Beverly bonds gain on tender offer; Stater, Swift Energy and Cadmus price

By Paul Deckelman and Paul A. Harris

New York, June 9 - Beverly Enterprises Inc.'s 9 5/8% notes were seen to have firmed smartly Wednesday after the Fort Smith, Ark.-based nursing home operator announced plans to tender for those bonds using the proceeds of a planned new deal.

Beverly was heard by primary market sources to be planning to market that 10-year issue of new notes via a roadshow slated to begin on Tuesday. Also using new deal proceeds to redeem some existing bonds is Swift Energy Co., although it was heard to have priced its quickly shopped offering just a few hours after its initial announcement. Also pricing Wednesday was a two part-offering of fixed- and floating-rate notes from Stater Bros. Holdings Inc. as well as a single tranche of new bonds from Cadmus Communications Corp.

In total a busy Wednesday session saw $1.225 billion of high-yield issuance completed in five tranches, led by Stater's upsized two-part $700 million.

And market sources advised Prospect News to stand by for an even busier Thursday session, as the market will wrap up a week that has been abbreviated by the passing of former U.S. president Ronald Reagan - an event which the bond market will commemorate by closing on Friday.

Meanwhile, Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, told Prospect News that the high yield mutual funds, which stanched an extensive period of bleeding one week ago with a reported $565 million inflow - the first in eight weeks - appear to be holding their water.

Back-to-back inflows?

"AMG reported an inflow last week," Rieke recalled. "This week you get the feel that there is money coming back in; it's either coming back in or it's not leaving, and people still have a lot of cash.

"It's been firm, and there has not really been a lot of good paper to be had."

Rieke still sees seller's market

When Prospect News presented the Waddell & Reed portfolio manager with color recently heard from sell-side sources that yields on junk bonds have risen in recent weeks by as much as 50-100 basis points, Rieke did not immediately begin to celebrate.

"Right now things are getting priced at the tight end of price talk," she said. "That means it's really a seller's market, and you have to watch yourself and be very disciplined with regard to what you buy."

The portfolio manager also said that poised as it is on the brink of higher short term interest rates, the high-yield market unmistakably continues to represent a bargain for issuers.

"Issuers who are able to price with an 8% coupon in our market are still getting a bargain," she said. "I would say that historically it has been in the 9%-10% range.

"Five years ago no one would have wanted a bond with an 8% coupon. That would usually signal a peak in the market, at which point the market would trade off.

"So it's still a bargain for issuers."

Stater bags $700 million

The largest transaction by far in the session came from Stater Bros., which increased its two-part offering (B1/BB-) to $700 million from $685 million and priced both pieces via Banc of America Securities.

The Colton, Calif. supermarket chain sold $525 million of eight-year 8 1/8% senior fixed-rate notes at 99.50 to yield 8.211%, in the middle of the 8 1/8%-8 3/8% price talk.

The company also priced an upsized $175 million of six-year floating-rate senior notes at par to yield Libor plus 350 basis points, bringing that tranche at the tight end of the Libor plus 350-375 basis points price talk. The floater was increased from $160 million.

Elsewhere Wednesday, Houston-based oil and gas exploration and development company Swift Energy Co. sold $150 million of senior notes (B1/BB-) at par to yield 7 5/8% in a quick-to-market transaction.

The Credit Suisse First Boston-led debt refinancing deal came at the tight end of the 7¾% area price talk.

And Cadmus Communications priced $125 million of 10-year senior subordinated notes (B2/B) at par to yield 8 3/8%, at the tight end of the 8 3/8%-8½% price talk.

Wachovia Securities and Banc of America Securities ran the books for the debt refinancing deal from the Richmond, Va. provider of graphic communications and content processing services.

VimpelCom downsizes to $250 million

Also on Wednesday terms emerged on a downsized $250 million of five-year bonds (B1/BB-) from Russian telecommunications firm VimpelCom.

The notes priced at par to yield 10%, spot on the 10% area price talk but the deal was decreased from $300 million.

JP Morgan and UBS Investment Bank ran the books on the Rule 144A/Regulation S notes.

Two for the road

A pair of roadshow starts was heard Wednesday as the calendar continued to build.

The roadshow starts Thursday for Plains Exploration's $250 million of 10-year senior notes, which are expected to price late in the week of June 14 via Lehman Brothers and JP Morgan.

The Houston-based oil and gas exploration and production company will use the proceeds to refinance debt.

And the roadshow starts Tuesday for Beverly Enterprises, Inc.'s $225 million of 10-year senior subordinated notes, also via Lehman Brothers and JP Morgan, and also expected to price during the week of June 14.

The Fort Smith, Ark. provider healthcare services to the elderly will also use the proceeds from its bond sale to refinance debt.

Busy Thursday takes shape

Market source anticipate a busy early close to the week of June 7. Seven tranches totaling $1.69 billion are poised to be priced.

Details emerged Wednesday on several of them.

The price talk is 7¾%-8% on Celestica Inc.'s planned $350 million of seven-year senior subordinated notes (Ba3), expected to price on Thursday via Citigroup, Banc of America Securities and Deutsche Bank Securities

Meanwhile price talk is 7¼%-7½% on Pacific Energy Finance Corp.'s $240 million of 10-year senior notes (Ba2/BB+), expected to price on Thursday via Lehman Brothers.

And US Unwired announced price talk on its two tranche $285 million offering, which is expected to price on Thursday.

Price talk is three-month Libor plus 425-450 basis points on $125 million of six-year non-call-two first priority senior secured floating-rate notes (B2/CCC+).

Meanwhile talk is 10%-10¼% on $160 million eight-year non-call-four senior secured fixed-rate notes (Caa1/CCC-).

Lehman Brothers and Banc of America Securities are joint bookrunners.

In addition to the above-mentioned seven tranches, sources say that offerings remain on the forward calendar as possible June 7 week business from Clean Harbors Inc. ($150 million) and Thermaclime ($78 million).

Stater firms in trading, drops back

When the new Stater Bros. 8 1/8% senior notes due 2012 were freed for secondary dealings, they were initially quoted as having firmed a bit to par bid, 100.5 offered from their 99.5 issue price earlier in the session. However, the supermarket operator's bonds backed off from that high to end up only slightly at 99.625 bid, par offered.

Stater Bros. "was so-so," said a trader who quoted them at that 99.625 level, "just an eighth above their offering price."

He likewise said he didn't think anything was happening in Cadmus Communications' new 8 3/8% notes due 2014.

Beverly rises, Swift steady

One area where there seemed to be something happening was in Beverly Enterprises. Although a market source initially said that he didn't see anything going with the 9 5/8% notes due 2009, quoting them steady at 113.5, while the company's 8 5/8% notes due 2008 were likewise unchanged at par, by the day's end, the 9 5/8s, the issue being tendered for, were being quoted as having moved as high as 118.5 bid, just below the 119 level that holders who tender their notes by the consent deadline would receive as total consideration (see "Tenders and Redemptions" elsewhere in this issue for full details).

However, no movement was seen in Swift Energy's 10¼% notes due 2009, which are to be taken out either via a tender offer or by a redemption transaction using the proceeds of the company's new deal (see "Tenders and Redemptions" for details). Those bonds were quoted holding steady at 106.5 bid, while the Houston-based independent oil and gas energy and production operator's 9 3/8% notes due 2012 were unchanged at 107.5.

Bally holds gains

Elsewhere, Bally's Total Fitness Holding Corp. - whose 9 7/8% notes due 2007 were seen having notched a three-point-gain Tuesday - hung in at those higher levels Wednesday, even as the company's shares, up more than 10% Tuesday, backed off on Wednesday.

A market source saw the bonds 82 bid, up from recent levels around 79, although another source, who had pegged the bonds as having gone to 83 on Tuesday from around 80, estimated that they had given back half a point to close Wednesday at 82.5.

The first market source meantime saw the Chicago-based fitness club operator's 10½% notes due 2011 as having advanced to 92 bid on Wednesday from 89.25 previously. Bally's New York Stock Exchange traded shares, meantime, gave back nearly half their Tuesday gains to close down 22 cents (4.28%), at $4.92, on normal volume of around 590,000 shares.

The Bally shares and bonds have been volatile over the past two sessions, after Liberation Investments Group LLC, which holds a not quite 6% stake, said that it planned to introduce governance reform proposals at the July 29 annual meeting that if approved by shareholders would separate the offices of chief executive officer and chairman of the board, both currently held by Paul Toback, who is also the company's president. The proposals would also remove the company's anti-takeover stockholder rights plan, end staggered terms for the board of directors and establish a mandatory retirement age of 75 for board members.

HealthSouth up again

HealthSouth Corp. bonds continued to firm in the wake of the news that the Birmingham, Ala.-based provider of outpatient medical services had come to a meeting of the minds with dissident bondholders to gain their consent for default waivers the company must have if it is to avoid debt acceleration and continue what it hopes will be a consensual out-of-court restructuring.

HealthSouth's 6 7/8% notes due 2005 were being quoted at 100.5 bid, up from 98 previously, while its 7 3/8% notes due 2006 were seen three points better at par. Its 8 1/8% notes due 2008 went to 98.25 bid from 97.5 offered, while its 7% notes due 2008 moved up to 97 bid from 96.5. A source saw its 10¾% notes due 2008 having jumped all the way to 101.25 bid from 97 previously, but said that the company's 7 5/8% notes due 2012 had dipped to 96 bid from 97.5, while its 8 3/8% notes due 2011 were unchanged at 97.

Smithfield better on earnings

A trader said that Smithfield Foods Inc. bonds "were on a roll," after the Smithfield, Va.-based hog producer and meatpacker posted a profit for its fiscal fourth quarter ended May 2 of $122.7 million

($1.09 per share), well up from $5.1 million (five cents per share) a year ago. It should be noted that the latest results include an after-tax $49 million gain from the company's sale of Canadian pork processing unit Schneider Corp. In terms of continuing operations, excluding Schneider, earnings were 63 cents a share, considerably better than the half-dollar that Wall Street had generally been looking for.

The trader called the earnings "very, very good," and said that bondholders seemed to be living high off the hog, taking Smithfield's 7 5/8% notes up to 105 bid from prior levels at 103.75.

Greyhound continues ascent

Also motoring along was Greyhound Lines, "continuing their upward march," he said, with the Dallas-based intercity bus operator and unit of Laidlaw International's 11½% notes at 95.5 bid.

Level 3 Communications Inc.'s 9 1/8% notes due 2008 were a point-and-a-half better, the trader observed, at 84.5 bid. The Broomfield, Colo.-based fiber optic telecommunications network operator jointly announced with 8X8 Inc., a Santa Clara, Calif.-based telecom company, that they had teamed up to expand 8X8's Packet8 voice-over-Internet-protocol service to an additional 300 markets, using Level 3's (3) VoIP Local Inbound Service. Financial details of the network expansion were not disclosed.

Also on the telecom front, MCI Corp.'s bonds retreated, after the Justice Department said that it would not appeal an appeals court ruling that struck down FCC rules requiring regional Bell operating companies like Verizon and SBC to give low-cost access to their network to competitors like MCI, Sprint and AT&T.

MCI's 6.688% notes due 2009 were down almost a full point to 93 bid.

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