Nortel three-part leads new deal parade; Tenet, Exide up; funds see $379 million outflow

By Paul Deckelman and Paul A. Harris

New York, June 29 - Nortel Networks Ltd. priced the second multi-tranche $2 billion-range mega-deal in as many sessions Thursday, following Wednesday's by Windstream Corp. Apart from the day's big deal, primaryside players saw pricings from Stewart & Stevenson LLC, U.S. Concrete Inc. and CitiSteel USA Holdings Inc.

In the secondary arena, the new Nortel bonds firmed smartly after having been freed for aftermarket activity, and there was brisk demand for the Windstream notes as well. Back among the established issues, Tenet Healthcare Inc.'s bonds firmed on news that the Dallas-based hospital operator had reached a settlement with federal prosecutors that closes out a long-running Medicare fraud investigation of the company.

And Exide Technologies' bonds were better after the company announced plans to boost liquidity via an equity rights offering and a separate private equity sale - even as it posted wider fiscal fourth quarter and fiscal 2006 losses and its auditor issued a "going concern" warning.

A buy-side source marked the broad high yield market up three-quarters of a point to half a point during the Thursday session.

"It was a little better in the morning on light flows, but after the Fed statement the market took off," the buy-sider added, referring to the Federal Reserve's policy-making Federal Open Market Committee's statement that accompanied a 25 basis points boost in the short term interest rate to 5.25%.

High yield sources, wary that the Fed might move aggressively in the face of inflationary pressures said to be bearing upon the U.S. economy, and boost the short term rate by 50 basis points, gained some confidence on Thursday that such a move does not seem imminent.

"Some people around here were debating whether it would be 25 or 50," a high yield syndicate official commented.

"But I don't see them being that aggressive.

"I think they're going to take a measured approach and look at the data before they make any major moves. I think that today they were telegraphing that to some extent."

And as trading was finishing up, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday $379.3 million more left the funds than came into them. It was the third sizable outflow in as many weeks, following the $418.5 million that hemorrhaged in the previous week, ended June 21, which in turn had followed a $382.7 million outflow the week before that.

In the past three weeks, some $1.181 billion of net outflows have been seen, according to a Prospect News analysis of the figures, and there have now been outflows seen in 11 weeks out of the last 12, for a net total outflow in that time of $2.371 billion.

Outflows have now also been seen in 21 weeks out of the 26 since the start of the year, against only five inflows, and net outflows during that time have totaled $3.638 billion, according to the Prospect News analysis, excluding distributions and counting only those funds that report on a weekly, rather than on a monthly, basis.

Year to date, $1.6 billion has flowed out of the market with regard to data collected on both a weekly and monthly reporting funds, according to AMG.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise between 10% and 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

Nortel prices $2 billion

Meanwhile it was "full steam ahead" in the primary market on Thursday.

The session pulled up short of Wednesday's primary market which generated $2.653 billion of proceeds.

However when the smoke cleared Thursday four issuers priced six dollar-denominated tranches generating $2.309 billion of proceeds.

Most of that issuance came from Nortel Networks Ltd.'s $2 billion of senior notes (B3/B-) in three tranches.

The company priced a $1 billion tranche of five-year floating-rate notes at par to yield three-month Libor plus 425 basis points, on top of price talk.

Nortel Networks also priced a $550 million tranche of seven-year fixed-rate notes at par to yield 10 1/8%, in the middle of the 10% to 10¼% price talk.

In addition the company priced a $450 million tranche of 10-year fixed-rate notes at par to yield 10¾%, at the wide end of the 10½% to 10¾% price talk.

JP Morgan and Citigroup were joint bookrunners for the debt refinancing and general corporate purposes deal from the operating subsidiary of Nortel Networks Corp.

A buy-side source said that orders for the combined three tranches of notes came to around $4 billion, with the non-callable floating-rate notes coming on top of talk, the seven-year bullet in the middle of talk and the 10-year non-call-five bonds at the wide end of talk.

"The floater and the seven-year were obviously the biggest portions of the order," the source said.

"There was a lot more hot money in the floater and the seven-year than there was in the 10-year, which went more to buy-and-hold accounts."

Prospect News followed by asking the source if the pricing relative to talk, with respect to the various tranches - five years at talk, seven years at mid-talk and 10 years at the wide end - was reflective of investors' present appetites for risk.

The buy-sider was not inclined to think that was the case, however.

"It had more to do with the fact that the floater and the seven-year fixed were bullets," the source said.

"The 10-year was callable after five years. I think that played into some peoples' thoughts.

"If this company does pull itself up out of the ashes that 10-year note is going to have some convexity issues at some point because you're just not going to be able to go up too much more than the call price (105.375 after five years)."

The rest of the field

Also pricing Thursday was Stewart & Stevenson LLC's $150 million issue of eight-year senior notes (B3/B-) which came at par to yield 10%, at the wide end of the 9¾% to 10% price talk.

JP Morgan ran the books for the Houston-based oilfield services company's debt refinancing deal.

Meanwhile U.S. Concrete Inc. priced an upsized $85 million add-on to its 8 3/8% senior subordinated notes due April 1, 2014 (B3/B-) at 98.26 to yield 8.684%.

The dollar price came wide of the 99 to 99.50 price talk.

Citigroup ran the books for the acquisition financing deal from the Houston-based ready-mixed concrete company.

The add-on was upsized from $75 million.

The original $200 million issue priced at par on March 26, 2004.

Finally CitiSteel USA Holdings, Inc. priced an upsized $75 million issue of 4.5-year senior secured PIK notes at par to yield 15%, on top of price talk and increased from $60 million.

Jefferies & Co. ran the books for the non-rated issue.

Proceeds, including the amount by which the deal was upsized, will be used to fund a distribution to shareholders.

The run-up to the Fourth

Thursday's business left a sparse forward calendar.

The books closed late Thursday for Markwest Energy Partners LP's $200 million offering of 10-year notes, which was talked Wednesday at 8½%to 8¾%.

The deal, led by RBC Capital Markets, JP Morgan and Wachovia Securities is expected to price on Friday.

On Thursday Standard & Poor's affirmed the company's B+ corporate credit rating and revised the outlook to stable from negative.

At the same time, the agency said it assigned its B rating to the company's proposed $200 million privately placed senior unsecured notes due 2016 and raised our rating on the company's existing $225 million unsecured notes to B from B-.

Finally, some market observers are also looking for Headwaters Inc.'s $150 million offering of 10-year senior subordinated notes (B3/B) via Morgan Stanley to price before Friday's close.

However late Thursday, according to market sources, no price talk or updated timing had been heard on the debt refinancing deal from the Utah-based provider of products, technologies and services to the energy and construction materials industries.

Nortel gains in trading

When the new Nortel bonds were freed for secondary dealings, the bonds "were pretty active," a trader said, seeing the 10¾% senior notes due 2016 as having "bounced up" to 101.375 bid from their par issue price earlier in the session. By the end of the day, he said, they had come only slightly off that peak to go home at 101.25 bid, 101.75 offered.

The floating rate tranche due 2011 "shot up right out of the box," to 101 bid, 102 offered, also up from a par issue price, and went out around 101.125 bid, 101.625 offered.

Another trader saw the Nortel bonds doing even better, with the 10-years closing at 102 bid, 102.5 offered, the 10 1/8% seniors due 2013 at 101.25 bid, 101.5 offered, and the floaters at 101.5 bid, 101.75 offered.

That trader also saw the new Stewart & Stevenson 10% notes due 2014 going out offered at 100.75, with "no bids seen." Those bonds had priced at par earlier in the session.

Little or no secondary activity was initially seen in the CitiSteel and U.S. Concrete deals, owing to their illiquid nature - each offering was under the psychologically significant $100 million mark, despite both having been upsized from even smaller levels.

Among other recently priced issues, Windstream's new 8 1/8% notes due 2013 and its 8 5/8% notes were each trading at 101.5 bid, 102 offered. That was an especially impressive firming for the 8 5/8s, which had priced on Wednesday all the way down at 97.547, while its companion issue had come at par.

A trader saw WCA Waste Corp.'s new 9¼% notes due 2014 at 100.75 bid, 101.25 offered. The Houston-based solid-waste disposal company's notes had priced at par on Wednesday.

At another desk, a trader saw Windstream's new bonds "active" at 101.625 bid. Also fitting that description, he said, was Intelsat (Bermuda) Ltd.'s 11¼% notes due 2016, which had priced at par on June 19; he saw those "continuing to be strong," having firmed up to 102 bid, 103 offered.

Tenet gains on settlement

Outside of secondary trading in new-deal issues - which largely dominated the day at many shops - Tenet's bonds were seen better after the second-largest U.S hospital operator reached an agreement with the Justice Department to settle the feds' outstanding Medicare billing investigations for $900 million.

A market source said that Tenet's 9 7/8% notes due 2014 were half a point better at 99.75 bid, while its 9¼% notes due 2015 edged up to 97.375. The source saw its 6½% notes due 2012 firm to 88.625 from 87.25.

At another desk, however, a trader said that even though the settlement came at the low end of the expected range and the bonds "initially picked up," the rise didn't really last. "It was a short-term expected positive, but the underlying trend for the company isn't too good. It doesn't change the actual credit."

He saw Tenet's two most active issues, the 9 7/8s and the 91/4s moving around, but not racking up any kinds of gains.

The 91/4s, he said, had opened at 99 bid, par offered, up a point from the previous session's levels. However, he saw them "kinda settling in" at the end of the day, around 98.5 bid, 99.5 offered, for a half-point gain. And he saw the 9 7/8s open at par bid, 100.5 offered, but retreating to 99.5 bid, 100.5 offered by day's end. He also saw the 6 7/8% notes due 2031 opening at 81, but then fading away to 80.25 bid, unchanged. "They traded up initially," he said of the Tenet issues, "but pretty much felt a little heavy going out."

Exide higher on equity plans

Apart from Tenet, one of the busiest names was in Exide, whose 11½% notes due 2013 "opened up hitting an 87.5 bid," a trader said, "but picked up to 90 bid without [offers], up about three points or so on the day," a trader said.

Another trader saw the Alpharetta. Ga.-based storage battery maker's at 90 bid, 92 offered, well up from prior levels at 86 bid, 88 offered.

After the close on Wednesday, Exide announced plans to boost its liquidity by a total of $125 million via a $75 million rights offering to existing shareholders, as well as a separate $50 million private equity sale, and said that it would not consider any longer the possible sale of its non-North American industrial energy unit, after having shopped the operations around for a potential sale since mid-April.

The company also posted wider losses for the recently ended fiscal fourth quarter versus a year ago and wider losses for the full fiscal year, if one negates the big goodwill impairment charge that the company took last year as part of its restructuring efforts (see related story elsewhere in this issue).

Goodyear better

Goodyear Tire & Rubber Co.'s 7.857% notes due 2011 "traded down [initially] but then traded back up again," a trader said, "1½ points off the bottom," in the wake of the Akron, Ohio-based tire giant's announcement that it will close a New Zealand tire plant and shed 400 jobs as part of its worldwide restructuring effort.

Goodyear is aiming at cutting costs by $1 billion of three years.

He saw the bonds, after closing at 91 bid, 92 offered on Wednesday, improve to 93 bid, 93.5 offered on Thursday.

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