Lyondell, add-on deals price; funds see $330 million inflow; Collins & Aikman falls on earnings

By Paul Deckelman and Paul A. Harris

New York, May 15 - Lyondell Chemical Co. priced $325 million of 10-year senior notes Thursday and two other issuers - Resolution Performance Products and Plains Exploration - chimed in with opportunistically timed add-ons to existing bonds, as the cash-fueled new-issues binge continued merrily along.

Late in the session, traders and other market players sticking around to burn the midnight oil heard that another $330 million more had come into high-yield mutual funds in the latest week than left them, according to market participants familiar with the junk bond mutual fund flow numbers released each week by AMG Data Services of Arcata, Calif. - meaning the that the party would probably continue on, although perhaps at a slightly more sedate pace.

The mutual fund flow numbers - which exclude distributions and count only those funds that report on a weekly basis - are carefully watched by market players as a barometer of overall junk market liquidity trends.

The $330 million of inflows seen in the week ended Wednesday is the 12th consecutive weekly inflow seen since the current surge began back in February - although it is a little small by recent standards. Last week, inflows totaled a whopping $1.3 billion - the seventh billion-dollar plus inflow seen since the surge began in the week ended Feb. 26.

Are market players getting spoiled, thinking that each week is going to see at least $1 billion of new cash having come into the funds? Maybe a little; market participants discussing the latest weekly inflow joked that it was "only" $330 million.

A trader meanwhile said that he thought the $330 million number would "add to the weakness" seen in the secondary market over the previous few sessions.

"Some names are down two, three, four points or more," he said, with the overall junk bond market continuing to focus on the seemingly never-ending stream of new deals which have come clattering down the chute - averaging more than $1 billion a day recently.

Shortly after the close of primary activity, one market observer took stock and reported sensing high yield could be approaching "an inflection point."

The $331 million reported to have flowed into high-yield mutual funds for the week ending May 14 would have been an inspiration prior to the beginning of the present rally, said another. However taken in contrast to the billion dollar-plus inflows of recent weeks it feels just a touch anticlimactic.

Three junk bond deals priced on Thursday. Two of them were add-ons from, coming from Plains Exploration & Production Co. and Resolution Performance Products - both of them quick-to-market transactions. The other, a $350 million 10-year bond from Lyondell Chemical Co. that yielded 10½%, had come with a roadshow.

And word of three new deals climbing aboard the forward calendar was also heard, including a drive-by $350 million 10-year deal from Jefferson Smurfit Corp.

One syndicate official speaking on background shortly after Thursday's close reported sensing that the market might be "near a peak." Accounts continue to consume the new paper that has lately been coming into the market in conspicuous volume, the source added, but a point may be near at hand where the balance between issuers and bond buyers will be seen to shift, "where the accounts get the power again" and the investment banks will no longer be able to price high yield deals exactly where they want to price them.

Whether or not they came precisely where the issuers and their underwriters wanted them to, three issues did price during Thursday's session.

Lyondell Chemical Co. sold $325 million of 10-year senior secured notes (Ba3/BB) at par to yield 10½%, on the wide end of the 10¼%-10½% price talk. Citigroup, Banc of America Securities and JP Morgan were joint bookrunners on the deal that had been marketed via a roadshow.

Plains Exploration priced a $75 million add-on to its 8¾% senior subordinated notes due July 1, 2012 at 106.75 for a 7.506% yield to worst. JP Morgan was the bookrunner.

The company did considerably better that it had done when the original $200 million deal - downsized from $250 million - priced on July 3, 2002 at 98.376 to yield 9%.

The second of Thursday's pair of add-ons came from Resolution Performance Products and RPP Capital Corp. which priced a $25 million add-on to their 9½% senior secured second lien priority notes due April 15, 2010 (B2/B+). The add-on, via Morgan Stanley, priced at 104, to yield 8.617%.

The original $175 million priced at par on April 4, 2003 to yield 9½%, so Resolution Performance also came away with a lower interest rate on its add-on than it had locked in when the original offering priced.

Meanwhile three new offerings emerged during Thursday's action. Chicago container-maker Jefferson Smurfit showed up with a $350 million offering of 10-year senior notes (B2/B), a drive-by via Deutsche Bank Securities, Banc of America Securities, Morgan Stanley, JP Morgan and Citigroup.

Late in Thursday's session talk of 7%-7 1/8% surfaced on the new 10-year paper and market watchers mentioned expecting the terms to surface sometime Thursday evening. However as Prospect News went to press no information was heard.

Word was also heard Thursday on a two eurobond deals, both from the Netherlands. Impress Group BV was heard to be bringing a Rule 144A/Regulation S offering of €150 million four-year non-call-one senior guaranteed notes that will be marketed with a Europe-only roadshow and is expected to price on May 22, via Deutsche Bank Securities.

And recycled containerboard producer Kappa Beheer BV announced in a Thursday press release that it would offer a €95 million add-on to its 10 5/8% senior subordinated notes due 2009.

Also on Thursday the market heard official price talk of 8¼%-8½% on Spectrasite Inc.'s $150 million of seven-year senior notes (B3), expected to price on Friday, via Lehman Brothers and Citigroup.

And price talk of 11½%-11¾% emerged on Terra Capital Inc.'s $200 million of seven-year second priority senior secured notes (Caa1/B), also expected to price Friday, with Citigroup as the bookrunner.

Secondary traders meanwhile said that their market mostly seemed to remained focused on the new deals that were moving into secondary after their pricing. "Not a heck of a lot" of other things were going on, a trader said.

The new Lyondell notes were seen not having gone very far - quoted at par bid/100.25 offered in what a trader termed "very thin trading."

The new Dole Food Co. 7¼% senior notes due 2010, which priced at par on Wednesday "saw a little action in the morning, but then everything got really quite," a trader said. The new bonds "didn't do that great" in Thursday's action, he said, quoted offered as low as 99.375 in the morning. Then they moved back up, slightly, to go home around the same par bid level at which they had priced.

He also saw U.S. Steel Corp.'s new 9¾% senior notes due 2010 at a wide 99.5 bid/101 offered, versus their par issue price, and Muzak Holdings Inc.'s 10% senior notes due 2009 - which had priced Tuesday at 99.486 - firming to 101.25 bid/102 offered Thursday, up a bit from Wednesday's close at 100.5.

Other new bonds on the upside included Medex Inc.'s 8 7/8% senior subordinated notes due 2013, which a trader called "the best new issue right out of the chute"; he quoted the bonds at 102.5 bid/103 offered, up from their par pricing on Wednesday. "There was decent secondary buying there," he said.

He also saw Semco Energy Inc.'s two issues of new bonds firming smartly from their Wednesday par pricing levels; its 7¼% senior notes due 2008 rose to 102.25 bid, while its 7¾% senior notes due 2013 ended at 103.5 bid.

Not doing as well, he noted were the new L-3 Communications Holdings Inc. 6 1/8% senior secured notes due 2013, which dipped to 99 bid before clawing their way back up to their par issue level by day's end; and Smithfield Foods Inc.'s 7¾% notes due 2013 which traded up to 101 bid before dropping back to close at par, unchanged from their issue price on Wednesday.

Aside from the newbies, secondary activity was largely restrained, limited mostly to issues which had some kind of specific news out about them.

One such issue was Collins & Aikman Corp., whose bonds were down about five to six points across the board, after the auto parts supplier reported unfavorable first-quarter numbers.

Its 11½% notes due 2006 dropped five points, to 81 bid, while its 10¾% notes due 2011 lost 5½ points, to 91.5 bid.

The company said that it had "mixed results" for its first quarter - with record sales and "significant" future-year new business wins accompanied by a "disappointing" decline in profitability.

Although first- quarter 2003 sales of $1.035 billion represented an increase of $120 million (13%) over year-earlier sales of $915 million, this did little for the bottom line - C&A reported first quarter 2003 operating income of $17.4 million, down from $54.4 million a year ago; first-quarter net loss from continuing operations of $28.7 million (34 cents per share), widening out from a year-earlier net loss from continuing operations of $6.7 million (10 cents per share); and latest-quarter EBITDA of $50.8 million, sliding from $84.9 million a year ago.

Also lower were the bonds of Allegiance Telecom Inc., after the telecommunications operator sought protection from bondholders and other creditors in Chapter 11; its 11¾% notes due 2008 and 12 7/8% notes due 2008 both fell nearly two points on the session to close at 22.

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