Rite Air prices upsized $1 billion deal; InSight bounces back; funds see $65 million inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 15- Rite Aid Corp. came to market Thursday with an upsized two-part offering of senior and senior secured notes.

However, despite enough primaryside interest to warrant an upsizing to $1 billion, the secondary market essentially yawned at the mega-deal, both tranches of which traded around their respective par issue prices.

Elsewhere in the new-deal arena, Valassis Communications Inc. was heard getting ready to shop a $590 million issue of senior notes around, while pre-deal market price talk emerged on Beverages & More's offering of five-year notes, which is expected to price on Friday morning.

In the secondary market, besides the anemic performance of Rite Aid's new bonds, InSight Health Services Holdings Corp.'s notes - which had fallen sharply on Wednesday in the wake of disappointing numbers and a company warning that it might have to consider a bankruptcy filing - were up just as sharply on Thursday, helped by the Lake Forest, Calif.-based diagnostic imaging services provider's announcement that it plans to offer holders of its 9 7/8% notes equity for their bonds.

Also on the upside were the bonds of Trump Entertainment Resorts Inc., which rose least a good 2 points - although several traders said that they had no explanation for the sudden popularity of the Atlantic City, N.J.-based gaming operator's bonds.

A buy-side source who spoke on background Thursday afternoon said that the market was extremely quiet but better bid, and up 1/8 to ¼ point.

After the close, meanwhile, a high yield syndicate official remarked upon having seen a very firm open for the junk market, and described it up ¼ to ½ point on the day.

Funds see seventh straight inflow

And as activity was trailing off for the day, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $64.8 million more came into weekly-reporting funds than left them.

That followed the $100.7 million net inflow seen in the previous week, ended Wednesday Feb. 7. It was the seventh consecutive weekly inflow.

The latest figures extend the year-to-date inflows to $788.3 million among funds that report to AMG on a weekly basis.

Meanwhile, during the most recent period funds that report on a monthly basis have seen $19.4 million of inflows, extending their year-to-date flows to just under $1.49 billion.

Hence the aggregate year-to-date flows, tallying both the weekly reporting and monthly reporting funds, is $2.278 billion, according to AMG.

That positive note on which the new year has begun, liquidity-wise, with inflows now seen in each of the seven weeks since the year's beginning, stands in marked contrast to the way the old year ended, with outflows recorded over the last three weeks of 2006, as well as in 34 out of that year's 52 weeks, against just 18 inflows, for a total net outflow through the period ended on Dec. 27, the final reporting week of the year, of about $2.998 billion, according to a Prospect News analysis of the data.

But most of that 2006 outflow took place in the first half of the year, with the year's second half actually seeing a net inflow of some $638 million, the analysis indicated, with that positive trend clearly now carrying over into the new year as well.

The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

Rite Aid upsizes

In the primary, Rite Aid upsized its two-part notes offering to $1.0 billion from $800 million and priced both tranches on top of the talk.

The Camp Hill, Pa.-based drugstore chain priced an upsized $500 million tranche of 10-year senior secured second-lien notes (B3/B+/BB-) at par to yield 7½%. The secured notes were upsized from $300 million.

Meanwhile Rite-Aid priced a $500 million tranche of eight-year senior unsecured notes (Caa2/B-/CCC+) at par to yield 8 5/8%.

Citigroup ran the books for the debt refinancing and general corporate purposes deal.

Rite-Aid is in the process of acquiring Canadian drug retailer Jean Coutu Group's U.S. operations, including the Brooks and Eckerd chains.

BevMo for Friday

Friday's session will see an early close ahead of the three-day Presidents Day holiday weekend, and sell-side sources are anticipating few developments in the primary market.

Only one deal is poised to price.

Beverages & More, Inc. (BevMo) talked its $100 million offering of five-year senior secured fixed-rate notes (Caa1/CCC+) at 9¼% to 9½% on Thursday, and expects to priced the notes early on Friday morning.

Jefferies & Co. has the books.

Valassis $590 million

Sources on both the buy-side and the sell-side continue to tell Prospect News the demand for high-yield paper far exceeds the present supply, as prices chug higher in the secondary market.

However the cure may be at hand.

On Thursday one sell-sider said that the valve which feeds the new issue market may be about to be opened a few healthy turns.

One sizable acquisition deal swam into view, Thursday.

A roadshow is expected to start Tuesday for Valassis Communications Inc.'s $590 million proceeds two-part offering of eight-year senior notes (B3/B-).

The company will sell fixed-rate and floating-rate notes.

Bear Stearns and Banc of America Securities are joint bookrunners for the offering from the Livonia, Mich., marketing services company.

$50 billion first quarter

The sell-sider professed the expectation, Thursday, that the first quarter would see approximately $50 billion of new issuance. As a benchmark, at the Thursday close, tallying the Rite-Aid deal, the year-to-date total stood at just under $21 billion.

This source added that $15 billion to $17 billion of issuance is expected to be priced by the end of February, which has eight sessions remaining to be played out.

The source also expects to see $15 billion to $20 billion of issuance during March.

As the pre-Presidents Day week has unfolded, some sizable transactions have begun to come into view.

Riverdeep Interactive Learning USA is expected to launch an $820 million offering of senior subordinated notes before the end of the month.

Credit Suisse and Citigroup will be joint bookrunners for the deal backing the acquisition of Houghton Mifflin Co. by Riverdeep from Thomas H. Lee Partners, Bain Capital Partners, LLC and Blackstone Group for $3.4 billion, including the assumption of approximately $1.6 billion of debt.

Riverdeep joins a pair of sizable LBO deals also expected to price before the end of February.

Reader's Digest Association Inc. will likely launch a $750 million offering of 10-year senior subordinated notes (B3/CCC+) during the next week, via JP Morgan, Citigroup, Merrill Lynch & Co. and RBC Greenwich Capital.

Meanwhile Univision Communications Inc. is expected to launch a $1.54 billion offering of senior unsecured notes (B3) in the mid-to-late February time-frame.

Credit Suisse, Banc of America Securities LLC, Deutsche Bank Securities, Wachovia Securities, RBS Greenwich and Lehman Brothers will lead the deal.

Rite Aid weak medicine for secondary

When the new Rite Aid bonds were freed for secondary dealings, response to the issue was tepid. One trader described both tranches as "wrapped around their [par] issue price, while another saw the 8 5/8% senior notes due 2015 at 99.625 bid, par offered, while its 7½% secured notes due 2017 traded a little better at 100.375 bid 100.625 offered.

The Camp Hill, Pa.-based Number-Three U.S. drugstore chain operator's existing 9¼% notes due 2013 were meantime quoted down a point at 102.5 bid, although its 6 7/8% notes due 2028 were actually a point better, seen at 82.

Level 3 lifted

A trader saw Level 3 Communications Inc.'s recently issued bonds "up pretty good," apparently helped by the news that the Broomfield, Colo.-based telecommunications infrastructure company will be taking out several issues of existing high-coupon bonds.

He saw the new floating-rate notes due 2015, which priced at par a week ago, as having moved up to 101.25 bid, 101.5 offered, about a point higher on the day. He also saw the new 8½% notes due 2017 about ¾ point better at 101 bid, 101.25 offered.

Level 3 announced that it had it called for redemption all of its outstanding $487.8 million of 12 7/8% senior notes due 2010 at 102.146, its outstanding $95.821 million of 11¼% senior notes due 2010 at 101.875, and its outstanding €104.4 of 11¼% senior euronotes due 2010 at 101.875. It also announced plans to tender for some other issues of bonds.

The 11% notes due 2008, one of the issues to be tendered for, pushed up to 105.5 - around the announced take-out level - from 103.875 bid before the news was announced. Its 12 7/8s and 111/4s each ended up at 102 - a ½ point rise for the former but a ¾ point retreat for the latter.

InSight increases on swap offer

The roller-coaster ride continued Thursday for InSight Health Services, whose 9 7/8% notes due 2011 had slid sharply on Wednesday on the company's bankruptcy warning and its poor quarterly performance, traders said.

However, Thursday was a whole different story, as the bonds rebounded smartly, jumping to levels around 31.5 bid, 33.5 offered, well up from the levels in the mid to upper 20s to which those bonds had fallen on Wednesday.

The bonds firmed after the company said that it would offer 87% of its common stock to the holders of the 9 7/8% notes in a debt-for-equity swap. The company said that annual interest costs would fall by $19 million.

Thursday's gains marked quite a difference from Wednesday, when the Lake Forest, Calif.-based provider of diagnostic imaging services' bonds slid after it said in a regulatory filing that it has hired Lazard Frères & Co. LLC as its financial adviser to explore a refinancing or restructuring of its debt.

The company also said in its 10-Q filing with the Securities and Exchange Commission that it doubts its ability to continue as a going concern.

It warned that if its net cash provided by operating activities declines further than anticipated, InSight may be unable to maintain a sufficient level of liquidity, which could cause it to default on its debt.

A trader said Thursday that the bonds "bounced back to about where they were" before all of Wednesday's bad news had dragged the notes lower.

Northwest notes gain altitude

Also in the distressed-debt precincts, Northwest Airlines Corp.'s bonds were seen winging skyward Friday, along with its shares, after the bankrupt Eagan, Minn.-based parent of the Number-Five U.S. airline carrier filed its disclosure statement with the U.S. Bankruptcy Court for the Southern District of New York, outlining the details of its reorganization plan.

A trader in distressed issues saw the company's bonds, such as the 10% notes due 2009, all trading on top of one another around 98 bid, 99 offered, up from 95 bid, 97 offered on Wednesday.

At another desk, a market source pegged the company's 7 7/8% notes due 2008 at 97 bid, up 1½ points.

The company's Pink Sheets-traded shares, meantime, were up 21 cents (7.95%) to $2.85 on volume of about 12.2 million shares, slightly less than double the usual turnover.

The shares and bonds rose after the company filed its disclosure statement with the bankruptcy court.

Under the terms outlined in the statement, current unsecured creditors will be substantially repaid with newly issued stock, while the company's employees will hold about a 20% stake. Northwest also plans to raise $750 million via a rights offering to the unsecured creditors.

Fedders flops around

And Fedders Corp. - whose 9 7/8% notes due 2011 had fallen into the mid-50s on Wednesday before bouncing off their lows to end that session bid in a 60-61 context - were seen mostly moving within a narrow band around the latter levels.

On Thursday, a trader quoted the bonds at 61 bid, 63 offered, up from 59 bid, 61 offered on Wednesday.

At another desk, a trader saw the bonds in a 60-61 context, little changed on the session.

The volatile downside movements on Tuesday and Wednesday had originated in market rumors that the Liberty Corner, N.J.-based air conditioner maker was having liquidity problems and might default on its March bond coupon obligation, even though other people in the market scoffed at the idea, saying the company was still fundamentally not that badly off.

WCI moves up on Toll talk

The rumor mill was meantime churning out more grist on Thursday, with buyout buzz circulating about Bonita Springs, Fla.-homebuilder WCI Communities Inc. A trader said that "there was a rumor going around that Toll Brothers was going to buy WCI."

That, he said, pushed WCI's 6 5/8% notes up to 92.5 bid, 94.5 offered from prior levels at 91.5 bid, 93.5 offered.

However, another trader dismissed the notion, saying that the rumor was old news that had made the rounds "the other day," when WCI announced that it has hired Goldman Sachs & Co. to review the company's "business plans, capital structure, and growth prospects."

WCI's chairman, Don Ackerman, said in a news release that the company's board "will evaluate the options that result from this process and determine whether to pursue any of those options based on their potential to deliver shareholder value."

Trump jumps - but why?

The rumor mill was apparently silent Thursday about Trump Entertainment Resorts, leaving traders to speculate about what was going on with the company - but nobody was able to put his or her finger on it by the time trading wound down.

The company's 8½% notes due 2015 moved up to 101 bid by the close - up from 99.5 bid, par offered previously.

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