XTO, Petroleum Helicopters, Fisher Scientific price upsized deals; no earnings bounce for Nextel

By Paul Deckelman and Paul A. Harris

New York, April 17 - XTO Energy, Petroleum Helicopters Inc. and Fisher Scientific International were all heard by syndicate sources to have sold upsized new bond deals Wednesday in a busy session which also saw Russian telecommunications provider Vimpelcom's new deal finally price after having occupied a spot on the forward calendar for, literally, weeks.

In secondary dealings, favorable earnings reported by Nextel Communications Inc. sent the No. 5 U.S. wireless telecom carrier's bonds up sharply in early dealings - but the Nextel paper had come back down from those heights by the end of the session to essentially close unchanged.

In total, five new deals surfaced Wednesday in the high yield primary market, and four deals, including one drive-by, priced.

An emerging markets offering that priced Wednesday, VimpelCom's $250 million of three-year non-callable notes (B3/B), attracted a slight amount of attention in the high yield universe according to a syndicate source.

Vimpelcom's new paper priced at par to yield 10.45% via joint bookrunners JP Morgan and UBS Warburg.

"We did have one or two guys who played in the deal who are high yield-type names," the source said, adding that one high yield investor had actually met with the company.

"Three years is a pretty short deal for high yield," the syndicate source added. "I think that throws a lot of people off from the start. In addition wireless has obviously not had a great time recently in the high yield or the high grade market for that matter.

"This is really much more of an emerging markets deal than a high yield deal," the source continued. "People are buying it first and foremost because it is Russia, and it's a well-run company with good growth prospects in Russia. The dynamics of the market in Russia are different than they are in the US or in most other developed markets."

Although Prospect News heard several high yield buy-siders express a certain level of skepticism regarding VimpelCom, the syndicate source commented that for investors looking to allocate assets to emerging markets credits, VimpelCom must have been an attractive credit. Price talk successively tightened over the course of the roadshow starting at 10.675%, then tightening to 10.45%-10.60% and ultimately priced at 10.45%. The deal was also well oversubscribed, the source added.

"This is a good complement to the portfolios of investors who already are familiar and invest in Russian sovereign investments," the syndicate source said.

"Russia has rallied massively over the last year or two. In emerging markets Russia is probably the biggest outperformer in the market. Russian sovereign bonds - the 2010s - trade at a spread of 348 over Treasuries, which has got to look pretty tight to anybody in the high yield market.

"So people are extremely bullish on Russia. Something that comes and offers people an attractive pickup to the sovereign - the yield right now on the Russian sovereign three-year bond is 7% - holds a big appeal for people."

Another emerging market credit, Turkish TV screen-maker Vestel Electronics, is set to start roadshowing $150-$200 million of new senior notes, possibly with a five-year maturity, in Europe and the United States before week's end, according to a market source who identified ABN Amro as the bookrunner.

In assigning its Ba3 rating, Moody's noted that Vestel pierced the sovereign ceiling rating of B1 assigned to foreign currency debt of issuers domiciled in Turkey.

Fitch's B rating, meanwhile, alluded to constraint relative to the Turkish sovereign rating.

Vestel's new deal is expected to price during the week of April 29.

Western Financial Bank, an Irvine, Calif.-based independent auto finance company and a subsidiary of Westcorp, announced it will bring a registered offering of $200 million of subordinated capital debentures due 2012 (B1/BB-) via Credit Suisse First Boston. A syndicate source said that the roadshow will start Thursday, with an April 26 pricing anticipated.

Late in Wednesday's session the market heard news of a new deal form Vintage Petroleum, Inc. a Tulsa, Okla. exploration and production company which will start marketing $250 million of new 10-year senior notes on Friday, according to a source.

Deutsche Bank Securities Inc. and BMO Nesbitt Burns are joint bookrunners.

Even later, well after the market close, two more new deals were announced.

Nacco Industries, Inc. said its NMHG Holding Co. subsidiary will sell $250 million of senior notes due 2009 in a Rule 144A offering. Proceeds will be used to refinance existing debt.

And ON Semiconductor Corp. said it plans to sell $300 million of senior secured notes due 2008 in a Rule 144A offering. The deal will be jointly issued with its Semiconductor Components Industries LLC subsidiary. Proceeds will prepay part of Semiconductor Components' term loans.

Details on timing and the names of the underwriters were not disclosed.

Also on Wednesday, Lafayette, La.-based Petroleum Helicopters saw the size of its new seven-year senior notes (B1/BB-) ascend by $30 million. The company priced $200 million, raised from $170 million, at par to yield 9 3/8% via UBS Warburg.

Hampton, N.H.-based Fisher Scientific International, Inc. priced a drive-by deal on Wednesday, which was also upsized according to a syndicate source. Its $150 million - up from $125 million - of 10-year senior subordinated notes priced at par to yield 8 1/8% via joint bookrunners JP Morgan and Credit Suisse First Boston.

Late in the session, XTO also priced an upsized offering, increasing its deal to $350 million from $300 million and selling the 10-year senior notes at par to yield 7½%. Bookrunners were Lehman Brothers and Salomon Smith Barney.

Finally Wednesday the market heard price talk of 9 1/8%-9 3/8% on WCI Communities, Inc.'s $200 million of 10-year senior subordinated notes (B1/B) via UBS Warburg. WCI Communities, the fifth homebuilding credit to appear before high yield investors during the past fortnight, expects its deal to price Thursday.

"The calendar builds - that's the story of the day," a secondary trader remarked, noting that otherwise, things were pretty quiet on his watch. But with most of the deals having priced fairly late in the session, he had seen none break for secondary trading by the time things had started to wind down.

And, he predicted, some of the deals probably wouldn't be seeing much secondary play - either because the credits involved were too good, or, conversely, not good enough.

XTO would fall into the former category. Noting the pre-deal market price talk in the range of 7½% to 7 5/8% on the issue (it eventually did price at par to yield 7½%), he opined that this was "extremely tight - at least too tight for a lot of high yield guys. Personally, if I were on the buy-side, I probably would not be buying that deal."

He called XTO "one of the better credits in E&P (energy exploration and production) - I actually love the credit, but without [a handle of at least] 8%, I don't think I'd buy it."

The trader even compared the XTO deal unfavorably - at least from a high-yield market perspective - with last week's $1.5 billion two-tranche mega-deal for split-rated hotelier Starwood Hotels and Resorts Worldwide, which was snapped up by high-grade accounts looking for a bit of higher-yielding crossover action, but which was largely shunned by junk players, since its two tranches priced to yield 7.45% and 7.95%, respectively - far inside the minimum yield which most junk portfolios are looking for. "XTO is pricing around those same kind of levels - and Starwood, at least, had five B's attached to it (Ba1/BBB-), and we didn't even buy that. So why in the hell would I buy this [XTO] deal?" he asked with a rhetorical flourish.

On the other end of the credit spectrum, he noted, was Vimpelcom, a deal which, he noted, seemed to have been on the calendar "like, forever." In and of itself, the ratings on the deal were not that bad at B3/B, and it did price at talk of 10.45%. But given the still precarious state of the government and the economy inside the former Soviet Union, he cautioned, "a Russian telephone company? Who's going to buy it? Not me. I don't know that much about the company, but at first glance, at least, I don't think I'd be looking to put my money there - regardless of how much cash I have."

The current struggles of Polish telecommunciations conglomerate Elektrim SA - which defaulted on €480 million of convertible bonds and which is trying to avoid being pushed into insolvency proceedings by disgruntled bondholders - provide a cautionary tale for some U.S. debt investors about getting involved in funding telecom projects in the wide open markets - some would say almost-Wild West-type atmosphere - behind what used to be the Iron Curtain.

At another desk, a trader said Petroleum Helicopter's new deal "went pretty well," but quoted the just-issued bonds as bid at 100.5, "but with no right side. There were no two-sided markets in it."

Western Oil Sands Inc.'s new 8 3/8% senior secured notes due 2012, which priced Tuesday at par and then shot up to around 101.625 bid/102 offered on the break, were seen hanging in at those same higher levels on Wednesday.

Among already established issues, Nextel Communications - whose bonds had been strengthening all this week on hopes for consolidation in the wireless sector and, on Tuesday, favorable earnings reported by one of its larger rivals. Sprint PCS, seen as a possible harbinger of improved conditions for the wireless industry - "opened pretty strong," the trader said, its benchmark 9 3/8% notes jumping up to bid levels around 73 from Tuesday's close at 68 bid/69. The surge followed the release of the Reston, Va.-based wireless operator's first-quarter earnings data. While Nextel's net loss widened to $654 million (82 cents per share) from a year-earlier loss of $428 million (56 cents per share), following special charges for goodwill accounting changes ($355 million/42 cents per share) and restructuring ($40 million/5 cents per share), its operating loss, excluding those charges was $279 million (35 cents a share) - well below analysts' estimates, which averaged a 40-cent-per share loss, and some of which projected a loss as much as 51 cents per share.

Nextel also boasted a gain in revenues to $2.16 billion, versus $1.74 billion a year earlier, and expressed confidence about being able to meet its aggressive 2002 financial targets, and reaching positive free cash flow by 2004, or perhaps before that.

The company said that it had added 502,000 new subscribers during the quarter - the analysts had been looking for between 475,000 and 500,000 new customers - and it reiterated its goal of having two million new customers by the end of the year (it currently has 9.2 million domestic subscribers).

Analysts were also favorably impressed by the 66% gain in Nextel's operating EBITDA (earnings before interest, taxes, depreciation and amortization, considered a key bond market measure of potential cash flow generation capacity and ability to service debt) to $586 million in the latest quarter, from $353 million a year ago. Nextel anticipates reporting $2.3 billion of EBITDA for the year.

Nextel's bonds "had a little flurry for about two hours" in response to the numbers, the trader said, "and then they softened up and the bonds finished down five points from their highs," at the same 68 bid/69 offered level they had gone home at on Tuesday.

"Nextel's 9 3/8s traded up four points to 72.5 right out of the chute," another trader said, "but then went down to 71, and 70, then were offered at 68.5. Its bonds ended the day unchanged to down slightly," depending on the issue. "I was surprised to see them trade all the way back down. But then again, was the news all that good [with the still sizable losses the company was posting]? No. The market is looking for any shred of hope to cling to among the telecoms, and Nextel basically told them 'no, we're not about to go out of business.' That was their good news."

Equity investors were also riding Nextel's elevator during the session; its shares, which had closed Tuesday at $5.95, shot up to $6.75 in early Nasdaq dealings following the release of the earnings data, before coming back down off that peak to end the day at $6.04, up just 9 cents (1.51%). Volume of 51 million shares was more than twice the usual turnover.

Elsewhere, a trader said that Adelphia Communications Corp's bonds "were pretty quiet, and hung in there, believe it or not, not much changed," despite the news that the Securities and Exchange Commission had officially opened a formal investigation into the Coudersport, Pa.-based cable-television operator's accounting practices. That caused Adelphia's shares to slide 77 cents (9.6%) in Wednesday's trading on the Nasdaq, to $7.25. But the trader saw the company's 9 7/8% notes still clinging to bid levels around 85-86.

The SEC news followed by a day Adelphia's announcement that would again delay the filing of its 10-K report with the commission, contending that it needed more time for its independent auditor to review recently announced co-borrowing obligations with partnerships controlled by its founding Rigas family, which could leave the big cable company on the hook for as much as $2.3 billion of debt in addition to the $14 billion which it had previously acknowledged. Adelphia's recent revelations of those off-balance-sheet debts - coming as they did in the wake of the Enron Corp. debacle, which also centered on off-balance-sheet debt obligations - help drop the company's bonds sharply from their previous levels at or even above par, while slashing the value of its stock by about half.

Gap Inc.'s bonds "were hanging in," a trader said, quoting the San Francisco-based apparel retailer's 6.90% notes due 2007 at 88 bid, off slightly from recent highs around 89.25 bid/89.75 offered, but still well up from recent lows following the company's warning that its same-store sales would likely fall sharply in April from March levels, which themselves marked two straight years that the key monthly measure of retailing activity had been dropping from year-earlier levels. "The bonds got killed on those figures, but have managed to grind their way back up,' he declared.

Also in the retailing sphere, the trader saw Fleming Cos. recently priced 9 7/8% senior subordinated notes due 2012 - which had priced at 98.436 on April 3 and "didn't trade that well" on the break, having now pushed up to around 99 bid/par offered. "There seems to be some interest in that," he said.

But one of the Dallas-based food wholesaling giant's biggest customers, Kmart Corp., was headed in the opposite direction Wednesday, following the revelations that the bankrupt Troy, Mich.-based discount retailer had given more than $30 million in corporate loans to its top executives shortly before filing with the U.S. Bankruptcy Court in Chicago for Chapter 11 protection from its junk bond holders and other creditors in January.

The loan news "certainly was not a positive for the company," the trader said, quoting its benchmark 9 3/8% notes due 2006 as having dropped back to 47 bid/49 offered from prior levels around 50 bid/52 offered. "That paper just came out of the woodwork today."

A trader saw little movement in the subordinated junk bonds of Harrah's Entertainment Inc., after the Las Vegas based gaming giant reported first-quarter EBITDA of $281.2 million (74 cents per share), up from $235.4 million/47 cents per share a year ago, and well up from the 54 cent-per-share consensus analysts had been looking for.

While that was strongly positive news, he said, "those bonds are mostly pretty fully valued, and are trading pretty tightly now." Harrah's Ba1/BB+ 7 7/8% notes due 2005 (their senior debt is investment-grade rated and is quoted on a spread basis over Treasuries) were seen trading around 103.25 bid.

"Harrah's was a little stronger, but there was no great breakout. How could there be a breakout at these high levels?"

At another desk, rival casino operator MGM Grand - which also had favorable earnings news - was quoted unchanged on the session, its 9¾% notes due 2007 at 107.5 bid/108.5 offered. A trader said the bonds "had risen as high as 109 bid at one point [Tuesday] in anticipation of the numbers, but were not much changed on the session [Wednesday]."

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