Georgia-Pacific, Universal Compression, Province, two split-rated deals price; Calpine lower

By Paul Deckelman and Paul A. Harris

New York, May 21 - The high yield primary market's new-deal express kept rolling right along on Wednesday, with five issues totaling $1.4 billion face amount heard having priced by the time activity wound down for the session - but at least a dozen more deals were still in the bullpen, waiting to emerge. Two of the deals that priced were split-rated issues of interest to high-grade crossover players as well as junk marketeers, while the day's largest new issue came from Georgia-Pacific Corp., which brought $500 million in two tranches.

And just as has been the case all week so far, the secondary market's focus was primarily centered upon the deals that priced during the session, or those which have come to market over the last week or so, to the exclusion of already existing paper. The established issues remained in eclipse, after having run up sharply in the weeks before the new-issue market really got hot, pushed up by paper-hungry investors looking to put cash to work and gain healthy yields - but then abandoned by those same opportunistic players once the new deals began spouting.

Among the few established bonds moving around in secondary, Calpine Corp. debt was heard quoted down about two or three points, as was unsecured airline debt. On the upside, Adelphia Communications Corp. benefited from news of a big buyer of bonds.

"Right now people are focused on buying new issues," one sell-side official told Prospect News, "because the secondary market is so tight.

"Even though supply has been picking up there is still a ton of demand out there," the official added. "And it doesn't look like the equity markets are going anywhere. They're still heading south, as opposed to heading north and causing high yield to back up a little bit.

"I think we're in decent shape. High yield should roll at least until the Fourth of July."

Meanwhile during Wednesday's primary market session the fireworks that had been anticipated from the investment banks, with the massive build-up of the forward calendar heading into the week of May 19, continued to go off. Wednesday saw three straight-out junk bond deals totaling $875 million of new issuance price during the session.

Georgia-Pacific, which had sold $1.5 billion last January, returned Wednesday with a quick-to-market two-tranche offering of $500 million (Ba2/BB+). The company sold $350 million of five-year bullets at par to yield 7 3/8% - in line with price talk of a yield in the 7 3/8% area - and $150 million of 10.5-year non-call-five notes at par to yield 8%, at the wide end of the 7 7/8% area talk.

Banc of America Securities, Goldman Sachs & Co., Citigroup and UBS Warburg were joint bookrunners.

The Atlanta paper and building products company came away Wednesday with interest rates significantly lower than the ones printed on the paper it sold last January, when its 8 7/8% seven-year notes priced at 99.360 to yield 9%, and its 10-year bonds priced at par to yield 9 3/8%.

Meanwhile on Wednesday Province Healthcare Co. was discharged from the investment banks, better-healed by $200 million. The Brentwood, Tenn.-based owner and operate of acute-care hospitals upsized its offering to $200 million from $150 million and priced the 10-year senior subordinated notes (B3/B-) at par to yield 7½%.

Merrill Lynch & Co. and Wachovia Securities, Inc. were joint bookrunners. The co-managers were Banc of America Securities and Citigroup.

And Houston-based Universal Compression Holdings sold $175 million of seven-year senior notes (B1/B+) at par to yield 7¼%, at the tight end of the 7¼%-7½% price talk, via joint bookrunners Lehman Brothers, Merrill Lynch and Wachovia Securities.

Meanwhile another Houston company, CenterPoint Energy, priced a $400 million split-rated deal in two tranches of senior notes (Ba1/BBB-) via Citigroup, Deutsche Bank Securities and Wachovia Securities.

The company sold $200 million of 5.875% five-year notes at 99.969 to yield 5.88%, a spread to Treasuries of 350 basis points. Price talk was 350 basis points.

CenterPoint also sold $200 million of 6.85% 10-year notes at 99.958 to yield 6.855%. The spread to Treasuries was 345 basis points, spot on to the 345 basis points price talk.

And the market heard terms Wednesday on Thomas & Betts' split-rated issue of $125 million 10-year senior notes (Ba1/BBB-). It priced at par to yield 7¼%, at the tight end of the 7¼%-7½% price talk. Bookrunners were Credit Suisse First Boston, Wachovia Securities and Banc of America Securities.

The forward calendar built out by one deal, on Wednesday, with CBD Media LLC seen headed to the primary market with a Rule 144A offering of $150 million of 10-year subordinated notes due 2013 (B3). The deal is set to begin its roadshow during the week of May 26, and is expected to price mid-week during the week of June 2.

Lehman Brothers and Banc of America Securities are bookrunners.

Also during Wednesday's session price talk of 11% area emerged on Alon USA's $150 million of eight-year senior notes (B3/B). The deal, out of Merrill Lynch and Credit Suisse First Boston, is expected to price on Thursday.

And price talk of 9 1/8%-9 3/8% was heard Wednesday on TransMontaigne Inc.'s $200 million of seven-year senior subordinated notes (B+), expected to price on Friday via UBS Warburg.

Back in the secondary market, "It was all new issues, and a little bit of Calpine," a trader observed. "And recent new issues seem to be pigging out."

He noted the fact that Terra Capital Inc.'s new 11½% second priority senior secured notes due 2010, which had priced at 99.402 just last Friday, were now tethered around 98.5 bid/99.25 offered. Even worse, he said, Amkor Technologies Inc.'s 7¾% senior notes due 2013, which priced at par on May 1, and Flextronics International Ltd.'s 6½% senior subordinated notes due 2013, which had priced on May 5, also at par, were not both languishing around 94 bid/95 offered.

Lyondell Chemical Co.'s 10½% senior secured notes due 2013, which priced at par on May 15, dipped as low as 98 bid Wednesday, before going home at 98.5 bid/99 offered - the same closing level heard on El Paso Production Holding Co.'s 7¾% senior notes due 2013, which had priced at par on Tuesday.

Not all of the new deals were struggling, however; the trader pegged Hard Rock Hotel Inc.'s $140 million of 8 7/8% second lien notes due 2013, which made their debut at par on Tuesday and then quickly pushed up to the 102 bid level, as "still OK," continuing to hold its initial gains. He also saw Universal Compression's new deals as having "done OK," the 7¼% senior notes due 2010 having firmed to 101.25 bid/102.25 offered by closing time, up from their par issue price.

Another trader agreed that Universal Compression "was hot," quoting the new notes as having traded as high as 101.625 bid after it was freed for secondary dealings.

Also firming smartly from a par issue price was Norampac Inc.'s new 6¾% senior notes due 2013, which had priced on Tuesday, but which had gotten as good as 101.875 bid/102.125 offered by Wednesday afternoon.

But he too also saw such names as El Paso and Terra Capital continuing to spin their wheels below their issue price.

"It's a market of names," he opined, "the ones that are readily available [i.e. the big-name issues of ample liquidity, such as the El Paso offering] trade down, the ones that seem to be small deals that are in demand are trading up. It's just a matter of people filling in names in their portfolios that they don't already have."

Aside from activity in the newbies, though, he characterized trading as "pretty uneventful. Everything revolved around the new issues."

Well, not exactly everything. Calpine's bonds were characterized at one desk as "sloppy," and down anywhere from two to three points on the session, with the San Jose, Calif.-based independent power producer's 8½% notes due 2011 seen having fallen as low as 65 during the session, three points off Tuesday's closing pace, before firming slightly off its lows to end at 66 bid/67 offered, down two points overall. Its 8 5/8% notes due 2010 were likewise down two points, at 65.5 bid.

The trader suggested that Calpine's debt may have been pushed down by the less-than-enthusiastic market response to the $1.2 billion El Paso Production mega-deal, saying Calpine's retreat "was all because of El Paso. It's putting pressure [on the sector]. People trade out of one [energy sector name] and into another. I don't think anything has changed fundamentally with the company or anything."

The analyst community advanced two different scenarios Wednesday for the securities of Calpine and its power industry peers such as El Paso, Mirant Corp., AES Corp., Reliant Resources Inc., Williams Cos., Dynegy Inc. and the like.

Standard & Poor's took a relatively bullish view on the group, as utility equity analyst Craig Shere forecast "increasingly favorable" interest in the merchant energy players from creditors and investors as pending regulatory issues continue to be resolved, banks and institutional lenders continue to refinance merchant debt obligations and pending asset sales are consummated.

In his latest report, "Industry Survey on Natural Gas," Shere outlined what he considers to be positive industry implications from the seemingly negative "show cause" orders and staff report issued by the Federal Energy Regulatory Commission in late March.

"Despite its allegations of wrongdoing and its negative tone, the FERC report heralds an improving outlook for beleaguered energy merchants," the S&P analyst wrote in his survey.

"Given the involvement of most energy merchants in both the electric and natural gas markets, a resolution of this power regulatory uncertainty is important for the natural gas industry. The connection is made even stronger when one considers that the overwhelming majority of new power plants in the United States are both natural gas-fired and owned by unregulated energy merchants."

But Goldman Sachs was not so sanguine in its assessment of the merchant-energy sector; the brokerage firm downgraded Calpine's shares, along with those of Duke Energy Corp. and DQE Inc. to "underperform" from "in-line" previously and lowered Ameren Corp., Edison International and Entergy Corp. to "in-line" from the previous "outperform."

Goldman analyst Jonathan Raleigh - even while noting that share prices within the sector have doubled or even tripled over the last several months following a string of debt refinancings and a rise in gas and power prices (a rise which has also seen their previously beleaguered bonds appreciate handsomely) - said the party is just about over.

"The rebound in shares, in our view, has been the direct result of lender support, better than expected commodity price conditions, and a positive reversal in investor sentiment," Raleigh said in a report. "However, when accounting for current debt levels, we believe most distressed names look fully valued."

The Goldman caution caused the shares of a number of energy companies to retreat Wednesday, including Calpine, which was off 16 cents (3.23%) to $4.79 in New York Stock Exchange dealings of 12.1 million shares, about 50% more than the usual turnover.

A market observer, noting the general heaviness in Calpine paper, said that rather than Calpine being pushed down by the overhang of energy sector paper generated by the El Paso deal, Calpine's turn to weakness (after a recent strong run-up) "affected all of these guys - El Paso, Mirant. All of that stuff got whacked," although he did not see specific levels on any of the other sector players.

Elsewhere, El Paso's existing 7 5/8% notes due 2011 were pegged at 82 bid, down a point-and-a-half, while Mirant's 7 5/8% notes due 2006 and 9 1/8% long bonds due 2031 were seen at 75 bid and 56.5, respectively, each down several points. AES 9 ½% notes due 2009 were quoted unchanged at 91.5 bid/92.5 offered, while its 9 3/8% notes due 2010 were a point-and-a-half lower, at 91 bid.

Outside of the power sector, Adelphia Communications bonds firmed, after The Wall Street Journal reported that Blackstone Group had taken a position in the bonds of the bankrupt Couderspont, Pa.-based cable operatior.

Adelphia's 9 7/8% notes due 2007 were up nearly three points, at 49.75 bid, while its 10 5/8% notes due 2010 were two points better, at 48.5 bid/49.5 offered.

But overall, a trader said, "it was very slow in secondary. Most accounts are focused on new issues and the holiday-shortened week."

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