El Paso, Iron Mountain deals price; William Lyon drops on weak order forecast

By Paul Deckelman and Paul A. Harris

New York, July 12 - El Paso Corp. and Iron Mountain Inc. were heard to have successfully priced quickly shopped bond offerings in the high-yield market on Wednesday. Junk syndicate sources meantime also reported that Rexnord Corp.'s big two-tranche offering was downsized to $785 million from $840 million originally, with $55 million of the borrowing shifted to bank debt. However, the sources also noted that Avis Finance Co. plc (Avis Europe plc)'s upcoming euro-denominated deal was upsized. In the secondary market, William Lyon Homes Inc.'s bonds tumbled, after the Newport Beach, Calif.-based builder of Sunbelt homes said orders for new dwellings fell some 52% in the quarter ended June 30 versus year-earlier levels, and orders over the past six months were almost down as much from a year earlier. Bonds of other homebuilders were also lower, though not quite as dramatically.

An official from a high yield syndicate desk reported that the broad market was flat Wednesday morning and then followed the equity market down in the afternoon, ending ¼ point to possibly as much as ½ point lower on the day.

The official added that the market's attention is presently focused on second quarter earnings as well as on the new issue calendar.

Meanwhile the primary market generated $700 million of issuance in two tranches. Both priced at the announced sizes, however one came tight to the price talk while the other priced wide of the talk.

El Paso prices at tight end

The biggest of Wednesday's two issues came from Houston-based natural gas company El Paso Corp.

El Paso priced a $500 million issue of five-year performance-linked trust certificates (confirmed B2/expected B+) at par to yield 7¾%, at the tight end of the 7¾% to 8% price talk.

Deutsche Bank Securities was the bookrunner for the debt refinancing deal.

Iron Mountain drives through

Iron Mountain also priced a deal Wednesday afternoon that was marketed with only an investor conference call on Wednesday morning.

The Boston-based information protection and storage solutions provider priced a $200 million issue of 12-year senior subordinated notes (expected ratings Caa1/B) at par to yield 8¾%, 12.5 basis points wide of the 8½% area price talk.

Bear Stearns, JP Morgan and Lehman Brothers were joint bookrunners for the debt refinancing and general corporate purposes deal.

Earlier in the week an investor correctly predicted that Iron Mountain would be able to get the deal done, despite the low, triple-C rating from Moody's Investors Service, because Iron Mountain is a name well-known to high yield investors.

Rexnord downsizes, issues talk

Rexnord downsized its two-part bond offering to $785 million from $840 million on Wednesday.

Meanwhile the Milwaukee-based motion technology products manufacturer increased its credit facility by $55 million.

The restructured bond offering leaves unchanged the $420 million tranche of eight-year senior notes (B3/CCC+). Those notes, which come with four years of call protection, are talked at the 9¼% area.

However Rexnord has downsized to $365 million from $420 million its offering of 10-year senior subordinated notes (Caa1/CCC+), and talked the subordinated notes at the 10¾% area. The 10-year senior subordinated notes come with five years of call protection.

Books close Friday afternoon with pricing expected to follow shortly after.

Credit Suisse, Merrill Lynch, Bear Stearns and Lehman Brothers are joint bookrunners for the LBO deal.

Meanwhile the company has upsized its funded bank debt by $55 million to $760 million, with $25 million of those proceeds funded under its revolver, the capacity of which was upsized to $150 million from $125 million, and $30 million under the term loan B, which was upsized to $610 million from $580 million.

Avis Europe upsizes, issues talk

Meanwhile Avis Finance Co. plc (Avis Europe plc) upsized to €250 million from €200 million its offering of seven-year senior floating-rate notes, and talked them at three-month Euribor plus 275 basis points area.

Barclays Capital, The Royal Bank of Scotland, Dresdner Kleinwort and Societe Generale are joint bookrunners for the unrated debt refinancing deal from the car rental company that operates in Europe, Africa, the Middle East and Asia.

Digicel to tap 9¼% notes

Finally Jamaican wireless operator Digicel Ltd. announced plans to do a $150 million add-on to its 9¼% senior notes due Sept. 1, 2012 (B3//B).

Citigroup and JP Morgan are leading the deal which is expected to price early next week.

On July 21, 2005 Digicel priced the original $300 million issue at par.

El Paso up in trading

When the new El Paso 7¾% trust certificates due 2011 were freed for secondary dealings, a trader saw them shoot up right out of the gate to levels as high as 100.625 bid from their par issue price earlier in the session. However, another trader saw those bonds going out at a more subdued 100.25 bid, 100.625 offered.

The new Iron Mountain 8¾% notes due 2018 priced too late in the session for any meaningful aftermarket activity.

William Lyon lower

Back among the existing issues, traders saw William Lyon's bonds in retreat after the company reported the big drop in new-home orders in the most recent quarter and half versus a year ago.

A market source said that the company's 7 5/8% notes due 2012 dropped nearly 5 points to 78.75 bid from 83.25. Its 7½% notes due 2014 fell to that same 78.75 level from 82, while its 10¾% notes due 2013 eased to 92.125 bid from 95.

Another trader pegged the 7 5/8s down 3 points on the day at 79 bid, 81 offered.

The company's Pink Sheets-traded shares, counter-intuitively, were seen to have jumped $15 (12%) to $140, apparently swayed more by positive closings figures the company released along with its orders estimates. However, volume was light, with not even 7,000 shares traded. William Lyon's few remaining outstanding shares of stock have been trading on the Pink Sheets since mid-June after they were de-listed by the New York Stock Exchange when the company's founder and chief executive officer, retired Air Force general William Lyon, took it private in a transaction that closed earlier in the month.

The company, which builds homes in California, Arizona and Nevada, said that new home orders for the three months ended June 30 came to 550 - a 52% plunge from the 1,154 orders seen for the year-earlier period. New home orders for the six months ended June 30, were 1,197, a 41% dive from 2,027 for the six months ended June 30, 2005.

Tellingly, the company's cancellation rate for the quarter ended June 30 was 32%, more than double the 13% cancellation rate for the three months ended June 30, 2005. The cancellation rate for the six months ended June 30 was 30%, up from 13% for the six month period the previous year.

Lyon also said that the number of homes closed during the most recent quarter was 768, an increase of 24% from the 619 in the year-ago quarter, while the number of homes closed during the six months ended June 30 was 1,349, a 25% increase from 1,078 the year before.

Its backlog of homes sold but not closed was 1,139 as of June 30, a 46% decrease from 2,115 the year earlier.

Other homebuilders drop

William Lyon's sharp fall in new orders, as well as a report issued by the National Association of Home Builders that noted the gradual cooling of housing starts across the country, combined to push the bonds of other homebuilders down as well.

KB Home's 8 5/8% notes due 2008 were quoted by a market observer down nearly a full point at 103.25 bid. A trader at another desk - quoting the Los Angeles-based homebuilders' bonds on a spread-versus Treasuries basis despite its junk rating - saw them widen out considerably with the 6 3/8% notes due 2011 trading at a bid spread of 267 basis points over and an offered spread of 257 bps, about a 12 bps widening from 255/245 on Tuesday. The company's 5 5/8% notes due 2015 traded at 309/299, a 14 bps deterioration from 295/285 on Tuesday.

Another trader saw its 7¼% notes due 2018 half a point lower at 91.5 bid, 92.5 offered.

Moody's Investors Service meantime lowered its outlook on the company's debt to stable from positive previously, citing its expectations that KB, currently rated Ba1, will likely not reduce its debt leverage to levels appropriate for an investment-grade rating in the near to intermediate future.

Among other homebuilder names, the trader saw WCI Communities Inc.'s 9½% notes due 2012 and its 11½% bonds each trading at 90 bid versus prior levels around 92.5, while the Bonita Springs, Fla.-based builder's 6 5/8% notes due 2015 dipped to 80.5 bid, 82.5 offered from previous levels at 82 bid 84 offered.

A market-watcher saw Red Bank, N.J.-based builder Hovnanian Enterprises Inc.'s 6 7/8% notes due 2014 down a point at 88.

The entire sector was dampened as the home builder's trade association issued their State Housing Starts Forecast, which studies local state economies and housing. It declared that the overall housing market is experiencing a "gradual cooling process," although certain states, notably Idaho, North Carolina, Oklahoma, Washington and Wyoming are expected to see a rise in total starts in 2006.

Finlay steady

Elsewhere, Finlay Fine Jewelry Corp.'s 8 3/8% notes due 2012 were pretty much unchanged around the 87.5 level. The New York-based fine jewelry retailer, which operates out of leased counters at major department stores throughout the nation, presented at a CIBC consumer sector conference in Boston - and its CEO indicated that using cash to pay down debt was not a top priority (see related story elsewhere in this issue).

Tenneco lower

A trader saw Tenneco Inc.'s bonds weaker, its 10¼% notes due 2013 easing to 99.75 bid, 100.25 offered from par earlier on the news that the Lake Forest, Ill.-based automotive parts maker's chief executive officer Mark P. Frissora will leave the company to take similar post at Hertz Corp.

Overall, the trader said that "it was a tough day. Volatility is definitely kicking up in the market, whether it's equities or high yield." He said that "there's so much overhang right now" - fears about inflation, whether the economy will slow due to interest rates, world problems and the like - "that it won't take much in the way of bad earnings to put the market into a weakening mode.

"There's a lot of scary stuff going on out there."

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