Jefferson Smurfit sells $700 million, jumps up in secondary; UAL lower and sloppy

By Paul A. Harris

St. Louis, Mo., Sept. 10 - On the eve of the one-year commemoration of the Sept. 11 terrorist attacks on New York City and Washington D.C., the vigor in the high-yield market seemed to take some investment bankers and traders by surprise.

Investors clamored to clutch the new Jefferson Smurfit Corp. (U.S.) paper which priced at par and immediately traded up in the secondary.

And secondary market sources noted that the low flying bonds of UAL Corp. lost a bit more altitude, Tuesday, in a session that was marked by investors "jockeying" prior to Sept. 11's abbreviated session.

Chicago-based cardboard container company Jefferson Smurfit priced $700 million of 10-year senior notes (B2/B) at par Tuesday to yield 8¼% - in the middle of the 8 1/8%-8 3/8% price talk, according to syndicate sources. Morgan Stanley was bookrunner.

"This deal drew enormous interest from investors," proclaimed one syndicate source as the terms of the Smurfit deal emerged late in Tuesday's session.

One phone call later a trader colored in that investor interest, noting that the packager's new paper was trading at 100.25 bid, 100.75 offer. And not long after another trader saw Jefferson Smurfit's new notes trading at 101.25 bid, 101.50 offer.

"They've already appreciated," this source told Prospect News. "A $700 million deal, an 8¼% coupon. That's very impressive."

This source said that the Smurfit deal undoubtedly benefited from the liquidity that its $700 million size represents.

"It's a good name," the source commented. "It's been around a long time. They seem to have everything under control. The container sector's okay. So is the paper sector, etc.

"People have got some money to put to work, obviously, for bonds with an 8¼% coupon to jump up like that. That's pretty unique."

As Smurfit's new paper was seen to be taking off in the secondary on Tuesday, traders noted that the bonds of UAL Corp. seemed to be doing just the opposite.

In response to reports that UAL has hired bankruptcy consultant Rothschild Inc., its paper was heard to be trading lower.

"UAL is pretty sloppy," one trader commented Tuesday. "I don't really know any news, but try to get a trade done and you end up in the midst of a pretty wide, sloppy market. At one point today we had a 10-point market on one bond.

"I would attribute it to lack of activity," the secondary market source added. "There doesn't seem to be momentum in either direction. People are kind of staking out their camps."

The source remarked that UAL's 9¾%s of 2021 were at 13 bid, 15 offer and the 10.67s of 2004 traded as low as 16 Tuesday, and later were seen up to 18 bid, 20 offer.

"I think there is a common belief that they're going to file," the source said of UAL Corp.

UAL chief financial officer Jack Brace told USA Today on Monday that it had "relatively recently" hired Rothschild as an advisor.

"We're working with Rothschild on efforts to stay out (of bankruptcy) as well as what we might do in bankruptcy," Brace told the newspaper. "We're working with them on all our alternatives."

Elsewhere in Tuesday's secondary market activity the paper of Qwest Communications, which withdrew applications to provide long-distance service in nine states after questions arose about its accounting practices, was seen "unchanged," by one source, while another had the Denver telephone company's paper "a little bit firmer."

One source provided levels on issues of the operating company's paper: the 8 7/8% notes of 2012 at 86 bid, 87 offer, the 6 5/8s of 2005 also at 86 bid, 87 offer. For the holding company paper, he put the 5 7/8s of 2004 at 71 bid, 72 offer and the 71/4s of 2011 at 51.5 bid, 52.5 offer.

Elsewhere among the telecom names, wireless telephone company Nextel Partners Inc., which said on Monday that it would affirm its third-quarter and full-year forecast at an investor conference, got an initial boost.

"A lot of the trades this morning went north of 80," one trader said, adding that Nextel's 9 3/8%s were later seen down about half a point, and looked to finish at 79 bid, 79.50 offer.

One secondary market source also noted movement in the bonds of independent power producer Calpine Corp., which announced Tuesday that it had reached agreements on deals valued at over $260 million of the total $650 million of potential asset sales it said it would sell to pay down debt and increase liquidity.

The prospect of better liquidity at the company, however, seemed not to make an immediate impact on Calpine's paper.

"It's a little sloppier today," one trader noted, adding that the 81/2s of 2011 closed at 48.5 bid, 49.5 offer, down half a point from Monday's close of 49 bid, 50 offer.

Finally a secondary market source noted firming in the paper of Goodyear Tire & Rubber Co. The Akron, Ohio tire-maker posted its best quarterly results in two years on Tuesday. With profits three times higher than a year ago, the company's earnings were the best since the second quarter of 2000.

This source also reported firming in the paper of Xerox Corp., which announced to its shareholders that it had sold off more than $2 billion in assets, cut more than 13,000 jobs and shut down unprofitable businesses.

Meanwhile in the primary market price talk of 11½%-11¾% emerged Tuesday on Swift & Co.'s upcoming sale of $250 million seven-year senior notes (expected: B1/B+) via Salomon Smith Barney and JP Morgan.

The deal, to help finance the acquisition of 54% of ConAgra's US and Australian beef, pork and lamb operations by Hicks, Muse, Tate & Furst and Booth Creek Management, came off the road in the wake of ConAgra's mid-July recall of over 18 million pounds of E. coil-tainted beef. Having originated as $400 million of seven-year senior notes, it was re-jigged after the recall into $250 million of senior notes and $150 million of 7.25-year senior subordinated notes, the latter to be fully-funded by ConAgra, with a six-month lock-up provision.

The Swift deal is expected to price Friday.

Also during Tuesday's session a primary market source told Prospect News that pre-marketing had begun on Brake Bros. plc's two-part offering of £175 million equivalent ten-year senior notes in euro and sterling tranches via Credit Suisse First Boston and JP Morgan.

The source added that the roadshow start awaits completion of the company's financial reports, but the deal to fund the company's acquisition by Clayton, Dubilier & Rice, Inc. figures to price during September.

A source from Credit Suisse First Boston declined to confirm the information when contacted Tuesday by Prospect News.

Finally on Tuesday Ferrellgas Partners disclosed more information about its $170 million of senior notes due June 15, 2012 (B1) via Credit Suisse First Boston and Banc of America Securities.

In a filing with the Securities and Exchange Commission the company stated that the notes would be non-callable for five years and would contain an equity clawback of 35% for three years. The offering is conditional on successful completion of the company's consent solicitation and tender offer to repurchase all its outstanding 9 3/8% senior secured notes due 2006, the filing stated.

As Tuesday's high-yield session wound down sources warned Prospect News that in Wednesday's abbreviated session, which will be punctuated by events marking the first anniversary of the terrorist attacks of Sept. 11, not much is likely to happen.

"We don't intend to do much," a sell-sider said. "Most of the Street and the brokerage community are going to be non-existent. The flow of information will be close to zero.

"And just from respect, alone, we do not anticipate much trading of any kind.

"It just wouldn't seem right."

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