Market takes pricing pause, though Ball, Corrections Corp. slate deals; funds see $91.5 million outflow

By Paul Deckelman and Paul A. Harris

New York, July 24 - The high yield primary sphere, fresh from an active Wednesday which saw a slew of deals pricing, one after another, took a step back on Thursday, as no new issues were heard to have come to market by the end of the day - setting the stage for what is expected to be a busy Friday, with a number of calendar items expected to be disposed of. And four more deals were heard to have joined the forward calendar, with details emerging on planned new issues for Ball Corp. and for Corrections Corp. of America - the latter a quickie deal which may price as early as Tuesday.

Secondary activity was described as slow, although some notable features included a continued firming in B/E Aerospace Inc., further erosion in Qwest Communications International Inc., and a slide in Calpine Corp., apparently triggered by the news that a company subsidiary will be doing a new secured debt deal.

Friday's market may also see some impact from the news that high-yield mutual funds - considered a generally reliable barometer for overall junk market liquidity trends - saw their first outflow this week after two consecutive weeks of inflows in which nearly a billion-and-a-half dollars more had come into the funds than had left them.

But market participants familiar with the weekly mutual fund flow statistics compiled by AMG Data Services of Arcata, Calif. told Prospect News that the outflow seen in the week ended Wednesday was relatively small as such things go, at $91.5 million.

That pales in comparison to the very robust $1.22 billion seen in the week ended July 16, as well as the respectable $223.8 million inflow the week before that.

Even with the latest week's modest outflow, the real story remains the year-to-date totals; even deducting the $91.5 million, the cumulative year-to-date net inflow total stands at approximately to $17.222 billion, according to a Prospect News analysis of the AMG figures, with inflows seen in 20 out of the 29 weeks since the stat of the year. That figure excludes distributions and counts only those funds which report on a weekly basis.

"That's pretty flat, when you think about it, compared to some of the inflow numbers we are accustomed to seeing," one sell-side source commented of the latest number.

Another sell side official said of the outflow reported Thursday "It's kind of a non-event at this point. But the secondary market seemed quiet this week, so no one around here was predicting what the funds flow would be."

With so much money having come in, the primary market has been considerably more active than last year's new-deal scene, including a number of billion-dollar-plus deals, while secondary prices have firmed to what traders have sometimes called crazily tight levels.

And sources commented that taking into consideration that the last full week of July has nearly expired and vacation-time is nigh, the forward calendar is carrying a phenomenal load of deals.

Although no transactions were completed during Thursday's session four new ones took their places on the forward calendar.

The roadshow starts Friday for an offering of $275 million five-year non-call-three senior secured notes (B-) from Panavision, Inc.

Credit Suisse First Boston and Bear Stearns are bookrunners on the deal from the Woodland Hills, Calif. firm, which was last seen leaving the high yield with an empty camera, having postponed the sale of a downsized $200 million (from $250 million) senior secured notes (Caa2/CCC+) due to "continuing unfavorable market conditions," in April 2002.

Also making an appearance Thursday with a $275 million deal was Nashville, Tenn.-based private jailer Corrections Corp. of America, which will conduct conference calls Monday for the purpose of marketing its 10-year non-call-five senior notes. Lehman Brothers is the bookrunner on the deal.

Back in May the company locked up an interest rate of 7½% when it sold $250 million of eight-year senior notes at par.

Broomfield, Colo.-based Ball Corp. also announced its intention to take another dip into the high yield jar, on Thursday. The company plants to price a quick-to-market $200 million add-on its 6 7/8% senior notes due Dec. 15, 2012 (Ba3/BB) on Friday.

Talk is 102-102.25 on the deal that is being led by Lehman Brothers and Deutsche Bank Securities, with proceeds slated to take out the 8¼% senior subordinated notes due 2008.

And the market learned of a Monday roadshow start for Armor Holdings, Inc.'s $150 million of 10-year non-call-five senior subordinated notes. They expected to price in the middle of the week of August 4 via Wachovia Securities.

In addition to the four straight high yield deals that appeared Thursday, Calpine subsidiary Gilroy Energy Center, LLC showed up with an offering of $270 million eight-year senior secured notes via Banc of America Securities and Deutsche Bank Securities. Late in the session Standard & Poor's gave Gilroy's notes its BBB- rating and an informed source told Prospect News that Gilroy would price off the high-grade desk.

However, the source specified that to the extent high yield accounts can play Gilroy they might be expected to do so.

Another official from the sell-side concurred. "Calpine has an interest in the high yield world," said this sell-side source. "They just had that deal, which is trading horribly. Late in the day I saw those new Calpine 8½% notes busting down into the 92 area.

"The new deal is low investment grade," the official added. "It's going to be secured by some power plants. Nevertheless I think there will be some high yield interest."

Also on Thursday news emerged on several deals that are poised to price in the coming days.

Price talk of 9½%-9¾% was heard on ACC Escrow Corp.'s upcoming $900 million of eight-year non-call-four senior notes (B2/B-), which are expected to price on Friday via Bear Stearns and Morgan Stanley.

Also price talk of 109-109.5 emerged Thursday on the Acetex Corp. $75 million add-on to its 10 7/8% senior notes due Aug. 1 2009 (B2/B+), according to an informed source who added that the deal is expected to price Friday morning via UBS Investment Bank.

Price talk of 9¼%-9 3/8% was heard on BSN Glasspack Obligation's €160 million seven-year senior subordinated second lien notes (B1/B-), which are expected to price early in the week of July 28 via Citigroup and BNP Paribas.

And price talk was heard Thursday on the two tranches of 10-year notes from Eircom Ltd. and Valentia, according to a market source who added that the deal is expected to price on Tuesday.

Price talk is 8¼%-8½% on Eircom Ltd.'s €500 million notes due 2013 (B1/BB+) in dollars and euros. And talk is 7¼%-7½% on Valentia's €500 million notes due 2013 (Ba3/BB+), also to come in dollar and euro tranches.

Deutsche Bank Securities is bookrunner.

Finally on Thursday the market heard that Southfield, Mich.-based technical business services provider MSX International, Inc. had downsized its four-year non-call-two senior secured notes offering to $75.5 million from $100 million, and plans to price the notes at a discount to yield 11¼%. Jefferies & Co. is bookrunner.

Among recently priced deals, the same names continue to trade well above par - Jacuzzi Brands International Inc, Wackenhut Corrections Corp., Merisant Co., Rockwood Specialties Group Inc. and TransDigm Inc.

A trader also saw what he waggishly termed "pizza buyers" - not looking for sausages, mozzarella and anchovies, but definitely looking for Domino's Inc.'s 8¼% senior subordinated notes due 2011 at prices around 105.125 bid, well up from the 99.278 issue price seen on June 18.

Back among the established issues, a trader saw more firming in B/E Aerospace paper, which had risen solidly on Wednesday in response to investor optimism about the Wellington, Fla.-based aircraft cabin components maker's prospects for the third quarter and the remainder of the year.

On Thursday, he said, B/E "continued strong, with buying interest." He quoted the company's 9½% notes due 2008 - which had firmed to 88 bid Wednesday from an upper 70s-lower 80s context - as having gained another point to 89 bid, "not on their earnings but on their backlog."

B/E's second-quarter results actually showed a widening of the company's loss from a year earlier - but it noted a strong upturn in orders over the past six weeks and a big growth in its order backlog by the end of the second quarter, coinciding with a generalized upturn in the U.S. airline and aircraft industries.

Another trader saw B/E's 8% notes due 2008 as having moved up to around 86 bid, 88 offered from 84 bid, 86 offered on Wednesday and pegged its 8 7/8% notes at 85 bid, 87 offered, up from Wednesday's close at 82.5 bid, 84.5 offered.

The first trader also saw gains in Sea Containers Ltd.'s paper, with the Hamilton, Bermuda-based marine transportation and railroad operator's 10¾% notes due 2006 rising to 95.25 bid, "the highest I've seen those bonds in a couple of years," while its 7 7/8% notes due 2008 were about three-quarters of a point higher at 81.25 bid, 81.5 offered.

American Tower Corp. reported a second-quarter net loss of $107.7 million (53 cents per share), having widened out from $101.2 million (52 cents a share), although it should be noted that the latest loss included a charge of $35.8 million related to several convertible notes.

While the Boston-based communications antenna tower operator's overall earnings were lackluster, debt investors noted that EBITDA increased to $96.2 million for the three months ended June 30, from $72.9 million for the same period in 2002, and that apparently helped to push its 9 3/8% notes due 2009 up nearly a point to 103 bid.

On the downside, however, earnings-related retreats were seen in such issues as Playtex Products Inc., whose 9 3/8% notes due 2011 lost three points to close at 95; Lyondell Chemical Co., whose 9 7/8% notes due 2007 were down a point-and-a-half at 95; fellow chemical maker Equistar, whose 10 1/8% notes due 2008 dipped to 99 bid, down a point and a half; and Level 3 Communications Inc., whose 9 1/8% notes due 2008 were a point lower at 86.5 bid.

A trader also said that both Tembec Industries and forest products sector peer Bowater "underperformed already bad expectations"; Tembec's 8½% notes due 2011 lost a point to end at 96.

United Rentals Inc, which also had disappointing earnings, was another loser Thursday, its 10¾% notes offered at 108 "with no left [bid] side," a trader said, after having been bid at 109 on Wednesday, while its 9¼% and 9½% notes dropped to 97 bid from par. "The paper definitely feels heavy," he declared.

Qwest - whose debt had fallen on Wednesday - continued on the slide Thursday, with the Denver-based telecommunications operator's Qwest Capital Funding 5 7/8% notes due 2004 opening at 95 bid, 96 offered but going home at 93 bid, 95 offered; its Qwest Services 13% notes were about a half point lower, at 108 bid, 109 offered, while Qwest Corp. 5 5/8% notes due 2008 lost four points on the bid side to end at 91 bid, 93 offered.

Calpine's recently priced 8½% second priority secured notes due 2010, which have struggled since pricing at par on July 10, "were getting hammered on the new deal news" coming from the San Jose, Calif.-based independent power producer, whose stand-alone Gilroy Energy Center, LLC subsidiary of Calpine's GEC Holdings, LLC, unit plans to sell approximately $270 million of senior secured notes due 2011.

"It looks like people started selling these [Calpine bonds] in anticipation of this announcement a while ago," he said, pegging the 8½% notes at 92.875 bid, 93.375 offered.

Calpine's established 8 5/8% notes due 2010 were also easier, down a point-and-a quarter to 76 bid.

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