Secondary steps back as primary parade surges; giant AES deal prices; $1.09 billion fund inflows

By Paul Deckelman and Paul A. Harris

New York, May 1 - A high yield secondary market which has been on a strong upswing over the last few sessions, riding along on a cushion of cash - and rising along as well - seemed to take a breather Thursday, market participants said, as the primary market new-deal parade once again grabbed the spotlight.

Amkor Technologies Inc. sold $425 million of new 7 ¾% senior notes due 2013, while Jarden Corp. moved in with a quickly shopped $30 million add-on offering. But the big news of the day held off until early evening, when word filtered down that AES Corp.'s eagerly-awaited two part mega-deal had priced. The behemoth offering totaled $1.8 billion, split into two tranches of bonds, each of which came to market at par.

However the massive size of AES's junk bond deal provided scant solace to investors now said to be laboring under huge loads of cash: no sooner had the dust begun to settle on the transaction than word circulated the market that high-yield mutual funds were fed their 10th consecutive inflow. For the week ending April 30, said sources, the funds took in $1.09 billion according to figures from AMG Data Services, of Arcata, Calif.

That brings net inflows for the year to $11.95 billion, according to a Prospect News analysis of the AMG figures.

"Bonds have been rallying, in one form or another, for the past 20 years," one sell-side official said, following the news of the inflow. "But I don't see how the bond market could sustain this sort of short-term mayhem that we're having now."

In addition to the megawatt deal from AES, the market also heard terms Thursday on Amkor Technology, Inc.'s offering, $425 million of 10-year notes priced to yield 7¾%.

And Plano, Texas rent-to-own operator Rent-A-Center sold an upsized offering of $300 million of seven-year paper to yield 7½%

Also on Thursday Jarden Corp. (formerly known as Alltrista Corp.) priced a drive-by $30 million add-on to yield 8½%.

One new deal appeared Thursday. El Segundo, Calif.-based real estate services company CB Richard Ellis will begin the roadshow Friday for $200 million of seven-year notes, which are expected to price during the week of May 12 via bookrunner Credit Suisse First Boston.

AES' two-tranche $1.8 billion of new second priority senior secured notes came at the high end of the $1.4-$1.8 billion range announced on Wednesday - itself increased from $1 billion in a single piece.

The 10-year tranche priced at par to yield 8¾%. Price talk was for a yield in the 8¾% area. The 12-year tranche priced at par to yield 9%. Price talk on the 12-year notes was for a yield in the 9% area.

Citigroup was the bookrunner.

In addition Amkor priced $425 million of 10-year senior notes (B1/B) at par to yield 7¾%, at the tight end of the 7¾%-8% price talk, via Citigroup.

Also Rent-A-Center upsized to $300 million from $250 million its seven-year senior subordinated notes (B2/B-) and priced them at par to yield 7½%, also at the tight end of the 7½%-7¾% price talk. Lehman Brothers was bookrunner.

Jarden's $30 million add-on to its 9¾% senior subordinated notes due May 1, 2012 (B2/B-) came at 106.5 for a yield to worst of 8½%. The deal was led by CIBC World Markets and Banc of America Securities.

When the new Amkor bonds were freed for secondary dealings, a trader said, "they came at par, moved up to 101 and then closed at par. No love lost there."

Another trader offered that "that one [Amkor] was not shooting up," holding instead around the par issue price.

Deals which priced on Wednesday, however, were seen to be faring somewhat better. A market observer said that almost all of the action which he had seen was centered around activity in the newbies, with "people flipping the new issues," pushing them up and then getting out with a profit of a couple of points here or there. He saw PolyOne Corp.'s new10 5/8% senior notes due 2013 trading around the 102-102.5 bid level, around where they finished Wednesday after pricing at par.

Meantime, he said the new HMP Equity Holdings/Huntsman International LLC deal was "a blowout," with the zero-coupon senior secured notes due 2008 - which had been sold in units with equity warrants and which had priced Wednesday at 47.435 - trading up five points, to as high as 53-plus, "the equivalent of a 10-point move on a par bond," the observer noted.

But while action in the newly minted bonds was sizzling, the established issues were fizzling, he said, with "not much [established] secondary dealings. It was all centered around the new issues."

A trader likewise opined that the secondary - recently on fire, with a surplus of cash looking to go to work pushing even CCC bonds up to near-par levels - seemed to take what he called a breather on Wednesday, with things about a point to a point-and-a-half softer.

Not that that's anything to worry about.

"Come on," he said, this [upside market ] has been going on for so long, it's got to take a breath sometime. This [kind of mild easing] is healthy. I'm more nervous when things gap up five points every day, because I think 'oh boy, there's going to be some real downside' ahead. So I don't mind seeing a little air taken out of the balloon. A little giveback ain't necessarily bad."

The trader saw Lucent Technologies Inc.'s bellwether 7¼% notes due 2006, for instance, as having retreated to 93.125 bid/93.875 offered, off from prior bid levels at 94.5.

And Trump Atlantic City Associates' 11¼% first mortgage bonds due 2006 softened to 78.5 bid/79.5 offered, down from the recent levels at 80 bid/81 offered, which the Atlantic City gaming operator's bonds had moved to earlier in the week. On Wednesday, Trump reported a wider first-quarter loss from a year earlier, $23.96 million ($1.09 per share) versus $4.58 million (21 cents per share). EBITDA meantime fell to $56.8 million in the latest quarter from $74.1 million a year earlier.

"A lot of the go-go names were a little weaker," the trader said.

He saw Calpine Corp. bonds - recently buoyed by strength in the overall merchant energy sector, as well as by expectations that the San Jose, Calif.-based power operator would be doing a refinancing deal of some sort soon - as trending lower. "They rose in the morning, but kind of slacked off by the finish," he noted, with the 8½% notes due 2008 dipping to 72.5 bid/73.5 offered, down about two points, and its 8½% notes due 2011 a point-and-a-quarter lower at 71.25 bid/71.75 offered.

Also in the power-generating grid, Mirant Corp. - whose notes had shot up on Wednesday, even though the troubled Atlanta-based merchant energy operator posted more than $2 billion in 2002 losses, re-stated earnings for several previous years downward and warned that it could be forced into bankruptcy - was in retreat on Thursday, its 8.3% notes due 2011 quoted off about two points to 69.5 bid/71 offered, while its 7.2% notes due 2008 were "down considerably," a market source said, pegging the bonds at 70 bid/71 offered, down three to four points.

But even as the other merchant names softened, AES firmed ahead of its new deal, after posting solid first quarter numbers. The Arlington, Va.-based independent power operator's 9½% notes due 2009 powered up to 99.5 bid from 95 bid/96 offered on Wednesday, while its 8¾% notes due 2008 were more than three points better, hovering north of 96 bid. Its 8 3.8% subordinated notes due 2007 were at 89.5 bid/93.5 offered.

AES reported first-quarter earnings of 93 million (17 cents per share) versus a year-ago loss of $313 million (58 cents per share). The latest quarterly results also beat analysts' expectations of a six-cent-per share profit. AES also announced that consolidated net cash provided by operating activities for the first quarter of 2003 was $446 million.

The company also reiterated its full-year guidance, anticipating diluted earnings per share from continuing operations of 50 cents per share and consolidated net cash provided by operating activities of approximately $1.5 billion.

Also on the upside Thursday were such names as Continental Airlines Corp., whose 8% notes due 2005 firmed three points, to 72 bid, and rival carrier Northwest Airlines Corp., whose 7 7/8% notes due 2008 were a point better, at 57 bid.

AK Steel Corp., whose bonds had been pushed down about two or three points Wednesday, bounced on Thursday, its 7¾% notes due 2012 more than two points better, to just below 90 bid.

Beleaguered healthcare operator HealthSouth Corp. continued to confound market-watchers, its senior bonds such as its 7 5/8% notes due 2012 pushing up to 67 bid - up three points on the session and nearly ten points over the last several sessions.

But there was no confusion about another troubled healthcare name, as Rotech Healthcare Inc., a provider of home respiratory care services announced that federal agents served search warrants at its corporate headquarters in Orlando, Fla. and four other facilities in three states. It said the feds were provided access to a number of current and historical financial records and other materials.

The agents also served a grand jury subpoena on Rotech on behalf of the U.S. Attorney's Office for the Northern District of Illinois relating to the same information. Rotech said it is "cooperating fully with the investigation; however, it has not been informed by the government of the subject matter of the inquiry."

A trader - noting that this is the second time in less than a year the company has come under investigation, said that its 9½% notes, trading well above par when the day began, swooned as low as 88 bid/89 offered - 18 points down - before closing at 93 bid/96 offered.

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