Gregg, Hexcel, Emcare deals price; phone bonds up on SBC speculation; funds see $759 million outflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 27 - The new deals were coming fast and furious on Thursday, as high-yield syndicate sources reported successful pricings for Gregg Appliances Inc., AMR Holdco Inc./Emcare Holdco Inc., a quickly shopped issue from Hexcel Corp., and, out of Europe, Kabel BW. Price talk meanwhile emerged on deals for Eye Care Centers of America and Knowledge Learning Corp., both of which are expected to come to market on Friday, along with Novelis Inc.'s $1.4 billion behemoth.

In secondary activity, news media reports that SBC Communications Inc. is in talks to buy its former corporate parent, AT&T Corp., sent the latter company's bonds up about a point on the session - and also gave a boost to rival long-distance telecommunications operator MCI Inc.

On the downside, RJ Tower Corp's bonds were wildly fluctuating around at lower levels.

And after dealings had adjourned for the day, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that $759.49 million more left the junk funds than came into them during the week ended Wednesday.

It was the third straight weekly outflow, following the $445.6 million seen in the week ended last Thursday (Jan. 19), and the $265 million outflow seen the week before that (ended Jan. 12). During that stretch, outflows have totaled some $1.47 billion, according to a Prospect News analysis of the AMG figures.

Outflows have now been seen in three weeks out of the four since the start of the year, and total $$1.331 billion year-to-date, according to the analysis. 2004 saw a total cumulative outflow of $3.26 billion, according to Prospect News's calculations - but the trend has been mostly negative since the middle of November, interrupted only by a $138.7 million inflow seen in the week ended Jan. 5.

The numbers measure only those funds that report on a weekly basis, and exclude distributions.

As soon as the news of that Arctic blast to the liquidity picture of the high-yield asset class - which has seen absolutely wintery mutual fund flow numbers for well over a year - began to circulate, one sell-side source suggested that the continuing negative news with respect to the mutual funds will eventually impact demand for junk.

Another source, an investment banker who spoke 90 minutes after the market had a chance to digest the newest negative number, essentially reiterated what the sell-side has been telling Prospect News for months: there is money in high yield from sources other than mutual funds, enough that the market appears to remain notably liquid even in the face of the outflows.

"It's a big number," the official said, referring to the $759.5 million outflow for the week to Jan. 26.

In fact, the source added, the year to date has now seen $1.3 billion of outflows.

"You have to remember that the mutual funds represent approximately 20% of the investor pool," the source asserted.

In primary activity, four tranches from a quartet of issuers priced during the Thursday session. The totals on the day were $640 million and €170 million.

Two of the four priced at the tight end of price talk, one came in the middle and the other priced 25 basis points wide of price talk.

Meanwhile the forward calendar, which - as the last full week of January 2005 draws to a close - tops $5 billion of junk bond deals thought to be "in the market," took on more freight Thursday.

Oversubscribed AMR wide of talk

In contrast to recent junk bond sales from Intelsat ($2.55 billion) and Tenet Healthcare ($800 million), Thursday's biggest deal seemed small - but was nonetheless interesting.

AMR Holdco Inc. in conjunction with EmCare Holdco Inc. priced $250 million of 10-year senior subordinated notes (Caa1/B-) at par on Thursday to yield 10% via Banc of America Securities and JP Morgan.

The deal, which will help fund Onex Partners' acquisition of Laidlaw Inc.'s two healthcare companies, American Medical Response and EmCare, came 25 basis points wide of the 9½% to 9¾% price talk.

However, an investor told Prospect News shortly after the deal priced that there were $1 billion of orders for the bonds and added that the notes traded up to 101.5 bid on the break.

When confronted with the seeming paradox of a four-times oversubscribed deal coming 25 basis points wide of talk the investor replied that, given the bounce the notes received in the secondary market, the deal "looks like it priced right."

Later a sell-side source, also quizzed about the seeming paradox, suggested that the book could have been filled with "a lot of contingency orders," meaning that investors were in, but only at a given price.

Hexcel upsizes, tight end of talk

Elsewhere Thursday, Hexcel Corp., the Stamford, Conn.-based manufacturer of composite materials for aerospace, defense, electronics and industrial purposes, priced an upsized $225 million issue of 10-year senior subordinated notes (Caa1/B-) at par to yield 6¾%, at the tight end of the 6¾% to 7% price talk.

Goldman Sachs & Co. ran the books for the debt refinancing deal, which was upsized from $200 million, with the extra proceeds to be used to repay more debt, according to a market source.

Meanwhile HH Gregg Appliances Inc. priced $165 million of eight-year senior notes (B2/B) at par on Thursday to yield 9%, smack dab in the middle of the 8 7/8% to 9 1/8% price talk.

Wachovia Securities ran the books for the acquisition financing from the privately held Indianapolis-based retailer of consumer electronics and appliances.

And from Europe, German cable and satellite TV services provider Kabel BW Holdings GmbH priced €170 million of 10-year senior floating-rate notes (Caa1/CCC+) at par to yield three-month Euribor plus 736 basis points, at the tight end of the 735-760 basis points price talk.

Morgan Stanley had the books for the debt refinancing deal.

Calendar continues to build

Negative news from high yield mutual funds notwithstanding, the new issue calendar continued to grow during the Thursday session.

A roadshow began Thursday for Worldspan LP's $350 million offering of six-year non-call-one senior secured second-lien floating-rate notes, which are expected to price on Friday, Feb. 4.

JP Morgan, UBS Investment Bank, Lehman Brothers and Deutsche Bank Securities are joint bookrunners for the debt refinancing deal.

Meanwhile the roadshow starts Friday for American Commercial Lines LLC/ACL Finance Corp.'s $200 million of 10-year senior notes (B3/B-).

UBS Investment Bank and Banc of America Securities are joint bookrunners for the debt refinancing deal from the Jeffersonville, Ind. barge company.

A busy Friday

News surfaced Thursday on what figures to be a busy session on the final day of the Jan. 24 week - a session during which terms are expected on Montreal-based aluminum producer and recycler Novelis Inc.'s $1.4 billion of 10-year senior guaranteed notes (B1/B), via Citigroup, Morgan Stanley, UBS Investment Bank.

The single tranche is talked at a yield in the 7% area.

Elsewhere Eye Care Centers of America's $150 million of 10-year non-call-five senior subordinated notes (Caa1/CCC+) are being talked at 10% to 10¼%, with pricing expected on Friday afternoon via JP Morgan.

Knowledge Learning Corp.'s $260 million of 10-year non-call-five senior subordinated notes (B3/B-) are talked at 7¾% to 8%, with pricing expected Friday.

Credit Suisse First Boston, UBS Investment Bank and BNP Paribas are joint bookrunners.

And Uno Restaurant Holdings Corp.'s $140 million of six-year non-call-three senior secured second-lien notes (B3/B-) are talked at the 9¾% area, and are expected to price either on Friday or Monday via Banc of America Securities.

In addition to those, Atlanta-based manufacturer of specialty plastics, Atlantis Plastics Inc. is in the market with $125 million of seven-year senior subordinated notes (Caa1/CCC+), via Bear Stearns & Co.

No talk had been heard by the end of Thursday's session.

And finally, one deal bit the dust during the Thursday session.

Carteret, N.J.-based independent food distributor Di Giorgio Corp. postponed its $150 million offering of eight-year senior notes (B2/B-) and will seek other financing alternatives.

Merrill Lynch & Co. and Deutsche Bank Securities had the books for the debt refinancing and dividend payment deal.

AMR/Emcare up in trading

When the new AMR Holdco/Emcare 10% senior subordinated notes due 2015 were freed for secondary dealings, a trader saw them breaking at 101 bid, up from their par issue price earlier in the session.

There was no immediate sign of the Gregg or Hexcel deals or the Kabel euro-denominated issue.

Among recently issued bonds, Accuride Corp.'s new 8½% senior subordinated notes due 2015, which priced at par on Wednesday and then firmed smartly to 102 bid, 103 offered on the break, were up a little bit more on Thursday, at 102.25 bid, 103.25 offered.

Tenet Healthcare Corp.'s new 9¼% senior notes due 2015, which priced at 98.406 on Tuesday and then moved up about a point from those levels by the close Wednesday, were seen going home Thursday at 99.625 bid, 99.875 offered.

And Intelsat Bermuda Ltd.'s new 8¼% notes due 2013 and 8 5/8% notes due 2015, which had priced at par on Monday and then had moved up over the next two sessions to around the 103 mark, pushed on upward to 103.125 bid 102.325 offered for the 81/4s and 103.375 bid 103.875 offered for the 8 5/8s.

AT&T up a point

Back among existing bonds, AT&T's notes were being quoted about a point better, on news reports that SBC Communications - ironically, one of the regional "Baby Bells" spun off from Ma Bell as part of the court-ordered breakup of the once-mighty telephone giant in the early 1980s - is in talks to buy its former parent, with $16 billion being mentioned as the likely pricetag. Some reports say that rival regional Bells Verizon Communications Inc. and BellSouth Corp. might make their own bids for their erstwhile parent to keep SBC from gaining any advantage by acquiring Telephone's roster of prestigious business clients.

Although AT&T's formerly investment-grade ratings have since been knocked down to junk bond levels - at least technically - as the company has lost customers and has abandoned some former residential markets, its bonds trade off the high-grade desks, or at worst, with the crossover traders, at many bond houses. However, a junk trader saw its 6% notes due 2009 up a point at 104.5 bid, 105.5 offered, while its 9.05% notes due 2011 were likewise a point better at 115.25 bid, 115.75 offered.

A trader at another desk saw the 6s at 104.25 bid, 105.25 offered, and the 9.05s at 115 bid, 116 offered.

"All of the action today [Thursday] was in AT&T and MCI," the first trader declared, quoting the latter's 8.735% notes due 2014 as having moved as high as 107.5 bid intra-day from a close Wednesday at 104 bid, 104.5 offered. He saw the bonds come off that high late in the session to close at 106.75 bid, 107.75 offered.

He suggested that Ashburn, Va.-based MCI, the second-largest U.S. long-distance carrier behind AT&T, was attracting attention in the wake of the takeover speculation about its larger rival.

"The feeling seems to be if AT&T is acquired, someone will acquire MCI - or if they [SBC] don't buy AT&T, maybe they'll buy MCI, that kind of thing."

He added "it wasn't like MCI's business is all that great - it's just that consolidation is the motive, I think. Maybe people covered a couple of shorts and gave the bonds a push."

At another desk, a market source was calling the MCI 8.735s up 2½ points at 106.5, although its other bonds did not jump like that. He saw the company's 7.688% notes due 2009 a point better at 103.5, while its 6.908% notes due 2007 were just one-eighth higher at 102.625.

Tower moving

Elsewhere, a trader said RJ Tower "was the big name in play," and characterized the Novi, Mich.-based automotive component maker's 12% notes due 2013 as "all over the map," having started out at 56 bid, 58 offered Thursday morning, then having fallen to 52.5 bid, 53.5 offered, before coming back off those lows to end around where they started, or perhaps down just a bid.

Other market participants saw the bonds having fallen as low as 51 bid from beginning levels as high as 58, but everyone pretty much agreed they went out at 56.

The trader said he had seen no concrete fresh news out on the troubled company - whose bonds have been sharply lower for the past week following its warning that its liquidity might be constrained because of longer-than-expected holiday-time slowdowns by major customers- and said that the drop "was almost as though a big seller was in there" - an assessment that another trader agreed with, noting a rumor making the rounds that there was a "large block of bonds for sale " - perhaps as much as $25 million.

The trader was skeptical about a second rumor apparently making the rounds - another trader saying there was some market worry over whether the company would make a scheduled Feb 1. interest payment on its euro-denominated 9¼% notes due 2010.

"I don't think it was that," he said, noting that the payment amount - around $7 million - was sufficiently small that the company should be able to make the coupon.

Owens Illinois edges up

Owens Illinois Inc. was out with fourth-quarter earnings - and said that it managed to cut debt by a whopping $1.23 billion during the quarter, using proceeds from an asset sale to pay down nearly $1.2 billion of term loan debt (see related story elsewhere in this issue.)

The Toledo, Ohio-based packaging maker reported net earnings for the quarter of $21.7 million (11 cents per share) - a sharp turnaround from its year-earlier quarterly loss of $1.071 billion (a $7.33 per share loss), although on a continuing operations basis it lost $32.7 million (25 cents per share) due to a provision for on-going asbestos claim litigation and other one-time items. Owens Illinois noted, however that this still represented an improvement over the comparable 2003 fourth-quarter continuing operations loss of $392.1 million (a $2.70 per share loss).

Owens Illinois' 7.35% notes due 2008 were quoted up half a point at 105, while its 7½% notes due 2010 were a quarter-point better at 105.5. Its 7.15% notes, scheduled to mature on May 15, were seen down a quarter-point at 100.75.

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