Vivendi prices upsized mega-deal, Huntsman also appears; fund flows add another $1.2 billion

By Paul Deckelman and Paul A. Harris

New York, April 3 - Vivendi Universal might be a Paris-based company and things French aren't exactly considered tres chic these days in America - but there were no France-bashers in junkbond land Thursday as the international media giant brought an upsized €1.2 billion two-part mega-deal to market - and the bonds traded up smartly when freed for secondary dealings.

New deals also priced from Huntsman International ($150 million) and Sistema Finance ($350 million). And in the secondary arena, one of the standout performers was Tesoro Petroleum Corp. - which is slated to bring a $400 million new deal to market next week and use the proceeds to pay down existing debt.

The new deals - and the secondary for that matter - continue to float along on a plentiful liquidity cushion, with almost more cash coming into the junk market than players know what to do with. That's encouraged primary issuers to bring opportunistic new deals, and has pushed secondary names up to what are in some cases almost ridiculously tight trading levels.

The liquidity surge continued to roll on this week, with market sources familiar with the weekly high yield mutual fund flow numbers issued by AMG Data Services Inc. of Arcata, Calif. that the mutual funds - a key barometer of overall liquidity trends among the junkers - saw yet another billion-dollar plus inflow in the week ended Wednesday, as $1.202 billion more came into the funds than left them.

It was the sixth consecutive week in which the funds showed a net inflow and the second straight in what that number had topped $1 billion, following the $1.02 billion inflow seen in the week ended last Wednesday, March 26, counting only those funds which report on a weekly basis and excluding distributions.

Inflows have now been seen in nine out of the 13 weeks since the beginning of the year, with net inflows for the year rising to approximately $8.187 billion from the $6.987 billion net inflow total seen last week, according to a Prospect News analysis of the AMG figures. Over the past six weeks, approximately $6.609 billion more has flowed into the funds than has left them. In four of those weeks, including the two most recent ones, inflows have totaled over $1 billion.

Market participants attribute both the strong surge in new issuance, and the robust secondary market, both of which date back to around mid-October, to the extended run of weekly inflows, which began at around the same time.

"It's truly impressive," a sell-side official commented on the inflow reported Thursday. "For some people it seems to be creating a false sense of hype, but that's where the market is going.

"Most investment banks are encouraging anyone who is on the cusp of issuing debt to do so because this may be the best opportunity we've seen in quite a while."

Prospect News quizzed this source as to whether or not the present circumstances in the high-yield market could be viewed as historic.

"From a funds flow perspective, without a doubt," the official responded. "We've obviously seen yields better in 1999, when all the average indices were showing a weighted average around 9% or 10% whereas we're still around 11%.

"But with regard to the inflows, we're already around $9 billion of inflows for the year. The most we've ever seen in any given year was $11 billion. So this is impressive.

"And it's not that people necessarily see our market as being so hot. They just don't see as much value in the equity markets."

Current conditions in high yield prompted market participants to reach for superlatives as Thursday's busy session in the primary sector wound down. "Red hot," "amazing" and "unbelievable" were among the descriptions heard.

In addition to the massive inflow to mutual funds, the other event that particularly drew such exclamations was Vivendi Universal's sale of €1.2 billion of seven-year paper in an upsized two-tranche offering. The company priced $935 million at par to yield 9¼% and €325 million at 98.746 to yield 9¾%. The dollar portion came at the low end of talk of 9¼% to 9½% while the euro piece came in line with talk that put it 50 basis points behind the dollar notes.

Bookrunners were Goldman Sachs & Co., JP Morgan, Banc of America Securities, Royal Bank of Scotland and Salomon Smith Barney.

Sources advised Prospect News that the transaction was five-times oversubscribed and that Vivendi's new notes rocketed into the secondary market where the dollar-denominated notes were heard bid as high 105.25 by one source and 105 by another. A trader saw them settling at 104.75 bid/105.25 offered.

In addition to the Vivendi deal the market also heard terms on a quickly-shopped offering from Huntsman International LLC. It sold a $150 million add-on to its 9 7/8% senior notes due March 1, 2009 at 105.25 to yield 8.537%.

And terms were also heard on an emerging markets corporate offering from Russian telecom Sistema Finance. Its $350 million of five-year notes were reported Thursday to have come with a yield of 10 3/8%.

Market sources had been advising Prospect News during the run-up to Thursday's Vivendi transaction that the buy-side would show up with a robust appetite for the French media giant's new paper. And sell-siders who spoke Thursday afternoon with Prospect News noted that the deal did not disappoint.

The force driving the remarkable aftermarket levels of the new Vivendis, as well as other paper, sources have said, is simply the law of supply and demand.

The supply of new paper has been constrained because issuers see the present time-window-with the U.S. waging war against Saddam Hussein and his Republican Guard in Iraq - as one in which the price of their bond deals could hinge, for better or worse, on the caprice of a single news headline. The demand, meanwhile, is relentless, with record levels of cash streaming into the asset class - cash which even cautious high yield investors can only afford to sit on for so long.

Meanwhile Thursday the market digested information on upcoming junk bond deals including Allied Waste's $300 million of 10-year notes, Frontier Oil Corp.'s $200 million of 10-year paper and Resolution Performance Products LLC and RPP Capital Corp.'s $175 million of seven-year bonds, all probably pricing Friday or early in the coming week, sources said.

Price talk of a yield in the 8¼% area emerged Thursday on Frontier's $200 million of 10-year senior notes (B2/B+), set to price Friday afternoon via bookrunner Bear Stearns & Co. and co-manager BNP Paribas.

Also price talk of 9 5/8%-9 7/8% was heard Thursday on Resolution Performance Products' $175 million of seven-year senior secured second priority notes (B2/B+), via Morgan Stanley. It too is expected to price Friday.

Also set to price Friday is Allied Waste Industries, Inc.'s off-the-shelf offering of $300 million 10-year senior notes (Ba3/BB-/BB-) via JP Morgan, Credit Suisse First Boston and Deutsche Bank Securities.

Although no official price talk was heard on the new Allied Waste paper one market source advised Prospect News that the Scottsdale, Arizona waste hauler's existing junk might provide a useful indicator.

"Their existing bonds, depending upon the maturity, are trading at 7½%-8%," said the source. "And we anticipate, given how strong the market is - and the market has known about this big restructuring forever - that the deal will price at the wide end of those trading ranges."

Finally on Thursday, price talk of 8½%-8¾% emerged on Tesoro Petroleum Corp.'s $400 million five-year senior secured notes (BB), which is expected to price during the week of April 7, via Goldman Sachs.

Looking at the Vivendi deal from a secondary desk, a trader marveled that it was "amazing how strong things are."

He noted, for instance, that the Dex Media East LLC bonds - which broke into the market at par for both tranches back on Oct. 30 - just as the massive flood of liquidity was getting started -now are quoted up around the 116 bid level. And he saw the R.H. Donnelley Corp. bonds, which priced at par on Nov. 26, at 110 bid/111 offered.

Back among already established issues, Tesoro Petroleum's 9 5/8% notes due 2012 were quoted Thursday at 93 bid, up at least four points from prior levels. The San Antonio-based refining company - which has recently profited from the widening crack spreads (the gap between crude prices and the value of the gasoline, jet fuel, heating oil and other distillates refined from the crude) as well as drawn-down U.S. distillate supplies - will be bringing its $400 million deal to market next week, and will pay down some of its debt with the proceeds. It had $1.98 billion of total debt at the end of 2002, but hopes to chop $500 million from that figure by the end of this year.

Elsewhere, even though the White House has turned thumbs down on the idea of spending more than $3 billion to help the staggering U.S. airline industry out - although the administration left the door open for a lower level of assistance than that approved Wednesday by House and Senate appropriations committees - the bonds of the most financially challenged of the airline majors American Airlines parent AMR Corp., continued to wing skyward Thursday, investors apparently convinced that even with a lesser degree of federal help to the industry, the Fort Worth, Tex.-based top carrier can get by without having to declare bankruptcy, if it can wring $1.8 billion of concessions from its unions.

AMR's 9% notes due 2012 were quoted at one desk as having traded to levels as high as the 38-39 area, while another trader pegged them at a more modest 35 bid - still up about four points on the session, and double where they were about 10 days ago. He surmised that other airline bonds were also up, although he had no firm levels on any of them.

Another trader said that the bonds of the other airlines were all unchanged around previous levels, with Continental Airlines' 8% notes due 2005 around 50 bid, Northwest Airlines' 8 3/8% notes due 2004 around 73 bid and Delta Airlines' 6.65% notes due 2004 at 77.

Back on the ground, the trader said that Calpine Corp. was "the biggest mover" in the recently resurgent merchant energy sector, which has seen recent refinancing from such players as Dynegy Inc., Reliant Resources Inc. and El Paso Corp. The consensus among power industry watchers seems to be that the San Jose, Calif. Based independent power producer may be the next company to announce that it has managed to refinance its debt, even in the wake of troubled conditions within the industry. Accordingly, Calpine's 8½% notes due 2011 zoomed as high as 65 bid from prior levels at 61, before coming off that high to end at 64 bid/65 offered.

Another player in that same sector, CMS Energy Corp. - which announced $850 million of new financing Monday - was also up. Its 6¾% notes were at 99 bid/par offered and its 8½% notes due 2011 were at 90 bid/92 offered. "CMS already made their big move [earlier in the week] and now they've slowed down," the trader said, "but they're still grinding up, about a point on the day."

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