Dimon prices 10-year deal; Calpine edges up on bank extension news

By Paul Deckelman and Paul A. Harris

New York, May 27 - It was back to work for the high-yield market Tuesday after its three-day Memorial Day holiday break, but activity - even in the recently red-hot primary sector - was underwhelming. Just one new deal was heard to have priced - a quickly marketed $125 million 10-year deal from Dimon Inc. Two other deals - for Warnaco Group and Dayton Superior - were heard to have made their way onto the forward calendar.

Secondary market dealings continued in the same slow rut the sector has recently seen in the wake of frenetic pace of primary activity, especially last week, when nearly two dozen deals collectively worth more than $5.5 billion appeared. Of the few features, Calpine Corp. debt was slightly higher on news that the power producer's lenders had extended two working capital facilities till mid-June while the company tries to come up with a new refinancing deal.

Whether or not the high-yield market continues to smoke was a matter of some debate among sources who spoke to the Prospect News primary market desk on Tuesday.

However, one transaction priced - a quick-to-market $125 million from tobacco dealer Dimon, brought in order to stub out its 8 7/8% senior notes of 2006.

And four prospective issuers either lit out, or prepared to do so (upon roadshows, that is).

And one deal ended up in the ashtray during the first session of the May 26 week: Huntsman LLC postponed its offering of $250 million of seven-year senior notes (B3/B-), citing market conditions.

The deal, via Deutsche Bank Securities and Credit Suisse First Boston, was said by market sources to have already been facing difficulty on Friday May 23.

"There was the rumor of death on Friday," one source confided. "And no traction Tuesday sealed its fate.

"I think there was something that could have gotten done but the company was not willing to go that high."

This source added that the high-yield market is "definitely weary right now, despite the long weekend," and expressed the belief that the postponement of Huntsman should be seen as a "name specific" event, and not necessarily attributed to the general conditions of the market.

"Deals are still getting done, albeit a bit wider than in the past," noted the sell-side official.

"The buy-side sees a chance to extract a little more yield and it is payback time for underwriters."

According to an analysis of data by Prospect News Huntsman is the first postponed deal since Meridian Automotive Systems, Inc. postponed an offering on Feb. 25, 2003.

Other evidence that the market might be "taking a little bit of a breather," according to sources, includes the extended call protection that Rent-Way, Inc. and Pliant Corp. ended up offering to investors in transactions that priced during the week of May 19.

When contacted Tuesday by Prospect News, Kathleen Gaffney, vice president and portfolio manager of the Loomis Sayles High Income Funds, could not bring herself to weep for high-yield issuers.

"Nuevo is calling 61% of their issue, so there is definitely call risk in the market," she commented on the extension of call protection for Pliant and Rent-Way investors.

"Call protection would definitely be something I would be looking for in a new issue," she added.

Asked if such deal-adjustments as extended call protection, taken in conjunction with several transactions during the week of May 19 seen pricing at the wide end of price talk, means high yield is starting to cool off Gaffney responded: "I think a little of the bloom is coming off. But I have a hard time in general calling this a 'high-yield market.' The absolute levels are so low that issuers are fortunate to have such a liquid market to be able to be issuing debt now.

"We're heading into the doldrums of summer and everybody's talking about deflation," she added. "So I think that the real strength in the technicals is going to fade a little bit."

As to the present forward calendar, Gaffney said that tight levels have tended to stay the hands of the Loomis Sayles High Income Funds. She did say, however, that she would be taking a look at Texas Industries, Inc.'s $600 million offering of eight-year senior notes (B1/BB-), via Banc of America Securities and UBS Warburg, set to price during the week of May 26.

"We haven't internally discussed it yet, but just from the pricing that was indicated it looks like they're pricing it cheap for a single-double (B1/BB-)," she commented on the deal from the Dallas-based cement and structural steel-maker.

"I think I heard 9½%-9 5/8% guidance. I would call that very cheap. That sounds like a pure single-B, to me. But it's cyclical and highly levered so I want to get comfortable with the story."

Meanwhile during the first session of the four-day week of May 26 terms emerged on a drive-by deal from Dimon, which sold $125 million of 10-year senior notes (existing ratings Ba3/BB) at par, to yield 7¾%.

Wachovia Securities was bookrunner.

"It was very well received by the accounts," commented one informed source on the Dimon deal. "People liked the strong free cash flow, the market position of the company and the asset coverage."

In addition to Dimon, which came and went on Tuesday, the market learned of four new deals that will be marketed more extensively to investors.

Dayton Superior Corp. is set to begin a roadshow this week for $150 million of five-year non-call-three senior second secured notes, with pricing nest week.

Morgan Stanley and Deutsche Bank Securities are joint bookrunners on the deal from the Dayton, Ohio-based company makes metal accessories and forms for concrete and masonry structures.

The roadshow began Monday for Triton PCS, Inc.'s $500 million of 10-year senior notes. The Rule 144A deal from the Berwyn, Pa.-based wireless networks owner-operator, via Lehman Brothers, Citigroup, JP Morgan and Merrill Lynch, is expected to price on Friday.

The roadshow begins Wednesday for United Components Inc.'s sale of $255 million 10-year senior subordinated notes, which are expected to price late in the week of June 2.

Lehman Brothers and JP Morgan are joint bookrunners on the deal from Jersey City, N.J.-based company that supplies vehicle replacement parts.

And the roadshow begins Thursday for Warnaco Group, Inc.'s offering of $210 million 10-year senior notes, which are expected to price on June 5.

Books on the deal from the New York City based apparel-maker will be run by Citigroup and JP Morgan.

Finally on Tuesday price talk of 10¼%-10½% emerged on Impress Group BV's €150 million of five-year non-call-one senior guaranteed notes (B2/B-). The deal, via Deutsche Bank Securities, is expected to price on Wednesday in London.

Back in the secondary market, the going was slow, traders and other market participants lamented. "It was just totally dead today," one market source declared.

He wasn't far from the truth. At another desk, a trader complained in mock seriousness that "you woke me up" and characterized the market as "very, very slow."

He did see a little bit of movement in Calpine debt, in the wake of the announcement late Friday - well after the market's early close ahead of the holiday break - that the San Jose, Calif.-based power producer's banks had agreed to extend the maturity dates of the two facilities, totaling $950 million, to June 16.

Calpine hopes the three-week extension of the maturity dates will provide the company and the banks sufficient time to finalize the terms and conditions for a new, two-year $1 billion working capital facility.

Calpine bonds were "slightly better," the trader said, quoting its benchmark 8½% notes due 2011 at 67 bid, versus Friday's levels around 66 bid/66.75 offered. He estimated that its bonds were up about three-quarters of a point to one point across the board Tuesday, but opined that the gain was "nothing dramatic."

He explained that "I don't think that people were surprised that they got the extension," since the real question remains whether the company will be able to get the new credit facility it has been seeking now for a number of months.

He was of the opinion that probably Calpine would ultimately be able to get its new credit facility, calling the delays so far "probably technical.

"It may get a little hairier - especially if the high yield secondary starts to head the other way and some of the steam starts to run out of the new-issue market - but I think they'll get it done."

On the equity side of the ledger Tuesday, Calpine shares were up 13 cents (2.55%) to $5.23 on the New York Stock Exchange, on volume of 9.48 million shares, slightly more than the usual 7.2 million-share turnover.

A market observer meantime said that the Calpine news had absolutely no impact as far as he could see on the bonds of any of the other utility/merchant energy players, such as AES Corp., Dynegy Inc., Mirant Corp. or El Paso Corp. At another desk, however, CMS Energy Corp.'s 7½% notes due 2009 were heard a point better, at 94.5 bid, although no one was willing to say that the Calpine movements necessarily had anything to do with that.

Outside of the power group, the only real news circulating in the market was the announcement from Tenet Healthcare Corp. that Jeffrey Barbakow had resigned as chief executive officer of the nation's second-largest for-profit hospital chain.

That resignation followed a recommendation by the Santa Barbara, Calif.-based company that Barbakow step aside and let the board appoint someone who might be better able to restore investor confidence in the company, which is currently under federal scrutiny over its Medicare billing practices and other matters.

Trevor Fetter, the company's president, assumed the title of acting CEO while a search is underway for Barbakow's replacement.

"I would view this as sort of positive for the company," a trader who specializes in healthcare issues said, although that wasn't reflected in any bond price movement Tuesday amid the generally slow activity level in the market, he said.

He quoted Tenet's 6½% notes due 2012 at 96 bid/97 offered and its 6 3/8% notes due 2011 at around the same level, both essentially unchanged.

Still, he reiterated, "I would call the news fairly positive. Barbakow had a lot of baggage, and he wasn't doing such a good job. It was time to get someone in there that could restore investor confidence. So this is definitely a positive."

Overall in the market, he said, meantime, "it was dead quiet" in the secondary sphere. "The one sense that I got was that there are definitely some guys looking to raise some cash" by selling some of their holdings.

He noted that "some money left the market last week," with the weekly AMG number (high yield mutual fund flow number) negative for the first time in three months, "and I think that may be a trend that continues here, given where spreads are and absolute yields.

"I think on the whole, people will be looking [to cash out and take their profits] on the stuff that's run up significantly. A lot of the super-premium paper, even though it's off three to five points in some cases, it's still way above par."

For instance, he said the Dex Media bonds which came to market late last year had recently been as high as around the 119-120 bid level, but had come down to around 114.

"So that's the [kind of ] stuff that's going to be sold first."

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