R.H. Donnelley taps junk market again; Dean easier on earnings warning; auto bonds ignore sales data

By Paul Deckelman and Paul A. Harris

New York, Oct. 2 - R.H. Donnelley Corp. - which priced $1 billion of new 8 7/8% notes due 2017 less than two weeks ago - came back for more Tuesday, pricing another $500 million of those bonds at par. Those bonds traded smartly upward when they were freed for secondary dealings.

Elsewhere in the primary sphere, pre-deal market price talk emerged on Ryerson Inc.'s upcoming $575 million two-part offering of senior secured notes.

On the secondary side, Dean Foods Co.'s bonds were seen lower, after the Dallas-based dairy products producer cut its profit estimates for the third quarter and for all of 2007, citing record high dairy commodity costs. It also outlined plans to cut between 600 and 700 jobs companywide.

Sources were marking both the cash market and the index higher on Tuesday.

An investment banker said that the new CDX High Yield 9, which launched less than a week ago, was up 3/8 point on the day.

A money manager said that the cash market was ¼ to ½ point higher from Monday.

Right back to pretty high prices

A money manager whose portfolio includes high yield bonds told Prospect News on Tuesday that in the junk market "everything is up.

"Autos are up, and that is a huge part of the market," the investor said, and added that big liquid "bread and butter" issues such as Freescale Semiconductor and Allied Waste are "right around par.

"The better names are trading at pretty attractive levels, spread-wise, reflecting the fact that Treasuries have rallied down, in terms of yield," the buy-sider added.

The source contended that the Treasury rally, taken in conjunction with the a move in equities that sent the Dow Jones Industrial Average back over the 14,000 mark, where it remained Tuesday, despite a sell-off in equities, indicates that the market's appetite for risk has been restored.

And in this investor's opinion those searching for the catalyst to that restoration need look no further than Uncle Ben.

Ben Bernanke, that is, chairman of the Federal Reserve Bank.

The investor said that the Fed's decision, one week ago, to cut the Fed Funds rate by 50 basis points to 4¾% from 5¼%, "did a lot to provide liquidity at the margin.

"I don't think we'll ever go back to the craziness we saw when the LBO activity was peaking in June. But one by one the LBOs are disappearing," the source added.

The LBOs are "either disappearing, like Harmon International, or being renegotiated like Sallie Mae, or they're being discounted and pushed out the door, like First Data.

"The market for outright buyers [of high yield bonds] is very good because there is good cash flow," the money manager asserted.

"High yield has performed very well. Even the bottom tier has rebounded nicely."

However, to illustrate the intensity of the rally now unfolding in high yield, this investor selected an issue from the top, not the bottom, of the credit spectrum.

The buy-sider said that the new American Tower Corp. 7% notes due 2017 (Ba1/BB+/BB+), which priced at par on Sept. 24 in an upsized $500 million issue, were at 102 7/8 bid, 103 ¼ offered late Tuesday.

"That's a 6.11% yield!," the money manager calculated.

"We're right back to pretty high prices for the better quality names."

Donnelly returns for Dex

Less than two weeks after it placed an upsized $1 billion issue of 8 7/8% series A4 senior notes due Oct. 15, 2017 (B3/B), R.H. Donnelley returned on Tuesday, pricing a $500 million add-on to that issue (B3/B) at par.

There was no official price talk.

JP Morgan ran the books for the drive-by.

Proceeds are expected to be transferred to Dex Media East LLC, an indirect subsidiary of R.H. Donnelley, in order to allow Dex to repay a portion of the term loans outstanding under the existing Dex Media East credit facility.

The original $1 billion issue, upsized from $650 million, was priced at par on Sept. 19.

Ryerson sets talk

Ryerson set price talk for its $575 million two-part offering of senior secured notes (B2/B+) on Tuesday.

The Chicago-based metals processing and distribution company talked its $425 million tranche of eight-year notes at the 12% area.

Meanwhile Ryerson talked its $150 million tranche of seven-year floating-rate notes at Libor plus 725 basis points. The floating-rate notes become callable in two years at 106.

The acquisition financing deal, which is being led by Banc of America Securities, is expected to price on Wednesday.

Elsewhere, late Tuesday a high yield syndicate official told Prospect News that the recent spate of drive-by deals, which has seen half a dozen U.S. issuers come with quick-to-market deals since mid-September, is likely to continue.

One name bandied around since late last week is Allison Transmission, whose $1.1 billion of LBO-backing junk bonds are part of the risk overhang remaining on underwriters' books as the result of unplaced bonds and unsyndicated leveraged loans in the wake of the mid-summer credit market meltdown.

An informed source said on Tuesday that depending upon how the Allison Transmission leveraged loan transaction unfolds, the bond deal could materialize.

And the source declined to rule out a drive-by, suggesting that the bonds are presently being quietly shopped.

Donnelley gains in aftermarket

When the new R.H. Donnelley 8 7/8% notes were freed for aftermarket dealings, several traders saw the new bonds having pushed higher.

One quoted them at 101.25 bid, well up from their par issue price, saying the new bonds were "doing pretty well. All trades were around that area."

Another saw the bonds at 101.25 bid, 101.5 offered, while yet a third saw them get as good as 101.5 bid, 101.875.

Lamar is hot, Biomet is not

Among other recently-priced names, a trader saw the new Lamar Media Corp. 6 5/8% notes due 2015 - which had priced Monday at 94.868, and then had moved up in initial aftermarket activity, having "traded all day" Tuesday at 95.5 bid, 96 offered, before turning upward a bit more late in the session to go home at 95.785 bid, 96 offered, which the trader estimated was up ¾ to 1 point from Monday's levels.

And the trader said that the recently priced Biomet Inc. bonds "still haven't gotten any better."

While the 10% senior notes due 2017 have hung in at 99.75 bid, 100.75 offered, not far off their Sept. 24 par issue price - "those are the good ones," the trader observed - the other two parts of the $2.348 billion mega-deal "haven't moved up a whole lot." The 10 3/8% PIK toggle notes due 2017 remain well below their par issue price, at 96.75 bid, 97.5 offered, and the 11 5/8% senior subordinated bonds are at 97.5 bid, 98 offered, also well down from their par issue price. The latter two tranches are not far off the lows they hit when the bonds first went into the aftermarket, although it was generally expected that those tranches would trade down.

Dean off on earnings warning

Back among the established issues, Dean's 7% notes due 2016 were initially seen by a market source around 94 bid, down about a point from Monday's levels, and its 6 5/8% notes due 2009 were also down nearly a point, around 99.5. By the end of the day, they had trimmed those losses and were down about ½ point.

The source also initially saw the company's 6.90% notes due 2017 at around the 94 level - up from the 90-93 context within which the bonds had traded on Monday, although those bonds faded in the afternoon, ending at around 91 bid.

A trader saw the 7s at 94 bid, 94.5 offered, down from 95 bid, 95.5 offered previously, and declared that "the commodities markets have not treated [Dean] kindly at all," since higher milk prices are the key culprit behind the reduced earnings expectations.

However, while Dean's bonds were "a little wider - maybe 15 basis points - they didn't fall out of bed," the trader said, because this should have come as no surprise. "Dean has been warning us for a while that they would be impacted by the higher dairy prices. It was no big surprise."

In its statement, Dean said that its per-share earnings for the just-concluded third quarter would come in at around 15 cents - down from the company's previous projections of between 24 and 28 cents, and off as well from Wall Street's expectations of around 25 cents per share. For the full year, the company expects to earn just $1.25 per share - down from its previous projections of $1.52 to $1.58. Analysts had been looking for about $1.45 for the full year.

The company's chairman and chief executive officer, Gregg Engles, blamed the anticipated lower earnings on "rapidly increasing and record high dairy commodity costs," which he said had created "a very challenging operating environment," and said the 2007 results "have been well short of our expectations."

The Dean chief added that "this is by far the most difficult operating environment in the history of the company."

He further said that Dean would "streamline operations" by cutting between 600 and 700 jobs, and will take a restructuring charge in the third quarter related to the staff reductions. The job cuts, affecting the company's core Dean Foods Dairy Group, will begin with voluntary departures, followed by involuntary cuts if necessary, and should be completed later this month.

Homebuilders helped by stock rise

Elsewhere, several traders said most homebuilder names seemed better as shares of the sector were up solidly for a second straight day - a change from Monday, when the bonds pretty much fell despite the stock gains.

A trader saw Hovnanian Enterprises Inc.'s 8 5/8% notes due 2017 up a point at 83 bid, 85 offered.

Another trader saw Beazer Homes USA Inc.'s bonds higher, in line with a more than 12% gain in the company's shares. Beazer's 8 5/8% notes due 2011 rose to 80 bid, 82 offered from prior levels around 76.5 bid, 78.5 offered.

Among its other issues, the trader saw Beazer's 8 3/8% notes due 2012 at 78 bid, 80 offered, its 6½% notes due 2013 and 6 7/8% notes due 2015 both at 74 bid, 76 offered and its 8 1/8% notes due 2016 at 80 bid, 82 offered.

"The shorter and the longer bonds were up 3 to 4 points," he said, "while the rest were up 1 to 11/2."

However, he saw Tousa Inc.'s bonds - which had risen solidly on Monday - as having fallen, its 8 ¼% notes due 2011 and 9% notes due 2010 each down 2 points on the day, to 59 bid, 61 offered and 61 bid, 63 offered, respectively. He saw the former Technical Olympic's 10 3/8% notes due 2012 unchanged at 28 bid, 30 offered.

He also saw Standard Pacific Corp.'s 9¼% notes due 2012 at 67 bid, down 1, while its other bonds were "not much changed." WCI Communities Inc.'s 9 1/8% notes due 2012 were unchanged at 82 bid, 84 offered.

Another trader saw Tousa's 9s opening at 61 bid, 62 offered, down from 64 bid, 65 offered on Monday, but bouncing back from its lows to end at 63.5 bid, 64 offered. The 81/4s dropped to 60 bid, 61 offered, down 2 points on the day, while the 7½% subordinated notes due 2011 were unchanged at 27.5 bid, 29 offered.

Yet another trader saw home builder names up a little "because the equity gained, because we saw the lower pending sale numbers for existing homes [released Tuesday by the National Association of Realtors; pending sales fell 6.5% in August to 85.5, a record low since NAR began tracking the stat in 2001], and it was not as bad as everyone was expecting."

He saw Standard Pacific's 6½% notes due 2010 up 1 point at 63 bid, 67 offered.

Auto sales don't move bonds

In the automotive sector, a trader saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 up ½ point at 89.5 bid, 90.5 offered, while another saw the bonds up ¼ point at 89.75 bid, 90.75 offered, apparently not too much moved by the news that GM's September consolidated vehicle sales were up 4.5% from year-earlier levels - although on a year-to-date basis, they were still off 6.6% from last year's pace.

And the market was equally blasé about the 21% year-on-year drop in Ford Motor Co. sales - a trader saw the latter's 7.45% notes due 2031 at 79 bid, 79.5 offered, "maybe a little lower."

A trader saw the widely followed CDX index of junk market performance up ¼ at 99 3/8-991/2. Among other gauges of market performance, the KDP High Yield Daily Index was up 0.08 to 79.90, while its yield tightened by 2 basis points to 7.87%.

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