Upsized R.H. Donnelly deal prices, CompuCom too; housing continues rise, other sectors mostly up also

By Paul Deckelman and Paul A. Harris

New York, Sept. 19 - R.H. Donnelley Corp. announced that the junk bond primary market was back - in a big way - as the directory publisher solidly upsized its quickly and opportunistically marketed drive-by offering of 10-year bonds and priced them at par, with no discounts needed to get the deal done. That mega-deal was seen having firmed nicely as well when the bonds were freed for secondary dealings.

However, CompuCom Systems Inc. - which some had not expected to come to market quite this soon - also priced an offering, considerably smaller, but had to offer a major discount from par level to generate a fat enough yield to get investors to go for it. It was the second such deal in which the issuer had to go that route - Monday's Baseline Oil & Gas Corp. offering had been the first.

But further signs of the reviving primary were seen from MasterCraft, which will begin a roadshow for a smallish seven-year secured deal.

In the secondary market, besides the rise in the new R.H. Donnelley deal, the predominant trend was continued firming pretty much across the board, particularly in the housing sector, which has been on a roll the past few sessions, spurred higher by hopes that Tuesday's unexpectedly large and proactive Federal Reserve rate cut - 50 basis points on its key discount rate - will help revive the sagging industry.

Housing has also been riding Hovnanian Enterprises Inc.'s coattails, following the Red Bank, N.J.-based homebuilder's well-publicized "Deal of the Century" promotion which saw prices slashed on homes and condominium units in 19 states - with over 2,000 contracts signed or deposits taken. And it continued to ride them Wednesday; other gainers included Beazer Homes USA Inc. and Standard Pacific Corp.

Countrywide Financial Corp.'s bonds were seen up smartly, after the recently troubled mortgage lender's chief executive officer sounded a bullish note at a presentation and an analyst at a major bank said market fears it might go bankrupt were exaggerated.

Claire's Stores Inc.'s bonds were still on the upswing, despite lackluster numbers reported Tuesday, leading other retailers up as well. Traders said a lot of other credits were up points for no other reason than that everything else was too.

Both the index and the cash junk bond market were higher again on Wednesday, according to a high yield syndicate official who spoke to Prospect News after the close.

Meanwhile two issues were priced in the primary market, neither of which had been marketed on an investor roadshow.

R.H. Donnelley priced an upsized $1 billion issue of 8 7/8% 10-year notes in a drive-by.

CompuCom Systems priced a $210 million offering of 12 ½% 8-year subordinated notes at a significant discount. The CompuCom deal, which disappeared from the market during the mid-summer sell-off, was said to have been quietly marketed to accounts during the previous 10 days.

Meanwhile two additions were made to the forward calendar of deals in the market. Both are being led by Jefferies & Co.

Speed and stealth

Neither of Wednesday's deals was marketed via an investor roadshow, the customary practice in the junk market.

In a quick-to-market transaction, R.H. Donnelley priced an upsized $1 billion issue of 10-year senior notes (B) at par to yield 8 7/8%, in the middle of the 8¾% to 9% price talk.

JP Morgan ran the books for the issue which was increased from $650 million.

Proceeds will be used to refinance R.H. Donnelley Inc.'s 10 7/8% senior subordinated notes due 2012 and to repay a portion of the company's term loan debt. The additional proceeds will be used to fund the bridge loan at the holdco level.

Meanwhile CompuCom priced its $210 million offering of 12½% eight-year senior subordinated notes (B3/B-) at 94.613 to yield 13 5/8% on Wednesday.

A market source told Prospect News that no official price talk had been heard. The source added that the deal had been "stealth-marketed."

The deal had originally been expected as August business, but was delayed until September in the mid-summer capital markets correction.

Bear Stearns & Co. ran the books for the acquisition financing from the Dallas-based provider of technology services.

Leucadia on Thursday

Leucadia National Corp. plans to price its $350 million offering of senior notes due Sept. 15, 2015 (Ba2/BB+) on Thursday - a Jefferies-led drive-by.

The New York City-based diversified holding company is concurrently in the market with 5.5 million offering of common shares.

Proceeds will be used for general corporate purposes, which may include working capital, acquisitions or other investment opportunities.

MasterCraft to the road

In another Jefferies-led deal, MCBC Holdings, Inc. (MasterCraft) will start a roadshow on Thursday for its $105 million offering of seven-year senior secured floating-rate notes.

Proceeds will be used to fund the acquisition of MasterCraft by MCBC Holdings. The financing includes a $63 million equity investment.

MasterCraft is a Vonore, Tenn.-based designer and manufacturer of luxury inboard sport boats.

New Donnelley bonds move up

When the new R.H. Donnelley 8 7/8% notes due 2017 were freed for secondary dealings, a trader said they broke at 101 bid, 102 offered, although he didn't see any immediate trading in them. A short time later, another trader saw them trading, having tightened to 101.5 bid, 102 offered.

Still another trader pegged the bonds at 101.375 bid, 101.875 offered.

A market source meantime said that the company's existing 8 7/8% notes due 2016 were down ½ point at 102.5

The new CompuCom 12½% notes due 2015 were not seen in the secondary realm.

Housing stays hot

Back among the established issues, the housing sector was once again where things were happening, particularly Hovnanian.

A trader saw its 8 5/8% notes due 2017 at 82.5 bid, 83.5 offered, which he said was well up from Friday's levels at 79.5 bid, "and before that, at 78, 77.5-78. Since mid-week last week, to mid-week this week, it's up 4 to 5 points."

Another trader saw the company's 8 7/8% notes due 2012 up 4 points at 78 bid, 80 offered.

Hovnanian continues to reap the positive afterglow from its big weekend sales promotion, which saw unsold units finally being sold at a frantic pace, helped by big price cuts.

Reeling like many other homebuilders from the recent troubles of the sector, which were exacerbated by the collapse of the subprime lending industry that offered credit to homebuyers shut out from traditional sources of capital, the company ran what amounted to a 60-hour fire sale, running from Friday morning to Sunday night, aimed at slashing its inventory of unsold homes. With prices cut by as much as 25%, that amounted to savings in the six figures for many savvy, or just plain lucky, homebuyers.

The company trumpeted what it called its "huge success" from the gimmick, noting that by the time it was all over, it had made more than 2,100 sales, consisting of about 1,700 contracts and 400 deposits - almost as many such sales at it had made, at regular prices, during the whole of the previous quarter. Hovnanian's agents took deposits when they did not have time to finish the paperwork for contracts before the 9 p.m. deadline on Sunday.

The company has not indicated whether it would go back for more discounted sales. So far, other homebuilders have not followed suit - although some market-watchers believe they might.

Other builders boom

With Hovnanian setting the pace, other builders were also better.

"The homebuilding stuff got beaten down" in recent days and weeks," a trader said - but Tuesday it was up 6 or 7 points, helped by Hovnanian and the Fed rate cut - and that was seen continuing Wednesday.

A trader saw Beazer Homes's 8 5/8% notes due 2011 up 1¾ points at 81.75 bid, 83.25 offered, its 6½% notes due 2013 at 78 bid, 80 offered, and its 8 1/8% notes due 2016 at 79.5 bid, 81.5 offered, both up 1½ to 2 points.

Another trader saw 8 3/8% notes due 2012 up 3 points at 80 bid, 82 offered.

Standard Pacific's 7¾% notes due 2013 were being quoted at 78 bid, 80 offered, up 7 points, a trader said, while the company's 6¼% notes due 2014 traded at 74 bid, 76 offered, up 4 points, and its 7% notes due 2015 at 75.5 bid, 77.5 offered, up 5½ points.

Another trader saw Standard's 9¼% notes due 2012 up 2 points at 70 bid, 72 offered.

The trader saw Tousa Inc. up 2 to 3 points, with the former Technical Olympic's 8¼% notes due 2011 at 69 bid, 71 offered and its 9% notes due 2010 at 72 bid, 74 offered, both up 3 points. Another trader saw the 9s up 2½ points at 71.5 bid, 73.5 offered.

Countrywide gains on CEO, analyst opinions

Closely related to the fortunes of housing is that of mortgage lenders, which also have gotten a boost from the Fed move, and from other developments as well.

Countrywide Financial's Ba1/BBB+/BBB- rated 6¼% notes due 2016, which have lately been quoted in dollar terms, as though they were distressed junk bonds rather than essentially investment-grade instruments - ever since the big mortgage lender ran into liquidity problems last month and had to draw down its credit line and arrange a big investment from Bank of America to generate operating capital - were seen Wednesday at 89.5, up from 86 previously.

The bonds, and the company's shares, got a boost after CEO Angelo Mozilo delivered optimistic remarks at a Banc of America conference on Tuesday, said he was "bullish" on the company's prospects and outlined its expansion plans - and as Citigroup analyst Bradley Ball wrote in a research note that market fears about the company being unable to continue as a going concern were "overblown."

Elsewhere on the mortgage front, the GMAC LLC's 8% notes due 2031 were seen up 1½ points at 97.5 bid, 89.5 offered, while its 6¾% notes due 2014 were at 89.5 bid, 90.5 offered, up 1½ points.

Its 6 7/8% notes due 2011 were up 2 points at 94 bid, 95 offered.

GMAC has been rising on recent news that it had lined up some $21 billion of new financing to replace smaller existing credit facilities. Traders did not see any bonds of GMAC unit Residential Capital Corp. trading, though.

Claire's continues climb

Outside of the housing and mortgage area, traders saw a broad variety of names rising pretty much across the board - for no other reason than that the whole market was up.

One such name was Claire's Stores - with a trader saying its 10½% notes due 2017, which had risen 1½ points on Tuesday, were again "up dramatically" Wednesday from recent upper 70s levels, ending at 81 bid, 82 offered. The rise came despite the Pembroke Pines, Fla.-based specialty retailer's lackluster quarterly numbers that included a consolidated 1.7% drop in same-store sales, the key retailing metric.

Also among retailers, Michael's Stores Inc.'s 11 3/8% notes due 2016 were seen up 4 points at 101.5 bid.

A trader quoted the widely followed CDX index up 5/16 point at 97 1/16-97 5/16. Among other market indexes, the Banc of America Securities High Yield Broad Market Index rose 0.5% on the day to 2.48% year-to-date return. The KDP High Yield Daily Index gained 0.40 to end at 78.38, its yield narrowing 12 basis points to 8.02%.

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