2 deals price; Kmart down on report suppliers pressured; Conseco bounce

By Paul Deckelman and Paul A. Harris

New York, Oct. 25 - The primary saw two forward calendar deals, Dimon Inc. and InSight Acquisition, price Thursday. Then, at mid-session, the field was joined by a quickly shopped "drive-by" deal from well-regarded oil and gas operator Chesapeake Energy, expected to price Thursday evening. The continued new-deal parade is seen by market-watchers as a sign of pent-up investor demand for high-yield issues.

In the secondary market, Kmart Corp. bonds were in retreat on a news report that the discount retailing giant may not be reaching its sales and profit goals and has thus been leaning on its suppliers to grant it concessions, including cash givebacks and payment delays.

Meanwhile further evidence emerged Thursday afternoon that the primary market is attracting serious shoppers. InSight Health Services Acquisitions Corp.'s $225 million deal, like Wednesday's Advance Auto Stores pricing, was upsized by $25 million. And market participants said InSight's new paper, rated B3/B-, demonstrates - as did Advance - that the buy-side is closely but eagerly shopping the lesser credits.

"Demand for this security wasn't just good, it was exceptional, unbelievable," one source close to the deal commented late Thursday.

"The book was well oversubscribed, very well received. Fabulous demand."

Taking the issuer into consideration, the source noted that the InSight deal, yielding 9 7/8%, came in at the tight end of Wednesday's 10% area price talk.

Another investment banker, from a bank that did not participate in the InSight syndicate - which was led by Banc of America Securities - commented that the company had to be pleased.

"This is pretty good execution," the banker commented. "It priced at par, at the tight end of talk. That shows you that there is a lot of pent-up demand out there."

Dimon, Inc.'s $200 million offering via Wachovia Securities (formerly First Union) also priced Thursday after being upsized earlier in the week from its previously announced $175 million amount. Originally scheduled to price Wednesday, a syndicate source cited bad weather in the Midwest and a roadshow meeting in Cincinnati, Ohio late in the day as the reasons that the pricing did not take place until Thursday morning.

"This one was very well received by the investors, all the way around," the source commented, noting that the Dimon, a higher credit (Ba3/BB), yielding 9 5/8% also priced at the tight end of Wednesday's 9 5/8%-9 7/8% price talk.

"There has been very limited new issuance," the syndicate source commented. "People have cash, and they haven't had any paper to buy. And the market's starting to feel a little bit better. Things have tightened up on the secondary, and people are just looking for a place to put money to work."

And late in Thursday's session another "drive-by" deal popped onto the primary: Chesapeake Energy Corp. $250 million seniors due 2008, with price talk of 8 3/8% to 8½%. Pricing was scheduled for Thursday night, according to a syndicate source, who commented: "The guys in research didn't even see

this one coming. It's truly quick to market." Terms were not available by press time.

Prescott Crocker, manager of the Evergreen High Yield Fund, told Prospect News Thursday that the upsizing of the lesser credits "absolutely" signals that the buy side means business.

"Cash flows have turned positive in the industry," Crocker said, "Interest rates have gone lower. There's a dearth of product out there for people to buy. And whatever issues are out there have to be clean, clean,

clean."

Crocker, who said Evergreen had played Wednesday's Advance deal, added that a some of the weaker credits coming into the market are quite attractive, if you take a close look at them. Advance was attractive, because in a recession a lot of people are going to fix their own cars, and buy parts from stores in the do-it-yourself market.

"People are going to drive their cars longer, once the automobile companies stop giving cars away," Crocker commented.

"People are going to do their own stuff in this economy. Jeez, I'm even doing my own shirts."

In secondary dealings, Kmart's benchmark 9 3/8% notes due 2006 were off about three points on the session, which a trader called "a pretty big move for that name." The bonds had closed Wednesday quoted at 96 bid/96.5 offered, and then fell to lows around 92 during Thursday's dealings before coming slightly off their lows to end around 93 bid/94 offered.

The trader cited a New York Times report that the Troy, Mich.-based retailer has been pressuring some suppliers to give back cash and make other concessions over the past few months, in order to boost its bottom line - a sign that its own strategies for meeting sales and profit targets may be lagging.

The paper said that at least six companies said they were being pressured by Kmart, including apparel and jewelry makers and packaged foods producers. Some said Kmart actually asked them to rebate money to it because their products fell short of stated profit goals, while other suppliers said the department store giant has delayed payments without any notice. But still other manufacturers said they have not been asked to make concessions to the store chain and have been paid on time. The Times said Kmart declined to discuss the terms of its supplier contracts.

Elsewhere, Trump Atlantic City Associates' 11¼% first mortgage bonds due 2006 reeled in the wake of news that New York Gov. George Pataki is proposing the construction of a number of new casinos to boost the Empire State's suddenly very vulnerable economy - gaming palaces which could directly cut into the revenues at Trump's three casinos in Atlantic City, where he is one of the largest operators. Those bonds, which had been quoted in the low to mid 60s recently, dropped to 59 bid at the close of Wednesday's session. But a trader said that late in Thursday's session, the bonds had firmed a bit to about the 62 level, perhaps because gaming in New York is by no means a done deal, facing opposition from both those who oppose it on moral grounds, as well as criticism from officials of localities left out of the governor's initial blueprint, notably New York City.

Conseco Inc. bonds, meanwhile seemed to be rebounding after having fallen for several straight sessions on liquidity concerns and investor angst about the Carmel, Ind., insurer.

Its 8¾% notes due 2005, which had fallen to about 50 bid Wednesday, ranged between 50 and 55 Thursday. Meanwhile, its 9% notes due 2006 traded between 51 and 55. A trader saw its 8½% notes due 2002, which had fallen as low as 71 bid Wednesday, bounce back up to 77 Thursday. He attributed the gains to market response to the statement released Wednesday afternoon in which the company sought to reassure investors that there were no solvency or debt-service problems, and that income from its two operating segments would be over $700 million of cash flow before interest and dividends this year. Conseco reports quarterly results on Oct. 30.

Allegiance Telecom's zero-coupon/11¾% notes firmed to 41 bid from 37 previously, while its 12 7/8s remained around 67 bid following Wednesday's four-point gain, spurred by the company's announcement Tuesday of what it deemed "robust" third quarter results.

Also in the telecom sphere, a trader saw Level 3 Communications Inc.'s benchmark 9 1/8% senior notes due 2008 continuing to "hang in there" at around 44 bid as a result of a short squeeze triggered by the successful completion of the Colorado-based telecom operator's "modified Dutch auction" tender for a big chunk of its bond debt, including almost $570 million of the $2 billion of 9 1/8% bonds.

Among recently priced deals that have moved over into secondary, the new Petco Animal Supplies 10¾% notes pushed up to 102.5 bid and the InSight Health 10-year bonds were quoted at 102.75 bid/103.5 offered in the "gray market," both issues up from their par issue price. Advance Auto's new 10 ¼% senior subordinated notes due 2008 were heard trading at 95.5 bid/96.5 offered, up from their 92.802 issue price Wednesday.

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