Valeant, Hanover, Equinox price deals, stilling secondary

By Paul Deckelman and Paul A. Harris

New York, Dec. 9- With the remaining days of 2003 dwindling away, high yield primary issuers on Tuesday continued their fevered rush to get their new deals in before the holiday hiatus sets in. Hanover Compressor Co. - which had seen Schlumberger Ltd. sell an offering of its zero-coupon discount notes just a week earlier - went back to the well again, this time offering a quickly-marketed tranche of new cash-pay notes. Valeant Pharmaceuticals International and Equinox Holdings priced upsized calendar deals, while out of the emerging markets arena, Mexican telecommunications operator Axtel SA brought a similarly upsized deal to fruition. Several other issuers meantime were heard preparing to hit the road Wednesday to promote their upcoming offerings.

With the new-deal market percolating, the secondary market "has kind of been put on the back burner," a trader said. "There really has not been much in terms of secondary flow. Most issues are firm and up - but not really trading."

The U.S. and emerging markets high yield new issue markets combined Tuesday to price $910 million of new notes in five deals - three of them upsized - as both markets continue to run hot, according to sources.

Meanwhile new roadshow starts were announced in both the U.S. high yield and emerging markets corporates.

Louise D. Rieke, portfolio manager of the Waddell & Reed Advisors High Income Fund, expressed confidence early Tuesday that the lion's share of new issues expected to price in the U.S. high yield prior to year end - $5.385 billion and €400 million in 21 offerings - would indeed do so.

"Sure they'll get done and there will probably be more announced and priced before Christmas gets here," Rieke said, adding that even though the pipeline is now phenomenally extensive the cash that the buy-side needs to put to work is sufficiently piled up that investors need to pay attention to nearly everything that is in it.

"You have to really prioritize and figure out which ones you have to look at because you can't look at all of them," said Rieke, adding that she would be taking a close look at THL Bedding Co.'s downsized $200 million of 10-year senior subordinated notes (Caa1/B-), Couche-Tard Inc.'s $340 million of 10-year senior subordinated notes (Ba3/B) and WMC Finance Co.'s $250 million of five-year senior notes (B2/B-) - all expected to price this week.

Meanwhile during Tuesday's session terms emerged on Valeant Pharmaceuticals International's deal. The company upsized its issue to $300 million from $275 million and priced the eight-year senior notes (B1/BB-) at par to yield 7%

The Costa Mesa, Calif. pharmaceutical company's deal, via Bear Stearns & Co., came at the tight end of the 7%-7¼% price talk.

In addition, Hanover Compressor Co. sold $200 million of seven-year senior notes (B3/B) at par to yield 8 5/8%, also at the tight end of talk, which was for a yield in the 8¾% area. JP Morgan and Citigroup ran the books.

Eight days ago, on Dec. 2, Schlumberger sold $262.6 million of zero-coupon subordinated notes due March 31, 2007 (Caa1/B-) issued by the Houston-based natural gas compression and treating services company for 69.307 to yield 11 3/8%.

The third of Tuesday's triumvirate of deals to price in the U.S. high yield market was from New York City fitness company Equinox Holdings, which priced an upsized issue of $160 million of six-year senior notes (B3/B-) at par to yield 9%. The deal, led by Merrill Lynch & Co. and UBS Investment Bank, also priced at the tight end of talk of 9%-9¼%. It was increased from $150 million.

Meanwhile another issue entered the pipeline as San Jose, Calif. container company Portola Packaging, Inc. announced a Wednesday roadshow start for $180 million of eight-year senior notes, which are expected to price on Dec. 17. JP Morgan and UBS Investment Bank are joint bookrunners.

The market heard developments, Tuesday, on two of the three offerings that Waddell & Reed's Rieke will be looking at.

THL Bedding restructured its debt offering, downsizing its bond portion to $200 million from $340 million of 10-year senior subordinated notes (Caa1/B-). At the same time price talk of 7 7/8%-8 1/8% was heard.

The Atlanta mattress manufacturer, meanwhile added a $140 million senior unsecured tranche to its credit facility.

Pricing is expected on Wednesday, with Goldman Sachs & Co. and Deutsche Bank Securities running the books.

And price talk of 7½%-7¾% emerged on Couche-Tard Inc.'s $340 million of 10-year senior subordinated notes (Ba3/B), expected to price mid-day on Thursday via CIBC World Markets and Scotia Capital.

In the realm of emerging markets corporate credits, Axtel SA priced an upsized offering of $175 million of 10-year senior notes (B2/B) at par to yield 11%, inside the 11¼% area price talk and increased from $150 million.

Credit Suisse First Boston ran the books for the deal from the San Pedro Garza García, Mexico-based CLEC.

One buy-side source said that forces similar to those prevailing in the U.S. high yield - high demand driven by large allocations of cash to the asset class - likely came to play in the Axtel deal, which upsized and priced inside of price talk.

"It's much harder to quantify those things in emerging markets," said the investor. "But I think you probably ended up getting some crossover from U.S. high yield names, given that the yield is 11%."

Meanwhile Embratel (Empresa Brasileira de Telecomunicacoes) priced a $75 million add-on to its 11% senior notes due Dec. 15, 2008 on Tuesday. The notes priced at 100.75 resulting in a 10.797% yield, with Deutsche Bank Securities and Morgan Stanley as underwriters.

The Sao Paulo, Brazil-based telecommunications company sold $200 million at 99.049 just before Thanksgiving to yield 11¼%, and hence walked away from the Tuesday transaction with an interest rate that was just over 45 basis points lower.

The emerging markets forward calendar grew Tuesday as Brazilian steel-maker Companhia Siderúrgica Nacional (CSN) was heard to be set to begin its roadshow Wednesday for $250 million of 10-year senior notes, which are expected to price during the week of Dec. 15. Citigroup will run the books.

And price talk of 8¼% area was on Telemar's $300 million of 10-year notes (Baa3), expected to price on Wednesday via JP Morgan.

In the secondary market, "it was all about the new Valeant Pharmaceutical deal," a trader said. The 7% senior notes due 2011 priced at par, and then initially traded up at 101 bid, 101.5 offered, and activity "was fairly active - we had several buyers and sellers. So it was very actively traded." He quoted the new bonds going home at 101.75 bid, 102.25 offered, "basically, buyers in [that] context."

Hanover Compressor's new 8 5/8% senior notes due 2010 were said by a trader to have been freed for secondary dealings late in the afternoon and having quickly jumped to 102.5 bid, 103 on the break, well up from their par issue price earlier in the session.

A trader, noting the quick initial rise in the company's new paper - he called it "a nice premium" - and the way Hanover was able to come to market with the deal just a week after having sold its $262.6 million principal amount ($182 million proceeds) of zero-coupon subordinated discount notes due 2011, shook his head and called the situation "unbelievable", adding "but then, [the primary sector] is an issuer's market."

Case in point was Equinox Holdings' new 9% senior notes due 2009, which priced at par but then jumped to 103.5 bid, going out at 103.5 bid, 104 offered, "with buyers looking," he said.

He also saw the new Granite Broadcasting Corp. 9¾% first lien notes due 2010, which had priced on Monday at 98.782, as having firmed to 99 firmed to 99.75 bid. 100.75 offered, while the new SBA Communications Corp. zero-coupon/9¾% senior discount notes due 2011 "traded up right out of the chute" after having priced Monday at 68.404, moving up to 70.375 bid, 70.875 offered Monday and then having further advanced 71 bid, 71.5 offered by Tuesday's close.

However, not all of the new bond issues were burning up the market. The trader pegged Georgia-Pacific Corp.'s new 8% senior notes due 2024, which came at par last Thursday, at 101.25 bid. 101.75 offered - but added "we haven't seen a lot of trading in that - they upsized it, doubled it (to $500 million from $250 million initially), so most people [who wanted the bonds] got what they wanted." He pointed out that the bond is a longer maturity, meaning the kinds of investors who go in and out of the shorter maturities have no interest in the new issue.

"It's really more for insurance companies and investors more geared toward high-grade type of accounts."

To be sure, he said, "it traded up. You had that big move in Treasuries almost immediately after that thing priced, taking the bonds up" - but after that, since investors who wanted the new Georgia-Pacific paper had presumably been able to get what they sought with the upsizing, the deal went no further.

At another desk, a trader said that the new Tenneco Automotive 10¼% senior secured add-on notes due 2013, which priced Monday at 113, were "not doing so good," dipping slightly to 112.5 bid, 113.5 offered.

Among established issues, "there was not too very much going on," a trader said, while an observer at another desk said "the market was up a quarter to a half [point] all over the joint - but we haven't seen any really dramatic moves," what with the bulk of the market's attention going to the sizzling primary market.

He saw Goodyear Tire & Rubber Co., - whose bonds have firmed smartly over the last few sessions on market buzz that the Akron, Ohio-based tire-making giant will soon complete a financing package which could be worth anywhere from $325 million to as much as $1 billion, would solve the company's liquidity problems, and which would include a new bond issue of at least $250 million, maybe more, and at least $75 million of equity or equity-linked securities. Terms of a contract agreement the company reached with its workers also call for refinancing its term loan and credit facilities.

The source quoted Goodyear's 6 5/8% notes due 2006 around par bid, up from 97.5 bid on Friday.

And he saw AK Steel Corp's bonds - indeed, the whole steel sector "up, but I don't see why," in the wake of last week's decision by the Bush administration to scrap controversial tariffs on foreign poured steel - although it should be noted that many analysts feel that the tariffs are not necessary, since the weaker dollar has caused a fall-off of sales in the more expensive foreign steel.

He saw AK's 7 5/8% notes due 2009 and 7¾% notes due 2012 up at least four points from recent levels, with both of them in a 76-76.5 bid context.

The trader also saw El Paso Corp.'s debt up about two points across the board, with the 7 5/8% notes due 2012 at 94.5 bid, while its longer issues were also up, the 8.05% notes due 2030 at 88.25 and its 7.80% bonds due 2031 at 86.5 bid.

Little movement was seen immediately in Levi Strauss & Co. bonds, even after Standard & Poor's downgraded the San Francisco-based blue jeans giant's corporate credit and unsecured debt ratings to CCC from B previously; the Levi bonds had been knocked down to levels straddling the 70 mark, with market participants indicating that the downgrade was not unexpected and had already been priced in. It also occurred late in the session.

A trader saw Tembec Industries' bonds as having had "a really good move the last couple of days, on the news that the U.S. and Canada had come to a consensus on a solution to an ongoing lumber dispute between the two countries.

He quoted the Canadian-based lumber and forest products concern's 8 5/8% notes due 2009 and 8½% notes due 2011 at 101.5 bid, 102.5 offered. But he added that "my guess is - up at these levels, you'll have better sellers."

But overall, he said that secondary activity was "spotty" and had come "in dribs and drabs. There was no real consistent flow to the market Most people are clearly focusing on the new-issue calendar, and are just looking to ride into the new year with their books intact and start again next year.

"I don't think that anybody is saying anything about changing their focus or their strategy. People still have tons of cash. Those technicals still exist, and if you have bonds for sale - they'll trade. It's basically a seller's market."

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