Crown Cork boosted by buyout buzz; Calpine shrugs off S&P downgrade; upsized Biovail prices

By Paul Deckelman and Paul A. Harris

New York, March 25 - Crown Cork & Seal Co. bonds were up about two to four points in otherwise mostly sleepy trading Monday, as speculation surged that the world's largest maker of beverage cans might be interested in buying it - even in the face of a later denial by the latter company, Rexam plc. Calpine Corp. debt showed little reaction to the news of three-notch ratings downgrade by Standard & Poor's.

In the primary market, investment bankers administered growth hormones to Ontario pharmaceutical firm Biovail Corp.'s offering of eight-year senior subordinated notes via bookrunner UBS Warburg. The deal swelled to $400 million from $275 million and priced at 99.270 to yield 8% even.

A syndicate official, conceding that Standard & Poor's upgrade of Biovail's bonds to BB- from B+ did the deal no harm, said that the size of the increase, and the 7 7/8% coupon speak for themselves.

"It was well oversubscribed," the official said. "We were able to come at the tight end of talk. But essentially, with a 7 7/8% coupon - although it's technically not 'through the talk' - it really was, given that it was $400 million, and it came at 7 7/8%.

"Some would say that this is a jam-job, but there wasn't a lot of dropping at that 7 7/8%. When investors heard it was $400 million at 7 7/8%, what we heard was 'Great, does that mean I'm getting more bonds?'"

Another sell-side official, not involved with Biovail, took note of the deal's size and the level at which it priced.

"The health care/pharmaceutical sector is still strong, even though it's fallen off a little this year," the sell-sider commented. "And not only are they in a good sector, but there is scarcity-value, just based on the amount of issuance that company has.

"If you get the right technicals in the market you can see stuff fly out the door like that."

The technicals, this official continued, come into focus when you contrast the gradual growth of the high yield primary market's forward calendar with record inflows of cash to the market.

"You have so much money, and the supply hasn't grown to match," the official stated. "It's been a long-term problem, so accounts are getting more and more frustrated.

"When you're at the beginning of a period like this you'll see a lot of buying in the secondary market, and then you see some tightening in the primary market.

"When this 'out-of-whack' situation, with regard to the demand curve, is prolonged like this, you're going to start seeing single-B deals start pricing with eight-handles.

"There used to be that old adage that high yield investors were afraid of anything with a seven-handle. We're kind of seeing that blown away now. And that's going to continue until we get more supply."

What creates an even more intense level of demand for a credit such as Biovail, this sell-sider added, is the fact that although demand is intense, the market continues to be closed to credits which, given similar circumstances in years past, might have gotten warmer receptions.

"It's a weird dichotomy," the sell-sider said. "The last time we had a situation like this, where there was a lot of money coming in and not enough supply, you were able to price triple-C deals, or some of the one-off names, like telecom deals.

"I'm not getting the same feeling from the market this time."

Finally, this official demonstrated a modicum of empathy, given these circumstances, for those negotiating the current market from the buy side.

"It's a Catch 22 for them," the official said. "If they don't participate they fall behind for the returns on the year. But if they do participate they get a yield that they don't feel is fair.

"But the pricing power always fluctuates back and forth between investors and issuers. And at this point it's really in the issuer's hands."

Added to the calendar Monday was an offering from Tesoro Petroleum Corp., made up of $450 million 10-year senior subordinated notes. Lehman Brothers is running the books on the deal, which starts on the road Wednesday.

The Texas company will use the proceeds to fund the acquisition of the Golden Eagle Refinery, and 70 associated sites from Valero, and as working capital.

Also on Monday, Prospect News learned from a syndicate source that JohnsonDiversey will bring $500 million of new 10-year senior subordinated notes via Goldman Sachs & Co., to price in mid-to-late April.

And word continued to circulate among market observers that defense communications firm L-3 Communications will be coming to the high yield in April with a deal amounting to $500 million of new issuance. Definite confirmation of the talk could not be obtained.

Meanwhile, price talk of 11% area was heard Monday on aaiPharma, Inc.'s offering of $175 million eight-year senior subordinated notes (Caa1/B-) via Banc of America Securities.

And price talk of 9¾%-10% emerged on Globe Telecom's $175 million of 10-year senior notes (Ba3/BB) via Salomon Smith Barney.

Both deals are expected to price Wednesday.

Back in the secondary market, Crown Cork's bonds "were up anywhere from two to four points," one market watcher said, quoting the Philadelphia-based packaging company's 6 ¾% notes due 2003 at 79 bid, its 8 3/8% notes due 2005 at 76 and its 7 3/8% paper due 2026 at 64.5.

The British financial publication The Business reported in its Sunday editions that Rexam is considering buying part or all of Crown Cork. However, the paper also pointed out that to swing such a deal, Rexam would have to issue $1 billion of stock and assume $5 billion of Crown Cork debt, including $750 million slated to come due this year.

Also working against the likelihood of such a deal might be the probable insistence of European competition authorities that the giant can maker sell some of its existing holdings there if it were to buy Crown Cork. Completion of the deal would make Rexam - which already which makes two-fifths of the billions of cans used by the giant Coca-Cola Co. - one of the world's top three packaging makers.

Crown Cork stock went on a roller-coaster ride - especially after Rexam, which had originally declined comment on the news report, reversed course later and said it was not looking into a possible Crown Cork buy. The shares fell from an intraday high of $9.14 to close down a penny at $8.64 in New York Stock Exchange dealings.

Crown Cork was one of the few credits seen doing anything Monday, a session which began what is expected to be one of the slower weeks of the year. It's Easter Week, which will culminate with an early close (2 p.m. ET) Thursday and a full debt market close on Friday, at the recommendation of The Bond Market Association; on top of that, the Passover holiday begins Wednesday night, with many participants expected to leave early Wednesday and be absent on Thursday.

A trader noted that many school systems were already closed for the week, so a lot of market people were likely to take their families on vacation, "so I think it's going to be a very spotty, short week."

"I should be on vacation," another trader quipped. "Today was just painful."

It was the kind of day, he said, during which "nothing traded. Nothing happened. It was just an abomination of a day. The telecom sector was stale, the energy sector stale, the retail sector stale. The market just opened and closed pretty much the same. A few issues that had a little bid to them, they moved maybe just a touch. Two-sided markets were a point, two points wide, and that was repeated all day long - 86-8, 86-8, 92-4, 92-4. There was no internal flow, no retail flow, no institutional flow. It was just dead. I can't imagine that tomorrow will be any better."

He saw Conseco Inc.'s 9% notes due 2006, which had firmed to 48 bid/50 offered on Friday, going out Monday at 50 bid/52 offered, helped by Friday's news that the Carmel, Ind.-based insurance company had managed to renegotiate terms for repaying $1.5 billion of bank debt, with the banks agreeing to ease the covenants and liquidity requirements on the company's outstanding bank debt, giving it greater cash flow flexibility.

But while the credit agreement "gave it a little pop," the trader added that "that was the limit of the excitement. Just the middle, intermediate stuff. The short-range stuff kind of stayed where it was, but there no real trading of any consequence whatsoever."

Elsewhere, he said, Lucent Technologies Inc. "looked like they were going to get beaten down in the morning," on Friday's news that Moody's Investors Service had dropped its senior debt two notches to B2 from Ba3 previously, citing "the continuing cutbacks in capital spending plans by Lucent's core customer base."

"But the 2006 paper opened at 81 bid/83 offered, went to 82 bid/84 offered, and then just stayed there. There was no excitement there as well."

Standard & Poor's late Monday dropped Calpine Corp. senior unsecured bonds to B+ from BB+ previously, on the San Jose, Calif.-based independent power producer's recent agreement to secure new bank financing with additional collateral.

But a trader opined "I really don't see them trading. I think it was anticipated (S&P had previously warned that such a downgrade was likely). I guess it's news once the actual downgrade happens - but the bonds themselves weren't that active in the secondary market.

He quoted Calpine's 2008 notes as having closed Friday at 80 bid/81 offered, its 8¼% notes due 2005 as having ended at 83 bid, and its and its 2011 paper at 81.5 bid before the downgrade news. "After the news, I just didn't see lot of quotes come in. I think a lot of guys anticipated this so it really shouldn't have a huge effect. Today they just waited for the news, the news came and nothing happened. We'll see how they react in the morning."

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