iPCS prices downsized issue; Playtex, Lyondell gain on earnings; funds see $426 million outflow

By Paul Deckelman and Paul A. Harris

New York, April 22 - iPCS Inc. was heard by high yield syndicate sources to have sold a downsized issue of eight-year notes Thursday. Also pricing were a tranche of 10-year discount notes from Mueller Group, as well as a small add-on offering from AmeriGas.

In secondary dealings, bonds of Playtex Products Inc. and Lyondell Chemical Co. firmed after those companies reported better quarterly earnings. But little movement was seen in the bonds of Nextel Communications Inc. even though the Reston, Va.-based wireless telecommunications operator reported stellar results Thursday.

Late in the session, market participants familiar with the weekly high-yield mutual fund-flow statistics compiled by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday $425.8 million more had left the funds than had come into them.

It was the second consecutive week in which an outflow had been seen, although the previous week's $17 million drop in the funds was almost not worth talking about.

Inflows and outflows are evenly balanced chronologically, with eight weeks of each since the start of the year. But the overall year-to-date trend is decidedly negative, as strong gains recorded in the first four weeks of the year were more than offset by two straight weeks of billion-dollar-plus outflows in February and a choppy pattern since then - inflows for a week or two, followed by outflows, then again by inflows, and so on. In the latest week, the cumulative net outflow ballooned to $1.964 billion from $1.538 billion the previous week, according to a Prospect News analysis of the AMG numbers, counting only those funds which report on a weekly basis and not including distributions.

There has been a total cumulative net outflow of $3.33 billion in the 12 weeks since the large outflows began in the week ended Feb. 4, according to the Prospect News analysis.

Junk players watch the weekly AMG numbers as a reliable barometer of overall junk market liquidity trends, even though the funds make up only part of the money coming into the wider junk market universe. Since the AMG numbers began heading south in early February, secondary market performance, as gauged by indexes published by the major investment houses, has been uneven at best, generally zig-zagging up and down more or less in tandem with the fund flows.

However, high yield primary activity seems to have continued along pretty much unaffected by the weekly ups and downs, as investors look to put all of the accumulated cash they have to work and issuers look to borrow as much money as they can while interest rates remain at historically low levels. The result has been a busy, constantly growing calendar, and some pretty big deals. However, the pace seems to have calmed down markedly in the primary ever since Charter Communications Inc. brought its $1.5 billion two-part offering to market earlier in the week.

The news did not seem to catch market observers off guard. In fact, throughout the seven-day period several sources from both the buy- and sell-sides had forecast a substantial outflow for the period.

Deals not flying out the door

"The way the market has been throughout the week it was pretty clear that there was going to be an outflow," one sell-side official commented after the number circulated late Thursday.

"Things haven't really been flying out the door," the source added.

"For the first time after weeks you had deals this week that priced outside of talk."

The source was referring, in part, to the only one of Thursday's deals to have priced after being marketed on a roadshow.

Sprint PCS affiliate iPCS Inc. priced a downsized issue of $165 million of eight-year senior notes (B3/CCC) at par to yield 11½%, smaller than the planned $180 million and well wide of the 10¾% area price talk. Credit Suisse First Boston and Bear Stearns & Co. were running the books.

The company sold the bonds to refinance senior secured debt as the company exits from Chapter 11.

However, according to the sell-sider, iPCS was not alone among the week's deals in pricing wide of price talk.

On Tuesday Curative Health Services, Inc. sold $185 million of seven-year senior notes (B3/B-) at par to yield 10¾%, wide of the 9¾%-10% price talk.

Also on Tuesday, Premcor Refining Group Inc. priced a restructured two-part $400 million issue of senior notes (Ba3/BB-). One of the tranches, a downsized $200 million issue of 10-year notes, priced at par to yield 6¾%, reduced from $250 million and wide of the 6 3/8% area price talk, which had been revised from 6%-6¼%.

Mueller Group, AmeriGas sell drive-bys

Aside from the iPCS deal, the remainder of Thursday's business was of the quick-to-market variety.

The Mueller Group Inc. sold $223 million of units comprised of 10-year senior discount notes with warrants for 10% of the company at 49.36 to yield 14¾%, in a sale that generated $110 million of proceeds for the Decatur, Ill.-based producer of flow control products.

Credit Suisse First Boston ran the books on the dividend payment deal.

On April 8, a fortnight ago, The Mueller Group priced $415 million of junk in two tranches.

Also on Thursday, AmeriGas Partners LP in conjunction with AP Eagle Finance Corp. priced a $28 million add-on to its 8 7/8% senior notes due May 20, 2011 (B2/BB-) at 109.375. The pricing resulted in a 7.15% yield to maturity and a 6.024% yield to worst.

Credit Suisse First Boston also ran the books for the deal from the Valley Forge, Pa. propane marketer.

The original $200 million issue priced on Aug. 16, 2001. The company also priced a $40 million add-on on May 3, 2002, an $88 million add-on on Nov. 22, 2002 and a $32 million add-on on April 11, 2003.

Pipeline continues to build

News of two new deals circulated on Thursday.

Wise Metals Group LLC and Wise Alloys Finance Corp. will run an April 23-30 roadshow for $150 million of eight-year senior secured notes (B), via Deutsche Bank Securities and Wachovia Securities.

The Linthicum, Md.-based producer of aluminum beverage can stock will use the proceeds to repay debt.

And London-based global satellite communications services company Inmarsat Finance plc plans to price a $105 million add-on to its 7 5/8% senior notes due June 30, 2012 (B2/B) on Friday via Credit Suisse First Boston.

No price talk had been heard as Prospect News was going to press, according to market sources. Proceeds from the deal will be used to fund a dividend payment.

Inmarsat's original $375 million issue priced at par on Jan. 27, 2004.

Elsewhere details were heard on several widely anticipated deals.

French specialty chemical manufacturer Rhodia will start its roadshow Friday in Frankfurt and Paris for a €625 million equivalent offering of six-year senior notes (expected ratings B3/B-).

The roadshow moves to London on Monday and Tuesday. Global launch is expected to take place during the week of May 3.

The notes will be sold in dollar and euro tranches, with tranche sizes to be determined.

Credit Suisse First Boston, BNP Paribas and Goldman Sachs & Co. are joint bookrunners for the company's debt refinancing deal.

Meanwhile the roadshow starts Monday for LaBranche & Co. Inc.'s $460 million of senior notes due 2009 and 2012, with pricing expected in the middle of the week of May 3.

Credit Suisse First Boston will run the books for the New York City-based financial specialist firm's debt refinancing deal.

And finally, the roadshow starts Tuesday for Cirsa Finance Luxembourg SA's €260 million of 10-year senior notes (Ba3/B+) via Deutsche Bank Securities.

The Spanish leisure and gaming company will use the proceeds to repay debt and to fund gaming investments.

Playtex up on earnings

Traders did not see any of the deals which priced on Thursday having broken into secondary by the time trading wrapped up for the day. Instead, players seemed focused on earnings, and that pushed the bonds of some companies up solidly.

For instance, Playtex's 9 3/8% notes due 2011 were seen up as much as three points on the session at nearly par bid, while its 8% notes due 2011 were two points better at 105.5 bid.

The Westport, Conn.-based maker of consumer products reported first-quarter net earnings of $8.4 million (14 cents per share), including a non-cash write-off of deferred financing costs associated with retired debt of $6.9 million (seven cents per share). While that is down from $11.4 million (19 cents per share) a year ago, investors noted that operating earnings for the quarter were $37 million - up 16% from the year ago level of $31.8 million.

Also helping the bonds were net sales figures of $196 million in the first quarter, up 8% from the prior year results of $180.9 million.

Playtex pronounced the first quarter "an excellent quarter."

Lyondell gains on smaller loss

Also having a better quarter was Houston-based chemicals maker Lyondell, posted a net loss of $15 million (8 cents a share) - less than the 22 cents a share red ink Wall Street was looking for and well under the year-ago loss of $113 million (70 cents a share).

On its conference call, the Number-Three U.S. chemicals maker forecast better times ahead for the U.S. chemicals industry.

Lyondell bondholders apparently also believe that better days lie ahead. The company's 9 5/8% notes due 2007 were seen a point better at 105.25 bid, 105.75 offered, while its 10 7/8% notes due 2009 were two points ahead, at 103 bid, 104 offered.

"I guess [bondholders felt] the results weren't so bad," a trader observed.

At another desk, a market source pegged Lyondell's 11 1/8% notes due 2010 up a point at 110; its 9½% notes due 2008 likewise a point better at 103.5 bid; and the 10 7/8% notes as having moved up to 103.25 from 101.

Nextel unchanged

However, higher earnings did not automatically guarantee higher bond prices; traders saw Nextel Communications notes pretty much unchanged, with gains apparently priced in ahead of its release of first-quarter earnings.

Nextel posted net income of $591 million in the quarter ended March 31, or 53 cents per share, a 184% jump from its year-earlier profit of $208 million (21 cents per share). Wall Street was expecting about 44 cents per share of earnings. The company said Nextel was "well on our way" toward meeting its 2004 earnings per share projection of $2 or more.

It said that operating income before depreciation and amortization was up 33%, to a company record $1.2 billion from $906 million a year ago, while free cash flow was $507 million, "our best-ever quarter of free cash flow," Nextel's president and chief executive officer, Timothy Donahue exclaimed on the conference call it held after releasing its results. The cash-flow number was up 152% from $201 million a year ago. Encouraged by its results, Nextel raised its cash-flow and net-new subscriber estimates for the year (see related story elsewhere in this issue).

But the company's bonds seemed little changed, with Nextel's 9 3/8% notes due 2009 pegged at 108.25 bid and its 9½% notes due 2011 at 114.

A trader did see Nextel's recently issued 5.95% notes due 2014 at 96.5 bid, 97.5 offered, up from 95 bid, 95.75 offered previously, "so those were up," while the more established bonds were essentially unchanged across the board.

Level 3 off again

On the downside, Level 3 Communications Inc.'s "remained sloppy," a trader said, with its 9 1/8% notes due 2008 down another half point to 76 bid, 77 offered. The Broomfield, Colo.-based telecom fiber optic network operator's bonds have fallen about five to six points in the last week, despite a lack of negative news.

The trader speculated that investors might be getting jittery about the company in the wake of potential competitor MCI Corp.'s emergence from Chapter 11 this week.

He meanwhile quoted MCI's new three-year notes at 100.125 bid, 100.375 offered; its new seven-year notes at 99.5 bid, par offered; and its new 10-year notes at 99.25 bid, 99.75 offered.

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