B&G sells notes, EIS, notes trade higher; Treasury rally helps junk; MCI lower

By Paul A. Harris

St. Louis, Oct. 8 - The high yield market saw $515 million of what might be termed traditional new junk deals price during the abbreviated Friday session before the three-day Columbus Day break.

However when you tally all the junk bonds that were sold Friday the figure increases to a little over $661 million. That is because B&G Holdings Corp. completed its offering of stock/bond Enhanced Income Securities (EIS) on Thursday night, containing two separate slices of 12-year bonds - one of them part of the EIS deal, the other one related but separate - totaling approximately $146 million.

In the secondary market, prices were higher with Treasuries as U.S. governments rallied in response to slower than anticipated job creation data.

But MCI Corp. was one of the exceptions as hopes the company will be acquired took a hit.

B&G Foods gets it done

Amid the shifting fortunes of the new income securities deals, B&G Holdings Corp. managed to raise $494.6 million on Thursday night and Friday by selling $260.9 million of EIS as well as an upsized $240 million issue of seven-year senior notes (B2/B).

The bonds priced Friday at par to yield 8%, on the tight end of the 8%-8¼% price talk, with the issue having been upsized from $200 million.

Lehman Brothers ran the books.

The EIS priced at $15.00 apiece, right on top of the revised $15.00 price talk, which had earlier been decreased from $15.50-$17.00.

The shares will pay an 84.8 cents initial dividend payment. The notes (Caa1/CCC+) will pay a 12% coupon.

The EIS have a blended yield of 11.38% and are expected to pay $1.707 annually.

RBC Capital Markets, Credit Suisse First Boston and Merrill Lynch & Co. ran the books for the EIS deal.

The 8% bonds due 2011 went on a tear after being released for trading. One source saw them at 103 bid, 103.375 offered. Later in the session a trader saw the notes 103.5 bid, 103.75 offered.

"They just went straight up," the trader commented.

Meanwhile the EIS, which trade on the American Stock Exchange, last traded at the issue price - $15.00.

On Thursday a buy-side source told Prospect News that institutional investors will likely covet part of the income securities units, while at the same time almost certainly disdaining the other part.

"Everybody I talk to likes the bonds," said the investor. "Everybody who has bond experience says they want the bonds, which are sort of artificially propped up by the stock and yet are senior to the stock piece.

"So why not just take the bond piece? Everybody wants that.

"The institutional guys are going to want the bond. And the underwriters are going to hope the retail guys don't quite get that and will like the stock. And eventually Forbes and the Wall Street Journal, and everybody else, will write articles saying that the bond side looks pretty good and the equity side just doesn't work.

"If the world really wants to rely on the retail investor to take these things down, and then start putting out bids on the bond side, I think ultimately the regulators are going to take a dim view of that business model."

Ventas' quick sale

Friday's session was not without drive-by activity as Ventas Realty LP, the Louisville, Ky.-based healthcare real estate investment trust that owns healthcare and senior housing assets, priced $125 million of 10-year senior notes (Ba3/BB) at par to yield 6 5/8%.

That was right on top of the 6 5/8% area price talk.

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

Meanwhile in a restructured Friday transaction Southern States Cooperative Inc. sold $100 million of six-year non-call-three senior notes (B3/B) at par to yield 10½%.

Revised price talk was 10 ½% area, having widened from 10 ¼% area.

The Richmond, Va.-based agricultural products and services supplier's debt refinancing deal, which was led by Wachovia Securities, was restructured from its original eight-year non-call-four structure.

Finally, D.R. Horton upsized its offering of 4 7/8% senior notes due Jan. 15, 2010 (Ba1/BB+) to $250 million from $200 million on Friday.

The notes priced at 99.30 in a quick-to-market transaction Thursday to yield 5.03% - at a 153 basis points spread to Treasuries, the tight end of the Treasuries plus 150 to 175 basis points. Bookrunner for the deal was Citigroup.

Market sources took pains to point out that the tight-pricing D.R. Horton deal was junk only by dint of its ratings and otherwise was received more or less as a high-grade credit. And as if to emphasize that, on Friday Fitch assigned its investment grade BBB- rating to the bonds.

Alas, the calendar

In the wake of Friday's transactions primary market sources were commenting that the new issue calendar appears to be in need of a transfusion.

According to the information that Prospect News had compiled by press time Friday, there are five deals totaling $1.395 billion and €185 million on or about to hit the road.

One investment banker said that for a buy-side thought to be flush with cash - witness the $256 million weekly inflow to high-yield mutual funds for the week ending Oct. 6 reported by AMG Data Services - the calendar just is not making for a sufficient meal.

"Everybody came back from the Deutsche [Bank High Yield] conference moaning and groaning about the lack of supply in the secondary market," said the source.

"The disappointing employment number reported [Friday] sparked a rally in the Treasury market, and has resulted in more spread tightening.

"Meanwhile, as money keeps coming into high yield, the new issue calendar continues to be disappointing.

"There just aren't enough bonds to go around.

"Later this month we could see a pretty strong build-up in the calendar. But it's not there right now."

The "employment number" that the source mentioned was the weaker-than-expected September employment report showing non-farm payrolls had risen by a disappointing 96,000, well below economists' expectation of 150,000.

Citgo for the road

Nevertheless the calendar did grow somewhat on Friday.

Citgo Petroleum Corp., the Tulsa, Okla., fuel and chemical refiner, will begin a roadshow Tuesday for $200 million of seven-year senior notes (existing ratings Ba3/BB), which are expected to price the following Friday.

Lehman Brothers has the books on the debt refinancing deal.

Wynn planning mortgage notes

Meanwhile Wynn Las Vegas LLC/Wynn Resorts Ltd. was heard to be in the wings with an $800 million offering of eight-year second mortgage notes.

Prospect News learned on Friday that the company will launch a $1.650 billion credit facility during the week of Oct. 18, via Deutsche Bank, Bank of America, Bear Stearns & Co. and JP Morgan.

Treasury rally gives junk a boost

One trader told Prospect News Friday afternoon that in the wake of Friday's weaker-than-expected employment numbers the junk market, in general was up and firm, "with people trying to buy Nextels, the more Treasury-sensitive issues.

"El Paso seemed to have a better bid today, the trader added. "Everything's up a quarter to a half across the board."

The trader cited the El Paso Corp.'s 6.95% notes due 2007 closing at 102 bid, 103 offered, up from 100.50 bid, 101.50 offered

The trader also saw Fairfax Financial Holdings Ltd.'s 7¾% due 2012 at 91.5 bid, 92.5 offered, "after trading a little softer on Thursday.

"Earlier in the week they were around 90.5," the trader added.

Harvest trading higher

Among new issues, the Harvest Operations Corp. (Harvest Energy Trust) 7 7/8% notes due 2011 were 101.5 bid, 101.75 offered on Friday, after having priced at 99.339 on Thursday to yield 8%.

The Calgary, Alta.-based energy royalty trust priced the $250 million (B3/B-) deal on Thursday via Morgan Stanley.

Other issues on the move Friday, according to a market source, included the Levi Strauss & Co. 7% bonds due 2006, which were at 100 bid, 101 offered, up 0.25.

MCI dips

On news that U.S. regional phone companies SBC Communications and BellSouth have all but ruled out launching bids for US long-distance carrier MCI Corp., the bonds slid on Friday.

MCI's 5.908% bonds due 2007 were at 99 bid, 99.75 offered, down an eighth of a point. The 6.688% due 2009 were 97 bid, 97.50 offered, down a quarter of a point. And the MCI 7.735% due 2014 were 95 bid, 95.50 offered, down three-quarters of a point.

Auto names better

Meanwhile among distressed names in beleaguered auto-related sector Collins & Aikman's 11½% notes due 2006 were seen at 100 bid, 101 offered, up an eighth of a point, while the company's 12 7/8% notes due 2012 were at 90 bid, 91 offered, down a point and a half.

Oxford Automotive's 12% notes due 2010 were quoted at 44.50 bid, 46.50 offered, up 3.5 points.

Tower Automotive's 9¼% notes due 2010 were seen at 71.50 bid, 73.50 offered, up half a point.

And Intermet's 9 ¾% due 2009 was 43 bid, 45 offered, up half a point.

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