Interline, Standard Pacific price deals; secondary continues slumber

By Paul Deckelman and Paul A. Harris

New York, May 12 - Interline Brands and Standard Pacific Corp. were heard by syndicate sources Monday to have priced new deals - the latter an opportunistically times and upsized offering, seeking to take advantage of the current climate of ample liquidity.

The secondary market, meantime, remained essentially in a trance, with most junk players still mesmerized by the continuing parade of new deals - and increasingly hesitant to buy more existing bonds, with yields on the better quality stuff in many cases already having been sliced to very un-junk-like levels that provide a less-than scintillating return on investment - and even riskier, lesser-quality goods now trading at unrealistically inflated prices.

Primary market sources advised Prospect News on Monday that high yield observers have lately come into a color crisis, with some contending that the market is "red hot," others insisting it's "white hot," and still others leaning towards "blue hot," with a side-argument as to which color portends the hottest market.

However those sources had little time to argue colors during the first session of the May 12 week as terms surfaced on three deals, including an upsized drive-by from Standard Pacific Corp. a $200 million transaction from Interline Brands, Inc. and, from the eurobond market, an upsized €300 million deal from Italian eye care firm Safilo.

Fuel was added, Monday to the (red/white/blue?)-hot high yield primary, as five new deals burst into view, including a $250 million drive-by offering from Smithfield Foods, Inc., expected to price Wednesday.

Details also surfaced Monday on a new $150 million deal from Advanced Accessory Systems LLC. Also from the automotive universe Hayes Lemmerz International, Inc. will start roadshowing $225 million of seven-year notes on Tuesday. And the roadshow also starts Tuesday for Vertis Inc.'s $250 million add on to its 10 7/8% senior notes due June 15, 2009.

In addition, Province Healthcare Co. announced it will bring registered $150 million 10-year deal by the close of May.

"I don't really know what color to pick," said one harried official from a high-yield syndicate desk, on Monday. "But around here we are expecting a very busy week."

The May 12 week in the primary market certainly got off to a busy beginning, with terms surfacing on three deals.

Standard Pacific priced an upsized quick-to-market offering of $175 million of eight-year senior notes (existing ratings Ba2/BB) at par, on Monday, to yield 6 7/8%.

The deal, via Credit Suisse First Boston, came in the middle of the 6 ¾%-7% price talk. It was originally planned at $125 million.

Also on Monday Interline Brands, Inc. sold $200 million of eight-year senior subordinated notes (Caa1/B-) at par, to yield 11½%, at the wide end of the 11¼%-11½% price talk, with Credit Suisse First Boston and JP Morgan running the books.

Safilo's €300 million was increased from €225 million and the 10-year senior notes (B3/B) priced at par to yield 9 5/8%, in the middle of the 9¾%-10% talk. Once again it was Credit Suisse First Boston running the books.

Five new junk bond deals took bows during Monday's session.

Smithfield Foods' $250 million of senior notes due 2013 (BB) is expected to price on Wednesday, via JP Morgan and Goldman Sachs & Co.

A roadshow began Monday for Advanced Accessory's $150 million of eight-year guaranteed senior notes (B2). That deal, via Deutsche Bank Securities Inc., is expected to price on May 20.

The roadshow starts Tuesday for Hayes Lemmerz's $225 million of seven-year senior notes (expected ratings B1/B+). That offering is expected to price May 20, with Citigroup and Lehman Brothers as joint bookrunners.

The roadshow also starts Tuesday for Vertis' $250 million add-on to its 10 7/8% senior notes due June 15, 2009, according to market sources who added that the deal is expected to price during the week of May 19.

Deutsche Bank Securities and JP Morgan are joint bookrunners.

Finally on Monday, Province Healthcare announced it will bring registered offering of $150 million of 10-year senior subordinated notes, a transaction expected to close this month, according to a Monday press release.

No bookrunners or exact timing were specified in the release, however an informed source told Prospect News on Monday that the deal is expected to be marketed with a roadshow, and will likely not price during the present week.

When the new Interline Brands eight-year bonds were freed for secondary dealings, a trader said they broke at a 101.25 bid/102.25 offered level, "but I did not see them actually trade at all."

He said that the new Standard Pacific bonds had not been freed by the time dealings for the day had ground to a halt. The new Titan Corp. and Key Energy Services Inc. bonds, he said, continued to be quoted around the same levels at which they had gone home on Friday, Titan's eight-year notes at 102.5 bid/103.5 offered, and Key's 10-years at 101.25 bid/102.25 offered.

Back among the existing issues, "I saw no weakness - but nothing was popping up," a trader said.

He couldn't name a single bond that was showing any kind of appreciable movement, quipping: "I don't have anything intelligent to tell you today - or even anything stupid."

Belying his self-deprecating assessment of not having "anything intelligent" to say, the trader continued that the problem with the secondary market these days is that "it's at the point where everybody is looking around at each other, looking at the yields and [acting like] deer in the headlights."

With "tons of cash" around to invest - not a week goes by these days, so it seems, that around a billion dollars comes into the junk bond mutual funds, seen as a reliable proxy for overall market liquidity trends - "you can't sell anything, because you can't replace the [high] yield, and you can't buy anything because you don't feel comfortable with the risk you're taking on at these levels."

For instance, he said, "look at Time Warner Telco, close to 90. Does that make sense?" The credit carries a single-B rating from the major rating services.

There is, of course, a bright side to this kind of relentless upside, even for less-than-sterling credits. Everybody's had a great return - fourth quarter [2002] was great, everybody's had a great first quarter and is having a great second quarter," the trader continued. "But I don't know where we go from here?"

Keep buying - as credits trade at prices which can't be justified by their economic fundamentals, as indicated by their ratings? Or sell - which then gives a portfolio manager who gets paid to invest money an even bigger nest egg of cash that has to be put to work, somewhere? "Everybody is asking themselves the same questions," he said.

With the good stuff all trading at lackluster yields and the riskier names - some of them even CCC or below - trading at inflated levels approaching par (or in a few cases even breaching it), "it seems to me like there's not a lot out there that's really interesting. "

For one thing, "there's so many things that are trading over their call price now" - not unlike the situation seen in 1998 and 1999. "Then a couple of months later - KABLAM!! The thing would be trading at 90 cents on the dollar, and wasn't going to get called, ever."

With everything getting so pricey, there's very much modestly priced, respectably performing debt still out there.

"What are you going to do," the trader concluded. "Go play the airlines?"

The airlines, actually, were one of the few areas that showed significant movement on Monday, with American Airlines parent AMR Corp.'s 9% notes due 2012 firming to 57 bid/59 offered and Delta Airlines' 7.90% notes due 2009 also two points better, at 76 bid/78 offered. A trader said the whole sector was up around two points across the board - although he had not seen any news to justify another rise in the embattled sector.

Airline shares, however, were also higher for a second straight session as all of the major airlines announced they would raise ticket prices $5 per one-way trip on all non-sale domestic flights, starting June 1.

Elsewhere, Calpine Corp.'s bonds were seen up at least half a point, its 8½% notes due 2011 moving to 71.5 bid/72 offered. Rival power generator AES Corp.'s 9 3/8% notes due 2010 were three-quarters of a point up at 95.75 bid.

In the communications constellation, Nextel Communications Inc.'s 9 3/8% notes due 2009 were unchanged at 107.

Cable operator Mediacom LLC reported first-quarter numbers, but its bonds were seen little changed on the session, its 8½% notes due 2008 at 101 bid and its 9½% notes due 2013 unchanged, at 105.5 bid, with no offers seen.

Young Broadcasting, which also reported, was also unmoved on the news, its 9% notes due 2006 also at 101.

Another company coming in with results, Dex Media East's 9 7/8% notes due 2009 lost half a point to close at 113, while the phone director publishing company's 12 1/8% notes due 2012 half a point lower as well, at 117.5

Dex's former corporate parent, Qwest Communications International Inc. was reported by Bloomberg News to have bought as much as $200 million of its bonds, which the news report said had spurred a surge of price in the debt.

A trader cited the report in quoting Qwest's 7% holding company notes due 2009 as having firmed to 82.5 bid/83.5 offered, a point better on the session, but he still said the move, coming against an overall quiet background was "not much to write home about."

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