Star Gas bounces off lows; A&P bonds up on narrower loss; MarkWest, Arch Coal price deal

By Paul Deckelman and Paul A. Harris

New York, Oct. 19 - Star Gas Partners LP's bonds - which were clobbered Monday along with the company's shares after the Stamford, Conn.-based energy company warned that it expects to report substantially lower income for the just-ended 2004 fiscal year - bounced off the lows they hit Monday and ended higher Tuesday, though still well below their pre-news levels.

Also on the upside, The Great Atlantic & Pacific Tea Co. Inc.'s bonds were seen having firmed solidly after the owner of the venerable A&P supermarket chain reported a narrower third-quarter loss.

The high-yield new issue market topped half a billion during Tuesday's session, as MarkWest Energy upsized its bond deal by $25 million and priced the notes inside of talk, and Arch Coal, with a $250 million add-on, priced the week's first double-B deal.

Meanwhile activity in the far end of the new deal pipeline seemed to quiet significantly from the frenetic pace set on Monday, as sell-side sources suggested that investors - although roundly thought to have cash to put to work in high yield - may be experiencing a bit of indigestion with regard to a glut of low-rated deals, some of which are coming to fund dividend payments.

Lots of little deals

One investment banker told Prospect News late Tuesday that there are presently a lot of names to read on the forward calendar. However, the source added, as the eye travels to the right of the dollar signs on those deals, the numbers are often unexciting.

"Supply is still limited," said the banker. "After the MarkWest pricing the total calendar is just over $3.5 billion, which is below average for 2004.

"A lot of the deals that have been announced are smaller deals: CBD $100 million, Ready Mix Concrete $150 million, Levitz $130 million...a lot of little sub-$200 million deals.

"So we have quantity on the forward calendar, but it does not add up to great size."

The source suggested that issuers, coming into what has been described by numerous sources as a "paper-starved market," may be a little too aggressive with regard to their expectations about where their bonds should price.

Investors will only be pushed so far.

"That said, I would be surprised if any of these deals got pulled right now," the sell-sider commented. "Every one of them has a chance to get done, even though you might be inclined to think that some of these deals are ones that would point up a frothy market.

"People are looking to put money somewhere."

Arch Coal with double-B

Investors looking above the single-B and triple-C horizons have recently been peering out across a mostly empty bondscape. On Tuesday, however, St. Louis coal mining firm Arch Coal provided those investors seeking higher quality paper with something to look at.

The company's subsidiary, Arch Western Finance LLC, priced a $250 million add-on to its 6¾% senior notes due July 1, 2013 (Ba3/BB) at 104.75, resulting in a 5.879% yield to worst.

The debt refinancing deal, Citigroup, JP Morgan and Morgan Stanley, came in the middle of the 104.5-105 price talk.

A blowout for MarkWest Energy

Meanwhile, the upsized MarkWest Energy Partners LP deal was said to be a blowout.

The Denver, Colo., natural gas production and transportation company sold $225 million of 10-year senior notes (B1/B+) at par on Tuesday to yield 6 7/8%, inside of the 7%-7¼% price talk. The deal was increased from $200 million.

JP Morgan and RBC Capital Markets ran the books for the debt refinancing deal.

Finally on Tuesday Reddy Ice Holdings, Inc. sold $151 million of eight-year senior discount notes (Caa1/B-) at 66.333 on Tuesday to yield 10 ½%--a deal that generated $100.16 million of proceeds for the Dallas-based ice distributor.

The stock-redemption/dividend-funding deal came at the wide end of the 10¼%-10½% price talk, with Credit Suisse First Boston, CIBC World Markets and Bear Stearns & Co. running the books.

Kraton talks discount note

Although no new roadshow starts were announced during the Tuesday session, Houston-based Kraton Polymers announced a quick-to-market $90 million offering of 10-year senior discount notes.

Price talk of 11 1/8%-11 3/8% was heard on Polymer Holdings LLC/Polymer Holdings Capital Corp. Caa2/B- rated deal, via Goldman Sachs & Co. and UBS Investment Bank.

Although it was expected to price Tuesday afternoon, at the end of the session terms on the debt refinancing deal had not been announced.

Star Gas rebounds

In trading Star Gas's 10¼% notes due 2013 - which swooned two dozen points on Monday to around 85-86 bid - were seen having bounced off those lows Tuesday, pushing back up to around 93.5 bid, several traders said.

However, another trader said that even though he had seen the bonds as high as 94, "they started to trade off again" late in the day and ended at his shop around 90 bid.

Whatever the magnitude of the recovery from Monday's nadir, however, the bonds still are well down from the levels near 110 bid that they held before Monday's announcement by the diversified heating oil and propane distributor that it expects a "substantial" decline in earnings for its Petro heating oil division for the fiscal year that ended on Sept. 30.

Star said that it had advised the division's lenders of this and of the company's projections of an expected decline in earnings for the fiscal year that will end next Sept. 30. The latter anticipated decline will shut down the company's access to its working capital line.

Star said that it is in talks with the lenders "to modify conditions and other terms necessary to assure that Petro will have sufficient liquidity to operate through the winter." Star also said that while it believes that with the support of its existing lenders "it can manage the extraordinary challenges arising from current energy prices and other factors" - it acknowledged that this "cannot yet be assured," and warned that should such lender support not be forthcoming, the company "may be forced to seek interim financing on extremely disadvantageous terms or even to seek to restructure its debts under the protection of the bankruptcy courts."

A&P rises on earnings

Also on the upside, A&P's bonds were "up a couple of points," a trader said, after the Montvale, N.J.-based supermarket operator reported a smaller third-quarter loss than it saw a year ago.

He quoted A&P's 7¾% notes due 2007 at 90 bid, its 9 1/8% notes due 2011 at 80 bid, 81 offered and its 9¾% notes at 90 bid, 91 offered, "so they were definitely up."

At another desk, a trader saw the A&P bonds up on the day, although not quite at such high levels as the first trader, with the 73/4s having moved up to 88 bid, 90 offered from 86 bid, 88, and the 9 1/8s having likewise gained two points on the day to end at 79 bid, 81 offered.

A&P reported a net loss of $64.2 million ($1.67 per share) in the quarter ended Sept. 11, an improvement of its year-earlier loss of $83.7 million ($2.17 per share).

Analysts had expected a still smaller loss, of $1.22 per share. But the latest quarter's red-ink did include a charge of $24.7 million (50 cents a share), on a settlement with the company's Canadian Food Basics franchisees. A&P plans to buy out 24 previously franchised stores.

Sales in the U.S. were down 1% from a year ago, which A&P blamed on bad weather in the company's summer resort locations.

Sales improved in Canada, helped by a fresh-food marketing program and strong discount sales at the Food Basics franchise.

Primedia gains

Elsewhere, Primedia Inc.'s bonds were higher, although there was no fresh positive news seen out about the New York-based magazine publisher and diversified media company.

A market source saw its 8% notes due 2013 up more than a point at 99 bid and its 8 3/8% notes due 2011 two points better at 104. However, at another desk, a source saw the company's bonds up only slightly, with the 8s firming marginally to 99 and its 7 5/8% notes due 2008 edging up to 100.125.

The investment community has noted recent market rumors that Primedia might sell its Channel 1 educational in-school cable operation to competitor Time Warner, which operates a similar service through its CNN division, although the CNN service, unlike Channel 1, does not carry advertising.

Levis Strauss better

Levi Strauss, whose bonds retreated Monday after the San Francisco-based apparel maker said that it had decided not to sell its Dockers casual clothing unit, was seen a bit higher Tuesday, with the company's 7% notes due 2006 at 97.5 bid, 98.5 offered, up about half a point on the day, a trader said, while its 11 5/8% notes due 2008 finished at 101 bid, 102 offered and its 12¼% notes due 2012 closed at 102.75 bid, 103.75 offered.

Delta down again

Delta Air Lines Inc., whose bonds were down solidly on Friday after the troubled Atlanta-based airline operator warned of a sharply wider than previously expected third quarter loss and then continued falling Monday, retreated further Tuesday, its 7.90% notes due 2009 falling to 29.5 bid from Monday's close at 31.5, while the company's 8.30% notes due 2029 dropped to 25 bid from 26. Delta's benchmark 7.70% notes due 2005 were at 49 bid, around the levels they held late Monday.

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