Upsized Premcor deal prices, Allbritton add-on to; Xerox up slightly on better numbers

BY Paul Deckelman and Paul A. Harris

New York, Jan. 28 - Premcor Refining Group Inc. successfully brought an upsized two-part offering to market Tuesday while Allbritton Communications priced an add-on deal.

In secondary market activity, Xerox Corp. bond holders showed a surprisingly blasé response to surprisingly good fourth-quarter numbers that pushed the copier giant's stock up smartly; the bonds firmed a bit, but on limited trading. Elsewhere, WestPoint Stevens Inc. bonds held onto the gains notched in Monday's session, while Charter Communications Holdings LLC debt was firmer.

Premcor Refining upsized to $525 million from $400 million its two-part offering of senior notes (Ba3/BB-) on Tuesday, pricing $175 million seven-year notes at par to yield 9¼% and $350 million 10-year notes also at par to yield 9½%. The 10-year piece priced at the wide end of the 9¼%-9½% price talk, while the seven-year notes came spot on to the talk of 25 basis points tighter than the 10-year notes.

Credit Suisse First Boston was the bookrunner.

The Premcor deal is the third two-trancher to come before investors thus far into 2003. On Jan. 23 Georgia-Pacific Corp. priced a two-part offering of $1.5 billion of senior notes (Ba2/BB+) via Goldman Sachs and Banc of America Securities ($700 million of seven-year 8 7/8% notes priced at 99.360 to yield 9%, while $800 million of 10-year notes came at par to yield 9 3/8%). One day later Houghton Mifflin Co. priced a two-part $1 billion offering comprised of $600 million of eight-year senior notes (B2/B), which came at par to yield 8¼%, and $400 million of 10-year 9 7/8% senior subordinated notes (B3/B) at 99.22 to yield 10%. Goldman Sachs, CIBC World Markets and Deutsche Bank Securities were joint bookrunners on the Houghton Mifflin deal.

On Tuesday Prospect News caught up briefly with Prescott Crocker, fund manager of the Evergreen High Yield Bond Fund, and asked him to explain the appearance of three two-tranche deals over the space of four business days.

"That's the sign of a healthier market," Crocker responded. "People are willing to buy more risk. Previously nobody wanted to buy junior deals."

When pressed by Prospect News for market color Crocker made mention of two factors: one, the robust inflows of cash into high-yield mutual funds and two, the gathering specter of geopolitical volatility - specifically the likelihood of a U.S. war on Iraq.

"The market remains healthy," Crocker commented. "Clearly the cash flow seems to have moderated quite a lot.

"Chances are as we go into the war things are going to get looser," he added, "Prices will go down and spreads will widen."

Meanwhile in Tuesday's primary market session Allbritton priced a $180 million add-on to its 7¾% senior subordinated notes due Dec. 15, 2012 (B3/B-). The Deutsche Bank Securities-led deal priced at 98.305 to yield 8%, on the wide end of the 7 7/8%-8% price talk.

Also on Tuesday price talk of 8%-8¼% emerged on Sun Media Corp.'s $200 million of 10-year senior notes (Ba3/B-). The Rule 144A offering, via Salomon Smith Barney, is expected to price Thursday.

In its Jan. 27 edition of "The Credit Strategist," Banc of America Securities Jeffrey Rosenberg, head of the credit strategy team, and Ali Balali, senior high yield credit strategist, noted that thus far into the new year the evidence points to strong demand on the part of high yield investors.

"Despite softness in the secondary market, the new issue market is performing strongly, as evidenced by upsized and well-subscribed transactions," the Tuesday report noted. "The majority of the high yield transactions that have priced in 2003 have enjoyed strong executions due to robust demand from investors with plenty of cash on hand. While the weekly high yield mutual fund flows reported an outflow of $81.4 million for the week ended Jan. 22, 2003, net weekly inflows into high yield since Oct. 10, 2002, remain an impressive $6.75 billion. Anecdotal evidence suggests that demand for primary high yield bonds remains very strong and that the transactions slated for pricing over the next several weeks - currently estimated at $5 billion - are expected to experience strong execution."

And finally, with just three sessions remaining in January 2003, the month's new issuance appears to be running neck-and-neck with that of January 2002. According to figures compiled by Prospect News at the end of Tuesday's session, January 2003's new issuance stood at $5.571 billion with $1.125 billion on the forward calendar as business thought likely to be transacted by month's end. That would bring new issuance for the first month of this new year to $6.696 billion, just $7 million shy of the January 2002 total of $6.703 billion.

When the new Premcor bonds were cleared for secondary dealings, a trader saw them having broken as high as 101 bid/101.5 offered, before falling back from that peak to around par bid/101 offered, unchanged from their par issue price earlier in the session.

At another desk, a trader said Premcor's new bonds "traded like [garbage]. They went down into a par bid a couple of times [from higher levels], that leaves them for sale." He quoted the 9½% senior notes due 2013 as having "come at par, now trading at par. No real jump there."

Premcor's existing 8 7/8% notes due 2007 were meantime quoted down a point at 93 bid, while Allbritton's existing 8 7/8% notes due 2008 firmed a point to 105.

Back among names not bringing new deals to market Tuesday, Xerox's bonds were not too much moved, despite the substantially better numbers reported by the Stamford Conn.-based copier and office machines giant. A trader quoted them as "up slightly," estimating gains of half a point to three-quarters, although a market observer at another desk pegged the company's 9¾% notes as having moved to 102.25 bid from 101 previously.

Another trader saw the company's shorter-dated paper remaining in the same 98-par range it has recently held, with the paper maturing later this year "straddling" a 98.75-99.75 level. He saw Xerox's 87% notes due 2027 at 65 bid and looking for offers.

On the equity side of the fence, there was no ambiguity; investors took Xerox's New York Stock Exchange-traded shares up $1.40 (17.39%) to $9.45 on volume of 39.5 million shares, nearly 12 times the usual daily turnover.

Xerox reported fourth-quarter net of $19 million (one cent a share), compared with a year-ago net loss of $140 million (19 cents a share). Analysts had been expecting an 11-cent per share loss.

Excluding one-time items, Xerox posted a profit of 24 cents a share, exceeding analysts' expectations of a 16-cent-per share gain.

It was the third consecutive quarterly net profit for the company, and enabled Xerox to make good on CEO Anne Mulcahy's prediction that it would show a profit for the full year - its first since 1999. Xerox earned $91 million (two cents per share), including after-tax restructuring charges of $470 million. Xerox credits the turnaround to its aggressive cost-cutting measures and good demand for its products.

Looking ahead, Xerox projected a first-quarter profit in the range of six cents to nine cents a share, and said full-year 2003 earnings would come in at 50 cents a share to 55 cents a share.

Elsewhere, another tech name - Amkor Technology Inc. - was seen better, its 9¼% notes due 2006 gaining three points to close at 94.

Charter Communications debt was seen firmer, despite a lack of fresh news about the St. Louis-based cable operator. Charter's 8 5/8% notes due 2009 were seen having firmed to 46.5 bid/47.5 offered, a two point gain from Monday, while its 9.92% notes went from 39 bid to 40.25 bid.

Bankrupt fellow cabler Adelphia Communications Corp.'s 9 7/8% notes due 2007 were two points better at 44.50. Adelphia, incidentally, announced Tuesday plans to relocate its corporate headquarters from Coudersport, Pa. to the Denver area, citing the substantial pool of experienced communications executives there; a number of telecom, satellite and other communications companies have headquarters or operations in the Denver area.

Outside of the communications field, WestPoint Stevens - whose debt had firmed several points Monday as the Georgia-based textile maker released improved guidance - was seen generally staying where it ended Monday and hanging onto those gains its two issues of 7 7/8% notes (due 2005 and 2008) remaining quoted in the 33-35 area.

Crown Cork & Seal's bonds were seen by a trader as "well bid for." He quoted the Philadelphia-based packaging company's 8% notes due 2023 at 72 bid/75 offered early in the session, before ending "left bid without [offers]." Another desk quoted its 8 3/8% notes up half a point at 96.

Kmart Corp. received bankruptcy court permission to proceed with its plans to close 316 more of its stores. Those closings, combined with an earlier round of closings last year, will bring its store count down about 1,550 from over 2,200 at the time the Troy, Mich.-based discounter entered Chapter 11 slightly over a year ago.

But even though that court permission - and its concurrent approval of a $2 billion exit financing package - brings Kmart a step closer to its goal of emerging from court protection by April 30, a trader saw its bonds lower Tuesday.

He quoted its 9 3/8% notes as having fallen to 16.5 bid/18.5 offered from recent levels at 18.5 bid/19.5 offered, and its other debt offered at 18.5, after having risen four or five points recently to bid levels around 18.5.

"Either people have already [short] covered what they needed to, or the news they thought would transpire today - didn't. Either way," he concluded, "the bonds are just fadin' away."

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