Junk funds see mammoth $2.56 bln outflow; Calpine reduces deal's bond piece; Dex slates $1.35 bln

By Paul Deckelman and Paul A. Harris

New York, Aug. 7 - High yield mutual fund flows - the closely watched barometer of junk-bond market liquidity trends - suffered their largest weekly net outflow in recent memory, as market participants familiar with the weekly statistics told Prospect News on Thursday that $2.56 billion more left the markets in the latest week.

Throughout the Aug. 4 week sources on both the buy and sell-sides had warned Prospect News that the market would see another meaningful outflow on the heels of the $1.061 billion outflow for the week ending July 30.

"We're seeing continually weakening secondaries," said one sell side official. I think people might be sidelining right now in light of how things have priced recently. Things are coming out wide of talk, and people are revising talk, and he deal still comes wide.

"Things are kind of choppy right now."

That sour $2.56 billion number - the second straight weekly bleed of more than $1 billion from the funds - could send up a warning to a red-hot new deal market that's recently been floating on a cloud of easy liquidity, which has allowed it to bring a number of billion-dollar-plus offerings to investors.

And another such offering joined the forward calendar on Thursday, as Dex Media West LLC was hear preparing to bring a $1.315 billion two-part deal to market within the next week.

The big deal of the day, meantime, was Calpine Corp.'s downsized $365 million offering of eight-year floating rate notes, which priced along with an upsized tranche of bank debt - leaving the overall deal at the originally announced size of $750 million.

Overall the primary market showed new evidence that it is struggling during Thursday's session, which saw five transactions priced by the time Prospect News went to press, although when the day opened one source said that eight were expected.

The day's largest deal and the big attention grabber was Calpine's.

Its Calpine Construction Finance Co. LP subsidiary priced $750 million in notes and loans, bringing a downsized $365 million of second priority secured floating-rate notes due July 15, 2011 at 98 with an interest rate of Libor plus 850 basis points and an upsized $385 million first priority secured term loan at Libor plus 600 basis points.

While the bonds were downsized, the overall amount for the deal was in line with the original plans.

Talk on the notes had been for $450 million at Libor plus 800 to 850 basis points while the loan had been expected to be $300 million at Libor plus 500 to 550 basis points.

Goldman Sachs was bookrunner on the Rule 144A/Regulation S note offering, which priced off the bank loan desk.

"The deal got done at the $750 million size we started out with. That's a success," a syndicate source commented.

Ahead of the pricing, a source told Prospect News the first lien portion was expected to be marketed primarily towards par loan investors and hedge funds and the second lien tranche was expected to primarily be marketed towards hedge funds.

Also pricing during the session was Haights Cross Communications' deal - an offering that was downsized and restructured from the originally announced transaction.

The White Plains, N.Y. educational and professional publisher raised a total of $240 million through an offering of eight-year senior notes and a five-year loan, according to informed sources.

Haights Cross Operating Co. sold $140 million of senior notes due Aug. 15, 2011 (CCC+) at par to yield 11¾% and obtained a $100 million second priority senior secured floating-rate loan due 2008, which priced at 99.0 with an interest rate of Libor plus 450 basis points.

Previously the company had been expected to bring $340 million through the sale of $260 million of eight-year senior notes by Haights Cross Operating Co. and $80 million of 10-year senior discount notes by Haights Cross Communications Holding Co.

More positively, Ardent Health Services Inc. upsized its deal to $225 million from $200 million. The Nashville healthcare services provider sold its 10-year senior subordinated notes (B3/B-) at par to yield 10%. Price talk was for a yield of 9¾%-10% on the deal via joint bookrunners Banc of America Securities and UBS Investment Bank.

Sonic Automotive, Inc. sold $200 million of 8 5/8% senior subordinated notes due Aug. 15, 2013 (B2/B+) at 98.3628 to yield 8 7/8%, wide of the 8 5/8% area talk. Banc of America Securities, JP Morgan and Merrill Lynch were joint bookrunners.

Norcross Safety Products LLC managed to increase its deal by a marginal $2.5 million to $152.5 million. But the 9 7/8% senior subordinated 10-year notes (B3/B-) priced at 99.321 to yield 10%, in the middle of the 10% area guidance. CIBC World Markets and Lehman Brothers were joint bookrunners for the Oak Brook, Ill.-based supplier of personal protection equipment's offering.

Meanwhile, two deals for a total of just under $1.5 billion joined the calendar.

Nearly all of that total, though, is Dex Media West LLC's offering.

The $1.315 billion note sale in two tranches is to help finance the second part of the acquisition of Qwest Dex's directory business, this time covering Arizona, Idaho, Montana, Oregon, Utah, Washington and Wyoming. The first part for Dex Media East LLC priced in October last year as a two-part deal totaling $975 million. In that transaction, the seven-year senior notes came at a 9 7/8% yield while the 10-year senior subordinated notes fetched 12 1/8%.

Dex Media West starts its roadshow Friday, according to a syndicate source who added that the deal is expected to price on Aug. 14.

The offering will be comprised of $535 million of senior notes due 2010, non-callable for four years (expected ratings B2/B) and $780 million senior subordinated notes due 2013, non-callable for five years (expected ratings B3/B).

JP Morgan, Banc of America Securities, Deutsche Bank Securities, Lehman Brothers and Wachovia Securities are joint bookrunners.

Also starting Friday is the roadshow for Alaska Communications Systems Holdings' $175 million of senior notes due 2011 (expected ratings B2/B+). Pricing is expected on Aug. 13 or 14. Underwriters on the Rule 144A deal are JP Morgan, CIBC World Markets, Citigroup, Jefferies & Co. and Raymond James.

Also during Thursday's session, price talk of 8 1/8%-8 3/8% was released on Group 1 Automotive Inc.'s $150 million of 10-year senior subordinated notes (B1/B+). The deal is expected to price on Friday.

Goldman Sachs is the bookrunner.

When the new Arden Health Services 10% senior subordinated notes due 2013 were freed for secondary dealings, they didn't go very far at all from their par issue price, heard trading at par-100.5.

A trader said the new Armor Holdings Inc. 8¼% senior subordinated notes due 2013, which priced at 98.3359 on Wednesday, were at 99 bid, par offered Thursday. Fisher Scientific International Inc.'s new 8% senior subordinated notes due 2013, which had priced at par on Wednesday, were at 101.25 bid, 102 offered on Thursday.

Back among established issues, the trader said, "people were in the doldrums. There was nothing going on. People were just waffling around."

There was some movement in Calpine's recently priced seven- and 10-year notes - but they mostly gyrated around in a range of 85 to 87 bid, before ending at the higher end, essentially unchanged.

Calpine's older, more established bonds were weaker, a trader said, quoting its 8½% notes due 2008 going home at 69 bid, 71 offered - down about a point on the session.

A trader saw AES Corp. debt bouncing around more or less in tandem with sector peer Calpine. But AES' 8 3/8% notes due 2007 were a half point firmer, at 88 bid.

Another utility, CMS Corp., was trading at lower levels, its 7½% notes due 2009 quoted off more than four points, at 89.25. A trader quoted the Michigan power company's bonds down a more conservative two points or so, its 8 1/ 2% notes due 2011 at 94 bid.95 offered and its 7 ¾% notes due 2010 at 93 bid.

The same trader meantime saw some strength in the retailing group, with a number of retailers releasing comparable-store sales - a key measure of retailing industry performance - for the month of July.

The Gap led the way with a 9% rise in sales at stores open for at least a year from their year-ago levels. The trader saw the San Francisco-based apparel retailer's bonds "definitely up," with its 2004 notes up half a point to a point at 98 bid, 99 offered.

Even though Dillard's Inc.'s same-store totals actually fell by 1% from a year-ago, the Little Rock, Ark.-based department store operator's 6 5/8% notes due 2008 rose to 94.5 bid from prior levels around 93-93.5.

Jeans-maker Levi Strauss & Co.'s 12½% notes due 2012 were a point-and-a-half better at 85 bid. And fashion label marketer Tommy Hilfiger's 6.85% notes due 2008 firmed to 99.5 bid, 99.75 offered from prior levels at 98.75 bid.

"All told," the trader said, "retail had a pretty good feel."

Among energy names, he said, Benton Oil "spiked up," its 9 3/8% notes due 2007 heard about two points higher, at 95.5 bid, 96 offered. But Parker Drilling bonds "have finally sought their own level," with the energy service company's 10 1/8% notes having come down to 96.5 bid, 98 offered from previous levels at 101 several days ago. Its 9¾% notes due 2006 were at 97 bid, 99 offered - down three to four points from week-ago levels.

Standard and Poor's on Wednesday put Parker's B+ corporate credit rating on CreditWatch with negative implications, citing the company's announcement that it failed to complete the sale of a significant package of assets to a third party and the company's weaker-than-expected operating results in the second quarter of 2003.

A market source saw Tenet Healthcare bonds little changed despite the Santa Barbara, Calif.-based hospital operator's second-quarter earnings report of a 27-cent-per share profit, excluding special items, versus a 20-cent gain a year earlier.

Tenet's 7 3/8% notes stayed at 95.5 bid, while its 6 3/8% notes due 2011 remained at 91 bid.

RJ Reynolds bonds lost a point after Moody's Investors Service downgraded the tobacco giant's Ba1 unsecured bond rating to a Ba2. Its 7¼% notes due 2012 ended at 95.375 bid, while its 7 7/8% notes due 2009 closed at 98.375.

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