New-deal tide ebbs; Gulf-Terra bonds up on Enterprise buyout deal

By Paul Deckelman and Paul A. Harris

New York, Dec. 15- The great flood of junk bond market new-deal activity seen last week slowed to a mere trickle - at least for one session - Monday, as no new offerings were heard to have priced by the time trading wrapped up for the day. Just two prospective offerings - $200 million for CSK Auto Corp., and a revived $300 million deal for Hyundai Motors Manufacturing Alabama - were heard to have entered the deal pipeline.

And speaking of pipelines, Gulf Terra Energy Partners LP's bonds were up several points on news that the company - now 90% owned by El Paso Corp. - will merge with Enterprise Products Partners LP, forming the second-largest U.S. pipeline partnership. But even though El Paso will get $1 billion from the sale and still have 50% ownership in the entity which will come out of the merger, and it announced plans to cut its debt by one-third by the end of 2005, its own bonds were all over the lot - some up, some down.

Gulf-Terra's 8½% notes due 2011 firmed to 111.5 bid from prior levels at 109, propelled by news of the planned merger with Enterprise Products Partners.

As for its majority owner, El Paso, its bonds were "moving around today," a market source said - but were "a mixed bag." He quoted the Houston-based energy operator's 7 5/8% notes due 2008 as having firmed a point to 95, while its 7½% notes due 2006 were slightly easier at 96.5 bid, down half a point on the session.

At another desk, several El Paso issues were seen noticeably better - its 7.80% bonds due 2031 rising to 86 bid from 82 previously, while its 7¾% bonds due 2032 ended up three points at 85.

But elsewhere, a trader said that the company's bonds, like the 6.95% notes due 2007, traded as well as 96 bid, 96.25 offered, about half a point better on the open, "but by the close, it felt like everything spiked up half a point to a point, then faded real quickly and gave it all back."

Another trader concurred that "it doesn't look like El Paso went anywhere. They were up a point but gave it all back in the afternoon. The stock did OK [up 58 cents, or 8.61%, to $7.32 in busy New York Stock Exchange dealings of 22.4 million shares, almost four times the norm], but the bonds don't look like they did anything.

El Paso's bonds failed to generate much heat or light at the end of the day, even though the Texas energy operator announced plans to slash net debt to $15 billion from the current $21 billion by the end of 2005 via asset sales - such as its sale of half its stake in GulfTerra - cost-cutting and a turnaround in its production business.

The debt investment community seemed less than impressed - one of the traders remarked that El Paso's proclamation "did not go over very well," while Moody's Investors Service, for instance, confirmed the company's current ratings, including its B3 senior implied rating, with a negative outlook, declaring that the turnaround plan "provides only a modest near-term change from its pre-existing initiatives and limited immediate change from factors we considered in changing its outlook to negative last month.

"The negative outlook reflects the numerous challenges and extended time frame in executing this plan and our assessment that there will not be a material improvement in the company's credit profile in the immediate future."

In the meantime, Moody's warned, "EP continues to face sinking natural gas production, falling but still heavy spending needs, and exposure to volatile natural gas prices."

Elsewhere, the weekend capture of Saddam Hussein initially goosed Monday's stock market, although the "Saddam Rally" fizzled out much the same way the ousted dictator himself, after bellicose threats to go down fighting, allowed himself to be arrested, not with a bang, but with a whimper.

And the junk bond market didn't even get the same kind of short-lived boost that the stocks got.

"I didn't see things getting lifted this morning," a trader said. "I don't think [junk bonds] participated in that little run-up that we saw.

"What changed? He was living in a hole, so I don't know how effective Saddam has been [as a terrorism catalyst lately]. If it had been bin Laden who was caught, [stocks] probably would have held their gains. But I didn't see high yield rally at all."

Indeed, another trader said: "People are tired and waiting for Christmas" in trying to explain the market's lackluster performance, especially in the wake of last week's exciting primary-side new-issue binge.

One name which did seem, to be jumping around, as had been the case late last week, was Italian dairy products maker Parmalat. When last seen on Friday, the company's bonds had jumped from the mid-50s to around 61-62 bid, after it said that it finally paid the €150 million due on a maturing bond, which should have been paid the preceding Monday. It was only four days of difference - but it was enough to convince investors and, especially, Standard & Poor's that something was sour, liquidity-wise, company claims of having €4.2 billion of cash and equivalents on hand not withstanding.

With the bond payment out of the way, Parmalat faced new challenges. It announced Monday that company founder, chairman and chief executive officer Calisto Tanzi had relinquished his posts, with turnaround specialist Enrico Bondi taking the top spot. Bondi's first challenge: Parmalat must either pay $400 million by Wednesday to minority shareholders of its Brazilian unit, or renegotiate the deal that requires this payment.

The threat of the looming mid-week payment - coming hard on the heels of last week's bond-payment liquidity prices - helped drop the company's bonds back into the 50s, with the dollar-denominated 6 5/8% notes due 2008 (all of the company's other bonds are euro-denominated) and its 6 1/8% notes due 2010 having fallen back to 53 bid, 56 offered, from Friday's bid levels around 60-61.

But late in the day, a trader said, Parmalat paper had "moved up considerably," most likely in reaction to Bondi's official ascension to the CEO position.

He quoted the 6 5/8% and 6 1/8% notes as having gone back up to 60 bid, 62 offered from the mid-50s, a trend replicated by the 6¼% notes due 2005, which frothed up to 62.5 bid, 64.5 offered from 56.5 bid, 59.l5 offered; and its 6.80% notes due 2008, which ended at 59.5 bid, 61.5 offered, a good five points of gain.

Elsewhere, Sbarro Inc.'s 11% notes due 2009 were "down slightly," a market source said, quoting the cafeteria-style Italian restaurant chain's bonds at 79.25 bid, a two point loss. And he saw supermarket operator Roundy's Inc.'s 8 7/8% notes due 2012 up two points, at 107.75 bid.

As the new issue market made its way through the opening session of the Dec. 15 week - during which, sources say, most if not all of 2003's primary market business should be concluded - one U.S. high yield deal and one emerging markets offering climbed onto the calendar.

Meanwhile two previously announced deals were upsized.

Minneapolis power company NRG Energy powered up its bankruptcy-emergence financing to $1.25 billion from $1 billion of 10-year senior secured second lien notes (B2/B+) on Monday.

Price talk was expected to emerge late Monday or early Tuesday, however sources had not heard price talk previous to press time. Nevertheless, Prospect News heard whispered guidance in the high 7% to low 8% range.

The deal is expected to price on Wednesday via Lehman Brothers and Credit Suisse First Boston.

Also Telenet Group Holding NV upsized its dollar-denominated tranche to $305 million proceeds from $290 million of 10.5-year senior discount notes (Caa2).

Price talk is 250 basis points area behind the €500 million 10-year senior notes tranche of operating company Telenet Communications NV. Talk on that piece is 9%-9¼%. Both tranches are expected to price on Tuesday morning.

JP Morgan, Goldman Sachs & Co., Merrill Lynch & Co. and Royal Bank of Scotland are joint bookrunners on the offering from the Mechelen, Belgium-based communications company.

One new deal came into the U.S. high yield pipeline on Monday. Resolution Performance Products LLC will market a $125 million offering of senior notes due 2009 via an investor conference call on Tuesday.

The Houston-based epoxy resins manufacturer's deal, via Morgan Stanley, is expected to price this week.

Also CSK Auto Corp., a Phoenix-based auto parts retailer, announced in a Monday press release that it will bring $200 million of subordinated notes. A market source told Prospect News that the deal is expected to be 2004 business.

Price talk of 9¼%-9½% emerged Monday on El Pollo Loco, Inc.'s upcoming $110 million of senior secured notes due 2009 (B2/B), which are expected to price on Tuesday.

Jefferies & Co. is the bookrunner for the offering from the Los Angeles-based chicken restaurant chain.

And price talk of three-month Libor plus 275 basis points was heard on Paxson Communications Corp.'s $365 million of senior secured floating-rate notes due January 2010 (B1/B+). That deal started its roadshow Monday and is expected to price on Jan. 5. Citigroup is the bookrunner.

One sell-side source told Prospect News on Monday that this week's business should see execution comparable to that of the week of Dec. 8. However, the official added, the Dec. 8 week was not quite a "home run."

At issue, said the source, was the massive volume of new deals that the investment banks turned out during the five-day period. Although the $5.362 billion that priced during the period had twice been exceeded earlier in the year, the 27 tranches that priced surpassed by four the next busiest week of 2003.

"Tons of stuff got priced," said the source. "So it was certainly a successful week from the standpoint that all of those deals got done. But even though people were very interested, and were trying to lock away their money, I think they couldn't keep track of it all."

This source pointed to three of the week's transactions that priced wide of their price talk:

* FPL Energy Wind Funding LLC $125 million of 6.876% notes that priced at a spread of 325 basis points (price talk was 275-300 basis points),

* WMC Finance Co.'s downsized $200 million (from $250 million) of five-year senior notes (B2/B-) which came yielding 11¾% (price talk was 11% area), and

* Viasystems Group Inc.'s $200 million of eight-year paper (Caa2/CCC+) which priced with a 10½% yield, well wide of the 9½%-9¾% price talk.

"I think attention is one factor," commented the sell-side official. "It might not have been the deals themselves but rather a situation where people were focused on other deals.

"I think it was just too many deals," the source added. "I was hearing that from all over - even from some of the guys on our sales force.

"All in all, though, I think that in terms of execution this week will be comparable to last week."

On the emerging markets corporates front, Monday, price talk of 215 basis points area emerged on Hyundai Motor Manufacturing Alabama's $300 million of senior unsecured notes due 2008 (Ba1/BB+), according to an informed source.

Goldman Sachs & Co. is the bookrunner on the Korean auto maker's bullets.

On Nov. 21 Hyundai cited "market conditions" as it postponed its previous attempted sale of $400 million seven-year notes (Ba1).

As with the previous deal, proceeds from the new present offer are slated to fund new plant construction in Alabama.

Finally, price talk of 9¾% area was heard Monday on CSN (Companhia Siderurgica National)'s $250 million of 10-year senior notes (B1/B+), which are expected to price on Tuesday, via Citigroup.

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