Georgia Gulf, EchoStar deals price; InSight, Sea Containers dive; funds see $96 million outflow

By Paul Deckelman and Paul A. Harris

New York, Sept. 28 - Georgia Gulf Corp. successfully priced a downsized two-part bond offering Thursday, high yield syndicate sources said, while EchoStar DBS Corp. beamed in with a quickly-shopped issue of seven-year notes.

In the secondary arena, InSight Health Services Corp.'s bonds fell badly after the Lake Forest, Calif.-based diagnostic imaging company put up what one trader called "crappy" fiscal fourth quarter numbers.

Also getting that sinking feeling were the bonds of Sea Containers Ltd., with investors spooked by the possibility that the troubled Bermuda-based maritime and rail transportation company may not be able to pay off a bond issue that is scheduled to mature slightly more than two weeks from today.

Technical Olympic USA Inc.'s bonds were getting whacked around for a second straight session, following the Hollywood, Fla.-based homebuilder's disclosure of negative information about the performance of a joint venture in which it is involved.

On the upside, Amkor Technology Inc.'s bonds - which retreated on Wednesday - bounced back Thursday, after the Chandler, Ariz.-based provider of semiconductor testing and packaging services extended its previously announced solicitation of noteholder consents to default waivers - and more importantly from a bondholder perspective, sweetened the consent fee it is offering for those waivers.

A market source said that junk was unchanged to slightly higher on Thursday.

Funds see 3rd straight outflow

And near the end of the session, market participants familiar with the weekly high yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that in the week ended Wednesday, $96 million more left the funds than came into them.

That extends the year-to-date losses among funds that report to AMG on a weekly basis to $3.239 billion, according to the source.

Meanwhile funds that report on a monthly basis have seen year-to-date inflows of $2.797 billion.

Hence the aggregate year-to-date flow, tallying both the outflows suffered by the weekly reporters and the inflows enjoyed by the monthly reporters, is negative $441.9 million, the source said.

A buy-side source, contemplating the $96 million outflow reported Thursday, said that there is ample liquidity in the high yield asset class, and added that although it remains a challenge for investors to get their hands on bonds, the market has been showing discipline for several weeks.

It was the third straight outflow for the funds, on top of the $70 million bleed last week and the $19.8 million seen in the week ended Wednesday, Sept. 13. Over the three-week span, outflows have totaled $185.8 million, according to a Prospect News analysis of the AMG figures.

That losing streak has brought to a halt a recent pattern of strength which had been seen in the fund flow numbers. Including the latest week's outflow, there have been an evenly balanced five outflows, and five inflows seen in the last 10 weeks - although, with the recent outflows having been all relatively modest, net inflows in that period have still totaled $356.5 million, according to the Prospect News analysis. Inflows have also still been seen in seven weeks out of the past 13 - a rarity in a fund-flow landscape so far this year that has been almost completely dominated by outflows. Over those baker's dozen weeks, net inflows have totaled $453.3 million, according to the analysis.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and hedge funds.

Georgia Gulf downsized

Meanwhile the primary market saw slightly less than $1.50 billion proceeds of issuance in four tranches from three issuers.

Two of Thursday's issuers brought drive-by deals.

Thursday's biggest seller of bonds was Atlanta chemical company Georgia Gulf Corp., which priced a downsized $700 million two-part bond transaction.

The company priced a $500 million tranche of 9½% eight-year senior notes (B1/B+) at 99.304 to yield 9 5/8%. The yield came 12.5 basis points beyond the wide end of the 9¼% to 9½% price talk.

Georgia Gulf also priced a $200 million tranche of 10¾% 10-year senior subordinated notes (B2/B) at 98.494 to yield 11%, at the wide end of the price talk that had the subordinated notes coming 125 basis points behind the senior notes.

Merrill Lynch & Co. had the physical books for the acquisition and debt refinancing deal which generated $693.51 million of proceeds.

The two-part transaction was downsized from a face amount of $750 million, with the company funding the $50 million decrease by drawing upon its $350 million revolver.

Not long after the terms were circulated a buy-side source saw the two Georgia Gulf tranches "not going anywhere," with the new 9½% notes, which priced at 99.304, trading at 99.375 bid, 99.625 offered, while the 10¾% notes, which priced at 98.494, trading at 98.625 bid, 98.875 offered.

EchoStar $500 million drive-by

EchoStar DBS Corp. priced a $500 million issue of 7% seven-year senior notes (Ba3/BB-) at 97.983 to yield 7 3/8% in a quick-to-market Thursday transaction.

The yield came on the wide end of the 7¼% area price talk.

An informed source told Prospect News that the deal was nicely oversubscribed.

The company came with the intention of selling either the seven-year bullet notes or else to sell 10-year bullets, based upon demand, the source said. Although the 10-year notes were ultimately abandoned they had been talked at a yield in the 7½% area.

JP Morgan and Deutsche Bank Securities were joint bookrunners for EchoStar's debt refinancing deal.

Mediacom upsizes to $300 million

The second of Thursday's two drive-by deals came from Mediacom Broadband LLC and Mediacom Broadband Corp., subsidiaries of Middletown, N.Y.-based Mediacom Communications Corp.

Mediacom priced an upsized $300 million add-on to its existing 8 ½% senior notes due Oct. 15, 2015 (existing B3/confirmed B) at 99.25, resulting in a yield of 8.62%.

The issue, which was increased from $200 million, came on top of the price talk.

Banc of America Securities and JP Morgan ran the books for the debt refinancing.

According to an investor who was in the deal, the Mediacom terms were delayed because the company was compelled to include wording in its pricing supplement regarding a retransmission issue that Mediacom is currently negotiating with Sinclair Broadcast Group, Inc.

In a Thursday 8-K document filed with the Securities and Exchange Commission, Mediacom disclosed that cable systems serving approximately half of its subscribers carry local broadcast stations owned or programmed by Sinclair Broadcast Group under a month-to-month retransmission arrangement which can be terminated at the end of any month on 45-days notice.

All of these stations are affiliates of one of the Big 4 networks, ABC, CBS, FOX and NBC, Mediacom added.

Mediacom went on to assert that Sinclair is seeking compensation that Mediacom believes to be in excess of what is appropriate, but added that the amount is not material to Mediacom's results of operations or financial condition.

"Sinclair has threatened to give us notice, on or before Oct. 15, 2006, to terminate retransmission of all of its stations effective Dec. 1, 2006," Mediacom stated.

"While negotiations have narrowed the gap between Sinclair and us, we have not yet reached agreement. We cannot predict if or when Sinclair may give us notice to cease carrying any of its stations or, if it does, whether we will be able to reach a new agreement before our systems actually have to cease carriage. If there is an actual termination of carriage, we are unable to predict how many of our subscribers might switch to direct broadcast service providers that carry the Sinclair stations as the result of marketing campaigns launched by those providers or Sinclair; however, a permanent loss of a significant number of subscribers could adversely affect our results of operations, financial condition and prospects."

In spite of the fact that Mediacom was compelled to put wording about the negotiations in its pricing supplement, the investor said that the deal appeared to have gone fine.

Later a sell-side source close to the deal said that it had been oversubscribed, as was indicated by the upsizing.

A whopper from West Corp.

News of one roadshow start was heard on Thursday.

West Corp. will conduct a roadshow during the week of Oct. 9 for a $1.10 billion two-part notes offering (Caa1/B-).

The Omaha, Neb., provider of outsourced communications solutions will market $650 million of eight-year senior notes and $450 million of 10-year senior subordinated notes.

Deutsche Bank Securities, Lehman Brothers and Banc of America Securities are joint bookrunners for the LBO financing.

A quiet Friday

Thursday's business, which neared the $1.5 billion mark, pretty much cleared the forward calendar as far as the present week goes.

One deal is thought to possibly be Friday business.

American Entertainment Properties Corp. has downsized to $200 million from $250 million its offering of eight-year senior floating-rate notes (Caal/B-), according to a buy-side source.

There are also covenant changes in the deal, the source added. The restricted payments basket has been reset to zero but builds at 100% of net income.

Pro-forma on the deal is Libor plus 500 basis points, the source added.

Bear Stearns & Co. has the books.

American Entertainment Properties Corp. is the parent of Las Vegas-based American Casino & Entertainment Properties.

The ultimate parent is American Real Estate Partners, LP (AREP), a Delaware master limited partnership the units of which are traded on the New York Stock Exchange.

As of Dec. 31, 2005, affiliates of Carl Icahn owned approximately 86.5% of the outstanding preferred units and approximately 90% of the outstanding depositary units of AREP.

Icahn is the chairman of the board of directors of American Property Investors, Inc., AREP's general partner.

A buy-side source said that the deal was not doing well. However at least one market source polled on Thursday said that the deal is possible Friday business.

Georgia Gulf subs up in trading

When the new Georgia Gulf bonds were freed for secondary dealings, a trader saw the company's 9½% senior notes due 2014 at 99.25 bid, 99.75 offered, off slightly from the bonds' 99.304 issue price earlier in the session.

The trader also saw Georgia Gulf's new 10¾% senior subordinated notes due 2016 at 99 bid, 99.75 offered, up from their 98.494 issue price.

At another desk, a trader saw the 91/2s "not doing so bad," at 99 bid, par offered, while the 103/4s were at 98.5 bid, 99.5 offered.

The new EchoStar bonds priced too late in the session for any meaningful aftermarket activity.

InSight drops

Back among the established issues, a trader called InSight's Health Systems' plunge "the big one" as far as stories this day. He saw the company's 10.739% senior notes due 2011 fall 4 points to 83 bid, 85 offered, while its 9 7/8% subordinated notes due 2011 swooned 10 points to 32 bid, 34 offered. Volume in both issues was heavy.

A market source at another desk saw the senior bonds finishing at 85 bid, down from prior levels around 88.625, while the juniors took about a six-point fall, to the 32 area.

The bonds fell, the first trader said, after the company issued "a crappy 10-K" outlining its results for the 2006 fiscal fourth quarter and full year ended June 30, followed by what he called a "not very impressive conference call" that apparently failed to reassure investors.

InSight Health Services - which provides diagnostic imaging services in 30 states - lost $186.747 million in the quarter, versus year-ago red ink of $23.286 million, while its full-year loss widened out to a yawning $210.218 million from a $27.217 million loss the previous year.

In reporting the sobering results, management issued a long laundry list of negative factors and trends which it said "likely will continue" to adversely affect its operations.

These included such things as overcapacity in the diagnostic imaging industry, reductions in reimbursement and planned reductions from Medicare, reductions in compensation paid by customers of its mobile imaging units, competition from other mobile providers, and competition from equipment manufacturers, which it said would "caus[e] some of our customers and referral sources to invest in their own diagnostic imaging equipment."

Sea Containers flounders around

Elsewhere, Sea Containers' notes were taking on water and sinking fast, traders said, with investors fearful that the troubled company may not be able to pay off its 10¾% notes that are due on Oct. 15 - slightly more than two weeks from now.

A trader saw those bonds fall to 78 bid, 80 offered from 86 bid, 88 offered previously, along with the company's 10½% notes due 2012. He saw its 7 7/8% notes due 2008 hit a little less severely, falling to 80 bid, 81 offered, also from 86 bid, 88 offered.

Another trader saw the bonds down a little less severely, with the two big-coupon notes dropping to 79 bid, 80 offered from 82 bid, 83 offered, while the 7 7/8s ended at around 81.5 bid - which he said was actually up slightly on the day.

"There's all kinds of rumors out about this one," he said, "but nobody knows what's going on."

Given the company's well-publicized financial problems, "people think they're not going to make it" as far as paying off the maturing bonds.

He noted that the stock "is trading at $1.21 - and one of the major funds was buying it a month ago at $11" - another sign of market angst over the company.

"Are they going to be able to pay that [maturing bond] off? It certainly doesn't look like it," he said, answering his own question.

"Are the assets there?" he continued. "Yeah, the assets are there. What are the assets worth? Who knows. Are they going to have to file [for protection], unless they get an extension [on paying the bond off]? Yeah."

He allowed that there was always the possibility that "they have something up their sleeve" - but added that "this company is notorious for not speaking. I've been following them for seven years - and I still never know what the hell they're talking about."

Yet another trader agreed that the Sea Containers bonds had been pulling back over several sessions, so the actual fall on Thursday alone was more like 1½ points, with the 7 7/8s ending at 79.5 bid, 81.5 offered, with that issue having "the most activity," and the other two series each closing at 77 bid, 79 offered.

"Fears of bankruptcy are obviously looming," he said, "because the '06s are due in like 18 days, and in this case, no news is bad news - you're going to drift as long as nothing positive comes out of the company."

He noted that the two issues with the 10-handle coupons, including the issue that is supposed to be paid off on the 15th, are trading a couple of points behind the 7 7/8s because "they have higher accrued [interest] built into the bonds" and trade a few points back "to make things even," because the three issues are pari passu - none with a more senior claim than the others in the event of a possible bankruptcy, when they would all trade at the same level. "People are going to take that into account."

Technical Olympic off again

A trader said that Technical Olympic's bonds, which "kinda dragged a little bit" Wednesday, when they were seen off about 1 to 3 points as the company announced that a Florida joint venture was not doing well because of the softening housing market, "took a big beating today [Thursday], with its 10 3/8% notes due 2012 down 4 points at 86 bid, 87.5 offered.

At another desk, a source saw those bonds fall to 86.75 bid, down more than 3 points on the day, while its 7½% notes due 2015 retreated to 76 bid, also down more than 3 points. The company's 7½% notes due 2011 fell to 81 bid from prior levels at 83.5.

Technical Olympic and the Falcone Group formed the Transeastern joint venture in 2005. Since then, Technical Olympic said on Wednesday, "the Florida housing market has become more

challenging, characterized by weak demand, an over supply of new and existing inventory homes, increased competition, and an overall lack of buyer urgency,

"These well-documented conditions have caused elevated cancellation rates and downward pressure on margins, due to increased sales incentives and higher advertising and broker commissions. Although we anticipated a gradual slowdown in the Florida housing market, these conditions have been more severe than anticipated and have negatively impacted the joint venture's ability to meet its projections."

Before going public with Transeastern's situation on Wednesday, Technical Olympic met with the venture's lenders on Monday to give them the bad news first, including the fact that Transeastern's revised sales and delivery projections are not adequate to support its existing capital structure.

Technical Olympic said that Transeastern is exploring various options to fix the liquidity problem, including requesting waivers from its lenders regarding potential defaults and permitting future advances under its revolving credit line, and restructuring land bank obligations.

In reaction to the announcement, Moody's Investors Service on Wednesday put Technical Olympic's ratings under review for possible downgrade. On Monday, Standard & Poor's had revised its outlook on Technical Olympic to negative, but affirmed the company's ratings.

Amkor up on solicitation change

Amkor Technology's bonds were seen better, rebounding from Wednesday's downturn. A trader saw the company's 7 1/8% notes due 2011 up a point at 92.75 bid, 93.75 offered.

A market source at another desk saw its 7¾% notes due 2013 up 1¼ points at 92.75, while its 9¼% notes due 2016 were up ¾ point at 94 bid.

The bonds had retreated on Wednesday, after the company held a conference call with its big bondholders, on which they reportedly expressed some unhappiness with the structure of its ongoing consent solicitation, particularly in terms of what the company was offering as a fee for the various consents and waivers it was seeking from the bondholders.

On Thursday, Amkor announced that it was amending that solicitation, and increasing the consent payments on the various series of bonds, and was extending the offer to give them additional time to study the new terms.

Amkor is seeking noteholder consents to waiving technical defaults that have occurred or may occur as a result of its failure to make timely filings of its latest financial results, due to the company's discovery of an accounting problem.

Gold Kist better on takeover bid

Gold Kist Inc.'s 10¼% notes due 2014 were seen up more than 3 points on the session to 115.5 bid on the news that rival poultry producer Pilgrim's Pride Inc. was making a hostile takeover bid for its smaller competitor at $20 per share, or $1 billion total. Pilgrim's Pride is also tendering for Gold Kist's bonds.

Pilgrim's Pride, the second largest domestic poultry producer, first broached the idea of uniting with Number-Three Gold Kist, back in mid-August, but Gold Kist's management turned down essentially the same deal that Pilgrim's Pride is now offering direct to Gold Kist's shareholders. Pilgrim's Pride would also assume $144 million of debt should the deal go though.

The Gold Kist bonds were trading at around 107.5 in mid-August, just before Pilgrim's Pride announced its urge to merge. They then immediately moved up about 2 points to the 109 level, and continued to firm subtly after that to around 112 last week, the last time that the bonds traded before Thursday's announcement. However, market participants said that post-news trading in the Gold Kist issue was light.

Pilgrim's Pride's bonds meantime firmed slightly on the news, its 9¼% notes due 2013 to 101 bid, and its 9 5/8% notes due 2011 at 104.75, both up ¼ point.

GM little moved on Tracinda news

Among the automotive names, General Motors Corp.'s bonds were seen up perhaps ½ point, with its benchmark 8 3/8% notes due 2033 firming to 86 bid, 87 offered, not boosted overly much, traders said, by the news that major shareholder Kirk Kerkorian is interested in adding to his already sizable position in GM. The carmaker's General Motors Acceptance Corp. financial unit's 8% notes due 2031 were down ¼ point on the day at 104 bid, 104.5 offered.

Kirkorian's investment vehicle, Tracinda Corp., said in a filing with the Securities and Exchange Commission that it may seek to raise its 9.9% stake in GM to the 12% level by buying some 12 million additional shares on top of the 56 million it already owns. Should the billionaire investor's company pursue such a course, it would be legally required to get certain federal and state regulatory approvals, since GM has interests in the banking and insurance industries.

Tracinda's SEC filing also continued to beat the drums on the idea of the Detroit giant joining the current alliance between overseas carmakers Renault SA and Nissan Motor Co. Ltd. GM has been in talks with the two carmakers for some weeks, and their respective leaders - GM chief executive officer Rick Wagoner and Carlos Ghosn, who runs both Nissan and Renault, met in Paris this week for face-to-face negotiations. News reports that indicate that the talks have hit a few bumps in the road, although Ghosn has expressed cautious optimism on the progress of the talks. While the two companies have been running against a self-imposed Oct. 15 deadline to have something accomplished or move on, Wagoner on Wednesday raised the possibility that the talks could be extended past Oct. 15, should it look like the parties are close to an accord.

News reports say that GM - which is looking to cut costs and boost liquidity as it seeks to ride out the domestic auto industry downturn - is hoping that Renault and Nissan might provide some financial incentive for its joining them in the form of a multibillion-dollar payment. Wagoner has also said that if the talks do not succeed, GM may try to partner up with other overseas carmakers.

Meanwhile, reports also say that Renault and Nissan - afraid of losing further market share to the latter's larger rival, Toyota Motor Co and looking to slow Toyota down - seek a firm commitment from GM that it will directly confront the Japanese giant by going after the same target carbuyers with competitive models. GM is currently the world's largest automaker - although Toyota is Number-Two and moving up fast.

GM arch-rival Ford Motor Co.'s 7.45% notes due 2033 were seen down ¾ point at 77 bid, 77.5 offered, while its Ford Motor Credit Co. financing arm's 7% notes due 2013 were down ¼ point at 92.5 bid, 93. Ford Credit announced Thursday that it plans to cut 2,000 white-collar positions, or 23% of its workforce, as it consolidates its 59 North American branches into just six regional service centers as part of its parent company's wider belt-tightening efforts.

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