AmerisourceBergen prices two-part deal; CanWest up on tender news; funds see $84.5 million inflows

By Paul Deckelman and Paul A. Harris

New York, Sept. 8 - AmerisourceBergen Corp. successfully came to market Thursday with $900 million of new bonds in a two-part deal, high-yield syndicate sources said, while Williams Cos. Inc. doubled the size of its offering of five-year credit-linked certificates and Moog Inc. priced an add-on to its existing 6¼% notes. Beyond deals that actually priced Thursday, the session also saw Unisys Corp. and Videotron Ltee. slating "drive-by" deals expected to price on Friday, while roadshow details emerged for offerings from such prospective issuers as Gamestop Corp., IKON Office Solutions Inc. and Brookstone Inc.

In the secondary market, CanWest MediaWorks Inc.'s bonds were better on the announcement by the Winnipeg, Saskatchewan-based diversified media company that it will tender for its outstanding bonds. Calpine Corp. powered up on news of the San Jose, Calif.-based electric generating company's planned energy trading alliance with Bear Stearns Cos.

Granite Broadcasting Corp.'s bonds got a small boost on asset-sale news but Ford Motor Co.'s notes remained parked despite news reports about an all-but-officially confirmed much bigger asset sale by the Number-Two carmaker - a multibillion-dollar deal to unload its Hertz car rental operation.

And well after trading had wrapped up, market participants familiar with the weekly junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that some $84.5 million more came into the funds than left them in the week ended Wednesday. That was a reversal of the previous week, which saw a net outflow of $101.5 million in the week ended Aug. 31.

Inflows have now been seen in two weeks out of the past three - although the $9.5 million inflow seen in the week ended Aug. 24 is, relatively speaking, almost not worth mentioning.

Even with the latest gain, outflows have recently been seen in just two weeks out of the last nine. During that time, net outflows have totaled approximately $852.5 million, according to a Prospect News analysis of the AMG figures.

For the year so far, outflows have now been seen in 27 weeks of the 36 since the start of the year, against only nine weekly inflows. Cumulative net outflows for the year total around $7.891 billion, according to the Prospect News analysis, down from about $7.976 billion last week.

The fund flow trends have moved through several distinct phases so far this year; after some vague meandering around in the first few weeks of the year, there followed a 15-week stretch of outflows, from mid-February through late May, during which about $6.776 billion more left the funds than came into them, according to the Prospect News analysis. Then, after a few weeks in June and early July in which the fund flows followed a zig-zag pattern, alternating inflows with outflows, the trend again turned negative around mid-July, although the zig-zag seems to have returned, at least within the last three weeks.

Breaking out of that negative gridlock in early June sparked a revival of both the junk primary and secondary market from the doldrums seen at the tail end of the losing streak in late May, although things calmed down again in July and August as liquidity leaked from the market - plus the traditional seasonal impact of the "dog days" of summer, when major decision-makers in the corporate suites of would-be borrowers, as well as at the investment banks and prospective investors in new deals and existing bonds are for the most part on hiatus, often extended.

While the mutual funds only comprise between 10% and 15 % of the total monies floating around the high yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of the overall liquidity trends - and 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 hedge funds.

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

Although the inflow was seen as flat, a hedge fund source said that the numbers could be a cause for concern, considering the notable build up of the new issue calendar.

The source expressed the opinion that high yield could be poised to "give some ground.

"I don't think people are that enthusiastic about this market with what's going on in the economy," the buy-sider said.

"You obviously have the Fed in a quandary as to whether to continue tightening because of inflation or back off because of the [Hurricane Katrina] disaster.

"Earnings have got to be hurt with energy costs going up the way they are.

"I just don't see a lot of enthusiasm from investors. I think there is a lot of money on the sidelines, but I think it's pretty well going to stay on the sidelines."

AmerisourceBergen oversubscribed

Thursday's biggest new deal came in the form of a $900 million two-part debt refinancing and general corporate purposes transaction (Ba2/BB+/BBB-) from Valley Forge, Pa., pharmaceutical services company AmerisourceBergen Corp.

The company priced a $500 million issue of 5 7/8% 10-year notes at 99.50 to yield 5.942%, toward the tight end of the 6% area price talk, and a $400 million issue of 5 5/8% seven-year notes at 99.50 to yield 5.713%, also below the mid-point of the 5¾% area price talk.

Lehman Brothers, Banc of America Securities and JP Morgan were joint bookrunners.

A source from a hedge fund said the deal went pretty good.

"It was oversubscribed, and lot of people got shut out," the source said.

Williams doubles deal size

In a deal which was doubled in size and restructured by adding a tranche, The Williams Co. Credit-Linked Certificate Trust priced a $700 million issue of five-year credit-linked certificates transaction (B1/B+) on Thursday.

The company priced an upsized $500 million tranche of fixed-rate notes at par to yield 6 3/8%. Price talk was for a yield of 6¼%-6 3/8%. The tranche was upsized from $350 million.

Williams also added a $200 million tranche of floating-rate notes that priced at par to yield three-month Libor plus 200 basis points.

Citigroup ran the books for the deal from the Tulsa, Okla., natural gas company.

Drive-bys for Friday

Two prospective issuers showed up during the Thursday session with deals they intend to price before the Friday close.

Unisys Corp. plans to price a two-part $450 million offering of senior notes (Ba3/BB-).

The Blue Bell, Pa. information technology company talked its seven-year bullet tranche at 8% to 8 1/8%.

Meanwhile Unisys talked its tranche of 10-year notes 3/8% behind the seven-year tranche. The 10-year notes will become callable after five years.

Tranche sizes remain to be determined.

Banc of America Securities and Citigroup are joint bookrunners for the debt refinancing deal.

And Canadian cable operator Videotron Ltee. plans to price a $175 million offering of 10-year senior notes (existing Ba3/confirmed B+) in a Friday drive-by being led by the same two bookrunners.

Proceeds will be used to repay outstanding bank debt and pay a dividend to parent QMI.

Calendar continues to build

The Prospect High Yield Daily forward calendar of deals in the market spurted up into the vicinity of $4.25 billion at Thursday's close as prospective issuers continued to announce timing on junk deals.

Gamestop Corp. will begin a roadshow Tuesday for its $950 million two-part offering of senior unsecured guaranteed notes (Ba3/B+).

The Grapevine, Tex., electronic gaming company plans to sell six-year floating-rate notes that will come with two years of call protection and seven-year fixed-rate notes that will come with four years of call protection.

Citigroup, Banc of America Securities LLC, Merrill Lynch & Co. are joint bookrunners for the merger financing.

Ikon Office Solutions will begin a roadshow on Monday for its $225 million offering of 10-year senior unsecured notes (confirmed Ba2/expected BB), via Wachovia Securities and Lehman Brothers.

The notes come with five years of call protection.

The Malvern, Pa., document management company will use the proceeds to repay debt.

And Merrimack, N.H., specialty retailer Brookstone Inc. will start a roadshow Tuesday for its $190 million offering of seven-year senior notes, in a Goldman Sachs-led LBO deal.

In the face of build-up, a small inflow

Thursday evening a source told Prospect News that AMG Data Services is reporting an $84.5 million inflow to high-yield mutual funds for the week ending Sept. 7.

It follows the previous week's $101.5 million outflow, and is only the second positive flow seen in the past nine weeks.

AmeriSource edges up in trading

When the new AmeriSource Bergen bonds were freed for secondary dealings, both the 5.71% notes due 2012 and the 5.94% notes due 2015 were seen trading around 99.75 bid, 100.5 offered, up slightly from the 99.5 issue price for both tranches seen earlier in the session.

A trader saw the new Dobson Cellular Corp. floating-rate notes due 2012, which had priced Wednesday at par and then rose to 100.375 bid, 100.875 offered in initial aftermarket dealings, come down to around par bid, 100.5 offered in early dealings. Later in the day, another trader saw those bonds having softened further, to 99.75 bid, 100.75 offered.

CanWest higher

Back among the existing issues, the trader said that CanWest's 7 5/8% senior notes due 2013 were up two points on the session at 109.5 bid, 110.5 offered, while the company's 10 5/8% senior subordinated notes due 2011 were perhaps half a point better at 108.5 bid, 109.5 offered on the news that the company will tender for both issues. The trader mentioned that while the purchase price for the subordinated notes will be determined using a fixed spread over a designated reference security, the price to be paid for the senior notes will be a composite price equal to the sum of 35% of the equity claw-back price described in the notes' indenture and 65% of a fixed spread price to be determined.

Calpine gains on trading plan

Elsewhere, Calpine's bonds were seen higher on news that Calpine will be forming an energy trading operation with Bear Stearns.

A market source saw the Calpine bonds "up a bit," pegging its 7 5/8% notes due 2006 at 93.5 bid, up half a point; its 7¾% notes due 2009 at 63.75 bid, up ¾ point; its 7 7/8% notes due 2008 at 72 bid, up 1¾ points; and its 8½% notes due 2010 a point better at 76.5. He said the company's other bonds were all up ¾ point to a full point, across the board.

Another trader, however, said that while Calpine's joint venture news pushed the company's bonds up two to three points initially, "then they settled back in, and came off their highs."

Even so, at that shop, the 8½% notes due 2008 were seen up 1½ points on the day to 72 bid, 73 offered, while the 8½% notes due 2011 closed up 2½ points at 65 bid, 66.5 offered.

A market source at another desk saw the company's 8¾% notes due 2007 a point better at 77.

The Calpine-Bear Stearns joint venture will be called CalBear Energy LP. While Bear Stearns will actually own it, Calpine will receive half of the operation's profit as the exclusive energy trading agent. The two companies will provide natural gas and power trading services to third parties, but the transactions will not include any related to any of Calpine's assets.

Granite higher on sale

Granite Broadcasting announced plans to sell two of its stations - KDWB in San Francisco and WDWB in Detroit - to wholly-owned subsidiaries of AM Media Holdings LLC, for a total of $180 million - $177.5 million cash and the remainder in AM Media stock. Granite said that it anticipates that approximately $30 million of the net proceeds of the transactions will be available for general corporate purposes, and the remainder for potential expansion opportunities and/or the repayment of debt.

A trader said that Granite's 9¾% notes due 2010 initially rose two points on the news, but then settled back in for a half-point gain on the day at 95.5 bid, 96,5 offered.

Ford flat

Meanwhile, carmaker Ford's bonds were essentially unchanged on the day, even as first The Wall Street Journal and later other media reported that Ford was on the verge of announcing plans to sell its Hertz car rental company to a group of private equity companies for between $5.5 billion and $6 billion in cash, plus the assumption of around $10 billion of debt associated with Hertz.

Ford's 7.45% notes due 2031 were being quoted unchanged at around 80 bid, 80.5 offered. A trader said that such news, besides being not official yet, was "pretty much expected" anyway, since Ford has said for months it would try to sell Hertz.

Another trader said Ford's longer-end bonds were about 5 basis points tighter on the story, while its short end was unchanged.

According to media reports, two groups of firms are competing for Hertz, one made up of Clayton, Dubilier & Rice, The Carlyle Group and a private-equity affiliate of Merrill Lynch & Co., the other composed of Bain Capital, Blackstone Group, Texas Pacific Group and Thomas H. Lee Partners. The Journal said that the Clayton Dubilier-led group would be the winner, although other reports later in the day pictured the contest as still a toss-up.

The Journal said that the winning group would likely only use only about $3 billion of its own funds for the purchase and would borrow around $12 billion to fund the rest.

Pathmark dips on earnings

Among companies reporting earnings, a trader quoted Pathmark Stores Inc.'s 8¾% notes due 2012 half a point lower at 98 bid, 99 offered after the Carteret, N.J.-based supermarket operator reported a wider second-quarter loss from year-ago levels, blaming weak sales. The bonds, he said, "traded first thing in the morning" at those levels, "and then weren't seen all the rest of the day."

A market source elsewhere notched the bonds higher at 99.25 - but said that was down a quarter-point on the day.

Pathmark - which operates 142 supermarkets in the New York, New Jersey and Philadelphia areas - posted a loss of $5.1 million (12 cents per share), versus a smaller year-ago loss of $1.6 million (five cents per share).

Hovnanian falls as earnings miss

Hovnanian Enterprises Inc.'s bonds were lower after the Red Bank, N.J.-based homebuilder reported late Wednesday that its earnings for its fiscal third quarter ended July 31 rose 34% to $116.1 million ($1.76 per share) from $86.7 million ($1.33 per share), in the year-ago period; Wall Street was looking for at least $1.77 per share. The company also maintained its outlook for fiscal 2005 earnings of more than $7 per share, while the analysts, on average, are estimating $7.24.

With Wall Street worried that the housing bubble may be about to burst, the failure of a major homebuilder to meet expectations - even while posting a healthy profit - took on ominous implications, and caused its shares to fall Thursday.

Its 6 3/8% notes and 6½% notes both due 2014 each fell 7/8 of a point, a market observer said, to 97 bid and 98 bid, respectively, while its 7¾% notes due 2013 were 5/8 point lower at 104 bid.

The source also saw a major retreat in the normally thinly traded 11¼% notes due 2012 of ICON Health & Fitness, after the Logan, Utah.-based exercise equipment maker reported poor quarterly numbers. The bonds were seen down five points to 78.5.

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