Primary reopens as Terra sells $200 mln; Nextel Intl, Conseco drop

By Paul A. Harris and Peter Heap

New York, Oct. 3 - The high-yield bond market saw its first new deal in almost a month Wednesday, a $200 million sale by Terra Capital, Inc. The Salomon Smith Barney-led offering, eagerly awaited as an indicator of the primary market's health, came with a yield of 13%.

In the secondary market, the flow of money into beaten-down sectors continued and spread more widely, lifting cable companies and gaming companies Wednesday after helping airlines on Tuesday. Among specific names, bonds of Nextel International, Inc. and Conseco, Inc. were hit hard, with Nextel International debt losing half its value.

Terra Capital's offering of $200 million of seven-year senior secured notes was the first junk deal to actually price since Sept. 6. It sold at a yield of 13%, at the high end of talk which had suggested a yield in the 12½% area.

The Terra issuance had generated at least two questions among traders and fund managers: 1) Would the issue even come to market in the wake of Sweetheart Cup Co.'s postponement of its $275 million senior notes due 2007 and the pulling of EEX Corp.'s $350 million seven-year senior unsecured notes, earlier in the week? And 2) Would Terra open the way for activity to resume in the primary market which had until Wednesday been dormant nearly four weeks?

"It's a demonstration that the market's open, certainly," one trader commented shortly after the Wednesday pricing.

"Terra was tendering for $160 million of existing bonds and doing a new $200 million deal," the trader continued. "So it was an efficient rollover from an old bond into a new bond, where a bondholder had an opportunity to take profit, and increase his yield, and get secured.

"But I just don't think it's a great (benchmark) for the new-issue market" because of the deal's individual features, the trader stated. "It is, however, a demonstration, to a certain degree, that investors are willing to participate in newly marketed deals."

Asked to comment on what the deal says about the present dynamics in the high yield primary market, the trader said: "The issuer was in need of capital, and he was able to raise capital. The issuer was faced with a 2003 maturity on his existing senior notes - September of '03 - so he has basically less than two years to go on $160 million of maturity. And that issuer took, I think, the smart view that if capital is available in a turbulent market you take it, and you don't risk your company.

"He might have paid a higher rate than he hoped to possibly pay, but I think he got a fair deal."

Attention will now swing toward Fleming Cos. $100 million add-on to its existing 10 5/8% senior subordinated notes due July 31, 2007 (B2/B+). Price talk is 11¼% to 11½%, according to an informed source. The deal, via joint bookrunners Deutsche Banc Alex Brown and J.P. Morgan, is set to price Thursday.

Also on Wednesday, rumor held that price talk was imminent on the Luscar Coal Ltd. $250 million senior notes due 2011 (Ba3/BB), non-callable for five years via Goldman Sachs & Co. Earlier in the week, sources said it would price Friday at the conclusion of its roadshow.

Finally, the spark of life that flickered in Wednesday's primary market might light the way for Alaris Medical Systems Inc.'s approximately $150 million senior secured notes due 2006. All week there has been rumor that an announcement on the San Diego, Calif.-based medical supplies company's new offering would materialize before the Columbus Day break.

In secondary trading, if Tuesday was the day for airlines to show some recovery from the after-effects of the terrorist attacks on Sept. 11, then Wednesday was the turn of cable and gaming issues. The bargain hunting was given an extra boost by a strong performance in stocks, which improved junk market morale.

One trader said he saw "decent buying" during the session and that is was "just some money coming in" rather than any specific news that was driving prices.

Cable names were "up a lot," he said, adding that he saw Charter Communications, Inc.'s 8 5/8s due 2009 rise 2½ points to 91½ bid, 92½ offer from 89 bid, 90. Adelphia Communications Corp.'s 10 7/8s due 2010 were similarly up 2½ points to 91½ bid, 92½ offer.

In the gaming sector, the trader quoted MGM 8 3/8s of 2011 at 95 bid, 96 offer, up from 90½ late Tuesday.

Like many in the market, though, the trader said it is still not clear whether the gains are just a brief rally are the start of more sustained strength.

However the 173.19 point gain in the Dow Jones Industrial Average coming after a 113.76 gain Tuesday and an upward trend late last week was a big boost to confidence, he added.

"We're closing up with a decent tone today," he said, although worried that adverse comments on the high-yield wireline sector from Moody's late in the session might make Thursday more difficult.

Among individual names, two big losers stood out.

Nextel International fell dramatically after S&P cut its senior unsecured debt to CCC- from B-. In addition to the downgrade, S&P said it was now rating the company on a stand-alone basis as, it said, parent Nextel Communications Inc. indicated it does not plan to provide any additional cash support beyond the $250 million already committed by year-end - prompting S&P to warn that International could soon run out of cash. The rating agency pointed out that Nextel Communications had previously described its 99% owned International operation as strategic to its business plan.

Nextel International's debt lost more than half its value in response. Its 12 3/4s dropped 12 points, ending the session at 10 compared to 22 late Tuesday. The 0%/12 1/8% notes closed out at 7, off 8 points from Tuesday's close of 151/4.

Conseco's debt was marked down eight to 14 points, depending on the shop, after the company announced late Tuesday it is taking $475 million in charges to write down interest-only securities, losses in the bond portfolio and a long list of other assets. Adding to the company's troubles from a junk market point of view, Standard & Poor's downgraded the company's senior debt to B+ from BB-.

One trader quoted the company's 9% notes at 64, down 14 points from 78 late Tuesday, and its 10 3/4s at 66, also down 14 points from 80. Another had the 10 3/4s at 71, from 79 previously.

MacLeodUSA, Inc. eased a little after announcing it would no longer seek to build a national network and intends to sell non-strategic assets. Its 11 3/8% notes of 2009 were quoted at 25, down from 29½ at the end of the previous session.

Not all the news was bad however.

The troubled California utilities looked less troubled. Both Pacific Gas & Electric and Southern California Edison bonds gained, although solid quotes were hard to come by on Pacific Gas.

In general, the bonds were about five points higher although some gained even more.

Southern California Edison's unsecured 7.20s due 2003 were among the best, quoted by one trader at 97 bid, 98 offer, up 12 points from 85 bid, 86 offer on Tuesday. Edison Mission's 13 1/2s rose to 109 from 101.

Metromedia Fiber Network, Inc. continued the gains recorded Tuesday after it secured $611 million of new financing, avoiding the immediate danger of a bankruptcy filing. After rising seven points Tuesday, the company's 10s of 2008 added a further six points, taking them to 24 bid, 25 offer.

Colt Telecom rose on news of an equity infusion. Its 8 7/8s of 2007 jumped to 61 from 49 while its 0%/12% discount notes added six to close at 61 also.

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