Titan, Key Energy price deals, Laidlaw, SpectraSite and Forest City slate; secondary lackluster

By Paul Deckelman

New York, May 9 - After an exciting session Thursday which saw seven new deals worth more than $1.4 billion pricing, one after the other, the high-yield primary market took a step backward Friday, as only two deals totaling $350 million priced, from Key Energy Services Inc. and The Titan Corp. Meantime, prospective offerings from Laidlaw Inc., SpectraSite Inc. and Forest City Enterprises Inc. joined the forward calendar.

Secondary dealings were reported by traders to be very quiet, as players apparently are beginning to get into their usual summer-Friday habit of arriving late, leaving early and doing not much in between, even though officially summer is still some six weeks off. However, in contrast to the heavy tone seen in Thursday's activity, Friday's tone was said to be improved, with the latest billion-dollar-plus junk bond mutual fund number seeming to be a welcome tonic for nervous investors.

The market digested the news that in the week ended Wednesday, some $1.3 billion more came into the funds - seen as a reliable proxy for overall junk market liquidity trends - than left them, excluding distributions and counting only those funds reporting on a weekly basis.

It was the second straight week in which inflows topped $1 billion, and the seventh such billion-dollar jackpot in the last 11 weeks, all of which have seen sizable inflows. That liquidity bonanza has encouraged new issuers to step up to the plate, and three more did so on Friday, putting their offerings on the calendar.

Laidlaw, the Burlington, Ont.-based operator of the Greyhound bus service as well as school buses and ambulances, is bringing a $400 million offering of eight-year senior notes to market via joint bookrunning managers Citigroup and Credit Suisse First Boston. It plans to use the proceeds to help pay the distributions it will hand out to the holders of its former bonds and other creditors as it emerges from Chapter 11, which is expected to happen this month.

SpectraSite, the Cary, N.C.-based communications antenna tower operator, emerged from bankruptcy in February after a quick reorganization which saw its old bondholders also trade in their securities for equity in the revamped company; its new $150 million offering of seven-year senior notes, coming to market via joint books Lehman Brothers and Citigroup, will be used to pay down bank debt.

Cleveland-based real estate operator Forest City Enterprises slated what is expected to be a quickly shopped $200 million senior note offering likely to price as early as mid-week via a Goldman Sachs-led underwriting team. Some of the proceeds are earmarked for paying off at least half of its $200 million of outstanding 8½% senior notes due 2008.

Among the issues which priced on Friday, Titan Corp., a San Diego-based company that builds and launches technology-based businesses, sold $200 million Rule 144A senior subordinated notes due 2011 via a Credit Suisse First Boston-led syndicate. The new bonds priced at par to yield 8%.

And Key Energy Services, a Midland, Texas-based onshore oil well service company, sold $150 million of ten-year senior notes at par to yield 6 3/8% via joint lead managers Lehman Brothers and Bear Stearns.

A primary market source noted that the Key Energy deal "actually broke up about a point to a point-and-a -half when it opened up [for secondary dealings], so it was a good, strong book, with follow-through in the market, which has been tough on some of the other 6%-handle credits of late. But on this one the follow-through was there and it traded above the offer price."

A trader said that when the new Titan bonds were freed for secondary dealings, they were "well received," starting out at least at the 101.5 level," while another trader saw it firming beyond that, going home at 102 bid/103 offered, up from their par issue price. The new Key Energy Services notes, meanwhile, opened at 101 bid, before firming slightly to 101.5 bid/102.5 at the close.

But apart from that, the second trader said, things were deadly dull.

"It was a real, real quiet day. Retail was quiet, energy looked to be pretty quiet, airline bonds were all grounded, gaming and leisure, paper and packaging - it was quiet across the board."

Lucent Technologies Inc.'s 7¼% notes due 2006, for instance, were "maybe down a half" to 92.5 bid/93.5 offered, he said ,with bond investors showing not much reaction to any developments coming out of the Murray Hill, N.J.-based telecommunications equipment maker's meeting Friday in New York with more than 200 analysts.

At the meeting, Lucent chief financial officer Frank D'Amelio reaffirmed the company's goal of getting back in the black by the end of the fiscal year, after several years in the red as the telecommunications industry, Lucent's bread-and-butter customers, has shaken itself out and radically downsized.

Lucent too has been downsizing along with it, shedding operations and jobs to bring its workforce down to about 38,000 - a third of the more than 100,000 the company had when the telecom boom of the late 90s ended. D'Amelio said Lucent's breakeven level remains at $2.4 billion, slightly less than half of its breakeven point of $5 billion in 2001.

But even though Lucent has gotten a lot leaner, if not necessarily meaner, lean times remain ahead for the industry, at least in the short run.

Chief executive Patricia Russo reiterated the company's belief that capital spending by major telephone companies, which has been declining over the last several years, greatly impacting Lucent's business, is likely to continue declining this year, be flat next year and then start to head back upward after that.

By that time, however, Lucent hopes to have moved strongly into the business of providing services to its customers, such as running their networks for them, rather than merely selling them the gear - continuing income versus essentially a one-shot score.

Russo noted that her company's customers spend $6 on operating expenses for every $1 they spend on capital expenses, such as new equipment. Lucent has already made its first tentative steps towards transforming itself into a major provider of services as well as equipment; the company notes that it currently runs all or parts of more than 30 networks around the world. Analysts queried on Lucent's strategy feel that diversifying into providing services is probably a worthy goal - but they caution that it remains to be seen whether Lucent can successfully establish itself in this area and come to depend upon it for a major portion of its revenues.

At another desk, Lucent's 6.45% debentures due 2029 dipped a point, to 71 bid.

Elsewhere in the communications constellation, Qwest bonds were seen little changed, despite a Wall Street Journal article Friday indicating that Qwest was in talks with the Securities and Exchange Commission aimed at settling a potential fraud charges which might arise from the company's alleged "swaps" of fiber-optic capacity with other telecom operators - transactions which the regulators believe had no real economic value other than artificially inflating revenue figures. The Journal said that any such settlement will likely include a statement that the Denver-based telecommer did not admit or deny committing fraudulent activity.

While Qwest shares rose 37 cents (9.23%) to $4.38 in New York Stock Exchange dealings Friday, the bonds "went nowhere," a source said, quoting Qwest's 8 7/8% operating company notes due 2012 steady at 112.5 bid. "They've been moving up lately - but nothing today," he added.

At another desk, a trader likewise quoted Qwest's 7¾% holding company notes due 2006 at 87 bid/89 offered and its 7½% holding company notes due 2008 at 91 bid.

One of the few issues which actually was going anywhere was Calpine Corp., which announced a sizable power sale on Friday - a two-year deal to sell 300 megawatts of power, or about 5% of its total Texas output, to the Brazos Electric Power Cooperative Inc., which supplies juice to 17 member distribution cooperatives, three Lone Star state municipal utilities and Texas A&M University. No dollar value of the deal was announced.

The trader said that the San Jose, Calif.-based independent power producer's 8½% notes due 2011 were "up and down and up and down in a 69.5-72 context before ending at 70.5 bid/71 offered, up a point.

But overall on Friday, he said, "the Street continues muted."

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