Levi, Magnachip, Cooper price deals; Rite Aid off on earnings fall; funds see $149 million outflow

By Paul Deckleman and Paul A. Harris

New York, Dec. 16 - Jeans maker Levi Strauss & Co.'s quickly shopped, upsized offering of 10-year notes proved to be a good fit for the high-yield primary market in a busy session Thursday, as new-dealers approached the end of the last full trading week of 2004. There were fewer deals than there had been earlier in the week, but they were more substantial, including Magnachip Semiconductor's $750 million offering of fixed- and floating-rate notes, and Cooper Standard's half-billion dollars-plus of new bonds offered in two tranches.

In the secondary market, Rite Aid Corp. notes were seen in need of a remedy as they were down several points after the Camp Hill, Pa.-based drugstore chain operator reported a sharp earnings slide in the third quarter and lowered its previously released 2005 guidance.

And after trading had essentially rolled up for the session, participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. said that the junk funds had recorded their fourth consecutive net outflow, as $148.7 million more was seen having left the funds than came into them in the week ended Wednesday Dec. 15, on top of the $166.8 million outflow the week before ended Dec. 8.

During the four-week long losing streak, outflows have totaled $506.9 million, according to a Prospect News analysis of the weekly AMG figures.

Outflows have now been seen in 25 weeks out of the 50 since the beginning of the year, and inflows in the remaining 25; however, on balance, the funds still show a major cumulative outflow for the year of $3.03 billion, according to the Prospect News analysis of the data. Most of the weakness was concentrated in the early part of the year, and the trend since early summer had been overwhelmingly positive - until the past four weeks.

The fund flow numbers, which include only those funds that report on a weekly basis and they exclude distributions, have traditionally been seen as a reliable barometer of overall junk market liquidity trends, even though the funds make up only a relatively small percentage of the money available in the greater high yield universe.

However Prospect News continued to hear an apparently growing chorus of voices - most of them from the high yield sell-side - insisting that the preponderance of negative numbers is not painting an accurate picture of the cash that the buy-side needs to be put to work in the asset class.

There is still cash out there, say sources. And they point to recent issues that are upsized and priced tight to or through price talk, issues that come from weak credits laden with triple-C equivalent ratings from one or both rating agencies, and issues funding stock dividends or repurchases - a use of proceeds for which the accounts have an announced abhorrence.

Thursday saw nearly $2.3 billion of new junk price, sending the not-quite-finished week of Dec. 13 to $5.4 billion, as the market continues to pull ahead of the $138.5 billion 2003 issuance mark. The year-to-date total for 2004 is now $140.805 billion, according to Prospect News data.

Eight tranches priced Thursday, counting the two Asian issuers, Magnachip Semiconductor and Asia Aluminum Holding Ltd., which were junk-rated and both said to have generated considerable interest among U.S. high yield accounts. Six of those eight tranches came at the tight end of price talk, whereas the other two came at talk. Two were upsized and one was downsized.

3 Magnachip tranches tight to talk

The Thursday session's biggest issuer was Chungbuk, South Korea-based chip maker Magnachip Semiconductor Ltd. Issuing through Magnachip Semiconductor SA and Magnachip Semiconductor Finance Co., it priced $750 million of bonds in three tranches.

The company sold $200 million of seven-year second-priority senior secured fixed-rate notes (Ba3/B+) at par to yield 6 7/8%, at the tight end of the 6 7/8%-7 1/8% price talk.

Magnachip also sold $300 million of seven-year second-priority senior secured floating-rate notes (Ba3/B+) at par to yield three-month Libor plus 325 basis points, at the tight end of the Libor plus 325 to 350 basis points price talk.

In addition the company priced $250 million of 10-year senior subordinated notes (B2/B-) at par to yield 8%, at the tight end of the 8%-8¼% price talk.

UBS Investment Bank, Citigroup, Goldman Sachs & Co. and JP Morgan ran the books for the debt refinancing deal.

Asia Aluminum, Levi Strauss price upsized deals

As to Thursday's biggest tranches, it was a tie: Asia Aluminum Holding Ltd. and Levi Strauss & Co. both completed single-tranche deals totaling $450 million apiece.

Asia Aluminum priced an upsized $450 million of seven-year senior notes (Ba3/BB) at par to yield 8%, at the tight end of the 8% to 8 ¼% price talk and increased from $425 million.

Morgan Stanley ran the books for the Hong Kong-based processed aluminum producer.

Meanwhile in drive-by action Levi Strauss & Co. priced an upsized $450 million of 10-year senior notes (CCC) at par to yield 9¾%, on top of the 9¾% area price talk.

Citigroup ran the books the debt refinancing deal from the San Francisco-based apparel maker.

Cooper-Standard tight to talk

Elsewhere Thursday Cooper-Standard Automotive, the day's second biggest issuer at $550 million, priced two tranches, both of which came at the tight end of price talk.

The company sold $200 million of eight-year guaranteed senior notes (B2/B) at par to yield 7%, tight to the 7% to 7 1/8% talk.

In addition the company sold $350 million of 10-year subordinated notes (B3/B) at par to yield 8 3/8%, again at the low end of the 8½% area price talk.

Deutsche Bank, Lehman Brothers, Goldman Sachs & Co. and UBS Investment Bank ran the books for the acquisition financing from the Novi, Mich.-based automotive technology company.

Norcross drives by with PIK note

Finally on Thursday NSP Holdings LLC in conjunction with NSP Holdings Capital Corp. (holding companies of Norcross Safety Products) priced a downsized $92 million issue of eight-year senior PIK notes at par to yield 11¾%, on top of the 11¾% area talk. It was reduced from $100 million.

Credit Suisse First Boston ran the books for the deal from the Oak Brook, Ill.-based supplier of personal protection equipment, proceeds from which will be used to repurchase a portion of the holding company's preferred shares and for general corporate purposes.

Warner Music drives in with $700 million

Meanwhile the market learned Thursday that the 2004 total issuance pot will likely fatten by another seven-tenths of a billion via a three-part quick-to-market deal from Warner Music Group.

WMG Holdings issued price talk on two of three tranches that make up its $700 million offering (B-) which is expected to price on Friday.

Price talk is three-month Libor plus 437.5 basis points area on $250 million of seven-year non-call-two senior floating-rate notes.

Meanwhile talk is 9 5/8% area on $250 million proceeds of 10-year non-call-five senior discount notes.

WMG also plans to sell $200 million of senior PIK floating-rate notes. However a source told Prospect News late in the session that talk had not been heard for that tranche.

Banc of America Securities, Deutsche Bank Securities and Goldman Sachs & Co. are joint bookrunners for the dividend-funding deal.

Friday's deals

Finally, the Friday session, which sources say will be the last comparatively busy one in the run-up to the fast-approaching close of 2004, took shape on Thursday.

Price talk of 6¾% area emerged for Inergy, LP and Inergy Finance Corp.'s $400 million of 10-year non-call-five senior notes (B1), expected to price late Friday via Lehman Brothers and JP Morgan.

And price talk of 10¾% to 11% came out on Spheris Inc.'s $125 million of eight-year non-call-four senior subordinated notes (Caa2/CCC+), expected early Friday afternoon via JP Morgan and UBS Investment Bank.

Also on the calendar as business which some observers expect to be concluded by Friday's close is Dallas window-maker Atrium's $125 million proceeds of eight-year senior discount notes (B3), via UBS Investment Bank and Citigroup. No talk had been heard on the deal as of late Thursday, according to market source.

And some market observers say that it is possible that terms will emerge on Cajun Funding Corp. (Church's Chicken)'s $155 million of seven-year senior secured second lien notes (B3).

One source maintains that the deal is being worked off the SunTrust Robinson Humphrey private placement desk, and that terms on it may therefore be scarcer than hen's teeth.

Another source maintains that it is no mystery why the Church's Chicken deal has been on the forward calendar since Thanksgiving: the deal will price, according to this source, when the book is filled.

Magnachip jumps in trading

When the new Magnachip bonds were freed for secondary dealings, the 6 7/8% second priority senior secured notes due 2011 were seen having risen to 102.25 bid, 102.75 offered from their par issue price - the same level to which the company's new second priority senior secured floaters due 2011 were also seen having risen.

Magnachip's 8% senior subordinated notes due 2014 were seen having done even better, advancing to 102.75 bid, 103.25 offered.

Levi's existing 7% notes due 2006, which are to be taken out with the new-deal proceeds, were seen up half a point at 104.5 bid. The San Francisco-based apparel maker's 11 5/8% notes due 2008 were also up half a point, at 106, while its 12¼% notes due 2012 were seen ¾ point better at 113.

Rite Aid lower on earnings

Back among the secondary issues, Rite Aid was clearly the dog of the day, its bonds seen generally down at least a point or two, and in some issues, even more.

Rite Aid's bonds "all looked like they were down 1½ to 2½ points," a market source said, quoting the company's 6 1/8% notes due 2008 and 6½% notes due 2013 both down two points on the day at 93 bid and 85.75 bid, respectively.

He saw Rite Aid's 6 7/8% notes due 2013 down even further than that, quoted at 88 bid, down 2½ points. However, he said that the fall was not as pronounced in the two issues of notes scheduled to mature in 2005 - the 6% notes and the 7 5/8% notes. He quoted the former at 101 bid, down 3/8 point, and saw the latter bonds also at 101, down 1/8.

A trader elsewhere saw the company's 8 1/8% notes due 2010 down more than a point on the day, at 106 bid, 107 offered, but said the two series of '05 bonds "were really not much changed," in the 101-101.5 range.

But at another desk, the company's 9¼% notes due 2013 were seen having initially fallen a point as trading began, only to recover somewhat to end down less than half a point at 101.75.

Rite Aid on Thursday reported net earnings of $1 million (a one-cent per share loss) in the quarter, well down from year-ago earnings of $73.6 million (12 cents a share). The loss attributable to common shareholders, after payment of $8.7 million in preferred stock dividends, was $7.7 million in the latest quarter (once cent a share), versus $76.5 million (12 cents a share) a year ago. Revenues in the latest quarter were $4.10 billion, flat from a year ago. Analysts had expected the company to break even on revenues of $4.16 billion.

Adjusted EBITDA was $163.8 million or 4.0 percent of revenues compared to $177.5 million or 4.3% of revenues last year.

Rite Aid's numbers apparently overshadowed the good news the company had on the debt side, boasting of a $605 million debt reduction during the quarter, bringing the total debt load down to $3.2 billion. It said it had completed a big refinancing transaction during the quarter that will lead to annual interest cost savings of $27 million, and it has revolving credit availability to fund the retirement of the about $216 million of bonds that are scheduled to mature in 2005 (see related story elsewhere in this issue).

Hollywood Entertainment down again

Elsewhere, Hollywood Entertainment Corp. bonds continued to erode as rival Blockbuster Inc.'s bid to acquire its smaller, financially challenged competitor seemed to be picking up more steam - with Hollywood's chief executive officer now even saying that a buyout offer for Hollywood that he's involved in with another company is not likely to succeed, which would clear the way for Blockbuster.

Portland, Ore.-based Hollywood's 9 5/8% notes due 2011 were being quoted by one market observer at 105, down three points on the session. Dallas-based Blockbuster's 9½% notes due 2012 were up a quarter point at 101.

Earlier in the year, Hollywood CEO Mark Wattles proposed a going-private transaction with the backing of Leonard Green & Partners, a Los Angeles-based buyout company, but that deal appeared to be dead by summer. It was, however, revived in the early fall, causing the Hollywood bonds to shoot as high as 114 - only to come back down to around the 108 level after Blockbuster chimed in with its own $700 million bid, perceived by debt investors as less favorable to their interests. A third takeover proposal came from smaller movie-rental chain Movie Gallery Inc.

This week, the Blockbuster bid seemed to gain momentum, as billionaire investor Carl Icahn said in a filing with the Securities and Exchange Commission that he supports Blockbuster's effort. Icahn said in his filing that following recent stock purchases he is the largest shareholder in both companies and feels that the Blockbuster offer makes more financial sense than two other offers.

On Thursday, Wattles was quoted by the Dow Jones News Service as saying he did not believe Leonard Green would be able to prevail in a bidding war for Hollywood against its two video-chain competitors.

Sirius unchanged

Also on the entertainment front, there seemed to be little movement in the bonds of Sirius Satellite Radio Inc. - even though it would appear that the New York-based satellite radio broadcaster is the biggest beneficiary from Wednesday's decision by the Federal Communications Commission that the FCC would not force satellite broadcasters like Sirius or rival XM Satellite to meet the same anti-indecency standards that over-the air radio stations licensed by the Commission must meet - meaning that barring a change, the way is clear for shock jock Howard Stern to be as naughty as the self-styled "King Of All Media" wants to be when he joins Sirius' air staff in 2006 following the end of his current contract with conventional radiocaster Infinity Broadcasting.

Even so, Sirius' 14½% notes due 2009 were seen down 1/8 at 107.375. XM's zero-coupon notes due 2010 were unchanged at 85.

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