Leslie's Pool Mart, Del Labs deals price; airlines little changed despite AMR, Northwest losses

By Paul Deckelman and Paul A. Harris

New York, Jan. 19 - Leslie's Pool Mart Inc., and Del Laboratories were heard by high-yield syndicate sources to have successfully priced new deals on Wednesday, the latter offering upsized by $25 million from its original size. Price talk was meanwhile head on the Carriage Services Inc. 10-year deal slated to price Thursday, and roadshows were beginning for the billion-dollar plus offering for Novellus and a smaller deal for Eye Care Centers of America.

In the secondary market, AMR Corp. and Northwest Airlines Corp. - to the surprise of nobody - reported sharply wider fourth-quarter losses versus a year ago, but the response in the junk bond market was muted. Level 3 Communications Inc.'s bonds were heard off several points.

Although the primary market saw only $345 million price Wednesday in single-tranche issues from two issuers, both deals were said to have been very warmly received by the accounts.

Meanwhile Montreal-based aluminum and packaging producer Novelis, Inc., which is being spun off from Alcan Inc., joined Intelsat in the 'billion dollar-plus' club on Wednesday, as Novelis unveiled a $1.4 billion 10-year deal that is set to kick off next week.

Del upsizes, comes inside talk

Wednesday's biggest issue came from Uniondale, N.Y., over-the-counter pharmaceuticals company Del Laboratories, Inc., which priced an upsized $175 million of 8% seven-year senior subordinated notes (B3/CCC+) at 99.34 to yield 8 1/8%, inside of the 8¼% to 8½% price talk. The offering was increased from $150 million.

Bear Stearns & Co. and JP Morgan ran the books for the acquisition financing.

Late Wednesday Prospect News learned that the company's term loan B was downsized to $200 million from $210 million, and reverse flexed to Libor plus 225 basis points, with a grid to Libor plus 200 basis points.

One source close to the bond deal reported that it had a "solid book" that was four times oversubscribed, enabling the company to price its notes an eighth of a point inside of price talk.

"People are becoming more focused on the primary market right now," the source commented.

"The secondary market is drifting," the source added. "The secondary market is suffering from a hangover from last year, with spreads that are stubbornly remaining tight."

Leslie's book was "ridiculous"

Early Wednesday a buy-side source told Prospect News that a member of the sales force from Banc of America Securities was issuing advance apologies to would-be investors for Leslie's Poolmart Inc.'s deal as allocations would in no way approach the orders filling a "ridiculous" book.

All week long the Phoenix pool company's deal had been making a splash, according to sources around the market.

The terms that finally emerged Wednesday had the company issuing $170 million (the announced size) of 7¾% eight-year senior notes (B2/B-) at 99.26 to yield 7 7/8%, on the tight end of the 7 7/8% to 8 1/8% price talk.

Banc of America Securities and Lehman Brothers were in the lifeguard stands for the deal, proceeds from which will be used to fund the recapitalization of the company by sponsors Leonard Green Partners and CalPERS, including the tender for the 10 3/8% senior notes due 2008.

$1 billion plus

As the dust settled on Wednesday's session the forward calendar was seen to contain not one but two deals that top the billion dollar threshold.

The roadshow starts Monday for Novelis, Inc.'s $1.4 billion offering of 10-year senior notes (B1/B), which is expected to price mid-week during the week of Jan. 24.

Citigroup, Morgan Stanley and UBS Investment Bank are joint bookrunners for the deal which is related to Alcan, Inc.'s spin-off of Novelis.

On Tuesday Intelsat extended the roadshow on its $2.55 billion deal, in the wake of the loss of its IS-804 South Pacific satellite.

Some market sources expect that deal, which also set to price next week, to downsize.

The calendar builds

Elsewhere on Wednesday the high-yield forward calendar of dollar-denominated deals thought to be "in the market" shot up over the $6 billion mark.

In addition to Novelis, three companies announced timing on their junk bond deals.

The roadshow starts Monday for DI Finance/DynCorp International LLC's $320 million of eight-year non-call-four senior subordinated notes (Caa1), which is expected to price on Wednesday Feb. 2, or the following day.

Goldman Sachs & Co. and Bear Stearns & Co. are joint bookrunners for the acquisition financing from the Fort Worth, Texas-based provider of mission critical support to its customers, primarily the U.S. government.

Eye Care Centers of America announced that it will begin a roadshow on Thursday for $150 million offering of 10-year non-call-five senior subordinated notes (Caa1/CCC+), which are expected to price late in the week of Jan. 24.

JP Morgan has the books for the San Antonio, Tex.-based optical retail chain's acquisition deal.

And Quality Distribution, LLC and subsidiary QD Capital Corp. are in the market with $85 million of seven-year senior floating-rate notes (Caa2), via Credit Suisse First Boston.

The Tampa, Fla.-based freight company is aiming to price the notes on Friday.

Thursday session takes shape

A pair of issuers are poised to price bonds on Thursday.

Price talk of 8½% to 8¾% emerged Wednesday on Alliance Laundry Systems LLC's $150 million of eight-year non-call-four senior subordinated notes (B3/CCC+), expected to price on Thursday via Lehman Brothers.

And Houston-based death care company Carriage Services Inc. is hoping to nail down the lid on an interest rate between 7¾% and 8% on its $130 million offering of 10-year non-call-five senior notes (B2/B-).

Merrill Lynch & Co. and Banc of America Securities are directing the services.

Leslie's up in trading

When the new Leslies' Pool Mart 7¾% senior notes due 2013 were freed for secondary dealings, investors were seen diving right in. The new bonds "did very well," a trader said, quoting them as having broken at about 101 bid, 102 offered, and then trading as high as 102 bid, before closing out at 101.5 bid, 102.5 offered, well up from their par issue price.

AMR, Northwest steady

Among the established issues, not much real movement was seen in the bonds of Northwest Airlines Corp. and AMR Corp. , even as the two big carriers reported sharply wider fourth quarter losses compared against year-ago results (See related story elsewhere in this issue).

"There was a weaker tone across the board as these guys posted their losses," a trader said, but he noted that AMR, for instance, "obviously posted a loss, but they beat the Street estimates."

Activity in the Fort Worth, Tex.-based airline was "very quiet," with its 9% notes due 2012 and 2016 holding steady in a "74-ish" context.

AMR lost $387 million ($2.40 per share) on revenue of $4.54 billion in the fourth quarter, a deterioration from its year-earlier loss of $111 million (70 cents per share). However, excluding one-time gains - notably what the airline giant got from selling its interest in online travel service Orbitz - the per-share loss of $2.94 was actually not as bad as Wall Street's expectations of $3.18 per share of red ink.

Northwest, he said, also "obviously posted a loss," - but it seemed to him like "only the long end of the curve reacted."

He quoted the Eagan, Minn.-based Number Four U.S. carrier's 10% notes due 2009 as having fallen about a point to 1½ points to the 72-73 area. But the shorter stuff, like the 8 7/8% notes due 2006 "didn't move much at all" he said, quoting them as hanging in around 89 bid, 90 offered.

The company's 2005 notes are scheduled to mature soon, he noted, which would leave the 8 7/8s as the main focus for short-term investors. Since the company has "a strong cash position," with some $2.61 billion of total liquidity as of Dec. 31, it's a pretty good bet, he said that those bonds would be money-good, at least for a while, even if the airline continues to post losses.

Another trader said that "nobody likes Northwest," which he called "almost a niche carrier," especially when compared with its somewhat larger rival, Delta Airlines, due to release fourth quarter earnings Thursday.

While "ugly numbers" from Delta could cause that company's bonds to sharply weaken and maybe take other airline issues down with it, Northwest, he said, "doesn't have the same impact."

Compounding the problem, he said, is the fact that "this market has no fear, not even on the airlines or anything." The well bid-for market, which has pushed may bonds near to, up to or over par, means that "even if bad numbers come out and the bonds go down two points, they come back up," while before, falls of 10 or more points in the day on a given issue were not uncommon, he said.

AMR, he added, "was another one." The 9% issue was not that large or liquid, and there was a lack of sellers. "You couldn't borrow that bond [to short it.'

Level 3 drops

Elsewhere, a market source saw Level 3 Communications Inc. bonds "down a lot," despite a dearth of fresh news on the Broomfield, Colo.-based telecommunications operator, whose bonds have recently been weakening from prior highs.

He quoted its benchmark 9 1/8% notes due 2008 off some 2¾ points to 77.25 bid, while its 10½% notes due 2008 and 11% notes, also due 2008, were both down 1½ points, at 82.5 bid, and 85.5 bid, respectively.

Auto names rebound

Automotive names - which had weakened over the previous three sessions on fears of a downturn in the U.S. auto industry in general and industry leader General Motors Corp. in particular seemed to firm, even as GM did in fact report weak numbers.

Bouncing back from their oversold condition of the previous sessions, Dura Operating's 9% notes due 2009 were being quoted up about half a point across the board, with its 8 5/8% notes due 2012 at 103 and its 9% notes due 2009 at 96. Another source quoted those bonds up two points on the session at nearly 97.

Tower Automotive's 12% notes due 2013 were seen a point better at 79.5.

Collins & Aikman Products bonds were unchanged, its 10¾% notes due 2011 at 101.5 and its 9% notes due 2009 steady at 96.

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