Busy day as Rural Cellular, Payless Shoe, others price; B/E Aerospace climbs

By Paul Deckelman and Paul A. Harris

New York, July 23 - The high yield primary market was hotter than the "dog days" summer temperatures felt throughout most of the U.S. Wednesday, including the 100-degree plus readings in the Southwest and West Coast, with five junk deals heard clattering down the chute, one after the other. They weren't all that large individually, but dollar-denominated offerings from Rural Cellular Corp., Payless Shoe Source Inc., Kinetic Concepts Inc. and Wabtec Corp. and a sterling/euro placement by Focus Wickes plc kept players hopping. And high-end junk players and high-grade crossover investors alike were also focused on HCA Inc.'s split-rated $500 million offering, the day's largest deal.

Secondary activity paled by comparison, although B/E Aerospace Inc, bonds firmed solidly, even though the Wellington, Fla.-based maker of aircraft cabin components posted a wider second-quarter loss from a year ago; the company redeemed itself in the eyes of both debt and equity investors by noting a recent upturn in orders and predicting "substantial improvements" in both its margins and for its bottom-line in the third quarter.

Leading the handful of junk bond offerings that priced during Wednesday's session by size was a $325 million seven-year notes deal from Alexandria, Minn.-based wireless provider Rural Cellular Corp.

Rural Cellular's notes (Caa1/CCC), via Lehman Brothers and Morgan Stanley, priced at par to yield 9 7/8%, in the middle of the 9 7/8% area price talk, although that talk had widened Wednesday morning from 9%-9¼%.

American Century High Yield Fund vice president and portfolio manager Mike Difley told Prospect News on Wednesday that the continuing rally in high yield coupled with the recent sell-off in the Treasury market have created circumstances that are causing high yield investors to look more closely at lower tier credits such as Rural Cellular.

"I'm limited in what I can hold in triple-Cs," said Difley. "But I think you're seeing managers take more risk as this rally has progressed. They've probably decreased their exposure to double-Bs and increased their exposure to single-Bs and triple-Cs," he added, noting that because of downgrades over the last several years triple-Cs have increased as a percentage of the entire market.

"And you're definitely seeing some price run in the higher-quality double-B stuff, as Treasury market yields are backing up," Difley said.

In addition to the Rural Cellular deal, terms were heard Wednesday on a $205 million 10-year senior subordinated notes offering (B3/B) from San Antonio, Tex. medical device company Kinetic Concepts Inc.

The notes priced at par to yield 7 3/8%, in the middle of the 7¼%-7½% price talk, with Morgan Stanley and Credit Suisse First Boston running the books.

Also on Wednesday Payless ShoeSource, Inc. laced up $200 million from the accounts, as it sold its 8¼% 10-year senior subordinated notes (Ba3/B+) for 98.336 to yield 8½%. The Topeka, Kan.-based footwear retailer's deal came at the wide end of the 8¼%-8½% price talk, with Goldman Sachs & Co. running the books.

Wabtec Corp. (Westinghouse Air Brake Technology Inc.) locked up $150 million on Wednesday, with its sale of 10-year senior notes (Ba2/BB+). The Wabtec paper priced at par to yield 6 7/8%, at the wide end of the 6¾%-6 7/8% price talk. JP Morgan was the bookrunner.

And from east of the Atlantic terms were heard Wednesday on an upsized two-tranche offering from Focus Wickes Finance plc of £290 million equivalent in pounds and euros of eight-year mezzanine notes (B3/B+).

The company priced £190 million of 10% notes at 89.944 to yield 12%, and €140 million of 9¼% notes at 89.673 to yield 11¼%.

ING and Royal Bank of Scotland were joint bookrunners.

News of two new offerings circulated the primary market during Wednesday's session.

National Beef Packing Co. LLC. was heard to be moo-ving in with $160 million of eight-year non-call-four senior notes (BB-) via Deutsche Bank Securities. The Dodge City, Kan.-based company will began rounding up prospective investors on Wednesday and expects to price its deal mid-week during the week of July 28.

And Armor Holdings, Inc. announced an offering of $150 million of 10-year senior subordinated notes in a Wednesday press release, although the Jacksonville, Fla.-based security products and services company did not disclosed any details on timing or reveal any syndicate names.

Finally on Wednesday, with its $1 billion behemoth tearing through the corn, CNH Global NV issued price talk of 8¾% area on its eight-year non-call four senior notes (Ba3/BB-), which are expected to price on Monday.

Citigroup, Deutsche Bank Securities and UBS Investment Bank will combine to run the books on the Lake Forest, Ill.-based farm implements manufacturer's deal.

American Century's Difley told Prospect News during Wednesday's conversation that the present build-up of deals on the new issuance calendar is uncharacteristic of the high summer season.

"Typically issuance slows way down at this time of the year," said Difley. "But I just think there is high demand and a decent amount of cash out there."

Asked whether he anticipates that the 2003 high yield rally will continue Difley said: "Certainly not at the pace that we've seen year-to-date.

"I think I would be in the camp that expects that essentially we'll be able to clip our coupon for the rest of the year.

"Since March the S&P 500 has pretty much had a steady climb, although it has gone sideways during the last month or so," he added.

"I think as long you don't see a big rolling over in the stock market it will continue to be viewed as a decent sign for the high-yield market.

"But by virtue of how much the high-yield market has rallied it's tough to see us continuing to get anywhere close to the type of returns we've seen in the first half of this year."

When the new Wabtec 6 7/8% senior notes due 2013 were freed for secondary dealings, the bonds - which had priced at par - got as high as 101.75 bid, a trader said, although he noted that investors then put the brakes on that advance and took the bonds back down to a much more modest closing gain at about 100.25-100.5 bid.

He saw Payless Shoe Source's 8¼% senior subordinated notes due 2013 at around 98.25-98.5 bid, not much changed from their 98.336 issue price.

Another trader had also seen the new Wabtecs firm to around 101.375 bid, 101.875 offered levels, although it was his impression that this is where they were late in the day. He quoted Kinetic Concepts' 7 3/8% senior subordinated notes due 2013 as also firming to 101.375 bid, 101.875 offered, up from par.

He said the new Nextel Communications Inc. 7 3/8% senior notes due 2015, which priced Tuesday at 99.803, shot up to 101 -101.25 and then fell back to around par bid, 100.5 offered, "did real well, firming to 100.375 bid, 100.875 offered Wednesday.

Back among the established issues, B/E Aerospace "was up big today," one market source declared, quoting the company's 8% notes due 2008 at 85 and its 9½% notes due 2008 as having jumped to 88 bid; recently, he said, those bonds had been treading water in the high 70s-to-lower 80s context.

B/E's Nasdaq-traded shares firmed 26 cents (7.14%) to $3.90, on volume of about 1.8 million shares, three times the norm.

The company reported late Monday that its net loss for the second quarter widened to $14.1 million (39 cents per share) from $3.2 million (9 cents per share) a year earlier.

But while the aerospace parts maker noted the downturn in the commercial aerospace market that depressed its results, it also forecast better days ahead, predicting "substantial improvements" in the coming quarter and even a return to operating profitability by the end of the year.

It said a surge of orders in the past six weeks had swelled its order backlog to $500 million as of June 30, up 15% from the end of March. The rise in orders for the company's cabin components coincides with a general upturn in the fortunes of the airline industry, with most of the major carriers recently posting improved second-quarter numbers - or at least narrower losses - versus huge year-ago deficits.

Elsewhere, Qwest Communications International Inc. debt was down, although nobody had a ready explanation; the Denver-based telecommunications operator's 6% notes due 2007 dipped to 93 bid from prior levels at 94.25 and its 13½% notes due 2010 eased to 112 bid from 114.5 bid. Qwest's 6 7/8% notes due 2028 dropped to 69.5 bid from 73.

At another desk, a trader quoted Qwest Capital Funding's 7.90% notes due 2010 two points lower at 83.5 bid, 85.5 offered and saw its 7¾% notes due 2006 a point-and-a-half down at 92 bid, 94 offered. He quoted Funding's 5 7/8% notes due 2004 at 95 bid, 96 offered, off from 96.5 bid, 97.5 offered.

Also in the telecom sphere, the trader saw Lucent Technologies Inc.'s 7¼% notes due 2006 at 94.5 bid, 95 offered, up from late Tuesday bid levels around 93, and saw Lucent's 6.45% bonds due 2029 at 66.75 bid, 67.75 offered, up from previous levels around 65.

The Murray Hill, N.J.-based maker of telecommunications equipment - which on Tuesday announced it had inked a $1 billion multi-year contract to supply gear to Sprint Corp.'s wireless network - reported that in the fiscal third quarter ended June 30, it lost $254 million (seven cents a share) - a considerable improvement from the yawning year-earlier loss of $8.03 billion ($2.35 a share) . Lucent reiterated its projection that it expects to return to a profit in its 2004 fiscal year.

"Lucent must have gone down" initially, since the latest quarterly loss was slightly larger than the six cents per share Wall Street was looking for, "but then it went back up," the trader said, also noting that Nortel Corp. - a Canadian-based Lucent rival whose bonds usually move in tandem with Lucent's - was unchanged, its 6 1/8% notes due 2006 notes at 96.5 bid, 97 offered.

Trump Hotels and Casino Resorts Inc. bonds were quoted lower after the Atlantic City, N.J. gaming operator's second-quarter results showed a $10 million loss (46 cents a share), versus a $200,000 (one cent a share) year-earlier gain. Trump's operating income of $47.2 million was down from $55.6 million a year ago and its EBITDA declined to $75.5 million from $81.4 million.

Trump A.C.'s 11¼% second mortgage bonds due 2006 were seen down more than a point at 78.25, while its Trump Holdings 11 5/8% notes due 2010 were three points off at 92 bid.

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