Casella Waste prices add-on; wireless names firm; funds see $220 million inflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 22 - The high yield primary market's recently torrid pace, which saw more than $1.6 billion of new bonds price on Wednesday alone, slackened off Thursday; just one new deal - a small add-on offering for Casella Waste Systems Inc. - was heard to have emerged. However, things are expected to pick back up again very soon, with United Rentals Inc.'s $1.375 billion two-part offering - the first billion-dollar-plus mega-deal of 2004 - expected to price Friday. Price talk also came out on several other coming deals, and a number of other prospective issuers were heard getting ready to hit the road to market their offerings.

In the secondary arena, wireless names were seen having improved somewhat, presumably aided by the merger and acquisition speculation that has attached itself to the industry in the wake of AT&T Wireless Services Inc.'s plans to put itself up for sale. Also on the upside were the bonds of Greyhound Lines Inc.

Late in the session, after trading had wound down for the day, market participants familiar with the weekly high yield mutual fund flow statistics compiled by AMG Data Services of Arcata, Calif. reported a net inflow of $219.96 million in the week ended Wednesday. That follows a $396 million inflow seen in the week ended Jan. 14.

Inflows have now been seen in all three weeks since the start of the new year, for a cumulative 2004 total of $1.123 billion, according to a Prospect News analysis of the AMG statistics, counting only those funds which report on a weekly basis and excluding distributions. Net inflows totaled $20.126 billion for all of 2003.

The latest week's cash infusion also marked the 12th consecutive week of inflows, and the 17th week in the last 18 in which more money came into the junk funds than left them, according to the Prospect News analysis. During that spectacular, virtually unbroken chain of inflows since the week ended Sept. 24, a total net inflow of $5 billion has been recorded.

Even though the mutual funds comprise only a part of the funds in the total high yield market - other sources of money include insurance companies, pension funds, endowments and retail investors - analysts, traders and investors see the weekly fund flow numbers as a reliable barometer of overall junk market liquidity trends.

Surging liquidity is credited as the catalyst for the strong secondary market and active primary sphere seen in 2003, both of which apparently have carried over to 2004. The primary market in particular continues to do business at a nearly unbelievable pace; by the end of Thursday's session $9.5 billion of new dollar-denominated, junk-rated bonds had priced in 35 deals since Jan. 2.

United Rentals unfurls $1.375 billion

While just one deal priced Thursday in the hard-charging high-yield primary market, a handful of new offerings were fed into the pipeline.

Also a leviathan breached the surface of the swelling junk bond sea, as United Rentals, Inc. announced plans to sell $1.375 billion by the end of the week.

That mega-deal from the Greenwich, Conn.-based equipment rental company was the big story of the day.

For the company's $1 billion of eight-year senior notes (expected ratings B1/BB-), price talk is 6 3/8%-6½% and for its $375 million of 10-year senior subordinated notes (expected ratings B2/B+) price talk is 7%-7 1/8%.

Credit Suisse First Boston, Banc of America Securities, Citigroup and JP Morgan are joint bookrunners on United Rentals' debt refinancing deal.

In a Thursday press release the company specified that the closing of the new senior notes offering but not the senior subordinated notes offering is conditioned on company obtaining a new credit facility and completing its tender for at least $516 million of outstanding 10¾% senior notes due 2008.

Casella completes day's sole issue

Meanwhile one deal priced during Thursday's session.

Casella Waste Systems Inc. priced a $45 million add-on to its 9¾% senior subordinated notes due Feb. 1, 2013 (B3/B) at 113.50, resulting in a 6.914% yield to worst.

The sale generated $51.1 million of proceeds.

Goldman Sachs & Co. ran the books.

The deal from the Rutland, Vt. disposal and recycling services company priced at the rich end of the 113.25-113.50 price talk.

The original $150 million priced at par on Jan. 21, so Casella completed Thursday's transaction with an interest rate that is 284 basis points lower than the print on the original notes.

Five deals hit the road

In addition to the news of the United Rentals quick-to-market deal, Thursday's session also produced news of several roadshow starts.

The roadshow starts Tuesday for Inverness Medical Innovations's $150 million of eight-year senior subordinated notes, which are expected to price on Feb. 5.

UBS Investment Bank and Merrill Lynch & Co. will run the books for the deal from the Waltham, Mass.-based company, which manufactures and markets diagnostic products for the over-the-counter women's test market and professional diagnostic market.

Also, the roadshow is set to begin Friday for Nectar Merger Corp.'s $150 million of 10-year senior subordinated notes (B3/B-), expected to price on Feb. 2.

Credit Suisse First Boston and UBS Investment Bank will run the books on the deal, proceeds from which will to help fund the acquisition of FTD, Inc. by Leonard Green & Partners, LP.

The roadshow runs Jan. 23-Feb. 6 for Town Sports International Holding Inc.'s $125 million proceeds of 10-year senior discount notes (Caa2) via Deutsche Bank Securities.

The New York City health club owner-operator will use the proceeds to redeem preferred stock and pay a $70 million special dividend to shareholders.

And Advanced Accessory Holdings Corp. launched an offering of $60 million proceeds of seven-year senior discount notes (Caa1/CCC+), which are expected to price early in the Jan. 26 week.

Bear Stearns & Co. is the bookrunner on the offering from the Sterling Heights, Mich. manufacturer of exterior automotive accessories.

Finally, the roadshow starts Wednesday for Schefenacker AG's €175 million of 10-year senior subordinated notes.

Citigroup will run the books for the refinancing deal from the Esslingen, Germany auto parts company.

New issues mostly steady in trading

The new Casella Waste Systems Inc. 9¾% add-on notes due 2013 were quoted at 113.5, their issue level and the level around which the existing bonds had been trading.

Also on the new-deal front, both issues of the new Allied Waste Industries Inc. bonds "didn't really go anywhere," a trader said. The 5¾% senior notes due 2011 and 6 1/8% seniors due 2014, which had priced at par on Wednesday, then moved briefly up to around 100.25 bid but ended the session back at par, once again moved up to around 100.25 bid, 100.5 offered, but stayed there this time.

MailWell Inc.'s new 7 7/8% senior subordinated notes due 2013, which had also priced at par on Wednesday, firmed to 101.25 bid, 101.75 offered Thursday.

NRG Energy Inc.'s new add-on 8% senior secured second priority notes due 2013, which priced at 106 on Wednesday, moved up to 106.75. And Portola Packaging Inc.'s new 8 ¼% senior notes due 2012, which priced at par on Tuesday and then shot up to 104 in initial dealings, continued to hover around that lofty level.

AirGate, Alamosa, Dobson better

Back among the existing issues, a market source said that wireless names had been moving around, and cited speculation that there would be consolidation in the overcrowded industry, now that one major player - Number-3 U.S. wireless carrier AT&T Wireless Services Inc. - has apparently been receiving expressions of interest from rivals such as Number-2 operator Cingular Wireless, Number-5 wireless company and high yield telecom bellwether Nextel Communications Inc. and such foreign-based industry names as Japan's NTT DoCoMo - which already owns 16% of the American company - and U.K.-based Vodafone plc. AT&T Wireless is reportedly drawing up guidelines for an organized comparison of various potential bids.

Among the high yield wireless names, the source quoted AirGate PCS' zero-coupon notes due 2009 as having moved up to 94 bid from 91 previously. Fellow Sprint PCS affiliate Alamosa's 8½% notes due 2012 moved to 101.5 bid from 100.75 previously, the source added. But Triton PCS - an AT&T Wireless affiliate whose B2 bond rating has been put on review for a possible downgrade by Moody's Investors Service , which has concerns about the company's cash generation ability, was lower, its 8¾% notes due 2011 off a quarter point at 108.75.

Dobson Cellular was meanwhile was meanwhile a point better, its 8 7/8% notes due 2013 rising to 107. Nextel's 6 7/8% notes due 2013 were unchanged at 108.5, while Western Wireless's 9¼% notes due 2013 were unchanged at 112.

Nortel up a little

Also in the telecommunications area, news that Canadian telecom equipment maker Nortel Networks Corp. was in talks to sell optical, wireless and enterprise manufacturing assets to Flextronics International Ltd. had little real impact on the bonds of either company.

Nortel's paper was "up a little - nothing crazy, but they are not that active right now," a trader said, quoting its 6 1/8% notes due 2006 at 104.25 bid, and its 6 7/8% notes due 2023 at 100.5 bid, both up half a point on the day, though quietly.

"They should be more active but they don't get a lot of play," he said. "It was really quiet in them - but I would think they would continue to do better."

Flextronics' 6½% notes due 2013 were meantime seen down a quarter point at 104.25.

Airlines gain

A trader saw airline paper "all up," and quoted Delta Airlines's 10 3/8% notes due 2011 up two points at 89 bid, 90 offered, while American Airlines parent AMR Corp.'s 9% notes due 2012 have risen to 90.5 bid, up from recent levels in the 87-88 area, particularly since AMR on Wednesday a fourth-quarter net loss of $111 million (70 cents a share), well below the year-ago red ink of $529 million ($3.39 a share).

And the trader saw Greyhound Lines; 11½% notes smoothly motoring up to 97 bid, 97.5 offered, from 93 bid, 95 earlier in the week.

"Everyone has always said that this was a par bond," he noted, "the pearl of the company [Laidlaw International, which restructured in the bankruptcy courts in the U.S. and Canada last year]. The bonds have been inching up and inching up - and were up again today."

Latin credits highlight emerging markets

In emerging markets action, Thursday, price guidance of 11%-11 ¼% was heard on Industrias Unidas SA de CV (IUSA)'s $175 million of 10-year senior notes (Caa1/B+), which are expected to price during the week of Jan. 26.

Deutsche Bank Securities is the bookrunner for the refinancing deal from the El Salvador, C.A., Mexico-based company.

An emerging markets trader told Prospect News that IUSA may have trouble getting done at the 11%-11¼% level.

"It's a highly leveraged company," the trader said. "They have a lot of short-term debt. The leverage ratio is six to 6½ times, which is pretty high, no matter how high you want to slice it.

"The family that owns this operation is the Peralta family which, in terms of their reputation, is not well liked, just to be blunt about it.

"I think it will be difficult to get off, at least in that yield talk. I think they are going to have to pay up. My opinion is that they're going to have to pay 12½%-12¾%, if not even higher.

"But where is the ceiling - the point at which it is so expensive as to be prohibitive?"

Meanwhile, price talk of a yield in the 8½% area emerged Thursday on Companhia Siderurgica Paulista (Cosipa)'s $150 million of five-year notes (B2/B+), which are expected to price on Friday or Monday.

UBS Investment Bank is the bookrunner for the deal from the Brazilian integrated steel manufacturer.

And Prospect News heard that the roadshow is set to begin Monday in London for Brasil Telecom SA's $200 million of 10-year notes due 2014 (BBB), via Citigroup. A U.S. roadshow will follow.

Incoming cash

The above-quote trader told Prospect News that a torrent of cash presently flowing into the emerging markets asset class has the market trading at extremely tight levels.

"There is just so much money coming in, right now," said the trader.

"You kind of feel like the market is a little bit ahead of itself, especially with C bonds just breaking par. Right now it's trading at 101.25. These are like all-time highs.

"Turkey, the minute they released that new issue it jumped 10 points in two trading sessions.

"The main driver now - which has existed for the past several months - is money flowing into the asset class," the trader reiterated. "On top of that, the first quarter of the new year there are approximately $22 billion in amortizations that are looking to be reinvested into the asset class. They have to go back in somewhere, they have to be reinvested.

"The big focus, in my opinion, will be the new issues and the new issue mandates. And the top brokers, I suppose - JP Morgan, Citigroup, Deutsche Bank, Credit Suisse First Boston and UBS - are the ones that are going to get them."

The trader further noted that the current tight levels in the emerging markets could soon begin to test investors' sense of value.

"There has to be a point at which you say to yourself 'This market is a little irrational - I am going to take my profits, no matter what.'

"That happened in the latter part of last week, coming into this week. For example the Venezuelan bonds due 2027 at one point printed out 95. They are at 90.5, this morning. But they traded down to 88, just this past Tuesday.

"That's a pretty steep drop. But the buyers came back, which is evidence to me that there is money still out there and people are waiting for pullbacks, which they will use as opportunities to buy into the market."

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