Upsized Isle of Capri, downsized AMC Entertainment price; funds see $227 million inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 19 - Isle of Capri Casinos Inc. was heard by high yield syndicate sources to have priced a solidly upsized offering of 10-year notes Thursday, setting the pace for another busy day in the junk bond primary sphere. AMC Entertainment Inc. was supposed to have sold $550 million of new 10-years, but ended up sharply downsizing the issue. Others bringing deals to market during Thursday's session included AMF Bowling Worldwide Inc., Chattem Inc., Jo-Ann Stores Inc. and, from the emerging markets area, Construtora Noberto Odebrecht SA.

Secondary dealings took a backseat to the new-deal arena; names which moved lower included Qwest Communications International Inc., following the Denver-based telecommunications company's latest quarterly results, which included a sizable loss for the fourth-quarter; and Goodyear Tire & Rubber Co., whose bonds were easier in the wake of a ratings downgrade by Moody's investors Service.

Late in the session, after trading had wound down for the day, market participants familiar with the weekly fund flow statistics compiled by AMG Data Services of Arcata, Calif. reported that in the week ended Wednesday $227.4 million more came into the high yield funds than left them. It was the first inflow seen after two straight weeks of outflows in the billion-dollar-plus range, during which time the funds hemorrhaged some $2.607 billion, according to a Prospect News analysis of the numbers, including the $1.039 billion outflow seen in the week ended Feb. 11.

Net inflows have now been seen in five weeks out of the seven since the start of the year, but thanks to the huge outflows seen in each of the previous two weeks the flow number for 2004 so far is negative at $1.005 billion. But that is a little reduced from last week's $1.232 billion, the peak cumulative loss for the year so far. The fund flow numbers include only those funds which report on a weekly basis and do not include distributions. In 2003, net inflows totaled a staggering $20.126 billion.

Even though mutual funds make up only part of the money invested in the high yield universe - other sources include insurance companies, pension funds, endowments and retail investors - their behavior is considered to be a reliable gauge of overall junk market liquidity trends. The two weeks of outflows were essentially foretold by two straight weeks in which secondary market performance, as measured by indexes compiled by major investment houses, was in the red, although in the most recent week, the indexes returned to positive, signaling that an inflow number was possible.

Funds bleeding stemmed

"People on the originations desk were expecting another outflow," one sell-side official said late Thursday.

"But the trading guys and the guys on the syndicate desk were anticipating either a slight outflow or a slightly positive inflow. I would say that what we got was in line with that expectation."

Another sell-side official, asked if the reversal possibly betrays activity among investors who are inclined to try to time the high-yield market, was pretty noncommittal.

"It seems to come in and out pretty quickly," the sell-sider allowed.

"The outflows didn't seem to hurt anything, really. In fact, to the extent that they might have succeeded in weeding out some bad credits, you could even see them as a good thing.

"In any case I am not looking for a sustained series of outflows at the present time. Where else are you going to put your money? There has been a shortage of new high-grade paper and even if you get it you don't get any yield."

Other sources said Thursday that while the news of the outflows had possibly cost some issuers some added interest expense, the net impact that they had upon the primary market seemed to largely be negligible.

Even with the two mega-outflows last week and the week before, cash remains plentiful and ready to be put to work - and put to work it was on Wednesday, as a slew of new deals priced.

They came upsized and downsized, roadshowed and quick-to-market, tight to talk and wide of talk. All in all, the high-yield primary cranked out half a dozen tranches on Thursday for a total of $1.25 billion.

Isle of Capri upsizes, AMC downsizes

One and a quarter billion of notes sold Thursday in the primary market.

Leading the pack, in terms of amount issued, was Biloxi, Miss. gaming firm Isle of Capri Casinos which priced an upsized $500 million of 10-year senior subordinated notes (B2/B) at par to yield 7%.

Although upsized from $325 million, the offering priced at the wide end of the 6¾%-7% price talk. Deutsche Bank Securities and CIBC World Markets ran the books on the refinancing deal.

AMC Entertainment, meanwhile, substantially downsized its quick-to-market offering of 10-year senior subordinated notes (Caa1/CCC+). The Kansas City, Mo.-based movie theater owner-operator ended up selling $300 million, down from the announced $550 million.

The notes priced at par to yield 8%, wide of the 7¾% area price talk.

Citigroup ran the books on the debt refinancing deal.

3 deals price after roadshows

Elsewhere, three issuers priced four tranches of notes, all of which had been marketed via roadshows.

Chattem Inc. sold $200 million of bonds in fixed- and floating-rate tranches on Thursday via Banc of America Securities and Morgan Stanley Dean Witter.

The Chattanooga, Tenn. manufacturer of health and beauty care products sold $125 million of 10-year fixed-rate senior subordinated notes (B2/B-) at par to yield 7%. Price talk was for a yield of 7%-7¼%.

Chattem also sold $75 million of six-year senior floating-rate notes (Ba3/B+) at par, with an interest rate of three-month Libor plus 300 basis points. Price talk was Libor plus 300-325 basis points.

Chattem will also use its proceeds to refinance debt.

Meanwhile AMF Bowling Worldwide Inc. sold $150 million of six-year senior subordinated notes (B3/CCC+) at par to yield 10%.

The Richmond, Va. bowling company's LBO deal came at the wide end of the 9¾%-10% price talk, with Merrill Lynch & Co. and Credit Suisse First Boston running the books.

And Jo-Ann Stores, Inc. sold $100 million of eight-year senior subordinated notes (B2/B-) at par to yield 7½%.

Merrill Lynch & Co. ran the books for the Hudson, Ohio-based fabric and craft retailer's issue which came tight to the 7½%-7¾% price talk.

More gaming paper

With Isle of Capri Casinos already in the market with a drive-by deal that priced on Thursday, Las Vegas entertainment, gaming and lodging company MGM Mirage appeared bright and early in the session with a $225 million 10-year offer (Ba1/BB+) that some observers had expected to price by the close of the session.

In any case the price talk is for a yield in the 5 7/8% area, and the deal is now expected to price on Friday, with Merrill Lynch & Co., Banc of America Securities, Citigroup and Deutsche Bank Securities running the books.

Proceeds will be used to repay bank debt and for general corporate purposes.

Knology, Gold Kist announce roadshows

The new issue pipeline continued to take aboard freight on Thursday as news of three new offerings circulated.

The roadshow starts Monday for Knology, Inc.'s $280 million of senior notes due 2014 (Caa2/CCC-). UBS Investment Bank and Morgan Stanley Dean Witter are joint bookrunners on the refinancing deal from the West Point, Ga. provider of interactive communications and entertainment services in the Southeast.

A roadshow will also start Monday for Gold Kist Inc.'s $200 million of 10-year senior notes (B2), which are expected to price during the week of March 1 via Credit Suisse First Boston.

The Atlanta-based chicken processor will also use proceeds to refinance debt.

And a European roadshow is set to begin early in the week of Feb. 23 for Softbank Corp.'s €350 million or more (equivalent to ¥48 billion or more) of seven-year senior notes, via Deutsche Bank AG London.

The Tokyo-based Internet company incubator's deal is also a debt refinancing offering.

Isle of Capri firms in trading

When the new Isle of Capri 7% notes due 2014 were freed for secondary dealings, they were heard to have firmed slightly to around 100.375 bid, 100.75 offered from their par issue price earlier in the session.

The considerably smaller Chattem deal did better once it freed up, with the 7% senior notes due 2014 and the floating-rate notes due 2010 both pushing as high as 101.5 bid from their respective par issue prices earlier in the session. However, a trader said that the 7% notes backed off their highs, to end the session at a more modest 100.5 bid, 101.75 offered. He saw no late markets in the floating-rate notes.

Elsewhere on the new issue front, Russel Metals Inc.'s 6 3/8% notes due 2014 were quoted at 101.75 bid, 102.5 offered, up from their par issue price last Friday, while Rogers Wireless Communications Inc.'s 6 3/8% senior secured notes due 2014 were at 101.25 bid, 101.75 offered, up from their par issue price on Tuesday.

Qwest slips

Among the established issues, trading was generally featureless, although certain names were seen moving in tandem with news developments.

Qwest's bonds were "off a little bit," a market source said, quoting its 7¼% notes due 2007 as having dipped to 94 bid from 96.5 on Wednesday. Its 7% notes due 2009 were two points lower at 91, while its 7¼% notes due 2011 eased to 96.25 bid from 98 previously.

Qwest reported a fourth-quarter loss of $307 million (17 cents per share), a sharp turnaround from its year-earlier profit of $2.7 billion ($1.61 per share), although it should be noted that the year-earlier total was inflated by revenues from the sale of Qwest's phone directory unit.

In the latest quarter, Qwest blamed competition from wireless and local phone service providers.

Analysts had been looking for a loss of about eight cents per share.

Charter down on earnings

Also reporting results on Thursday was Charter Communications Inc., which reported a sharply narrowed loss of $58 million, or 20 cents per share, during the three months ended Dec. 31, versus $1.87 billion of red ink ($6.36 a share) a year ago. Analysts had been looking for a loss of 42 cents per share.

The St. Louis-based cable television systems operator's fourth-quarter revenues rose 2% to $1.22 billion from $1.19 billion a year earlier, as high-speed data revenues zoomed by 47%.

Despite the solidly better numbers, Charter's shares lost 47cents or nearly 10% of their value to end at $4.40 on Nasdaq trading of 21.5 million shares, over four times the norm.

On the bond side of the ledger, Charter's benchmark 8 5/8% notes due 2009 were seen a point easier at 84.5 bid, while its 8¼% notes were half a point down, at 93.

At another desk, however, a trader saw Charter's debt largely unchanged, quoting its 10% notes due 2009 steady at 89.25 bid, 90.25 offered and its 10 ¾% notes at 90.5 bid, 91.5 offered.

Dobson falls again

Dobson Communications Co.'s bonds, which had fallen sharply on Wednesday in response to poor earnings and negative guidance, "were still getting hit," one observer said, quoting the Oklahoma City-based cable operator's 8 7/8% notes due 2013 as having dropped back to 90 bid from prior levels at 94. Its 10 7/8% notes due 2010 were seen a point lower at 103.5.

Outside of earnings related activity, Goodyear Tire & Rubber's 7 7/8% notes due 2011 were seen down three points at 84 bid; Moody's cut most of the Akron, Ohio-based tiremaker's ratings, including its senior unsecured bond rating, which went to B3 from B2; the cut reflected the greater subordination of much of Goodyear's existing debt to its planned $650 million of new secured debt, which will have a senior position in the company's capital structure.

Odebrecht prices in emerging markets

Terms emerged Wednesday on the emerging markets corporate deal from Construtora Norberto Odebrecht SA.

The Brazilian-based construction firm sold $150 million of 11½% five-year bonds (B+) at 99.075 to yield 11¾%.

Price talk on the Credit Suisse First Boston-led deal was 99.075.

Emerging markets take a samba break

A senior sell-side official who spoke to Prospect News on Thursday said that the next few days figure to be quiet ones.

"Our market has still been pretty choppy," said the sell-sider. "It has been pretty volatile and has had a generally weak tone.

"On top of that you have Carnaval in Brazil which tends to market the market even quieter. Most people there don't work for a week heading up to it."

The official also said that nothing appears imminent with regard to the $300 million five-year notes offering (Baa3//BB+) from the Industrial Development Bank of India (IDBI), via JP Morgan and Citigroup.

"That's a Reg S only deal," said the official.

"There's no price talk on it yet. I think they are waiting for all of their domestic approvals to be in place before there is price talk on it, because the domestic approval process determines the timing.

"I think that one will come next week."

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