Amkor bonds bounce despite downgrade news; Boise Cascade revamps deal; Corus sells euro add-on

By Paul Deckelman and Paul A. Harris

New York, Oct. 13 - Amkor Technology Inc. bonds bounced back Wednesday from losses they had suffered Tuesday on the news that the West Chester, Pa.-based high technology company is the subject of an informal investigation by the Securities and Exchange Commission. The upturn came despite actions Wednesday by both Moody's Investors Service and Standard & Poor's.

In primary market activity, Boise Cascade Corp. restructured its $650 million two-part bond deal, while Corus Group plc was heard to have priced an add-on issue to its existing euro-denominated bonds.

In trading Amkor "was the big name today," a trader said, noting a substantial level of activity and a swing of "anywhere from three to five points" between Tuesday's closing levels and Wednesday's. "If I asked myself 'what did I hear the most of?' It would be that one."

He saw Amkor's 9¼% notes due 2008 ending at 97 bid, 97.5 offered, the 10½% notes due 2009 at 89.5 bid, 90.5 offered, and its 7¾% notes due 2013 finishing at 86 bid, 87 offered.

Amkor, another trader said "was zig-zagging all over the place." He saw the 9¼% notes having pushed up to 97 bid, 97.75 offered from prior levels at 94.75 bid, 95.75 offered, and "definitely zig-zagging between those levels."

Amkor "had a couple of pieces of news floating around. They have the $300 million senior secured piece [of new financing], and that sent the outlook to negative. You had [Tuesday's news of] the SEC investigation. They were lower on the SEC investigation, then they bounced back. They talked about the new $300 million deal, and they traded up and then they gave some back because it's secured debt. Then it traded back up again. It was all over the place."

Amkor - which on Tuesday had announced that the Securities and Exchange Commission is conducting an informal inquiry into trading in the company's securities, relating to what the company called "transactions in the company's securities by certain individuals, which may include certain insiders, during 2004" - said early Wednesday that it has begun discussions with a group of institutional lenders on a new $300 million term loan facility. The six-year deal would be secured by a second lien on substantially all of the assets of Amkor and its domestic subsidiaries. Amkor intends to use proceeds of the term loan for working capital and general corporate purposes.

The ratings agencies were not pleased; Moody's lowered Amkor's senior unsecured ratings to B3 from B1, although it kept a stable outlook. Standard & Poor's meantime revised its outlook for the company's debt downward to negative from stable, although it kept the ratings where they were.

In its downgrade message, Moody's cited Amkor's "increased leverage as a result of increased debt levels and continued weakness in operating performance; the expectation that operating income and cash flow will remain modest relative to debt service and total debt levels; as well as the depressed market environment and high competitive factors which could cause gross margins and return on new asset investments to remain low for the near term. "

HCA weaker

The ratings agencies also weighed in on the downside Wednesday for HCA Inc., with S&P chopping the Nashville, Tenn.-based hospital operator's senior unsecured debt rating down to BB+ from BBB- , making it now a full-fledged junk bond. Moody's meanwhile said it was putting its Ba1 rating on the unsecured debt under review for a possible downgrade.

The ratings agencies' moves followed the company's announcement that its third-quarter earnings would likely not meet analysts' expectations and that it would repurchase up to $2.5 billion of its common shares.

"The downgrade primarily reflects the company's intention to repurchase $2.5 billion of its shares through a Dutch auction process, which is to be completed in the fourth quarter of 2004," S&P analyst

Michael Kaplan wrote in the agency's downgrade message, warning that the "magnitude of the transaction is indicative of a financial policy that is no longer consistent with an investment-grade rating.

"This is particularly true considering the company's pre-announcement of weaker-than-expected 2004 third-quarter earnings that highlights operating risks."

S&P also pointed out that a large portion of the company's cash flow will now go to pay for dividends and to service debt incurred in the share buybacks.

News of the downgrade caused the bonds - which up till now have been quoted on a spread-over-Treasuries basis, like investment-grade instruments, despite the previous split rating - to widen out sharply.

A market source pegged HCA's 8¾% notes due 2010 at bid levels equivalent to 225 basis points over Treasuries, offered levels 215 bps over; that he said, was a 55 basis points widening out on the news.

He saw the company's 6.30% notes due 2012 bid at 195 bps over, 45 bps wider than pre-news levels; its 5¾% notes due 2014 were at 210 bps over Treasuries, a 35 bps widening; and its 7½% bonds due 2033 at 270 bps over, a 50 bps widening out.

Nalco rises

Back among the pure junk bonds, Nalco Co.'s 7¾% notes due 2011 were up nearly a point at 108.5, probably helped by news that the Naperville, Ill.-based water treatment company plans to sell 44.4 million common shares at a price of between $17 and $19, for anticipated proceeds of anything between $754 million and $843 million. Most of the money - some $576 million - will go to pay a special dividend to its sole shareholder, corporate parent Nalco Holdings, although about $176 million is slated to be used for debt redemption.

And Level 3 Communications Inc.'s bonds were solidly higher, given a boost by the news that the Broomfield, Colo.-based telecommunications company was chosen to provide data networking services to Northrop Grumman Information Technology., which in turn is working on a communications setup for the government's Department of Homeland Security.

Level 3's benchmark 9 1/8% notes due 2008 firmed to 78.25 bid, 78.75 offered from 75.5 bid, 75.75 Tuesday. Its 10¼% notes due 2008 were up a pair at 96.5 bid, 97.5 offered.

Primary still hot

Sources on both the buy-side and sell-side said Wednesday that investor demand for yield has rendered the high-yield market red hot, with no relief in sight.

"We have seen seven consecutive weeks of inflows [to high-yield mutual funds] and currently there is about $1.5 billion of paper in the new issue market left to price this week," one investment banker observed after the close.

"It's creating quite a bid in this market."

The Wednesday session saw terms emerge on a single issue - a euro-denominated add-on from U.K. steelmaker Corus Group plc, which priced right on top of talk.

Also during the session three issuers, led by Advanced Micro Devices, Inc. with $600 million, announced roadshow starts.

The only place to go for yield

Louise Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, agreed Wednesday with virtually every other market source who has spoken to Prospect News during the past fortnight: the junk bond market is presently red hot.

"On a relative basis this market is the only place you can go to find yield," Rieke explained.

"From what I hear insurance companies have allocated more money to it and so have pension plans.

"There is just a strong demand for the paper."

Rieke added that the current U.S. economy seems to support circumspect play in high yield.

"There is very low inflation," she said. "Even with rising oil prices, inflation does not appear to be going through to the consumer.

"And you are seeing 3.5% to 4% GDP growth.

"So although you have to keep your eyes open it's still a very benign market."

The Waddell & Reed portfolio managers also suggested that continued strong returns in high yield are likely to keep investment-grade players active in the sector.

As to values, however, Rieke maintains that the present junk market calls upon investors to use a very keen eye.

"Values very hard to find right now," she said. "It has become a very efficient market."

Corus comes on top of talk

Terms emerged Wednesday on a single issue.

Corus priced a €200 million add-on to its 7½% senior notes due Oct. 1, 2011 (B3/B-) at 105.5, resulting in a 6.374% yield to worst.

Price talk on the Credit Suisse First Boston-led debt refinancing deal was 105.5 area.

The London-based metals group priced the original upsized €600 million issue at par on Sept. 23, and hence walked away from Wednesday's transaction realizing nearly a 113 basis points savings relative to the original interest rate.

Calendar builds

Although three companies announced plans on Wednesday to take junk bond deals on the road before the end of the week, sources noted that the forward calendar remains relatively modest, with less than $1.5 billion expected to price during the remainder of this week, and slightly over a billion now expected to price during the week of Oct. 18.

The roadshow starts Friday for Advanced Micro Devices's $600 million of eight-year non-call-four senior notes, which are expected to price before the end of the Oct. 18 week.

Citigroup will run the books for the debt refinancing deal from the Sunnyvale, Calif.-based microchip maker.

Meanwhile the roadshow starts Thursday for Netherlands-based fixed satellite communications company New Skies Satellite NV's $285 million two-tranche deal, which is also expected to price late in the Oct. 18 week.

The company is offering $160 million of seven-year non-call-two senior floating-rate notes and $125 million of eight-year non-call-four senior subordinated notes.

Deutsche Bank Securities has the books for the acquisition financing.

And the roadshow started Wednesday for Hawk Corp.'s $100 million of 10-year non-call-five guaranteed senior notes (B2/B), via Jefferies & Co.

Marketing is expected to carry over into the week of Oct. 25 on the debt refinancing deal from the Cleveland, Ohio-based supplier of highly engineered friction products.

Boise Cascade restructures

Wednesday's session also saw the details emerge on deals expected to price by Friday's close.

Boise Cascade LLC announced price talk on a restructured $650 million two-tranche bond offering via JP Morgan and Lehman Brothers.

Price talk is Libor plus 300-325 basis points on $250 million of senior floating-rate notes due 2012 (confirmed B1/expected B+). The notes will be callable immediately at 103, with the call declining annually to 102, 101 and par. The tranche had originally been in the market as an eight-year non-call-four fixed-rate note.

Meanwhile price talk is 7¼%-7½% on $400 million of 10-year non-call-five senior subordinated notes (confirmed B2/expected B+).

Waddell & Reed's Rieke suspects the change in the Boise Cascade structure was driven by insurance companies wanting the floater.

"In a rising interest rate environment you want to own that floater because it is going to protect your principal," she said.

Elsewhere price talk is 7½%-7¾% on Dresser-Rand Co.'s $420 million of 10-year non-call-five senior subordinated notes (B3/B-), expected to price late Thursday or early Friday via Morgan Stanley, Citigroup and UBS Investment Bank.

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