NVR sets new yield record; Calpine up on financing; $1.329 billion inflow is 2nd straight 10-digit gain

By Paul Deckelman and Paul A. Harris

New York, June 12 - NVR, Inc. priced $200 million of notes at 5%, setting a new record low, while in the secondary market, Calpine Corp. bonds were active on news that the merchant power producer had priced $802 million of senior secured notes through a subsidiary - reassuring news to investors having concerns about the company's liquidity.

Any concerns about liquidity in the overall junk bond market have meantime faded, with further evidence seen after the market had closed; participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., said that for a second straight week, inflows topped the magic $1 billion mark - with the trend of fund flows seemingly picking up right where they had left off in late May, when a long-running inflow streak was broken by two weeks of outflows.

But that's all ancient history by now; the market sources said that in the week ended Wednesday, nearly $1.329 billion more came into the junk bond funds than left them, excluding distributions and including any funds that report on a weekly, rather than on a monthly basis (movement of money into and out of the mutual funds is seen by many as a reliable proxy for overall junk market liquidity trends).

In the previous week, ended June 4, the funds showed a mammoth $1.45 billion inflow, bringing the total amount of inflows seen in the past two weeks to $2.779 billion. In the two weeks before that, outflows had totaled approximately $877 million, according to a Prospect News analysis of the AMG figures, and that two-week trough had followed an incredible run of 12 consecutive weeks of inflows, dating back to late February, including seven in which inflows had topped $1 billion and two other weeks in which it came close to that magic mark.

Counting the latest week's total, inflows have been seen in 17 of the 22 weeks since the beginning of the year, and the cumulative net inflow total has swelled to some $15.572 billion, according to the Prospect News survey of the flow numbers.

With that kind of money flooding into the funds - and by extension, into the overall junk market - it's no wonder that since the early part of the year, there has been a sizzling primary market, accompanied by a solid rise in the secondary.

And in addition to the eye-grabbing fund flows number, McLean, Va. homebuilder NVR printed a 5% yield on its new Ba1 rated seven-year notes, beating the previous record low yield of 5 3/8% set by Ryland Group, Inc. on May 29.

One source, asked if the 5% yield printed on NVR's new $200 million of seven-year senior notes is a record, shot back: "Can you ever remember a junk bond coming with a four-handle?!"

This source made reference to the $150 million senior notes (Ba1/BB+) offering from fellow homebuilder Ryland, which priced at par to yield 5 3/8% exactly two weeks ago as the former record-holder.

The quick-to-market NVR deal came via Credit Suisse First Boston.

By way of contrast, the only other deal heard to price on Thursday, was XM Satellite Radio Holdings Inc.'s $175 million of seven-year senior secured notes (Caa1/CCC+). The Washington, D.C.-based satellite radio service company priced the deal at par to yield 12%.

The Bear Stearns & Co.-led deal, increased from $125 million, came with an over-allotment option of $25 million, and priced in the middle of the 12% area price talk.

The forward calendar continued to build during Thursday's session.

Arch Coal, Inc. of St. Louis will begin mining the cash-heavy high yield accounts on Monday, when it starts the roadshow for $700 million of 10-year non-call-five senior notes to be issued through its Arch Western Resources LLC subsidiary. Citigroup, JP Morgan and Morgan Stanley are joint bookrunners on the deal that is expected to price on June 19.

Although no precise timing was heard Abitibi-Consolidated Co. of Canada was heard to be in the market Thursday with $400 million of high-yield notes (Ba1/BB+) in five- and 10-year tranches, with sizes remaining to be determined. Banc of America Securities and Citigroup are joint bookrunners on the Montreal-based forest products company's deal. It will reportedly be worked off the investment-grade desk.

Also on Thursday Wackenhut Corrections Corp. announced it would attempt to lock up $150 million with a senior unsecured notes offering. The Palm Beach Gardens, Fla.-based private jailer's press release contained no information regarding timing, maturity or syndicate names. The company had announced earlier that is has committed financing from BNP Paribas that will involve a restructuring of the existing senior credit facility, which is expected to close by the end of June 2003.

Price talk was heard Thursday on Cooperative Computing, Inc.'s $175 million of eight-year senior notes (B2/B+), via JP Morgan. The notes are talked at 10¾%-11%, with pricing expected on Friday.

And the price talk is 9½%-9¾% on Lodgenet Entertainment Corp.'s upcoming $185 million of 10-year senior subordinated notes (B3/B-), according to a syndicate source. The deal is also expected to price on Friday. Bear Stearns is the bookrunner.

A few more details were heard Thursday on the approximately $1 billion of senior notes (B1) that Xerox Corp. will begin marketing on Friday. The seven-year tranche will contain a make-whole call and the 10-year notes will be non-callable for five years.

A fuller list of syndicate names also came to light in a filing that the company made with the U.S. Securities and Exchange Commission: the bookrunners will be Deutsche Bank Securities, Citigroup, Goldman Sachs, JP Morgan, Merrill Lynch and UBS Warburg. And the co-managers will be Danske Markets, Credit Suisse First Boston, Fleet Securities, PNC Capital Markets. Pricing is expected June 19.

Finally on Thursday timing was heard on Worldspan LP's offering of $315 million of eight-year senior notes. The roadshow is expected to begin Monday, and the deal is expected to price mid-week during the week of June 23.

Lehman Brothers and Deutsche Bank Securities are joint bookrunners on the Atlanta travel technology resources company's deal.

When the new XM Satellite 12% senior secured notes due 2010 were freed for secondary dealings, they were heard to have traded as high as 101.75 bid from their par issue price earlier in the session. But a trader said the notes then dropped "right back to where they had started," going home at par bid, 100.5 offered.

Another trader echoed that assessment, declaring that while the new bonds were "pretty well received" and initially traded north of 101, "they gave it back" later on to end unchanged.

XM's existing notes were meantime little changed on the news about the new pricing, with its zero-coupon notes due 2009 holding steady at 76.5 bid.

Back among the established names, Calpine bonds were being quoted a little higher at some desks on the news that the company had priced $802 million of senior secured notes in a two-part investment-grade offering through its Power Contract Financing LLC unit, with proceeds slated for capital expenditures.

They quoted Calpine's 8¼% notes due 2005 as having firmed to slightly to 87 bid from 86.5 previously, while its 8½% notes due 2011 moved to 71 bid, up from 70.25.

A trader quoted Calpine's 8½% notes due 2008, which had gone home on Wednesday quoted at 71.5 bid,72 offered, as having popped up to 74.5 bid. 75.5 offered at the start of morning dealings after the news hit the screens. Later on, though, he saw them drop back to 73.5 bid, 74.5 offered, "down from the high but still a couple [of points] better" on the day. He pegged Calpine's 8¼% notes due 2005 at 87.5 bid, 88.5 offered, up a point.

Another trader, however, said that while the Calpine bonds "traded up strongly" in the morning on the news, "they pretty much gave it all back" later on. He quoted the 8½% notes due 2011 at 71.5 bid, 72.5 offered - down from their peak level at 73.5 bid, 74.5 offered and "not much changed from where they started," but still up about a point-and-a-half on the week.

The company said the secured note placement would "advance its $2.3 billion liquidity program."

A trader called the Calpine news "very good news for the whole IPP [independent power producer] market . This is one reason why the whole sector, the whole industry has had a problem - they've been shut down from off-balance-sheet financing since the whole Enron thing. A successful deal was very important - and this was a successful deal, as indicated by the stock being up over 10% today."

For the record, Calpine's New York Stock Exchange-traded shares jumped 70 cents (11.48%) to $6.80, on volume of 28.7 million shares, about triple the norm.

Elsewhere, the trader noted "big news" out of Irish-based pharmaceuticals producer Elan Corp. plc, which said it repurchased approximately $524 million in principal amount at maturity of its LYONs (Liquid Yield Option Notes) due 2018 through a number of privately negotiated transactions. The repurchases represented approximately 40% of the LYONs outstanding at the beginning of the year.

The aggregate purchase price of the LYONs was approximately $310 million, representing a discount of approximately 4% to the accreted value of the LYONs of approximately $323 million. The bonds were putable at $61, but the average purchase price was $59, "so they booked a big profit. This was good news for them."

The trader saw Elan's 7¼% notes due 2008 at 86 bid, 87 offered, up from 85 bid, 85.5 offered on Wednesday.

Crown Cork and Seal's 8 3/8% notes due 2005 were quoted at 101.5 bid, a two point gain, and its 8% notes due 2023 were seen at 75 bid, up from earlier levels in the low 70s, as the stock of its parent company, Crown Holdings, rose in response to the passage by the Texas state legislature of a tort reform bill that includes a cap on asbestos liability of companies - like Crown Cork - which merged years ago with companies involved in asbestos production and which now find themselves saddled with numerous claims. While it is uncertain what material effect the bill will have on a company like Crown Cork, the Philadelphia-based packaging maker is expected to cite the law in its legal defense efforts.

Crown Holding's shares rose 38 cents ($6.03%) on the New York Stock Exchange to $6.68, on volume of 5.6 million, about five times more than usual.

Several players noted remarks at a conference by Martin Fridson, the former head of global high yield research for Merrill Lynch & Co., and now the head of his own investment advisory service, FridsonVision LLC.

Fridson indicated that with the recent secondary rally, the high-yield market "has gotten ahead of itself," driving yields down to nearly unprecedented lows, and possibly setting the market up for a near-term pullback.

"I say the same thing every morning when I come in," a trader remarked "but then I look at the [market] numbers - and they keep going up. I suppose once the cash gets put to work and supply [of new paper] takes over, that will happen - but right now, I see things getting better still."

On fundamentals, "I agree with him - the economy hasn't caught up, and the earnings haven't caught up with the levels on the bonds - but having said that - they still move up every day."

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