RSC, Alliance One deals price, latter struggles in secondary; Tenet zooms as offer ends

By Paul Deckelman and Paul A. Harris

New York, June 26 - The high yield primary market saw the pricing of another nearly $1 billion of new paper on Friday, closing out the week with new offerings from RSC Equipment Rental Inc. and Alliance One International Inc.

But while the former deal was upsized and was heard by traders to have moved up when it moved over into secondary dealings, the latter deal was downsized - the only such new issue downsizing this week - and struggled just to stay around its issue price, once it broke.

In the meantime, the new deals that priced earlier in the week, including Thursday's offerings from Smithfield Foods Inc., XM Satellite Radio Inc. and Univision Communications Inc., and Wednesday's tranche of Solo Cup Co. bonds, were heard to have held pretty much steady around the levels to which each of those deals had risen after they priced.

Traders said that the new deals pretty much monopolized market attention, with not too much activity seen among existing issues. One name which did seem to stand out was Tenet Healthcare Corp., whose bonds were seen points higher after the Dallas-based hospital operator's late-day announcement that it had completed a tender offer for one of its other series of bonds, taking out most of them to improve its balance sheet.

The market traded flat with a negative bias on Friday, according to a high-yield syndicate banker.

Although Prospect News invited market sources to make whatever heavy weather they cared to regarding the $110 million outflow from the high-yield mutual funds reported on Thursday by AMG Data Services - the first negative flow since early March - all takers declined that invitation.

With respect to cash flows, market players appear to have adopted a "wait and see" posture.

Alliance One downsizes

North Carolina-based leaf tobacco merchant Alliance One International priced a downsized $570 million issue of 10% seven-year senior notes (B2/B+) at 95.177 to yield 11% on Friday, according to an informed source.

The yield was printed 12.5 basis points wide of the 10¾% area price talk. The deal was reduced from a planned $600 million, the only one this week to be downsized.

Credit Suisse, Deutsche Bank, Goldman Sachs and ING were joint bookrunners for the debt refinancing deal.

The deal struggled, according to market sources.

A high-yield mutual fund manager who did not play spotted the bonds just before the Friday close straddling the issue price at 94¾ bid, 95¼ offered.

There was a perception in the market that it was a large deal from a company not well known or well understood, the buy-sider added.

RSC upsized, oversubscribed

Meanwhile RSC Equipment Rental Inc. and RSC Holdings III priced an upsized $400 million issue of 10% eight-year first-lien senior secured notes (B1/BB) at 97.32 to yield 10½%.

The yield was printed at the tight end of the 10½% to 10¾% price talk.

The deal was increased from $300 million.

Deutsche Bank Securities, Banc of America Securities, Morgan Stanley, J.P. Morgan and Wachovia Securities were joint bookrunners for the debt refinancing.

The deal went well and was very oversubscribed, according to an informed source, who added that a number of accounts arrived late at the party, so that the book built substantially in the 11th hour.

$3 billion week

With Alliance One and RSC in the mix, the June 22 week saw slightly more than $3 billion proceeds of issuance in eight tranches.

"We saw some softness in the secondary market this week," a syndicate official said.

"The new issue market dominated."

Year-to-date issuance through Friday's close comes to $62.4 billion.

The run-up to the Fourth

A busy week is on tap for high yield, as issuers and dealers look to complete more than $2 billion of announced business before the three-day Independence Day weekend which begins with Friday's close.

The latest deal to be announced as pre-Independence Day business came from United Air Lines, Inc.

The Chicago-based air carrier plans to price $175 million of three-year senior secured notes (B2/B+) on Monday.

Goldman Sachs and Citigroup are joint bookrunners.

Proceeds will be used for general corporate purposes, possibly including debt repayment, financing capital expenditures or funding potential acquisitions or other business transactions.

United climbs aboard an active forward calendar that includes the following:

• One Communications Corp.'s $275 million offering of first-priority six-year senior secured notes (expected B-), via Morgan Stanley and J.P. Morgan;

• Bill Barrett Corp.'s $200 million offering of seven-year senior notes (expected ratings B1/B+), led by Banc of America Securities, Deutsche Bank Securities and J.P. Morgan;

• Casella Waste Systems, Inc.'s $205 million of five-year senior second-lien notes via Banc of America Securities, J.P. Morgan and Calyon Securities;

• Commercial Barge Line Co., with a $200 million offering of eight-year senior secured notes led by Banc of America Securities, UBS Investment Bank, SunTrust Robinson Humphrey and Wachovia Securities;

• TRU 2005 Re Holding Co. I, LLC (Toys 'R' Us, Inc.)'s whopping $950 million offering of eight-year senior notes (expected ratings B3/B+) via Banc of America Securities, Deutsche Bank Securities, Goldman Sachs and Wachovia Securities; and

• Real Mex Restaurants, Inc., with a $110 million offering of 3.5-year senior secured notes (B3/B-), a Jefferies deal.

New RSC issue moves upward

When Scottsdale, Ariz.-based industrial equipment rental company RSC's new 10% first-lien senior secured notes due 2017 were freed for secondary dealings, a trader quoted those bonds at 99 1/8 bid, 99½ offered. That was well up from the 97.32 level at which the company had priced its bonds earlier in the session.

A second trader saw the bonds at 98½ bid, 99½ offered, while a third saw them even better, going home at 99 bid, 99½ offered. He noted that this was in line with the trend seen all week, of new issues moving up by several points from their pricing levels.

"I guess they [issuers and underwriters] put free money out there, so [the new bonds] price cheap and trade up, and people keep buying the deals - some of them flippers. That keeps things going up, and keeps this market going."

New Alliance One gets smoked

Pretty much the only exception to that general rule this week was the new $570 million offering from Alliance One International. In fact, a trader said as much, declaring that "all of the new issues traded up - except for Alliance."

The Morrisville, N.C.-based independent leaf tobacco merchant priced its offering of 10% senior notes at 95.177.

However, unlike virtually every other of the week's deals, Alliance One failed to catch fire, trading at or even below its issue price all afternoon.

A trader said the new issue "traded around the 95 level - maybe it got a little bit better, but not much." He saw the bonds going out at 95 bid, 95 3/8 offered.

Noting that the issue was downsized to reflect less than red-hot demand, he suggested that as a tobacco industry company, Alliance One might be catching the fallout from investors worried about the impact the tough new federal anti-smoking bill signed into law this week by president Barack Obama might have on the industry's fortunes.

"No wonder it didn't trade well and was downsized," he said. He "wouldn't be surprised" if worries about the overall industry were the key reason.

Smithfield buyers in hog heaven

Back in the winners' circle, a trader saw the week's biggest offering, the quickly-shopped drive-by deal from Smithfield Foods, trading at par bid, 100½ offered early in the session - well above the 96.201 level at which the Smithfield, Va.-based pork processor's $625 million offering of 10% senior secured notes due 2014 - upsized from $500 million originally - priced late Thursday to yield 11%. There was no aftermarket trading seen on Thursday.

Later in the day, a trader saw those new bonds having come down from its early par level to about 99 bid, still well up on the day.

'They backed off a little," another trader agreed. "They got as high as par, that was the high tick," but by day's end, had eased from that zenith to 99 bid, 99½ offered.

Yet another trader saw them coming even further down from their peak level, quoting them going out at 98½ bid, 99½ offered.

One of the traders also quoted Smithfield's existing bonds as pretty much holding the gains they had notched on Thursday, when the bonds moved up in busy trading ahead of the new deal. He saw its 7% notes due 2011 at a 95-96 context, while its 7¾% notes due 2013 "didn't do much" and stayed around 81¾ bid, 82¾ offered. "They had their run" on Thursday.

He also said pretty much the same thing about Toys "R" Us Inc., whose existing bonds had firmed smartly on Thursday on the news that the Wayne, N.J.-based specialty retailer will be bringing a $950 million bond deal to market during the upcoming week. He noted little volume in the name, and little change from the busily-traded levels to which those bonds had jumped on Thursday - the 7 5/8% notes due 2011, one of that day's most actively traded junk issues, up 5 points to 92 bid, while its 7 5/8% notes due 2013 up 7 points to 82.

XM, Univision hold gains

Traders saw the twin media issues that priced well below par on Thursday but then moved up, continuing to hold the high ground on Friday.

Los Angeles-based Spanish-language media company Univision Communications Inc.'s upsized $545 million of 12% senior secured notes due 2014 were seen trading around 98 bid, 98½ offered - well up from the 93.006 price the deal came at to yield 14%.

Meanwhile, New York-based XM Satellite Radio Inc.'s sharply upsized $525.75 million offering of 11¼% senior secured notes due 2013were also in that 98 bid, 98½ offered area, versus their original pricing level 95.093 to yield 12 7/8%.

Solo Cup stays up

A trader said that Solo Cup's $300 million offering of 10½% senior notes due 2013 continued to "hang around" the par level, quoting the Highland Park, Ill.-based disposable cup, plate and utensil maker's deal at 100 3/8 on Thursday and "not too much different" on Friday.

Those bonds had priced at 97.928 on Wednesday to yield 11 1/8%. A source noted that it played to "a solid book containing normal high-yield accounts as well as some smaller accounts."

Market indicators feel firmer

Back among the established issues, the CDX Series 12 High Yield index - which had retreated by 3/8 point on Thursday from its peak levels for the week - was heard by a trader to have eased another ¼ point Friday to end at 82 5/8 bid, 83 1/8 offered. However, it was up on the week from the 81¼ bid, 81¾ level at which it had ended the previous Friday, June 19.

The KDP High Yield Daily Index, which had gained 17 basis points on Thursday, rose another 14 bps on Friday to end at 62.18, while its yield tightened by 4 bps to 10.66.% All told, it was not much changed from the previous Friday's 62.11 level, yielding 10.66%.

In the broader market, advancing issues - which had edged decliners on Thursday for a second consecutive session, though only by the narrowest of margins - were a little more sure of themselves on Friday, holding a five-to-four advantage.

Overall market activity, measured by dollar-volume totals, fell 8% from Thursday's levels.

"Outside of the new issues," a trader said, "it was pretty uneventful."

Motorola moves up

A market source noted brisk trading in the bonds of Motorola Inc., whose 6% notes due 2011 were one of the most high-volume issues in Junkbondland Friday, with over $10 million traded at around the 82 mark.

There was no news out on the Schaumburg, Ill.-based electronics giant.

A trader said that all of the upside in Motorola came on "really not a lot of trades - someone sold two $5 million lots, one at 82 and one at 83. Not a lot of trades, but kind of size trades."

Tenet is tops

Probably the biggest mover on the day was Tenet Healthcare's 6½% notes due 2012, which were being quoted by one market source up more than 10 points on the day at just a tad below par, while a second saw those bonds at that same level, though up around 9 points.

The Tenet bonds moved to those lofty levels on several large-block trades late in the session, coinciding with the company's announcement that it had successfully concluded its tender offer for its $1 billion of 9 7/8% notes due 2014, with almost 98% of those bonds having been tendered to the company by the offer's expiration deadline on Thursday.

Apart from such credits, a trader said, "it was all new-issue stuff today, pretty much."

He noted that the market was coming into an abbreviated pre-holiday week, which will see the debt markets closed on Friday in observance of July 4, which comes out on a Saturday this year.

Meanwhile, he sees "no conviction either way. I expect it to be a lethargic week."

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