Qwest add-on leads a slew of new deals; Star Gas jumps on unit sale; funds see $73.5 million inflow

By Paul Deckelman and Paul A. Harris

New York, Nov. 18 - Qwest Communications International Inc. brought a $250 million add-on issue of seven-year notes to market Thursday - one of a quartet of such opportunistically timed offerings, which in turn were part of a larger trend which saw more than half-a-dozen deals pricing before things finally rolled up for the day.

In the secondary market, Star Gas Partners LP's bonds were seen zooming in response to the news that the company will sell its propane gas unit for $475 million and use the proceeds for "significant" debt reduction.

And after the market close, a market source familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. said that in the week ended Wednesday,

$73.5 million more came into the funds than left them, which followed a $601.542 million inflow in the week ended Nov. 10.

The source merely commented that the infusion was "very small."

Still it was the fourth straight week of inflows and the 13th week in the last 14 - with the one outflow in that time a barely discernable $900,000 for the week ended Oct. 20. Inflows have also now been seen in 25 of the 46 weeks since the beginning of the year, although the funds still show a net outflow over that time of $2.523 billion, according to a Prospect News analysis of the AMG figures. However, following a mixed bag of weekly results early in the year - which included several weeks of unusually large outflows - the trend over the past three months has been solidly positive, according to the analysis of the figures.

The fund flow numbers, which include only those funds that report on a weekly basis and they exclude distributions, are seen as a reliable barometer of overall junk market liquidity trends, even though the funds make up only a relatively small percentage of the money available in the greater high yield universe.

Third $1 billion-plus day

For the third time in the four concluded sessions of the Nov. 15 week so far the high-yield primary market topped the $1 billion mark on Thursday, as well over $1.1 billion of dollar-denominated bonds priced in seven issues.

Four of the seven came from company's tapping existing issues of bonds, including the day's biggest deal, a $250 million add-on from Qwest Corp. that came at the tight end of talk.

However investor attention seemed to be most keenly focused on deals from Neenah Paper Inc. and Hornbeck Offshore Services, both of which priced inside of talk, and were heard to have been substantially oversubscribed.

Qwest top by size

The biggest junk bond deal to price on Thursday came from Denver-based voice, video and data services provider Qwest Corp., which priced a $250 million add-on to its 7 7/8% notes due Sept. 1, 2011 (Ba3/BB-) at 107.50 to yield 6.485%.

The Goldman Sachs-led deal came at the tight end of the 107.25 to 107.50 price talk.

Neenah 10-times oversubscribed

Although slightly smaller than the Qwest add-on, the $225 million issue of 10-year senior notes (B1/B+) from Neenah Paper Inc. was heard to have commanded immense investor attention on Thursday.

The Alpharetta, Ga.-based specialty paper-maker upsized its issue from $200 million and priced the bonds at par to yield 7 3/8%, inside of the 7½%-7¾% price talk.

Citigroup, Goldman Sachs & Co. and JP Morgan had the books on the deal, proceeds from which will be used to help fund the $215 million spin-off of Kimberly-Clark Corp.'s North American paper and Canadian pulp operations.

A market source told Prospect news that the Neenah book was more than 10-times oversubscribed.

Also garnering notable investor attention on Thursday - and also pricing inside of talk - was Hornbeck Offshore Services Inc.'s $225 million issue of 10-year senior notes (Ba3/BB+), which priced at par to yield 6 1/8%, inside of the 6¼%-6½% price talk.

Goldman Sachs & Co. had the books for the debt refinancing and capital expenditures deal from the New Orleans-based provider of offshore supply services to the petroleum industry.

Stena slips in at low end of talk

Slightly larger than the Neenah and Hornbeck transaction was the upsized $250 million of senior notes (Ba3/BB-) from Gothenburg, Sweden-based shipping, energy and real estate company Stena AB.

The issue, which was increased from $200 million, priced at par to yield 7%, at the tight end of the 7% to 7¼% price talk.

JP Morgan was at the helm for the debt refinancing deal.

Pinnacle, GCI, Broder, Kronos add ons

The remainder of Thursday's business was comparatively smaller in size. And all of it came from issuers tapping existing issues of bonds.

Pinnacle Entertainment, Inc. priced a $100 million add-on to its 8¼% senior subordinated notes due March 15, 2012 (Caa1/CCC+) at 105.0, resulting in a 7.1% yield to worst.

The Lehman Brothers/Bear Stearns-led deal came in the middle of the 104.625 to 105.125 price talk.

GCI, Inc., a subsidiary of Anchorage, Alaska.-based General Communication, Inc., priced a $70 million add-on to its 7¼% senior notes due Feb. 15, 2014 (B2/B+) at par, resulting in a yield of 7¼%. Deutsche Bank Securities was bookrunner.

And Broder Brothers priced a $50 million add-on to its 11¼% senior notes due Oct. 15, 2010 (B3/B-) at 103 on Thursday resulting in a 10.51% yield to worst.

The UBS Investment Bank-led transaction came at the tight end of the 102-103 price talk.

In the day's only euro-denominated issuance came from Kronos International, Inc., which priced a €90 million add-on to its 8 7/8% senior secured notes due June 30, 2009 at 107 to yield 6.136%, via Deutsche Bank Securities.

A Friday whopper

The final session of the Nov. 15 week took shape as price talk was heard Thursday on the massive issuance expected to price Friday from Toronto-based Rogers Wireless Communications Inc.

Rogers Wireless, Inc. talked its $2.350 billion equivalent five-tranche deal, via Citigroup, while Rogers Cable Inc. issued price talk on its $425 million equivalent two-part offering, led by Citigroup and JP Morgan (see related stories in this issue).

Elsewhere Altra Industrial Motion expects to price $165 million of seven-year senior secured notes on Friday via Jefferies & Co.

The company's fixed-rate tranche was talked at 9% to 9¼%, while the floating-rate tranche was talked at the swap equivalent of 9% to 9¼%.

Pricing is expected Friday.

Also expected to price Friday is Eschelon Operating Co.'s $65 million add-on to its 8 3/8% senior secured second priority notes due March 15, 2010 (existing Caa1/confirmed CCC+), which were talked at a percentage of par, 80 to 80.25.

Jefferies & Co. is the bookrunner.

And price talk is 8 3/8% area on Park-Ohio Holdings $200 million of 10-year non-call-five senior subordinated notes (Caa1/CCC+), expected on Friday via Lehman Brothers.

Neenah Paper up to trading

When the new Neenah Paper 7 3/8% notes due 2014 - which were reportedly well oversubscribed - were freed for secondary dealings, they got an equally enthusiastic response from aftermarket players, with the bonds seen having moved up to 101.5 bid, 102 offered.

Also on the upside - though only slightly - was the new Hornbeck Offshore Services 6 1/8% notes due 2014.

Star Gas rockets

Back among established issues, Star Gas' 10¼% notes due 2013 were "up big," a trader said, citing the news that the Stamford, Conn.-based heating oil distributor plans to sell its Star Gas Propane LP propane gas unit for $475 million, using the proceeds to repay $296 million it owes on secured notes and to pay down other debt - news that the trader called, with some understatement, "pretty spicy."

Star Gas said that the $296 million it plans to pay for the notes is broken into two parts. It has given notice to holders of the secured notes of Petro Holdings, Inc. and of Petroleum Heat and Power Co., Inc. to spend $182 million, including principal, interest and estimated premium, to prepay their notes. It also intends to give notice of optional prepayment of the secured notes of its propane segment at a total cost of some $114 million.

At another desk, a market source quoted the Star Gas bonds "up a few [points] to 102 bid from 97.5, but he acknowledged that the quote probably came earlier in the day and there was further price action after that to take the bonds up to the 106 level.

While the gas company's bonds were sizzling, its shares were fizzling, falling 72 cents (10.78%) to $5.96 on volume of 4.4 million shares, more than six times the usual traffic.

Level 3 gains

Elsewhere Level 3 Communications Inc. bonds were up several points, after the Broomfield, Colo.-based telecommunications operator announced that it had increased the maximum principal amount of bonds that it might buy under its pending tender offer to $1.105 billion from the originally announced $450 million (see "Tenders and Redemptions" elsewhere in this issue for full details).

Level 3 is tendering for its four series of 2008 notes - its 9 1/8% notes, 11%, 10½% discount notes and euro-denominated 10¾% notes, and has set a hierarchical order of preference, with the 9 1/8% notes first, followed by the 11s, then the 101/2s and finally the 103/4s. Expansion of the overall size of the offer - though not the maximum $450 million amount of the 9 1/8% notes that the company is willing to buy - is seen making it a certainty that the other series of notes will be bought as well. The tender offer was expanded after it was well oversubscribed by the Nov. 12 early consent date.

With the prospect that other notes will now be bought - which was by no means a sure thing previously - Level 3's 11s were seen bid at 90, up from 86.5 bid, 87.5 offered, and "that's huge," a trader said.

He also saw the 10½% notes "really hopping" at 85.75 bid, 86.75 offered, up from 82 bid, 83 offered. The euro 10¾% 2008s were unseen.

Level 3's dollar-denominated 10¾ notes due 2011, which are not being tendered for, were also up, firming to 87.875 bid, 88.875 bid, up from 87 bid, 88 on Wednesday.

Level 3 chief financial officer Sunit Patel issued a statement declaring that should the company accept the new maximum total amount of bonds to be purchased, "which we currently intend, we would reduce the aggregate principal amount of our outstanding indebtedness with 2008 maturities to approximately $1.3 billion, or 46% based on current euro exchange rates.

"Such a reduction would be consistent with our previously announced goal of addressing our outstanding indebtedness maturing in 2008 in a disciplined manner. We also currently expect the transaction to slightly reduce total outstanding debt and Level 3's annual interest expenses."

Level 3 is funding the tender offer with the proceeds from a new $730 million term loan facility, and a $320 million issue of convertible notes which priced Thursday.

Bally better

Bally Total Fitness Holding Corp. announced selected third-quarter operating results in a late-afternoon conference call, and said that it anticipates posting a loss for the quarter when full figures for the quarter are released. Bally has delayed release of the full results while it restates results from certain past quarterly results.

However, Bally's bonds - which had fallen several points earlier in the week on the news that the Chicago-based fitness club operator would seek waivers from the noteholders of default provisions which might be triggered by its failure to file its quarterly financial results in a timely manner - were seen improving Thursday, with the 10½% notes due 2011 firming to 95.5 bid, 96.5 offered from 93 bid, 95 offered previously, and its 9 7/8% notes due 2007 inching up to 80 bid, 81 offered from 79.5 bid, 80.5 offered.

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