Upsized Vintage Pete, three other deals price; Tyco off as break-up is shelved

By Paul Deckelman and Paul A. Harris

New York, April 25 - Vintage Petroleum Inc., Stoneridge Inc. and Philippine Long Distance Telephone Co. all priced scheduled deals Thursday while a second oil and gas company, Pioneer Natural Resources Co., likewise darted in with a quickly shopped 10-year note issue. Meantime, Seagate Technology and Western Resources moved onto the forward calendar, the latter with a $750 million two-tranche offering.

In the secondary market, junk investors' attention swiveled toward nominally investment-grade rated Tyco International, after the troubled Bermuda-based conglomerate shelved its plans to break up into four separate divisions - a plan which had been considered the key to restoring the company to financial health.

In the primary, two events seemed to stand out on a news-heavy Thursday to market players who were in contact with Prospect News.

One of those events was another inflow to high-yield mutual funds; a source informed Prospect News late in Thursday's session that AMG Data Services reported that $310.913 million had flowed in for the week that ended April 24.

"That's the tenth consecutive inflow," the sell-side source commented.

The other conspicuous news item, according to both buy- and sell-side sources who have conversed with Prospect News during the past several days, may bear more than a passing relationship to the first: Pioneer Resources Co. priced a drive-by deal for $150 million of 10-year senior notes (Ba1/BB+) via Credit Suisse First Boston and JP Morgan.

The yield on Pioneer's new seniors: 7½%

Hence Pioneer Resources, of Dallas, became the second oil and gas exploration and production company in seven days to price a deal to yield only 7½%. On April 18 XTO Energy priced an upsized $350 million of 10-year senior notes (Ba2/BB) at par to yield 7½% via joint bookrunners Lehman Brothers and Salomon Smith Barney.

Sources have been telling Prospect News that a supply and demand relationship exists between the amount of cash flowing into the market and the tightness with which select credits have been pricing in the primary.

Nor was Pioneer the only E&P issuer to price high yield bonds on Thursday. Tulsa, Okla.-based Vintage Petroleum priced $350 million of 10-year senior notes (Ba3/BB-) at par Thursday to yield 8¼% via joint bookrunners Deutsche Bank Securities Inc. and BMO Nesbitt Burns.

"It looks like the market for energy deals remains extremely strong following the Vintage and Pioneer deals," a sell-side source commented Thursday.

This official went on to speculate that among the accounts playing exploration and production deals such as XTO, Pioneer and Vintage were cross-over and high grade investors seeking extra yield.

Among the high yield investors polled during the week of April 22, none claimed to be playing these E&P credits, citing as their reason the "rich" levels at which they were pricing.

The sell-side official also had an interesting piece of color regarding the appeal that XTO held for investors.

"I think XTO was particularly tight because the company has employed a pretty high level of hedging to protect their downside to commodity prices. That was a real credit-enhancing feature.

"They had just decided to put a lot of (cost-less collar) hedges in place, going into that bond deal. Fixed-income investors look at that and say 'Hey, they've locked in a certain amount of the cash flow over the next year or so.'"

Also this official noted that both XTO and Pioneer, the two credits that priced to yield 7½%, hover in close proximity to investment-grade ratings and that perhaps the only factors impeding them from clearing that credit threshold is the huge capital expenditure inherent in the operations of an exploration and production company.

In addition to Pioneer and Vintage the market also heard terms Thursday on Stoneridge, Inc.'s $200 million of 10-year senior notes (B2/B) which priced at par to yield 11½% via Deutsche.

And Philippine Long Distance Telephone Co. priced two tranches amounting to $350 million of new Rule 144A senior bullets (Ba3/BB-) Thursday via joint bookrunners Morgan Stanley and Credit Suisse First Boston. The $100 million due May 15, 2007 came to market at 99.990 to yield 10 5/8% and the $250 million due May 15, 2012 at 99.998 to yield 11 3/8%.

Meanwhile, no terms emerged Thursday on PCA International. That deal is for $200 million of seven-year seniors. A market source told Prospect News Wednesday that talk had widened to 12½% from 12¼%-12½% and that there were warrants for 5% of the company attached to the deal. Although a syndicate official would not comment on the talk or the warrants, the official told Prospect News early in Thursday's session that the deal was still in the market.

Two deals amounting to over $1 billion total were announced on Thursday.

Seagate Technology HDD Holdings announced it would hit the road Monday with $400 million of new seven-year senior notes (Ba2/BB+) via joint bookrunners Morgan Stanley and JP Morgan.

And Kansas utility Western Resources, Inc. will start roadshowing the two tranches of a new $750 million Rule 144A deal on Monday via Salomon Smith Barney.

Price talk of a yield in the 11¼% area was heard late Thursday on Britax Group plc's €145 million of nine-year senior notes (B2/B-) via Lehman Brothers. The deal is expected to price early in the week of April 29.

Also price talk of 9% area emerged Thursday on Sanitec International SA's €260 million of 10-year senior notes (B2/B) via joint bookrunners Goldman Sachs & Co. and Merrill Lynch & Co. That deal is expected to price Monday in London.

When the new Stoneridge bonds were freed for secondary dealings, "they saw a nice little demand," a trader said, quoting them as having moved as high as 103.5 bid from their issue price at par.

But while Stoneridge sizzled, the two energy-related new deals fizzled, the trader said. "They came, but they didn't do a heck of a lot."

He saw Pioneer's new 7½% notes as having inched up to 100.125 bid/100.625 offered from their par issue price. And the new Vintage Petroleum bonds, he said, "stunk. They came at par and they traded at par," moving in a narrow range of 99.75-par. "That was not a winner."

The bonds of the oil sector have not been especially active lately, he noted, despite crude oil's recent move back above $26 a barrel, which has been reflected in rising U.S. gasoline prices.

"You'd think that they would do better - but that hasn't been the case," he opined. "I would have thought that they would have more of a pop, with oil being more restricted, and greater demand going forward. But maybe the uncertainty [is limiting investor interest]. No one seems to care or really wants to get involved in the names."

One factor which has been widely blamed for lack of investor interest - at least as far as junk bond players go - is the fact that many oil bonds are trading so tightly that yields have fallen to levels that make it unprofitable for junk accounts to tie money up in them. Looking at the new bonds, for instance, the Pioneer paper was priced to yield 7½ %, while the Vintage bonds' yield was not that much better, at 8¼%.

The recently priced XTO Energy Inc. 10-year senior notes were seen unchanged from the same 100.25 bid/101.25 offered level they had held ever since pricing at par on April 17 to yield 7½%.

Back among already established bonds, "Tyco and WorldCom have been the story the whole week," a trader said, referring to the two nominally investment-grade credits whose bonds have traded down into junk bond territory. "With $30 billion of debt outstanding, I'm sure that everyone has at least a little exposure."

The dog of the day appeared to be Tyco, after the company announced that it was scrapping its plan to break into four parts. Tyco announced the plan three months ago, billing it as the key to restoring the company's financial health. But the plan faltered as Tyco failed in its effort to sell of its plastics unit, and the company now calls the breakup scheme an ill-timed mistake. With the breakup plan now a dead duck, Tyco will go to Plan B, closing 24 factories with the loss of 7,100 jobs, primarily in electronics and communications. Tyco will also sell its CIT financial unit in a public stock offering.

Tyco's bonds, the trader said, "opened eight to 10 points down, came off the lows and went out three to four points weaker" across the board. He saw the company's 6 1/8% notes due 2008 and 2009, which closed Wednesday at 85 bid/87 offered, as having fallen as low as 73 bid during Thursday's dealings, before going home at 81 bid/83 offered. "There was a lot of carnage there," he said.

At another desk, Tyco's bonds were quoted down anywhere from half a point to four points. On the high side, its 6% notes due 2003 lost half a point to end at 93, while its 6¾% notes due 2004 were a point lower at 92. At the other end of the scale, Tyco's 6½% notes due 2007 closed at 82 and its 8% bonds due 2023 at 79, both four points lower on the session.

The trader also saw WorldCom Inc.'s bonds down several points on the session, continuing the slide which began last week when the Clinton, Miss.-based telecommunications giant announced that its WorldCom Group unit's 2002 revenues would total between $21 and $21.5 billion, down from previous guidance of $22.2 to $22.6 billion, and its EBITDA (earnings before interest, taxes, depreciation and amortization, considered the key bond market measure of a company's cash flow generation potential and ability to service debt) would be between $7 billion and $7.5 billion, well down from prior forecasts in the $8.4-to-8.5 billion range, as the telecom industry slump deepens.

On Thursday, WorldCom reported that consolidated first-quarter earnings slid 78%, to $130 million, from year-ago totals of $594 million. Revenues fell 8% to $8.1 billion, as sales of long-distance phone services and data services fell.

The trader saw WorldCom's 7 7/8% notes due 2003 down several points to 85 bid/87 offered. Its 8¼% notes due 2031 fell to 54 bid/56 offered, and its 8% notes due 2006 retreated to 63 bid/65 offered.

Back among the pure junk bonds, no further deterioration was seen in Teleglobe Inc.'s 7.20% and 7.70% notes, which had swooned down to single-digit levels Wednesday from the low 20s, after corporate parent BCE Inc. said it would cut off any further long-term funding for the money-losing Canadian telecom company, leaving it to scramble for its own solution to its debt problems.

Elsewhere in the communications sphere, troubled cable-television operator Adelphia Communications Corp.'s bonds were again in retreat Thursday, its 10¼% notes falling to 83 bid from 86 on Wednesday, and its 10 7/8% notes dipping to 85.5 bid from 89. Its bonds and shares have recently been sliding on investor concerns about mounting debt, newly disclosed off-balance-sheet transactions and regulatory scrutiny. In Thursday's Nasdaq dealings, Adelphia shares lost another 99 cents (14.56%) to end at $5.81.

But another trader noted that considering the problems that the Coudersport, Pa.-based cable operator is wrestling with, including the threat of a Nasdaq delisting, recent ratings agency downgrades and some market speculation about whether the company will be able to release its 10-K filing in a timely fashion, Adelphia "has not really gotten beaten down" further after the first initial big drop in its bonds from above par levels into the upper 80s several weeks ago, when the company revealed the off-balance-sheet problems. He saw Adelphia's 9 7/8% notes due 2005 "still hanging in there" in the 84-86 bid region. "That's where it has been the last week or so and that's where it has stayed. Nobody has been unloading a lot of Adelphia paper."

Outside of the communications constellation, Calpine Corp. bonds - which had risen over the previous two sessions, despite Tuesday's late announcement by the San Jose, Calif.-based independent power producer that it would fall short of analysts' first-quarter earnings projections - reversed themselves Thursday. Calpine's senior debt, which had gotten as high as 87.5 bid, fell two points on Thursday to 85.5 bid. Calpine warned that it was anticipating earnings of 10 cents a share, vs. the analyst's consensus forecast of 13 cents.

Back on the upside, Rite Aid Corp. posted a smaller loss in its fiscal fourth quarter than it did a year earlier, helped by a boost in same-store sales (stores open more than a year). The Camp Hill, Pa.-based drugstore giant lost $257.9 (51 cents per share) in the fourth quarter ended March 2 - an improvement over the $331.7 million (98 cents per share) red ink bath it took a year earlier. On an operating basis, excluding large charges related to store closing as the company consolidates, the quarterly loss was $32.3 million (8 cents per share) versus $123.4 million a year earlier. Analysts had been looking for an 11 cent per share operating loss. Rite Aid forecast on a conference call that same-store sales for the current quarter would be up 8% to 9%from a year ago, and said it may swing back to a profit - after two years of losses - later in the year. Rite Aid's 7 1/8%notes due 2007 gained two points, to 75 bid.

Neenah Foundry Co.'s little-traded bonds "keep moving up," a market observer noted. He quoted its 11 1/8% notes due 2007 at 56 bid, up from recent levels around 48.

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