Penn Gaming, Meritage, price deals; Qwest firmer on new MCI bid; funds see $218 million outflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 24 - Penn National Gaming Inc. was heard by high-yield syndicate sources to have priced a upsized offering of new 10-year notes, one of several pricings Thursday, along with Meritage Homes and Anixter International Inc. Meantime, Levi Strauss & Co. disclosed plans to sell $550 million of debt in a multi-tranche deal that includes an add-on to its existing 9¾% notes due 2015.

In the secondary market, traders noted some late activity in the bonds of Qwest Communications International Inc. on the news that the Denver-based regional Bell operating company had retooled its previous offer to MCI Inc. in hopes of persuading the latter company to break its already announced engagement to rival RBOC Verizon Communications Inc.

Also in the telecommunications area, Dobson Communications Corp. was heard several points higher, although nobody seemed to have a handle on what was pushing the Oklahoma City-based rural cellular service operator's bonds up.

And well after trading had finished for the session, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that $218 million more left the funds than came into them in the week ended Wednesday. It was the second consecutive weekly outflow following the $107.3 million deficit seen in the prior week, ended Feb. 17.

Net outflows have totaled $325.3 million over those two weeks, according to a Prospect News analysis of the AMG figures.

Outflows have now been seen in five weeks out of the eight since the start of the year. The year-to-date 2005 cumulative outflow rose to some $1.25 billion from $1.032 billion the week before, according to the Prospect News analysis. The figures exclude distributions and count only those funds that report on a weekly basis.

The fund flow numbers are considered a measure of junk market liquidity trends.

The high-yield primary market saw $950 million price Thursday in what proved to be the busiest of the three completed sessions of the holiday-shortened Feb. 21 week.

Four transactions were priced, two of which were upsized. All four priced tight, in line with or better than price talk.

And all of Thursday's transactions were drive-by deals.

Meritage, Penn National price upsized deals

Thursday's largest transaction came from Meritage Homes Corp., a single-family home builder which operates in the southwestern United States.

Meritage Homes priced an upsized $350 million issue of 6¼% 10-year notes (Ba3/BB-) at 99.50 to yield 6.318%.

The yield came toward the tight end of the 6 3/8% area price talk and the deal was increased from a planned $300 million.

UBS Investment Bank and Citigroup ran the books for the debt refinancing deal.

Also upsized was Penn National Gaming Inc.'s offering of 10-year senior notes (B3/B). The Wyomissing, Pa., gaming firm increased the size of the issue to $250 million from $200 million and priced the notes at par to yield 6¾%.

A source close to the deal told Prospect News that initial guidance on the bonds was for a yield in the 6 7/8% area, and that the book filled quickly, obviating the necessity of putting out official price talk.

Deutsche Bank Securities ran the books for the debt refinancing issue.

Drive-by Anixter deal

Also coming with a drive-by was Chicago-area electronics parts distributor Anixter International Inc.

The company priced $200 million of 5.95% 10-year senior notes (Ba1/BB+/BBB-) at 99.784 to yield 5.979% or a spread of 170 basis points, inside of the Treasuries plus 175 basis points area price talk.

Banc of America Securities, Wachovia Securities and Merrill Lynch & Co. ran the books for the debt refinancing deal.

A market source suggested that Anixter's deal, which had been talked at a spread in the fashion of a high-grade deal, likely saw play from investment-grade accounts.

Finally, Amsterdam, Netherlands, office products company Buhrmann NV priced $150 million of 7 7/8% 10-year senior subordinated notes (B2/B) at 99.151 on Thursday to yield 8%, on top of the 8% area price talk.

Deutsche Bank Securities ran the books for the deal, proceeds from which will be used to repurchase the company's outstanding preferred shares C.

One sell-side source noted the credit ratings of the new Anixter bonds (Ba1/BB+/BBB-) and the new Meritage Homes bonds (Ba3/BB-), and said that the introduction of higher rated deals into the primary market is almost certainly a reflection of a shift in appetite on the buyside.

Investors are becoming more wary of the triple-C rated pay-in-kind notes that are being sold to fund dividend payments to stock holders, the source added.

"Even though Buhrmann and Penn Gaming sold single-B notes, what you saw today were deals from solid credits," the source added.

Telcordia, Focus for Friday

News also surfaced during the session on the only two expected deals lined up to price Friday.

Telcordia Technologies Inc. has downsized to $300 million from $350 million its offering of eight-year non-call-three senior subordinated notes (B3/B-).

The notes are talked at a yield in the 9% area. The transaction has been moved up to Friday afternoon, and will come via JP Morgan, Bear Stearns & Co., Deutsche Bank Securities and Lehman Brothers. Pricing had originally been set for Monday, Feb. 28.

The Piscataway, N.J., telecommunications software company shifted $50 million from the bond deal to its credit facility.

Sources told Prospect News that the shift to the bank piece from the bonds was simply a reflection of the lower interest rate that company would get in the bank market.

"They have the term loan B priced pretty cheap at Libor plus 250 and they're talking the bonds at 9%," one investment banker said.

"Leverage is about 4.7 times at the bond-level, and about three times at the bank level," the source added.

And Focus (Finance) plc (Focus Wickes Group)'s £100 million of 10-year non-call-five mezzanine notes (B3/B/B) are talked at 9 3/8% to 9 5/8%, and are expected to price on Friday via ING.

Levis to start a roadshow Friday

One roadshow start was heard during Thursday's session.

Levi Strauss & Co. is set to kick of a roadshow Friday for approximately $550 million of debt offerings in three parts, featuring both dollar- and euro-denominated notes according to a syndicate source.

The U.S. roadshow, which runs until Monday, March 7, will include presentations to European investors on Monday, Feb. 28 and Tuesday, March 1.

The San Francisco-based apparel-maker is selling dollar-denominated seven-year non-call-two senior floating-rate notes and euro-denominated eight-year non-call-four senior fixed-rate notes.

The company will also tap its existing 9¾% senior notes due Jan. 15, 2015. The original $450 million issue priced at par on Dec. 16, 2004, with the notes becoming callable after Jan. 15, 2010 at 104.875, and containing an equity clawback until Jan. 15, 2008 for 33.3% at 109.75.

Tranche sizes remain to be determined.

Banc of America Securities and Citigroup will be joint bookrunners for the debt refinancing deal.

Penn National, Anixter up in trading

When the new Penn National 6¾% notes due 2015 were freed for secondary dealings, they were heard to have firmed to 101.25 bid, well up from their par issue price earlier in the session.

Anixter International's 5.95% notes due 2015 were heard to have zoomed to 101.125 bid "right out of the chute," a trader said, well up from their 99.784 issue price.

By the end of the day, said a trader, the bonds - which he said were being quoted on a spread basis, as if it were not a junk bond - had tightened considerably from their initial spread over Treasuries of 170 basis points to a bid level equivalent to 155 bps over and an offered level of 147, which he extrapolated was 100.875 bid, 101.25 offered.

"The issue tightened 15 bps," he said. "It was a pretty good break."

Another trader saw the bonds going home at 101.125 bid, 101.625 offered.

Meritage's new 6¼% notes due 2015 were being quoted at 100.125 bid, 100.625 offered, up from their 99.5 issue price.

Navistar International Corp.'s new 6¼% notes due 2012 were seen going home at 100.75 bid, 101.125 offered, versus their issue price Wednesday at par. The bonds were seen having moved up to the current levels in initial trading on Wednesday.

And Buhrmann NV's new 7 7/8% notes due 2015 were heard to have firmed smartly after their 99.151 pricing ednesday. The Amsterdam, Netherlands-based business services company's bonds were quoted in morning dealings Thursday at 101.375 bid, 101.625 offered, and pretty much stayed at those levels for the rest of the session.

Levi Strauss gains

Levi Strauss's 12¼% notes due 2012 were seen by a trader as having opened at 113.75 bid, 114.25 offered, but then having firmed to 115 bid late in the day, apparently pushed up by the news that the San Francisco-based apparel maker will bring $550 million of new bonds to market and will use the anticipated proceeds to tender for its 11 5/8% notes due 2008.

Those bonds, meanwhile, were unchanged on the day, at 106.5 bid, 106.75 offered, causing a trader to note that the bonds "were already up there" in anticipation that Levi would tender for them.

Its existing 9¾% notes due 2015 - the issue to which the company wishes to add an additional tranche - were seen up about ¼ point on the session, at 105 bid, 105.5 offered.

Qwest up on revised offer

Back among existing bonds not impacted by a coming new issue, a trader noted well past the 4:30 p.m. ET mark that "news just came out" that Qwest would revise its $8 billion offer to MCI, tweaking it to make it more attractive than the smaller $6.7 billion offer from the more financially sound Verizon to MCI, the Ashburn, Va.-based Number-Two U.S. long-distance provider.

He said he had seen "no price movements" on the bonds of either Qwest or MCI, both of which are junk issuers. Verizon, he opined, having far greater revenues than Denver-based Qwest and far stronger credit metrics, "should have no problem beating the Qwest offer."

The Qwest offer is actually unchanged in terms of its overall size, still valuing MCI at $24.60 per share. However, Qwest has tinkered with the $9.10 per share cash portion of the offer to provide more up-front cash to MCI shareholders and less in the way of deferred dividend payments. It also added a mechanism to the stock portion of the offer that would guarantee that the stock component will hold at a value of $15.50 per share by adjusting the amount of Qwest stock to be paid if the company's shares fall below $4.15 per share.

Qwest's offer dwarfs the Verizon offer, which currently values each MCI share at $20.42 in a combination of cash and stock, or a total of $6.64 billion. That's actually about $100 million less than what the offer was valued at on Feb. 14, when MCI agreed to the buyout, because Verizon's shares have since fallen.

"People were bidding up Qwest" bonds on the revised news said a second trader, who estimated that the company's debt was up by perhaps half a point, on the assumption that the new bid could tip the scales in favor of Qwest, which would benefit, should it win the bidding war with Verizon, by being able to leverage MCI's strong cash-flow generation in order to chop down its heavy debt load.

Qwest's 7¼% notes due 2014, which had been seen at mid-afternoon at 102.75 bid, 103.75 offered, were estimated to have firmed to 103.25 bid, 104.25 offered.

"Qwest is making another bid," another trader said, "and investors think it might have a chance of success."

The second trader meanwhile saw MCI's bonds down half a point on the session, although he had no specific levels. MCI's 10-year notes, which had firmed handsomely when it became apparent that the company was in play as an M&A target, have recently been anchored in the 112-113 region, off a little from their peak levels above 114, but still well up from their levels around 102-103 they held before that takeover buzz began generating in late January.

At another desk, a trader said that the Qwest gambit had been "widely expected" and thus was "not a major shock. The bid didn't improve."

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