AES, Time Warner Telecom, BF Saul price; Tenet continues retreat

By Paul Deckelman

New York, Feb. 10 - The AES Corp., Time Warner Telecom Inc. and B.F. Saul Real Estate Investment Trust were heard by high yield syndicate sources to have priced new deals Tuesday. AES' was a quickly marketed offering, while Time Warner Telecom's was first sharply downsized from its original amount, but then upsized somewhat.

In the secondary markets, trading remained relatively thin and quiet, with traders attributing the lull, at least in part, to the absence of many decision makers, who were reported to be attending a Smith Barney high yield conference in Boulder, Colo.

Meantime, Tenet Healthcare Corp. was one issue seen bucking the generally featureless trend, as it continued to retreat.

AES sold $500 million of new 10-year 7¾% senior notes via a large underwriting syndicate led by Citigroup and Deutsche Bank Securities. The bonds priced at 98.288 to yield 8%, outside of pre-deal market price talk calling for a yield of around 7¾%, syndicate sources said.

The public deal - a drawdown of an existing shelf registration-had only been announced on Monday and was quickly hawked to potential investors via a conference call. AES, an Arlington, Va.-based international power producer, plans to use the new-deal proceeds to pay down existing term loan debt.

"The key thing for us [in deciding to bring this bond issue] was financial flexibility," Scott Cunningham, AES's director of investor relations and communications, told Prospect News. "We wanted to continue to restructure our portfolio. If we could move maturities out a little further we thought that would be prudent for our debt structure and thought that the market still provided that opportunity to do so at a reasonable price."

Cunningham said that while the use of the cash raised by the bond sale to pay off some of the company's term loan debt doesn't really represent "a significant difference from an interest expense standpoint," it is "very attractive in terms of the long-term financial flexibility" afforded AES. "It should largely complete the major component of our capital restructuring effort."

The AES executive said the company was not fazed by the recent cooling down of what had formerly been a red-hot junk bond market, both in terms of new issuance and aftermarket performance - a cooling off illustrated by such varied factors as the downturn seen over the past two weeks of performance indexes put out by major brokerage houses; the huge outflow of cash reported last week from high yield mutual funds, a key measure of overall junk market liquidity; the decision Monday by one issuer (Bluegreen Corp.) to postpone an upcoming issue and that of another (Time Warner Telecom) to radically downsize its offering; and the pricing wide of pre-deal market price talk of a number of new issues recently.

"Not at all," Cunningham declared when he was asked whether such factors gave AES pause. "We didn't think it was that significant, given that our ratings haven't changed - and both the [leading] ratings agencies have moved their outlooks up to either stable or considering an upgrade. I think that AES is a liquid enough name that [our deal] would be of attraction to the investor base - so we're still good to go."

Time Warner Telecom cut then upsized

Time Warner Telecom, on the other hand, apparently did take the market's recently sluggish state into consideration in deciding to cut what had originally been billed as an $800 million offering in half to $400 million, while keeping the original deal's two-tranche structure. Ultimately, however, demand was strong enough for the Littleton, Colo.-based provider of business telecommunications services to have gone the other way and upsized it - at least a bit - to $440 million.

"The book was pretty much full for them to have upsized it that way" after having first cut the size down so sharply," a trader said.

The company sold $240 million of second priority senior secured floating rate notes maturing on Feb. 15, 2011 at par, to yield Libor plus 400 basis points, in line with price talk. And it sold $200 million of senior notes maturing Feb. 15, 2014 at par to yield 9 ¼%, again in line with price talk.

The deal was brought to market via joint bookrunning managers Lehman Brothers and Morgan Stanley plus joint lead managers Bear Stearns & Co. and Wachovia Securities.

Time Warner Telecom plans to use the proceeds of the Rule 144A offering to repay bank debt , redeem the company's existing 10 1/8% notes due 2011 and for capital expenditures.

The third leg of the new-deal troika was B.F. Saul. The Bethesda, Md.-based real estate company sold $250 million senior secured notes due March 1, 2014 at par to yield 7½%, at the tight end of pre-deal price talk of 7½% to 7¾%. The Rule 144A deal came to market via bookrunner Friedman Billings Ramsey. Proceeds will go to redeem existing debt.

One other development emerged in the primary sphere; price talk of 8¾% was heard on Erico International Inc.'s $135 million offering of senior subordinated notes due 2012. A market source said the Solon, Ohio-based manufacturer's bond issue could come to market as early as Thursday, via Deutsche Bank and JP Morgan.

Time Warner Telecom trades below par

When the new Time Warner Telecom 9¼% bonds were freed for secondary dealings, they were heard offered at par, down slightly from their par [bid] issue price.

"They just banged around below par," said a trader, who quoted the bonds bid around 99.5-99.75.

The company's existing issues were also heard to "have come in a bit," as a market observer said, pegging Time Warner Telecom's 9¾% notes due 2008 and its 10 1/8% notes due 2011 as having both eased to 99.25 bid from prior levels, respectively, of 102 and par.

The new B.F. Saul notes were quoted at par bid, 100.25 offered, little changed form issue.

The AES 7¾% notes, which priced around the time that trading was wrapping up, did not appear in the aftermarket. AES's existing debt, however, was a little easier, its 9½% notes due 2009 down more than a point on the session at 108 bid.

Utility paper lower

Having a big new load of utility paper dumped into a market which has recently softened may be the explanation why other utility names were quoted lower Tuesday, with Reliant Resources Inc.'s 9½% notes due 2013 a point down at 105 bid and Dynegy Inc.'s 10 1/8% notes due 2013 off a point-and-a-half at 110.25. Also lower was CMS Energy Corp.'s 7½% notes due 2010, quoted down a point at around 103.

However, El Paso Corp.'s bonds seemed to buck the trend, with its 7 7/8% notes due 2012 quoted in the 95-96 area, up about two points on the session and well up from levels around 91 bid, 92 offered last week.

"El Paso went down last week," a trader said, "after they had to restate their oil and gas reserves. But now Deutsche Bank came out with an equity 'buy' recommendation, and the bonds are just moving up by two or three points." He also saw the Houston-based pipeline operator's 6¾% notes due 2009 having advanced to nearly 95 bid from prior levels around 91-92.

In the research note issued Monday, Deutsche analyst John Edwards raised his rating to "buy" from "hold" and increased his 12-month price target to $10 a share from $8, citing more stable future earnings that could justify the higher price target.

El Paso, like many energy producing companies, has been shedding underperforming or non-core assets as the industry looks to turn itself around following the Enron Corp. debacle.

Edwards noted that one positive in that regard is that El Paso's business mix is now more stable, projecting that 75% of El Paso's earnings by 2006 will come from its pipeline business, with the rest split between production and other businesses.

Calpine better on contracts

Another utility player seen bucking the trend Tuesday was Calpine Corp., which announced that it had signed five power sales contracts to supply a total of some 740,000 megawatt-hours of electricity to five New England-based distribution companies. The San Jose, Calif.-based power generating company did not put a pricetag on the contracts.

Calpine's 8 5/8% notes due 2010 were up nearly two points to 81 bid.

Tenet loses more

On the downside, Tenet healthcare "really sank," a trader said, quoting the Santa Barbara, Calif.-based hospital operator's bonds as having fallen an additional two to three points across the board after a similar easing seen Monday.

He saw its benchmark 7 3/8% notes due 2013 as having retreated to 91.5 bid, 92.5 offered from prior levels as high as 95.5 bid, 96.5 offered.

"There are some negative articles that have come out on the credit," he noted. "It's nothing newsworthy - there's no new information out from the company or from any other source, other than analysts and reporters talking about the credit."

But that's enough, he continued to have "really rattled some people. We've seen, over the last day or so, that guys who have held it in - not CBOs, but some small insurance companies, and money managers who have bought it because it looked like a reasonable value a year ago, are now getting out. Smaller players - but there's a lot of them."

He said that retail accounts and "mom and pop type accounts" holding Tenet paper are looking to unload their Tenet bonds. "There's been a sea change" in the feelings of mostly small investors for the struggling hospital chain, which recently announced plans to shed close to a third of its properties, "and not even for cash either - just for future tax breaks," that won't kick in for a year or two, and then only if they have positive income they want to offset." Other problems, he said include a high rate of cash burn, as well as a failure of management to really shake things up.

"There's not a lot of good here," he concluded.

Overall, he said, "the market was pretty firm right out of the chute this morning - but softened up toward the end of the day."

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