Hughes Network, Transcontinental deals price; Spectrum Brands dives; funds see $50 million inflow

By Paul Deckelman and Paul A. Harris

New York, April 6 - Hughes Network Systems LLC and Transcontinental Gas Pipeline were each seen pricing upsized offerings Thursday. Also pricing was a quickly shopped eurodeal from Greek issuer TIM Hellas.

While Hughes Network and Transcontinental were each upsizing deals, Burlington Coat Factory Warehouse Corp.'s prospective offering was being fitted for a leaner size, with part of the original deal converted to bank debt.

In the secondary market, Spectrum Brands Inc.'s bonds nosedived after the maker of Rayovac batteries slashed its second-quarter profit forecast, citing weakness in its consumer battery business and escalating prices for zinc, a key battery component.

Traders saw a sharp divergence in the recently strong bonds of bankrupt San Jose, Calif.-based power generating company Calpine Corp., with a number of its issues down - in sharp contrast to the notes of its Canadian financing subsidiary, which were solidly higher. Market participants speculated the movement may be linked to inter-creditor disputes being fought out in the bankruptcy courts.

And late in the day, 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 $50 million more came into those funds than left them.

That stood in contrast to the $200 million outflow seen the previous week, ended March 29. It was the second inflow in three weeks, something of a change, given that before that, there had been six straight weeks of outflows, dating back to early February. Over the last nine weeks, net outflows have totaled some $881.3 million, according to a Prospect News analysis of the AMG statistics.

Counting the latest week's result, inflows have now been seen in four weeks out of the 14 since the start of the year against 10 outflows, and net outflows have totaled $1.25 billion in that time, down from the previous week's $1.3 billion total, according to the Prospect News analysis.

Even with the latest inflow, though, the junk market has seen a broader negative pattern, with outflows seen in 12 of the last 17 weeks, dating back to mid-December. In that time, net outflows have totaled around $2.096 billion, the analysis indicated.

Those results, in turn, confirm the continuation of the predominantly negative trend that was in evidence throughout most of 2005, when $11.483 billion more left the funds than came into them, according to the Prospect News analysis - much more severe than the $3.236 billion net outflow seen in 2004.

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.

The figures exclude distributions and count only those funds that report on a weekly basis.

$1 billion-plus of deals

Issuance topped $1 billion during the Thursday session as four issuers each priced a single high-yield tranche.

Of those, two were upsized and one was downsized. Three came on the tight end of price talk and the other priced on top of talk.

Hughes Network upsizes by $125 million

Thursday's biggest amount of issuance came from Germantown, Md., broadband satellite networks and services company Hughes Network Systems LLC.

The company priced an upsized $450 million issue of eight-year senior notes (B1/B-) at par to yield 9½%. The transaction was increased from a planned $375 million.

The Bear Stearns and Morgan Stanley-led debt refinancing and general corporate purposes deal came at the tight end of the 9½% to 9¾% price talk.

MultiPlan multiple-times oversubscribed

Next came New York independent preferred provider organization MultiPlan Inc. with a downsized $225 million issue of 10-year senior subordinated notes (Caa1/B-).

With Goldman Sachs & Co. and Banc of America Securities as joint bookrunners, the acquisition financing deal priced at par to yield 10 3/8%, on the tight end of the 10 3/8%-10 5/8% price talk. It was reduced from an original $250 million size.

The $25 million by which the bond offering was downsized has been shifted to the company's bank deal.

An informed source said that the MultiPlan bond issue went extremely well, and was multiple-times oversubscribed.

Noting that Moody's Investors Service has rated the notes at Caa1, Prospect News asked this source whether investors, who were said to be developing some risk-aversion earlier in the year, had come into the second quarter of 2006 with an enhanced appetite for risk.

The source responded that it was true that a lot of investors had been playing "the double-B deals."

However, the source added, all the while those investors had been doing so interest rates have been backing up, rendering the spreads on some of the higher-quality bonds too tight.

"There is plenty of cash out there, so people can look at these lower-rated deals," the source asserted.

"If they like the credit enough it is worth taking the risk."

A junk tranche from Southern Star

Elsewhere on Thursday Southern Star Central Corp. priced a $200 million issue of 6¾% 10-year senior notes (Ba3/BB+) at 99.704 to yield 6.793%.

The notes priced at a 190 basis points spread to Treasuries, on top of price talk.

The issue was part of a $430 million overall transaction that also included a $230 million investment-grade issue from Southern Star Central Gas Pipeline Inc., the operating company, of 6% 10-year notes (Baa3/BBB-). Those came at a dollar price of 99.663 and with a 115 basis points spread to Treasuries.

Lehman Brothers and Credit Suisse ran the books for the debt refinancing deal from the Owensboro, Ky., natural gas transmission company.

Transcontinental upsizes

Tulsa-based regulated natural gas pipeline company Transcontinental Gas Pipe Line Corp. also upsized its deal, in its case to $200 million from $175 million.

The company priced the 10-year senior notes (Ba2/B+/BB+) at par to yield 6.4%.

The notes priced, high-grade style, at a 150 basis points spread to Treasuries, on the tight end of the Treasuries plus 150 to 162.5 basis points price talk.

Banc of America Securities and The Royal Bank of Scotland were joint bookrunners for the general corporate purposes and capital expenditures deal.

Burlington bails on sub tranche

News emerged Thursday on some of the week's remaining business.

Burlington Coat Factory Warehouse Corp. downsized its bond offering to $375 million from $500 million, abandoning a proposed $200 million tranche of 10-year subordinated notes.

At the same time, the Burlington, N.J., retailer of branded apparel increased the size of its term loan to $900 million from $775 million.

The downsizing and restructuring leaves the bond transaction with a single upsized $375 million tranche of eight-year senior notes (expected ratings Caa1/CCC+). That portion was previously $300 million.

Price talk on the eight-year notes is for a yield in the 11% area.

Banc of America Securities, Bear Stearns and Wachovia Securities are leading the LBO deal.

Talk also surfaced on a pair of deals being led by UBS Investment Bank.

Basic Energy Services Inc. talked its $200 million offering of 10-year senior notes (B1/B) at 7% to 7¼%.

Joining UBS for the deal are joint bookrunners Banc of America Securities and Lehman Brothers.

And helicopter services provider PHI Inc. also talked its $150 million offering of seven-year senior notes (B1/BB-) at 7% to 7¼%.

And informed source told Prospect News on Thursday that Standard & Poor's has affirmed its BB- rating on the PHI notes.

Finally, Spanish gaming firm Grupo Codere is talking the €150 million add-on to its 8¼% senior notes due June 15, 2015 (existing ratings B2/B) at a dollar price of 106.25.

The Credit Suisse-led transaction is also expected to price on Friday.

Hughes up in trading

When the new Hughes Network Systems 9½% notes due 2014 were freed for secondary dealings, a trader saw those bonds firm smartly, to 101.25 bid, 101.75 offered, well up from their par issue price earlier in the session.

He also saw the Transcontinental Gas 6.40% notes due 2016 at par bid, 100.5 offered, little changed from their issue price.

AutoNation Inc's new 7% notes due 2014, which had priced at par on Wednesday, were seen idling at 100.625 bid, 100.875 offered, while its floating-rate notes due 2013, which had also priced at par on Wednesday and then moved solidly higher, stayed that way on Thursday, cruising at 101.125 bid, 101.625 offered.

Another trader saw "nothing new" in AutoNation, pegging the Fort Lauderdale, Fla.-based automotive retailer's new bonds each around 101, the levels to which they had moved after pricing on Wednesday.

He saw Transcontinental Gas up slightly at 100.25 bid, 100.75 offered, while the Hughes bonds were at 101.25 bid, 101.75 offered.

Spectrum plunges on guidance

Back among the established issues, Spectrum Brands's bonds "got bushwhacked," a trader said, while another agreed that the notes "got walloped" after the Atlanta-based maker of flashlight batteries and a wide range of other consumer products - including electric shavers, lawn and garden care products, pet supplies, and household insecticides - issued sharply lower guidance, causing Standard & Poor's to cut its credit ratings.

A trader saw Spectrum's 8½% senior subordinated notes due 2013 slide to 85.5 bid, 86.5 offered from Wednesday's levels around 93 bid, 94 offered, while its 7 3/8% subs due 2015 swooned to 81 bid, 82 offered, down from 87 bid, 88 offered previously.

Another trader, while seeing the bonds lower across the board, saw a slightly more conservative fall, with the 81/2s at 86.5 bid, down from 90.25 bid, 92.25 offered, while the 7 3/8s were at 82.75 bid, down from 84.25 bid, 86.25 offered at the opening.

But at another desk, a trader said the 81/2s were down a full eight points at 85.5 bid, 86.5 offered, while the 7 3/8s were half a dozen points lower at 81 bid, 82 offered.

"The news came out at 7 a.m. (ET), and the bonds began falling precipitously," he said.

The bonds backtracked in line with a steep fall in its New York Stock Exchange-traded shares, which collapsed $5.99 (27.86%) to $15.51. Volume of 9.1 million shares was around 12 times the usual turnover.

The bond and shareholders ran up the white flag after the company predicted that it would record second-quarter earnings of between zero and five cents per share - well down from its own guidance, released at the beginning of the year, calling for earnings of between 35 vents and 40 cents per share, excluding special items. Wall Street also bought into those original higher estimates, with analysts on average predicting 37 cents per share of income.

The analysts had also projected second-quarter sales of just under $654 million - but the company said Thursday that sales would more likely be around $625 million.

In the face of declining battery sales - which has caused some big retailers like Wal-Mart Stores to cut back on its inventories of Spectrum's products and those of rival battery makers - Spectrum has revised its guidance lower three times since last fall.

S&P cut Spectrum Brands' corporate credit rating one notch to B- and warned that "as a result of the revised guidance reflecting continued poor operating performance, the company will need to further amend its bank facility in order to maintain access to its $300 million revolver."

The company said that it will begin talks with its lenders due to the expected results, but does not expect any problems with liquidity or cash generation.

Calpine diverges

Elsewhere, Calpine looked like it had a split personality, with the parent company's 8½% notes due 2011seen down as much as five points on the session, a trader said, at 35.5 bid, 36.5 offered - while the 8½% notes due 2008 issued by its Calpine Canada Energy Finance ULC unit soared to 67 bid, 68 offered, which he called a seven point gain.

"There's a feeling in the rumor mill that Calpine Canada's paper may achieve a higher claim in bankruptcy," he offered in possible explanation of the sharp divergence.

At another shop, a trader said that while the Calpine Canada 81/2s had pushed upward - though he saw them around six points higher at 66 bid, 68 offered - its 7¾% notes due 2009 dropped to 58 bid, 60 offered from 61 bid, 63 offered, while its convertible 4¾% notes due 2023 retreated four points to 34 bid, 36 offered, and its 6% converts due 2014 were down six points at 26 bid, 28 offered.

Yet another trader saw the Canadian bonds 6½ points higher at 66 bid, 68, opining that they "really motored up."

He cited the possibility of "inter-company arguing" between the different classes of bond creditors, "just like we saw with Adelphia [Communications Corp]."

Rivera steady on buyout

Elsewhere, the news that Las Vegas-based gaming operator Riviera Holdings Corp. has agreed to be bought out by an investment group for $426.5 million - including the assumption or the repayment of $215 million of outstanding debt - did little for the company's 11% notes due 2010, which were seen at 106 bid, 106.5 offered, unchanged on the day.

And traders saw virtually no movement in American Greetings Corp.'s 6.1% senior secured notes due 2028, which hovered at 100.25 bid, even as the Cleveland,-based greeting card company announced an ambitious capital structure overhaul, which includes tendering for those $300 million of bonds, the probably issuance of $200 million of new senior unsecureds to help pay for the tender offer, an exchange offer for its outstanding convertible notes, and an expansion of its bank debt (see related story elsewhere in this issue). "We never see that issue," one of them declared.

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