Biggest day for new deals in 19 months; AES bonds jump on tender offer completion

By Paul Deckelman and Paul A. Harris

New York, Dec. 13 - Bonds of AES Corp. firmed smartly Friday after the independent power producer finally completed its offer to exchange cash and new securities for $300 million of bonds that were to have come due Monday and another $200 million that holders can put back to the company next year. Timely completion of the tender offer keeps AES from defaulting on the Dec. 15 bond issue and possibly being forced into bankruptcy as a result.

Other issuers within that same power producer/trading sector were meanwhile heard to be firmer, although in quiet trading, in line with a sharp surge in the stock of such names as Williams Cos. and Dynegy Inc., following a federal ruling that the companies overcharged California for power during that state's energy crisis last year to a far lesser degree than California had alleged.

In primary-side activity, the bubbling new-deal market - which had already popped out eight pricings earlier in the week, many of them quickly shopped drive-by add-ons to existing deals - brought the week to a breathless close with what will undoubtedly be remembered as 2002's blockbuster day, a total of nine offerings in the year's busiest session.

In spite of the fact that the high yield mutual funds had just posted their first outflow in two months - $447.3 million - investors on Friday soaked up $1.93 billion proceeds of new speculative-grade paper.

Given that total, Friday Dec. 13 was the busiest day of 2002 in the junk bond primary market - easily topping its nearest competitor, Nov. 26, during which $1.34 billion priced including the two tranches of the $925 million R.H. Donnelley deal.

To top Friday's total you have to turn back the calendar to May 10, 2001, which saw $2.725 billion of new paper pricing, including $1.5 billion from Charter Communications.

For those whose appetites run to jaw-droppers, Friday's SPX Corp. transaction should fill the bill. The Charlotte, N.C. company priced an issue that doubled in size - $500 million of senior notes due Jan. 1, 2013 (Ba3/BB-), increased from $250 million. The notes priced at par to yield 7½%, at the tight end of the 7½%-7¾% price talk via JP Morgan.

Also upsized on Friday was the deal from Boston-based technology firm PerkinElmer Corp. It raised its deal to $300 million from $225 million and priced the 8 7/8% senior subordinated notes due Jan. 15, 2013 (Ba3/BB-) at 99.173 to yield 9%. That deal came at the tight end of the 9%-9¼% price talk via Merrill Lynch.

And Hollywood Entertainment Corp., which had pulled an offering of $275 million eight-year senior subordinated notes (Caa1/B-) on April 30, received a much warmer reception from the critics Friday. The Portland, Ore. video store operator upsized its offering to $255 million from $200 million and priced the senior subordinated notes due March 15, 2011 (B3/B-) at par to yield 9 5/8%, at the tight end of the 9 5/8%-9 7/8% talk, via UBS Warburg.

Las Vegas-based Boyd Gaming Corp. priced $300 million of new senior subordinated notes on Friday. The 10-year notes (B1/B+) priced at 98.312 with a coupon of 7¾% to yield 8%. Price talk on that offering, via Lehman Brothers, Deutsche Bank Securities and CIBC World Markets, was 7¾%-8%.

New York aircraft components manufacturer K&F Industries, Inc. landed $250 million from high yield investors on Friday. Its new eight-year senior subordinated notes (B3/B) priced at par to yield 9 5/8%. Lehman Brothers ran the books on that deal which had been officially talked at 9¾% area.

Oklahoma City natural gas company Chesapeake Energy Corp. priced $150 million of 7¾% senior notes due Jan. 15, 2015 (B1/B+) at 99.026 to yield 7 7/8%. Price talk was 7¾%-7 7/8% on that offering managed by joint bookrunners Bear Stearns & Co., Credit Suisse First Boston and Lehman Brothers.

Camarillo, Calif. religious and family broadcaster Salem Communications Holdings Corp. priced an off-the-shelf $100 million of eight-year senior subordinated notes (B3/B-) at par to yield 7¾%, with Deutsche Bank Securities doing the bookrunning.

And Salt Holdings Corp, Inc. priced $64.794 million proceeds of 10-year senior discount notes at 53.995 to yield 12¾% via Credit Suisse First Boston.

Adding to the onslaught of add-on deals that have come during the run-up to the 2002 close Resolution Performance Products LLC/RPP Capital Corp. priced a $53 million add-on to their 13½% senior subordinated notes due Nov. 15, 2010 (B3/B) at 105 to yield 12.278%, via a syndicate of investment banks that included Morgan Stanley, JP Morgan, Salomon Smith Barney and Credit Suisse First Boston.

Meanwhile one new deal surfaced on the last day of the hectic Dec. 9 week. Baton Rouge, La. outdoor advertising firm Lamar Media plans to price $260 million of 10-year senior subordinated notes (existing ratings Ba3/B) on Tuesday following an investor conference call on Monday, via JP Morgan.

Back among the already established bonds, AES "definitely was the story of the day." a trader said, quoting its 8 3/8% notes due 2007 at 41 bid/43 offered and its 9½% notes due 2009 at 59 bid/60 offered, both six points better on the session.

It was the third straight session of sizable gains for the bonds of the Arlington, Va.-based global independent power producer - they had jumped in Wednesday's dealings as the company indicated that it was nearing the minimum tender threshold on both issues of bonds that it has been seeking to exchange for the new notes and cash, and rose again about three points in Thursday's dealings.

Friday's jump followed the late-Thursday announcement that it had completed the $500 million exchange offer for its 8¾% senior notes due Dec. 15 and its 7 3/8% Remarketable or Redeemable Securities - ROARS - due 2013, but which are putable back to the company next year (see "Tenders and Redemptions" elsewhere in this issue for full details).

Completion of the exchange offer was considered a crucial component of its overall $2.1 billion recapitalization plan, which also included a new $1.6 billion senior credit facility. AES had previously warned that if the exchange offer were not to be completed, it would not be able to repay the maturing $300 million of 8¾% notes. But with the offer having now been completed, the cash-strapped utility company now essentially faces no debt maturities before the fall of 2004, giving it time, the company hopes, to continue selling off underperforming, mostly foreign assets and getting its financial house in order.

The shares of other merchant energy providers were also up Friday, given a big boost by a Federal Energy Regulatory Commission recommendation that companies such as Dynegy, Williams and Reliant Resources Inc. only owe California about $1.8 billion in refunds arising from the Golden State's power crunch in late 2000 and early 2001 - far less than the $8.9 billion that California was claiming. But since California had already withheld about $3 billion in receivables from the energy firms over the last two years in pressing its claims, that means the state will have to pay the power companies, rather than the other way around, with the total refund due to the power companies estimated at $1.2 billion.

The prospect of each getting several hundred million dollars helped blast Williams' shares up 48 cents (20.51%) to $2.82; Reliant zoomed 50 cents (22.22%) to $2.75, while Dynegy was up 15 cents (16.67%) to $1.05.

On the bond side, a trader quoted Williams debt up "maybe three or four points" with its 6¾% notes due 2006 at 67 bid/69 offered, although he saw no activity in the Dynegy bonds. Another trader saw Williams' 7 1/8% notes due 2011 a point better at 64 bid/65 offered, while Dynegy's 8 1/8% notes due 2005 were likewise up a point, at 33 bid/34 offered.

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