Sierra Pacific deal prices; Tenet firm after investor call; continued low rates seen drawing issuers

By Paul Deckelman and Paul A. Harris

New York, March 16 - Sierra Pacific Resources priced an upsized offering of 10-year notes Tuesday, the single pricing of the day, high yield syndicate sources said.

And Warner Music Group was heard to be poised to rock the European buy-side with a roadshow for $800 million equivalent of notes, starting later this week.

In the secondary market, Tenet Health Care Corp. held a conference call, and apparently was able to reassure investors about the Santa Barbara, Calif.-based hospital operator's long-term outlook, since its bonds bounced off their early lows to end the day mostly unchanged to up slightly.

Meanwhile junk bond sources took a moment Tuesday afternoon to parse the latest pronouncements from the Federal Reserve, which, as expected, kept interest rates at 1% and kept the word "patient" in its vocabulary when it met Tuesday.

One source told Prospect News, after the session's close, that if anything Tuesday's meeting conveyed an outlook on the part of the Fed which could help to keep the new junk pipeline flowing steadily.

"Greenspan seemed to be saying that job growth has lagged and that inflation is muted, so we're not likely to see a Fed tightening anytime soon," one sell-side official reasoned.

"So we're still in an environment where the pipeline continues to build and these drive-by deals continue to happen.

"Even if the levels of these new deals aren't coming at the absolute tightest, these rates are going to continue to attract issuers."

Sierra Pacific upsizes

The session's sole transaction came from Sierra Pacific Resources, the Reno, Nev.-based holding company for Nevada Power Co. and Sierra Pacific Power Co.

Sierra Pacific Resources priced an upsized $335 million of 10-year senior notes (B2/B-) at par to yield 8 5/8% via Lehman Brothers and Merrill Lynch & Co.

That print was at the wide side of the 8½% area price talk but the deal was increased from $300 million.

Elsewhere in the market, Beal Financial Corp. postponed an offering of 10-year senior secured notes (B1/BB-) on Tuesday, according to Eric Billings, the co-chief executive officer of bookrunner Friedman Billings Ramsey.

Billings told Prospect News that the deal, which had been downsized to $200 million from $500 million, and appeared to be coming at the wide end of the 8%-8¼% price talk, did not make sense for the company in its final form (see related story elsewhere in this issue).

Warner Music to hit the road

A European roadshow is expected to take place Thursday and Friday for Warner Music Group's $800 million equivalent of 10-year senior subordinated notes, to be issued in dollar and sterling tranches.

A U.S. roadshow will follow.

The anticipated tranche sizes of the acquisition financing deal are $615 million and £100 million.

Deutsche Bank Securities, Bank of America Securities, Lehman Brothers and Merrill Lynch & Co. will run the books.

Elsewhere the roadshow starts Tuesday for Prestige Brands' $210 million of eight-year senior subordinated notes (Caa1), which are expected to price on March 31.

Citigroup and Banc of America Securities are joint bookrunners on the acquisition financing deal from the Bonita Springs, Fla. consumer products company.

And the roadshow starts Thursday for RadNet Management Co., Inc.'s $150 million of eight-year senior notes (B), which are expected to price on March 26.

Citigroup will run the books for the debt refinancing deal from the wholly-owned subsidiary of Los Angeles-based diagnostic imaging services provider Primedex Health Systems, Inc.

Talk on American Achievement, Riverdeep

Price talk of 8¼%-8½% emerged Tuesday on American Achievement Corp.'s planned $150 million of eight-year senior subordinated notes (B3/B-), expected to price on Wednesday, via Goldman Sachs & Co. and Deutsche Bank Securities.

And the price talk is 9¼% area on Riverdeep Group, Ltd.'s upcoming €205 million of seven-year senior notes (B3/B-), also expected to price on Wednesday. Credit Suisse First Boston is the bookrunner.

Sierra Pacific, Nextel trade near issue price

When the new Sierra Pacific 8 5/8% senior notes due 2014 were freed for secondary market activity, they didn't stray far from their par issue price, with a trader quoting the new bonds at bid levels around par-100.25.

The new Nextel 5.95% senior notes due 2014, after having priced Monday at 97.795, pushed as high as 98.75 bid, 99 offered but by the end of the session, they had dropped back a point to 97.75 bid, 98 offered. Revised terms on the deal were released early in the day.

Nextel's existing 7 3/8% notes due 2015 were a point easier on the session, at 108 bid, while its 6 7/8% notes due 2013 dipped to 105.75 bid from 107.25 previously. But the Reston, Va.-based wireless telecommunications provider's 9½% notes due 2011 were seen having bucked that trend, pushing up to 114.25 bid from prior levels around 112.75.

Nortel a little better

Back among existing bonds not linked to any new-deal developments, Nortel Networks Corp. - which had declined notably on Monday after the Brampton, Ont.-based telecommunications equipment maker announced that it had put its chief financial officer and its controller on paid leave in the midst of an internal accounting review - firmed slightly, its benchmark 6 1/8% notes due 2006 up a quarter point at 101.5 bid, while its 6 7/8% bonds due 2023 were also slightly above Monday's close, ending at 97 bid.

Tenet rebounds

But the big bounce of the day was seen in the bonds of Tenet Health Care, which released its fourth-quarter earnings after the market close on Monday, announcing a fourth-quarter loss of $954 million ($2.05 per share) versus a net loss of $31 million (6 cents per share), for the three months ended December 2002. The latest quarter included $1.13 billion, ($2.42 a share), in charges related to impairment and restructuring.

Tenet's bonds had fallen anywhere from half a point to a point-and-a-half on Monday ahead of the release of its results, and with the numbers out they continued to slide even though excluding all of the one-time items the company actually earned seven cents a share in the quarter - better than the two cents per share that analysts were looking for.

Amid fears about the company's liquidity situation, its 5 3/8% notes due 2006 fell as low as 90.5 bid, 92 offered in morning trading, down from 92 bid, 93 offered on Monday before the results. Tenet's 5% notes due 2007 fell two points in morning trading to 87 bid, 89 offered; its 6 3/8% notes due 2011 lost more than two points early on, sinking to a morning level of 82 bid, 84 offered, while its 7 3/8% notes due 2013 dropped to 84.5 bid, 85.5 offered on Tuesday morning, down from Monday's 87 bid, 88 offered.

But the company's mid-morning conference call with investors and analysts apparently turned things around, a trader said.

"People were encouraged by the asset-sale situation," with Tenet having previously announced to sell 27 of its nearly 100 hospitals, including many of its assets in its home state of California.

"As long as they keep progressing with that, cash flow won't really be a problem or a consideration."

Tenet chief executive officer Trevor Fetter said as much during the two-hour long conference call, saying that he doesn't believe there will be a "liquidity squeeze."

Chief financial officer Stephan Farber said the company has access to nearly $1 billion between its credit facility and more than $400 million in cash, although Farber also expects negative 2004 cash flow of between $500 and $600 million, factoring in capital spending and other significant expenses.

Following the conference call, Tenet's bonds came off their early lows, bouncing a point or more across the board to end mostly slightly higher on the session from Monday's levels, with the 5 3/8% notes going out at 92.5 bid, 93.5 offered, up half a point on the session; the 5% notes ending a quarter point higher at 89.25 bid, 90.75 offered; and the 7 3/8% notes due 2013 half a point up, at 87.5 bid, 88.5 offered.

Tenet's 6 7/8% bonds due 2031 gained more than a point on the session, the trader said, quoting them at 81.5 bid, 82.5 offered, up from 80.25 bid, 82.25 offered on Monday.

Treasury rally weighs on junk

Apart from that, the trader said, "we had an interesting day," with the main news development being the Federal Reserve's decision to keep rates unchanged, with the federal funds target to remain at 1%, its historic low. The central bank also indicated that it would show patience and was in no hurry to raise rates.

"The Fed move was pretty well expected," he said. "I think some of their language came across a little more dovish [on inflation] than people would have thought, and because of that, you got a little more rally in the governments [bonds] than you would have thought you'd have."

That rally in Treasuries "put a little more pressure on high yield; they came across with that dovish attitude. I think it works out eventually to be a positive, but they've been dragging their feet so long as far as raising these rates are concerned. Certainly it didn't work too well for the day."

He saw one widely followed junk bond market performance index down nearly half a point, with Treasuries up three-quarters of a point, "so you had significant gapping of spreads between the two markets."

Apart from Tenet, which was down in the morning but recovered later on, the market "was better in the morning," but then tempered its enthusiasm around mid-day, sobered by the latest terrorism related news, including al Qaeda's threat to attack France because of the French government crackdown on the wearing of Islamic headcoverings by female pupils in that country's schools.

Another trader said that overall, the market "was kind of sloppy again today," with Calpine Corp. bonds "looking like they were a good couple of points lower today, maybe more in spots."

He saw the San Jose, Calif.-based independent power generator's 8½% notes due 2011 at 73 bid, 74 offered, down several points.

Also, he said, "airline paper continues to fly lower, with the unsecured airline paper down another point" from the levels it held Monday, when Delta Airlines bonds led the sector down after the company predicted a wider than previously predicted loss.

On Tuesday, Delta's 7.70% notes due 2005 were heard around 85 bid; Northwest Airlines' 8 7/8% notes due 2006 were about at 88 bid, 89 offered; and Continental Airlines' 8% notes due 2005 were around the 93 level.

"The rest of the market, generally speaking, was off about half a point to a point, depending where you looked."

However, he saw homebuilders "holding up, and casino bonds relatively unchanged to off a half [point], but they probably held up best; they're kind of more defensive paper. And with interest rates staying low, the housing sector is still strong."

Even though "a lot of brokers left early to beat the snow" in New York and other parts of the Northeast - winter's parting shot, perhaps - "it was a little bit busy," he said. "We saw some bid lists, but it looked like the stuff was bid for at lower levels. There are still buyers."

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