Euramax, Indiana Power price deals; Metris falls on ABS downgrade amid heavy secondary

By Paul Deckelman and Paul A. Harris

New York, July 30 - Following the unusually heavy new-deal activity seen on Tuesday, when the equivalent of more than $2 billion came to market in more than a half-dozen deals, Wednesday's pace was positively restful, with just three issues - Euramax International Inc.'s $200 million of eight-year notes, Commonwealth Brands, Inc.'s drive-by and Ipalco's $110 million offering of 10-years - seen having emerged by the close.

Traders described the secondary market as heavy, with investors starting to show more caution and reluctance in the face of the heavy new-issue calendar and the beating that Treasury issues have been taking in recent days and weeks. Metris Cos. Inc. bonds were seen as the disaster du jour, quoted down around 15 points after Fitch Ratings hit the sub-prime lender's asset-backed securities with a multiple notch downgrade.

In the wavering primary market terms emerged on three deals that carried speculative-grade credit ratings. Meanwhile no new offerings were added to what sources are characterizing as an unbelievably (and perhaps "unrealistically") crowded late summer forward calendar.

And price talk was heard Wednesday on a quartet of offerings including late July's junk bond locomotive, the Dynegy Inc. $1.325 billion of second priority senior secured notes in two fixed-rate tranches and one floating-rate tranche.

Talk is 9½%-9¾% on Dynegy's seven-year non-call-four fixed rate notes, while the 10-year non-call-five fixed rate notes are talked at 9¾%-10%. And a tranche of five-year non-call-three floating rate notes are talked Libor plus 600-625 basis points.

Credit Suisse First Boston is the bookrunner on the deal that is expected to price on Friday morning. As Prospect News went to press Wednesday evening the tranche sizes and ratings remained to be determined.

During a Wednesday afternoon conversation with Prospect News Kathleen Gaffney, vice president and portfolio manager of the Loomis Sayles High Income Funds, selected the adjective "choppy" to describe the present state of the market.

Gaffney pointed to the above-mentioned 10 tranches of Tuesday, two of which came downsized, while four came wide of talk, one came within talk but at the wide end, and one of two add-ons sold at a price lower than the talked range.

In fact, only three of Tuesday's 10 tranches priced at the tight end of talk - all of them part of the slightly upsized €1.05 billion offering from Eircom/Valentia. Valentia UPC's upsized €550 million 10-year senior notes (Ba3/BB+) came at 7¼%, tight to the 7¼%-7½% price talk, while the Eircom Funding UPC €285 million and $250 million 10-year senior subordinated notes (B1/BB+) priced at par to yield 8¼%, tight to the 8¼%-8½% talk.

"I think they had that deal priced right," Gaffney commented. "We just didn't like the fundamentals.

"We're passing on almost everything," the Loomis Sayles portfolio manager added. "Either pricing isn't good enough or where they've been attractive we haven't liked the fundamentals long-term."

Gaffney, along with several other sources who spoke Wednesday with Prospect News, commented that as the market moves into late summer the forward calendar of companies that are seeking to price junk bond deals is notably crowded.

"Definitely people are up to their gills," she said, adding the likelihood that all of the deals now positioned on the forward calendar will come to happy conclusions is perhaps dwindling.

Although Treasuries reportedly recovered significant ground on Wednesday, Gaffney also said that the recent sell-off in the government market no doubt impacted high yield. "Particularly the double-Bs," she commented, "because the have been pretty sensitive to the backup.

"A lot of the single-Bs were at least originally holding their own. But it seems that the backup got so severe in Treasuries on Tuesday that I think there may have been some money flowing out of high yield into Treasuries, just for a quick trade."

Among Wednesday's new deals, Commonwealth Brands priced a quick-to-market offering of $225 million 10 5/8% five-year non-call-four senior subordinated notes (B3/B-) at 99.023 to yield 10 7/8%, via Deutsche Bank Securities.

Euramax sold $200 million of eight-year non-call four senior subordinated (B2/B) at par to yield 8½%, at the wide end of the 8¼%-8½% price talk. UBS Investment Bank and Banc of America Securities were joint bookrunners.

And Indiana Power & Light Co. priced $110 million of split-rated 6.3% 10-year first mortgage bonds (Baa2/BB+) at 99.927 to yield 6.311%, or a spread of 200 basis points. Merrill Lynch & Co. was the bookrunner.

In addition to the above-mentioned Dynegy deal price talk was heard on EaglePicher Inc.'s $220 million of 10-year senior notes (B3/B-): talk is 9¾%-10% on the deal that is expected to price late Thursday via UBS Investment Bank.

Also on Wednesday price talk of 10¼%-10½% was heard on National Beef Packing Corp. LLC's upcoming $160 million of eight-year senior notes (B2/BB-). They are expected to price Thursday afternoon via Deutsche Bank Securities.

And price talk of 10¼%-10½% was heard on Flender Holding Gmbh's €250 million of seven-year senior notes (B2), expected to price on Thursday via Deutsche Bank Securities and Credit Suisse First Boston.

When the new Euramax 8½% notes due 2011 were freed for secondary dealings, they were heard having eased slightly to 99.7 bid, 100.25 offered.

Other newly priced deals included CNH Global NV's 9¼% notes due 2011, which priced at 98.621 Tuesday and were seen at 98.625 bid, 99.125 offered, and Corrections Corp. of America's new 7¼% notes due 2011, which priced at 101.125 Tuesday and were at 101 bid, 101.5 offered Wednesday.

Back among the established issues, Metris' 10% notes due 2004 were quoted at 67 bid, well down from recent levels at 84, while its 10 1/8% notes due 2006 were seen having fallen to 65 bid from 82 previously.

Metris, a Minnetonka, Minn.-based credit card issuer that targets sub-prime borrowers with spotty credit histories, has been the target of several recent ratings downgrades.

Last Thursday, Standard & Poor's lowered its long-term counterparty credit and senior unsecured debt ratings on Metris to CCC- from CCC+ and sliced its subordinated debt rating to CC from CCC- previously. Not to be outdone, Moody's Investors Service the following day cut its senior unsecured rating to Caa2 from B3.

On Wednesday, Fitch lowered a slew of ratings on Metris' credit-card receivables multiple notches, with about $900 million of the $3.6 billion affected cut to junk status from its previously investment grade levels. Some of the receivables-backed bonds were cut as low as B from BBB- previously.

All three ratings agencies that Metris is being hurt buy the inability of many of the people with poor credit histories to whom it issued credit cards to pay the bills on their accounts owing to the difficult economy.

Elsewhere, Levi Strauss & Co. bonds were quoted down at least two to three points across the board, although market participants could find no fresh negative news out on the San Francisco-based blue jeans maker.

A trader quoted its bellwether 11 5/8% notes as having dropped to 91.5 bid, 92 offered from Tuesday's levels at 94, while its 12¼% notes due 2012 "got hammered" and ended at 86 bid, 87 offered, down from 89 previously.

But he said "don't ask me why - there was no news on them," although he thought that the drop might be attributable to weaker earnings posted by one or more apparel company sector peers.

"Today everything was taken off the top - everyone went to the barber shop," was how one trader colorfully put it in talking about the generally weaker market.

He also saw the Levi notes dipping more than two points, and quoted such issues as Level 3 Communications Inc.'s 9 1/8% notes due 2008 as having fallen to 82.5 offered with no bids from 84 bid, 85 offered on Tuesday. Also in the telecom area, he said, Qwest Communications International Inc.'s 8 7/8% notes due 2012 lost a point to end at 104 bid, 105 offered, while Nextel Communications Inc.'s recently issued 7 3/8% notes due 2015 retreated to 97.25 bid, 97.75 offered from 99 bid, 99.5 offered on Tuesday.

Nextel's affiliate, Nextel Partners Inc., reported a loss of $108.9 million (44 cents a share) during its second quarter, although this included a loss of $68 million on the retirement of debt. Excluding that special item, the Kirkland, Wash.-based seller of Nextel service lost $40.8 million, or 17 cents a share, versus a year-ago loss of $73.9 million (31 cents a share). Adjusted EBITDA improved to $34.7 million from a $5.7 million year-ago loss.

Even so, Partners' 8 1/8% notes due 2011 were two points lower, at 92 bid, while its 11% notes due 2010 were a point down, at 105.5 bid.

AES Corp., which also reported earnings, was likewise lower, with its 9½% notes due 2009 and 9 3/8% notes due 2010 both at 96 bid, down two points.

The Arlington, Va.-based power producer reported that its second-quarter net loss widened to $129 million (22 cents per share), from $115 million, or 22 cents a share, a year earlier, although much of the loss was due to charges related to its pending sale of its operations in the former Soviet republic of Georgia. Excluding charges, AES reported a profit of 11 cents per share, slightly below the 12 cents Wall Street was looking for.

One company reporting earnings which was able to buck the generally downside trend was Goodyear Tire, whose 8½% notes due 2007 firmed to 86 bid from prior levels at 84.

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