Qwest prices three-part mega-deal; Winn-Dixie falls; AK bonds firm

By Paul Deckelman and Paul A. Harris

New York, Jan. 30- Qwest Communications International Inc. priced a an upsized three-part offering of fixed- and floating-rate notes Friday - the second bond issue this year of more than $1 billion and the largest to date. The Qwest deal easily overshadowed smaller pricings from Petro Stopping Centers LP and Nectar Merger Corp.

In the secondary market, Winn-Dixie Stores Inc. bonds fell sharply after the supermarket operator reported a surprise loss in its latest fiscal quarter and was downgraded several notches by Standard & Poor's. On the upside, AK Steel Corp. bonds firmed after the steel producer reported a sharply narrowed loss from a year ago.

With a handful of junk bond tranches pricing, the final session of the Jan. 26 week saw a whopping $2.175 billion face amount get done in the high yield primary market.

Hogging the center stage was Qwest Communications International Inc., which priced $1.775 billion in a restructured and slightly upsized three-tranche deal (B3/CCC+).

The Denver, Colo.-based telephone company priced a downsized $525 million of 7¼% senior notes due 2011 at 99.3205 to yield 7 3/8%.

The seven-year tranche, via bookrunners Banc of America Securities, Credit Suisse First Boston, Deutsche Bank Securities and Goldman Sachs & Co., was reduced from $750 million and came wide of the 7%-7¼% price talk.

The company also prices a downsized $500 million of 7½% senior notes due 2014 at 98.2753 to yield 7¾%.

The 10-year tranche, via Banc of America Securities, JP Morgan, Lehman Brothers and Merrill Lynch & Co., was reduced from $750 million and came wide of the 7¼%-7½% price talk.

In addition the company priced an upsized $750 million of senior floating-rate notes due 2009 at par, to bear an interest rate of Libor plus 350 basis points.

With Banc of America Securities, JP Morgan, Morgan Stanley Dean Witter and UBS Investment Bank doing the bookrunning, the five-year floaters were increased from $250 million but also came wide of the Libor plus 325 basis points area price talk.

Petro Stopping, FTD upsize

In addition to the mammoth Qwest deal, two other issuers completed transactions during Friday's session. Both were upsized and both priced at the tight end of their respective price talk.

Petro Stopping Centers priced an upsized $225 million of eight-year senior secured notes (B3/B-) at par to yield 9%.

Banc of America Securities ran the books for the deal from the El Paso, Tex.-based truck stop company, which came at the tight end of the 9%-9¼% price talk. It was increased from $215 million.

In addition, Nectar Merger Corp. (FTD, Inc.) priced an upsized $175 million of 10-year senior subordinated notes (B3/B-) at par to yield 7¾%.

Price talk on the Downers Grove, Ill. flower company's deal, via Credit Suisse First Boston and UBS Investment Bank was 7¾%-8%. The offering was increased from $150 million.

Pushback, not broad sell-off

A sell-side official who spoke to Prospect News early Friday afternoon, before terms emerged on Qwest, contended that the softness seen in the high yield through the latter half of the Jan. 26 week probably does not signal the beginning of a market correction, and pointed to two of Friday's transactions as evidence.

"Things were a little bit soft, but that's basically because earlier in the week we saw a bunch of dividend deals and holding company discount notes," said the sell-sider.

"For the deals that priced Monday through Thursday, the average rating was Caa1/CCC+. So there is bound to be some pushback.

"But at the same time there seems to be decent liquidity in the market. There is a bid for things. Deals are getting done.

"The Petro Stopping deal got done fine. The FTD deal got done fine. Carmike got done fine. All the regular high-yield deals are getting done fine. It's just the funkier-structured deals that are getting a bit of a pushback.

"I don't think it's the end of the rally, but rather it's a modest correction, at best."

A fistful of new offerings

Five new offerings were added to the new issue pipeline on Friday.

The roadshow starts Monday for Playtex Products, Inc.'s $450 million of seven-year senior secured notes, which are expected to price in the middle of the week of Feb. 2.

Credit Suisse First Boston will run the books for the Westport, Conn. personal care and consumer products company's deal.

The roadshow starts Tuesday for B.F. Saul Real Estate Investment Trust's $250 million of 10-year senior secured notes (B), which are expected to price early in the week of Feb. 9.

Friedman Billings Ramsey & Co. will run the books.

Pinnacle Foods Holding Corp. will present a $200 million add-on to its 8¼% senior subordinated notes due Dec. 1, 2013 (expected ratings B3/B) Tuesday at the JP Morgan High Yield Conference in New Orleans, according to a syndicate source.

The deal is expected to price during the week of Feb. 2.

JP Morgan and Citigroup are joint bookrunners on the offering from the Mountain Lakes, N.J.-based branded food products company.

The original $200 million issue priced Nov. 20, 2003.

Ormat Funding Corp. is presently conducting a roadshow for its offering of $190 million of senior secured notes due 2020, according to an informed source.

The notes will have a project finance type of structure, with the average life expected to be 10.4 years.

Lehman Brothers is the bookrunner for the deal from the subsidiary of Ormat Ltd., a Yavne, Israel geothermal energy company.

Also on Friday, AMF Bowling Worldwide Inc. was heard by Prospect News to be in the market with $150 million of high yield bonds due 2010 (B3).

No timing was head on the deal that will be led by Merrill Lynch & Co. and Credit Suisse First Boston.

Traders said that the big deal of the day, Qwest, priced way too late for any secondary dealings. Likewise, they did not see the new Nectar Merger bonds as having broken.

Petro Stopping's new 9% senior secured notes due 2012, meantime, were seen having pushed up to 102.5 bid, 103.5 offered from their par issue price earlier in the session.

Winn-Dixie plunges

But the big mover in the secondary sphere and easily the Dog of the Day was Winn-Dixie, whose 8 7/8% senior notes due 2008 plunged as low as 86 bid during the session from Thursday's close around 101 bid, 102 offered, and down even further from the highs around 103 bid, 104 offered they had held earlier in the week.

The Jacksonville, Fla.-based supermarket chain operator's bonds swooned after it posted a net loss of $79.5 million (57 cents a share) in the fiscal second quarter ended Jan. 7 - a sharp turnaround from its year-ago performance, when it earned $91.4 million (65 cents a share). Wall Street had been expecting a drop in earnings, but nothing like this loss; analysts had generally projected earnings around nine cents a share, and when Winn-Dixie posted its loss, its New York Stock Exchange-traded shares nosedived $2.53 (27.83%) to close at $6.56 in busy dealings of 24.5 million shares, around twenty times the usual activity level.

Even though Winn-Dixie said that it would embark on a turnaround campaign aimed at cutting costs by $100 million, which would include the sale or closure of non-core markets, and suspended its quarterly stock dividend indefinitely, Standard & Poor's warned that the situation looked bleak, as it cut the company's corporate credit rating three notches to B from BB previously and placed the ratings on CreditWatch with negative implications.

AK Steel moving up

Elsewhere, AK Steel bonds were on the rise, after the Middletown, Ohio-based producer of value-added steel products for the automotive and other industries reported a net loss of $163.9 million ($1.51 a share) - a sharp narrowing from its year-earlier net loss of $489.7 million ($4.54 a share) .

Excluding charges of $1.34 a share for pensions and other post-retirement benefits, as well as income from discontinued operations, the company reported a loss of 31 cents a share, while excluding just the charges, the loss was 17 cents a share - well under the 67 cents a share average projection of Wall Street analysts.

A trader pegged AK's 7¾% notes due 2012 at 91.5 bid, 92.5 offered, up from Thursday's close at 90 bid, 91 offered, while its 7 7/8% notes firmed to 92.5 bid, 93.5 bid from 91 bid, 92.

Nortel better on earnings

Nortel Networks Corp. bonds were seen improved on the strong earnings which the Brampton, Ontario-based telecommunications equipment maker reported after the close on Thursday.

A trader said that Nortel's 6 1/8% notes due 2006 "were back up to the levels they were peaking at a few sessions ago before coming in a little," pegging them around 104.25 bid, 105 offered, up around three-quarters of a point on the session.

Nortel shares were even more pronounced in their upward move, jumping $1.24 (18.84%) to $7.82 Friday in very heavy NYSE dealings of 154 million shares, about six times the norm.

Nortel reported fourth quarter net income of $499 million (11 cents a share), better than the two cents a share earnings Wall Street was looking for and in sharp contrast to its year-earlier net loss of $168 million (four cents a share).

Its revenue climbed 12% from a year ago and 25% form the third quarter, paced by a 33% increase in its wireless-networks segment.

Lucent Technologies Inc. - a Nortel rivals whose bonds generally move in tandem with those of its Canadian competitor, on the assumption that industry trends which are good for Nortel are good for Lucent as well - sure enough was also higher Friday, riding Nortel's coattails. Its benchmark 7¼% notes due 2006 were quoted a point better at 104 bid, while its 6.45% bonds due 2029 and 6½% bonds due 2028 were both seen up two points on the session at 84.5 bid.

Qwest old bonds recoup

Also in the telecom sphere, Qwest bonds, which had retreated on Wednesday and Thursday ahead of the Denver-based local telephone operator's big new bond deal, "came back up," a market source said, quoting them as having bounced half a point to a point off the lows they had hit Thursday.

He saw Qwest Capital Funding's 7% notes due 2009 at 96.25 bid and its 7.90% notes due 2010 at par, and its LCI 7¼% notes due 2007 at 97.5.

The source also saw Qwest's 13% notes due 2007 move back up to 117.25 bid from 115. 25 bid on Thursday, while its 13½% notes due 2010 were likewise two points better at 120, and its 14% notes due 2014 were firmer at 126.

Emerging markets somewhat firmer Friday

With the emerging markets heard to have been in a broad retreat on Wednesday and Thursday - spurred in part, sources say, by nervousness over the possibility of an interest rate increase from the Federal Reserve - Friday's session saw some firming.

"Our market is a little better today," a senior sell-side official commented.

"Our market had gotten very expensive. A lot of that was driven by technicals; in other words, we've had very strong inflows into the market.

"As long as you think the Fed is not an obstacle right now, you can feel comfortable. But I think if you asked any investor to identify the biggest risk for emerging markets in 2004 they would all say 'the Fed.'

"So when the warning light started flashing, people pulled back.

"And I think the market was poised for some correction, so it was just a question of when that would happen.

"We've seen a lot of volume. But overall I think more of the selling has been done by trading-oriented accounts, which is not a bad thing from a technical standpoint to get back to a place where those guys are lighter in the market.

"But I think everybody felt that emerging markets were trading at very tight levels and is more comfortable with the kinds of valuations that we have now."

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