 million of five-year senior secured notes. Market sources told Prospect News that the bookrunner will be Jefferies.

When the new FairPoint bonds were freed for secondary dealings, they were quoted as having pushed up to 102.5 bid/103.5 offered levels, although a trader said that he hadn't seen much in the way of actual trading in the new paper.

Recently priced bonds also continued to hold a firm bid in the secondary market; the trader quoted the new 8 7/8% senior notes due 2010 issued by two subsidiaries of El Paso Corp. - Southern Natural Gas Co. and ANR Pipeline Co. - trading around 103 bid/104 offered. That's up from the bid levels about 101.5-102 seen when the bonds broke on Friday, and well up from their 99.718 issue price earlier Friday.

He also saw the new Northwest Pipeline Corp. 8 1/8% notes due 2010, which priced at par on Thursday, as having risen to 103.25 bid/104.25 offered, while DirecTV's new 8 3/8% senior subordinated notes due 2013, which priced at par last Tuesday, hovered around 105 bid/105.75 offered, unchanged on the session.

At another desk, a trader saw similar levels for the El Paso and Northwest Pipeline bonds, and pegged J.C. Penney Corp.'s new 8% senior notes due 2010 at 102.25 bid/102.5 offered, well up from their 99.342 issue price last Tuesday.

Back among the established issues, Ahold's bonds - which plummeted more than 30 points a week ago on the news of accounting irregularities at its U.S. Foodservice unit and the resignations of its CEO and CFO - were continuing to bounce back for a third consecutive session. A trader saw the Dutch-based supermarket operator's 8¼% notes due 2010 as having improved to 82.5 bid/84.5 offered, well up from Friday's close at 78 bid/80 offered.

Ahold "rebounded quite a bit," another trader concurred, quoting its 6¼% notes due 2009 at 78 bid/80 offered from 76 bid/78 offered on Friday, and its 6 7/8% bonds due 2029 as having clawed their way back to 70 bid/72 offered from 68 bid/71 offered on Friday and from about 65 a week ago.

Ahold's shares - which also took an enormous pounding in the first part of last week, but which have been on the comeback trail along with the bonds - were up 36 cents (9.73%) to $4.06 in busy New York Stock Exchange dealings of 6.1 million shares, about six times the norm.

Elsewhere, a trader quoted Lucent Technologies Inc.'s 7¼% notes due 2006 at 87.75 bid, up from 86 bid/87 offered on Friday.

"They've really powered up," he said of the Murray Hill, N.J. based telecommunications equipment maker, which got a nice weekend boost from Barron's; the financial weekly said that the two-year-long slump in the telecommunications industry - and thus, in capital spending by telecom network operators and service providers - appears to be leveling off. That, Barron's said, would benefit big sellers of telecom gear such as Lucent and rival equipment maker Nortel Networks Corp. of Brampton, Ont., whose 6 1/8% notes due 2006 move more or less in tandem with Lucent and have recently pushed above the 90 bid level.

The trader cited Lucent as one example of how the high-yield market has kept chugging right along of late.

"We're still seeing the fallout from the ($1.54 billion) inflow last week," he said. "The technicals have been great - there's been all of that cash support for the market. On some days, you've seen a decoupling between stocks and high yield bonds, like today (stocks were lower Monday). You used to never see that."

Stocks, he continued "are lackluster - but high yield seems to be moving in the right direction."

That assessment essentially echoed the sentiments of one of Wall Street's most renowned investors, billionaire Warren Buffet. He released excerpts of his annual letter to the shareholders of his Berkshire Hathaway Inc. investment company to Fortune Magazine, which ran them on its website - and he gave the back of his hand to the equity markets.

"We continue to do very little in equities," Buffett wrote. "Despite three years of falling prices, which have significantly improved the attractiveness of common stocks, we still find very few that even mildly interest us."

On the other hand, Buffet said that his company had increased its holdings in junk bonds and loans sixfold, to $8.3 billion by year end, via "sensible" investments in a few such companies.

Buffet acknowledged that when you're investing in junk bonds, you are "dealing with enterprises that are far more marginal [than most stocks]. These businesses are usually overloaded with debt and often operate in industries characterized by low returns on capital. Additionally, the quality of management is sometimes questionable. Management may even have interests that are directly counter to debtholders."

Having delivered that unpromising assessment, however, the "Oracle of Omaha" added that "therefore, we expect that we will have occasional large losses in junk issues. So far, however, we have done reasonably well in this field."

Ironically, Berkshire Hathaway - which occasionally takes equity and/or debt positions in badly distressed companies - said late Friday that it was backing away from its earlier offer to buy bankrupt North Carolina-based textile maker Burlington Industries for $579 million. That decision followed the rejection by a judge the previous day of a $14 million breakup fee if Burlington didn't agree to be bought by Berkshire.

But a distressed-debt trader said the withdrawal of Buffett - which leaves financier Wilbur Ross as the sole suitor for the company - said that the judge's decision and the subsequent withdrawal of Berkshire's offer had little impact on Burlington's several issues of bonds, all of which have recently languished around the 37.5 bid level.

"It makes no difference," he declared, "whether [Buffet] is in or he's out."

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