Revlon, two more deals shelved, as five price; funds see $2.145 billion outflow

By Paul Deckelman and Paul A. Harris

New York, May 13 - Five new deals were heard by high yield syndicate sources to have priced during Thursday's session - Da-Lite Screen Co., Alpha Natural Resources, Gundle/SLT Environmental Inc, Debenhams Finance Holdings plc and ProSiebenSat.1 Media AG - but how many others may others may be brought to fruition over the next few days, weeks and months amid deteriorating market conditions may be problematic.

What had been expected to be the big deal of the day - Revlon Consumer Products Corp.'s $400 million of seven-year senior unsecured notes - had not come down the chute by the time things wrapped up, amid trading floor buzz that New York-based cosmetics company's deal was in trouble due to worsening fixed-income market conditions, with price talk being pushed up toward unreasonable levels. And sure enough, Revlon on Thursday evening announced that it did had postponed the bond deal, as well as its proposed new senior credit facilities, and was also terminating its previously announced tender offers for its outstanding 12% senior secured notes due 2005, 8 1/8% senior notes due 2006 and 9% senior notes due 2006.

Two other prospective issuers - Brenntag Finance GmBH and Stena AB-were heard by market sources to have postponed their scheduled offerings, citing "market conditions." Revlon, Brenntag and Stena join Metris Cos. Inc. and Regal Cinemas Corp., which also recently decided to shelve scheduled bond deals in the face of rising Treasury yields, speculation about a possible coming Federal Reserve interest rate hike and, lately, declining secondary market performance.

And the list of postponed or cancelled deals may grow even longer still, with Lake Forest, Ill.-based auto parts maker Tenneco Automotive announcing that it is not certain whether it will go ahead with a planned offering of $420 million of new senior subordinated notes. While Tenneco said that it might still go ahead with the deal - if it determines that pricing and other terms are attractive - it warned that given recent bond market conditions it could not be certain at this time whether it will go forward with the private placement.

With such volatile and unsettled conditions in the financial markets causing prospective new deals to fall left and right like tenpins, it came as a surprise to nobody that high yield mutual fund flows - a key barometer of overall junk market liquidity and investment trends that has seen major money flowing out of the junk markets over the previous four weeks - once again showed an outflow in the latest week, and a large one.

But just how large came as a shock, as market participants familiar with the weekly high yield mutual fund-flow statistics compiled by AMG Data Services of Arcata, Calif. told Prospect News late in the day that in the week ended Wednesday, a whopping $2.145 billion more had left the funds than had come into them.

Not only was it the fifth straight week of outflows, following the $200.6 million outflow in the previous week (ended May 5), and the largest single-week outflow so far this year, eclipsing two billion-dollar-plus outflows recorded in back-to-back weeks in early February - it was the single largest outflow the market had seen since a massive $2.56 billion hemorrhage seen in the week ended Aug. 6, 2003.

Over the past five weeks, outflows have now totaled $3.04 billion, according to a Prospect News analysis of the AMG statistics, and on a year-to-date basis, have swelled to $4.561 billion, with outflows having been recorded in 11 of the 19 weeks that have elapsed since the beginning of the year, and inflows in the other eight.

But the year-to-date statistics are deceptive, making the contest between outflows and inflows sound more even than it really is. After having seen its last significant outflow in mid-September, the junk market then saw an astounding winning streak that stretched for the remainder of the 2003 and on into 2004, when the money just kept rolling in each week, and this continued for the first four weeks of 2004, during which time the primary market was red-hot and secondary was racking up robust gains.

But in early February, the parade came to an abrupt halt, with two consecutive billion-dollar-plus mega-outflows. Since the week ended Feb. 4, when the turnaround began, and thus excluding the four strong weeks at the start of the year, outflows have been seen in 11 of the 15 weeks since then, with only four inflows in that time, and the total net outflow during that time - counting only those funds which report on a weekly basis and not including distributions - has ballooned to $5.927 billion, according to the analysis of the figures.

In the secondary market, performance since early February has been choppy and inconsistent, in contrast with January's handsome gains. On the primary side, while deals have still been getting done - and some of them pretty big deals too, for issuers such as Calpine Corp. and Charter Communications Inc. - clearly the pace has slowed since the heady, exuberant days earlier in the year, and the huge outflow is likely to be an even bigger drag on primary issuance going forward.

"That's bad news for some of these issuers," one sell-side official commented, as news of the outflow began to circulate.

"Some of these deals that are in the pipeline are there on a leash and they're going to get tugged back. The demand is just not going to be there now. People will have to pay up too much in order to sell their bonds."

The source added that Thursday was also "another brutal day in the Treasury market," and added that the yield on the 10-year rose on the session by 10.5 basis points and was seen 4.85% in late trading.

"It's pretty much on the long end of the curve," the official added. "The 30-year is up 9.5 [basis] points to 5.55%."

Buyers on the sideline

Noting that the new issue forward calendar has continued to build (although no new roadshow starts were heard during Thursday's session) the official said that the word going around the junk bond market is that buy-siders have taken to the sidelines.

"It's been almost two years since we have seen a buyer's market like this one," said the banker.

"We're seeing price talk widening on some of these deals, significantly-in some cases by 100 basis points [Alpha Natural Resources]. But even then, people still seem pensive.

"Can you remember in February and March, what a feeding frenzy we had? Deals were getting done below 7%. Station Casinos came at 6½%."

According to this sell-side source, at close of business on Wednesday, roughly 30% of the deals that had priced thus far in May came with yields above 10% ($1.285 billion out of $3.15 billion). That compares to just 10% which priced with yields above 10% during the first four months of 2004: $5.765 billion out of $57.08 billion.

Amid the mounting evidence that the high yield primary has indeed now completely been transformed into a buyer's market - although just how many of those buyers are actually showing up is the source of some debate - deals did get done, but it was clear that the primary was struggling to do so.

Debenhams, Alpha downsized

Two of the new issues that came during the session were downsized.

Debenhams Finance Holdings plc priced a downsized £275 million equivalent issue of senior notes due Aug. 28, 2012 (B2/B) in two tranches, according to market sources. The issue was downsized from £325 million equivalent.

The U.K. department store company sold £160 million of notes at par to yield 10½%. Revised price talk was 10½%, up from 9¾%-10%.

The company also sold €172 million of notes at par to yield 9½%. Revised price talk was 9½%, up from 8¾%-9%.

Credit Suisse First Boston and Morgan Stanley ran the books on the Rule 144A/Regulation S (no registration rights) issue. The co-managers were JP Morgan and Lehman Brothers.

Proceeds will be used to repay the bridge loan put in place for the December 2003 LBO by TPG, CVC Capital Partners and MLPE.

And Alpha Natural Resources priced a downsized issue of $150 million of eight-year senior notes (B3/CCC+) at par to yield 10%, according to a market source. The offering was originally shopped around the market as a $200 million deal.

Revised price talk was 9½%-9¾%, increased from 8½%-8¾%.

Credit Suisse First Boston and UBS Investment Bank ran the books on the Rule 144A issue. Citigroup and Morgan Stanley were co-managers.

Proceeds will be used to refinance debt, and fund a distribution to parent ANR Holdings LLC.

The issuer is an Abingdon, Va. company that processes and sells steam and metallurgical coal.

Gundle wide of talk

Another deal coming wide of price talk was Gundle/SLT Environmental, Inc.'s $150 million of eight-year senior notes (Caa1/B-), which priced at par to yield 11%, according to an informed source.

Price talk had been 10½%-10¾%

UBS Investment Bank ran the books on the Rule 144A issue. Jefferies & Co. was the co-manager.

Proceeds will be used to help fund the acquisition of Gundle/SLT Environmental Inc. by Code Hennessy & Simmons LLC.

The issuer is a Houston manufacturer and marketer of geosynthetic lining solutions, products and services.

Da-Lite within talk

Also pricing Thursday was Da-Lite Screen Co. Inc., which sold $160 million of seven-year senior notes (B2/B-) at par to yield 9½%, according to an informed source.

Price talk was 9 3/8%-9 5/8%.

Morgan Stanley ran the books for the Rule 144A issue.

Proceeds will be used to fund a dividend to shareholders and to repay debt.

The issuer is a Warsaw, Ind.-based manufacturer of projection screens and presentation products.

ProSiebenSat restructured

ProSiebenSat.1 Media AG sold €150 million of five-year senior notes (Ba2/BB) at par to yield 6¼%, in a restructured offering, according to a market source.

Price talk was 6%-6¼%.

JP Morgan and Deutsche Bank Securities ran the books on the Rule 144A/Regulation S (no registration rights) issue.

Proceeds will be used to repay €338 million of the company's 5 7/8% notes due 2006.

The issuer is a German television broadcaster and media services provider.

The tenor of the bonds was decreased to five years from seven years. Meanwhile, call protection was extended to cover the life of the bond, increased from three years.

Brenntag, Stena postponed

Besides the Revlon deal, postponed deals included Brenntag Finance GmbH, which cited market conditions as it postponed its €190 million offering of 10-year senior notes (B3/B) on Thursday, according to market sources.

Goldman Sachs & Co. had the books.

The Mülheim an der Ruhr, Germany-based distributor of specialty and industrial chemicals had earmarked proceeds from the deal for repaying mezzanine debt and funding the acquisition of the company by Bain Capital.

And Swedish shipping firm Stena AB also cited "market conditions" as it postponed its offering of $250 million of 20-year senior notes (Ba3/BB-) on Thursday, according to market sources.

JP Morgan, UBS Investment Bank and Citigroup were the underwriters.

Proceeds were to be used to repay debt and for general corporate purposes.

Da-Lite firmer in trading

When the new Da-Lite Screen 9½% senior notes due 2011 were freed for secondary dealings, they were heard to have firmed smartly to 101.5 bid, 102.5 offered from their par issue price, before "kind of fading in the afternoon," a trader said, heading back down to close at 100.5 bid, 101.5 offered.

Also on the new-deal front, Consolidated Container Co. LLC's new zero-coupon/10¾% senior secured PIK notes due 2009 "continue to do well," a trader said, quoting the Atlanta-based plastic container manufacturer's new bonds as having pushed up to 73.5 bid, 74.5 offered, up from Tuesday's issue price at 72.513.

Revlon off on deal worries

Revlon's existing bonds were anything but pretty Thursday, "generally dropping around five points," a market source said, the paper being battered by worries about the new deal - which were eventually borne out when the company later shelved it - as price talk on the ill-fated prospective offering was heard to have pushed up from around the 10¼%-10½% range to 11%, and even above.

Revlon's existing bonds that the company had been tendering for, hoping to use the proceeds of the offering to take them out - fell considerably as it looked as though the new deal might fall through.

Revlon's 8 1/8% notes due 2006 were seen having fallen as low as 94 bid from prior levels at 100.5; its 9% notes due 2006 dropped back to 97 bid from 102.25; and its 8 5/8% notes due 2008 were down even more, ending at 86 bid, down from 92.5.

Salton down for third day

Another loser was Salton Inc., which "got smeared" in the words of one trader, for a third straight day after the Lake Forest Ill.-based maker of George Foreman brand hamburger grills and other small appliances reported a considerably wider quarterly loss from a year ago earlier this week and said it was in talks with its lenders to amend its credit agreements after covenant violations.

The bonds - which began the week not too far below par - continued to tumble Thursday, its 12¼% notes due 2008 heard having dipped into the lower 40s before closing around 50 bid, still down five points on the session, while its 10¾% notes due 2005 "continued to get clobbered," one observer said, falling to 52 bid from 61 on Wednesday.

A trader, who likewise saw the Salton bonds lower, said that "there were rumors in the market that there might be a bank bailout of the company - but it didn't materialize." Salton instead announced that it had retained Ernst & Young Corporate Finance LLC to help it negotiate with its lenders as it tires to restructure its operations.

Pathmark lower on earnings

Also on the downside, Pathmark Stores bonds were "down a couple of sticks," a trader said, after the New Jersey-based supermarket chain reported disappointing quarterly results. He saw the company's 8¾% notes due 2012 as having fallen to 97.5 bid, 98.5 offered from prior levels at 102.5 bid, 103.5 offered.

RJR bounces

On a more positive note, a trader saw RJR Tobacco Holdings' bonds bouncing off the lows they had hit Wednesday on the news that Florida's Supreme Court will review a lower court's ruling throwing out a $145 million award against North Carolina-based R.J. Reynolds and several other major tobacco companies in a cigarette liability lawsuit.

"When the news first hit the tape [Wednesday], it knocked the bonds down four points," he said, the 7¼% notes due 2012 dropping to 91 bid, 94 offered from 95 bid, 97 offered pre-news.

But he said that after that, RJR "bounced off its lows," as the market came to realize that "even if the court does reinstate the damage award, it's going to be negotiated and in any event, RJR isn't going to have to pay it by themselves."

Moody's Investor Service said Thursday that the debt ratings of RJR and other defendant companies would likely not be affected by the legal developments in Florida, since the ratings service saw it unlikely that the state Supreme Court would overturn the lower court ruling.

Accordingly, the trader said, the RJR bonds on Thursday moved back up to bid levels in the 92-94 range.

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