Three smaller deals price as market sees $1.06 billion funds outflow; Charter up, WorldCom slides

By Paul Deckelman and Paul A. Harris

New York, July 31 - The high-yield primary market remained essentially in neutral gear Thursday, as three modestly sized deals priced - for National Beef Packing Corp. LLC, EaglePicher Inc. and Flender Holding GmBH.

But the huge overhang of as-yet unpriced deals remained - and a potentially ominous note was introduced after the session had essentially wound down as market participants familiar with the weekly mutual fund flow statistics compiled by AMG Data Services of Arcata, Calif. told Prospect News that some $1.06 billion more left the funds in the week ended Wednesday than came into them.

It was the second consecutive week in which a net outflow was seen, following the relatively small approximately $91.5 million recorded in the week ended July 23, and the first really sizable outflow seen since May 28 when nearly $620 million more fled the funds that week than came into them. In fact, you'd have to go back to the week ended Sept. 25, 2002 to find another outflow of more than $1 billion (the outflow that week nearly a year ago totaled about $1.4 billion).

Market participants watch the flow numbers as a barometer of overall junk market liquidity trends and while even the billion-dollar-plus outflow seen in the latest week puts only a small dent in the healthy cumulative inflow seen so far this year (still approximately $16.16 billion, according to a Prospect News analysis of the AMG figures, with inflows - some of them over a billion dollars - seen in 20 out of the 30 weeks since the beginning of the year), still the sight of such a large outflow is enough to give one pause - especially coupled with the back-up of new debt on the forward calendar, the glut of recently priced paper now in the market, and the pounding that fixed-income markets in general and Treasuries in particular have been taking.

"It feels like the 'easy money' is over," a trader said. "For the first time [this year], the market seems to be suffering indigestion. That's the way the market feels in general."

Another trader - while saying the massive outflow was not unexpected and may have already been anticipated in some of the recent price pullbacks - is of the opinion that the market has recently been seeing "a technical correction. Too many people got long on too many issues and there's too much supply. Now, we're starting to see a shakeout."

One of the keys to getting rid of the market's current blahs, he said is "they've got to stop some of this supply. People are rushing in, as if they'll never get a chance to borrow again, doing something like 14 deals a day" a slight exaggeration to be sure, but not too far off the mark, with 10 tranches totaling over $2 billion having priced earlier this week. All of this busy borrowing, he opined, "may be laying the groundwork" for a pullback not unlike the one that followed the heady, easy money days of 1998 and early 1999.

Nonetheless Thursday's primary market session produced one or two pieces of news of the variety that tends to make market observers blink just a bit.

Three deals priced Thursday and two rode in to take their places, including a two-piece $1.7 billion offering from St. Louis cable operator Charter Communications Inc.

Following the release of the AMG fund flow figures, one source told Prospect News that with the forward calendar built up as extensively as it is heading into August, high yield may have been poised to "take a little bit of a breather.

"The only thing is," added the sell-side official, "maybe now it will take a big breather."

Other sources throughout the session, and throughout the July-August crossover week, noted that the new issuance calendar is immense.

Fingers also pointed Thursday toward the sell-off in Treasuries and the positive economic news.

The Treasury sell-off, one source said, makes the higher quality high-yield paper look considerably less attractive on a spread basis. And the positive economic news probably has people taking much closer looks at the stock market, which, in light of Thursday's positive economic numbers, might be starting to appear to be an attractive alternative to junk.

In any case, Thursday's session saw three junk bond transactions completed.

EaglePicher Inc. priced an upsized $250 million of 9¾% 10-year senior notes (B3/B-) at 99.20 to yield 9 7/8% - in the middle of the 9¾%-10% price talk and increased from $220 million. UBS Investment Bank ran the books.

National Beef Packing Corp. LLC priced an $160 million of eight-year senior notes (B2/B) at par to yield 10½%, at the wide end of the 10¼%-10½% price talk. The bookrunner was Deutsche Bank Securities.

And from the eurobond market Flender Holdings GmbH sold €250 million of seven-year senior notes (B2/B-) at par to yield 11%, wide of the 10¼%-10½% talk. Deutsche Bank Securities and Credit Suisse First Boston ran the books.

In addition to these three deals, Prospect News heard terms on Companhia Brasileira de Petroleo Ipiranga's upsized $135 million of 7 7/8% senior notes due Aug. 1, 2008 (B2). The deal, increased from $125 million, priced at 99.773 to yield 9.025% last Friday. Price talk was for a yield in the 8¼% area on the deal via Bear Stearns & Co.

Charter Communications planted its foot on the forward calendar in a big way, announcing that the roadshow gets underway Tuesday for its $1.7 billion of 10-year non-call-five senior notes which are expected to price mid-week during the week of August 11.

The notes will be issued in two $850 million tranches by Charter Communications Capital Corp. I, LLC and Charter Communications Capital Corp. II, LLC.

Citigroup, Banc of America Securities and JP Morgan are joint bookrunners on the deal.

Meanwhile, the roadshow starts Friday for Group 1 Automotive Inc.'s $150 million of 10-year senior subordinated notes (expected ratings B1/B+), which are seen pricing on August 8 via Goldman Sachs & Co.

Price talk emerged on Advanstar Communications Inc.'s two-tranche $400 million second priority senior secured notes offering, which is expected to price Friday via Credit Suisse First Boston.

Talk is 10¼%-10½% on the seven-year non-call-four fixed-rate notes. The five-year floating-rate notes are talked at Libor plus 700-725 basis points.

The market also heard price talk of 10% area on Hillcorp Energy Co.'s $350 million of seven-year senior notes (B3/B), which are expected to price Monday afternoon. Deutsche Bank Securities Inc. and Lehman Brothers are joint bookrunners on that deal.

Price talk emerged Thursday on Riverwood International's $850 million two-tranche deal that is set to price Friday morning, via a bookrunning cartel comprised of Goldman Sachs, Deutsche Bank Securities, JP Morgan, Morgan Stanley, Credit Suisse First Boston and Citigroup.

Talk is 7¾%-8% on the eight-year senior notes (B2/B-), while the 10-year senior subordinated notes are talked at 100 basis points behind the senior notes.

Finally on Thursday price talk was heard on Southern Star Central Corp.'s $180 million of seven-year senior secured notes (B1/B+), expected to price on Friday via Lehman Brothers.

Back in the secondary market, WorldCom Inc. was the focus of a flurry of late-afternoon activity, traders said, after news hit the screens that the troubled Ashburn, Va.-based long-distance telecommunications giant would be barred -at least temporarily and possible for up to three years - from competing for further government contracts, in the wake of allegations that it was re-routing calls through Canada and through other telecom firms in order to duck paying access fees legitimately owed to rival telecom companies, such as AT&T.

Those charges cast a shadow over WorldCom's efforts to put its $11 billion accounting scandal behind it and emerge from bankruptcy as MCI, the name of its long-distance subsidiary. That's caused both WorldCom and MCI bonds to slide over the past few sessions, although for a while, it looked like they were starting to recover Thursday.

WorldCom's bonds, which had fallen to around 26 bid Wednesday, had actually moved back above the 27 level on Thursday - but then careened down to bid levels in the 24-24.5 area after the thunderbolt from the government's General Services Administration hit.

MCI's own bonds - which had fallen to around 72-73 bid from levels near 80 when the scandal broke on Monday - had also started to move up, a market-watcher quoting them in the "73ish area" before the GSA news. Those bonds were not seen subsequently.

On the upside, the main feature of the day seemed to be Charter Communications, after the underperforming St. Louis-based cable-TV operator posted a narrower second-quarter loss of $38 million (13 cents per share) versus a year-ago loss of $161 million, (55 cents a share). Wall Street was looking for a 48 cent per share loss in the latest quarter.

It should be noted that Charter was helped by a one-time tax gain of $98 million (33 cents per share).

Bond investors, however, were cheered by CEO Carl Vogel's assertion on the company's conference call that he "remains committed" to free cash flow and would "remain disciplined in every area of spending."

They were also apparently heartened by Charter's announcement of changes in its pending tender offer for some $1.3 billion of convertible and straight junk debt - drastically reducing the amount of short-maturing convertible debt it is seeking to buy back, in favor of offering to repurchase much more higher-coupon - but longer maturity - straight junk debt (see Tenders and Redemptions elsewhere in this issue for full details).

Charter's 8 5/8% notes due 2009 were seen nearly three points better at 76 bid, while its 11 1/8% notes due 2011 were a point or two better at 82.

A trader also pegged its 9 5/8% notes at 75.5 bid, saw its 9.92% discount notes offered at 72.25, while its 10% notes due 2011 were offered at 77.5, its 12 1/8% notes were bid at 49 and its 13½% notes were bid at 58.5, all firmer on the session.

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