American Real Estate, Polypore, Cognis price; Calpine leads utilities lower; funds see $200.6 million outflow

By Paul Deckelman and Paul A. Harris

New York, May 6 - American Real Estate Partners LP was heard by syndicate sources to have brought an upsized offering of eight-year notes to market Thursday, while Polypore Inc. priced a re-tooled two-part dual currency deal and German chemicals maker Cognis came in with a two-tranche euro-denominated offering.

In the secondary market, utility issues were lower pretty much across the board, sparked by a wider quarterly loss by Calpine Corp. Primedia Inc.'s existing debt was lower, apparently hurt by the news that the magazine publisher plans to bring a new bond offering to market soon.

And late in the session, market participants familiar with the weekly high-yield mutual fund-flow statistics compiled by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday $200.6 million more had left the funds than had come into them - the fourth consecutive week in which an outflow had been seen, including the previous week's $245.5 million bleed. The outflow over those four weeks has totaled $894.3 million, according to a Prospect News analysis of the AMG numbers.

The fund-flow numbers - considered by many market denizens to be a key barometer of overall junk market liquidity trends, even though the funds make up a relatively small percentage of the money coming into the wider junk market universe - have taken on a decidedly negative cast over the last several months, after having started the year with a continuation of the strong inflow surge seen in the latter part of last year.

After that first month of continued strong inflows, things turned around in early February with two straight weeks of $1 billion plus outflows, and ever since then the pattern has been choppy at best, with a week or two of inflows alternating with a week or two of outflows. Since the turnaround began with the first of the $1 billion outflows in the week ended Feb. 4, there has been a total cumulative net outflow of $3.782 billion in the 14 weeks since those large outflows began, according to the Prospect News analysis.

For the year to date outflows have now been seen in 10 weeks, against eight weeks of inflows, and in the latest week, the cumulative net outflow ballooned to $2.416 billion from $2.21 billion the previous week, according to the analysis of the AMG statistics, counting only those funds which report on a weekly basis and not including distributions.

Earlier in the day a senior sell-side official, in a brief email message to Prospect News, commented: "The high yield market is struggling, and the interest rate issue appears to be becoming front and center."

Nonetheless during a busy Thursday session in the primary market, six tranches priced totaling €930 million and $578 million.

But sources noted as the session progressed that the euro deals bore possible signs of difficulty, as all four of the euro tranches came downsized, with two pricing wide of price talk, another pricing at the wide end of talk, and one pricing at the tight end of price talk.

"All the European deals are getting done, but they are getting downsized and getting done wide of talk," commented one official after the session closed. "There seems to be some sort of backup in the market there.

"It could be rates. It could be too much supply.

"There seems to be a little bit more supply right now than the market can chew. It's been a while since we have seen €4-€5 billion come to the market in four or five days."

Cognis downsized euro parade

Dόsseldorf, Germany-based specialty chemical firm Cognis priced a downsized offering totaling €580 million on Thursday.

Cognis Deutschland GmbH & Co. KG, a wholly-owned direct subsidiary, priced €235 million of second lien 9.5-year floating-rate notes (B2/B) at par. The yield is five-month Euribor plus 475 basis points, at the wide end of the Euribor plus 450-475 basis points price talk.

The issue was decreased from €300 million.

Meanwhile, Cognis GmbH price a downsized €345 million of 10-year fixed-rate senior notes at par to yield 9½%, wide of the 8¾%-9% price talk.

The fixed-rate tranche was downsized from €445 million.

Goldman Sachs & Co. and JP Morgan ran the books.

Spanish leisure and gaming company Cirsa Finance Luxembourg SA priced a downsized €210 million issue of 10-year senior notes (Ba3/B+) at par to yield 8¾%, wide of the 8¼%-8½% price talk.

The Deutsche Bank Securities-led deal was decreased from €260 million.

And one of two eight-year senior notes tranches (Caa1/B-) priced by North Charleston, S.C. filter-maker Polypore Inc. came in euros and was also downsized: to €150 million from €165 million.

However the company upsized its dollar tranche to $225 million from $200 million.

The notes priced at par to yield 8¾%, at the tight end of the 8¾%-9% talk.

JP Morgan ran the books on the acquisition financing deal.

Thursday's sole dollar-only deal came from Mount Kisco, N.Y.-based American Real Estate Partners, LP, which priced an upsized $353 million of 8 1/8% eight-year senior notes (Ba2/BB) at 99.266 to yield 8¼%.

The Bear Stearns & Co.-led deal came wide of the 7¾%-8% price talk.

Rhodia restructures, widens talk

Further evidence that investor in Europe are shopping hard, and from well-stocked shelves, came from French specialty chemical maker Rhodia, which restructured its upsized €700 million equivalent six-year senior notes offering (B3/CCC+) and widened price talk.

The formerly non-call-four note was changed into a bullet. Meanwhile price talk was revised to 10¾%-11% from 10¼%-10½% on the dollar tranche, with the euro tranche still expected to price 25 basis points behind the dollar tranche.

Pricing is expected Friday morning Eastern Time, with Credit Suisse First Boston, BNP Paribas and Goldman Sachs & Co. running the books.

Earlier in the day a Boston-based buy-side source reported finding the Rhodia deal attractive

"I like it for a number of reasons," said the buy-sider, who spoke on background.

"Over the last couple of years they have experienced a number of both self-imposed missteps and difficulties related to the nature of the specialty chemical business. We've had one problem after another.

"Since last fall, with the introduction of Jean-Pierre Clamadieu as CEO, Rhodia has set forth to restructure the company.

"They have taken out costs. They have dealt with their banks. They have dealt with the private hedge funds.

"With this bond deal they are taking care of dealing with future amortization.

"So it's somewhat painful from the standpoint that the market has lost confidence in Rhodia, so that the company is going to pay up a bit for this new debt. But it's one of the last legs in turning the company around.

"They're going to have a pretty good first quarter. That's already been publicly disclosed by Clamadieu. The second quarter also looks like it too will be very strong. So I think that the market starts to recover some confidence with the completion of this bond deal. That's going to give strength to the underlying bonds and hopefully to the equity as well going forward.

"I like the story. I think this is going to be one of the big turnaround stories for 2004, going into 2005."

Asked to comment on the price (which was revised subsequent to the interview) the buy-sider said "The market wants to be paid because of what has transpired with this company over the past two years.

"Some of these buyers of the new bonds are existing holders of the old bonds. And we've all suffered a 20-point loss on the existing bonds. So I think it's human nature to want to be compensated for stepping back into what some would say is still a developing turnaround story."

The source also said that the deal is expected to come largely in dollars because the appetite for Rhodia's new paper among European investors is thought to be considerably less substantial than that anticipated from their U.S. counterparts.

Star Cruises, ONO also talked

Price talk of 9¾% area emerged Thursday on Star Cruises Ltd. subsidiary NCL Corp.'s $350 million of 10-year senior notes (B2/B+), expected to price on Friday via JP Morgan.

And price talk was also heard on ONO Finance's upsized €350 million 10-year senior notes offerings (Caa2/CCC-).

The deal, which was upsized from €300 million, is expected to price on Friday.

The €250 million fixed-rate notes are talked at 10¼%-10½%. They will come with five years of call protection and a 35% equity clawback, decreased from 40%.

The €100 million of floating-rate notes are talked at three-month Euribor plus 825-850 basis points. The floaters come with two years of call protection.

BNP Paribas and Morgan Stanley have the physical books on the debt refinancing deal.

Forward calendar takes on more freight

Three roadshow starts were heard during Thursday's session.

The roadshow starts Friday for a two-part $500 million offering from Collins & Aikman Products Co., with pricing expected on Friday May 14.

The Troy, Mich.-based automotive trim manufacturer plans to sell $400 million of 10-year non-call-five senior subordinated notes (existing ratings B3/B-).

The company also plans to price a $100 million add-on to its 10¾% senior notes due Dec. 31, 2011 (existing ratings B2/B-).

Deutsche Bank Securities, Credit Suisse First Boston and JP Morgan have the books on the debt refinancing deal.

A roadshow is expected to run through the early part of the May 10 week for an offering from ProSiebenSat.1 Media AG of €150 million of seven-year senior notes, expected to price on Wednesday or Thursday via JP Morgan and Deutsche Bank Securities.

The German television broadcaster and media services provider will use the proceeds to repay debt.

And the roadshow started Thursday for Terphane Holding Corp.'s planned $100 million of five-year senior secured notes (B-). Marketing is expected to close on Friday May 21.

Jefferies & Co. is the bookrunner for the dividend payment and debt refinancing deal from the Bloomfield, N.Y. and Sao Paulo, Brazil-based producer of polyester films used in packaging and industrial applications.

American Real Estate edges up

When the new American Real Estate Partners 8 1/8% senior notes due 2012 were freed for secondary dealings, they were heard to have moved up slightly to straddle par at 99.75 bid, 100.25 offered, up from their issue price earlier in the session of 99.266.

Polypore's dollar-denominated 8¾% senior subordinated notes due 2012, which had priced at par earlier, hung in little changed at the end of the session, at par bid, 100.5 offered.

A trader saw Case New Holland Inc.'s 6% senior notes due 2014, which had priced at 97.459 on Tuesday, as having "gone south" from there to early levels at 95.5 bid. 96.25 offered and "then the market sold off," taking its cue from stocks, which slid badly on renewed interest rate-hike fears in the wake of a sharper-than-expected drop in the weekly statistics on new jobless claims. The economic data has awakened fears that the Federal Reserve, to head off inflation, will likely raise interest rates sooner rather than later.

"Two months ago, people were crying because the economic data looked weak and it looked like there wouldn't be much of a recovery," a trader noted. "Now the data is strong - and everyone is afraid of interest rates. Be careful of what you wish for - because you may get it."

An "ugly day"

Thursday was "an ugly day," another trader said, noting that a widely followed high-yield index was down 1 1/8 points on the session.

"I think a combination of things is disheartening the market," he said. For one thing, "they keep forcing these [new] deals even when there's no demand for them.

"They consequently go out and hit bids in a market that's not that perky anyway. All of a sudden you've got things down two or three points in some cases."

Calpine drops on earnings

There were a number of such cases on Thursday, many of them utility names. Calpine, for instance, fell notably after the San Jose, Calif.-based power generating company reported less-than-stellar results.

A trader saw Calpine's bonds down two points across the board, quoting its 8¼% notes due 2005 as having fallen to 88 bid, 89 offered from 89.5 bid, 90.5 offered on Wednesday. He saw Calpine's 8½% notes due 2011 having slid as low as 64 bid, 65 offered, down four points from Wednesday''s close, before coming off the lows to end at 66 bid, 67 offered.

At another desk, Calpine's 8¾% notes due 2007 dropped to 71.5 bid, a loss of about a point. Its 9 7/8% notes due 2011 ended at 87.75 bid, off nearly three points on the session.

For the quarter, Calpine reported a per-share loss of 17 cents, or $71.2 million, versus a 14-cent loss, or $52 million, in the same period last year. Gross profit decreased by $44.6 million, or 27%, to $120.5 million, compared to the first quarter last year, as a result of lower spark spreads realized during the quarter and additional costs associated with new power plants coming on line, the company said in a news release.

Williams down despite earnings

Other utility operators were also seen lower, even if their numbers weren't all that bad. For instance, The Williams Cos. Inc. returned to profitability in the latest quarter, said that its strategy of overhauling its operations to focus on its core competencies had made "great progress" and was "in the backstretch" - and it reiterating its plans to have reduced its overall debt load by $3 billion total this year, and its intention of returning to an investment-grade credit rating sometime in 2006 (see related story elsewhere in this issue).

Despite all of that positive news coming out of the Tulsa, Okla-based natural gas company, its 8 1/8% notes due 2012 dipped to 106 bid from 107.5 previously, and its 8 7/8% notes due 2012 lost a point to end at 104. Williams' 7 1/8% notes due 2011 dropped to 102.75 bid, from 104 on Wednesday.

Williams reported that for the first quarter ended March 31, it showed net income of $9.9 million (two cents per diluted share), a marked turnaround from its year-ago net loss of $814.5 million ($1.59 per share).

The company reported income from continuing operations of $5.4 million (one cent per diluted share) in the latest quarter, versus a restated operating loss of $39.3 million (nine cents per share) in the year-ago quarter.

Dynegy also falls

Another utility name seen lower in sympathy was Dynegy Inc., whose 8¾% notes due 2012 ended down two points at 90 bid and its 6 7/8% notes due 2011 were half a point lower at 83.

Primedia off 3

Outside of the utility sphere, one notable loser was Primedia, whose 8% notes due 2013 ended down three points on the session at 90 bid - even as the company announced plans to offer $275 million of floating-rate notes in a Rule 144A transaction.

One of the few upsiders seen in a generally down market, a trader said, was Level 3 Communications Inc., which "firmed up after some selling pressure last week." The Broomfield, Colo.-based telecommunications operator's 9 1/8% notes due 2008 ended at 72.5 bid, 73.5 offered, up a point on the day.

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