El Paso, Rhodia price mega-deals; Hard Rock, others also appear; new-deals dominate secondary

By Paul Deckelman and Paul A. Harris

New York, May 20 - The primary market's new-deal barrage got under way in earnest Tuesday, as El Paso Production Holding Co. and Rhodia each priced mega-deals - El Paso's a $1.2 billion offering of 10-year senior notes, Rhodia's a €1 billion equivalent placement, split into four tranches. Also popping up were Norampac Inc.'s $250 million of 10-years, and Hard Rock Hotel Inc.'s $140 million of 10s.

In the primary market, the new deals were once again the dominant factor Tuesday. "It was new issues - and only new issues today," one trader said. The biggest deal of the session, El Paso, was heard to have struggled when the new bonds were cleared for secondary dealings.

The much remarked-upon buildup of junk bond deals expected to price during the week leading up to Memorial Day began unwinding in earnest during Tuesday's session.

Seven deals priced Tuesday, led by a pair of King Kong-sized transactions from either side of the Atlantic.

El Paso Production Holding sold $1.2 billion of 10-year senior notes (B+) at par to yield 7¾%, at the wide end of the 7½%-7¾% price talk, while from the eurobond market French specialty chemical firm Rhodia sold four high yield tranches totaling the equivalent of €1 billion. Rhodia's dollar and euro seven-year senior note tranches came at 7 5/8% and 8%, respectively, while the dollar and euro senior subordinated tranches came at 8 7/8% and 9¼%, respectively.

The investment banks also issued price talk Tuesday on another seven deals that are expected to price before the start of the three-day holiday weekend.

However one high yield official who spoke to Prospect News after the close of Tuesday's session, reporting that the market felt somewhat "choppy" during Tuesday's session, made mention of the conspicuous absence of newly announced roadshow starts.

The market did learn of one previously-unseen deal Tuesday: Turning Stone Casino Resort Enterprise sold a $25 million add-on to its 9 1/8% senior notes due Dec. 15, 2010 (B1/B+) at 105.375 for a 7.91% yield to worst. Bookrunner for the drive-by offering was Banc of America Securities. The original $135 million deal - upsized by $10 million - priced at par on Dec. 10, 2002, so the New York State tribal gaming, entertainment and lodging firm wound up with a better interest rate thanks to Tuesday's deal.

However the primary market had little time to celebrate or even digest the news of the Turning Stone deal because of the two huge entrees served up by the investment banks on Tuesday.

From Stateside came El Paso Production Holding with $1.2 billion of 10-year senior notes (B+) that it sold at par to yield 7¾%, via Credit Suisse First Boston and Citigroup.

One source, noting that El Paso came at the wide end of the 7½%-7¾% price talk, told Prospect News that the new 7¾% notes of 2013 were seen trading down slightly after they were released for trading in the aftermarket.

Like as not, however, the company incurred no negative impact from news headlines Tuesday, as Oil & Gas Journal reported that El Paso Production Co. made a natural gas discovery off the coast of Louisiana, which it plans to begin producing early in the fourth quarter under a production arrangement with ChevronTexaco Corp. and Noble Energy.

Tuesday's other billion-pound (euro, actually) gorilla was Rhodia's €1 billion equivalent offering in four tranches that priced on Tuesday via Goldman Sachs, Bear Stearns and BNP Paribas.

The company sold two tranches, euro- and U.S. dollar-denominated, of senior notes due June 1, 2010 (Ba2/BB).

The $200 million tranches priced at par to yield 7 5/8%. Price talk was 7 3/8%-7 5/8%.

The €200 million senior notes tranches also priced at par to yield 8%. Price talk was 37.5 basis points area behind the dollar notes.

Rhodia also sold euro and dollar-denominated tranches of senior subordinated notes due June 1, 2011 (Ba3/BB-).

The $385 million senior subordinated tranche priced at par to yield 8 7/8%. Price talk was 150 basis points area behind the dollar-denominated senior notes.

Meanwhile Rhodia sold €300 million of senior subordinated paper at par to yield 9¼%. Price talk had the euro subordinated tranche coming 37.5 basis points area behind the dollar-denominated senior subordinated tranche.

The junk bond bazaar's also held forth with several smaller offerings. In addition to the above-mentioned add-on from Turning Stone Casino, there was a $250 million 10-year senior notes issue (Ba2/BB+) from Norampac, a Canadian producer of corrugated packaging and containerboard, which priced at par, to yield 6¾%, at the tight end of the 6¾%-6 7/8% price talk. Deutsche Bank Securities and CIBC World Markets were joint bookrunners.

Terms also emerged Tuesday on a deal from Sterling Heights, Mich.-based automotive parts maker Advanced Accessory Systems LLC, which sold $150 million of eight-year guaranteed senior notes (B2/B-) at par to yield 10¾%. The Advanced Accessory deal, with Deutsche Bank Securities bookrunning, also came at the tight end of its 10¾%-11% price talk.

Meanwhile investment bankers plugged in their air guitars as they sold $140 million of 10-year second lien notes (B3/B) issued by Las Vegas-based Hard Rock Hotel Inc.

An 8 7/8% yield was printed on the bonds that priced at par, in the middle of the 8 7/8% area price talk, with bookrunner Banc of America Securities taking the solo.

Ingles Markets, Inc. priced a $100 million add-on to its 8 7/8% senior subordinated notes due Dec. 1, 2011 (Ba3/B+), during Tuesday's session. The deal priced at 101, in the middle of the 101 price talk, coming with a yield to worst of 8.67%. Banc of America Securities and Wachovia Securities were joint bookrunners.

The Asheville, N.C.-based supermarket operator, came away with a lower interest rate: the original $250 million offering - upsized by $50 million - which priced on Dec. 4, 2001 at 9%.

Although Tuesday's transactions made a dent in the bustling new issuance calendar, the remainder of the May 19 week promises plenty of action. Price talk was heard Tuesday on seven deals, all of which are reported to be poised to price before Friday's close.

Price talk of 6½%-6¾% emerged Tuesday on Apogent Technologies Inc.'s $250 million of 10-year senior subordinated notes (Ba2/BB+), expected to price on Thursday via Lehman Brothers.

Talk of 11% area was heard late Tuesday on Pliant Corp.'s $250 million of six-year non-call-three senior secured notes (B3) which are expected to price Thursday via JP Morgan and Deutsche Bank Securities.

The price talk is 12% area on Rent-Way, Inc.'s $215 million seven-year senior secured notes, coming Wednesday via bookrunner Citigroup.

The talk, meanwhile, is 7¼%-7½% on Universal Compression Holdings' $175 million of seven-year senior notes (B1/B+), with pricing expected Wednesday morning. Lehman Brothers, Merrill Lynch and Wachovia Securities are joint bookrunners.

And talk emerged Tuesday on two deals that are being brought by their respective companies as part of Chapter 11 exit financings: Hayes Lemmerz International, Inc.'s $225 million of seven-year senior notes (B1/B+) via Citigroup and Lehman Brothers are talked at 10½%-10¾%, with pricing expected on Thursday. And talk of 10¼%-10½% was heard on Laidlaw, Inc.'s $400 million of eight-year senior notes (B2/B+), expected to price on Friday via Citigroup and Credit Suisse First Boston.

Finally on Tuesday price talk of 7¼%-7½% circulated the market on the split-rated Thomas & Betts offering of $125 million of 10-year notes (Ba1/BBB-) that are expected to price on Wednesday. The registered deal, via joint bookrunners Credit Suisse First Boston, Wachovia Securities and Banc of America Securities, is reported to have been marketed to both investment-grade and high-yield accounts.

When El Paso Production Holding's new offering broke, traders said, the secondary market was largely underwhelmed.

"It came, but it never took a single breath above par," a trader said, pegging the new bonds in the 99-99.25 area.

Another trader quoted the El Pasos as having dipped down to 98.75 bid/99.25 offered by the end of the session.

"All of this stuff is flipping," he said, speaking specifically about El Paso, but also, to a degree about some other recently priced deals which have failed to hold their issue price when they came into the secondary arena.

"That's all it is. No one is putting this paper away. They're buying it and they're flipping out of it, and these guys are taking one- and two-point whacks on millions of bonds at a clip. It's ridiculous, just so stupid.

"No one is buying this paper because they think it's great," he continued. "They're all playing for the pop - and it's just not happening. There's too much supply out there, too much paper. "

Some of the new-deal paper, he acknowledged, stabilizes, and "some of it moves up or disappears - but other stuff gets creamed. If you took down El Paso paper on the break, a couple of million ($1,000 face amount) bonds, you're out 50, 100 grand."

The issues, taken in total, he continued "are huge. They're coming fast and furious. And until they settle in and people get comfortable with them, you're going to see this."

Not all of the issues, of course, are dead on arrival in the secondary market; Hard Rock's new bonds, for instance, firmed smartly from their par issue price to bid levels around 102-102.25.

"Buyers were out there looking for it," the trader said.

But, he added "of the issues that I trade, most of [the new deals] are either nonexistent [i.e. unseen] or down two points from where they came. He quoted Rite Aid Corp.'s new 9¼% senior notes due 2013, which priced on May 13 at 98.399, as now languishing around 96.5 bid/98.5 offered.

Apart from the new-deal bonds trading in secondary, not much was going on. One market observer did see some motion in Mirant Corp. bonds, quoting the Atlanta-based merchant energy producer's paper down about three points or so across the board.

He pegged Mirant's 7 5/8% notes due 2006 at 77 bid, its 8.30% notes due 2011 at 60 bid, and its 9 1/8% bonds due 2031 at 56 bid.

Mirant announced an asset sale during the session; it is selling almost all of its 50% stake in a Virginia power facility to a unit of General Electric for $71 million - the latest in its efforts to raise at least $300 million this year via asset sales. However, the company has a whopping $8.6 billion debt load, dwarfing the anticipated proceeds from this particular deal.

Mirant shareholders were likewise apparently not much impressed by the news; they took the company's New York Stock Exchange-traded shares down 15 cents (4.60%) to $3.11, on volume of about 12 million, 50% more than usual.

Also among the power generators, AES Corp.'s 8½% notes due 2007 were quoted unchanged at 86 bid, although at another desk, the Arlington, Va.-based global power company's bonds were seen solidly lower, its 8¾% notes due 2008, for instance, quoted at 88 bid, down some four points from previous levels.

AES debt might be headed downward at other desks as well on Wednesday; after trading had rolled up for the day on Tuesday, news came that Brazil's National Development Bank, or BNDES, had rejected the company's proposal to restructure the debt load of its biggest Brazilian asset - on the grounds that the bank did not foresee the reimbursement in cash for missed debt payments.

Earlier this year, AES defaulted on a $1.2 billion loan from BNDES which it had used to buy Latin America's biggest power distributor, Eletropaulo Metropolitana Eletricidade de Sao Paulo.

Outside of the power producer sector, bonds of retailers Dillard's and Saks Fifth Avenue were quoted lower, as both reported less-than-ringing earnings for the latest quarter.

Dillard's bonds were seen down about three or four points, with its 6 5/8% notes due 2008 were at 96 bid/99 offered; just a few days ago, they had traded north of par. Saks' 8¼% notes due 2008 were at 106 bid/108 offered, down from prior levels north of 108.

"You're not seeing a major exodus," a trader said - but it's definitely getting softer."

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