Gaylord, United Rentals price upsized deals; RJR gains on planned tobacco merger

By Paul Deckelman and Paul A. Harris

New York, Oct. 28 - Gaylord Entertainment Co. and United Rentals Inc. were heard by high yield syndicate sources to have each priced upsized deals on Tuesday, while Dollar Financial Group Inc. announced plans for a $200 million offering of eight-year bonds and Dura Operating Corp. was revving up to sell $50 million of add-on notes, probably during Wednesday's session.

In the secondary market, a trader observed, tongue-in-cheek, that R.J. Reynolds Tobacco Holdings Inc. bonds "were smokin'" on Tuesday after the Winston-Salem, N.C.-based tobacco giant announced plans to merge its operations with those of British American Tobacco plc - aimed at creating a company that will be better able to compete with the clear industry leader, Altria Group Inc., corporate parent of Phillip Morris.

Grabbing attention in the primary Tuesday were the two massively upsized issues, as Greenwich Conn. equipment rental company United Rentals, Inc. increased its drive-by offer to $525 million from $450 million and Nashville hospitality and gaming firm Gaylord Entertainment Co. upped the size of its deal to $350 million from $225 million, with its 10-year notes pricing inside of talk.

"This market is crazy," one sell-side source said after the session's close.

Another sell-sider told Prospect News: "This kind of execution shows that the demand for paper continues to outrun the new issue supply. People out there obviously have a lot of cash that they need to put to work."

Late Tuesday United Rentals priced an upsized, quick-to-market offering of $525 million 10-year senior subordinated notes (B2/B+) at par to yield 7¾%, right on top of the 7¾% area price talk.

JP Morgan and Credit Suisse First Boston were joint bookrunners on the refinancing deal.

Earlier in the session Gaylord Entertainment priced an upsized $350 million issue of 10-year senior notes (B3/B-) at par to yield 8%. Gaylord's deal came inside the 8 1/8%-8 3/8% price talk. Banc of America Securities, Deutsche Bank Securities and CIBC World Markets ran the books.

"It was a crazy, crazy book on Gaylord," commented one source close to the deal.

Dura Automotive Systems, Inc. showed up Tuesday with a $50 million add-on to its 8 5/8% senior notes due 2012 (B1/existing B+), which it expects to price on Wednesday, via JP Morgan and Bank of America Securities.

The Minneapolis-based designer and manufacturer of driver control systems priced the original $350 million offer at par on April 4, 2002.

Also looking ahead to Wednesday's business price talk of 6 7/8%-7 1/8% emerged Tuesday on NeighborCare, Inc.'s planned $225 million of 10-year senior subordinated notes (Ba3/B+).

Goldman Sachs & Co. and UBS Investment Bank are joint bookrunners for the offering from the Kennett Square, Pa. provider of healthcare services to the elderly.

Of course Dura and NeighborCare will be navigating beneath the considerable shadow of Ondeo Nalco Co.'s $1.6 billion equivalent four-tranche dollar and euro deal, which is also expected to price on Wednesday.

Pax World High Yield Fund portfolio manager Diane Keefe told Prospect News that she had taken in the Nalco roadshow. And while she allowed that she had no particular qualms about the company, price talk of 7¾%-8% on the $700 million equivalent eight-year senior notes tranche (B2/B) is too rich.

"I looked at it on Monday," Keefe told Prospect News.

"I don't think you're getting paid for 5.7-times leverage. I don't care how insulated from cyclicality it is. That's too much leverage for an 8% (or tighter) yield on the seniors. I would expect to maybe get another 50 basis points.

"They could have put more equity in, and made it 5.0-times leverage," added the Pax World portfolio manager, whose fund submits credits to social issues screens. "Even that is on the edge for a chemical company.

"They service the paper industry and the energy industry, and mainline industrials like food and beverage, etc. They made the case that industrial production, worldwide, has gone down a lot, and they have stayed relatively flat to up, which is good."

However, Keefe said that when the company downsized the senior tranche by $200 million equivalent, and shifted that part of the financing to its bank deal, Nalco grew even less appealing to her.

"It got downsized to $1.6 billion because $200 million got shifted into the bank, which is above the bonds," she said. "As a senior debtholder you had more protection with the structure the other way.

"Messer Griesheim, in Europe, is trading around an 8.80%. That's a big premium, but it's a company that started with less than five-times leverage, and had asset sales to bring it down to the mid-threes. And it's industrial gases, which are not sensitive to the economic movements. It's very similar credit quality, so if you can handle the premium, the fact that it's in Europe at an 8.80% yield to worst, that's the best comparable I can think of."

Still, Keefe conceded, even though she's not buying, Nalco does not figure to be hurting for customers when the deal goes down on Wednesday.

"It's a big deal, of course, and it's going to be part of the index," she said.

"I will bet you that in this market environment it actually comes lower than 8%, just because it's a food fight for decent companies that aren't going to blow up before the first coupon."

A sell-side source, hearing those views on Nalco, confirmed color that Prospect News began hearing late last week.

"That deal is out the door," said the sell-sider. "It's a blowout.

"There has only been one euro issue so far in the fourth quarter," the official added, alluding to Ifco Systems NV's €110 million of seven-year senior secured notes (B2/B-) which priced at par on Oct. 6 to yield 10 3/8%.

"I think there were only seven euro issues in the third quarter," the source added. "So they don't really see a lot. When they get an opportunity like this they move on it."

Aside from the business expected to be completed on Wednesday, Dollar Financial Group, Inc. will begin a roadshow for an offering of $200 million of senior notes due 2011. Credit Suisse First Boston and Citigroup will run the books on the Berwyn, Pa. check cashing company's deal, which is expected during the Nov. 3 week.

During her Wednesday conversation with Prospect News Pax World portfolio manager Diane Keefe concurred with recent color that high yield investors are presently needing bonds.

"This morning I got my partial call on Elizabeth Arden 113/4s," she said. "What's a portfolio manager to do? These old coupons are getting taken away from you so you have to reinvest somewhere."

Still, said Keefe, even if the new issue supply is falling short of investor demand high yield continues to look attractive.

"I think the average spread is down to 525 basis points, now," said Keefe. "The annualized defaults are running at around 3%. That's a below-average default rate historically. And we've still got an above-average spread.

"So even though the nominal yields look really low to me, we've been living in this 45-year low interest environment for a while now and it's ratcheting into the bond market. That's why the average high yield portfolio manager is putting money out at between 6½% and 8½% on many healthy companies for 10 years.

"I try to avoid doing that," she added. "I try to find companies with yields higher than 8% that are healthy."

What is driving the recent inflows to the high yield mutual funds, Keefe added, is the relative value of the asset class when compared to the rest of the fixed income universe.

Investors in less risky fixed income securities, she said, are in a precarious position if and when the historically-low interest rates begin to ascend.

In the secondary market, the new Gaylord 8% senior notes due 2013 were heard to have firmed to 102 bid, 102.5 offered from their par issue price.

Back among the established issues, R.J. Reynolds bonds firmed smartly on the announcement late Monday that it will merge with BAT's Brown & Williamson tobacco operation into a new publicly traded holding company to be 58% owned by R.J. Reynolds shareholders.

"Funny you should ask," a market source quipped, upon being queried about whether there was any activity in the Reynolds bonds. "They were up dramatically."

He saw the 7½% notes due 2012 "up just a touch" to 97 bid - from 91 before the BAT announcement, while the 9¼% notes due 2013 rose to 106.5. Its 7 7/8% notes due 2009 advanced to 102.5 bid from 96.5 on Monday, while its 6½% notes due 2007 closed at par, up from 95 pre-news. The Reynolds 7¾% notes due 2006 moved up to 104 bid up from 100.5, while the 8¾% notes due 2005 closed at 101 bid, up from 99.75. The 8¾% notes due 2004 firmed to 100.875 bid from 100.375 on Monday.

Aside from Reynolds, AK Steel Corp. was "up nicely," a trader said, pegging the Middletown, Ohio-based steel maker's paper up two points on the session, with its 7 7/8% notes strengthening to 70.5 bid, 71.5 offered, while its 7¾% notes closed at 68.5 bid, 69.5 offered.

AK's larger rival, U.S. Steel Corp., posted a net loss for the third quarter of $349 million ($3.42 per share), a sharp deterioration from the year-ago profit of $106 million ($1.04 per share). The latest quarter's results included a $618 million pretax charge for job cuts associated with the Pittsburgh-based steel giant's acquisition of the bankrupt National Steel Corp. The company also took charges for an asset swap with International Steel Group, another buyer of bankrupt steel operations such as former U.S. Steel rival Bethlehem Steel. Excluding the charges for the job cuts and the asset swap, U.S. Steel lost $23 million in the quarter, versus a year-ago profit, after unusual items, of $135 million.

Even so, the steelmaker's 9¾% notes due 2010 were heard a point better at 105.5 bid, although its 10 3/8% notes due 2008 were quoted at one desk unchanged at 1081/2. However, at another shop, a trader noted that the 10 3/8s had been at 107.5 bid, 108.75 offered several days ago before firming up to their current levels.

Other upsiders included Amkor Technology Inc., whose 7¾% notes due 2013 were about a point better at 105.5 after the Chandler, Ariz.-based high-tech manufacturer posted a net profit for the third quarter of $16 million (9 cents per share) - a vast improvement over its year-earlier net loss of $59 million (36 cents per share). Equity investors thought it was a pretty substantial turnaround as well - they took the company's Nasdaq-traded shares up $3.19 (19.70%) to $19.38, on volume of 8.4 million shares, more than five times the norm.

A trader said that HealthSouth Corp. was "a little stronger," its 7 5/8% notes due 2012 up "at least a point, a point-and-a-half" at 86 bid, 88 offered, on what he termed "strong buying interest late in the day."

Lucent Technologies Inc., which have recently been firming on the Murray Hill, N.J.-based telecommunications equipment maker's first quarterly profit in three years, plus Monday's news of a potentially very lucrative supply deal with telecom giant Verizon Communications, continued to firm Tuesday, its bonds seen up half a point, with its 7¼% notes due 2006 above par and its 6.45% bonds due 2029 around 76-77 bid.

Wireless telecommer Nextel Communications Inc.'s 7 3/8% notes due 2015 rose to 103.125 bid from 102.75 on Monday, while its Nextel Partners affiliate's 8 1/8% notes were a quarter point up at 101.

But other wireless names "were heavy," a trader said, with AirGate PCS' zero-coupon notes due 2009 two points lower at 65, while U.S. Unwired's zeroes of '09 were likewise off two points at 64.

But overall a trader said "the high yield market picked up in the afternoon, after the primary market got the morning off to an active start." The trader noted that the junk bonds hopped on the bandwagon being pulled by stocks and Treasuries, which both firmed after the Federal Open Market Committee left interest rates unchanged.

"While buyers hesitated to put their money to work in the morning, the stronger Treasury and equity markets led to a strong afternoon tone."

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