Ondeo Nalco unveils $1.8 billion deal; funds see $68 million inflow; Charter firmer

By Paul A. Harris

St. Louis, Oct. 9 - Water company Ondeo Nalco Co. got set to open the hydrant on a four-part $1.8 billion equivalent offer in the last full bond market session of the Oct. 6 week ahead of Friday's abbreviated pre-holiday session. And Keystone Automotive Operations, Inc. headed for the on-ramp with a $150 million 10-year deal that starts Tuesday.

Meanwhile in the secondary market strong demand was roundly reported for Universal Hospital Services' new 10¼% notes and the bonds of Charter Communications were heard to have firmed.

And although Prospect News had been hearing in the run-up to Thursday's session that the strength of trading during the early part of the week seemed to be foretelling an impressive inflow of cash to high yield mutual funds, Thursday's week-only fund flow number remained in the "flat" range that has gripped the market since early September.

Sources told Prospect News late in the session that AMG Data Services reported an inflow of $68 million.

That was the third straight inflow, although none of the figures have been impressive. The previous week saw $79.7 million of cash come in and the week before that $152.9 million.

With the latest figure, inflows have been seen in 25 of the 40 weeks so far this year, according to a Prospect News analysis of the AMG data. The year-to-date net inflow is now $16.550 billion.

Flat though the fund flow number may be, high yield is presently coursing through a period of notable liquidity, according to sources on both the buy- and sell-sides.

"The market continues to be strong," a trader insisted. "Despite the weakness in Treasuries junk is very well-bid. We have seen no spread-widening whatsoever.

"There is a lot of cash on the sidelines that people keep pouring into the market."

Sources report that the investors continue to behave in a manner that suggests they are thirsty for bonds. So it may not be a total coincidence that mammoth water treatment firm Ondeo Nalco showed up with a notably liquid four-tranche offering of $1.8 billion equivalent of high-yield bonds.

The deal, which is broken down into dollar and euro tranches of senior and senior subordinated notes, will be marketed on either side of the Atlantic beginning Wednesday in Europe.

The company intends to sell dollar and euro tranches of senior notes due 2011 (expected ratings B2/B), in addition to dollar and euro tranches of senior subordinated notes due 2013 (expected ratings B3/B-).

Citigroup, Banc of America Securities, Deutsche Bank Securities, Goldman Sachs, JP Morgan and UBS Investment Bank are joint bookrunners on the deal, proceeds from which will be used to fund the acquisition of Ondeo Nalco by Blackstone, Apollo and Goldman Sachs Partners from Suez SA.

Also seen heading toward the primary market on-ramp was Keystone Automotive Operations, Inc., which is set to hit the road Tuesday with an offering of $150 million of 10-year senior subordinated notes, which are expected to price on Oct. 23.

Banc of America Securities and UBS Investment Bank will steer the deal, proceeds from which will be used to fund the LBO of Keystone by Bain Capital.

And marketing will commence early in the coming week for Spanish Broadcasting System, Inc.'s offering of $75 million of perpetual cumulative exchangeable redeemable preferred stock.

The Hispanic broadcaster's deal is also an acquisition-related financing. Lehman Brothers is bookrunner.

And price talk of 9%-9¼% emerged Thursday on kitchen and bathroom cabinetry-maker Norcraft Cos.' $150 million of eight-year senior subordinated notes (B3/B-), which are expected to price Friday morning via UBS Investment Bank.

The buzz in the secondary market Thursday centered on the brand-new paper issued by health care administrative services outsourcer Universal Hospital Services, which priced a slightly upsized $260 million of senior notes due 2011 (B3/B-) at par on Wednesday to yield 10 1/8%, at the tight end of the 10 1/8%-10 3/8% talk. Goldman Sachs & Co. and Credit Suisse First Boston ran the books for the offering

"I heard there were over $1 billion in orders for that $250 million deal," one trader confided late Thursday, adding that the new notes had traded up to around 103 and had closed at 103 bid, 103.5 offered.

Earlier in the session a source reported seeing the new Universal Hospital 10 1/8% notes "trading up to 103.25 on high demand."

Word had it, whispered the source, that Goldman Sachs was offering 103 in an attempt to bring back enough of the paper to meet what had turned out to be an unexpectedly intense level of demand from the accounts.

Elsewhere in the secondary, and for no particular reason that the reporting trader could cite, issues of Charter Communications were seen to firm.

"Charter sold off pretty hard a couple of weeks ago, when the rumor circulated that they were going to have to do a new financing, on top of the 10¼% notes that they just did," the trader commented. "So the bonds traded off, but now they seem to be coming back.

"Some of the outstanding Charter issues are up several points over the last week or so."

Charter's benchmark 8 5/8% notes were at 80 bid, 81 offered, the trader said.

And the new 10¼% notes were 102.5 bid, 103 offered, the trader said, noting that they were at 100.25 bid, 100.75 offered in the middle of last week.

Another source reported Charter "up a little," with its 9.92% notes due 2011 up half a point to 74.5 and the 8¼% notes due 2007 also up a half to 88.

"The rest of the cable stuff looks unchanged," the source added.

And while the St. Louis-based cable giant might easily have been enjoying the Thursday bounce in its paper, it would have had reason to also gloat, as the news was not nearly so good for the bonds of satellite competitor EchoStar Communications Corp.

Bankrupt satellite operator Loral Space & Communications rejected a $1.85 billion bid to be acquired by EchoStar, suggesting that EchoStar would have to reach deeper into its pockets to complete the acquisition.

The news, said secondary market sources, slightly degraded the orbit of the Littleton, Colo. satellite firm's existing notes.

"DISH was softer," said one trader. "Loral said the price that DISH is bidding is too low and the bonds reacted somewhat negatively.

"We had buyers. But the bonds were down maybe half a point in light trading."

The rejected bid exercised a gravitational pull on EchoStar's new 5¾% notes due 2008 which ended at 99.75 bid, 100.25 offered, said the trader. Also down slightly were the new 6 3/8% notes due 2011, at 99.5 bid, 100 offered.

"We traded bonds in that context," said the trader. "The outstanding issues were basically unchanged."

However another secondary source did see EchoStar slightly closer to earth, reporting the 9 3/8% notes of 2009 down 5/8 to 106, and the 10 3/8% notes of 2007 down ½ to 110.5.

Elsewhere in the secondary market one source had the notes of Dow Chemical subsidiary Union Carbide, downgraded to junk by Moody's about a month ago, "up about 2.5 points on the day," although this source provided no explanation.

Included, said the official, were the Union Carbide 6.79% notes due 2025, the 8¾% notes due 2022, the 7 7/8% notes due 2023, the 7½% notes due 2025 and the 7¾% paper due 2096.

Also advancing smartly during the session were the bonds of apparel retailer The Gap, on the heels of its report of a strong September performance: double-digit same-store sales gains.

"The retailers in general were reporting somewhat better numbers," a trader said. "Dillard's bonds were stronger. "Gap's were a little stronger, and the stocks were having a good day."

He saw Gap's 6.9% notes closing at 108 bid, 110 offered, up from 107.5 bid, 108.5-offered at the open.

Gap said same-store sales were up 13% in September compared to a year-earlier and far better than the 2% decrease in September 2002. Net sales for the week weeks to Oct. 4 were $1.5 billion, up 14% on net sales of $1.3 billion for the same period ended Oct. 5, 2002.

However the news was not nearly so good for St. Louis chemical company Solutia Inc., which said it expects an after-tax loss of $1.65 to $1.70 per share in the third quarter. Solutia cited its settlement over PCB contamination in Alabama, as well as the weak economy and the rising costs of raw material and energy.

Its bonds, said one market source, were seen to react to the bad news, with the 7 3/8% notes due 2027 down a point to 65, and the 11¼% notes due 2009 down a point to 97.

Finally on Thursday, in emerging markets corporates action, MMK Finance SA priced an offering of $300 million of 8% five-year notes (Ba3/B/BB-) at 98.92 to yield 8¼%. The books for the notes, which are guaranteed by Russian steel firm OJSC Magnitogorsk Iron & Steel Works, were run by ABN Amro and UBS Investment Bank.

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