Intrawest deal upsizes, Scotts prices $200 million 10-years; Levi, RCN, Tesoro gain

By Paul Deckelman and Paul A. Harris

New York, Oct. 1- The fourth quarter got off with a bang on Wednesday, as The Scotts Co. - on the forward calendar but not expected to price imminently - suddenly appeared, pricing its $200 million issue of 10-year notes at a yield well under 7% and Intrawest Corp. substantially increased the size of its 10-year notes offering to $350 million.

In the secondary market, a firm tone prevailed as junk took its cue from a resurgent stock market buoyed by the start of a new quarter, traditionally considered a bullish factor. Among issues trending higher were Levi Strauss & Co., RCN Corp., Tesoro Petroleum Corp. and Collins & Aikman Products Co.

The midweek session in the primary market saw terms emerge on two deals, both of which were reported to have done well.

Investors were heard to have accommodated Vancouver, B.C. resort operator Intrawest Corp. with $350 million in a 10-year senior notes offering (B1/B+) that upsized by $100 million and priced at par to yield 7½% - dead on the 7½% area price talk.

Deutsche Bank Securities carried the luggage.

And sources told Prospect News that investors weren't letting any weeds grow along the path to The Scotts Co.'s $200 million 10-year senior subordinated notes offering (Ba3/B+). That deal, via Citigroup, Banc of America Securities and JP Morgan, priced at par to yield 6 5/8%, also spot on to the 6 5/8% area talk.

Very soon after the Scotts terms emerged, early Wednesday afternoon, the new paper was heard trading 101.75, 102 in the aftermarket.

"The market is rolling pretty good," said one sell-side official.

"The Scotts deal was well-priced: 6 5/8%, 268-basis points over.

"This is a well-known name," the official added. "They went through a leveraged buyout. And it's a recession-proof kind of business. People know them, and that is reflected in the pricing.

"The pricing doesn't agree with the Ba3/B+ ratings; it's more the kind of rating you would expect of a mid-BB to strong-BB credit.

"But people know they're going to get paid back. Before you know it some private equity firm is probably going to buy them out, and make you whole."

Two new deals took bows during Wednesday's session.

The roadshow starts Monday for NationsRent Cos., Inc.'s offering of $225 million seven-year senior secured notes (B2/BB-).

The Fort Lauderdale, Fla.-rental equipment company's deal is being led by Jefferies & Co. and Wachovia Securities, and is expected to price late in the week of Oct. 13.

And the roadshow starts Tuesday for an offering from Calgary, Alta.-based natural gas company Paramount Resources Ltd., which intends to sell $150 million of seven-year senior notes (B2/B), via UBS Investment Bank.

And from the emerging markets corporates sector details emerged Wednesday on the anticipated offering from Columbian brewer Bavaria SA. The company is expected to market $400 million of senior unsecured notes due 2010 (Ba3/BB/BB) in the U.S. and Europe, via Citigroup.

A trader said the new Scotts Co. 6 5/8% senior subordinated notes due 2013 were up "right out of the chute" after having been freed for secondary dealings, pushing up from their par issue price to 101 on the break, and then as high as 102 bid, before coming in slightly from the peak level to close at 101.625 bid, 101.875 offered.

"It was pretty active," he commented. "We had some guys basically blowing out of their allocations and other guys looking to add odd lots."

Also among the newly priced issues, Koppers Inc.'s 9 7/8% senior secured notes due 2013, which had priced Tuesday at par and then moved up to 103 bid, 104 offered after being freed, continued to firm on Wednesday, up another point to 104, "pretty well bid for," the trader said.

"Everything was firmer today," another trader said, quoting the new Koppers issue at 104 bid, 105 offered, although he added that while "across the board, paper was firm, nothing was screaming. It was a little bit on the quiet side, but firm."

He saw Dynegy Holdings Inc.'s new 10 1/8% add-on senior secured notes due 2013 at 105.5 bid, 106.5 offered - just slightly above Tuesday's issue price at 105.25.

Among the established issues, the trader said that Levi Strauss & Co. bonds - which had fallen back on Tuesday despite what seemed to be better fiscal third-quarter results for the San Francisco-based blue jeans maker - "were much firmer this morning," quoting Levi's 11 5/8% notes due 2008 at 83.5 bid, 84 offered, up about a point, while its 12 ¼% notes due 2012 were up a pair, at 82 bid.

Also higher, he said, were XM Satellite Radio Radio Holdings Inc. bonds, after the Washington-based satellite radio broadcaster reported that it added 237,000 new subscribers in the third quarter, bringing its overall subscriber total to over 929,000. The company said it remains on track to reach its goal of 1.2 million total subscribers by year-end.

The trader quoted XM's zero-coupon/14% notes due 2009 as having firmed to 83.5 bid, 84.5 offered from prior levels at 81 bid, 83 offered, while its 12% due 2010 were at 109 bid, 110 offered, up about a point on the session.

And he saw RCN's bonds up about a point-and-a-half across the board, with its 9.80% notes due 2008 and 11% '08 notes at 46.5 bid, 47.5 offered; its 10 1/8% notes due 2010 at 44 bid, 45 offered; its 10% notes at 47 bid, 48 offered; and its 11 1/8% notes having firmed to 48 bid, 49 offered.

While RCN's bonds currently trade under 50 cents on the dollar, the Princeton, N.J.-based broadband company - which offers bundled telephone, Internet and cable services to major-market customers on both U.S. Coasts and in the Chicago area - is not without its defenders.

In a recent research report, Tejas Securities Group of Austin, Texas, reiterated a "buy" recommendation on the credit's bonds, citing RCN's "strong liquidity position, improved operating performance, underlying assets, and likelihood for an aggressive debt reduction effort in the near term."

It also noted that RCN's most recent quarterly results were helped by reduced expenses, "decent subscriber additions, and subsequent EBITDA improvement above our expectations. Importantly, we project additional cost savings in subsequent quarters as the result of recent expense reduction measures. The company has clearly turned the corner from an operational perspective, and it can now focus on increasing market penetration levels and ramping up EBITDA."

There was further good news for RCN investors this week, as its Starpower Communications, LLC joint venture announced the launch of its Home Networking package (which allows its cable modem services to be shared between multiple computers or web devices within a single customer's home) in the Washington, D.C. market. Then, Starpower announced an agreement with Yipes Enterprise Services to provide dark fiber ring and multiple lateral connections, again in the Washington metro area. Financial terms of the agreement were not disclosed.

The good news also carried over to the equity side, with RCN's Nasdaq-traded shares jumping 29 cents (15.76%) to $2.13 Tuesday, on volume of 857,000, about double the usual handle.

Elsewhere, Tesoro Petroleum Corp.'s 9 5/8% notes due 2008 were up about three points to par bid, while fellow petroleum refiner Giant Industries' 11% notes due 2012 were heard up more than a point, at 99.75 bid.

Industry observers noted that this week's Barron's carried news of a Friedman Billings Ramsey research report touting the prospects for refiners, based on historical data showing stocks of such companies usually do well in the six-month period from October to April (which includes the peak season for heating oil consumption in the U.S. and elsewhere in the Northern Hemisphere, and on analysis of distillate inventory levels, which, when adjusted for demand, remain at five-year lows. While the FBR report specifically touted Valero Energy Corp. and Frontier Oil, the same industry dynamics are expected to boost such other sector peers as Tesoro and Giant.

Valero, meantime, raised its third-quarter guidance this week, citing stronger-than-expected retail and wholesale margins during September - again, industry dynamics expected to work in favor of competitors like Tesoro as well.

Collins & Aikman - whose bonds have been solidly higher for the past two sessions, pushed upward by market rumors that the Troy, Mich.-based supplier of automotive components to the Big Three and other carmakers might be doing a bank financing deal soon - continued to accelerate on Wednesday, its 11½% subordinated notes due 2006 seen gaining a point on the session to 78.5 bid, while its 10¾% notes due 2011 hung in around 87 bid, little changed. Another trader saw the sub notes - which had jumped around five or six points on Tuesday - up even more late in the session, quoting those 11 1/2s around 80 bid.

On the downside, AK Steel Corp.'s 7¾% notes due 2012 were heard off half a point, at 68.5; after the close the Middletown, Ohio-based producer of specialty steels issued a warning, advising investors it would likely post of a wider-than-expected third-quarter loss, of 82 cents to 86 cents a share before one-time items. Wall Street has been projecting a per-share loss in the 62-cent neighborhood.

The company also said that it will record non-cash charges of about $190 million ($1.75 per share).

AK blamed the expected wider loss on higher energy and raw material costs.

Overall, a trader said that despite the presence of ample cash around in the hands of bond investors, "the market is struggling to do better - but it's hard to imagine how much higher it can go from these levels. We had accounts in buying small pieces here and there to fill in - but it's a new-issue market right now, because secondaries are just too rich."

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