Bowater, Technical Olympic, Norske Skog bring quickie deals; Tenet falls on analyst qualms

By Paul Deckelman and Paul A. Harris

New York, March 10 - Junk bond market activity was being called lackluster on Wednesday - but that did not stop several issuers from being able to tap the market with several opportunistically priced "drive-by" deals, including Bowater Inc.'s $250 million offering of six-year floating-rate notes, and deals brought by Norske Skog Canada Ltd. and Technical Olympic USA Inc. Eschelon Telecom meanwhile priced a scheduled tranche of six-year notes off the forward calendar.

In the secondary market, Tenet Healthcare Corp. bonds followed the Birmingham, Ala.-based outpatient services provider's stock down after an analyst put out a research note suggesting the company was burning through its cash way too quickly. On the upside, Lucent Technologies Inc. bonds were better after Standard & Poor's raised the debt ratings on the Murray Hill, N.J.-based telecommunications equipment maker.

The mid-week session saw the high yield new issue market continue to turn out deals by the fistful, with five issuers completing their transactions.

And the new issue pipeline grew by a pair of offerings.

Restructured deals seen industry specific

Two of the deals that priced on Wednesday had been restructured from the offerings that the companies announced prior to hitting the road.

Minneapolis-based voice, data and internet services provider Eschelon Operating Co. sold $100 million of 8 3/8% six-year senior second secured notes (Caa1/CCC+) at 84.813 to yield 12%.

Price talk on the deal was for a yield in the 11¾% area, with Jefferies & Co. and Wachovia Securities leading.

The offering was restructured, with the notes having initially been announced as senior unsecured notes.

Also Grande Communications Holdings Inc. sold $136 million of 14% senior secured notes with warrants at 95.727 to yield 15% via Bear Stearns & Co.

Price talk on the San Marcos, Tex.-based internet, local and long-distance telephone and cable TV company's deal was for a 14% coupon priced at a discount to yield 15%.

Prior to Tuesday's news that the deal had been restructured, Grande had been heard to be in the market with senior unsecured notes with no warrants.

Prospect News inquired of a senior sell-side official, who had had a good look at one of the above-mentioned transactions, whether these restructurings, in addition to Amkor Technology's restructured $250 million of 7 1/8% notes due 2014 (B1/B) which priced on Tuesday, indicated shifting conditions in the primary market.

"It has a little bit to do with market conditions," said the official. "But to a larger extent it is industry specific."

The source drew a comparison between Grande and Knology, Inc., the West Point, Ga. provider of interactive communications and entertainment services that postponed its $280 million 10-year senior notes offering (Caa2/CCC-) on March 3.

"Those two companies are similar," said the source, "and you saw what happened to Knology. It got pulled

"However in the market at large, you are still seeing mid single-B and double-B industrial deals getting done really well in terms of levels."

Three drive-bys

In addition to Eschelon and Grande Communications, three other deals priced Wednesday. All three were drive-by deals.

Bowater, Inc. priced a quick-to-market $250 million offering of six-year senior floating-rate notes (existing ratings Ba2/BB) at par with an interest rate of three-month Libor plus 300 basis points.

Price talk was for Libor plus 287.5-300 basis points.

UBS Investment Bank and JP Morgan ran the books for the newsprint maker based in Greenville, S.C.

Norske Skog Canada Ltd. priced an upsized issue of $250 million of 10-year senior notes (Ba3/BB) at par to yield 7 3/8%.

Price talk on the deal from the Vancouver, B.C. newsprint and paper producer was for a yield in the 7½% area. The size was increased from $225 million.

Merrill Lynch & Co. and Banc of America Securities were joint bookrunners.

And Technical Olympic USA, Inc. sold $125 million of seven-year senior subordinated notes (B2/B-) at par to yield 7½%, which was inside of the 7 5/8%-7¾% price talk.

Citigroup ran the books for the drive-by deal from the Hollywood, Fla.-based homebuilder.

Peabody, Sierra Pacific plan new offerings

Peabody Energy will host a 10:30 a.m. ET conference call Wednesday for its offering of $200 million of senior notes due 2016 (Ba3/BB-). Pricing could take place as early as Friday.

Morgan Stanley and Credit Suisse First Boston are joint bookrunners for the deal from the St. Louis-based coal company.

And Sierra Pacific Resources will start its roadshow Thursday for $300 million of 10-year senior notes (expected ratings B2/B-), with pricing expected on Tuesday March 16.

Lehman Brothers and Merrill Lynch & Co. are joint bookrunners on the deal from the Reno, Nev.-based holding company for Nevada Power Co. and Sierra Pacific Power Co.

Talk on Beal, Team Health

Price talk of 8%-8¼% emerged Wednesday on Beal Financial Corp.'s upcoming $500 million of 10-year senior secured notes (B1/BB-), which are expected to price on Thursday via Friedman Billings Ramsey.

And the market heard price talk of the 9% area on Team Health's planned $180 million of eight-year senior subordinated notes (B-), expected to price on Friday. Banc of America, JP Morgan and Merrill Lynch & Co. are joint bookrunners.

Technical Olympic up in trading

When the new Technical Olympic 7 ½% senior subordinated notes due 2011 were freed for secondary dealings, they were quoted as high as 101 bid, up from their par issue price, before going home at 100.75 bid, 101.25 offered.

A trader saw the new Norske Skog 7 3/8% senior notes due 2014 as "pretty well spoken for - it was four times oversubscribed," but he said the bonds got no better than 100.5 bid, 101 offered up from their par issue price "and people were blowing out of it. Everybody was hitting bids."

A trader at another desk had seen the new Norske Skogs as good as 100.75 bid after having been freed.

But he said that the new Bowater floating-rate notes due 2010 apparently never made it to the aftermarket after pricing at par earlier in the session. "I didn't see any trades in it all afternoon."

Overall market drops

Looking at overall junk market trading, the trader opined that "the market was kind of getting the tar kicked out of it," as bonds declined along with equities, which extended their losses for a third session, with the Dow industrials off 160 points and other major indexes down a proportional amount equal to around 1.5% on the day.

"Clearly, there was no joy in Mudville."

Another trader said that the market "felt softer. Equities had a rough day and people were talking about all fixed income having positive total returns except for high yield. You couple that with the enormous calendar and modest inflows and it kind of just feels like it's weak."

That having been said, however, "the bonds that people want to buy are bid without [offers]." He cited a proliferation of yield-to-call buyers, "a lot of people parking money in short '05 and '06 paper. Obviously with the move upward in Treasuries, people are feeling comfortable with the front end again."

He also cited buyer interest in "a lot of those CCC deals that came a month or so ago, with very few bids for."

Overall, however, he saw the market as "spotty," with patches of illiquidity. "I don't think there's really anybody making strong statements."

Tenet falls on research note

The big loser of the day, he said, was Tenet Healthcare, whose bonds headed south along with stock after analyst Sheryl Skolnick of Fulcrum Global Partners said in a research note that the top priority for the company's management over the next 12 months would be to "stop the hemorrhaging" of cash.

Skolnick noted that Tenet announced new credit facility terms on Tuesday, which she called "relatively benign" - the size of the credit line is lowered to $800 million from $1.2 billion and it is now to be secured by assets of some subsidiaries; in return, Tenet gets covenant relief, including a rise in the ratio of its allowable debt level versus EBITDA to 5.5 times from 3.5 times previously so as to keep the company out of technical default.

Nonetheless, the analyst cautioned that the facility is likely to be renegotiated again and the banks might be less forgiving the next time around if operations continue to deteriorate and the company must borrow on a heretofore untapped credit line. Fulcrum also does not believe that Tenet can achieve the implied level of EBITDA in 2004 in the midst of deteriorating industry fundamentals and fears that the difficulty in turning around Tenet's operations in this environment "continues to be underestimated by the Street ."

Against that somber backdrop, Tenet's New York Stock Exchange-traded shares fell $1.66 (14.16%) to $10.06, their lowest level in five years. Volume of 32 million shares was more than six times the norm.

On the bond side, Tenet's bellwether 7 3/8% notes due 2013 "were down a couple," a trader said, quoting them as having opened at 90 bid, 92 offered and then having retreated to 88 bid, 90 offered.

The news "doesn't read that well," he said, "not that it was any kind of major surprise" that analysts are bearish on the company's prospects.

At another desk, Tenet's 5 3/8% notes due 2006 were seen having dropped to 93.75 bid, 94.25 offered from prior levels at 95.25, while the 7 3/8s "really got beat up," a trader said, dipping to 89.75 bid, 91.75 offered from 92 bid, 92.5 offered previously. Another trader quoted the company's paper down at least a point-and-a-half across the board, with its 6 7/8 bonds due 2031 retreating to 81.5 bid, 82 offered.

"The bonds seem to be better bid at lower levels." a trader said, "but that's hard to tell. There was not a lot of flow."

He ventured that "people are kind of running out of patience with this company. Every time the thing trades off, then someone comes out with a positive report and it trades up a little bit, someone comes out with a negative report and it trades down a little bit, and it's just getting a little old."

Tenet meanwhile announced that it will hold a conference call on Tuesday at which it will discuss its 2003 year-end results.

El Paso loses on earnings delay

Elsewhere, El Paso Corp. bonds were seen down about a point, after the Houston-based energy operator said that it would delay reporting its fourth-quarter and full-year numbers, which had been expected to be released Thursday; El Paso said it will likely have to restate financial statements in light of its 41% reduction of estimated proven oil and natural gas reserves, released last month. The change will likely require a writedown of about $1 billion in the value of the reserves, forcing the restatement.

A trader quoted El Paso's 7¾% bonds due 2032 down three-quarters of a point at 81.25 bid, 82.25 offered while its 7¾% notes due 2013 were down a full point at 94 bid, 95 offered.

Cinemark off on LBO talk

Also on the downside, a trader reported that Cinemark USA Inc.'s bonds were down some two points on speculation that the Plano, Tex.-based movie theater operator may undergo a leveraged buyout. Published reports say the Number-3 U.S. theater chain is close to inking a deal with Madison Dearborn Partners LLC, which would buy the company for $1 billion and absorb $600 million of debt.

He quoted Cinemark's 9% notes down two points to 111-112 and its 8½% notes likewise off a deuce to 104 bid, 105 offered.

Lucent gains on S&P move

On the upside, Lucent's bonds were seen up after Standard & Poor's raised its corporate credit rating to B from B- previously and altered its outlook to positive from negative; the ratings agency cited the rebound in telecom equipment makers' fortunes generally, combined with Lucent's aggressive cost-cutting moves.

Lucent's 7¼% notes due 2006 moved up to 104.5 bid, 105 offered from 103 bid, 103.5 offered on Tuesday, while its 6.45% bonds due 2029 pushed up two points to 83.5 bid.

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