Junk up along broad front with stocks, builders better; primary back to life with Vector deal

By Paul Deckelman and Paul A. Harris

New York, Aug. 8- High yield bonds were up 1 point or more pretty much across the board on Wednesday, as market players were encouraged by the strong rally in stocks and the relatively benign outcome of Tuesday's meeting of the Federal Reserve Board's policy-setting committee. Also helping was some bargain-hunting by opportunistic investors looking to take advantage of the market's recent setbacks.

With everything up as much as 1 point, 2 points or even 3 points - or more, in some cases - traders said nothing really stood out, although they noted the strength returning even to the recently battered housing sector, including hard-hit Standard Pacific Corp., Beazer Homes USA Inc. and WCI Communities Inc.

Revlon Consumer Products Inc.'s bonds were up several points as the New York-based cosmetics manufacturer reported a narrower second-quarter loss versus a year ago.

The primary market meantime was seen coming out of hibernation as one deal priced - a slightly upsized offering for Vector Group Ltd. Meantime, CEVA Group plc - which was heard last week to have postponed its downsized and restructured $400 million second-lien deal - was out with new price talk on the issue, a sign of its likely return to the market soon.

Sources said that the credit markets looked better pretty much across the board on Wednesday, with various players marking cash bonds, term loans and the LCDX better bid.

"There has been some speculation that we're seeing some short covering," said one sell-sider focused on both the high yield and leveraged loan markets.

There was a concurrence among all the sources who spoke to Prospect News during the mid-week session that the junk market is being helped by recently rallying stock prices.

Primary market awakens

Also on Wednesday, trailing a long drought, the primary market produced news, as Vector Group priced an upsized $165 million issue of eight-year senior secured notes on top of price talk in a drive-by deal, and CEVA Group returned with the downsized, restructured $400 million offering of seven-year senior second-lien notes that it postponed on Aug. 2.

Amid cheers

As news circulated on Wednesday morning that Vector Group was in the market with a $150 million drive-by offering of senior secured notes, sell-side sources told Prospect News that they were pulling for the deal.

When terms emerged on the a.m.-to-p.m. drive-by, the deal had been upsized to $165 million. The non-rated eight-year senior secured notes priced at par to yield 11%, on top of the price talk.

Miami-based Vector Group, the holding company that indirectly owns Liggett Group LLC, Vector Tobacco Inc. and New Valley LLC, will use the proceeds for general corporate purposes, including debt refinancing, a dividend payment and future acquisitions.

Jefferies & Co. ran the books.

An informed source, pressed for deal color, simply stated that Vector Group came upsized, as a drive-by, in a market that has seen deals being pulled left and right.

One source, not in the Vector Group deal, pointed out that the Vector Group deal was the first completed new issue from a U.S. issuer since July 26, when Parallel Petroleum Corp. priced a $150 million issue of seven-year senior notes (Caa1/B-) at par to yield 10¼%.

That deal was also led by Jefferies, along with joint bookrunner Merrill Lynch.

After the Vector terms had circulated, sell-siders parsed the deal and did a little Monday morning quarterbacking.

Some wondered, for example, how many bonds were actually for sale when the deal was announced on Wednesday morning, insinuating that the lion's share of the deal had already been spoken for.

However these junk-watchers concurred that the fact that price talk was circulated, and the fact that the deal was upsized, amounted to substantial evidence that bonds were certainly marketed and sold on Wednesday.

"Does this mean that the primary market is open?" one high yield syndicate official, not in the Vector Group deal, asked rhetorically Wednesday evening.

"Probably not.

"But there can be no mistake that the fact that the deal got done is a positive sign."

CEVA returns

Elsewhere in the primary market, CEVA Group, plc has returned with the downsized, restructured $400 million offering of seven-year senior second-lien notes that it postponed on Aug. 2.

The notes are expected to be priced on Thursday with a 10% coupon at a discount to yield 11%.

At the time the deal was postponed, the notes were talked at 10% area.

Credit Suisse, Morgan Stanley, Bear Stearns, UBS Investment Bank, JP Morgan and Goldman Sachs & Co. are joint bookrunners for the notes, which are being placed via Rule 144A and Regulation S for life.

In late July the company slashed the deal by $1 billion equivalent, replacing the bonds with bridge financing.

The company, which is in the debt markets for financing to help fund its acquisition of logistics and supply chain management company EGL Inc., meanwhile restructured the remaining $400 million tranche of by adding second-lien security to the notes.

CEVA Group is an Apollo Management portfolio company.

Gains without news

Back in the secondary market, traders were seeing virtually all issues pushing upward - even when there was no particular news driving them.

"News? What news? There is no news," said one trader of the phenomenon

"It was just that the whole market was up," another said, "with very little news on anything."

Bonds were seen taking their cue from stocks, which were up solidly on the day - the bellwether Dow Jones Industrial Average gained 53.56 (1.1%) to end at 13,657.86 while the Nasdaq Composite Index scored its biggest advance since October, up 51.38 (2%), to 2612.98. There was also sentiment among investors that with the Federal Reserve having pronounced on Tuesday that the recent subprime mortgage loan problems will likely not harm the growth prospects for the economy, the corner has been turned on the subprime problem, which had been nagging stocks, junk bonds and other relatively risky asset classes for some months.

Housing rebound continues

The rebound in the hard-hit homebuilders sector that had been seen on Tuesday continued unabated on Wednesday - and it was joined by Standard Pacific, whose bonds had taken a tough drubbing over the past few sessions on unconfirmed rumors in the market that the Irvine, Calif.-based builder might have trouble servicing its debt.

A trader saw Standard Pacific's 6½% notes due 2008 up 2 points on the session at 92 bid, 94 offered.

The trader also saw fellow homebuilder Hovnanian Enterprises Inc. - which had gotten rocked earlier in the week, along with Standard Pacific, despite a lack of news about the Red Bank, N.J.-based builder - up solidly on Wednesday, its 7¾% notes due 2013 two points better on the day at 73.5 bid, 75.5 offered.

Another trader saw improvements in Beazer Homes' bonds.

The Atlanta-based builder, currently under scrutiny by the Justice Department and the Securities and Exchange Commission, was roiled last week by market rumors - hotly denied by the company - that it might have to file for bankruptcy. With those rumors apparently having been put to rest, Beazer's 8 5/8% notes due 2011 and 8 3/8% notes due 2012 were seen up 2 points each, at 84.5 bid, 86.5 offered and 82.5 bid, 84.5 offered, respectively. Its 6½% notes due 2013 were a point better at 77.5 bid, 79.5 offered.

He also saw the bonds of problem-plagued Technical Olympic USA Inc. having improved, with the Hollywood, Fla.-based builder - now in the process of absorbing and integrating its troubled Transeastern Homes joint venture - up about 2 points on the session, its 9% senior notes due 2010 rising to 77 bid, 79 offered, while its subordinated 10 3/8% notes due 2012 firmed to 51 bid 53 offered, and its 7½% notes due 2011 advanced to 45 bid, 47 offered.

Also up, the trader said, were the bonds of Bonita Springs, Fla.-based WCI Communities, which just this week had to ask its lenders for easier credit terms in its loan covenants - although the company said that it is not in default of any of them and expects to have ample liquidity.

The company, in the middle of an effort to sell itself to a possible acquirer, recently acknowledged that it had not received any satisfactory offers.

But on Wednesday, the trader said, there was ample enough demand for its bonds, as its 9 1/8% notes were seen up 5 points to 79 bid, 81 offered, while its 6 5/8% notes were 3 point gainers at 71 bid, 73 offered.

Revlon better on not-so-bad numbers

Outside of the housing sphere, Revlon's bonds were seen better after the New York-based cosmetics company announced a narrower second-quarter loss.

A market source pegged the company's 8 5/8% notes due 2008 up 3½ points to the 97.5 level. A trader at another desk saw those bonds at 98 bid, 99 offered, up 3 points on the day.

Revlon lost $11.3 million (2 cents per share) for the three months ended June 30 - well down from its year-earlier red ink of $87.1 million (20 cents a share). Wall Street was looking for a 7 cent-per-share loss.

Revenues were also a pleasant surprise, coming in at $349.2 million, up 9% from $321.1 million last year, and up as well from the $325.93 million that analysts, on average, were looking for.

Six Flags, Levi better

Other big gainers included Six Flags Inc., whose 8 7/8% notes due 2010 were quoted up 4 points to 91.5; Realogy Corp., whose 12 3/8% notes due 2015 were seen up 4 points, at just under 80 bid; and Levi Strauss & Co., whose 8 7/8% notes due 2016 gained 4 points to 99.5 bid, 100.5 offered.

Blockbuster gains ahead of Movielink news

Blockbuster Inc.'s 9% notes due 2012 were seen up about 1¾ points at 85.75, on fairly busy trading.

Long after market activity had shut down, the Dallas-based top video rental chain operator announced that it is buying the Movielink film download service, for undisclosed terms. The deal is expected to enhance Blockbuster's ability to compete with on-line-based rival Netflix Inc., as movie-loving customers increasingly look to rent movies from the convenience of their homes, without having to venture out to traditional brick-and-mortar stores of companies such as Blockbuster and its smaller and more financially challenged rival, Movie Gallery Inc. - whose 11% notes due 2012 were seen up as much as 3 points Wednesday to 29 bid, 31 offered.

Overall, indexes that track the junk bond market were all better on the day. A trader saw the widely followed CDX index of junk performance jump 1 3/16 point on the day to 95 1/8, 95 5/8. The Bank of America Securities High Yield Broad Market Index was up 0.53% on the session and is now up an identical amount on the year - after having surrendered cumulative gains of over 4% over the last few weeks - while the KDP High Yield Daily Index rose to 77.90, up 0.14 on the day.

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