Reliant Resources upsizes to $1.1 billion two-parter; junk funds see $177 million outflow

By Paul Deckelman and Paul A. Harris

New York, June 26 - Reliant Resources Inc. restructured and sharply upsized what started out as a routine $350 million single-tranche offering into a $1.1 billion two-part mega-deal Thursday - the latest super-sized offering to come to a market still floating on a cushion of ample liquidity.

However, there was a bit less liquidity around this week than there was last week, with market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. telling Prospect News that in the week ended Wednesday, the junk funds actually showed an outflow of $177.184 million, versus an inflow of nearly $717 million the week before.

It was the first outflow after three straight weeks of inflows in which a total of $3.496 billion more came into the funds than left them, according to a Prospect News analysis of the AMG numbers. But it was only the third weekly outflow seen in the last 18 weeks, dating back to late February.

One primary market sell-side official shrugged off the outflow, saying "It's a negative, but it's nothing significant."

The junk bond mutual funds are watched by many market players as a reliable barometer of overall liquidity trends in the high yield market.

Since the beginning of the year, inflows have been seen in 18 of the 25 weeks that have elapsed, with the cumulative net inflow (counting only those funds which report on a weekly basis and excluding distributions) having swelled to an astonishing $16.012 billion, although that cumulative total fell slightly from the prior week's peak level for the year of $16.189 billion.

This surge of money since last fall into the mutual funds - and by extension, into the junk bond market from all sources - has been seen as the key to a strong secondary market recovery that ignited in last year's fourth quarter and which has kept on smoking on through the first half of 2003; by the same token, the comfortable liquidity, combined with the general climate of lower interest rates, has emboldened borrowers to the extent that even with June not quite yet over, the year-to-date total junk bond issuance is about what it was for all of last year.

And the hits just keep on comin'.

Thursday's session in the primary market played out with substantial vigor, as the investment banks pushed three deals off the forward calendar and out the door, including the massively-upsized $1.1 billion Reliant Resources deal.

Reliant took a healthy bite out of the still-very healthy stash of cash that is said to be looking for a home in speculative grade fixed income securities.

The Houston-based energy firm sold an upsized $1.1 billion notes offering in two senior secured notes tranches (B1/B) - a deal that had launched at $350 million, in a single seven-year tranche, before upsizing to $1 billion, then upsizing again to Thursday's $1.1 billion transaction.

The company sold $550 million due July 1, 2010 at par to yield 9 ¼% (price talk was 9 ¼%-9 ½%), and $550 million due July 1, 2013, also at par to yield 9 ½% (price talk was 25 basis points behind the seven-year notes).

Banc of America Securities, Goldman Sachs, Deutsche Bank Securities and Barclays Capital were joint bookrunners on the Reliant deal.

In drive-by action, Thursday, GulfTerra Energy Partners L.P. (formerly El Paso Energy Partners) priced an upsized $250 million (from $200 million) of seven-year senior notes (Ba3/BB) at par to yield 6 ¼%. Price talk on the JP Morgan/Credit Suisse First Boston-led deal was 6 ¼% area.

And Bally Total Fitness Holding Corp. sold $200 million of eight-year senior notes (B2/B) at par, Thursday, to yield 10 ½%. The Chicago-based fitness center operator's new paper came at the wide end of the 10 ¼%-10 ½% price talk, with Deutsche Bank Securities and JP Morgan running the books.

Also on Thursday, three companies disclosed their intentions to sell new junk bonds.

A roadshow will get underway late in the week of June 23 or early in the following week for Rockwood Specialties Group Inc. $375 million of eight-year senior subordinated notes, which are expected to price on or around July 10. Names on the Princeton, N.J. chemical company's deal include JP Morgan, Merrill Lynch and Goldman Sachs.

Calpine Corp. became yet another energy name in the junk bond market news Thursday when it disclosed that it will bring a $1.8 billion financing package from that will include second priority senior secured notes term loans.

The roadshow starts Friday, with Goldman Sachs in the lead, according to a source who added that Calpine's business is expected to be wrapped up during the week of July 7.

And United States Can Company unscrewed the lid (but just a little) on a $125 million second priority senior secured notes-offering, proceeds from which will go toward a partial paydown the senior secured bank facility and will also be used to increase availability under the revolver for working capital and general corporate purposes.

No timing, syndicate names or structural details on the offering were disclosed in the Thursday press release.

Finally on Thursday price talk of 7% area emerged on PG&E Corp. (yet another energy name) $600 million of five-year senior secured notes, expected to price on Friday, via Lehman Brothers.

While the gargantuan Reliant deal had priced by the time secondary trading wound down, traders said it had not yet been freed to trade around. The GulfTerra and Bally deals were likewise unseen by the close.

Back among the already established issues, news of Calpine's upcoming big financing initiative pushed the bonds of the San Jose, Calif.-based independent power producer solidly higher.

Calpine's 8 ½% notes due 2008 were quoted three points better on the session, at 76 bid, while its 8 5/8% notes due 2010 were two-and-a-half points better, at 74 bid.

A market observer saw Calpine's 8 ¾% notes due 2007 as having pushed up to 78 bid from 76.75 on Wednesday, while its 7 7/8% notes due 2008 were up three points, at 75 bid.

Calpine was one of the two big movers seen percolating around the secondary market Thursday, the other being Levi Strauss & Co., whose bonds "traded up six or seven points on earnings, but then traded back down to end unchanged," a trader said.

He quoted the San Francisco-based apparel maker's 11 5/8% notes at 86 bid. 87 offered and pegged its 12 ¼% notes at 82 bid, 84 offered, both little changed on the session despite the volatile activity.

"If any name had a little bit of a flurry, it was Levi," another trader said.

The bonds began climbing after the privately-held company (which must still file periodic earnings reports because of its public debt) reported that it had a net loss of $13.4 million in the fiscal second quarter ended May 25 - well down from the net loss of $75.87 million seen a year earlier, after the company had taken restructuring charges and related expenses of $171 million.

But Levi had a mixed message for investors. While reporting the narrower loss, Levi, which had been hoping that sales would grow in 2003, cautioned that it now expects full-year sales to be "essentially flat" on a constant currency basis.

The company said that a weak economy and consumer confidence in the first half had hit sales and forced retailers to discount heavily to shift excess inventory.

"Initially, people thought the numbers looked good. The bonds traded up a bit, but then they went back down, " the trader said.

At another desk, the Levi 7% notes due 2006 were seen having eased a point by the end of the day, to 81.

Also on the downside, Playtex Products Inc.'s bonds and shares tumbled, after the consumer products company issued sharply lower guidance from its previous forecasts.

Playtex's 9 3/8% notes dropped to 99.5 bid, well down from prior levels in the 105 area. And its shares lost 97 cents (12.65%) to end at $6.70 in NYSE dealings.

The company forecast earnings of eight cents to 10 cents a share for the second quarter, down from its previous forecast of a profit in the 22-to-25 cents a share range. Analysts had projected a 23 cent per share gain for the quarter, down from 32 cents a year ago.

For the year, Playtex cut its earnings outlook to 42-to-45 cents a share, about half of its earlier forecast of 80 cents to 85 cents. Analysts had been expecting a profit of 74 cents, down from 90 cents a year earlier.

Among other factors, Playtex cited the recent cold, wet weather in many parts of the country, which helped to sink sales of its Banana Boat sun tan products.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.