Millar Western, MediaNews, Pinnacle price deals; Sbarro bonds fall; funds see $306 million inflow

By Paul Deckelman and Paul A. Harris

New York, Nov. 20 - The new-deal parade rolled on unabated Thursday, as Media News Group Inc. brought a $300 million bond offering to market and Millar Western Forest Products Ltd. and Pinnacle Foods Holding Corp. were heard by syndicate sources to have upped their bond deals.

In all $690 million of bonds priced in three deals, two of which came upsized and at the tight end of price talk.

In the secondary market, Italian chain fast-food restaurateur Sbarro Inc. gave investors a case of indigestion with less-than-appetizing numbers, and its bonds slid about eight or nine points on the session.

And after the close, market participants familiar with the weekly fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday, $306.3 million more came into the funds than left them, calculating the flows into only those funds which report on a weekly basis and excluding distributions.

The fund flow numbers are considered to be a reliable gauge of overall junk market liquidity trends.

It was the third consecutive sizable inflow to the funds, following the previous week's infusion of $257.85 million, and the eighth inflow in the past nine weeks, according to a Prospect News analysis of the AMG figures.

For the year to date, inflows have been recorded in 30 weeks of the 46 since the start of the year, for a total cumulative net inflow of $18.526 billion, the peak level for the year.

A sell-side source, contacted by telephone after the number had begun to circulate, said that the substantial inflow should not have taken market observers by surprise.

"Things seemed pretty strong this week, with all of those drive-by deals," said the source.

Prospect News followed by asking this official if the news of the third consecutive inflow, which is also reportedly the 30th positive weekly flow seen during the past 46 weeks, sets the stage for the present high yield rally to carry over into 2004.

"As long as Treasuries remain muted and yields remain stable I think we're probably in decent shape," responded the official.

"You'll definitely see some slowdown next week," the source added. "And then there will be a last flurry of activity in early December.

"But outside of any significant macro-event, things should continue to roll right into the new year."

High yield investors, their pockets reportedly bulging with the cash that has come into the asset class, unloaded $690 million of it on Thursday.

MediaNews Group, Inc. sold $300 million of 6 7/8% 10-year senior subordinated notes (B2/B+) at 99.133 to yield 7%. The Denver-based newspaper owner's deal, led by Deutsche Bank Securities and Bank of America Securities, came wide of the 6¾%-6 7/8% price talk.

The day's remaining two transactions, although smaller than MediaNews, both upsized and priced at the tight end of their respective price talk.

Cherry Hill, N.J.-based pickle-maker Pinnacle Foods Holding Corp. (they also make frozen foods, condiments and barbecue sauce) priced an upsized $200 million of 10-year senior notes to yield 8¼%. The deal was increased from $150 million. Price talk on the offering, led by JP Morgan and Deutsche Bank Securities, was 8¼%-8½%.

A source told Prospect News that as the bond deal was upsized by $50 million Pinnacle's bank deal was downsized by $25 million, with the term loan B downsized by $50 million to $120 million and the delayed draw term loan upped by $25 million to $425 million.

And Millar Western Forest Products Ltd. priced an upsized $190 million of 10-year senior notes due (B3/B+) at par, to yield 7 ¾%. Goldman Sachs & Co. ran the books on the Edmonton, Alta. integrated forest products company's deal, which had been talked at 7 ¾%-8%. It was increased from $175 million.

As to issues that have been making the investor round by land, by sea and by wire, price guidance emerged Thursday on Hyundai Motor Co.'s $400 million of seven-year guaranteed notes (Ba1). The Korean automaker expects to price the notes at a spread of 250 basis points over Treasuries.

Citigroup and UBS Investment Bank are bookrunners on the deal that is expected to price on Friday.

Price talk also emerged on J. Ray McDermott, SA's offering of $200 million 10-year senior secured notes (B3/B-). The notes are expected to price Friday at a discount, with an 11% coupon to yield between 11¼% and 11½%. Morgan Stanley is the bookrunner.

Talk of 7½%-7¾% emerged Thursday on Stena AB's $150 million of 10-year notes (Ba3/BB), also expected to price on Friday, via JP Morgan.

And price talk is for a yield in the 7½% area on Vendex KBB NV's sale of €200 million of seven-year senior subordinated notes (Ba3/BB-), expected to price on Tuesday, with ING and BNP Paribas running the books.

As the market continued to wind down the days before the Thanksgiving break one roadshow start was heard Thursday.

The roadshow starts Friday for a seller note offering in which Schlumberger Ltd. will offer $262.62 million principal amount of Hanover Compressor Co.'s zero-coupon subordinated notes due March 31, 2007 (B-), according to an informed source. The deal is expected to price on Dec. 2, via Goldman Sachs.

In secondary market activity, Sbarro gave its investors something tough to chew on, as the closely held Melville, N.Y. based operator of a chain of cafeteria style pizza and Italian food restaurants reported its results for the latest financial period to the Securities and Exchange Commission; the company lost $23.656 million, versus a year-earlier profit of $2.888 million.

A market source said that Sbarro was the major mover on an otherwise fairly quiet day, its 11% notes due 2009 going "way down" to 77 bid from 87 on Wednesday, while at another desk, the bonds were seen down nine points on the session at 79.5 bid.

A trader said that during the morning the bonds had fallen to as low as 75 from prior levels before firming slightly off those lows to end in a 78-80 context.

The hell of it is, he said, "if you do a back-of-the-napkin calculation - once you get the pizza grease off - the company has some very good locations and has a net value of $200 million - more than the amount of the outstanding bonds."

However, Sbarro, still trying to recover from its disastrous twin encounters with terrorism - one of its pizza restaurants was blown up in a particularly horrific bombing in Jerusalem a few years ago, while another, in the concourse of the World Trade Center, was destroyed on 9/11 - is clearly struggling.

The trader said: "The company has put some good turnaround specialists in place and it does have an inflated payroll that it can cut."

Elsewhere, Laidlaw International Inc.'s 10¾% notes due 2011 were a point better at 110.5, as the bus and ambulance operator posted a profit in the fiscal fourth quarter - its first full quarter since coming out of bankruptcy. A year ago, the operator of the Greyhound Bus Lines had posted a loss (see related story elsewhere in this issue).

A market observer saw troubled food products firm Aurora Foods' 9 7/8% notes due 2007 firm smartly to 73 bid from recent levels in the upper 60s, and also saw Land O'Lakes' 8¾% notes due 2011 move up to 91.5 bid from prior levels around 90 on speculation the Arden Hills, Minn.-based butter maker may be lining up some long-term financing.

Levi Strauss & Co. - whose bonds have recently been on the slide following bearish sales guidance from the San Francisco-based blue jeans giant - were a mixed bag on Thursday, its 7% notes due 2006 up half a point at 64.5, its 12¼% notes due 2012 off half a point at 66.5, and its 11 5/8% notes unchanged at 70.

Qwest Communications International Inc. paper, which had firmed several points Wednesday in response to the Denver-based telecommunications company's generally positive third quarter results and its tender offer for $2.25 billion of its bonds and those of two Qwest subsidiaries, continued to firm on Thursday, its 7¼% notes due 2007 up a point-and-a-half at 93.5 bid.

But Collins & Aikman Product Co.'s recently firm bonds were rolling in reverse on Thursday, the Troy. Mich.-based automotive components maker's 11% notes due 2006 off more than two points at 83.

Investment-grade power producer First Energy Corp.'s BBB- senior unsecured bonds are in danger of a possible cut to junk, said Standard & Poor's in the wake of the report by a joint task force looking into the massive Aug. 14 Northeast power blackout that points the finger at the Ohio utility as a major factor. But the company's bonds were unmoved, a source said, its 2011 bonds continuing to trade at 129 basis points over the 10-year Treasuries and its 2031 bonds still 180 bps over.

On the emerging markets front price guidance of 11% area was heard Thursday on Empresa Brasileira de Telecommunicacaoes SA (Embratel)'s $200 million of five-year guaranteed notes, via Morgan Stanley and Deutsche Bank Securities.

An emerging markets source also told Prospect News that the five-year deal from Russian corporate Vneshtorg Bank is now being heard at $500 million maximum. The deal is currently on the road via Deutsche Bank Securities and UBS Investment Bank.

"There is still a lot press about the whole Yukos situation," the source commented. "So it may be meant to imply that it could be smaller. But they're saying it won't grow."

This emerging markets source also said Thursday that the focus of just about everyone in the capital markets had been on Hutchison Whampoa's massively upsized $5 billion global bond sale that priced on Thursday.

"All the markets were focused on it even though it is specifically a high-grade market deal, A3/A-.

"But I think people in all the different markets looked at it."

Asked whether the pre-session news of blasts that reportedly killed 27 people in Istanbul, coming five days after the bombing of two synagogues in that city took 25 lives, was reverberating through the emerging markets, this source said apparently not.

"Turkey is a big issuer in our market," said the official. "Turkey bonds had been down before the news, just on profit-taking, because they have rallied a lot. They came off some more, once the news of the bombings went out. But actually they have recovered most of the ground they had lost after the bombing.

"Overall it looks like people are reacting reasonably okay.

"Turkey's ratings are about the same as Brazil's," the source added. "It has geopolitical issues surrounding it that go both ways. On the one hand it's right in the middle of the war zone right now. On the other hand it gets a lot of support from the U.S. because of that.

"Turkey trades 100 to 125 basis points inside of Brazil. I think people in general have been viewing it as trading pretty tight."

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