Dobson, Pathmark price deals; secondary largely ignores outflow number

By Paul Deckelman and Paul A. Harris

New York, Sept. 12 - Dobson Communications Corp. brought an upsized offering of $650 million 10-year senior notes to market on Friday, while Pathmark Stores Inc. priced a $100 million add-on to its existing 8¾% senior subordinated notes due 2012. Late in the session, Quintiles TransNational Corp. and Innova S de RL de CV - the latter an emerging markets issuer - were also heard to have sold new bond deals.

In the secondary market, meantime, activity was muted; traders said there appeared to be little, if any, market response to the news that high-yield mutual funds - a key barometer of overall market liquidity trends - had seen a sizable outflow (nearly $486 million) in the latest week.

And there was a similar reaction from primary desks. Although the market continued to bat around the late Thursday news that AMG Data Services had reported an outflow of $485.96 million from the high-yield mutual funds for the week ending Sept. 10, sources said that in light of the funds flows picture of recent weeks the outflow is no big deal.

"Those are Wednesday-to-Wednesday movements of money," commented a buy-side source who spoke on background. "I think you saw some impact, because the market did stall out earlier in the week. Some in-demand names traded pretty well but you saw others soften around the edges.

"But it wasn't a huge number," the investor added.

Pressed to name any new issue business that is or has been of interest this source reported having played the Tom Brown, Inc. deal which priced Thursday. The company sold $225 million of 10-year senior subordinated notes (Ba3/BB-) at par to yield 7¼% via Goldman Sachs.

Stating that there was reportedly $2 billion in the book for the $225 million deal ("and they didn't upsize it") the buy-side source said: "The company has good management and good ratings. Plus it's gas, and there has not been much supply in that sector, which is one that people would like more exposure to."

Sell-siders who spoke to the Prospect News High Yield Daily primary market desk on Friday also reported being largely unimpressed with the outflow reported late Thursday.

"It doesn't seem to have people down," said one. "It's a slight correction that was not unexpected."

Another sell-sider commented simply: "It's not a big deal."

The biggest deal that went down in the primary market during the final session of the Sept. 8 week was an upsized $650 million (from $600 million) from Oklahoma City-based rural cellular telephone services provider Dobson Communications.

The 10-year senior notes (B3/CCC+) sold at par to yield 8 7/8%, at the tight end of the 9% area talk. Lehman Brothers, Morgan Stanley and Bear Stearns & Co. were joint bookrunners.

Quintiles Transnational Corp. (Pharma Services) sold $450 million of 10-year senior subordinated notes (B3/B) at par to yield 10%. The Research Triangle Park, N.C.-based healthcare service provider's notes came wide of the 9½% area price talk. Citigroup was the bookrunner.

In drive-by action, Pathmark Stores Inc. priced a $100 million add-on to its 8¾% senior subordinated notes due Feb. 1, 2012 (B2/B) at 102.5 to yield 8.235%.

JP Morgan ran the books. The Carteret, N.J.-based supermarket chain operator priced the original $200 million at par on Jan. 23, 2002 to yield 8¾%, so Pathmark walked away Friday with a better interest rate.

From the emerging markets corporates sector, Innova S de RL de CV priced an upsized offering of $300 million of 10-year senior unsecured notes (B3/B+) at par to yield 9 3/8%. The deal was increased from $200 million.

The Mexico City-based satellite television service provider's new notes came at the tight end of the 9½% area price talk, with Citigroup and JP Morgan running the books.

Price talk of 8 7/8%-9 1/8% emerged Friday on Perry Ellis International, Inc.'s $150 million of 10-year senior subordinated notes (B3/B-), according to an informed source. The deal is expected to price Monday afternoon via Wachovia Securities and Merrill Lynch & Co.

And the price talk is 8½%-8¾% on Buckeye Technologies Inc.'s upcoming $200 million of 10-year non-call-five senior notes (B3/B+), also expected to price on Monday.

In addition to those deals, four other pricings are anticipated to take place during the week of Sept. 15:

* Broder Brothers' $175 million seven-year notes (B3/B-);

* Majestic Star Casino's $270 million seven-year notes (B2);

* Huntsman LLC's $375 million seven-year notes; and

* Hines Nurseries, Inc.'s $175 million eight-year notes (B3/B).

Hence the business presently situated on the forward calendar for the week is $1.345 billion.

When the new Dobson 8 7/8% senior notes due 2013 were freed for secondary dealings, they were heard to have gotten as good as 101.25 bid, 102.25 offered from their par issue price earlier in the session, but then they fell back from those lofty levels to close at 100.25 bid, 101.25 offered.

At the end of the day, "Dobson didn't go anywhere" said a trader, who also said he hadn't seen anything going on with the new Pathmark bonds.

Another trader said the new Pathmark deal "did nothing. All it will do will add a little bit of liquidity. It's going to be fungible - so who cares? That's how I look at it. If anything, it might soften the [existing] bonds up a little bit and give it some flexibility to trade in the secondary market.

"Since it came a year and a half ago [as part of supermarket operator's reorganization], it's traded like crap - not junk, but crap," he said - meaning not that the bonds had been trading at any kind of depressed levels but quite the contrary - Pathmark has hovered around the par area, and has hardly traded at all.

He said that the company's existing 8¾% notes "have been like 102-4 forever - offered at 104, no bid," and saw them still in that same 102-104 context on Friday

Another trader quite disagreed, asserting that the existing Pathmark bonds had pushed up at least two-and-a-quarter points over the past two days to about 104 bid, 105 offered.

A market source meantime quoted the existing bonds at 103.5 bid, but said they had moved up from par levels seen as recently as this past Wednesday.

The first trader, looking at the broader supermarket sector, marveled at the very tight, par-area levels at which some of the names in the group have recently traded.

"It's unbelievable. Have they changed their strategy? Are the customers different? Are the demographics different? Did they get rid of coupons?" - presumably, not the bond kind but the supermarket shopper kind.

He said that industry fundamentals seemed not to have changed - "Competition is still there. The margins are really tight." Still he said, "I don't get it - I look back a year and this paper is now 15 points higher. Why?"

As if to answer his own question, he opined that "there's just not enough paper and people are looking for yield and they gobble up what they can, even single-B paper." That, he concluded, was also a phenomenon seen in many other sectors - indeed, in the high yield world as a whole.

"There's plenty of money around, and there hasn't been a whole lot of merchandise," another trader said, commenting on the absence of any real market reaction to the junk bond fund outflow reported late Thursday by AMG Data Services.

It was pointed out that even though $485 million is an awful lot of money - and under normal circumstances, such an outflow might be an indicator of a serious potential drying up of junk market liquidity - it follows two weeks during which net inflows totaled more than $4.4 billion, according to a Prospect News analysis of the AMG figures. For the year as a whole, net inflows to the funds that report on a weekly basis top $16 billion, with about another $5 billion more having come into the monthly-reporting funds than left them.

With that much money floating around ready to be put to work, and no really big deals around to sop some of it up (the last $1 billion-plus mega-deal was Dex Media West LLC's $1.165 billion two-parter, back on Aug. 14), and with investors reaching for yield against a backdrop of interest rates holding not too far above their historically low levels recently, it stands to reason that money continues to buoy the secondary.

Looking at the established issues, Horseshoe Gaming Holding Co.'s 8 5/8% notes due 2009 were seen hanging in at 107.5 bid, the level to which the bonds had moved on Thursday from 106 on news that gaming giant Harrah's Entertainment will buy the smaller casino operator for $1.45 billion.

Levi Strauss & Co. bonds - which had gotten badly cuffed around over the past two or three sessions in response to the San Francisco-based apparel maker's admission that it would be in violation of some of its credit facility covenants unless it got waivers from its lenders, and the resulting ratings agency actions - were heard to be quoted a bit higher, with its 7% notes due 2006 heard to have moved up to 86.5 bid from prior levels around 84, and its 11 5/8% notes having risen to 92 bid from 90 on Thursday. Its 12¼% notes were seen around 91 bid, 92 offered.

But while the Levi bonds were being quoted around, a trader said, "they didn't trade. It was unbelievable. Yesterday [Thursday] it was busy as a bee - activity, activity, activity - and today [Friday], it didn't trade."

He said he had traded some of the 12¼% notes in a 91-92 context, but "that was it. The 11 5/8% didn't show up this morning and the 7% notes, forget it - they were offered at high levels the day before, but no one cared because [the levels were] ridiculous, but today was just a non-event."

Another trader also said that he had not seen any dealings in the heretofore busy Levi bonds; he quoted the 11 5/8% notes bid at 92 and the 7% notes bid at 85 while the 12¼% notes were being offered at 92.5 bid.

Another credit not seen was First Energy Corp., even though the Toledo, Ohio-based utility operator - nominally investment grade - said that the Securities and Exchange Commission had informally asked for information regarding its restatement of its 2002 results. Additionally, fingers are being pointed at the company for having been responsible - or at least for having played a major role - in last month's massive Northeast power blackout, an allegation with the company has steadfastly denied.

Standard & Poor's, in announcing Friday that its ratings remained on Credit Watch for a possible downgrade (including the BBB- rating on its senior unsecured bond debt), expressed its concern that "the investigation into the Aug. 14, 2003 blackout continues to pose a negative high-profile event for management at a time when it is struggling with major operational challenges."

But bondholders were apparently not intimidated; a market observer said that while he had seen a few quotes of the company's 6.45% notes due 2011 at around 100.4059 and its 7 3/8% notes due 2031 at 98.3406 ("better by 10 basis points" than Thursday's levels, he said), "we didn't see anything in the Street."

He surmised that even if a U.S.-Canadian investigation into the blackout concluded that First Energy's facilities were major culprits, "everyone already knows they were involved in the blackout. That's old news."

He noted that while junk bonds react more quickly to any news that comes out because investors may be "looking for an excuse to take them down, the more investment-grade rated stuff (First Energy is Baa3/BBB-) doesn't react quite like that."

Equity investors were also apparently not very nervous; they took First Energy's stock up 71 cents (2.8%) to $31.81 Friday on the New York Stock Exchange on volume of 17.6 million shares, nearly nine times the norm.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.