Market awaits Intelsat/PanAmSat mega-deal; Williams, Pokagon price; funds see $383 million outflow

By Paul Deckelman

New York, June 15 - Junk bond market denizens saw two new deals pricing on Thursday, for Williams Partners LP and for Pokagon Gaming Authority. However, looming just over the horizon for an expected Friday pricing was the gigantic multi-part deal to finance the pending acquisition of PanAmSat Holding Corp. by satellite communications sector peer Intelsat Ltd. - and some potential investors are apparently wary, since price talk was heard to have backed up to wider levels.

In the secondary market, a somewhat firmer tone was seen, as established bonds took their cue from a revived stock mart, which got a big boost from Federal Reserve boss Ben Bernanke's semi-hopeful comments on inflation. However, traders said that the upside was less than what might have been expected under such circumstances.

One big winner, though, was Omnicare Inc., whose bonds and shares both rallied on a favorable ruling for the Covington, Ky.-based pharmaceuticals provider from the government agency that administers the Medicaid program.

And as trading was wrapping up for the day, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $382.7 million more left the funds than came into them. That was in sharp contrast to the relatively small $40.8 million inflow which had been seen the week before, ended June 7, offsetting the small inflow nearly 10 times over and re-establishing the pattern of outflows which had been seen in the eight consecutive weeks before that inflow.

Over that eight-week period, outflows totaled $1.232 billion, according to a Prospect News analysis of the AMG figures; in the last 10 weeks, with nine outflows, net outflows have totaled $1.574 billion, the analysis indicated.

Outflows have now also still been seen in 19 weeks out of the 24 since the start of the year, against only five inflows, and net outflows during that time have totaled $2.824 billion, up from the $2.451 billion cumulative total seen the week before, according to the Prospect News analysis, excluding distributions and counting only those funds that report on a weekly, rather than on a monthly, basis.

Those results confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the $3.236 billion net outflow seen in 2004.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

IntelSat/PanAmSat widens talk

A flow of liquidity from the junk market could be a problem with a big new deal scheduled - and Friday is expected to see one of the biggest in months, as the combined PanAmSat-Intelsat leviathan, tipping the scales at more than $3 billion total, waddles in.

But things have apparently not gone as smoothly as they might for the two communications satellite companies, which will become one when Bermuda-based Intelsat completes its acquisition of the Wilton, Conn.-based PanAmSat. Revised - and somewhat wider - price talk emerged Thursday on that multi-part mega-deal, a sign that some investors may be feeling a little queasy right about now, especially given recent turbulent market conditions, and want better compensation for their risks.

High yield syndicate sources said that PanAmSat Corp. - the operating company for PanAmSat Holding - is now likely to price its $575 million of senior notes due 2016 to yield in the 9% area. Those notes were previously talked in a range of 8¾% to 9%.

Meanwhile, the sources said that Intelsat (Bermuda) Ltd. - the holding company unit that is issuing the bonds for Intelsat Ltd. - is now likely to price its $750 million of 10-year senior notes guaranteed by its operating company, Intelsat Subsidiary Holding Co., to yield around 9¼% - wider than the 8¾% to 9% range at which the notes were originally expected to price.

They said that Intelsat (Bermuda) was also likely to price its 10-year non-guaranteed fixed-rate senior notes in a range of 11% to 11¼%, versus the 10¾% to 11% anticipated yield initially talked about. It is expected to price the non-guaranteed seven-year floating-rate senior note tranche to yield between 575 and 600 basis points over Libor.

Deutsche Bank Securities, Citigroup, Credit Suisse and Lehman Brothers will serve as joint book-running managers on the deal, with Goldman Sachs & Co., Bear Stearns, BNP Paribas, JP Morgan and Royal Bank of Scotland as co-managers. Merrill Lynch & Co. Is a joint bookrunner on the PanAmSat portion of the deal, but a co-manager on Intelsat's tranches.

Pokagon prices tight to talk

Also in the new-deal arena, Pokagon Gaming Authority priced a $305 million issue of senior notes, with the new deal actually pricing at the tight end of pre-deal market price talk.

The eight-year notes priced at par to yield 10 3/8% - inside of expectations of a yield around 10½%. The spread at pricing was 529 basis points over Treasuries.

The issue was brought to market via bookrunner Banc of America Securities. It priced following a roadshow which began on June 7.

Proceeds will go to help finance a new Native American gaming resort to be built in southwestern Michigan by the Pokagon Bands of the Potawatomi Indians - the latest in a lengthy list of Native American groups to access the junk bond market over the past several years to fund start-up gaming operations.

Williams Partners prices

Also pricing was Williams Partners LP's $150 million issue of seven-year new senior unsecured notes.

High yield syndicate sources said the notes priced at par to yield 7½%, a spread of 244 basis points over Treasuries.

The quickly shopped deal - which was first announced Monday - was brought to market via joint bookrunners Citigroup and Lehman Brothers. It priced following the conclusion of a short roadshow that began Monday. The marketing process also included a conference call with prospective investors on Monday afternoon.

The deal's proceeds will be used to help finance a planned asset purchase from its corporate parent, natural gas and pipeline operator Williams Cos. Inc.

Petrohawk starts marketing

The syndicate sources furthermore said that Petrohawk Energy Corp. hit the road Thursday to market a new issue of seven-year notes to the junk market.

The Houston-based oil and gas exploration and production company, which develops energy properties in Texas and elsewhere in North America, is expected to use the proceeds from the $650 million deal to help fund its pending acquisition of KCS Energy Corp. and to refinance existing debt.

The deal is expected to price next week, via an underwriting syndicate led by Credit Suisse, and including BNP Paribas, Bank of America Securities and JP Morgan, expected to serve as joint bookrunners.

Pokagon jumps in trading

When the new Pokagon Gaming 10 3/8% senior notes due 2014 were freed for secondary dealings, traders said the bonds shot as high as 102.5 bid from its par issue price earlier in the day. The traders did not see whether the Williams Partners bonds were freed for secondary activity.

Junk only firm

Back among the established issues, the fact that the stock market was strongly higher on Fed boss Bernanke's indications that inflation expectations have remained within historical ranges - seen as a sign of investor hope that the Fed may begin thinking about not raising interest rates again - didn't seem to carry much weight in the junk trading pits.

A trader said that while the market tone was fairly firm, particularly versus the past several soggy sessions - "you would think so [that the red-hot stock rally spilled over into even lower-rated junk issues], but that really wasn't the case. At best, you saw levels about where they were yesterday [Wednesday] or maybe up a half."

American Media higher

Among the issues he saw doing better was American Media Inc., which on Wednesday announced plans to consider the sale of some of its titles, and which on Thursday told bondholders on a conference call that it would use some of any asset-sale money it gets to take out at least some of its $400 million of 10¼% notes due 2009. Those bonds had gained about two points on Wednesday, and on Thursday, they were up another point, to about 93.5 bid, 94.5 offered (see related story elsewhere in this issue).

The Boca Raton, Fla.-based media company's 8 7/8% notes due 2011, which don't trade as much as the larger 10¼% issue, were up two points at 87.5 bid, 88.5 offered.

Omnicare rises

A trader saw Omnicare's 6 7/8% notes due 2013 up 3½ points at 98.75 bid, 99.5 offered after a regulatory agency clarified its previous guidance on certain protections for long-term care residents in Medicare contracts between pharmacies and Part D plans. Omnicare's New York Stock Exchange-traded shares meantime jumped $4.37 (10.42%) to $46.32. Volume of two million shares was about twice the norm.

The U.S. Centers for Medicare and Medicaid Services clarified late Wednesday on its web site that its stance concerning the validity of certain long-term care pharmacy contracts under the Medicare Part D plan allows alternative standards for long-term care patients under certain circumstances.

The agency said there are "instances in which it is appropriate or legally required under our Part D guidance for plans to establish standards that differentiate between enrollees residing in long-term care facilities and ambulatory patients."

The agency's earlier statement in May said some patient protections worked into long-term pharmacy contracts may be in violation of the Part D plans. That sent shares of Omnicare, which supplies drugs to long-term care patients and had sold such contracts, tumbling.

Morgan Stanley equity analyst David Veal said the clarification was "positive for Omnicare shares" because it signaled that the agency was more likely to let Omnicare continue offering those products.

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