Calendar builds as deals hit the road; HealthSouth firms on hopeful projections

By Paul Deckelman and Paul A. Harris

New York, July 7 - It was back to work in high yield Monday after a three-and-a-half-day Fourth of July holiday weekend characterized by glorious beach-going weather in the Northeast and many other parts of the country. But although the market is flush with liquidity nobody was immediately diving back in to price any deals, preferring to dip a big toe in the water first, with two deals - a $150 million offering of eight-year notes by Packaged Ice Inc.'s subsidiary Reddy Ice, and TransDigm Inc.'s $300 million of eight-year notes - heard about to begin roadshows.

Secondary market activity was meantime muted, traders said, as players staggered back to work after a break which had seen an abbreviated session on Thursday and a full market close on Friday. One of the few features seen around was HealthSouth Corp., whose bonds firmed after the troubled company met with its shareholders and creditors and delivered optimistic revenue and EBITDA projections for the next 12 months.

But the primary market got off to a purposeful start during the first session that followed the July 4 break. One deal priced in London and three new offerings came into view.

Also, news circulated on Calpine Inc.'s $1.2 billion of new paper which is coming in three tranches that are set to price mid-to-late in the present week.

One sell-side source pointed to Monday's rally in the stock market, with the Dow Jones Industrial Average advancing 1.62%, and wondered aloud whether firming equities taken in conjunction with back-to-back outflows from the high yield mutual funds could possibly foretell a softer junk bond market in the summer weeks ahead.

Noting that AMG Data Services had reported a $144.3 million outflow from the funds for the week ending July 2, following a $177.2 million outflow the previous week, the source said that the evidence thus far is inconclusive, owing to the fact that mutual funds represent only a portion of the money allocated to high yield.

"There is still a lot of cash out there to be put to work," said the source.

"People are waiting now for second quarter numbers to begin to tell whether the government's stimulus package has begun to take effect on the economy. If that evidence is not forthcoming it may mean that people will have to begin to focus farther down the calendar, toward the end of the year, to get some kind of read on the economy."

Another sell-side source who spoke to Prospect News on Monday said that four negative flows from the high yield mutual funds over the course of the past seven weeks is really not surprising.

"The secondary market is still pretty healthy," said this official. "And last week's outflow is pretty inconsequential.

"However," the source added, "you may begin to see investors become a little pickier than they have been."

Both of the sources quoted above said that high yield could be expected to continue to run in approximate parallel with the equities market.

"High yield has recently been outrunning equities," said one official. "It may not continue to outrun equities or even keep in perfect step because the equities market is largely a retail market, whereas high yield involves mostly institutional investors who are known to be somewhat more discriminating."

During Monday's session Ardagh Glass Ltd. sold €175 million of bonds to high yield investors. The Dublin, Ireland glass bottle manufacturer's 10-year senior notes (B1/B+) priced at par to yield 8 7/8%, in the middle of the 8¾%-9% price talk, with BNP Paribas and Citigroup running the books.

Three new offerings topped the horizon line during the first post-July 4 session.

Reddy Ice, Inc., formerly Packaged Ice, Inc., will start sliding down the road on Tuesday with an offering of $150 million of eight-year senior subordinated notes (B3/B-), expected to price in the middle of the July 14 week. Credit Suisse First Boston, CIBC World Markets and Bear Stearns & Co. will run the books.

Meanwhile the roadshow got underway Monday for TransDigm Inc.'s sale of $300 million of eight-year senior subordinated notes (B3/B-), expected to price during the week of July 14 via Credit Suisse First Boston.

And in a Monday press release MSX International, Inc. announced its intention of bringing $100 million of five-year senior secured notes (B2/B), with proceeds going to refinance bank debt. No timing or syndicate names were disclosed.

Finally on Monday timing and structure emerged for Calpine's $1.2 billion bond deal.

The San Jose, Calif. independent energy producer will come with three tranches of senior secured second priority paper, including one tranche of seven-year non-call four fixed-rate notes and one of 10-year non-call-five fixed-rate notes. In addition the company intends to sell one tranche of four-year non-call-two floating-rate notes.

The offering will be marketed through Wednesday, with pricing expected on Thursday, via Goldman Sachs & Co.

Secondary traders saw a somewhat firmer tone in Monday's market, although activity was described as very quiet.

"Not a ton of stuff was going on," one trader said with classic understatement. "People were still getting in" after the holiday break.

Another trader described things as "very quiet across the board."

Among recently issued bonds, a trader said that the new Vivendi Universal 6¼% notes due 2008, which had priced at par last Wednesday and were not seen doing much on Thursday, were seen around 100.5 bid, 101 offered, "slightly better than Thursday."

Another trader saw a number of recently priced issues continuing to be quoted in a par-101 context, the only real exceptions being Merisant Co.'s 9½% senior subordinated notes due 2013, seen at 103.5 bid, 104, up from their June 27 par issue price, and Jacuzzi Brands Inc.'s 9 5/8% senior secured notes due 2010, which he saw quoted at 102 bid, 103 offered, up from the par level at which they had priced on June 30. Danka Business Systems Inc.'s 11% senior notes due 2010, which had priced at 97.66 on June 24, held steady around 97.5 bid, 98.5 offered on Monday.

Back among the established issues, HealthSouth's bonds were "the main focus' of the day's generally light activity, one trader said, seeing the bonds having firmed as much as "about six to seven points across the board" after the troubled Birmingham, Ala.-based operator of diagnostic imaging and outpatient surgery and rehabilitative services centers told its equity and bond investors at a meeting in New York that it was expecting net revenue of $4.1 billion and free cash flow of $328 million over the next 12 months, as well as EBITDA of $650 million.

Another trader estimated a four point jump in the senior bonds, quoting them around 87 bid, 89 offered.

At another desk, the company's 6 7/8% notes due 2005 were quoted offered around 95.5; its 7 5/8% notes due 20102 were seen at a wide 85 bid, 90 offered, while its 8 ½% notes due 2008 were at 81.5 bid and its senior subordinated 10 ¾% notes due 2008 were 76 bid.

On the equity side, HealthSouth's pink-sheet traded shares jumped 99 cents (110%) to $1.89 on heavy volume of 57.62 million, even though the company also warned that its hopeful projections not withstanding, it could be pushed toward a Chapter 11 filing by the plethora of investigations and lawsuits it is beset with (including a civil probe by the Securities and Exchange Commission and a criminal investigation by the Justice Department of accounting fraud allegations). In the event the company is forced to reorganize through the bankruptcy courts, equity holders would be the last ones to get paid - if they get paid at all.

With HealthSouth's bonds moving up, several other sector names were also improved in sympathy, including Beverley Enterprises Inc., whose 9% notes due 2006 were half a point better at 99.5 bid, and Extendicare Health Services, whose 9 3/8% notes due 2007 were a point-and-a-half up at 97.5 bid.

Apart from HealthSouth related activity, though, "it was very, very quiet," a trader said, "everybody is still getting back from the holiday."

Some price activity was noted in Conseco Inc., whose extended bonds such as its 8¾% notes due 2006 were quoted as high as 61 bid while its unextended bonds, like its 9% notes due 2006, were at 37.5, both up around a 1½ to two points (the problem-plagued Carmel, Inc.-based insurer, currently in Chapter 11, exchanged most of its bonds in 2002 for new notes with higher coupons and extended maturities, which generally trade about 20 points higher than the remaining old bonds). No fresh news was seen out on the company.

A trader observed that Levi Strauss & Co.'s bonds "were probably a little better," with its 11 5/8% notes at 88.5 bid, 89.5 offered, up a point from Thursday's closing levels, a rise which he called "nothing dramatic. The San Francisco-based apparel maker's bonds have been steadying over the last several sessions, after having fallen when the company last week warned that full-year 2003 sales, which had been expected to grow from 2002 levels, would now likely be essentially flat.

And the trader said that a dip in Cablevision Corp.'s bonds was also "nothing very dramatic," with its CSC Holdings 7 5/8% notes due 2011 at par bid, 101 offered, about a point lower than they were at mid-week last week.

On Thursday after the market had closed for the holiday break, the Long Island, N.Y. sports team owner and cable systems operator disclosed that it was now the subject of a formal investigation by the SEC, which is looking into alleged accounting irregularities - specifically, improperly booked expenses -that led to the firing of 14 people at Cablevision's Rainbow Media Group subsidiary in June.

Analysts reportedly opined that the government probe may delay the planned spin-off of Cablevision's satellite television service and its participation in a bid for Vivendi Universal's entertainment assets.

Little or no movement was seen in the bonds of high yield telecom bellwether Nextel Communications Inc., even though the Reston, Va.-based wireless operator announced that it will complete the roll-out of its new nationwide Direct Connect walkie-talkie service in July - a month ahead of schedule.

Nextel has long had regional versions of the service, which allows a user to instantly connect with another user on the same circuit by pushing a button rather than the conventional dialing of a number. It represents a significant marketing advantage among its mostly business-oriented clientele for Nextel over larger rivals such as Verizon Wireless and Sprint PCS, which are each working on their own versions of push-to-talk service.

Nextel's benchmark 9 3/8% senior notes due 2009 were unchanged Monday at 107.25 bid, 107.75 offered. The 8 1/8% notes due 2011 of Nextel Partners - the affiliate which sells Nextel's branded service in medium and smaller markets in the U.S. - were up ¼ point at 100.25 bid.

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