New deal parade rolls on, fueled by more liquidity; Levi Strauss lower

By Paul Deckelman and Paul A. Harris

New York, June 13 - Borrowers continued to tap the high-yield new-issue market Friday in the wake of the latest report of a billion-dollar-plus liquidity inflow; terms emerged on five pricings, while several other upcoming issues were heard getting ready to hit the road to market their bonds.

As has been the case many times during the recent new-issue surge, secondary market activity was generally muted; one of the few features was blue jeans maker Levi Strauss & Co., whose bonds were heard to have retreated several points, despite a lack of fresh news about the company.

In the primary, terms circulated on three straight junk bond deals, one emerging markets corporate and one junk-rated issue that priced off the high-grade desk.

Also on Friday one new deal climbed aboard the forward calendar and details emerged on several offerings recently heard headed into the market.

Meanwhile on Friday Prospect News made contact with Diane Keefe, portfolio manager of the Pax World High Yield Fund, which submits the credits it invests in to a series of social issues screens.

Asked to comment on the $1.3 billion inflow that was reported for the high yield mutual funds for the week ending June 11, by AMG Data Services - the second consecutive $1 billion-plus inflow, and the 14th inflow over the past 16 weeks - Keefe rhetorically asked what the alternative is.

"I think the 10-year Treasury is at a level that has not occurred since June 1958," the Pax World High Yield Fund portfolio manager said. "Think of all the money in fixed-income investments, in an environment where people are a little more skeptical of the stock markets than they used to be, repricing down to current Treasury levels.

"Given where the 10-year Treasury is, and given that your investment strategy hasn't changed - you're reinvesting for 10 years - what are you going to do?" Keefe asked.

"I do think, though, that the bell should be rung when high yield hits the average spread between 1986-2002, which I think was 520 basis points," she added.

"We're getting really close.

"The other thing that made me notice that junk wasn't cheap anymore was the reissuance of triple-C credits - even credits that just have triple-C on one side.

"That's a statement."

As she fielded the mid-morning call from Prospect News Keefe had just finished playing one of the day's deals: Cooperative Computing, Inc.'s new 10½% eight-year senior notes.

The deal was downsized to $157 million from $175 million and priced at 98.692 to yield 10¾%, with JP Morgan running the books.

"I just got my allocation," Keefe said. "It's information management systems company for retail and for automotive, so it's kind of a mixed bag of industries, which I actually like. I'd rather have something that's providing services to two industries rather than something that is directly exposed to one or the other, especially in this environment, because it's not clear that either industry is doing so well. And the leverage was pretty low."

In addition to Cooperative Computing, the market heard terms on an upsized offering from Regina, Saskatchewan steel producer Ipsco, Inc., which sold $200 million of 10-year senior notes (Ba3/BB+) at par to yield 8¾%. The deal, via joint bookrunners UBS Warburg and RBC Capital Markets, came inside the 8 7/8%-9 1/8% price talk and was increased from $150 million.

Terms were also heard Friday on an upsized issue from LodgeNet Entertainment Corp. of $200 million 10-year senior subordinated notes (B3/B-), which priced at par to yield 9½%.

The Bear Stearns & Co.-led deal came at the tight end of the 9½%-9¾% talk and was increased from $185 million.

From the universe of emerging markets corporates, terms were heard on an offering from Compania de Saneamento Basico do Estado de Sao Paulo (Sabesp), a state owned Brazilian water company. It priced an upsized $225 million of five-year senior notes (B+) at par to yield 12%, via UBS Warburg. the deal was increased from $200 million.

Meanwhile, although it was junk-rated, Abitibi-Consolidated of Canada Co.'s two-tranche offering (Ba1/BB+) was reportedly transacted off the investment-grade desk. The Montreal-headquartered forest products company increased its del to $500 million from $400 million, selling $150 million 5¼% five-year notes at 99.921 to yield 5.268% and $350 million of 6% 10-year notes at 99.259 to yield 6.10%.

Banc of America Securities and Citigroup were joint bookrunners.

Market sources remarked upon the low five-handle yield of Abitibi's five year notes (5.268%) in light of the previous session's transaction from McLean, Va. homebuilder NVR, Inc., which sold $200 million of seven-year senior notes (Ba1) at par to yield 5%, via Credit Suisse First Boston.

In terms of additions to the new issuance calendar, Friday's only total revelation came from Aviall, Inc. The Dallas-based aftermarket supplier to the aviation and marine industries will start the roadshow Tuesday for its $200 million of new eight-year senior notes. The Citigroup-led deal is expected to price on June 24.

However, details turned up Friday on several offerings that have been hovering in the vicinity of the market in recent days.

Nextel Partners, Inc. will launch $425 million of senior notes sometime during the week of June 16 via joint bookrunners Credit Suisse First Boston and Morgan Stanley. The maturity remains to be determined.

Marketing is expected to be handled by means of a conference call, according to an informed source.

Although she did not specify whether she would put in for the new Nextel Partners bonds, Pax World's Keefe remarked that the deal seems to make sense.

"I heard a few days ago that it was going to come," she said. "And there is all of that currently callable paper (Nextel is using the proceeds to finance the tender for its 14% notes of 2009).

"They're probably going to refi that, which will really help their capital structure to have all of that high-coupon debt turn into pretty attractive long-term financing rates," Keefe added, noting that the deal could probably get done with an investor conference call.

Details also surfaced Friday on $345 million of senior secured notes from Huntsman Advanced Materials, with maturity(s) also remaining to be determined. The deal, coming via Deutsche Bank Securities and UBS Warburg, is expected to price on June 20, with proceeds going to repay debt and fund the company's acquisition of Vantico SA.

Timing and other details emerged Friday on American Color Graphics' $280 million of seven-year senior second secured notes (B3/B). Morgan Stanley and Banc of America Securities are joint bookrunners, and Credit Suisse First Boston is co-manager.

The roadshow began Friday for the Brentwood, Tenn. firm's new notes and pricing is expected on June 19.

Details were also heard on Wackenhut Corrections Corp.'s $150 million of 10-year senior notes, which is expected to launch late in the week of June 16, with pricing is expected to take place during the week of June 23. BNP Paribas and Lehman Brothers are joint bookrunners.

When the new LodgeNet Entertainment 9½% senior subordinated notes due 2013 were freed for secondary dealings, a trader saw them quoted at 103 bid, 103.5 offered, but said that he didn't know "if the issue even traded - no activity" given the general paucity of real activity.

At another desk, Cooperative Computing's new 10½% senior notes due 2011 were quoted as having moved as high as 102.375 bid from their 98.692 issue price before midday, although no quotes on the new bonds were heard later in the session.

Overall, a trader said, things were "so slow, that people just scooted out early" - a not-unexpected phenomenon on a late-spring Friday afternoon. "I saw no quotes all afternoon," he continued. "It wasn't a holiday or anything, but it certainly seemed like one."

Discussion topic Number One in the trading pits - besides whether New Jersey's Nets could continue to surprisingly battle the favored San Antonio Spurs to a standstill in Friday night's NBA Championship Game 5 - was the second straight weekly high-yield mutual fund inflow of over $1 billion and what it would mean for the market.

"It looks like we've got at least another few days of the market going up," a trader said. "On a day like this when stocks get clobbered [the Dow Jones Industrial Average, for instance, fell 79.13 points to 9,117.12], high yield was relatively stable, with a couple of issues actually still creeping up. So bravo, technicals."

But how long will it last? The trader opined that "when the music stops, everyone is going to be scrambling for a chair, if the supply keeps up like this. It's a little disconcerting.

"You see the [economic] numbers - and the numbers stink. The only thing keeping this market going is the AMG number - although I hope I'm wrong."

"Here we go again," another trader said, indicating that the market was hearkening back to the kind of situation seen throughout April and especially early May, when week after week of large inflows were fueling an almost giddy primary market and were pushing secondary prices up to sometimes bizarre levels.

"The market is getting sloppy - but there's just so much [money] chasing so few bonds. That's what's going on - and some of the stuff is up for the wrong reason."

He noted that HealthSouth Corp. bonds, for instance, continue to hold high levels despite the company's serious problems. Its notes have traded up into the in the 70s from prior lows in the 50s and subordinated notes now in the 50s, up from the 30s just a few weeks ago, with "a lot of technicals eeping the bonds up.

Looking beyond that particular issue, he declared that "you've had tremendous inflows but the fundamentals of some of these companies are weak."

But he said that accounts are in many cases hanging onto bonds at unreasonably high price levels not justified by their fundamentals for the simple reason that "if they sell, what are they gonna do with all of that cash? Put it in money-market instruments" that are maybe yielding 2% or 3% "if even that?

"In that kind of an environment, you can't stand in front of a runaway train -unless you've got enough capital to fight the market trend, you've got to go with the flow.

"Our market is right now ignoring fundamentals, in exchange for the technicals in the marketplace. That's what's going on. It's almost a panic on the buyside."

Looking at the new deal parade, he warned that "there's some sloppy stuff that's coming to market now. " And just like what happened in 1997-98, when virtually anyone could get a deal done and due diligence was lax - and many of the same companies blew up and went broke three or four years later - "I don't know how many of these companies [doing deals now] are gonna make it."

A trader saw Levi Strauss paper "softening up. There's maybe news on them but we can't find it. I don't know what's going on with them."

He quoted Levi's 7% notes as having gone to 86 bid from 88 previously, and its 11 5/8% notes due 2008 dipping to 86 from levels earlier in the week at 90 bid, 92 offered. "Bids were definitely fading on Levi."

At another desk, Levi's 12¼% notes due 2012 were seen at 84, down nearly three points on the session.

"It almost seems as if someone always has an idea of what's going on prior to everyone else and they set the market up.," he said. "It happened today so there should be something going on Monday. It happens like that every time - it drops, then pops 10 points or so."

On the upside, a trader said Charter Communications Holdings LLC "felt better today," with the St. Louis-based cable operator's benchmark 8½% notes due 2011 closing out Thursday's dealings at 71.75 bid, 72.75 offered, but going out Friday at 73.25 bid, 74 offered, while its 8 5/8% notes due 2009 also moved up to those levels.

He cited market speculation that Charter and its banks had cleared the way - finally - for principal owner Paul Allen to invest $300 million in the company to help it meet its debt covenants.

The trader saw a fair amount of activity in airline paper, with Continental Airlines' 8% notes due 2005 continuing to hang in at 90 bid, 91 offered, while "some things were creeping a little better," such as Northwest Airlines' 9 7/8% notes due 2007 - "one of the big coupons" - up half a point at 84 bid, 85 offered. He called the sector "pretty much flat to up half a point."

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