$980 million of new deals; Levi better on Dockers sale hopes; $29 million funds outflow

By Paul A. Harris

St. Louis, Aug. 5 - The junk bond market appeared to plow forward with some degree of purpose during the Thursday session, which saw the primary market complete just under a billion of business.

However late in the session sources were seeing clouds on the horizon, even as a phenomenal gush of deals appears to be clearing the market as it heads toward Labor Day.

In the aftermarket, Levi Strauss & Co.'s paper was heard to have improved as expectations firmed that the San Francisco pants-maker will unload its Dockers brand.

Calpine Corp. notes held in on what investors apparently took to be a mixed bag of numbers in the San Jose, Calif. power company's second quarter results.

And Delta Air Lines, Inc. lost altitude, caught in a downdraft created by record high crude oil prices.

$29 million outflow

And well after the session came to a close a market source told Prospect News that AMG Data Services is reporting a comparatively minuscule $29 million outflow from the high yield mutual funds for the week ending Aug. 4.

That relative trickle follows the more meaningful negative $358.0 million spurt for the previous week ended July 28.

The two successive outflows trail a four-week streak of inflows that saw $977.4 million more came into the funds than left them, according to a Prospect News analysis of the AMG statistics.

However even counting the four strong weeks at the beginning of the year, the fund-flows picture is not much better; in the 30 weeks since the beginning of the year, inflows have been seen in just 13 of the weeks, versus 18 outflows. The total cumulative outflow for 2004 is $4.808 billion, according to the Prospect News analysis of the fund-flows data.

$980 million prices in "weak" market

Although the junk market saw four deals totaling $980 million price during the Thursday session, happy campers were difficult to track down as traders and investment bankers were sweeping up after the close.

"The market has been shaky for a while but it looked pretty weak today," commented one investment banker.

"The equity market is selling way off," the sell-sider added, making reference to the 163 point dive taken by the Dow Jones Industrial Average, which once again dipped beneath the 10,000 line.

"Treasuries are selling a little better but I don't know how much that helped us," the high yield official continued.

"Let's face it - high-yield levels are going to be worse tomorrow when we have jobs numbers. Then there is the Fed meeting on Tuesday.

"And the end-of-summer break is coming, which will cause the calendar decline.

"There is a lot of stuff going on."

Another source, late in the session, emailed an itemized list of Thursday's "terrorist" headlines, with little comment.

However in the face of such negative color, none of Thursday's deals appeared to have gone particularly badly.

Xerox upsizes off-the-shelf drive-by

Thursday's biggest issuer was the Stamford, Conn. document company Xerox Corp.

It priced an upsized $500 million of seven-year senior notes (B1/B+) at par on Thursday to yield 6 7/8%.

The drive-by deal, led by Citigroup and JP Morgan, was increased from $400 million and came at the tight end of the 6 7/8%-7% price talk.

Next came a pair of $200 million deals, both of which proffered eight-year paper.

Cincinnati, Ohio funeral home and cemetery operator Alderwoods Group, Inc. sold $200 million of eight-year senior notes (B2/B) at par on Thursday to yield 7¾%, right on top of the 7¾% area price talk.

Banc of America Securities and Morgan Stanley ran the debt interment deal.

Also selling $200 million was Dallas REIT, La Quinta Properties, Inc., which priced its eight-year senior notes (Ba3/BB-) at par to yield 7%, again right on top of the 7% area price talk.

Lehman Brothers and Banc of America Securities were joint bookrunners for the acquisition financing.

Finally, Sheffield Steel Corp. sold $80 million of seven-year senior secured notes (B3/B-) at par on Thursday to yield 11 3/8%, in the middle of the 11%-11½% price talk, via Jefferies.

The Sands Springs, Okla. mini-mill steel producer is using the proceeds to repay debt.

Elsewhere Plains All American Pipeline, LP priced an upsized split-rated $350 million of notes in two tranches (Ba1/BBB-) on Thursday,

The Houston company sold $175 million of 4¾% five-year notes at 99.551 to yield 4.852%.

The company also sold $175 million of 5 7/8% 12-year notes at 99.435 to yield 5.952%.

Banc of America Securities was the sole bookrunner for the deal.

Two for the road

A pair of issuers showed up Thursday, announcing their intentions of finishing their roadshows before the Labor Day charcoal heats up.

The roadshow starts Friday for a $625 million offering of 10-year senior subordinated notes (B3/B-) from THL Buildco Inc., a company formed to acquire Nortek Inc.

Pricing is expected late in the week of Aug. 9 via UBS Investment Bank and Credit Suisse First Boston.

Proceeds will finance the acquisition of Nortek, a Providence, R.I. manufacturer and distributor of residential and commercial building, remodeling and indoor control products.

The roadshow also starts Friday for an offering of $80 million proceeds of eight-year senior discount notes (Caa1/B-) from Norcraft Holdings LP and Norcraft Capital Corp., which is also scheduled to price during the week of Aug. 9 - also via UBS Investment Bank.

The Eagan, Minn. kitchen and bathroom cabinet maker will use the proceeds to fund a distribution to limited partners.

Talk on AMC, Securus

Kansas City, Mo.-based movie theater chain AMC Entertainment Inc. issued price talk Thursday on its $625 million high yield deal expected to price Friday in three tranches, according to a market source.

Marquee Inc. restructured its tranches (B2), shifting $100 million to the fixed-rate tranche from the floating-rate tranche.

Price talk is 8 3/8%-8 5/8% on its $250 million (increased from $150 million) of eight-year non-call-four senior notes.

Meanwhile price talk is Libor plus 425 basis points on $205 million (decreased from $305 million) of seven-year senior floating-rate notes.

Also, Marquee Holdings Inc. plans to issue $170 million of 10-year senior discount notes, which are talked at 11½%-11¾%.

Citigroup and JP Morgan are the bookrunners.

Meanwhile price talk of 11%-11¼% emerged Thursday on Securus Technologies, Inc.'s $190 million of eight-year senior notes (B3/B+), which are expected to price on Friday via Credit Suisse First Boston and JP Morgan.

Recent issues mixed

Terms on most if not all of the issues that priced on Thursday emerged quite late in the day, and traders had not seen them break for trading when they were contacted by the Prospect News secondary market desk after the session had ended.

However, the traders said, recently priced bonds have shown mixed results with regard to their performance in the aftermarket.

"What we're seeing from the primary market is incredible because it certainly feels a little weaker across the board in the secondary, which is to be expected," one trader said.

"The whole market is feeling a little weak right now"

The source pointed to United Refining Co.'s new 10½% notes due 2012 (B3/B-), which priced at 98.671 on Tuesday in a $200 million sale.

What's happening to The Warren, Pa. refiner's new bonds in the secondary, the trader said, is "ugly."

The trader said the notes, which had fallen Wednesday to 96.5 bid, 97.5 offered, closing Thursday's session down even further at 95 bid, 96 offered.

Another trader, spotting the United Refining 10½% paper due 2012 at exactly the same closing level, Thursday, said: "I hear from accounts that they didn't like the way they brought the deal.

"We've been watching it gravitate lower and lower and there is no participation," the trader added.

"Accounts are calling in, looking at a new issue that they've held for 15 minutes. And with an allocation of a million or two they're out $40,000.

"Predominantly you have the dedicated accounts that buy this stuff, but then you have the hedge funds. They always go in for this stuff to make the quick 15 or 20 grand. And everyone rushes for the door and people are left holding the bag.

"There were a ton of sellers out there saying 'Just get me out of this.' And today it continued even more.

"Usually the manager will come in and accumulate them cheaper. But the manager didn't show up yesterday and definitely didn't play today."

Happier fate for Blount

On the other side of the coin were the new 8 7/8% eight-year notes (Caa1/B-) from Portland, Ore.-based outdoor products company Blount International, Inc., which priced Wednesday at par in a $175 million issue.

"I saw a 101.625 bid early (Thursday) morning," said a trader. "They priced at par, so that's one that seems to be doing pretty well."

Another trader, noting the better fortunes of the Blount bonds, said that no pattern seems to be emerging on the recently price notes.

"Some of them are getting jammed down peoples' throats," said the trader.

"For example, U.S. Oncology, which I though would have been a really good deal, yesterday.

"The 10¾% senior paper traded as high as 101.25 only to end the day flat.

"I believe you are seeing some people who didn't get the allocations that they want. They have a yield-bogey in mind and buy it up. And then it just kind of quiets down. The managers aren't supporting it, and they just kind of let it drift.

"Everyone is going in for everything that they can because they think they can flip it for a profit as soon as it breaks. But it doesn't always work out that way.

"Right now you can't really say the new issue market stinks or that it's great.

"It's been hit or miss."

Levi's leaving Dockers at the dock

One secondary market source said Thursday that the bond market is anxiously awaiting word that Levi Strauss has succeeded in unloading its Dockers pants brand.

"Proceeds could vary significantly but we can see value between $500 million to $1 billion," the source added.

"Assuming full utilization of proceeds toward debt reduction, leverage could fall to between 2.4 times and 3.5 times."

Having so commented early in the session, the source reported seeing Levi's 7% notes due 2006 trading up at the 97.50 level.

After the session closed, another trader noted improvement in the paper, and supplied the following levels: Levi's 7% notes due 2006 at 97 bid, 98 offered, the 11 5/8s were at 102.5 bid, 103.5 offered and the 12¼% notes due 2012 were 102.5 bid, 103.5 offered.

Calpine trading on earnings

Meanwhile on Thursday, Calpine reported that for the three months ended June 30, the company lost $0.07 per share, or $28.7 million of net loss, compared to a loss per share of $0.06, or $23.4 million of net loss for the quarter ended June 30, 2003.

Investors seemed to be having mixed reactions as they digested the report, judging from the moves in the existing bonds.

"They bounced a little bit off of their lows," a trader said, noting that the 8½% notes due 2008 were at 61 bid, 62 offered, half a point weaker than Wednesday, but closing better than Thursday's lows.

Another trader said that of Calpine's bonds, the 8½% notes due 2011 were the most active.

"The low print was right around 58. They opened up 57.5 bid, 59.5 offered, then traded around 58 or 58.25, and then they bounced back a little to around 59 bid, 60 offered at the end of the day."

Delta down on oil prices

Meanwhile spiraling crude oil prices sent the notes of Delta Airlines into a stall Thursday.

The Delta 8.3% paper due 2029 was at 30.5 bid, 32.5 offered, down from Wednesday's 32 bid, 34 offered, said a trader.

"I'm hearing more and more that Delta is headed for Chapter 11," the source commented. "But people were saying the same thing about AMR before they pulled out of it at the last second."

Meanwhile Continental Airlines' 8% notes due 2005, "a little stronger credit," were at 88.5 bid, 90 offered, "not moving."

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