Bonds firmer on stock gains, lack of supply; gaming issues to be dealt in

By Paul Deckelman and Paul Harris

New York, March 4 - High yield secondary trading was seen mostly firmer Monday, as selected issues responded to news developments, stock gains were seen to have produced overall improved investor sentiment, and a perceived lack of new supply sent players scurrying after existing paper.

But new supply may be on the table as quickly as Tuesday, when Park Place Entertainment Corp. is scheduled to bring a new drive-by offering to market; also on Tuesday, another gaming issuer, Resorts International, is expected to begin a roadshow presentation for its upcoming $175 million deal.

With those two gaming deals and a third announced Monday, the forward calendar of dollar-denominated new deals built to $2.99 billion as the week of March 4 got underway.

Margaret Patel, the high yield fund manager of Pioneer Capital Management, noted generally flat fund flows into and out of the high yield market and commented that 2002 thus far has failed to live up to the hype. However, she added, the market seems poised to see some improvement.

"It's been pretty disappointing because there was talk that this is the year of high yield, and that all of this money would be flowing in," Patel said.

"It really has not flowed in. I think that's because investors are still pretty cautious about losses. And there have been a substantial number of bond losses. I think that's really what has kept the money flow down.

"I think the money flow will pick up because short rates are so low. But I think you just have to have some abeyance of bad news. Then I think you will see money flow in.

"Short rates aren't going up," Patel added. "Eventually people will be forced to extend maturity or take risk because they simply want more interest than is available in the short-term market right now.

"So instead of getting all the money early in the year we may get it later on in the year when it looks like the economy is starting to go."

Patel, who declined to specify any credits she was looking at or playing, also expressed optimism with regard to the economy.

"I think the economic numbers strongly suggest that the economy is starting to grow and accelerate," she said. "In the early stages all the numbers aren't consistent, and I think people want to see more confirmation that the economy is doing better.

"I think we'll get that," she added. "It might take a few more months, and then I think you'll see the money start to come into high yield."

In activity Monday, Las Vegas-based gaming firm Park Place Corp. announced a drive-by offering of $300 million eight-year senior subordinated notes via joint bookrunners Deutsche Banc Alex. Brown and Banc of America Securities. Matt Maddox, Park Place's executive director in charge of corporate finance, said in a Monday interview with Prospect News that the company had been impressed with the recent gaming transactions that have taken place in the high yield primary (see story on page one of this issue). The new Park Place deal is expected to price late Tuesday afternoon. Price talk is 7 7/8%.

Also on Monday another gaming credit, Atlantic City-based Resorts International Hotel & Casino announced it would hit the road Tuesday with $175 million of first mortgage notes due 2009, via Merrill Lynch & Co. That deal figures to price around March 13, according to a syndicate source.

Late in Monday's session news was heard of a deal from St. Louis-based educational printing firm Von Hoffman Corp., which, according to market sources, will bring $200 million of new seven-year senior notes via Credit Suisse First Boston and Scotia Capital. The roadshow starts Wednesday, according to those sources, who added that the deal is expected to price late in the week of March 11.

Meanwhile terms emerged Monday on B&G Foods, Inc.'s $100 million add-on to its 9 5/8% senior subordinated notes due Aug. 1, 2007. It priced at 98.760, with a yield of 9.923%. Lehman Brothers ran the books.

Finally on Monday, price talk of 10½%-10¾% was heard on Dana Corp. $250 million of senior notes due 2010 (Ba3/BB), via Salomon Smith Barney.

The Toledo, Ohio truck parts company's deal is set to price mid-morning on Wednesday.

The anticipated new deals notwithstanding, the relative lack of new supply so far - only $5.162 billion of new bonds came to market in February, according to figures compiled by ProspectNews and just $10.04 billion for the first two months of the year, half of the year-earlier cumulative total - has people in the secondary market "chasing (existing) paper," a trader said.

"Today was a tough day," he noted. "What we're continuing to see - not that this is anything new - is that we clearly have no supply, the market is fairly quiet and things are continuing to grind upward on lack of supply."

While there were several sizable new deals in January, including the $1 billion seven-year issue which Owens Illinois unit Owens Brockway Glass Container Inc. sold on Jan. 16 and PanAmSat Corp.'s $800 million tranche of new 12-year bonds on Jan. 25, February was another story; the largest deal of the month was Solectron Corp.'s $500 million offering of 9 5/8% senior notes due 2009 on Feb. 1., and most of the other deals which got done were considerably smaller and were brought to market by less well-known or actively traded companies - niche placements which in many cases were quickly put away when they priced and not seen since.

Another trader observed that even though market fundamentals were less than ideal, "the money managers have to buy something. You can't just sit on cash in high yield funds." With little in the way of newly priced paper actively trading around, that would seem to translate into money chasing existing paper, producing a sort of inflationary effect on prices not necessarily warranted by economic realities.

The first trader noted that Nextel Communications Inc. bonds, for instance, have risen sharply in the past week, the Reston, Va.-based wireless operator's 9 3/8% senior notes due 2009 pushing up from bid levels around 55-56 a week ago to 62 later in the week and as high as the 65-66 area on Monday. "You could see that's a 10-point move in a week-long period. There's a lot more buyers around and the market's just really quiet."

If anything, the fundamentals on Nextel might be less than optimum; Goldman Sachs on Monday downgraded its shares - along with those of several other wireless carriers - expressing concern about Nextel's capital structure and debt burdens, and those of its Nextel Partners affiliate.

Another issue which the trader has seen pushing upward of late, though with no visible means of support, is Trump Atlantic City Associates' 11¼% first mortgage notes due 2006, which he said has crept up from recent levels around 63-64 to around 67-68 by the end of last week. "Today they started the morning at 69 bid, and although they traded off a little (from that high), they're grinding up for no apparent reason."

Other issues which he saw trading higher Monday, though with no fresh news out to justify such gains, included AES Corp., "making its way back to some kind of normalcy" after getting knocked around recently' he saw the Arlington, Va.-based power producer's bonds ending up half a point in the 64 bid/65 offered area, well up from recent levels in the mid-50s.

He continued: "I'm not saying that they aren't still down from where they had been" before the bonds' recent erosion took place (AES's 9 3/8% senior notes due 2010 traded just a bit south of par in early January and were still in the upper 80s as February began), "but they're certainly up from last week."

Other recent gainers apparently running on air, in his opinion include Fleming Cos. Inc., whose 10 1/8% notes have firmed a point from Friday's levels around 100.5 bid/102.5 offered, and MGM Mirage's 9¾% notes due 2007, which were being quoted Monday around 109.25 bid/109.75 offered, up half a point from Friday's levels and two points in the past week. "It's just crazy," he said. "Retail (i.e., non-institutional investors) "continues to buy, and we have a whole little market here, based on a lack of liquidity."

Here and there, issues were up on Monday in response to specific news developments. A trader noted, for instance, that Southern California Edison Inc. paper was being quoted higher in the wake of Friday's announcement that the Rosemont, Calif.-based electric utility had closed on a new $1.6 billion syndicated credit facility, had sold $195 million of pollution control bonds and had used the proceeds to finance a series of actions that paid off all its past-due debt. That represents a sharp turnaround from most of last year, when the troubled Edison International subsidiary teetered on the edge of bankruptcy after being caught between rising deregulated wholesale prices for electricity it had to buy and sharp limits on how much of those price increases it could pass on to its commercial and residential customers.

The trader said the SoCalEd paper was left bid without offerings, meaning that while there were lot of interested would-be buyers, would-be sellers were nowhere to be found. "It was difficult to find offerings on the (secured) first mortgage paper," he opined, quoting SCE's 5½% notes coming due later this year up about half a point on the session at 98.75 bid/99.75 offered.

He added that with the paper having already been trading at pretty high levels, "a lot of this (the latest news) was already baked in, so the first mortgage paper wasn't up that much. The short stuff, like the 5 5/8s didn't have a lot of room to run up."

Those kind of strong levels on a name which just months ago was assumed to be flirting with bankruptcy "if anything tells us that the (short) thing should mature - on time - which is nice to see."

He also saw some upside in Crown Cork and Seal Co. Inc.'s 7 1/8% notes coming due later this year, up about five points in the last week, to stand at around 84 bid/86 offered. He noted that the Philadelphia-based packaging products maker announced Monday that it had decided to sell its pharmaceutical packaging business to a company backed by HSBC Private Equity Ltd., although it did not announce any terms. Separately, Canadian-based soft-drink maker Cott Corp. said that it had settled its previously disclosed aluminum can supply contract dispute with Crown Cork; under the settlement the companies agreed to a long-term supply arrangement, the terms of which were not disclosed.

"The stock was up nicely on the news," he said (Crown Cork shares finished up $1.12, or 19.05%, in New York Stock Exchange dealings to $7, on volume of 5.2 million shares, more than double the usual turnover). He speculated that the Cott settlement was probably more responsible for the gains than the asset sale.

The trader quoted Charter Communications' 8 5/8% notes due 2009 - which had risen slightly on Friday to around 91.5 - as having firmed further to 93.25 bid/93.75 offered, "up about two points over two days." On Friday, equity analysts at both Merrill Lynch and Goldman Sachs put out positive advisories on the St. Louis-based cable giant, controlled by Microsoft billionaire co-founder Paul Allen.

And he saw even the battered Global Crossing Holdings' paper "a bit better", helped by a Wall Street Journal report that buyout firm Gores Technology is preparing a bid for the bankrupt Hamilton, Bermuda global fiber optic network operator, while phone giants AT&T and SBC Communications are also considering offers for some of Global Crossing's assets. The Journal said the Gores offer would likely be worth "substantially more" to bondholders and other creditors than the initial $750 million offer from Hutchison Whampoa Ltd. and Singapore Technologies Pte Ltd. which Global Crossing said it had agreed to when it announced its bankruptcy filing. Some creditors have criticized the Hutchison/Singapore offer as insufficient.

"I don't blame the bondholders for wanting to find someone else to take the assets," he said, quoting the company's 9 1/8% notes at 4 bid/4.5 offered, "up a whopping 25%" from prior levels around 3 bid/4 offered.

Elsewhere, Amkor Technology Inc.'s 9¼% notes 2006 were being quoted up three points on the session at 99 bid, on top of Friday's two point rise in the credit. Its shares were meanwhile up $1.98 (11.89%) in Nasdaq dealings to $18.63 on volume of 3.7 million shares, about four times the usual, after the Phoenix, Ariz.-based provider of contract microelectronics assembly and test services held an upbeat meeting Friday with investors and analysts, at which it expressed optimism for its prospects, while not actually providing updated financial guidance.

Williams Communications Group, whose bonds fell sharply last week after it said that a Chapter 11 filing could be among the restructuring options it might explore, was quoted slightly firmer Monday, although on muted volume; its 10 7/8% paper was seen in the 13-14 bid range, up about a point.

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