Dynegy slates quick $1.2 billion mega-deal, bonds up on tender; bankrupt Mirant gyrates

By Paul Deckelman and Paul A. Harris

New York, July 15 - Columbus McKinnon Corp. and United States Can Co. priced a pair of scheduled new deals on Tuesday - but the big news in both the primary and the secondary markets seemed to come from Dynegy Inc., which unveiled plans to sell $1.2 billion of second priority senior secured notes in what is expected to be a quickly-shopped deal.

And the Texas energy and power company plans to use a sizable chunk of the anticipated proceeds to redeem three series of 2005 and 2006 bonds, which sent its existing notes smartly higher. Elsewhere in the secondary market, news that Dynegy sector peer Mirant Corp. had slid into Chapter 11 pushed some of the latter's bonds way down - but traders saw wide swings in the various debt issues.

The "red hot" high-yield primary market plowed through Tuesday's uncertain headlines concerning bankruptcies and a large sell-off in Treasuries like they were so many top-heavy bowling pins, with four pure-bred junk deals and a pair of split-rated offerings coming to completion during the session.

News also surfaced during the session of seven issuers aiming to tap the high yield, including Dynegy, Inc. which announced it is bringing $1.2 billion (sooner than later, according to some market sources).

"Without a doubt this market is red hot," one sell-side source told Prospect News on Tuesday.

"It will stay that way until you find a better place to put your money," added the official. "I think the end of August will be a little slower, but for now I think it's going to keep humming along."

This sell-side source also commented that the fortunes of junk will track the stock market, unless the stock market does TOO well.

"We've done very well and the convert market has done very well," said the official. "If the equity markets continue to do well we will do okay. If, on the other hand, equities start soaring you will lose people, I think, because they will start running to the equity market. As long as the equity market remains on an upward trajectory but not too steep high yield will do okay."

TransDigm Inc. did okay, Tuesday, pricing a deal that upsized by 25% in the middle of talk.

The company's offering of $400 million - increased from $300 million - eight-year senior subordinated notes (B3/B-) priced at par to yield 8 3/8%, in the middle of the 8¼%-8½% price talk. The bookrunner was Credit Suisse First Boston.

Interestingly, call protection on the TransDigm deal was reduced to three years from the original four.

Hoist-maker Columbus McKinnon also raised a slightly larger-than-anticipated amount cash from the accounts, pricing an upsized offering of $115 million of seven-year senior secured notes (B3/B-) at par to yield 10%. The deal, increased from $100 million, came at the tight end of the 10%-10¼% price talk. It was also via brought to market via Credit Suisse First Boston.

United States Can Co. sealed its deal Tuesday, selling $125 million of seven-year senior secured second priority notes (B3/CCC+) at par to yield 10 7/8%, at the tight end of the 11% area price talk. Citigroup was the bookrunner.

And Bally Total Fitness Holding Corp. sweated off a few basis points, pricing a $35 million add-on to its 10½% senior notes due July 1, 2011 (B2/B on existing issue) at 101 for a yield to worst of 10.268%. Deutsche Bank Securities was the bookrunner. The Chicago-based fitness center operator's original $200 million priced at par on June 26, 2003.

Also on Tuesday a pair of split-rated deals priced, both of them playing to significant interest among high yield names, according to one informed source.

Packaging Corp. of America closed the lid on $550 million (Ba1/BBB-). Its five-year notes priced at 99.544 to yield 4.477%, while the 10-year notes priced at 99.143 to yield 5.864%. Morgan Stanley and Citigroup were joint bookrunners.

Jabil Circuit, Inc. priced $300 million of seven-year senior notes due 2010 (Baa3/BB+) at 99.803 to yield 5.91%, with Banc One Capital Markets, Citigroup and JP Morgan running the books.

Seven new issuers made known their intentions of tapping the junk market on Tuesday.

Dynegy announced it will bring $1.2 billion of second priority senior secured notes in what is anticipated to be a quick-to-market transaction, according to a couple of market sources.

Credit Suisse First Boston is reported to be the bookrunner.

Dynegy wasn't the only energy name that reverberated through the primary market Tuesday.

Price talk is 7¼%-7½% on El Paso Natural Gas' sale of $350 million seven-year non-call-four notes. Although early in Tuesday's session some sources reported anticipating that El Paso Natural Gas would price its deal (of which much of the market had just learned) before the end of the session. However the quick-to-market offering, proceeds from which are slated to fund the Western power settlement, is now expected to price on Wednesday, with Citigroup and Credit Suisse First Boston running the books.

Nor was Dynegy the only whopper that the investment banks whipped out on Tuesday.

Details are expected to surface Wednesday on an offering from CNH Global NV (Case New Holland, Inc.) of $1 billion of eight-year senior notes, according to an informed source.

More detailed information was heard on San Antonio medical device company Kinetic Concepts Inc.'s $205 million of 10-year senior subordinated notes, which will begin undergoing examinations by investors when the roadshow starts on Thursday. Pricing is expected in the middle of the week of July 21. Morgan Stanley and Credit Suisse First Boston are joint bookrunners.

Meanwhile the roadshow began Tuesday for Payless ShoeSource, Inc., which wants to lace up $200 million with its offering of 10-year non-call-five senior subordinated notes that are expected to price during the week of July 21. Goldman Sachs & Co. is bookrunner on the Topeka, Kan.-based footwear retailer's deal.

Publisher Haights Cross Communications was also heard to be coming into the high-yield market with $260 million of senior notes due 2011 (Caal) and $80 million of senior discount notes due 2013 (Caa2) on Tuesday.

And yet another energy name, Range Resources Corp., announced in a press release late Tuesday it will bring $100 million of 10-year senior subordinated notes. No syndicate names or timing were heard on the deal from the Fort Worth, Tex.-based independent oil and gas company.

Finally on Tuesday price talk of 9¼% area emerged Tuesday on Reddy Ice, Inc.'s $150 million of eight-year non-call-four senior subordinated notes (B3/B-), which are expected to price on Thursday morning via Credit Suisse First Boston, CIBC World Markets and Bear Stearns.

Well after Tuesday's session came to a close one sell-side official told Prospect News that the massive sell-off in the Treasury bond market was a good news-bad news scenario for junk.

"It's going to be interesting to see what happens, given the Treasury sell-off today," said the source. "Will it continue Wednesday? And if so, how will it impact the market?

"I don't think the overall story has changed. If we don't see continued sell-off in Treasuries Wednesday there won't be that much of an impact. If people continue to sell Treasuries on Wednesday you may see some of the lower-yielding paper back up.

"Of course the longer-term view is that the sell-off is a response to an improving economic picture. Mirant aside, I think people still expect better performance from the market, overall, just because of the improving credit picture for a lot of people."

When the new Columbus McKinnon 10% senior secured notes due 2010 were freed for secondary market dealings, they were heard to have firmed to around 102 from their par issue price.

Back among the established issues, Dynegy's announcement that it would tender for its $300 million of 8 1/8% notes due 2005, its $150 million of 6¾% notes due 2005 and its $200 million of 7.450% notes due 2006 pushed the company's existing bonds up (see Tenders and Redemptions elsewhere in this issue for full tender offer details).

"Looks like they're all up," said a market source, who quoted the 8 1/8% notes at 101.5 bid, up from 98 on Monday, while the 7.45s, which are to be taken out for a slightly lower price than the 8 1/8s, had moved up to 98.5 bid, a two point gain on the day. Other Dynegy debt not being tendered for was also improved, with its 8¾% notes due 2012 heard two points better, at 96.5 bid.

Dynegy rival Mirant Corp.'s bonds "got creamed," a trader said, "and are all trading flat (i.e. trading without accrued interest, effectively lowering the bond's real value several points below its nominal price). He saw Mirant Corp.'s debt, such as its 7.4% notes due 2004 and its 7.90% notes due 2009, as having swooned to around 41 bid, 42 offered from much higher previous levels, although he saw the Mirant Americas Generation unit's bonds gyrating at considerably higher levels, between a low of 65 and a high of 72, before going out at 71 bid, 72 offered.

An observer at another desk agreed with that general assessment, pegging the Mirant Corp. bonds at 40, with the 7.40s having tumbled to that level from 64 previously, while the 7.90s had been at 48.5 bid before the bankruptcy news caused them to nosedive.

And calling the company's bond performance "a mixed bag," he saw MAG's 7.20% notes as having firmed to 72 bid from 58, while its 8.30% notes due 2011 rose to that level from 61 on Monday, and its 9 1/8% bonds due 2031 ended at 71.5, up from 62.5. MAG's 7 5/8% notes due 2006 were quoted off two points, at 73.5.

Another trader said that Mirant debt "was all over. They [presumably the MAG issues] got hit pretty hard - but then came back pretty good." He mused that he didn't know "why they would put this company into bankruptcy," chalking it up to "asset grabbing."

In filing for Chapter 11, Mirant listed $20.6 billion in assets - making it the largest corporate bankruptcy so far this year - versus $11.4 billion in debt. Mirant had been trying to get its bondholders and banks to go along with an out-of-court restructuring of its debts, but was unable to persuade everybody it had to. The debt-holders also turned down an alternative plan for a pre-packaged Chapter 11 filing, forcing the company into a potentially messier and more time-consuming traditional bankruptcy.

Mirant shareholders had meanwhile been hoping against hope that bankruptcy - which would make their shares essentially worthless - could be avoided. Rumors that the company might dodge the bankruptcy bullet sent the shares up some 15% on Monday - but trading was suspended on Tuesday.

Also in the power sector, Calpine Corp. - whose new 8½% and 8¾% notes, as well as its existing bonds, had all retreated on Monday, continued to ease on Tuesday.

"Calpine got hit hard," a trader said, "down about a point and a half" on top of Monday's decline, "and though they came back, they still were down one-quarter to a half a point on the day."

A market-watcher quoted the San Jose, Calif.-based power producer's 8½% notes due 2011, which on Monday had fallen from 80 bid to 79, as having fallen further Tuesday to 77.5 bid.

At another desk, Calpine's 8 5/8% notes due 2010 were half a point lower, at 78 bid.

Elsewhere, Lucent Technologies Inc. warned investors that its hoped-for return to profitability ain't gonna happen this year, and "people didn't like that at all," a trader said.

He quoted the Murray Hill, N.J.-based telecommunications equipment maker's 6.45% bonds due 2029, which had traded up to 70.5 on Monday, as having opened Tuesday at 69.5 bid, 70 offered, but then having fallen to 67.5 bid, 68.5 offered after the company's late-afternoon announcement that it now expected to return to profitability in fiscal 2004 rather than in the previously expected fiscal 2003, due to weak sale of mobile-network equipment in the recently ended fiscal third quarter.

He saw Lucent's 5½% notes due 2008 falling to 84.5 bid, 85 offered, down a point, and its benchmark 7¼% notes due 2006 going to 93 bid, 94 offered from 95 bid, 95.5 offered.

Lucent projected that in the fiscal third quarter, it would likely post a loss of between six and eight cents a share, with revenue expected to drop about 18% from the $2.4 billion reported in the fiscal second quarter.

Standard & Poor's said that it was considering further cuts in Lucent's debt ratings; the company's corporate credit is currently rated B- .

Also on the downside, potential fallen-angel Philip Morris' nominally investment-grade bonds "got hit hard," the trader said, after an Illinois appellate court ruled that a lower court did not have the power to lower the $12 billion bond which corporate parent Altria Corp. was expected to post in order to stay enforcement of a lower-court verdict that it deceived smokers about "light" cigarette safety while Altria appealed the ruling.

The three major ratings agencies all said they might further lower the tobacco giant's investment-grade rating. Moody's Investors Service rates the company at Baa2, while S&P and Fitch Ratings peg it at BBB.

Morris' 7.65% notes due 2008 dipped two points, to 105 bid, 106 offered, while its 7¾% notes due 2027 were two points lower at par bid, 101 offered.

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