Ventas two-parter, Champion deals price; cable issues continue slide

By Paul Deckelman and Paul A. Harris

New York, April 12 - Healthcare real estate investment trust Ventas Realty LP/Ventas Capital Corp. sold $400 million of new bonds Friday in a two-part offering, while Champion Home Builders Co. priced a $150 million single-tranche offering of five-year bonds and at least four other new deals made their way onto the forward calendar.

In the secondary market, cable television operators continued to weaken amid investor concern over widespread mounting debt loads within the sector. Telecommunications "carrier's carrier" Flag Telecom Holdings Ltd. filed for Chapter 11 protection, but its bonds were seen little changed in an otherwise generally quiet market.

With the addition of three new dollar-denominated deals totaling $850 million and one euro deal surfaced, the high yield primary market forward calendar continued to build Friday.

And several market observers who spoke with Prospect News noted that one of those dollar-denominated deals was from WCI Communities, Inc. The Bonita Springs, Fla. upscale homebuilder will sell $200 million of 10-year senior subordinated notes (B1/B) via UBS Warburg, starting its roadshow Monday and pricing Wednesday.

Sources noted that WCI is the fifth homebuilding credit coming into play since late in the first week of April, joining D.R. Horton, Standard Pacific, Beazer and Champion.

Prescott Crocker, portfolio manager of the Evergreen High Yield Bond Fund, told Prospect News on Friday that he is not playing the homebuilding credits.

"I think the feeling is that there's a lot of talk on Wall Street about the homebuilding cycle being the next big bubble," said Crocker. "And I think they're getting their liquidity while they can.

"You want to be liquid in this business and not be dependent upon the banks," he continued. "That's where this homebuilder money has come in: keep things junior-level, pay down the senior banks, keep the bank line in place, and term out debt on the junior side. That's why we're seeing it happen.

"I'm a homebuilder seller," Crocker said. "I think that they're all too tight.

"And the next move will be that home prices start going down. Why not? Stock prices have gone down. Commodity prices have gone down."

"More than anything the Fed is trying to engineer a full economy, rather than an economic recovery, because they really didn't get into the recession. Profits suck. So the key is to keep interest rates low and the cost of capital low and try to keep everybody employed so you have more liquidity.

"You just have this sense that 'Gee, maybe I ought to get out of stocks and go buy a house. And I think it's short-lived. I think that a house is an asset. And housing prices have gone too high. And they are a bubble.

"I've had enough of housing. We did very well with housing. Now we're going back into cyclicals."

Crocker specified that among the transactions he played during the week of April 8 were offerings from Swift Energy Co. - which sold $200 million of 10-year notes (B3/B) - and Crescent Real Estate - $375 million of seven-year notes (Ba3/B+).

Among the offerings currently stationed on the forward calendar he said that his fund would conceivably take a look at are JohnsonDiversey's offering of $500 million 10-years (B3/B/B+) via Goldman Sachs & Co.

Meanwhile Friday, as one homebuilder announced a deal another priced. Auburn Hills, Mich.-based Champion Home Builders Co. priced $150 million of five-year senior notes (B2/B) at 99.066, to yield 11½%, via Credit Suisse First Boston.

Proceeds from Champion's offering will be used to fund the acquisition of CIT Group's manufactured housing loan origination business.

Colleen T. Bauman, assistant vice president of Champion's investor relations, told Prospect News shortly after the deal priced that by venturing into the financing end of the manufactured housing business the company would have the opportunity to address one of the sector's recent travails.

"The manufactured housing part of the housing market has been in a downturn for almost three years now," Bauman said. "Back in 1999 the industry began a downturn which was caused by loose credit standards to retail customers of our homes. The credit standards, from '96-'99 were poor. Basically anyone who filled out a loan application got a loan.

"Those loans went bad," she continued. "Although they fueled over-expansion in that time period, we've had to contract now. We've had to cut capacity, reduce inventories and close retail stores as an industry.

"Now we've gotten the practices of lending back in line and we're dealing with high repossessions because of those poor lending standards. So the industry itself made a lot of progress. And the industry shipments for the first two months of this year have been up almost 9%."

In addition to Champion, terms were also heard Friday on Ventas Realty LP/Ventas Capital Corp.'s $400 million two-tranche offering of senior notes (Ba3/BB-). Ventas priced $175 million of seven-year notes at par to yield 8¾% and $225 million of 10-year notes at par to yield 9%. UBS Warburg and Merrill Lynch & Co. were joint bookrunners.

As Champion and Ventas vacated the forward calendar four new offering were announced.

In addition to the above-mentioned WCI Communities offering, Fort Worth, Tex. exploration and production company XTO Energy announced a deal headed for pricing on Wednesday. It will sell $300 million of 10-year senior notes via joint bookrunners Lehman Brothers and Salomon Smith Barney.

Details also emerged Friday on a deal that was in the market until early September last year and has now resurfaced. Philippine Long Distance Co. started roadshowing its $350 million of five- and 10-year senior notes (Ba3/existing BB-) via joint bookrunners Credit Suisse First Boston and Morgan Stanley. The deal is set to price during the week of April 29.

The market also heard news of a euro deal Friday. Sanitec International SA will hit the road with €260 million of 10-year senior notes on Thursday. Goldman Sachs and Merrill Lynch are joint bookrunners.

As the week of April 11 closed, 11 deals (counting both tranches of Ventas but excluding Starwood's cross-over offering) priced in the high-yield primary market for total proceeds of $2.35 billion. Hence the second week of April 2002 concluded with $4.16 billion of new issuance having priced thus far into the month.

One syndicate official said that the talk around the market holds that as much as $10 billion could price before month's end.

Another sell-sider who spoke with Prospect News Friday said that $5-7 billion was certainly possible.

"A lot of people are looking at the market right now and deals seem to be getting done," this sell-sider said.

"It's starting to get a little harder I think. We're seeing deals price through their initial price talk. You're seeing deals that are slightly above. It depends on the credit obviously.

"But there's still plenty of demand for standard, cash-flowing traditional leveraged credits, as opposed to telecom stuff."

Noting that money is continuing to flow into the high yield (the AMG reported an inflow of $145 million into mutual funds for the week ending April 10, marking the eighth straight week of inflows), this official conceded that the current market poses certain challenges to investors.

"When you've got a limited universe of bonds you can invest in, and money flowing in, you've got to make a choice: Do you want to sit on 2% cash or maybe overpay for a high yield bond where you'll still get a better yield than 1% or 2% cash," the sell side source reasoned.

"Investors have the need to keep their portfolio returns up compared to their competition.

"It certainly has been a seller's market. It may be starting to be less so; I mean Panavision tested that."

Finally on Friday the market heard price talk of 8 3/8% area on Western Oil Sands' upcoming offering of $425 million 10-year senior secured notes (Ba2/BB+) via joint bookrunners Salomon Smith Barney and TD Securities. That deal is set to price Tuesday.

Western is one of half a dozen offerings that are scheduled to price during the week of April 15, as the market anticipates transactions for the week totaling $1.465 billion.

A trader said he had not seen the new Champion Home bonds break into the secondary market, nor had the Ventas bonds been seen by the time things wound down.

Among the bonds which had priced on Thursday, he said, "they didn't trade much in the secondary." He did see the new Swift Energy Inc. 9 3/8% senior subordinated notes due 2012 "trading pretty well - not great, but pretty well," quoted at 101.25bid/101.75 offered, not much changed from Thursday's late trading levels, but still up from their par issue price earlier Thursday.

Beazer Homes 8 3/8% notes due 2012, which had also priced at par, were heard having firmed slightly to 100.75 bid/101.25 offered, although he said there had not been much secondary activity in the credit. Russell Corp.'s 9¼% senior notes due 2010 were at 101 bid/101.5 offered, likewise up from par.

As to the big deal which had dominated market attention during Thursday's session, Starwood Hotels & Resorts Worldwide Inc.'s upsized $1.5 billion two-part mega-deal, "is all crossover," he said, with only minimal high yield interest in the White Plains, N.Y.-based international lodging company's $700 million of 7 3/8% senior notes due 2007 and $800 million of 7 7/8% seniors due 2012.

The new bonds, he said, were being quoted in dollars, as if they were junk bonds, and were trading "right on top of one another," with both tranches quoted Friday at 99.375 bid/99.75 offered, little change from either their Thursday issue prices (99.685 for the 7 3/8% notes and 99.483 for the 7 7/8s) or from the level at which they had ended on Thursday.

"It's mostly crossover," he reiterated. "We weren't checked by anyone on it. Salesmen were asking their high yield customers about it, but nobody gave a damn - it was too tight. Inside of 8%, nobody really cares." The 7 3/8% notes priced to yield 7.45%, while the 7 7/8% notes yielded 7.95%.

He saw the Ba1/BBB- bonds as having been "snapped up" by the "bottom-fisher investment grade accounts" attracted by what was for an investment-grade credit a hefty coupon with not too much risk. "That's been the story on the [Starwood] bonds which had been out there prior to this pricing. The majority of them reside in investment grade crossover accounts."

On the other side of the high grade/junk bond divide, meantime, "unless you're buying much better quality, most pure high yield accounts don't give a **** about a deal like Starwood's. "It's a great credit, yes, but the coupon's not that great, the yield's not that great, the spread's not there, so even if you're an insurance company whose spreads on their positions are inside of 300 [basis points over comparable Treasuries], you're not getting paid to manage money like that. It just doesn't give you enough return."

Another junk trader agreed that as far as the high yield market was concerned, the new Starwoods were "pretty much dead, with no secondary dealings. They opened and closed at that same 9.375-9.875 level for both bonds."

There wasn't that much activity going on among already established bonds, either, the trader said, "even though stocks were rebounding Friday, after having been clobbered on Thursday. "It was relatively quiet, with not much changed."

He did see "a little bit of pop" in Nextel Communications Inc.'s bonds, which had fallen about three points across the board on Thursday after Moody's Investors Service put the Reston, Va.-based wireless operator's debt ratings, including the B1 on its senior unsecured debt, under review for a possible downgrade, citing concerns over whether the No. 5 U.S. wireless service provider would be able to "grow cash flow in amounts sufficient to meet its capital expenditure requirement and mounting debt service obligations."

Nextel's benchmark 9 3/8% senior notes due 2009, which had moved down to around 61 bid on Thursday from 64 previously, pushed back up a bit to 62 bid/63 offered. Nextel's zero-coupon notes due 2008 were a point-and-a-half better at 57.5 bid.

There seemed to be no movement in the debt of Flag Telecom Holdings Ltd., which sought protection from its junk bond holders and other creditors on Friday after the syndicate of banks holding the credit facility debt of its Flag Atlantic Ltd. unit demanded accelerated repayment of the debt, which in turn triggered a cross-default on Flag's outstanding senior notes.

The Bermuda-based telecom company, which provides data transmission and other services to other telecom operators, rather than selling to retail end-user customers, is hoping to cobble together a reorganization plan incorporating elements of the plan it put forward on Wednesday, which would pay off all of its creditors although at a sizeable discount to par.

Flag Ltd.'s 8¼% senior notes due 2008 and the parent company's 11 5/8% dollar- and euro-denominated global senior notes due 2010, which had all moved up to around 28 from prior levels around 20, all remained at that higher level.

Outside of telecoms, it was another down day for the somewhat related cable sector, whose shares and bonds have been recently reeling on investor concern over mounting debt levels, slowing subscriber growth and - after high yield cable stalwart Adelphia Communications Corp.'s disclosure of sizable off-balance-sheet debt obligations - possible accounting issues. A trader said they again "got crushed" on Friday, estimating the sector was down two to three points on the day.

Adelphia's bonds were the big loser during the week; on Friday, its 9 3/8% notes lost half a point to 83.5 bid, while its 9¼% notes dropped a point to 94. The Coudersport, Pa.-based cable operator's shares, which had fallen 19% in Thursday's dealings, dropped another 12.61% Friday ($1.01) to $7 on the Nasdaq.

Rival cabler Charter Communications Inc. was also a downsider Friday, its 8 5/8% notes ending at 87.75 and its 8 ¼% paper at 87.5, both off two points on the session.

On the upside, Doman Industries Ltd.'s 8¾% senior notes due 2004 got a boost from the late-Thursday announcement that the Duncan, B.C.-based forest products company had made the interest payment on those notes which had originally been due on March 15, avoiding a default by making the payment within the 30-day grace period contained in the notes' indenture. The notes were quoted up more than six points on the session to 28 bid.

A trader said that high yield energy names were unmoved despite the turmoil in the world oil markets, where crude prices suffered their biggest drop in five months following the ouster of Venezuelan President Hugo Chavez. He had been one of the most vociferous advocates of maintaining iron discipline over output within the Organization of Petroleum Exporting Countries, and his departure was seen signaling that Venezuela and other OPEC nations would likely take a much more relaxed stance toward adhering to the official output quotas set by the cartel. Combined with the probability that even other Arab members of OPEC would be unlikely to follow the example of Iraqi strongman Saadam Hussein and suspend oil sales for a month as a symbolic display of the "oil weapon," crude prices have slid 15% from their recent highs. On Friday, benchmark Brent crude for May delivery fell $1.52, or 6.1%, to $23.47 a barrel on the New York Mercantile Exchange, the lowest prices have been since early March, when they began to climb on Mideast tensions.

"With the underlying commodity prices moving down pretty much in tandem [Friday], and crude really getting hit, it didn't have much effect on the bonds [of junk oil patch issuers]," he said.

Most of these companies "aren't as sensitive to commodity prices as they had been in the past, and unless oil makes a big move to the downside, I doubt these bonds are going to soften very much," he opined. It would take "a huge drop, maybe to the $20 level [for crude], for it to be possible to make a difference." He added that outside of "individual situational credit stories" such as Vintage Petroleum, citing problems in South America, "nothing is moving. This sector's bonds have been where they are for the past two or three months." He saw Nuevo Energy Corp. moving up, explaining that it was "moving up because it's one of the lower-priced [energy] bonds out there.

A trader saw "negligible" market response to the news that high yield mutual fund capital flows had shown an inflow for the eighth consecutive week, with $145 million more coming into those funds in the week ended April 10 than had left them. Last week's inflow total was $113 million.

The weekly statistics, compiled by AMG Data Services, are regarded by many as a reliable gauge of overall market liquidity trends. The latest week's inflow was the twelfth since the beginning of the year, against only three weeks of outflows. So far, net inflows for the year have totaled a hefty $4.601 billion.

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