Station, Vail, Premier Biloxi price; Levi up on coupon payment; funds see $396 million inflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 15 - While New York, Boston and other business centers in the Northeast were ice-cold on Thursday - with the mercury headed toward zero readings and near-record sub-zero wind chills - the high yield primary market was red-hot, cranking out $2.261 billion in nine new deals, some upsized, including offerings from Station Casinos Inc., Vail Resorts Inc. and Premiere Entertainment Biloxi, to name just three.

In the secondary market, the new Premier Entertainment bonds shot skyward and closed up more than seven points from issue - one of the largest new-deal secondary breakouts in recent memory, or perhaps ever.

Among the established issues, traders said that Levi Strauss & Co. Inc. bonds traded up after the San Francisco-based blue jeans giant made a scheduled coupon interest payment.

The sizzling primary market and firm secondary seen in the first two weeks of the new year are carrying forward the momentum seen in the latter part of 2003, which had been fueled by continuous infusions of liquidity, and this week has not been any different.

After the close of trading on the last full session of the week (ahead of Friday's scheduled 2 p.m. ET early close and Monday's Martin Luther King Day market shutdown), market participants familiar with the weekly high yield mutual fund flow statistics compiled by AMG Data Services of Arcata, Calif. reported a net inflow of $396 million in the week ended Wednesday

It was the 11th consecutive week of inflows, following the $506.05 million infusion seen the week before, as well as the 16th week in the last 17 in which more money came into the junk funds than left them, according to a Prospect News analysis of the AMG figures. And even that one week of outflows was a fluke, with a barely negative $1.1 million reading in the week ended Oct. 29 marring what has otherwise been a spectacular, virtually unbroken chain of inflows since the week ended Sept. 24; during that stretch a total of $4.78 billion more came into the funds than left them, according to the Prospect News analysis, counting only those funds which report on a weekly basis and excluding distributions.

With inflows seen in both of the trading weeks since the start of the year, the year-to-date total stands at $903 million. In 2003, net inflows were seen to have totaled a mammoth $20.126 billion.

Even though the mutual funds comprise only a portion of the funds in the total high yield market - other fund sources include insurance companies, pension funds, endowments and retail investors - analysts, traders and investors see the weekly fund flow numbers as a reliable barometer of overall junk market liquidity trends.

The surging liquidity is credited as the catalyst for the strong secondary market and active primary sphere seen in 2003, both of which apparently have carried over to 2004. The primary market in particular continues to do business at a breathtaking pace, with over $3 billion total of new bonds having priced since Jan. 2 going into Thursday's session - not even counting several split-rated deals. Well over another $1 billion came clattering down the chute in rapid-fire fashion during the session.

Thursday's torrid session in the new issue market saw nine deals price, with dollar-denominated issuance for the session coming in at $2.261 billion proceeds.

Already matches January 2003

Six of Thursday's nine deals came upsized. Five priced at the tight end of price talk and one priced inside of talk.

According to data compiled by Prospect News, half way through the month of January 2004, the primary market has already seen virtually the same volume of issuance as all of January 2003:

* January 2003 saw $6.935 billion price in 23 deals, whereas

* January 2004 to date has seen $6.385 in 24 deals.

Sources have been telling Prospect News that the principal force driving the red hot junk bond new issue market is its phenomenal liquidity. Given that that is the case, the market saw fuel added to the fire on Thursday with the release of the AMG numbers.

"People still had cash, anyway," mused one sell-side official who took a minute to reflect on the funds flow news well after the lights went down on Thursday's phenomenal session.

"Even if there had been an outflow there would still be plenty of cash sitting around.

"We had a big day, today. We had around $2.5 billion, if you count the euro business.

"And given that money is still coming in there is going to be plenty of activity in this market in the near future."

Blow-by-blow of a $2.5 billion day

Nine issues priced Thursday - eight of which were dollar-denominated. In descending order, according to amount of issuance, they were:

* Nalco Finance Holdings $445.79 million proceeds of 10-year senior discount notes (Caa2/B-) which priced at 64.235 to yield 9%.

Price talk was 8 ¾%-9%.

The sale was led by Goldman Sachs & Co.

* Station Casinos Inc. priced an upsized $400 million of 10-year senior subordinated notes (B2/B+) at par to yield 6½%, via Banc of America Securities and Deutsche Bank Securities.

Price talk was 6½%-6¾% and the deal was initially planned at $325 million.

* Vail Resorts, Inc. priced an upsized $390 million of 10-year senior subordinated notes (B2/B) at par to yield 6¾%.

Price talk was 6¾%-6 7/8% on the deal that was also led by Banc of America Securities and Deutsche Bank Securities. It was increased from $350 million.

* iStar Financial Inc. priced a massively upsized quick-to-market issue of $350 million of 4 7/8% five-year notes (Ba1/BB+) at 99.892 to yield 4.9%.

That level appears to set a new record low yield for the "high" yield market, beating the 5% scored by NVR, Inc. on June 12.

The notes, increased from $200 million, priced at a spread of 195 basis points, in the middle of the plus 190-200 basis points price talk, via Deutsche Bank Securities and Banc of America Securities.

The above-quoted sell-side source commented that the four-handle yield on iStar's new paper can be depended upon to entice more issuers into the high yield with drive-by deals.

* Iron Mountain Inc. priced an upsized £150 million of 10-year senior subordinated notes (B3/B) at par, Thursday, to yield 7¼%, via Bear Stearns & Co. The deal was increased from £125 million.

* American Casino & Entertainment Properties LLC priced an upsized $250 million of eight-year senior secured notes (B2/B) at par to yield 7.85%. Revised price talk was 7 7/8%, in from 8 1/8% area, on the Bear Stearns & Co.-led deal, which was planned at $200 million.

* Premiere Entertainment Biloxi (Hardrock Hotel & Casino Biloxi) priced an upsized $160 million of 10 ¾% eight-year first mortgage notes at 98.684 to yield 11%. It came at the tight end of the 11%-11¼% price talk, with Banc of America Securities and Citigroup running the books. This deal was raised from $150 million.

* Seminis Vegetable Seeds Inc. priced a $140 million add-on to its 10¼% senior subordinated notes due Oct. 1, 2013 (B3/B-) at 109.

The notes, priced at an 8.620% yield to worst, came spot on the 109 area price talk, via Citigroup.

* Communications & Power Industries, Inc. sold $125 million of eight-year senior subordinated notes (B3/B-) at par to yield 8%.

Price talk on the UBS Investment Bank and Bear Stearns & Co.-led issue was 8%-8¼%.

Talk on Centennial, Asat, Portola

The price talk is 8¼% area on Centennial Communications Corp.'s quick-to-market offering of $250 million of senior notes due 2014 (Caa1/CCC), which are expected to price mid-day Friday via Lehman Brothers and Credit Suisse First Boston.

Talk is 9½% area on New Asat (Finance) Ltd.'s $125 million of seven-year senior notes (B3/B), also expected to price on Friday, via Citigroup.

And price talk of 8½% area emerged Thursday on Portola Packaging, Inc.'s $180 million of eight-year senior notes (B2/B-), which are expected to price Tuesday. JP Morgan and UBS Investment Bank are joint bookrunners.

A roadshow is expected to begin early in the week of Jan. 19, in Europe, for SGL Carbon Finance SA's offering of €300 million of eight-year senior notes. A U.S. roadshow is expected to begin later in the same week, with pricing expected to take place on Jan. 26.

Credit Suisse First Boston and Deutsche Bank Securities are joint bookrunners on the deal from the Wiesbaden, Germany-based producer of carbon and graphite products.

And in the emerging markets, the day's corporate deal was also increased from the planned amount.

Sistema Capital SA priced an upsized $350 million of seven-year eurobonds (B3/B-/B-) at par to yield 8 7/8%. The deal was increased from $250 million.

Credit Suisse First Boston ran the books on the Russian conglomerate's deal.

Premier Entertainment bonds rocket

When the new Premier Entertainment Biloxi 10¾% first mortgage notes due 2012 were freed for secondary dealings, they zoomed to around 106.5 bid, 107 offered from their issue price - a move which would have been impressive enough had the bonds priced at par, but is all the more stunning because they priced below par, at 98.684.

"Holy s-!" one trader exclaimed upon seeing the massive initial gain.

He speculated that investors were drawn to the issue by its fat coupon and the fact that even though it's callable after four years, the call premium, at least at the beginning, is still substantial, although he suggested that "they'll never call this one" for that reason.

"Up, up and away!" another trader exclaimed, "a pretty premier move."

He opined that "there were just a lot of people looking to buy the deal," and even after having been upsized to $160 million there was not a lot of paper for them to buy, pushing its price up handsomely.

The trader also saw the new Communications & Power Industries' 8% senior subordinated notes due 2012 as having firmed to about 103 bid, 103.5 offered.

He saw the new Vail Resorts 6¾% notes due 2014 having moved up to 100.875 bid, 101.5 offered from their par issue price and pegged Nalco Finance's new zero-coupon/9% discount notes due 2014 at 64 bid, 64.5 offered, versus their 64.235 issue price.

At another desk, the new Sistema Capital 8 7/8% obligations due 2011 were seen having moved up to 100.75 bid from their par issue price, although a trader characterized it as "nothing great."

Other new deals, such as those of Station Casinos and Iron Mountain, were not seen having been freed for secondary dealings by the time trading wound down.

Levi bounces

Clearly, the market's major focus was the primary sector, traders said, although there were some established secondary names which were moving around.

One was Levi Strauss, whose 11 5/8% notes due 2008 "bounced after they made their coupon," a trader said. He saw the bonds, which had ended at 68.5 bid on Wednesday, having gotten as good as 71 bid on Thursday, before settling in at 70.25.

Levi has $380 million of the notes outstanding, with the company having predicted weaker sales and its bonds having traded down badly into the mid 60s from prior levels as high as the 80s late last year, there was some investor unease over whether the company would make the interest payment, totaling some $22.08 million.

With the coupon payment made, the trader said, "they're trading without accrued [interest], so they went up."

He also noted a company announcement late in the day - too late to affect trading - that Target, the nation's second-biggest discount retailer, will begin carrying Levi's "Signature" line of jeans.

Investor angst over a possible missed coupon payment pushed the bonds of RNC Corp. lower; its 10 1/8% notes due 2010 were quoted half a point lower, at 51.5 bid, after the Princeton, N.J. -based

provider of video, phone and internet services said its hasn't made a final decision about whether to make the $10.3 million payment due Jan. 15 on those bonds; RCN said it has ample funds to do so, but is currently in talks with its banks and bondholders on a debt restructuring, and anticipates being able to convert a substantial part of its debt to equity. The company indicated that it wanted to see how those talks went before deciding to pay the coupon. Should it not make the scheduled payment on time, RCN has the customary 30-day grace period, dating from the time the payment came due.

A trader quoted the RCN bonds down a point or so, with all of the issues, including the 10 1/8s and its 10% notes due 2007, trading down to around 53.5 bid, from 55 previously.

A&P sinks

The trader also mentioned that the bonds of the Great Atlantic & Pacific Tea Company Inc. "were down at least a point-and-a-half," with the 7¾% notes due 2007 dropping to 92 bid, 93 offered from prior levels at 94.75 bid, and its 9 1/8% notes falling to 90.5 bid from Wednesday's levels at 92 bid, 92.5.

Another trader who also saw A&P's bonds lower noted that they had fallen from their peak levels reached last week, but "were not as soft as they were before their numbers came out."

The Montvale, N.J. based supermarket operator's bonds had fallen last week - at one point dipping as low as the upper 70s - ahead of the release of numbers which everyone thought would be terrible. But after the results were actually out they firmed smartly because the quarterly loss was not as wide as had been feared. Its shares also rose about 23% on the session following the numbers.

But there may be less to those numbers than meets the eye - a story in Thursday's Wall Street Journal suggested that the company still has a lot of problems, not the least of which is the fact that the industry in which it operates - supermarkets, particularly in the Northeastern U.S. - is a highly competitive but low margin business. It quoted at least one analyst calling the run-up in the company's shares (and by extension, its bonds) that followed the release of the data "an unfathomable mistake" and suggesting "a distinct possibility" that A&P could file for bankruptcy somewhere down the road.

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