Downsized CNH, upsized Eircom, Morris among deals pricing; Oregon Steel continues slide

By Paul Deckelman and Paul A. Harris

New York, July 29 - After a one-session hiatus Monday in which no new high yield deals were heard to have priced, the primary-side came roaring back with a vengeance Tuesday, as terms were heard on a half a dozen offerings. What had been expected to be the biggest deal of the day, CNH Global NV's $1 billion offering of eight-year notes, actually downsized and came in well below that level, but Eircom Funding Ltd and Valentia slightly upsized their joint offering to over €1 billion, while Morris Publishing Group LLC also enlarged its transaction.

In the secondary arena, Oregon Steel Mills Inc. notes were on the slide for a second straight session, as the company announced the resignation of president/chief executive officer Joe Corvin. Other steel issues declined in sympathy with Oregon. Also on the downside, El Paso Corp. bonds were seen "significantly" lower in the words of one market observer, although no specific negative news on the Texas-based energy company was seen.

Tuesday's hectic session in the high-yield primary market turned out to be a good news/bad news affair. The good news was that 10 tranches of high-yield notes priced totaling $1.975 billion in dollar-denominated business. With the two euro tranches from Eircom and Valentia's €1.05 billion equivalent offering thrown in, the market easily saw over $2 billion equivalent of business on Tuesday.

The bad news was that four of the eight dollar-denominated tranches that priced during the session came wide of their price talk and two were downsized.

As the rout in Treasuries continued on Tuesday (late in the session the 10-year note yield was up 16 basis points to 4.44%), one sell-side official told Prospect News that the Treasury sell-off was not only impacting the higher-quality paper that is traditionally considered sensitive to Treasuries but was also being felt throughout the junk bond market.

"One deal came at price talk," said this official, referring to Eircom/Valentia, the formerly state-owned Irish telecom which sold three high-yield tranches totaling €1.05 billion on Tuesday.

Valentia UPC sold €550 million - increased from €500 million - of senior notes due Aug. 15, 2013 (Ba3/BB+) at par to yield 7¼%, via Deutsche Bank Securities. Price talk was 7¼%-7½%. And Eircom Funding UPC sold €285 million and $250 million of senior subordinated notes due Aug. 15, 2013 (B1/BB+) at par to yield 8¼%. Price talk was 8¼%-8½%. Deutsche Bank Securities, Barclays Capital and Citigroup were joint bookrunners on the sub tranches.

"Everything else has come wide," the official continued (although at the time this source spoke with Prospect News some Tuesday business was still pending). "That's partly to do with the Treasuries," added the source. "And it could also have to do with the market getting a little softer, with a summer calendar that is probably too big.

"I do think we're seeing a correction, here."

It should be added, that late in the session, some time after the above interview, Select Medical Corp. priced an offering of $175 million of 10-year non-call-five senior subordinated notes (B2/B) within but at the wide end of price talk. The notes priced at par to yield 7½% compared to talk of 7¼%-7½%. JP Morgan and Merrill Lynch ran the books for the Mechanicsburg, Pa.-based company.

Among the first terms to be heard Tuesday were those from Case New Holland Inc. The subsidiary of Illinois tractor maker CNH Global NV mowed a whopping 25% off of the amount of new issuance it had been marketing, as it downsized its deal to $750 million from $1 billion.

Case's new 9¼% senior notes of 2011 (Ba3/BB-) priced at 98.621 to yield 9½%, well wide of the 8¾% area talk. Citigroup, Deutsche Bank Securities and UBS Investment Bank were the bookrunners.

Augusta, Ga.-based newspaper publisher Morris Publishing Group LLC actually upsized its Tuesday deal to $250 million from $200 million. However Morris also printed a yield on its 10-year non-call-five notes (Ba3/B+) that was wide of talk: the notes priced at par to yield 7%, wide of the 6½%-6¾% price talk. JP Morgan was bookrunner.

The possible market correction also impacted Corrections Corp. of America, which downsized its add-on deal to $200 million from $250 million.

Market observers will recall that late in its roadshow Corrections Corp. was heard to have restructured a previously proposed offering of 10-year non-call-five senior notes, opting instead to do the deal as an add-on to its 7½% senior notes due May 1, 2011 (B1/B). On Tuesday the downsized deal priced at 101.125, cheaper than the 102.375-102.875 range that had been talked.

Nonetheless, with a yield to worst of 7.253% the private jailer locked up a lower interest rate than it had gotten when it priced the original $250 million deal on May 2 at 7½%.

Nor did Seabulk International, Inc. manage to navigate to the precise interest rate coordinates for which it had set its course. The Fort Lauderdale, Fla.-based marine support and transportation services provider sold $150 million of 10-year senior notes (B2/B) at par to yield 9½%, again wide of the 9% area talk. Credit Suisse First Boston was the bookrunner.

Also coming wide of talk on Tuesday was New Orleans-based independent oil and natural gas exploration and production company Energy Partners, Ltd. which sold $150 million of seven-year senior notes (B2/B+) at par to yield 8¾%, outside of the 8¼% area talk. Credit Suisse First Boston ran the books.

There remains one joker in Tuesday's deck. Market sources who spoke to Prospect News had not heard price talk on the Anchor Glass Container $50 million add-on to its 11% senior secured notes due Feb. 15, 2013, which priced at 107.5 for a yield to worst of 9.579%, via Deutsche Bank Securities and Credit Suisse First Boston. That was a substantial improvement from the 11% achieved when the original $300 million deal was priced on Jan. 31.

Word of two new offerings climbing onto the crowded summer calendar was heard on Tuesday, as the roadshow got underway for Norcross Safety Products LLC's offering of $150 million senior subordinated notes due 2011 (B3/B-), expected to price late in the week of August 4. The Oak Brook, Ill.-based company is a supplier of personal protection equipment, and CIBC World Markets and Lehman Brothers are joint bookrunners its offering.

The market also heard that the roadshow will begin sometime during the week of July 28 for Vale Overseas Ltd.'s $300 million of 10-year notes (Ba2). The prospective emerging markets issuer is a subsidiary of Brazilian iron ore giant Companhia Vale do Rio Doce, which will guarantee the bonds. Deutsche Bank Securities and Morgan Stanley are bookrunners on the deal.

Meanwhile price talk of 8¼%-8½% was heard on Euramax International, Inc.'s $200 million of eight-year non-call-four senior subordinated notes (B2/B), which are expected to price on Wednesday, via UBS Investment Bank and Banc of America Securities.

And the official price talk is 10¼% area on FHC Health Systems, Inc.'s upcoming $250 million of eight-year non-call-four senior notes (B3). They are expected to price on Thursday via Citigroup and Goldman Sachs.

When the new CNH 9¼% senior notes due 2011 were freed for secondary dealings, the bonds were heard to have firmed slightly to the 99 bid, par offered area from their 98.621 issue price. By the end of the session, they had come in slightly from their peak to close slightly above issue, at 98.75 bid, 99.75 offered.

By way of contrast, the new Select Medical 7½% senior subordinated notes due 2013, which had priced at par, improved to 101.375 bid, 101.625 offered.

Among recently priced new deals, meanwhile, names such as - Jacuzzi Brands International Inc, Domino's Inc, Orbital Sciences Inc., Columbus McKinnon, Wackenhut Corrections Corp., Merisant Co., Rockwood Specialties Group Inc., and TransDigm Inc. all continued to trade at least two points above their issue prices - and some considerably north of that. Calpine Corp.'s three new issues, Cincinnati Bell Inc. and Western Wireless Corp. were all being quoted two points or more down from their issue prices, with the vast bulk of the recent newbies somewhere in between those extremes.

Back among the existing credits, Oregon Steel - whose 10% notes due 2009 were heard to have fallen to about an 80-81 context Monday from prior levels around 85 - were seen getting whacked down further still on Tuesday, to as low as a 75 bid nadir, although at least one trader saw them come off their lows late in the day to climb at least part of the way back up, to 77 bid, 78 offered, "maybe on short-covering," he suggested.

There was no news out on the Portland, Ore.-based mini mill steel producer on Monday, although at least one market participant opined that the sudden postponement of the company's scheduled Friday conference call might have made some investors nervous.

On Tuesday, the company announced the abrupt departure of Corvin, whom it said was leaving, effective Thursday "to pursue other interests." He had been president of the company since 1996 and CEO since 2000, leading the company at a time when the U.S. steel industry seemed to be literally disintegrating, a fact that Oregon noted in its announcement.

Oregon's board of directors plans to appoint a successor at its upcoming meeting on Thursday; in the interim, Chairman William Swindells will assume the roles of president and CEO.

The downturn in Oregon Steel paper likewise dragged the bonds of sector peers such as AK Steel Corp. and United States Steel LLC lower Tuesday.

AK's 7 5/8% notes due 2009 were heard to have eased to 75.5 bid from prior levels at 78, while its 7¾% notes due 2012 were as much as four points lower on the day, at 71.5

U.S. Steel's 9¾% notes due 2010 were meantime quoted by a market observer as having retreated to 96.75 bid from 98.25 on Monday, while its 10¾% notes due 2008 dipped to par from 102.75 bid.

The market observer also noted that El Paso "was down big today, pegging the energy operator's 7 5/8% notes due 2011 at 81.25 - just recently, they had been as high as 87 - while its 10¾% notes due 2010 lost five points on the day to end at 86.

Another market source estimated El Paso's 7¾% bonds due 2032 "down a couple of points" at 75, while El Paso-owned Coastal Corp.'s 7.42% bonds due 2037 were "down significantly" to 72.5 bid, 73 offered.

A trader said that El Paso's shorter-dated bonds were also lower, its 7¾% short notes dipping to 92.25 bid, 93.25 offered from prior levels at 95.25 bid, 96.25 offered.

In the absence of any specific negative news about El Paso individually, he noted that the whole independent power producer/utility/energy sector was heavy and weak, with a glut of paper recently come to market, with Calpine's $2.55 billion three-parter, Reliant Resources Inc.'s $1.1 billion offering and other deals for El Paso's own El Paso Natural Gas Co. and CMS Energy Co., or else on the way, such as Dynegy Holdings Inc.'s planned $1.325 billion offering.

The latter's existing bonds were also weak, its 9¾% notes due 2012 down "a good solid point or two" at 86.5 bid, 88 offered.

"Everything weakens before a deal," he said. "They knock 'em down - so they can buy them at cheaper levels, I think."

WorldCom Inc.'s debt continued to reel for a second consecutive session in the wake of new charges from its competitors that the bankrupt long distance telecommunications giant may have routed calls to Canada, or otherwise "laundered" calls through smaller firms in order to duck paying access charges to other large operators whose networks it was connecting to. Federal authorities are investigating.

WorldCom's own corporate bonds, which fell into the upper 20s on Monday, were at least an additional; point easier Tuesday, dropping to 26.25 bid. Long distance unit MCI's debt, pushed down into the mid 70s Monday, fell further Tuesday, quoted by one trader "continuing to get pummeled" down to as low as 70.5 bid, 72.5 offered.

WorldCom-owned Intermedia Communications' 9½% notes due 2009 dropped a point to 69 bid.

Also in the communications area, French media giant Vivendi Universal's bonds "started to sell off at the end of the day," a trader said, after Metro-Goldwyn- Meyer withdrew its $11.5 billion cash bid for Vivendi's entertainment assets, saying Vivendi's asking price of $14 billion as a minimum was way too high.

He saw Vivendi's 6¼% notes dropping to 98 bid from prior levels around par, while its 9¼% notes, which had traded above 113, fell to that level. "They were down, oh yeah."

Another trader questioned later saw the bond even erode further, quoting them going home at 96 bid, 98 offered for the 61/4s and 108 bid, 110 offered for the 91/4s.

On the earnings front, Tyco International's 6 3/8% notes due 2011 were quoted at par, after having been "a couple of points higher," a source said.

Other participants, however, saw Tyco's bonds little moved. The troubled conglomerate - still trying to dig itself out of the massive financial hole attributed to the excesses of its former management - posted its second quarterly profit in the last 18 months in the fiscal third quarter, aided by the weaker dollar, but estimated fourth-quarter per-share earnings would come in below previous guidance.

Others reporting included LIN Television, whose 8% notes due 2008 firmed half a point to 106 bid; Huntsman companies, whose 9 7/8% notes due 2009 were half a point better at 103.5 bid; Chesapeake Energy Corp., whose 7 ¾% notes due 2015 dropped a point to 104; and Rent-a-Center Inc., whose 7½% notes due 2010 were half a point lower at 103.75.

With the glut of recently priced and upcoming new debt, Treasuries getting bombed and stocks still turning in lackluster performances, a trader said, things were "just sloppy. It was not a very cheerful day."

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