Allied Waste's upsized $675 million leads $1.3 billion day of new deals; VWR firms in trading

By Paul A. Harris

St. Louis, April 7 - Wednesday's primary market session saw $1.345 billion of issuance price in five tranches from three separate issuers, led by Allied Waste North America Inc., which completed an upsized $675 million offering.

Meanwhile traders told Prospect News that the secondary market was extremely quiet on Wednesday, although the new bonds sold during the session by West Chester, Pa. laboratory supply company VWR International firmed smartly when released for trading, and strength continued to be seen in the existing bonds of steel manufacturers, and in the existing paper of Levi Strauss.

Allied Waste North America price an upsized two-tranche issue of high-yield notes during the session.

The Scottsdale, Ariz. solid waste management company priced an upsized $275 million of seven-year senior secured notes (Ba3/BB-) at par to yield 6 3/8%. Price talk was for a yield in the 6½% area.

UBS Investment Bank, Citigroup and Credit Suisse First Boston ran the books.

The company also sold $400 million of 10-year senior unsecured notes (B2/B+) at par to yield 7 3/8%. Price talk was for a 7 3/8% area yield.

UBS Investment Bank, JP Morgan and Deutsche Bank Securities ran the books on the unsecured tranche.

One market source told Prospect News that the seven-year notes from Allied Waste were well oversubscribed, while the sale of the 10-year notes "went alright but it was no barn-burner."

Shortly after the notes were released for trading, a trader saw Allied Waste's new 6 3/8% notes at 100.625 bid, 101 offered, while the 7 3/8% paper was at 100.375 bid, 101.125 offered.

VWR sells $520 million, firms in trading

VWR International sold $520 million of high-yield bonds in two tranches on Wednesday.

The company sold $200 million of eight-year senior notes (B2/B) at par to yield 6 7/8%. Price talk was for a yield in the 7% area.

VWR also sold $320 million of 10-year senior subordinated notes (B3/B-) at par to yield 8%. Price talk on the subordinated notes was for a yield in the 8% area.

Deutsche Bank Securities, Citigroup and Banc of America Securities ran the books on the acquisition financing deal.

One source reported that there was $3 billion in orders for the VWR 8% notes.

A trader saw VWR's 8% notes at 104.375 bid, 104.75 offered when they were released for trading, while the 6 7/8s were seen at 103 bid, 103.5 offered.

Another trader saw the VWR 8% paper trading at 103 bid, 104.5 offered.

Also on Wednesday, MemberWorks Inc. sold $150 million of 9¼% 10-year senior notes (B2/B) at 98.418 to yield 9½%, wide of the 9%-9¼% price talk.

Lehman Brothers and UBS Investment Bank ran the books on the acquisition financing from the Stamford, Conn.-based provider of consumer service and discount programs.

XM Satellite starts countdown

XM Satellite Radio Inc. plans to price $125 million of five-year senior secured floating-rate notes (existing ratings Caa1/CCC+) late in the week of April 12, following limited marketing.

Bear Stearns & Co. will run the books on the debt refinancing deal from the Washington, D.C.-based satellite radio company.

Meanwhile timing was heard on a Europe-only roadshow which is set to run April 13-15 for AGCO Corp.'s €200 million of 10-year senior subordinated notes (B1/BB-).

The Morgan Stanley and Bear Stearns & Co.-led refinancing deal is expected to price on Thursday April 15.

And Old Greenwich, Conn.-based Premcor Refining Group Inc. announced that it intends to sell $400 million of senior notes in an acquisition financing to be led by Credit Suisse First Boston, Morgan Stanley and Citigroup.

No structural details were disclosed in the press release and the company did not return a Wednesday telephone call from Prospect News.

Talk on Superior, International Steel

The price talk is for a yield in the 8¾% area on Supreior Essex Communications/Essex Group Inc.'s upcoming offering of $275 million of eight-year senior notes (B3/B). The deal, via underwriters JP Morgan, Lehman Brothers, UBS Investment Bank and Wachovia Securities, is expected to price on Thursday.

And price talk is 6½%-6¾% on International Steel Group, Inc.'s planned $600 million of 10-year senior notes (Ba3/BB), expected to price Thursday morning via Goldman Sachs & Co., UBS Investment Bank, Citigroup and JP Morgan.

Steel names show more strength

In the secondary, existing paper of steel manufacturers continues to show strength, with the likely reason being that increased world demand is giving steel manufacturers some much needed pricing power, traders told Prospect News Wednesday afternoon - although they noted that activity overall was quiet.

One trader spotted Oregon Steel's 10% notes at 101.5 bid, 102.25 offered, "which is maybe a quarter better than Tuesday."

The same source had AK Steel's 7 7/8% notes due 2009 at 93.5 bid, 94.5 offered, while the company's 7¾% notes due 2012 were at 91 bid, 92 offered.

Another trader saw the AK Steel 7 7/8% notes at 91.25 bid, 92.25 offered and the 7¾% notes at 101.5 bid, 103 offered.

That same trader reported Ispat's notes at 104.25 bid, 104.75 offered and Steel Dynamics' notes at 111 bid, 113 offered.

Floating-rate second lien deals may betray hedge funds

During a conversation Wednesday with an investor who keeps a close watch on both the high yield and leveraged loan markets, Prospect News asked if the current appetite for floating-rate deals in the high yield is a reflection of the high demand/short supply dynamics that are now said to be at play in the leveraged loan market - and whether both floating-rate notes and leveraged loans could be seen as refuges from widely anticipated increases in interest rates.

"Not necessarily," the investor responsed.

"A lot of the floating-rate deals are second lien deals," the buy-sider explained. "That seems to be a big trend in the past two months - second lien deals with fairly high coupons.

"It makes me wonder if hedge funds aren't really the driving force there because they're much more willing to look at a second lien deal.

"Banks and a lot of institutional loan funds don't like second lien deals because you are not getting a lot of what bank loans usually give you.

"And hedge funds have Libor-based funding and to a certain extent have been participants in the bank loan market. To them a little extra risk in return for a nice higher coupon isn't really a big deal. So they're willing to snap that up because they are worried that their Libor funding costs might go up. And why not have something matched at, say, Libor plus 575 against it?

"I think that's what is driving this trend in floating-rate issuance, rather than just plain old inflation.

"I'm not sure the generic high yield fund is looking to buy the relatively few Libor-based deals and count on them for help against inflation.

"Getting a yield pad, in the high-yield market, against inflation is more important. Remember the correlation between high yield and interest rates is only about 0.5. So if you get a yielder with a good story you're not so worried about interest rates going up; interest rates are probably going up because the economy is doing well. And that's good for high yield issuers in general.

"The average high yield manager can deal with the prospect of rising rates reasonably well. I've got to believe that hedge funds are driving the second lien floating rate notes."

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