American Achievement, Riverdeep deals price; Fisher Scientific up on Apogent acquisition news

By Paul Deckelman and Paul A. Harris

New York, March 17 - Irish-based educational software maker Riverdeep marked the traditional St. Patrick's Day Wednesday by rollin' in the green, with an upsized seven-year issue of euro-denominated notes, while American Achievement Corp. was also heard by high yield syndicate sources to have priced its eight-year senior notes deal.

In the secondary market, Fisher Scientific International Inc. apparently found the winning formula in the eyes of its bondholders, who took the Hampton, N.H.-based scientific products and services provider's bonds higher on news that it will acquire fellow New Hampshire-based scientific products maker Apogent Technologies Inc. in a $3.7 billion deal that includes Fisher's assumption of nearly $1 billion of Apogent debt.

Issuers, underwriters listening to buy-side

Meanwhile Prospect News heard from Mike Difley, vice president and portfolio manager of American Century High Yield Fund that lately the primary market has become more investor friendly.

"It seems like there is still a pretty good bid out there for the quality names," Difley commented Wednesday morning. "But the riskier, triple-C part of the market has been lagging."

The American Century High Yield Fund portfolio manager went on to say that investors' diminished appetite for riskier credits can be inferred from recent pricing levels.

"Just doing the bond math, with so much of the high yield market up above par - and the market in general trading above par, on an average basis - the risk-reward picture is skewed to the negative at this point, particularly in the riskier names.

"If something goes wrong in one of those names and they're trading at par, you're going to get whacked pretty good."

Difley went on to say that the present circumstances represent a decided change from the 2003 market, in which the triple-C segment outperformed.

"In very early January triple-Cs continued to outperform, right up until about the last quarter of that month," Difley added. "At that point you saw triple-Cs underperform notably.

"Ever since that time it has been pretty choppy waters for the lower credit quality bonds in the market.

"You're seeing more caution on the part of investors, with respect to the riskiest bonds."

Cash not burning a hole

Prospect News inquired of Difley whether continued indications on the part of the Federal Reserve that it will not move to increase interest rates in the near term translate into continuing vigor with respect to the new deal pipeline.

Pointing to evidence seen in reports of cash flowing into and out of high yield mutual funds - on Tuesday Citigroup reported that "fund flows to the sector have turned negative for the year" - Difley's response was "Not necessarily.

"It will depend on what the appetite is for high yield among investors going forward," he said

"We haven't seen a great deal of cash coming into the market recently. We saw about $300 million come in last week. But I think it will just depend. It doesn't seem like investors have as much cash to put to work as they used to. And if they do have some they're more content to sit on it until they can pick their spots, and buy things opportunistically."

Riverdeep prices upsized euro deal

Wednesday's largest transaction was completed in London, as Riverdeep Group Ltd. priced an upsized issue of €225 million of seven-year senior notes (B3/B-) at par to yield 9¼%.

Credit Suisse First Boston ran the books on the issue from the Dublin, Ireland-based technology firm's deal, which came spot on the 9¼% area price talk.

A sell-side source in Europe told Prospect News on Wednesday that high yield is "getting pretty busy" on the eastern shores of the Atlantic.

"There is a lot of supply coming, although it's difficult to gauge exactly how much. The markets have stayed relatively strong following Madrid.

"I think investors are now assessing the immediate impact of that incident and are not rushing to liquidate holdings on bad news, which is probably the correct strategy because on a probability scale I would bet that they do better acting cautious rather than flippant."

American Achievement prices

The only junk bond deal to price in the United States on Thursday came from Austin, Tex. yearbook-maker American Achievement Corp., according to market sources.

The company sold $150 million of eight-year senior subordinated notes (B3/B-) at par to yield 8¼%.

That was at the tight end of the 8¼%-8½% price talk, with Goldman Sachs & Co. and Deutsche Bank Securities running the books.

Three deals to hit the road

The roadshow starts Monday for Sealy Mattress Co.'s offering of $490 million of 10-year senior subordinated notes, with pricing expected on March 30.

Goldman Sachs & Co. and JP Morgan will be joint bookrunners for the acquisition financing deal from the High Point, N.C.-based mattress-maker.

Meanwhile the roadshow starts Thursday for KCS Energy Inc.'s $150 million of eight-year senior notes, which are expected to price late in the March 22 week.

Credit Suisse First Boston, Merrill Lynch, Jefferies & Co. Harris Nesbitt, Banc One Capital Markets and BNP Paribas are the underwriters of the refinancing deal from the Houston-based independent oil and gas exploration and production company.

And the roadshow starts Thursday for U.S. Concrete's $150 million of 10-year senior subordinated notes (B3/B-), which are expected to price on March 26.

Citigroup and Banc of America Securities are joint bookrunners on the refinancing deal from the Houston-based company.

Talk, new calls on Ispat Steel

Ispat Inland, ULC issued price talk on its two-tranche $800 million high yield offering (Caa1/B-) on Wednesday.

UBS Investment Bank is the bookrunner on the deal that is expected to price late Thursday.

The integrated steel company intends to price $200-300 million of six-year floating-rate debt. The security description is "notes/loan," according to the source. Price talk is Libor plus 625-650 basis points.

The call structure was revised to non-call-two from non-call-one; the notes will become callable after two years at 103, with the premium declining annually thereafter to 102, 101 and to par.

The company also intends to sell $500-600 million of 10-year fixed-rate senior secured notes; price talk on them is 9¾%-10%.

One sell-side source suggested late Thursday that the revised call structure on Ispat, taken in conjunction with other recent attention-getting call features, might also imply that investors are presently in position to push a little harder.

For example, Riverdeep came with a seven-year non-call-three structure in which the first call level is equal to par plus the entire coupon of 109.25.

In addition to Ispat and Riverdeep, sources had been questioning the reception that Beal Financial - a $500 million deal, cut to $200 million that was ultimately postponed Tuesday - would enjoy, given that it was reported to be in the market as a 10-year non-call-three. That short call protection, sell-side sources suggested, would not be highly regarded among investors.

Standard Commercial talk

Finally on Wednesday price talk of 7¾%-8% emerged on Standard Commercial Corp.'s $150 million of eight-year senior notes (Ba3/BB+), expected to price on Friday.

Deutsche Bank Securities and ING are joint bookrunners.

American Achievement up in trading

When the new American Achievement 8¼% senior subordinated notes due 2012 were freed for secondary activity, there were quoted as having moved as high as the 101.5-102 bid area, although a trader remarked that "not much was happening there"; another trader, noting the deal's $150 million size, observed that "it's a small deal, the kind that's generally quickly put away, and then nobody gives a damn about it."

Nextel mixed

A trader saw Nextel Communications Inc.'s new 5.95% senior notes due 2014 trading in a 98 bid, 98.5 offered context, with "not much shaking there," versus the 97.795 price at which the Reston, Va.-based wireless telecommunications operator's bonds had priced on Monday.

Another trader quoted the new Nextels at 98.5 bid, 98.75 offered.

Nextel announced plans to tender for all of its nearly $859 million of outstanding 9½% senior serial redeemable notes due 2011, planning to offer holders who tender their notes before the March 29 consent deadline $1,142.50 per $1,000 principal amount (see Tenders and Redemptions elsewhere in this issue for details).

Accordingly, a market source said, those notes were heard to have moved up in Wednesday's dealings to around that 114.25 bid takeout level, from 112.25 previously.

Nextel also was on the stump Wednesday, with chief executive officer Tim Donahue addressing a Merrill Lynch investor conference, at which he told participants that the company anticipates no problem in meeting its 2004 financial goals. He also outlined Nextel's plans to expand the international distribution of its flagship Direct Connect push-to-talk service into additional markets, possibly soon including Canada, as well as expanding its youth-oriented Boost pre-paid phone service into additional markets beyond California and Nevada, where the service was first rolled out last year.

Even with the upbeat presentation, the source said, Nextel's existing bonds, other than the issue being tendered for, were "kind of a mixed bag" on Wednesday, with its 9 3/8% notes due 2009 firming to 108.75 bid from prior levels around 108.375, and its 12½% notes due 2009 likewise half a point stronger, at 116.5 bid. Nextel's 11% notes due 2010 were easier, losing half a point to 110.

Another wireless service provider, Dobson Communications Corp., also had debt-reduction news Wednesday, announcing that it had bought back some $55 million principal amount of its 8 7/8% senior notes due 2013 since the start of the year (see Tenders and Redemptions for further details). The 8 7/8% notes were quoted up nearly three points Wednesday, to 82 bid while Dobson subsidiary American Cellular Corp.'s 10% notes due 2011, were two points better, around par bid.

Fisher gains on acquisition

Elsewhere, Fisher Scientific's planned acquisition of Apogent resonated with bondholders at one desk. The company's 8 1/8% notes due 2012 were seen up more than three points on the session at 112.5 bid.

At another desk, a market observer saw the notes' movement a little more restrained, pegging them up about two-and-a-half points, at 111.5 bid. He saw little movement in the company's 8% notes due 2013, up just one-eighth of a point, at 110.125, and in its 7 1/8% notes due 2005, unchanged at 108.25.

Apogent's 6½% notes due 2013 were meanwhile heard half a point lower at 105.75 bid.

Both Moody's Investors Service and Standard & Poor's indicated that they may upgrade Fisher's ratings - even though it is the acquirer and is assuming a big block of debt in this transaction - and may lower Apogent's, even though it is the acquiree.

S&P said that the acquisition "would significantly advance Fisher's goal to increase its proportion of self-manufactured products, while improving its overall capital structure and expanding cash flow."

S&P currently rates Fisher's corporate credit at BB, its senior secured debt at BB+, its senior unsecured debt at BB- and its subordinated debt at B+, all on Credit Watch with positive implications. It rates Apogent's corporate credit and senior unsecured debt at BBB- and its subordinated debt at BB+, with negative implications.

Moody's currently pegs Fisher's senior implied rating at Ba3, while Apogent's rating is Ba1. In placing Apogent's ratings under review for possible downgrade, Moody's cited its concerns that Apogent "will become part of an organization with significantly higher debt levels and potentially lower credit quality relative to Apogent's current ratings, as well as the unclear treatment at this time of the existing Apogent debt securities."

Tenet continues to gain

Tenet Healthcare Corp. paper, which came off its early lows on Tuesday to end higher following what was perceived by investors to be a positive conference call by the Santa Barbara, Calif.-based hospital operator, continued that firming trend on Wednesday.

Its 5 3/8% notes due 2006 went out at 93.25 bid, 94.25 offered, up three-quarters of a point from Tuesday's close; its 5% notes due 2007 ended a point-and-a quarter higher at 90.5 bid, 92 offered; and its 7 3/8% notes due 2013 were a point-and-a-half ahead at 89 bid, 90 offered. Its 6 7/8% bonds due 2031 rose a point to 82.5 bid, 83.5 offered.

AK in demand

A trader saw AK Steel Corp. bonds "better bid for," citing the news that a sector peer, Allegheny Technologies Inc., announced that it is raising its prices on stainless steel, titanium alloy and cobalt-alloy and nickel-alloy products. That price rise comes on top of AK's own announcement of a price rise last week, and intensifies a trend in the steel industry toward taking advantage of booming demand by raising product prices.

"This is a sector that has had a really hard time getting any momentum," he said, "because they've had so much revamping to do that they can't ever get ahead of the ballgame. Hopefully, with this pricing increase, [the steelmakers] will get into a situation where they start making enough money, so they'll have significant cash flow and won't always have to be coming to the markets.

"I think if that happened and you had a situation where they're retiring debt, like U.S. Steel is doing, then you'd get some real momentum behind the sector. But that that just hasn't come yet. Hopefully it will come, with additional pricing power in the second and third quarter."

He saw AK's 7¾% notes finishing at 87.25 bid, 88.25 offered, while its 7 7/8% notes went out quoted at 89 bid, 90 offered, both up about a point-and-a-half on the session - although he said "really, it pretty much made up what it lost [Tuesday]."

Overall Wednesday, he said, "the market did a lot better" than it had done on Tuesday. Unlike the situation on Tuesday, when junk market performance, as gauged by high yield indexes, was off, While Treasuries jumped and spreads between the two markets widened out on Wednesday, he said the indexes were up about a point-and-a-half and the sharp Treasury rise subsided.

"Spreads between high yield or anything else and governments haven't come back to where they were before this week - but they came back quite a lot," he said. "So people feel a lot perkier than they were [Tuesday], when people were down in the dumps. So maybe it will continue."

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