Upsized deals from Compass Minerals, Allied Waste price; FelCor next; Conseco, Host Marriott firm

By Paul Deckelman and Paul A. Harris

New York, Nov. 15 - Compass Minerals Group and Allied Waste North America Inc. brought new high yield deals to market Thursday, both upsized, while a quickly emerging offering for FelCor Lodging joined the slate, and is expected to price Friday, along with another lodging industry credit, Vail Resorts Inc. Lodging was also popular on the secondary side of the fence, as Host Marriott bonds showed strength; another winner was insurer Conseco Inc.

Allied Waste raised its deal to $750 million from an announced $500 million and priced the seven-year notes at a yield of 8 3/8%, at the wide end of Wednesday's 8 ½% area price talk.

J.P Morgan, and Salomon Smith Barney were joint bookrunners on this sizeable new issuance, which was "well over-subscribed," according to one syndicate official.

As to the bonds pricing at the wide end of talk, that official pointed to the day's activity in the Treasury market, which, he argued, exerted upward pressure on the high yield.

"Today, alone, the 10-year Treasury backed up 25 basis points," the official commented. "The seven-year Treasury backed up 27 basis points. So the reality is we lost almost 40 basis points in the Treasury market since we went out with price talk, starting yesterday.

"So this was a great deal, the best deal in the market," the official said.

Another market source concurred with the argument, noting the increase in Treasury yields.

"That creates upward pressure, and it doesn't make the high yield market good," the source commented.

Portfolio manager Dave Eshnaur, who monitors primary market activity for the Buffalo High Yield Fund, told Prospect News he had taken a look at the Allied Waste deal.

"That's a name I've never owned, so I'm probably not going to play it," he said.

"The big positive for them is that they're taking their bank debt out, and they're extending," Eshnaur continued. "So it takes the pressure off of them next year to have to refinance. They have about half a billion that they'll need to refinance in '03."

"Also, their margins have been declining because their volumes are down. When people get laid off there's less trash in offices. Their volumes are down and their pricing's a little soft. For everything there's an economic ramification."

Thursday's primary also saw the pricing of an upsized Compass Minerals Group $250 million, via Credit Suisse First Boston and J.P. Morgan.

Part of the financing for a leveraged buyout by Apollo Group, proceeds will help Compass acquire the salt and inorganic minerals businesses from IMC Global. The bonds priced to yield 10%, coming in at the tight end of the of the 10¼% area price talk.

One syndicate official described the book on the Compass Minerals deal as "massively oversubscribed."

"A lot of the accounts were unhappy because the allocations were so tight," the official commented.

Two lodging issuers figure to be ringing in at the front desk, in Friday's primary market:

--Vail Resorts, Inc. $100 million add-on to its 8¾% senior subordinated notes due May 15, 2009 (Ba3/B), via Deutsche Banc Alex. Brown and Banc of America Securities. Price talk is 9 5/8%-9 ¾%, and

--FelCor Lodging, LP's $100 million add-on to its 9½% senior notes due Sept. 15, 2008 (Ba2/BB, outstanding), via Deutsche Banc Alex. Brown, and J.P. Morgan. Price talk is 9 7/8% area.

Asked if the near simultaneous emergence of two drive by add-ons from two different lodging credits was merely a coincidence, market sources commented that prices of lodging credits have been trading up in the secondary market.

"I'm not sure why that's happening," an official from one of the syndicates remarked of the concurrent emergence.

"Vail is upscale," the official continued. "They have ski resorts, and they are also on an acquisition spree, in terms of trying to get these blue chip assets, these higher profile resorts.

"FelCor is a REIT. FelCor owns Crown Plaza, Holiday Inn, Embassy Suites, the DoubleTree-branded hotels. It owns equity stakes in 185 hotels.

"The market's very strong right now," the official concluded. "There's a lot of cash out there. I think they're both just trying to capitalize on that."

In the secondary market, the new Compass Minerals bonds glittered, moving up a smart three points to 103 bid after being freed for secondary dealings. Meanwhile, the new Allied Waste notes, which priced at par, went home quoted around 100.5 bid/100.75 offered.

Among already existing bonds, Host Marriott Corp. bonds were higher on the session, which, along with the sudden emergence of two new deals out of that sector, could be viewed as another example, of the recovery of investor confidence in the lodging sector. The lodging companies, of course, along with the airlines, gaming credits and essentially anything having to do with travel and leisure, had taken a severe hit in the immediate aftermath of the airborne Sept. 11 terrorist attacks.

A trader called the rise in the debt of Host Marriott, a Bethesda, Md.-based lodging real estate company, "one of the odder situations" which he witnessed during the session, since there was no fresh news out on the company, which owns or holds controlling interests in 125 upscale and luxury hotel properties, including many operated under premium brands names such as Hilton, Marriott, Ritz-Carlton, Hyatt, and Four Seasons.

Bloomberg Television, however, reported that Loews Corp. said in a filing with the Securities and Exchange Commission that it had been buying the shares of such beaten-down sectors as lodging, with Marriott and Hilton, as well as airlines such as American, Continental and Southwest. Host Marriott shares were up 58 cents, or 7.51%, to $8.30.

"I don't know of a lot of activity taking place, but offerings moved up considerably." He quoted the company's 8 3/8% notes due 2006 as having pushed up to around 95 bid/97 offered from 92 bid/94 offered earlier, speculating that "it seems like large end-accounts, maybe institutional accounts, are buying these things." Retail-account traders like himself, primarily dealing with odd-lots, "find out about it a day later," he quipped.

A trader saw "much better" activity in Conseco Inc., whose 8½% notes due 2002 jumped four points to 87 bid, while its 6½% notes due 2002 rose to 87.5 bid from 85 and its 10¼% notes were up several points, to 95.5 bid. The trader mentioned that the Carmel, Ind.-based insurer had "a big conference (call) going on," and presumably going well.

Elsewhere, he noted that Sea Containers Ltd.'s 12½% notes had moved up to 77 bid from prior levels in the lower 70s, while the Bermuda-based transportation and lodging concern's 9½% notes jumped to 81 bid from 75.

The company released third-quarter results and followed that up with a conference call. On the faced of it, the number seemed discouraging, as net earnings for the quarter were $6.6 million (35 cents per share) from revenue of $356.3 million, which it said were "substantially down" from year-earlier periods.

Sea Containers blamed the plunge on a variety of special factors, including the inflation of last year's numbers by gains on the sales of securities, and, for this year, problems such as the outbreak of foot-and-mouth disease in the U.K., one of its major transportation markets, which prompted the cancellation of many tourism events there, and the effects of the Sept. 11 terrorist attacks.

Company President James B. Sherwood instead said that 2002 promised to be much better than 2001 has been, citing the dramatic recent fall in interest rates, which will greatly reduce the company's interest cost on its $900 million of floating-rate U.S. dollar debt in 2002, as well as the subsiding of the foot-and-mouth scare in the U.K.

Level 3 Communications Inc. bonds, which rose Wednesday amid market rumors the telecommunications carrier was in talks for some sort of collaboration with British Telecom, remained firm Thursday, even though no further news (beyond the fact that the two companies were reportedly talking about BT becoming a customer of Level 3) had emerged.

The Broomfield, Colo. -based long-haul telecom operator's benchmark 9 1/8% senior notes due 2008, which had moved up about two or three points to the 54 bid level on the BT news and attendant unsubstantiated buyout rumors that went with it, were heard to have ended up about a point-and-a-half at the 55.5 bid level, although a trader said that "for a couple of hours, they were trading 55-to-59, and usually, that bond has been a half-point market." He heard Level 3 trading toward the end of the day in the 54.5 bid/57.5 area.

He also noted that there was strength seen in Williams Communications Group Inc., which moved from 49.5 bid/50.5 offered to 51 bid/52.

Williams and Level 3, the trader said "have been doing very well" of late, "picking up the slack since Global Crossing got hit."

Meanwhile, Global Crossing bonds, which have fallen all the way to around the 15 bid level from positions earlier in the year near par as investor angst over the global long-haul network operator's liquidity mounted, were heard by traders late in the session to have quietly firmed about a half point, "but it's been very illiquid," one said. He had heard through the grapevine that Global Crossing had, in fact, made a sizable bond interest payment due Thursday, while another trader said that he "hadn't heard that they hadn't." There was no immediate word either way from the company.

End

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