Hyundai, L-3, two others price deals; Revlon lower despite balance-sheet revamp plans

By Paul Deckelman and Paul A. Harris

New York, Dec. 16- After essentially taking Monday off, the high-yield primary market came back with a vengeance Tuesday, seeing four deals totaling more than $1.2 billion priced as borrowers try to get their deals done in the last full trading week of 2003.

Secondary market players meantime lamented the deadly dull pace of activity. One of the few features seen in the market was Revlon Inc., whose most widely traded issue retreated even though the troubled cosmetics company said it was looking at ways to strengthen its balance sheet and might issue additional common stock or new debt in exchange for cash or outstanding debt.

The four new high yielding issues came as a pair each in the U.S. and emerging markets high-yield corporate new deal sectors.

In a Tuesday drive-by, New York City defense and aviation technology company L-3 Communications Corp. sold $400 million of 6 1/8% senior subordinated notes due Jan. 15, 2014 (Ba3/BB-). The deal priced at 98.157, resulting in 6 3/8% yield.

The notes, with Lehman Brothers and Banc of America Securities running the books, came right on top of the 6 3/8% area price talk.

Also during the session, high yield investors plucked $110 million of paper issued by Los Angeles-based chicken restaurant chain El Pollo Loco, Inc. The six-year senior secured notes (B2/B) came at par to yield 9¼% - at the tight end of the 9¼%-9½% price talk - with Jefferies & Co. running the books.

Meanwhile price talk emerged Tuesday on the whopper of the week: NRG Energy Inc.'s $1.25 billion.

Talk of 8%-8¼% was heard on the 10-year senior secured second lien notes (B2/B+), which the Minneapolis power company is selling to help fund its emergence from bankruptcy.

Lehman Brothers and Credit Suisse First Boston are joint bookrunners on the deal which is expected to price on Wednesday.

In the emerging markets corporates arena Tuesday, two upsized deals were priced, as corporate issuers from Asia and Latin America brought a combined total of $750 million.

Hyundai Motor Manufacturing Alabama priced an upsized issue of $400 million of 5.3% five-year senior unsecured notes (Ba1/BB+) at 99.753 to yield 5.357%. The deal was increased from $300 million.

The Korean auto maker's new bonds priced at a spread of 212 basis points, close to the 215 basis points area price talk.

On Nov. 21 Hyundai cited "market conditions" as it postponed its sale of $400 million seven-year notes (Ba1).

As with the previous deal, which Hyundai pulled, proceeds from Tuesday's transaction are slated to fund new plant construction in Alabama.

And from Latin America, Companhia Siderurgica National priced an upsized $350 million offering of 10-year senior notes (B1/B+/B+) at par to yield 9¾%. The deal was issued via CSN Islands VIII Corp. and increased from $250 million.

Citigroup ran the books for the Brazilian steel producer' deal, which came right on top of the 9¾% area price talk.

CSN said the bonds were bought by more than 80 investors in Brazil, Europe and United States.

Prospect News made contact Tuesday with Pax World High Yield Fund portfolio manager Diane Keefe. Keefe conceded that she has been much more focused on the recently crowded new issue calendar - which saw a staggering 27 tranches price last week - than she has been upon her Christmas shopping.

However, Keefe was in no way carping about it.

"I had so much yield-to-call paper in my portfolio that I needed that supply to come up with some names to invest in at par instead of at a premium.

"I am hearing that more than 50% of the junk market is now trading at a premium but in my portfolio there is a lot more than 50%.

"When interest rates go back up," Keefe added, "all yield-to-call bonds are going to extend. So it's important not to own too many that are above par."

As had been the case when Prospect News spoke with her shortly before Thanksgiving, Keefe continues to profess the belief that high yield is at present the smart play in fixed income.

"Conventional investment-grade fixed income - mortgages, Treasuries and investment-grade corporates - are going to be in a much worse position than high yield when interest rates start moving up," she said. "They have no way to make money."

She sees the present rally in high yield continuing its run into 2004, with investors continuing to allocate funds to the asset class. As a result, the Pax World portfolio manager said, the high-demand/tight-supply dynamics presently at play in the asset class are likely to continue.

"There is a possibility of more spread tightening as a result of those technicals," she said. "The bulls are talking about 300 basis points off, but I don't think it's going to get there."

Back in the secondary market, Revlon's benchmark Revlon Consumer Products Corp. 8 5/8% notes due 2008 were quoted as having fallen to 43 bid from prior levels at 46, although at another desk, the bonds were quoted down 3½ points to 41 bid, investors apparently not much impressed by the troubled Ronald Perelman-controlled cosmetics company's intentions of exploring possible transactions to improve its balance sheet.

The decline came even as Revlon also announced that its board of directors had approved two loans totaling $125 million from Perelman's investment vehicle, MacAndrews & Forbes Holdings, Inc. The first loan, of $25 million, is available immediately to the cash-strapped company, while the second, for $100 million, will be available in 2004.

Even with the added liquidity and the possibility that Revlon might pretty up its balance sheet by getting rid of some old debt in an exchange, traders said the company's bonds, aside from the 8 5/8% notes, didn't really go anywhere.

"Those bonds are a joke," as one put it. The 8 5/8% issue, he said, "the one they buy in the Street, got to be as good as 55 bid, 57 offered a week ago, and now they're offered out there at 45 again. The company was buying them and now they're not, there's no bid. They crap out right at the end of the year. They do this stuff all the time."

He saw Revlon's 12% notes due 2005 at par bid, 101 offered, "and that's where they've been for a month," while other Revlon paper was likewise little changed, mostly in a 65-67 context, including the 12% subordinated notes due 2004 at 64 bid, 66 offered.

At another desk, Revlon's 8 1/8 % notes due 2006 were up a point at 67 bid, 68 offered.

Elsewhere, Italian dairy products producer Parmalat's bonds "started the day down two points, then were up two points, and ended up roughly unchanged," a trader said, "wrapped around 60," as the cash-challenged company, now under the control of turnaround expert Enrico Bondi, continued to face a Wednesday deadline by which it must either pay $400 million to minority shareholders of its Brazilian unit or renegotiate the deal that requires this payment.

A trader quoted the company's sole dollar-denominated issue, the 6 5/8% notes due 2010 (the rest of its bonds are denominated in euros) as offered at 60, down from prior offered levels at 63.

"Yes, they're up from last week," when the company's bonds cascaded down into the lower 50s after Parmalat failed to pay a €150 million issue off at its Dec. 8 maturity, generating investor angst over the company's liquidity situation. It finally paid them off last Friday - only four days late, but by then, the damage had been done, including a titanic 11-notch ratings downgrade which Standard & Poor's laid on Parmalat over two sessions.

"The interest payment helped," the trader said, "but they're still down 40 points from where they were before all of this began."

An American-based dairy products producer whose bonds have been lately getting creamed meanwhile is Land O' Lakes Inc.; a trader quoted the Arden Hills, Minn.-based butter maker's 8¾% notes due 2011 as having fallen to 87 bid, 88 offered from last week's levels around 92.5 bid, even though the company's recently priced 9% senior secured second lien notes due 2010 continue to hold their own at 100.25 bid, 101 offered, up from their par issue price.

But the trader noted that "they had a hard time" selling the $175 million issue; "price talk started out much lower" on the issue and was eventually lifted as investors forced it up. "That's a senior piece, so the sub[ordinated 8¾%] issue got taken to the cleaners."

The trader saw U.S. Timberlands' 9 5/8% notes "kick up," and projected that it would likely "see a lot of trading tomorrow' after the forest products company made an interest payment originally scheduled for Nov. 15 just before the 30-day grace period expired. He quoted the bonds as having firmed to 58 bid from 53 previously (although he noted that putting an accurate price on the issue was difficult, since it trades flat, or without accrued interest, on the New York Stock Exchange board but trades with the accrued interest over the counter).

"Everyone's scrambling for offerings. I think a lot of the hedge funds were short the issue."

And he saw HealthSouth Corp. bonds firmer after the troubled Birmingham, Ala.-based operator of outpatient medical facilities said that it had made some $52 million in bond coupon payments in December, representing all interest that had been due, and further said that it intends "to remain current on all upcoming interest payments."

He saw HealthSouth's 7 5/8% notes due 20102 a point better at 93 bid, 94 offered, although a market source elsewhere saw HealthSouth largely unchanged, its 8 3/8% notes due 2011 staying at 94.

The source likewise saw Avado Brands' 11¾% notes due 2009 unchanged at a very distressed 11, after it missed the Dec. 15 interest payment on the bonds and Standard & Poor's cut the restaurant chain operator's debt ratings to D. The company said it would use the 30-day grace period for the payment.

Other issues seen little moved despite positive news in what one trader termed a "very lackluster market" Tuesday included Chiquita Brands' 10.56% notes due 2009, which hung in at 110.5, even as the Cincinnati-based banana giant said that it expected 15% earnings growth over each of the next four years; and Sirius Satellite Radio's 14% notes due 2009 and 15% notes due 2007, at 103 and 104, respectively, even though the fledgling satellite radio broadcaster announced a big multiple-year deal with the National Football League under which it will offer broadcasts of every regular-season NFL game in 2004, along with selected playoff contests; financial details were not released.

The market source did see AES Corp. debt better after the Arlington,. Va.-based international power producer said that it had successfully concluded talks on a deal renegotiating $1.3 billion in debt with Brazil's national development bank, with only the complex paperwork now remaining to be done.

AES's 9½% notes due 2009 were a point better at 111, while its 8½% notes due 2007 moved up to 102.5 bid from 101.

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