InSight Health gains on IPO news; Aquila falls on court ruling

By Paul Deckelman and Paul A. Harris

New York, June 23 - InSight Health Services Holdings Corp.'s bonds were being quoted solidly higher Wednesday on the Lake Forest Calif.-based healthcare services provider's planned sale of new income deposit securities and other instruments, with some of the proceeds expected to be used to pay existing bond and bank debt. On the downside, Aquila Inc. bonds were down after an unfavorable legal ruling for the Kansas City, Mo.-based electric utility operator and merchant power generator.

In the primary arena, a trio of deals were heard to have priced, for KB Home, Ames True Temper and for Medical Device Manufacturing Inc. The latter issue was heard by high yield syndicate sources to have been downsized.

Back among existing bonds, InSight Health Services' 9 7/8% notes due 2011 were seen having firmed smartly to about 108 bid, up more than four points on the session, on the news that the company will sell up to $675 million of income securities and other notes not represented by income securities in an IPO. It is expected to repay bank debt and bond debt with at least a portion of the proceeds.

Also on the financing front, the announcement that Matria Healthcare Inc. plans to sell its pharmacy and supplies business for $130 million and use a good portion of the proceeds to finally complete its tender offer for its $122 million of 11% notes due 2008 - which began in March but which has lately been in a holding pattern as the Marietta, Ga.-based disease-management services provider tried to line up the financing it needs (see related story elsewhere in this issue) - did not do very much for those bonds, which were unchanged at 111.75 bid; a trader said the bonds had been hanging around that anticipated takeout level almost from the time the company announced months ago it was going to repurchase them when it lined up the financing.

News from Fleet Street that Hollinger International will sell its Daily and Sunday Telegraph newspapers to Barclay Press Holdings and for $1.3 billion and use some of the proceeds to tender for its 9% notes due 2010 boosted the publishing company's notes to 114 bid from 110.5 previously, although Hollinger's other bonds were seen little changed.

Aquila down

On the downside, Aquila's bonds fell sharply, after a federal judge ruled Tuesday that Aquila could not spend $504 million from the recent sale of its Canadian assets but must instead use the money as collateral for a performance bond related to its natural gas delivery business.

Aquila's 8.20% notes due 2007 were seen having declined to 98.5 bid from par bid earlier, and some of its other issues were down even further, with the 7 5/8% notes due 2009 dipping to 88.5 bid from 92 previously and its 14 7/8% bonds due 2012 dropping four points to end at 121.5. Aquila's 9.95% notes due 2011 fell to 96 bid from 99.5, while its 9% bonds due 2021 were two points lower at 84.

That ruling U.S. District Judge Gary Fenner of the federal court in Kansas City, Mo. prevents Aquila from using cash from the May sale of assets to Fortis Inc.

Chubb Corp., the insurance company that issued bonds in 1999 and 2000 to insure natural gas delivery contracts purchased from Aquila by municipal utilities in Nebraska, challenged the company and said that the Fortis deal proceeds would have to be held as collateral on those bonds.

Aquila said there was no need for collateral, since it was delivering the gas as specified - but Fenner ruled that the bond contracts allow Chubb to demand collateral or be discharged for the liability of the gas contracts.

Freescale launches $1.25 billion

The primary market saw $675 million price during the midweek session, with the KB Home taking $350 million across the threshold in drive-by action.

Meanwhile the forward calendar took aboard a substantial chunk of potential issuance as Freescale Semiconductor, Inc. announced that it would sell $1.25 billion in three parts, as Motorola moves to spin off the Austin, Tex.-based microchip maker.

The roadshow starts Friday for a $1.25 billion three-tranche offering from Freescale Semiconductor (expected ratings Ba2/BB+), with the deal expected to price on Thursday, July 15.

Goldman, Sachs & Co, Citigroup and JP Morgan are joint bookrunners, with co-managers expected to be named later.

The company will offer a five-year non-call-two floating-rate tranche, a seven-year non-call-four fixed-rate tranche, and a 10-year non-call-five fixed-rate tranche. Tranche sizes remain to be determined.

According to a market source, Freescale intends to use the proceeds from the deal to make a $1.5 billion payment to Motorola share holders, as Motorola proceeds with its plan to divest its semiconductor business and concentrate on its wireless communications operations.

Motorola also announced an IPO for just over 30% of Freescale on Monday, the source added. The company set a range of $17.50-$19.50 per share, or nearly $2.73 billion, for that slice of Freescale.

KB Home $350 million drive-by

Three deals priced during Wednesday's primary session.

KB Home priced a quick-to-market $350 million issue of 6 3/8% seven-year senior notes (Ba1/BB+) at 99.281 to yield 6½%.

The Los Angeles homebuilder's debt refinancing deal, via Banc of America Securities, came on top of the 6½% area price talk.

Meanwhile Medical Device Manufacturing, Inc. downsized its issue of eight-year senior subordinated notes (Caa1/B-) to $175 million from $190 million and priced the notes at par to yield 10%.

Price talk on the Credit Suisse First Boston-led acquisition financing deal was 10%-10¼%, so Medical Device Manufacturing, a subsidiary of UTI Corp., came at the tight end.

An informed source told Prospect News that UTI Corp. also increased the size of its six-year term loan B to $194 million from $174 million, as it decreased the size of its bond deal.

"They're over-funding by $5 million so there's cash on the balance sheet," the source commented.

Finally, Ames True Temper sold $150 million of eight-year senior subordinated notes (Caa1/CCC+) at par to yield 10%, at the wide end of the 9¾%-10%.

Banc of America Securities ran the books for the acquisition financing deal from the Camp Hill, Pa. manufacturer of non-motorized lawn and garden tools.

Winding down the week

Issuers and their investment banks continued setting the stage for the latter part of the June 21 week on Wednesday, with news emerging on three deals expected to price during that period.

Price talk is 7 3/8%-7 5/8% on an upsized $200 million offering of 10-year senior notes (Ba3/BB), from Carlsbad, Calif.-based sporting goods manufacturer K2, Inc. The transaction has been increased from $150 million.

The deal is expected to price on Thursday afternoon via JP Morgan.

Meanwhile price talk is for a yield in the 10% area on Pierre Foods' planned $125 million of eight-year senior subordinated notes (B3/B-), expected to price on Thursday via Banc of America Securities and Wachovia Securities.

And price talk is 11¼%-11½% on a restructured offering of seven-year non-callable senior notes from Seitel, Inc. (expected ratings B3/B-), which are also expected to price on Thursday.

UBS Investment Bank is the bookrunner.

Prior to restructuring, the Houston-based seismic information and technology company had been in the market with a eight-year non-call-four offering.

KB lower in trading

When the new KB Home 6 3/8% notes due 2011 were freed for secondary dealings, they were heard to have eased from their 99.281 issue price earlier in the session, finishing at 99 bid, 99.125 offered.

But a trader said the new Ames True Temper 10% senior subordinated notes due 2012 "broke pretty good," pushing up to 100.75 bid, 101.25 offered from their par issue price.

He also saw the new Medical Device 10% senior subs due 2012 having gotten as good as 101 bid, 102 offered from par.

The new deals, another trader opined, "didn't do that badly," although he noted that the KB deal "priced at a pretty aggressive spread against governments and ended up giving it back." He saw the Ames bonds at 100.25 bid, 101.25 offered.

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