Waterford Wedgwood deal prices; secondary falls silent ahead of break

By Paul Deckelman and Paul A. Harris

New York, Nov. 26- Waterford Wedgwood plc was heard by high yield syndicate sources to have come to market during Wednesday's abbreviated session with its offering of seven-year euro-denominated mezzanine notes, just getting the deal in before everybody went home for what essentially amounted to a four-day holiday break (following the 2 p.m. ET early close Wednesday, the junk bond market and other U.S. financial venues were shuttered Thursday for Thanksgiving, with Friday's half-day session expected to be among the lightest and most boring trading days of the year).

In the secondary arena, traders watched the clock and dreamed of turkey and football. Even a flurry of news from troubled international supermarket operator Royal Ahold NV failed to produce much in the way of activity in its bonds.

As the clock wound down Wednesday, sources in the investment banks advised Prospect News that the primary market produced little news for the session which closed early for the Thanksgiving break.

However Waterford Wedgwood priced its offering of seven-year subordinated mezzanine notes (B3/B-) via Barclays Capital.

Full details were not available but sources said the 9 7/8% notes priced at 99.381 to yield 10%.

Talk had put the €165 million offering from the Ireland-based luxury table- and dinner-ware manufacturer at 9¾%-10%.

In addition, one source provided details on a deal expected to come before the end of the year from Nexstar Finance LLC and Nexstar Finance Inc. The Irving Tex.-based company is heard to be bringing $125 million of 10-year senior subordinated notes (B3/B-).

Banc of America, Bear Stearns & Co., Lehman Brothers and UBS Investment Bank will be the underwriters for the deal, proceeds from which will go to help fund the acquisition of Quorum Broadcast Holdings, sponsored by Abry Partners.

Nexstar reached a definitive agreement in September to acquire all the subsidiaries of Quorum Broadcast Holdings, LLC, according to a Nov. 13 press release. Quorum owns and operates 11 television stations and provides management, sales or other services to an additional five stations, primarily in medium-sized markets. The transaction is expected to close in the fourth quarter of this year.

As the three-day pre-Thanksgiving week drew to a close, two and possibly three deals were positioned on the forward calendar as business expected to price during the Dec. 1 week.

Schlumberger started a roadshow on Nov. 21 for a seller notes offering of $262.6 million of Hanover Compressor Co.'s zero-coupon subordinated notes due March 31, 2007 (B-). Goldman Sachs & Co. is leading that deal, which is expected to price on Dec. 2.

Granite Broadcasting Corp. started its roadshow on Nov. 24 for $300 million of seven-year first lien notes via JP Morgan, Banc of America Securities, Goldman Sachs. The New York City-based TV station owner-operator expects to price its deal during the Dec. 1 week.

And Costa Mesa, Calif.-based pharmaceutical company Valeant Pharmaceuticals International will begin roadshowing $275 million of eight-year senior notes (BB-) on Monday via Bear Stearns, with pricing expected either on Friday Dec. 5 or Monday Dec. 8.

In conversations with two sell-side officials on Wednesday, Prospect News heard two contrasting views of the probable post-Thanksgiving primary market.

One sell-sider said that there is no reason to believe that, at least in the early December going, the market won't continue to simmer as it has been doing.

"I think there will be two weeks of decent activity," said the source. "I am expecting between $3 billion to $5 billion to price over that two-week period.

"I think you will see some drive-bys. And I also think people could come early in the week with stuff that they aim take on the road, and price by the 17th or 18th of December.

"I don't see any signs of a slowdown at all."

However another sell-side official said that for issuers that haven't already announced, the market will likely exact a premium if they intend to price before the end of the year.

"If you announced a deal in November and plan to price it in early December I think you will be okay, especially if you have a good story to tell," said the source. "People will set aside some money anticipating that.

"But you don't want to announce deals with roadshows in December because you will probably get stuck paying a year-end premium. People are closing books and have already spent most of their investment capital. So you might as well wait to be the first one out in January."

Prospect News followed by asking this official whether a continuing stream of quick-to-market transactions can be anticipated in the run-up to Christmas.

"Drive-by deals are liquidity-driven transactions," the official said. "If you don't see big inflows you are not going to see that many drive-bys. And I think the inflows are beginning to trend downward. I don't see $600 million or $700 million inflows in December.

"It has been a terrific year by any measure and people want to lock into that."

When the new Waterford Wedgwood notes were freed for secondary dealings, "they weakened up a little bit," a trader said, falling to 98.5 bid, 99.5 offered at the close from their 99.381 pricing level.

With the holiday looming, "nobody was around to trade it. I'm sure it was all European accounts, he added. "There was no State-side support for that one."

Another trader said he had not seen any dealings in Waterford Wedgwood; the only recent deal he'd seen any spots on was General Nutrition Cos. Inc.'s 8½% senior subordinated notes due 2010, which had priced Tuesday at par and then firmed smartly to levels above 102, which was about where he saw them.

One of the few high yield names which actually had any news out on them Wednesday was Ahold, which operates the Giant, Stop n' Shop and Bi-Lo supermarket chains in the U.S., as well as other supermarket and retailing businesses in its home base of Holland, elsewhere in Europe and in Asia and Latin America.

Ahold released third-quarter results and "they were clearly terrible," a trader said, as the world's third-largest retailer continued to reel from the lingering effects of an accounting scandal at its U.S. Foodservice unit earlier this year, including higher audit, legal and consultancy fees. It was also hurt by weaker performance in all business segments; costs associated with trying to divest itself of non-core operations, such as its Latin American holdings; and the erosion of the dollar against the Euro, which made its extensive dollar-denominated U.S. operations less lucrative for the Dutch-based parent.

But the trader said there had been little trading in the company's bonds. He quoted its 6¼% notes due 2009 as offered at par, down a point from Tuesday's levels, but with no bid side seen, and cautioned that in the kind of thin, illiquid pre-holiday market seen on Wednesday "you can quote anything anywhere today."

Ahold said that for the first nine months of the year, its consolidated net loss was €62 million, including exceptional non-cash losses of €130 million. Operating income before impairment and amortization of goodwill and exceptional losses for the period amounted to €857 million - a decrease of 53.4% from the same period last year, or a decrease of 45.5% excluding the effects of foreign currency fluctuations.

In the third quarter, Ahold reported an operating profit, before items, of €180 million - well down from the €280 million that analysts were expecting.

With earnings down, the company's potential ability to deal with its debt obligations likewise eroded; at the end of the third quarter, its rolling net debt/EBITDA ratio amounted to 4.3 versus 3.1 a year earlier. The rolling interest coverage ratio at the end of the first three quarters of 2003 amounted to 1.2 compared to 2.5 at the end of the same period last year.

"Everyone was checking on Ahold," the trader said, reiterating that "the earnings were terrible." However, he said that the situation was complicated by two other pieces of information which emerged - the company said that its shareholders had approved plans for a €3 billion rights issue (about $3.5 billion equivalent), with the shares to be sold to current shareholders at a sharp discount to the current stock price and the proceeds used to reduce debt. Ahold said that this could produce interest-cost savings of €200 million.

And news reports indicated that U.S. retailing behemoth Wal-Mart Corp. might emerge as the likely buyer of Ahold's two Brazilian store chains, Bompreco Supermercados do Nordeste and G. Barbosa Comercial. Such a sale could fetch Ahold somewhere between $450 million and $500 million.

It is by no means certain that Wal-Mart will be the buyer - for one thing, Brazilian anti-trust authorities don't want both chains sold to the same buyer. Other possible buyers who have emerged include the home-grown Companhia Brasileira de Distribuicao and French retailing giant Carrefour.

With the Wal-Mart news and the stock sale news on top of the earnings, the trader said, it was tough to get a handle on which way Ahold debt might go, especially in a thin and illiquid market. "It's a mixed bag. It could rally on all of this" despite the negative earnings, he added.

Another market source saw no movement in Ahold despite all of the news, quoting its 61/4s at 100.75, its 8¼% notes due 2010 at 109.25 bid, and its 6 7/8% bonds due 2029 at 90. He saw Ahold's lease-backed securities, such as its 7.82% bonds of 2020 and 8.62% bonds due 2025, likewise unchanged, both at 101.25. "I did not see anything at all in them today."

Also on the retailing front, a trader - again noting that with the market so thin, exaggerated bond price movements were possible - said that J.C. Penney Co. Inc. bonds "were again much stronger" on signs that the Plano, Tex.-based department store operator was making progress in its efforts to sell its underperforming Eckerd pharmacy operation, with CVS Corp., the nation's second-largest drugstore chain, reportedly preparing to team up with buyout specialists Kohlberg Kravis Roberts for a possible bid. He saw the Penney 8% notes due 2010 up a point at 114 bid.

And he quoted Xerox Corp.'s 8% notes a point higher at 92.5 bid, possible on delayed market reaction to bullish guidance released Tuesday; the Stamford, Conn.-based copier and office information systems giant projected that its earnings would rise by 35% in both 2004 and 2005.

He also saw Greyhound Lines' 11½% notes still "going up like a rocket," up a point at 89 bid; the Dallas-based intercity bus operator is a unit of Naperville, Ill-based bus and ambulance operator Laidlaw International Inc., which recently released positive fiscal fourth quarter results and made cautiously optimistic projections of where the company might be headed now that it has emerged from Chapter 11.

He also saw chemical maker PolyOne Corp.'s 10 5/8% notes a point-and-a-half better, at 96 bid.

A market-watcher pegged Tenet Healthcare Corp.'s bonds a little better, seeing them bounce back a little after having eased Tuesday after Moody's Investors Service cut the Santa Barbara, Calif.-based hospital operator's ratings, including its senior unsecured rating, lowered to B1 from Ba3 and its subordinated rating, cut to B3 from B2. Moody's said the downgrade was prompted by "further deterioration in operating cash flow and the potential for material calls on cash over the near to intermediate term."

But on Wednesday, he said, Tenet's 8 1/8% notes due 2008 were a point better at 94.5 bid, and its 6 7/8% bonds due 2031 were half a point improved, at 86.5.

The beleaguered company - currently under scrutiny by regulators and wrestling with big problems stemming from a rise in bad debts wracked up by a growing number of uninsured or under-insured patients - got some good news, of a sort, when a California appeals court sharply cut the damages the company was liable for in a wrongful-termination suit filed by a former executive.

While Tenet does not have to pay the full $253 million that was awarded to John Bedrosian, who was given the axe by Tenet a decade ago, it still has to pay him $148 million of it, the court said. Tenet - which said that the reduction was due to its appeal - plans to further appeal the remaining portion of the award.

A trader, who didn't really see Tenet bonds as having gone anywhere, doubted whether news of the reduction in the damage award would help Tenet's bonds in the wake of the company's other troubles. Given the size of the company, "buyers are not going to come in just because they have another $100 million," he said.

Oregon Steel Mills Inc.'s 10% notes due 2009 were seen up about two points on the session to 81 bid, although there was no news out on the Portland, Ore.-based steel mill operator.

And O'Charley's Inc.'s 9% senior subordinated notes due 2013 were being quoted unchanged, at par, despite media reports in the New York Post and other publications saying the Nashville-based restaurant chain - which has had a number of patrons come down with hepatitis A after having eaten at several of its outlets in Tennessee and Georgia - disclosed the Tennessee cases as a possible risk factor to investors in its prospectus when it sold $125 million of the bonds on Oct. 30, but did not include the information about the Georgia outbreak, even though Georgia health authorities had informed the company of the hepatitis cases in September.

It subsequently provided the information in a filing with the Securities and Exchange Commission. The news reports said that the company declined comment on the matter.

"I don't know where to quote [the bonds]," a trader said, adding that "Some people want the deal rescinded."

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