Vanguard only deal announcement; lack of supply helps prices; Rite Aid weaker

By Paul A. Harris

St. Louis, Sept. 7 - The high-yield market "continued to grind northward" during a relatively quiet Tuesday session, with sources reporting that some players failed to haul themselves back from the three-day Labor Day break.

While a possible flurry of deals post-Labor Day had been forecast by a few primary market sources during the run up to the holiday, such a flurry failed to materialize on Tuesday.

One single company, Vanguard Health Systems, Inc., was seen wheeling a $700 million two-part deal toward the starting line. Otherwise little activity was seen in the new issue market.

The aftermarket, meanwhile, saw a shadow of a bid, according to traders who attributed it to the dearth of supply in the run up - and so far in the wake of - Labor Day.

"People took another day of vacation," quipped one trader shortly after the Tuesday close.

"It was pretty quiet all day, but the lack of new issuance has kept a bid in the secondary."

The existing issues of Six Flags Inc. clutched onto their recent gains as players mulled the possibility that Bill Gates, who has reportedly not been amused with the company's performance, may seek a seat on the board of directors.

Elsewhere the bonds of Rite Aid were seen softer as the company reported that it hadn't taken in as much vitamin C(ash) as it had anticipated.

Vanguard bringing $700 million

The story of the day in the new issue market came from Nashville, Tenn.-based Vanguard Health Systems, which plans to start a roadshow Thursday for a $700 million proceeds two-part offering.

Vanguard Health Holding Co. II, LLC in conjunction with Vanguard Holding Co. II, Inc. plans to sell $560 million of 10-year non-call-five senior subordinated notes.

Meanwhile Vanguard Holding Co. I, LLC in conjunction with Vanguard Holding Co. I, Inc. plans to sell $140 million proceeds of 11-year non-call-five senior discount notes.

Citigroup and Banc of America Securities are joint bookrunners for the debt refinancing deal.

The roadshow is scheduled to conclude on Sept. 20.

Primary seen slow to get going

Elsewhere it was zilch in primary-land, Tuesday.

"I think that will change over the rest of this week," one investment banker told Prospect News after the close.

"It's just slow getting started."

Prospect News followed by asking this source if drive-by action was anticipated during the remainder of the present, holiday-abbreviated week.

"I think it will be on the light side, if anything," said the official, "because if people were going to do drive-bys the time to do them was in the three-week to one-week window before Labor Day.

"The market felt good. And everyone anticipated this big break, with the Labor Day holiday and all the vacation time around that.

"As it turns out now the market is still good. But you have to figure if something was going to come, it would have come when everybody Knew it was good."

Another primary market observer also advised Prospect News that while the signals are presently mixed at best on the U.S. economy, the stage nevertheless appears to be set for a relatively vigorous fall new issue calendar in high yield.

"People are thinking that the Fed is not going to do much at the Sept. 21 meeting, given the softness in the economy," the source observed.

"Job creation is not very strong. And consumer spending, while it appears to have recovered somewhat from the June soft patch, is still not very strong.

"The deficit, of course, will create pressure for continued rate hikes.

"And a rising interest rate environment will torpedo consumer spending.

"But there is liquidity in high yield," the source continued, noting that high-yield mutual funds have most recently enjoyed a pair of successive "respectable" weekly inflows that total over $500 million.

"People still have to put money to work," the source said. "That will support a healthy primary market in September."

Rite Aid coughs up weaker numbers

Meanwhile, in the wake of releasing sales figures and a revised outlook, the existing bonds of Camp Hill, Pa., drugstore chain Rite Aid softened on Tuesday.

The company reported a razor-thin 1% rise in same-store sales for August, with revenues that grew by a slim 0.7% to $1.56 billion.

Meanwhile Rite Aid trimmed fiscal 2005 sales and earnings guidance, blaming parsimonious health-care administrators and competition from mail-order competitors, among other corrosive market forces.

Rite Aid's 7 1/8% bonds due 2007 were 100.50 bid, 101.50 offered, "off three-quarters," according to one trader, who also spotted the company's 7 5/8% notes due 2005 at 101.50 bid, 102.50 offered, "half a point weaker."

Another trader had the Rite Aid 7 1/8% bonds due 2007 finishing at 100.50 bid, 101.50 offered, "down about a point," while the 8 1/8% due 2010 finished 104.0 bid to 104.50 offered, also down about a point.

Yet another market source had the Rite Aid 8 1/8% notes trading at 104.50 bid, 105.50 offered.

Mediacom eases

Also somewhat softer were the bonds of Middletown, N.Y.-based Mediacom Communications Corp.

A trader saw Mediacom's 9½% bonds due 2013 at 97 bid, 98 offered, "a point lower."

Another source had the Mediacom 9½% notes spotted at 97.375 bid, 97.875 offered.

Last Wednesday decline to Standard & Poor's put Mediacom's ratings, including its BB corporate rating and B+ senior unsecured rating, on CreditWatch with negative implications.

Six Flags clings to recent gains

In the secondary market sources commented that the existing issues of theme park operator Six Flags are hanging in there.

The good news, one source said, is that Daniel Snyder, owner of the Washington Redskins football team, bought an 8.8% stake in Six Flags, and that Microsoft Corp. founder Bill Gates, who owns a 12% stake in Six Flags Inc., may seek a spot on the company's board.

"It looks like the bonds have recovered a little since Snyder bought 8.8% of the stake in the company," the source commented.

"The 9 5/8s of 2014 were trading around par in late June and early July. Then they fell all the way down to around 87.5 area in late August, on all the bad news, leaving all of the riders hanging on a roller coaster after a power outage, and so forth.

"Since late August the bonds have steadily recovered to the 93.25 area."

Traders uniformly had Six Flags paper unchanged on Tuesday's session.

The company's 9 3/8% bonds due 2013 went home at 93.25 bid 95.25 offered, according to one trader. Meanwhile the 9 5/8s due 2014 were at 93 bid, 95 offered. And the 8 7/8s due 2010 at 92.75 bid, 93.25 offered.

Another trader had all the company's bonds unchanged on the day, with Six Flags 8 7/8s due 2010 closing at 93 bid, 94 offered. Meanwhile the 91/2s due 2009 finished at 97.5 bid, 98.5 offered and the 9 5/8s due 2014 finished at 93.5 bid, 94.5 offered. The 93/4s due 2013 finished at 94 bid, 95 offered, the trader said.

Airlines lift on easing oil prices

One trader told Prospect News late Tuesday that the news of falling crude oil prices seemed to be generally improving peoples' circulation in the high-yield market.

Oil prices fell Tuesday on new from OPEC that supplies were growing faster than demand, as well as on news that petroleum production in the Gulf of Mexico appears not to have suffered as a result of hurricane Frances.

The market even seemed to shrug off the recent pipeline sabotage in Iraq.

A trader noted that some analysts are saying that prices, which just recently shot toward $50 a barrel, could even fall below $40 a barrel in the next two weeks.

Such news, the trader added, help create lift under some of the distressed paper of the airline industry.

Almost reflexively the source pointed to Delta Air Lines Inc.'s 8.30% bond due 2029, which the trader spotted at 28.50 bid, 30.50 offered, "up a point, maybe a point and a half on the day."

Another source noted that Delta Air Lines had announced on Tuesday that the announcement by chief executive officer Gerald Grinstein of the initial phase of the airlines' strategic review initiatives will be webcast on Sept. 8, starting at 8:30 a.m. ET.

"The turnaround plan is expected to include more job cuts and changes to the hub system," noted the source, adding that the webcast seems to be generating a fair degree of anticipation among investors.

"People are starting to feel more comfortable with the short Northwest Airlines paper," a trader added late Tuesday.

"The Northwest 7 5/8% due 2005 and the Continental 8% due 2005 have been moving up a little bit - maybe half a point.

"But there are still people filtering in, and we hope that tomorrow picks up a little bit."

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