Nalco prices four-part mega-deal, NeighborCare, Dura also price; Insight firms on results

By Paul Deckelman and Paul A. Harris

New York, Oct. 29 - Ondeo Nalco Co. opened the floodgates on a four-part, dual-currency new deal worth about $1.6 billion on Wednesday, and the Naperville, Ill.-based chemical and water treatment company's new notes were heard to have firmed smartly when they were freed for secondary dealings. Nalco was easily the biggest story of the day in both the primary and the secondary markets, although several other new issues priced - including an upsized offering for Neighborcare Inc. and an add-on deal for Dura Automotive Systems Inc.

In the secondary market, the new bonds of both Nalco and Neighborcare traded up right from the break. Insight Communications Co. Inc.'s Insight Midwest bonds firmed as the New York-based Midwestern cable operator reported better third-quarter results, while Western Wireless Corp. was improved after the company sold $228 million of new stock. Heading in the other direction after poor earnings data were the bonds of Denny's Inc., the former Advantica Restaurant.

The midweek session in the high yield primary saw what was roundly reported to be a massively oversubscribed $1.6 billion four-tranche deal from Nalco completed, with sources reporting that it was every bit the blowout that had been anticipated.

The chemical and water treatment company, which had shifted $200 million from the two senior note tranches over to its credit facility earlier in the week sold $665 million of eight-year senior notes (B2/B) at par to yield 7¾%. The company also sold €200 million of eight-year senior notes (B2/B) at par to yield 7¾%.

Both of the senior notes tranches came at the tight end of the 7¾%-8% price talk.

In addition Nalco sold $465 million of 10-year senior subordinated notes due (Caa1/B) at par to yield 8 7/8%. Hence it priced at the inside of the revised price talk of 112.5 basis points behind the senior notes, down from 125 basis points behind the seniors.

One informed source told Prospect News that the dollar senior subordinated tranche was "a yield play" for investors, creating high demand for the paper which enabled the talk to be tightened.

Finally the company sold €200 million of 10-year senior subordinated notes (Caa1/B) at par to yield 9%. Talk on the euro senior subordinated tranche was 125 basis points behind the senior notes.

Citigroup, Banc of America Securities, Deutsche Bank Securities, Goldman Sachs & Co., JP Morgan and UBS Investment Bank were bookrunners on all four of the tranches.

Throughout the afternoon, Wednesday, sources reported that Nalco's new notes were notching up in secondary trading, with one source reporting that both senior and senior subordinated notes had hit 104 bid, 104.5 offered.

Pressed for color on the deal, one sell-side source commented: "It was a big deal that came with tight pricing and it traded up smartly. What else is there to say?

Elsewhere in the primary Kennett Square, Pa.-based provider of healthcare services to the elderly NeighborCare, Inc. priced an upsized offer of $250 million 10-year senior subordinated notes (Ba3/B+) at the tight end of price talk. The notes, increased from $225 million, came at par to yield 6 7/8%, at the inside of the 6 7/8%-7 1/8%.

Goldman Sachs, UBS Investment Bank and Lehman Brothers were bookrunners.

Terms also came out Wednesday on Dura Operating Corp. and Dura Automotive Systems' $50 million add-on to their 8 5/8% senior notes due April 15, 2012 (B1/B+). The deal priced at par, at the wide end of the 100-100.5 price talk.

JP Morgan and Banc of America Securities were joint bookrunners.

The Minneapolis-based designer and manufacturer of driver control systems priced the original $350 million at par on April 4, 2002. So Dura walked away Wednesday with an identical interest rate.

No new offerings surfaced to take places on the high yield forward calendar during the mid-week session.

However, price talk of 11¾%-12% emerged on Telex Communications Inc.'s upcoming $125 million of five-year senior secured notes (B), expected to price Friday via Jefferies & Co.

Also Wednesday, Nashville restaurant chain owner-operator O'Charley's, Inc., which was reportedly in the market with $125 million of 10-year senior subordinated notes (Ba3/B), via Wachovia Securities, issued a press release stating that it was working closely with the Knox County, Tenn. Health department, concerning a "recent Hepatitis A incident" at one of its locations in Knoxville.

The release went on to state that O'Charley's is aware of 77 individuals who have contracted the virus, most of whom have been linked to its Turkey Creek restaurant. In addition, the company stated it is aware of 12 lawsuits that have been filed against it "alleging fear of or injuries from the Hepatitis A incident, some of which claim substantial damages, and the company anticipates that additional litigation may be filed against it related to this incident.

At the outset of the week some market sources had anticipated hearing terms emerge on O'Charley's before Friday's close. However syndicate sources told Prospect News that the deal has been delayed.

When the new Nalco bonds were freed for trading, they began firming up right out of the gate, traders said, quoting them as breaking north of 101 and then progressively moving up to highs around 104 bid, 104.5 offered, well up from their par issue price. The company's new dollar-denominated 7¾% senior notes due 2011 and 8 7/8% senior subordinated notes due 2013 were trading "virtually on top of each other."

The Neighborcare 6 7/8% senior subordinated notes due 2013, which priced at par, were quoted on the break at 101.5 and were as high as around the 102 bid area.

The two new issues, and especially the Nalco bonds, were clearly the story of the day; a trader, in noting the lack of much activity apart from the new issues, opined that "it seems like the market trades to a new issue - and that's about it."

The market overall "was very unchanged," an observer said, maybe a few basis points of change here or there - but I didn't see anything of consequence."

Insight Midwest's bonds were up after the cabler reported partial results for the third quarter ended Sept. 30. Insight did not report bottom-line net results, citing a pending decision of the Financial Accounting Standards Board regarding the treatment of "certain financial instruments with characteristics of both liabilities and equity," and its impact on the company's financial statements.

Instead, it reported that revenue for the three-month period totaled $228.4 million, an increase of 11% over the year-ago $206 million, due primarily to customer gains in high-speed internet and digital services as well as basic rate increases. Insight also said that operating cash flow increased 6%, to $98.5 million, from $92.5 million in the year-ago quarter.

Insight's 10½% notes due 2010 were quoted as having risen to levels as high as 103.75 bid from Tuesday's close around 102. Its Nasdaq-traded shares rose 24 cents (2.44%) to $10.06 on volume of 1.5 million shares, more than triple the usual handle.

Also on the upside was Western Wireless' 9¼% notes due 2013, which were heard to have firmed a point after the Bellevue, Wash.-based provider of cellular telephone service to rural markets announced that it had sold 12 million shares of its common stock for $19, for total gross proceeds of $228 million. The money will be used for general corporate purposes, to fund working capital needs, making capital expenditures and for possible acquisitions.

Other names on the upside included Georgia Pacific Corp., whose 7.7% notes due 2015 were seen having firmed more than two points to 102.75, although no fresh news was heard about the Atlanta-based paper and forest products giant.

Lucent Technologies Inc.'s 6½% bonds due 2028 were quoted up half a point at 77.25, although its 6.45% bonds due 2029 were unchanged at 77 and its benchmark 7¼% notes due 2006 were likewise unmoved at 101.5.

AK Steel Corp., whose previously battered bonds firmed around two points on Tuesday, remained in positive territory Wednesday, its 7¾% notes due 2012 half a point better at 68 bid.

There was no further upside movement in the bonds of R.J. Reynolds Tobacco Holdings; the bonds had jumped solidly on Tuesday on the late-Monday announcement that it will merge with BAT's rival Brown & Williamson tobacco operation into a new publicly traded holding company to be 58% owned by R.J. Reynolds shareholders.

RJR "didn't move at all. It was quiet and unchanged," a market source said. "Maybe one issue might have been down a quarter point, but it was nothing to speak of."

On the downside, Denny's 11¼% notes due 2008 dropped to 55.5 bid from 56.75 previously, after the Spartanburg, S.C.- restaurant chain operator acknowledged that in the fiscal third quarter ended Sept. 24, it had a net loss for the quarter of $6.3 million (15 cents per share), compared with last year's net income of $56.1 million ($1.39 per share), although it should be noted that the year-ago profit was virtually all due to a $56.6 million gain on the disposal of Denny's FRD Acquisition Co. subsidiary.

Total operating revenue declined 3.4% to $238 million for the quarter, while operating income of $12.9 million declined by $6 million for the quarter, down from 7.6% of revenue last year to 5.4% this year.

Ameristar Casinos Inc.'s 10¾% notes due 2009 were heard down only a quarter point, although its stock swooned, as the Las Vegas-based gaming operator reported net income of $11.9 million (44 cents per share) in the latest quarter - a 61% rise from the year-ago $7.4 million ( 28 cents a share). But Wall Street had been expecting per-share earnings of 54 cents.

Even though the company's earnings were fairly strong, its failure to live up to analysts' and investors' expectations sent its Nasdaq-traded shares down $4.25, or 16.71%, to $21.18. Volume was 13 million shares, about 13 times the norm.

On the emerging markets corporates front, terms emerged on Indosat Finance Co. BV's offering of $300 million seven-year bonds (B2/B+). It priced at par to yield 7¾%. Price talk was 7½%-8%.

ING, Barclays Capital and Goldman Sachs were bookrunners on the Rule 144A/Regulation S deal. ING was global coordinator.

One emerging markets sell-side source told Prospect News that the new notes from the issuer, a subsidiary of P.T. Indonesian Satellite Corp. Tbk., were quite likely gobbled up by Indonesian financial institutions.

"That's the kind of deal where the locals are driving the book and driving the pricing," said the official. "An external investor who is looking at it purely on a 'corporate fundamentals basis,' with the backdrop of the country risk, would probably say it looks expensive.

"When a country is coming back from the kind of crisis that Indonesia went through you end up going through a period where you have a lot of liquidity. And you don't have a lot of bank lending going on because you don't have a lot of investment going on. So the banks have a lot of cash and investors have cash. Hence it tends to be a pretty attractive market locally for issuers.

"People want to buy dollar-denominated assets to hedge themselves against the FX risk. So these issuers issue dollar-denominated eurobonds, basically, and sell them to the locals."

However, Prospect News objected, the deal was reported to have been marketed in the U.S.

"When these banks get the mandates, they get them on the argument that they are going to place these bonds globally," responded the official. "But at the same time the issuers have pricing expectations that can only be met if you sell a lot of the bonds into the local market.

"Sometimes you get international investors who will buy the bond, but they're not buying it because they think it's a great buy-and-hold bond at that kind of a yield. They're buying it because they think there is going to be a good secondary market bid for that bond from the locals and they can make some money on the flip."

Elsewhere in Wednesday's emerging markets action price talk of 9¼% area was heard on an offering from ABN-CBN Broadcasting Corp. of $150 million of senior secured notes due 2008 (Ba3/B+), expected to price during the present week. Bear Stearns and Credit Suisse First Boston are joint bookrunners on the Philippine broadcasting company's deal.

And price talk is 9¼%-9½% on Filinvest Land Inc.'s offering of $100 million of bonds due 2008 (unrated). The Philippine homebuilder's deal is also expected to price during the present week, via JP Morgan.

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