HydroChem, Mercer price deals; Star Gas, Muzak fall sharply

By Paul Deckelman and Paul A. Harris

New York, Feb. 9 - HydroChem Industrial Services and Mercer International were heard by high yield syndicate sources Wednesday to have successfully priced new bond offerings, the latter an upsized sale of eight-year notes. Also in the primary sphere, the roadshow for CPI Holdco Inc.'s planned bond offering was heard to have been delayed due to the illness of one of the management participants and Rural/Metro Corp. was expected to bring a multi-tranche offering of senior subordinated and discount notes.

In the secondary arena, Star Gas Partners LP's bonds, and shares, plummeted after the Stamford, Conn.-based heating oil distributor posted a fiscal first quarter operating loss and issued bearish guidance.

Also well on the downside was Muzak LLC's two series of bonds; a trader cited the abrupt departure of a company director amid allegations of alleged improprieties.

Wednesday's rally in Treasuries failed to offset softer equity prices and the U.S. high-yield market retreated by three-eighths of a point, according to one market source.

Nevertheless the new issue market saw $460 million of business go down in two transactions.

Meanwhile the forward calendar of dollar-denominated deals presently thought to be in the U.S. junk market dropped well below the $1 billion mark, as three companies came forward with announcements, but no specific timing.

Mercer upsizes but at wide end of talk

Wednesday's biggest issuer was pulp producer Mercer International which priced an upsized $310 million issue of eight-year senior notes (Caa1/B) at par to yield 9¼%, at the wide end of the 9% to 9¼% price talk.

RBC Capital Markets and Credit Suisse First Boston ran the books for the acquisition funding and debt refinancing deal.

On Tuesday the Mercer deal was heard to have been three-times oversubscribed and doing well.

So when the deal came at the wide end of price talk Prospect News asked a buy-side source, who had bought the new Mercer 9¼% notes, to explain.

"I think there are two reasons," said the source, who agreed to speak on background.

"Mercer is really small and they are doing a lot of acquisitions. And they are just getting their new plant up and running. And they are buying a company out of bankruptcy, all at the same time.

"So there is a lot of execution risk.

"Also the equity deal wasn't originally going all that well," the buy-sider added. "The stock priced at $8.50. When they filed it was like at $11. The company only wanted to sell X amount of shares for dilution purposes. So at the end of the day you have a little less equity cushion underneath you.

"But that's a small part of the equation. There is a lot of execution risk in this particular name. And I think RBC wanted to make sure that the deal cleared cleanly because of the risk profile of this name.

"The fact that RBC got $300 million done for this company is huge.

"You are buying this on faith - that the management can pull off all of the execution. There is a huge amount of moving parts right now with this company."

Hydrochem's $150 million tight to talk

Wednesday's other transaction came from Deer Park, Tex., industrial cleaning services company Hydrochem Industrial Services, Inc., which priced $150 million of eight-year senior subordinated notes (Caa1/B-) at par to yield 9¼%.

The Morgan Stanley-led debt refinancing and acquisition funding deal came tight to the 9¼% to 9½% talk.

One informed source told Prospect News that the new Hydrochem notes went out Wednesday at 101.75 bid, 102.25 offered.

"The deal was very strong," the source said, adding that some great accounts had come in at the very end.

A trio of prospective issuers

Three companies stepped forward on Wednesday with plans - in various stages of formation - to sell bonds.

Meritage Homes Corp. sees an opportunity to substantially reduce its interest expenses by refinancing up to $280 million of its 9¾% senior notes due 2011 with a new issue of high-yield notes, according to the company's chief financial officer Larry Seay.

Seay told Prospect News on Wednesday that the company is considering an issue to take out all or part of the 9¾% notes.

"Our advisers tell us that the high-yield bond market is very good at the present, especially for home builders," Seay added (see related story elsewhere in this issue).

A sell-side source, mulling the information on Meritage Homes, commented that it makes sense, and added that the deal figures to come sooner than later.

"When the home builders come they come all together," the sell-sider said. "They flock to the market.

"Last week we saw D.R. Horton in the junk market and this week we saw the investment-grade deal from Pulte Homes [Baa3/BBB-].

"The rates just can't get any more attractive than this," the official added.

"If the Treasury market stays like this, the month of February will probably be big. The 10-year dropped below 4%. That's unbelievable.

"So I think people are anxiously looking at the market."

Elsewhere Scottsdale, Ariz., ambulance company Rural/Metro Corp. announced plans to sell $190 million of high-yield bonds in two parts via Citigroup.

The Rule 144A/Regulation S offering includes $140 million of 10-year senior subordinated notes (Caa1/CCC+) and $50 million proceeds of 11-year senior discount notes (Caa2/CCC+).

A source from the company declined to provide specific timing on the bond deal, but said that the bonds would likely hit the market prior to the March 3 expiration of the company's tender offer.

And Lawrenceville, N.J., battery-maker Exide Technologies announced in a Wednesday press release that it plans to sell $350 million of eight-year senior notes, in a debt refinancing deal.

A source from the company declined to provide any further information.

Three deals for Friday

With Wednesday's business having cleared, primary market sources took a bead on three relatively small offerings that are expected to price during the final session of the Feb. 7 week.

No official talk had been heard on any of those deals, sources added.

Hilite International Inc. is in the market with $150 million of seven-year senior subordinated notes (confirmed B3/expected B), via JP Morgan.

One market source said that unofficial talk on Hilite is 9½%.

Also expected to price Friday is Holly Energy Partners LP's $150 million of 10-year senior notes (Ba3/B+) via UBS Investment Bank.

And finally, Greek radio and TV broadcaster Antenna TV SA expects to price €120 million of 10-year senior notes (confirmed B1/expected B+) on Friday via Citigroup.

HydroChem gains in trading

When the new HydroChem 9¼% senior subordinated notes due 2013 were freed for secondary dealings, they were heard to have firmed to levels as good as 102.25 bid, 102.75 offered, although a trader at another desk heard them going home at 101.75 bid, 102.25 offered, both price levels well up from their par issue price.

The second trader said that the underwriter "did a great job of corralling that [issue] and keeping trading to themselves."

The new Mercer 91/4s due 2013, meanwhile, "bounced around a little bit," he said, getting as good as 101 bid at one point, but then coming well down from that peak level to end at 100.125 bid, 100.375 offered.

Among other recently priced deals, Valor Telecommunications Enterprises LLC's new 7¾% notes due 2015, which priced Tuesday at par and then firmed to 101 bid, 102 offered in thin initial trading, "performed well" on their second day of dealings, climbing to 103 bid, 103.75 offered.

And American Commercial Lines LLC's new 9½% senior notes due 2015, which priced at par on Tuesday and then shot up to 103.375 bid, 103.625 offered in initial dealings later that session, got a little better Wednesday, ending at 103.5 bid, 104 offered.

Star Gas drops sharply

But while the new deals were climbing - some sharply, others more modestly - the trend among the established secondary issues seemed to be southbound, with more issues giving up ground than gaining it, and probably none giving up quite as much as Star Gas Partners, whose 10¼% notes due 2013 "got mowed," a trader said, quoting the bonds as having fallen to 97 bid, 98 offered from 108 bid, 109 offered, although he "didn't see a lot of activity" in the name." Still, he said, they "definitely got hit."

Another trader saw those bonds go as low as 95 during the session, before they "recovered a bit" from that low to end at 96.5.

Star Gas' New York Stock Exchange traded shares, meantime, plunged $2.40 (35.04%) to end at $4.45 on volume of 5.7 million, more than five times the average daily turnover.

Star reported a net profit of $74.4 million for its fiscal 2005 first quarter ended Dec. 31, up from $19.3 million a year ago, although much of that gain was due to the sale in December of its propane business. On an ongoing operations basis, the company actually had a $74.6 million loss from ongoing operations for the quarter, which historically accounts for fully 30% of annual sales.

It posted a first-quarter operating loss of $21 million - a sharp turnaround from operating income of $14.3 million a year ago.

It said that soaring heating oil prices were causing existing customers to use less fuel and hurting efforts to sign up new customers.

Muzak plummets

Elsewhere, Muzak's bonds hit a sour note as the Fort Mill, S.C. -based recorded music company's 9 7/8% subordinated notes due 2009 fell all the way to 57 bid from prior levels around 70, while its 10% notes due 2009 dipped to 90 bid from 94.75.

A trader said he had heard that one of the company's independent directors had resigned - and had apparently written a letter that suggested certain corporate improprieties.

Accordingly, he said, "the bonds got destroyed."

If what he heard is true, he said, it's just one more problem for the venerable recorded music company - organized in 1922 - as it attempts to hold off the challenge from up-and-coming rivals like Sirius Satellite Radio and XM Satellite Radio, who are each seeking to expand beyond simply serving listeners in automobiles, and looking to broadcast their signals to clients in buildings, Muzak's traditional bread-and-butter customers. "Their business is obsolete," he said of Muzak. "Not a very bright future there."

Level 3 lower again

Elsewhere, Level 3 Communications Inc. - whose bonds fell on Tuesday after the Broomfield, Colo.-based telecommunications company reported lackluster fourth-quarter numbers and warned of "uncertainty" ahead in its industry in 2005 - continued to retreat on Wednesday.

The trader said the company's benchmark 9 1/8% notes due 2008, which on Tuesday fell to 79 bid from prior levels around 84, "held up at the beginning, but then got creamed later on," dropping to 74.5 bid, 75.5 offered by the end of the day, "down 10 points over two days."

At another desk, the company's 10½% notes due 2008 were seen having dipped to 80.5 bid from 82.25, while its zero-coupon notes due 2010 were seen down a point at 85.

Amkor continues lower

Amkor Technology Inc. - whose bonds fell about two points across the board Tuesday after the West Chester, Pa.-based semiconductor services provider's quarterly report and bearish assessment of the industry's state - continued to ease, its 7¾% notes due 2013 down another point to 86 bid, 87 offered.

Its 9¼% notes due 2008 were trading at 97.5, down from 100.5 before the numbers came out Tuesday. Its 10½% notes due 2009 fell to 96 from 97.625.

Salton Inc.'s 12¼% notes due 2008 were quoted down a point at 75 bid and its 10¾% notes coming due on Dec. 15 ended at 87 bid, down from 88.5, after the Lake Forest, Ill.-based small appliance maker reported fiscal second-quarter results, including only a small cash position and a sharp drawdown of its credit availability, as the problem-plagued company looks at options for refinancing the 103/4s, while facing a looming interest payment April 15 on the 12¼% notes (see related story elsewhere in this issue).

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