Houghton Mifflin quickie deal prices; Radiologix soars on results; funds see $88 million outflow

By Paul Deckelman and Paul A. Harris

New York, May 4 - Educational publisher Houghton Mifflin Co. provided a textbook lesson Thursday on how to quickly and opportunistically bring a suddenly-appearing bond deal to market, as it priced a drive-by offering of seven-year payment-in-kind notes, syndicate sources said. They also noted Hanger Orthopedic Group Inc.'s announcement that it would soon tap the junk market as part of a larger refinancing effort which also includes new bank debt and convertible preferred stock, and saw the company hitting the road with the bond deal early next week.

Price talk also emerged on European automotive issuer Fiat SpA's upcoming billion-euro mega-deal, which could price as soon as Friday.

In the secondary arena, favorable earnings powered several big moves, notably Radiologix, Inc., whose notes shot up in tandem with the Dallas-based medical diagnostic imaging company's stock after it reported that earnings more than doubled from year-earlier levels in the latest quarter.

Graphic Packaging Corp.'s subordinated notes likewise zoomed while the stock boomed - even though, paradoxically, the company posted a slightly wider first-quarter loss from a year earlier.

On the downside, fallen angel Eastman Kodak Co.'s bonds were heard down a point or so as the humbled Rochester, N.Y.-based camera and film manufacturer - for decades the dominant name in photography - reported that its quarterly loss more than doubled as sales of its signature film fizzle while digital photography sizzles.

Late Thursday a sell-side source said that the broad high-yield market ended the day just slightly weaker.

And late in the session, 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, $88 million more left the funds than came into them.

It was the fourth consecutive weekly outflow, including the $15.9 million leakage seen in the previous week, ended April 26. Over that four-week period, outflows have totaled $402.6 million, according to a Prospect News analysis of the AMG figures. Outflows have now also been seen in 11 weeks out of the last 13, dating back to early February, during which time nearly $1.284 billion more has left the funds than has come into them, according to the Prospect News analysis.

Outflows have now been seen in 14 weeks out of the 18 since the start of the year, against only four inflows, and net outflows during that time have totaled approximately $1.652 billion, up from about $1.564 billion the week before, according to the Prospect News analysis.

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

The figures exclude distributions and count only those funds that report on a weekly basis.

Allied Waste at the wide end

Meanwhile the primary market generated a little less than $828.79 million of proceeds in three tranches from three issuers. All three deals were of the quick-to-market variety.

Allied Waste North America priced a $600 million issue of 7 1/8% 10-year senior secured notes (B2/BB-/B+) at 99.123 to yield 7¼%, at the wide end of the 7 1/8% to 7¼% price talk.

Citigroup, JP Morgan and UBS Investment Bank were joint bookrunners for the quick-to-market debt refinancing deal from the wholly owned subsidiary of Scottsdale, Ariz.-based Allied Waste Industries Inc.

Houghton Mifflin prices $300 million

Elsewhere Houghton Mifflin LLC and Houghton Mifflin Finance, Inc. priced a $300 million issue of Libor plus 675 basis points floating-rate PIK notes (Caa2) at 99.00.

Deutsche Bank Securities and Goldman Sachs & Co. led the dividend-funding deal.

The coupon on the PIK-for-life notes steps up to Libor plus 725 basis points if any notes are outstanding on or after Nov. 15, 2007, and to 775 basis points on or after May 15, 2009.

Atlas Pipeline prices add-on at 103

Finally Moon Township, Pa.-based Atlas Pipeline Partners LP priced a $35 million add-on to its 8 1/8% senior notes due Dec. 15, 2015 (existing ratings B1/B+) at 103.0 resulting in a 7.6% yield. Wachovia Securities was bookrunner.

Proceeds will be used to partially repay bank debt in connection with the company's recent acquisition of the remaining 25% interest in Noark Pipeline System.

The original $250 million issue priced at par on Dec. 15, 2005, so the yield on the add-on notes came in 52.5 basis points lower than that of the original notes

Fiat talks €1 billion

As the dust settled on Thursday's three drive-by deals, only one offering remained on the forward calendar as business to be priced on Friday.

Fiat Finance & Trade Ltd. SA talked its €1 billion offering of five-year senior notes (Ba3/BB-) at five-year mid-swaps plus 175 to 180 basis points on Thursday.

Credit Suisse and Goldman Sachs & Co. have the physical books for the bullet notes.

Hanger Orthopedic to bring $190 million

News of one pending roadshow start emerged during the Thursday session.

Hanger Orthopedic Group expects to begin a roadshow on May 16 for its $190 million offering of seven-year senior unsecured notes (B3/CCC+).

Pro forma pricing guidance is for a yield of 9½% to 10%, the source added.

Lehman Brothers and Citigroup will be joint bookrunners for the debt refinancing deal from the Bethesda, Md., provider of prosthetics and orthotics with clinics in 42 states, including D.C.

Meanwhile a source from a hedge fund told Prospect News on Thursday that although Embarq Corp.'s $4.485 billion three-part offering has high-grade credit ratings from all three ratings agencies (Baa3/BBB-/BBB-), the 10-year tranche will likely come at a wider spread to Treasuries than some of the recent higher-rated junk deals, perhaps around 180 basis points.

The source pointed out that earlier this week, for example, The Rouse Co. LP in conjunction with TRC Co-Issuer, Inc. priced a massively upsized $800 million issue of 6¾% seven-year senior notes (Ba1/BB+) at a 175 basis points spread to Treasuries.

And last week Pioneer Natural Resources Co. priced an upsized $450 million issue of 6 7/8% 12-year senior notes (Ba1/BB+/BB+) at a 178 basis points spread to Treasuries.

The Embarq offering which also includes a seven-year tranche and a 30-year tranche - sizes to be determined - will be led by bookrunners Citigroup and JP Morgan, and is expected to price next week.

iPayment up in trading

The new Houghton Mifflin floating-rate notes due 2013 priced too late in Thursday's session for any aftermarket activity.

Traders meantime noted that iPayment Inc.'s new 9¾% notes due 2014 firmed smartly in Thursday's dealings, rising to levels as high as 101.5 bid, 102.25, a trader said, well up from their late-Wednesday issue price at 98.64. Another trader saw a slightly more conservative - but still notable - gain to 101 bid, 101.5 offered.

Hanger Orthopedic's 10 3/8% notes due 2009 - slated to be taken out with the proceeds of the new bond deal and the other financing - were seen "up a point or so," a trader said, at 105 bid, 105.5 offered. Another trader saw those bonds half a point better at 104.5 bid, 105.5 offered.

Radiologix jumps on results

Back among the established issues not having new-deal implications, Radiologix was clearly the best performer, with traders seeing its 10½% notes due 2008 as having soared six points to 89.5 bid, 90.5 offered, from Wednesday's levels in the lower 80s, following the release of its first-quarter numbers.

Those results also fueled a sharp rise in the company's American Stock Exchange-traded shares, which climbed 39 cents (19.40%) to close at $2.40. Volume of 475,000 shares was nearly four times the usual turnover level.

In the quarter ended March 31, Radiologix - which operates about six dozen free-standing imaging centers around the United States where patients can go to get X-rays, MRIs, CAT scans, ultrasound mammographies and other types of diagnostic tests - had net income of $2.036 million (nine cents per share) - well up from $953 million (four cents per share) in the year-earlier period. It booked service fee revenues of $65.117 million in the latest quarter, up 5.3% from $62.751 million a year ago.

The company also reported that its unrestricted cash position grew to almost $45 million by the end of the quarter, a 25% jump over where it had been at the beginning of the year, and had ample revolving credit facility availability (see related story elsewhere in this issue).

Earnings help Graphic Packaging

Also up after coming out with earnings was Graphic Packaging - not so much because of a blowout quarter, like Radiologix, but because the results that the Marietta, Ga.-based maker of paper and cardboard packaging reported could have been a lot worse - and had been expected to be.

The company posted a marginally wider quarterly loss, $31.5 million (16 cents per share), versus its year-earlier red-ink of $29.6 million (15 cents per share). Analysts were looking for a loss of at least 17 cents per share, maybe more.

Sales likewise declined to $580.4 million from $583 million a year earlier. The company blamed the decline on higher production and services costs and manufacturing variances at a Louisiana paper mill.

The not-as-bad-as-expected numbers helped to push the company's Graphic Packaging International Corp. 9½% subordinated notes due 2013 up three points on the session to 100.5 bid, 101offered.

"Graphic got quoted a lot today [Thursday]," observed a trader, although all of the action seemed to be in the subs, which another trader characterized as "the go-go issue." The company's 8½% senior notes due 2011 "didn't go anywhere," that trader said, holding steady at 101 bid, 102 offered.

Graphic Packaging's NYSE-traded shares leaped 85 cents (31.60%) to $3.54. Volume of 4.1 million shares was more than seven times the norm.

Young little moved by results

Elsewhere on the earnings front, Young Broadcasting Inc. posted a first-quarter net loss of $30.6 million ($1.46 per share), wider than its year-earlier loss of $19.3 million (96 cents per share), although revenues rose to $48.3 million from $45.5 million. However, the New York-based television station ownership group said that its overall performance was "strongly improved," with station operating performance - which the company defines as operating income, plus non-cash compensation to employees, corporate overhead, depreciation and amortization - up by 61% during the first quarter to $8.6 million, versus $5.4 million in the 2005 quarter.

A market source saw its 10% notes due 2011 half a point better, at 92.5, although another source characterized them as unchanged at a 91 bid, 92 offered level, and said the company's 8¾% notes due 2014 were likewise steady at 84.5 bid, 85.5 offered.

Young said that the revenue gains - including an 8.4% increase in local advertising revenues over a year earlier - represented a validation of the company's "third leg" sales initiative aimed at selling airtime to local sponsors who had traditionally shied away from buying TV spots.

It also noted the announcement during the quarter that its most important station - KRON-TV in San Francisco, the sixth-largest U.S. television market - had agreed to affiliate with News Corp.'s new MyNetworkTV network, which will launch in September, marking KRON's return to network television status after several less-than-profitable years as a non-network independent. KRON, it further said, should also benefit from the expected high level of political ad spending this year in California where two controversial education spending measures are on the June 6 primary ballot and Gov. Arnold Schwarzenegger, U.S. Senator Dianne Feinstein and all members of the state's 53-member House contingent are up for re-election this fall.

Station stationary

The market source also pegged Station Casinos Inc.'s 6½% notes due 2014 at 97 bid, 97.5 offered, unchanged, and its 6 5/8% notes due 2018 unmoved at 95 bid, 95.5. The Las Vegas-based gaming operator - which makes most of its money catering to local residents at its gambling palaces away from the glitzy Las Vegas Strip - earned $41.1 million (62 cents per share) in the quarter, versus $40.6 million (59 cents per share) a year earlier; excluding special items and development costs, it earned 78 cents a share, about nine cents more than Wall Street had expected.

But Station cut its 2007 earnings forecast to $2.65 to $3.05 per share, down from a range of $2.77 to $3.13 previously.

Kodak slips

On the downside, Kodak's 3 5/8% notes due 2008 were seen by a trader off half a point at 93.5 bid, 94.5 offered. At another desk, a source quoted its 7¼% notes due 2013 down more than a point at 96.25.

Kodak lost $298 million in the quarter - its sixth straight quarterly loss - and said it would consider the sale of its venerable health-imaging business - which sells x-ray film and associated media to diagnostic imaging companies like Radiologix.

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