United Rentals bonds bounce around at sharply lower levels on SEC news; LNR up a little

By Paul Deckelman and Paul A. Harris

New York, Aug. 30 - United Rentals Inc.'s bonds were quoted sharply lower Monday on news that the Securities and Exchange Commission is investigating the Greenwich, Conn.-based equipment rental company, but they firmed off their early lows to end the day only moderately lower, bringing a touch of excitement to an otherwise very sleepy secondary market.

United Rentals bonds were "really getting hit," said a market source, who quoted the company's 6½% notes due 2012 as having dropped to 95 bid from prior levels at 98, while its 7¾% notes due 2013 lost five points to 93.5 bid, and its 7¼% notes were also down five points at 89.5 bid.

But a trader at another shop said that while there was a lot of light, there was precious little heat. He said that while the bonds were being quoted at dramatically lower levels in the early going, in reality, not much was actually going on in the way of trading.

"Without transactions, it doesn't really mean much," he asserted.

He saw the 61/2s fall as low as 93.5 bid, 94.5 offered from 97.5 bid, 98.5 offered on Friday, with the 7¾% notes dipping to 93.5 bid, 94.5 offered from 97-98, and the 7% notes falling to a very wide 88 bid, 93 offered from 92.25 bid, 93.25 offered.

"They were quoted down about five points with no trading" right after the SEC news came out, "a typical knee-jerk reaction." He reiterated, however, that he had not seen any real trades.

By mid-morning, the trader said, once the initial flurries had passed, the bonds began to climb from their lows to about a half-way point between where they started and what their lows were.

By the end of the day, the 6½% notes were at 95.5 bid, 96.5 offered - up two points on the bid side from the lows, and down two points from their previous levels.

The 7¾% notes were seen ending around 94.5 bid, 95.5 offered, up a point from the lows and down about 2½ points on the day, while the 7% notes closed at 89.5 bid, 90.75 offered, 1½ points up from its lows, although still nearly three points below the Friday closing levels.

United Rentals said in a mid-morning statement that it had that it had received notice that the SEC "is conducting a non-public, fact-finding inquiry of the company. The notice states that the inquiry does not mean that the SEC has concluded that the company or anyone else has broken the law or that the SEC has a negative opinion of any person, entity or security."

The company said that the notice "was accompanied by a subpoena requesting the production of documents relating to certain of the company's accounting records, but did not otherwise specify the scope or specific purpose of the inquiry. The company intends to cooperate fully with the SEC."

Even as the news rocked the price of the company's bonds, which did not trade much, it sent United Rental's New York Stock Exchange -traded shares down $4.39 (21.53%) to $16. Volume was 7.7 million shares, nearly 16 times the usual activity level. The company's convertible notes, which are closely linked to the value of the stock, dropped by nearly 13 points on the session.

LNR slightly higher

Elsewhere, the news that LNR Property Corp. has agreed to be bought by a unit of Cerberus Capital Management LP for $1.92 billion in cash (total worth of the deal, including debt assumption and stock options, is $3.8 billion) pushed the Miami Beach real estate company's bonds up half a point, traders, said, its 7¼% notes due 2013 ending at 100.5 bid and its 7 5/8% notes due 2013 at 102.25.

But overall, things were "pretty quiet," said a trader, who noted that "we saw more than the usual amount of bid [wanted] lists and stuff come in, which is kind of surprising - a lot of liquidations going on."

He acknowledged that it could be because we are at the end of the month and, for some companies, the end of a fiscal quarter.

Even so, he said, "it was a little bit unusual. And the word is that there will be more coming over the next couple of days. And I think the demand for the stuff is there - everything traded, and these bonds [were] bid - but it was just a little bit unusual that we saw so much paper coming out today."

Primary mostly quiet

Only whispers of deals to come disturbed the still air of the primary market as the pre-Labor Day week got underway.

One market source who advised Prospect News on Monday that there are no deals in the market and none on the road, expressed the opinion that news on roadshow starts for the Sept. 5 week could emerge before Labor Day.

However one of his counterparts on another syndicate desk in another investment bank opined that with so much of the market away people were apt to prefer an orderly build up of the forward calendar beginning next Monday, with no surprises.

Ainsworth eyes fixed, floating

Ainsworth Lumber Co. Ltd. intends to finance its $457.5 million acquisition of Potlatch Corp.'s oriented strand board manufacturing operations with cash on hand and new senior unsecured debt, according to Michael Ainsworth executive vice-president of the company.

Ainsworth, who communicated with Prospect News on Monday via email added that new bank debt has been ruled out due to restrictions in the Vancouver, B.C., forest products company's existing note indentures.

No timing on syndicate names were disclosed during a Monday conference call. Deutsche Bank Securities acted as a financial advisor for the transaction which is expected to close in September (see related story in this issue).

Lubrizol cleared for $2 billion equity, debt

The Lubrizol Corp. announced in a Monday press release that the U.S. Securities and Exchange Commission declared the company's shelf registration effective on August 27, 2004, with the result that the company can proceed with its planned offer of up to $2 billion of securities, which could consist of common stock and debt.

The specialty chemicals maker intends to use the money to replace the company's bridge facility, which was arranged in conjunction with the June acquisition of Noveon International, Inc.

In anticipation of the upcoming securities offering, the company also reaffirmed its income guidance for 2004.

Pitching mode

One sell-side official told Prospect News on Monday that with the quiet brought about by pre-Labor Day absences, especially on the buy-side, his particular investment bank's high-yield syndicate desk is in the "pitching mode.

"We're building the calendar for Q4 and spending a lot of time speaking to clients," the official said.

"I think that we are going to have a very busy couple of weeks after Labor Day. The technicals are there. The market is healthy. Things have been better-bid successively every day over the holiday. There is no supply. The 10-year Treasury is at 4.17% - below 4.2% for the first time in a long while.

"I think we're going to hit post-Labor Day - and the window between Labor Day and election day - flying."

Noting the $264 million inflow to high-yield mutual funds for the week ending Aug. 25, as reported by AMG Data Services, the banker commented that it was the first meaningful one either way for a while.

Election a "line in the sand"

Although various market sources during recent sessions have forecast that the coming U.S. presidential election, set for Nov. 2, will impact the new issue market, opinions as to how that impact will become manifest have varied.

"People are going to see that as a line in the sand and avoid it with regard to marketing bond deals, because a lot of the country is obviously focused on the election," was the prediction put forth by this investment banker.

"But I think people are starting to come to the opinion that Bush is going to win," the source added. "That's what I'm hearing from most people on the floor. Everyone thinks that if he were going to lose, then at this stage, before the Republican Convention and all the rallying, Kerry would be ahead by a sizable margin. And it doesn't seem that way.

"And of course having a Republican in charge is perceived as being positive for the financial markets."

Market window

This official went on to refer to the time period between Labor Day and the election - 40 business days - as a window through which junk bond issuers in advanced stages of financings can be expected to attempt to get deals done.

"I do think that this election bookends the coming period and we have a reemergence of a 'market window'-concept, which we haven't seen in a while," the source commented.

"The market has mostly been open, apart from that period in May where we had the market sell of as an adjustment for rising rates.

"Labor Day and the election bookends it nicely."

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