Qwest slates three-part mega-deal; secondary softer, though funds see $252 million inflow

By Paul Deckelman and Paul A. Harris

New York, Jan. 29 - Qwest Communications International unveiled plans for a three-part $1.75 billion offering of new bonds that is expected to price during Friday's session. Assuming things unfold the way the Denver-based telecommunications operator envisions, that would be the second billion-dollar-plus mega-deal so far this year, following United Rentals Inc.'s $1.375 billion two-parter last week, and it would be the largest so far this year. Indeed, it would be the biggest bond deal since EchoStar DBS sold $2.5 billion of new paper back on Sept. 18.

The impending Qwest deal dominated primary market activity, completely overshadowing the offerings which were heard to have actually priced during the session, a trio of relatively small offerings for Carmike Cinemas Inc., Thermadyne Holdings Corp. and Advanced Accessory Holdings Corp.

Secondary market activity was mostly to the downside, traders said, with profit-taking on some of the names that had recently staged strong run-ups, and the appearance of a large bids-wanted list.

Helping lead the retreat was Tenet Healthcare Corp., whose bonds had fallen on Wednesday after the troubled Santa Barbara, Calif.-based hospital operator announced plans to unload more than a quarter of its hospitals and take a $1.4 billion asset impairment charge, and continued to backtrack on Thursday.

However, a trader suggested that the market might be able to bounce back, helped by after-the-close numbers released by Nortel Networks Corp., as well as by the latest weekly junk bond mutual fund number.

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 $251.87 million in the week ended Wednesday. That follows a $219.96 million inflow seen in the week ended Jan. 21.

Inflows have now been seen in all four weeks since the start of the new year, for a cumulative 2004 total of $1.375 billion - up from the previous week's $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 13th consecutive week of inflows, and the 18th week in the last 19 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 $5.252 billion has been recorded.

Even though the mutual funds comprise only 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 very brisk business; by the end of Thursday's session, $13.5 billion total of new dollar-denominated, junk-rated bonds had priced in 51 deals since Jan. 2.

And although the junk bond market continued to ease on Thursday - and softened as the day wore on, according to one source - primary market activity carried on at a moderate pace.

Three transactions were completed for a total of just over $375 million of proceeds, while one deal was postponed.

Qwest comes with $1.75 billion

Thursday's big story began to materialize mid-to-late morning as word spread through the primary market that Qwest Communications International Inc. plans to sell $1.75 billion in three tranches of notes (CCC+).

An investor conference call took place on Thursday afternoon and the deal is expected to price on Friday afternoon.

Banc of America Securities is the bookrunner on the left for all three of the Rule 144A tranches.

The Denver-based telephone company plans to sell $750 million of senior notes due 2011, non-callable for four years. Price talk is 7%-7¼%.

Additional bookrunners include Credit Suisse First Boston, Deutsche Bank Securities and Goldman Sachs & Co.

The company also plans to sell $750 million of senior notes due 2014, non-callable for five years. The price talk 7¼%-7½%

Additional bookrunners include JP Morgan, Lehman Brothers and Merrill Lynch & Co.

In addition to the two fixed rate tranches, Qwest Communications International plans to sell $250 million of floating rate notes due 2009, non-callable for two years. The price talk is for the Libor plus 325 basis points area.

Additional bookrunners include JP Morgan, Morgan Stanley Dean Witter and UBS Investment Bank.

The notes will be guaranteed on a senior subordinated basis by Qwest Services Corp.

As price talk on the three tranches circulated, one buy-side source, speaking on background, said: "Qwest in not a healthy company by a long shot and it's going to be interesting to see how that goes, especially given these levels.

"My guess is that it probably can get done."

Carmike, Thermadyne, Advanced Accessories sell

Three transactions priced Thursday.

Columbus, Ga.-based Carmike Cinemas, Inc. sold $150 million of 7½% 10-year senior subordinated notes (Caa1/CCC+) at 99.130, to yield 7 5/8%.

The Goldman Sachs & Co.-led offering came at the wide end of the 7 3/8%-7 5/8% price talk.

St. Louis welding and cutting accessories company Thermadyne Holdings Corp. priced an upsized $175 million of 10-year senior subordinated notes (Caa1/B-) at par to yield 9¼%.

The Credit Suisse First Boston deal was increased from $165 million and came wide of the 9% area price talk.

And Advanced Accessory Holdings Corp. sold $88 million of senior discount notes due Dec. 15, 2011 (Caa1/CCC+) at 57.128 to yield 13¼%.

The sale generated $50.27 million of proceeds, decreased from $60 million.

Bear Stearns & Co. ran the books on the Rule 144A deal for the Sterling Heights, Mich. manufacturer of rack and towing systems for the automotive original equipment and aftermarket.

Keystone postpones

Meanwhile Keystone Automotive Holdings, Inc. postponed its offering of $75 million proceeds of seven-year senior discount notes.

The company, which according to sources did not cite a reason for the postponement, did not return a telephone call from Prospect News.

Banc of America Securities had been the designated bookrunner for the Rule 144A offering.

The Exeter, Pa.-based distributor of aftermarket automotive parts and accessories intended to use the proceeds to fund a dividend to equity holders.

"I think investors may be backing off a little," commented one sell-side official who spoke to Prospect News just before lunch time.

"There is a lot of junk coming into the market right now," the source added. "When you take an equity-like risk, and you get a 7½% coupon, that's not all that great for companies that are rated triple-C.

"And this may be the only time I've ever seen so many triple-C deals at once."

Phillip-Van Heusen rolls up sleeves

Aside from Qwest only one other offering came into view on Thursday.

Phillips-Van Heusen Corp. announced in a Thursday press release that it intends to sell $150 million of new notes.

Credit Suisse First Boston will run the books for the offering from the New York City-based apparel company that is expected to price in early February 2004.

And price talk of 7¾%-8% emerged Thursday on Nectar Merger Corp.'s $150 million of 10-year notes (B3/B-), expected to price Friday afternoon via Credit Suisse First Boston and UBS Investment Bank.

Old Qwest bonds down

Market talk that Qwest was going to bring a big new bond issue had helped push the company's bonds down half a point to a point on Wednesday, and official confirmation in the form of the company's announcement helped to drop them further on Thursday.

A trader quoted Qwest's operating company 13% notes dipping to 116.25 bid, 117.25 offered, from 117.25 bid, 118 offered on Wednesday. Its 13½% notes went down to 118 bid, 119 offered from 120.25 bid, 121 offered; and its 14% notes declined to 124 bid, 125 offered from Wednesday levels around 127 bid, 128 offered.

Another trader saw Qwest's US West operating company 8 7/8% notes due 2012 half a point lower on the session at 115.75 bid, 116.75 offered, while its 6 7/8% bonds due 2033 closed at 94.25 bid, 96.25 offered, down from Wednesday's 96 bid, 97 offered.

Qwest Capital Funding's 7¼% notes due 2011 were meanwhile pegged at 93.25 bid, down as much as three points on the session.

Tenet weakens more

Elsewhere, Tenet continued to weaken in the wake of Wednesday's declaration that it would seek to sell 27 of its nearly 100 hospitals - a move which was seen by some analysts, traders and others as a management admission of its inability to make a profit on those facilities. Tenet's announcement that it would also take a $1.4 billion asset impairment charge and that 2004 earnings would be no better than breakeven prompted Standard & Poor's to drop its senior bond ratings to B+ from BB- and warn that another downgrade was possible. On Thursday, Moody's Investors Service chimed in with a similar warning, putting Tenet's B1 senior debt rating on review for a possible downgrade.

Tenet's bonds, which had fallen on Wednesday, continued falling on Thursday, with one market observer quoting its 6 3/8% notes due 2011 at 91 bid, down from 92.75 on Wednesday, while its 7 3/8% notes due 2013 were seen down two points at 94.75 bid.

A trader saw Tenet's 5 3/8% notes due 2006 off a point at 95 bid, 96 offered, while quoting the 7 3/8s as dropping to 95.5 bid, 96.5 offered from prior levels around 97, "so the longer stuff got whipped."

Another trader said that Tenet "had another rough day - but people like this level."

He quoted Tenet's 6 3/8% notes due 2031 has having fallen a point to around 83 bid, 85 offered, while the 7 3/8s were down a point-and-a-half at 94 bid, 95 offered, while its 6½% notes due 2012 went down to 90 bid, 91 offered from 91.5 bid, 93 offered on Wednesday, and its 5% notes due 2007 were essentially unchanged at 92 bid, 93 offered.

"Looks like the shorter end of the curve is pretty much holding up," he said, noting that "there was good two-way flow" in the credit.

Big bid-wanted list

That trader characterized the overall market as "definitely lower, noting that early in the session, "a huge bid [wanted] list was circulating around, a lot of short maturities, a lot of different names."

However, he added that he didn't know how much of that that bid list actually traded. He speculated that the bid list was "from a CBO liquidation. But I don't know how much traded, I talked to different people, and they didn't buy that many names" off the list.

"Maybe they didn't like the bids, maybe they were just testing the water - or maybe they wanted to buy some stuff and they just put the list out to get everybody in a selling mood. Who knows?"

Having a big list of names being offered for sale like that "got the market started on the defensive. Then they came in and announced the Qwest deal. Then the bids started flowing in, and the market came up off the bottom."

He suggested that the strong earnings reported late in the session by Nortel Networks would give the junk market a boost on Friday, as would the news of the latest weekly inflow to the junk funds, a measure of overall market liquidity.

Ontario-based telecom equipment maker Nortel reported fourth quarter net income of $499 million (11 cents a share), better than Wall Street was looking for and in sharp contrast to its year-earlier net loss of $168 million (four cents a share).

Its revenue climbed 12% from a year ago and 25% form the third quarter, paced by a 33% increase in its wireless-networks segment.

The trader quoted Nortel's 6 1/8% notes due 2006 up a point on the session at 104.25 bid, 104.75 offered.

Dynegy eases on earnings

Also on the earnings front, Dynegy Inc. reported a fourth-quarter loss of $226 million (62 cents a share), versus $278 million (98 cents a share) a year earlier. On an operating loss basis, and excluding special items, the Houston-based energy company lost $178 million (seven cents a share), less than the 13 cent loss analysts had been expecting. The company attributed the narrowed loss to the success of its restructuring efforts, including debt-reduction initiatives.

However, its estimate of 2004 operating cash flow in the $180 million to $215 million range was below market estimates, with analysts calling the projections weak and generally disappointing.

Dynegy's 8 1/8% notes due 2005 were seen a point down at 101, while its 6 7/8% notes due 2011 dropped all the way to 91.5 bid from prior levels at 95. Its 8¾% notes due 2012 were three points lower at 101.

PGN gasses up for Monday

News of one new emerging markets corporate deal was heard Thursday.

The roadshow starts Monday in Hong Kong for PGN Euro Finance's $150 million of notes due 2014 (B2/B), according to market sources.

Credit Suisse First Boston will run the books on the Rule 144A/Regulation S offering from the Indonesian natural gas company.

And one emerging markets source told Prospect News that the asset class was hammered, in Thursday trading.

Quite likely the negative momentum derived from the anticipation on the part of investors that the Federal Reserve is beginning to clear its way toward an interest rate increase that does not seem as far off as it did before the Federal Open Market Committee met earlier in the week.

"It was an ugly day in emerging markets," the source commented. "High yield wasn't that bad, but emerging markets was real bad."

Asked for levels, the source told Prospect News that Brazil, Columbia and Turkey were each down three to four points.

"Peru was down three points, Mexico down a point, the Philippines down two points, Russia down a point-and-a-half, and Venezuela down one to two points.

"All the Brazilian corporates were down three to four points," the source added. "Ecuador held up well."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.