Smithfield Foods up on strong results; Bell Sports bond deal surfaces; funds see $264 million inflow

By Paul Deckelman

New York, Aug. 26 - Investors in Smithfield Foods Inc.'s bonds were living high on the hog Thursday as the notes firmed smartly after the Smithfield, Va.-based pork producer reported stronger than expected earnings in its fiscal first quarter ended Aug. 1.

The mostly slumbering primary market showed a little stirring, as market sources saw a bond deal likely to emerge next month for Bell Sports Corp. to fund the bicycle helmet maker's pending acquisition by Fenway Partners Inc.

And it was back to normal when it came to the widely followed weekly high-yield mutual fund-flow statistics compiled by AMG Data Services Inc. of Arcata, Calif., which generally begin percolating through the market after the close Thursday, but which were delayed to Friday morning last week by a technical glitch in the way the numbers were calculated. This week, they came out, on schedule, and late-working market players familiar with the numbers told Prospect News that $264 million more came into the junk funds than left them in the week ended Wednesday.

That not only represented a sharp turnaround from the previous week's report of a $25.8 million outflow in the week ended Aug. 18, but was also the first inflow seen after four straight weeks of outflows, dating back to July 28. During that time, some $504.1 million more left the funds than came into them, according to a Prospect News analysis of the statistics, which are considered a key barometer of overall junk market liquidity trends

Even with that sizable inflow in the latest week, outflows have still been seen in 20 weeks out of the 34 weeks since the beginning of the year, with inflows seen only in 14 of them. And the junk funds have a cumulative net outflow for the year so far of about $4.661 billion, according to the Prospect News analysis, although that year-to-date outflow total was down from about $4.925 billion the week before.

After recording strong inflows in January, continuing the momentum of the great liquidity surge seen throughout the 2003 fourth quarter, flows turned decidedly negative in February, including two straight weeks of billion-dollar-plus outflows, more than wiping out the early gains. Since then, inflows and outflows have alternated -several weeks of one, followed by several weeks of the other - but the net result has been decidedly negative.

The strong surge of liquidity seen in the latter part of 2003 was certainly a factor in the red-hot, record new-issue pace seen last year, and the mixed-to-negative picture this year has seen the primary market cool to a more normal pace so far this year.

But liquidity is simply not much of a factor at this time of the year in the new-issue market, which traditionally slows to a crawl, or even slower, in the run-up to the Labor Day holiday break.

This year has been no exception.

No new deals priced in Thursday's session - and none are expected to price any time soon, although a trader said there was a rumor in the market, which turned out to be unsubstantiated, that Nextel Communications Inc. might bring a quickly shopped drive-by deal to market, counting on customers' familiarity with the name to sell the deal in the absence of the usual roadshow.

A primary market source allowed that while there might be some people around for such a "drive-by, "a lot of the so-called 'decision makers' aren't around - they're all on the beach, sipping cocktails while lying in a hammock."

The slow market "is going to get progressively worse," he opined. "A lot of people are already gone."

Bell Sports on horizon

One deal which is seeming to take shape is a prospective new offering for Irving, Tex.-based Bell Sports, with a market source telling Prospect News that the company will bring a $150 million bond deal in September to help fund its buyout by Fenway Partners. The bond deal, expected to be led by Goldman Sachs, and with Wachovia Securities also involved, is a companion to a $160 million bank financing those banks are leading, the sources said (see related article elsewhere in this issue).

So far, though, the anticipated new bond issue is flying under the radar, with several normally well-informed sources saying they were not yet aware of it.

Ainsworth considering options

Another prospective deal - which may or may not involve a bond issue - involves Ainsworth Lumber Co. Ltd. The Vancouver, B.C.-based forest products company announced that it will purchase certain assets from Potlach Corp. for US$457.5 million, and will fund the acquisition with a combination of cash already on hand and new senior unsecured debt.

The company's chief financial officer, Robert Allen, told Prospect News late Thursday that Ainsworth had not yet determined how big the debt portion of the funding would be, and he could not say whether it would be in the form of bonds, bank debt, convertible debt, some other instrument or a combination.

However, he did say that Deutsche Bank Securities, which advised Ainsworth on the deal, would likely be the lead underwriter for whatever kind of financing the company decides to do. No other banks have yet been chosen to participate, although, Allen said, "we will be looking at other people."

Smithfield higher on earnings

Back on the secondary side of the fence, Smithfield Foods's fiscal first quarter results left a good taste in the mouths of bondholders and they took the company's bonds about three-quarters of a point higher across the board.

Smithfield's 8% notes due 2009 firmed to 109.25 bid from prior levels at 108.5 bid, while its 7 ¾% notes due 2013 rose to 106.75 from 106. Smithfield's 7 5/8% notes due 2008 ended at 106.5 bid, up from 105.75.

Smithfield reported quarterly earnings of $54.9 million (49 cents per share), well up from $22.1 million (20 cents per share) a year earlier. Analysts were looking for per-share earnings of about 47 cents.

Of more interest to bondholders, EBDIT for the latest quarter was $158 million, better than Wall Street had been expecting and far better than the year-earlier $106 million for the cash-flow measure. Based on trailing 12-month EBDIT of $595 million, it had interest coverage for that year averaging 4.9 times, with a respectable estimated leverage ratio of debt to last 12 months EBDIT of 3.4 times.

Nextel down

Elsewhere, a trader saw Nextel bonds a little lower, perhaps pushed down by the ultimately unfounded market buzz about a drive-by bond deal. He quoted the Reston, Va.-based wireless service provider's 7 3/8% notes at 104.75 bid, down about a point from levels seen just a few days ago.

Charter gains

Also among the communications names, a trader said Charter Communications bonds were generally about a point higher, its 8¼% notes at 91 bid, 93 offered, its 8 5/8% notes at 79.5 bid, 81 offered, and its 8 5/8% notes due 2009 at 79 bid, 81 offered. The latter issue, he said, was actually up something like two points or so on the session, although there was no fresh news on the St. Louis-based cable operator - only the same old rumors about billionaire principal owner Paul Allen preparing to ride to the debt-laden company's rescue by buying out its stock. Such a rescue has failed to materialize so far, leaving market players increasingly skeptical.

Levi Strauss up

A trader saw Levi Strauss & Co. paper better, though on no firm news, he said, with the San Francisco-based blue jeans maker's 7% notes due 2006 firming to 99.25 bid, 100.5 offered from 98.25 bid, 99.25 offered. Levi's 12¼% notes due 2012 ended at 104 bid, 104.5 offered, up from 103.25 bid, 104.25 offered.

But apart from those few names, not much was going on a trader said, because "a lot of people were out. The market has been firm this last week, but up at these levels, we're starting to see some selling."

He said "there's a few guys out there that are selling. There are a lot of buyers, but not a lot of real trading, because there's not a lot of paper to offer, and because people want to buy - but they don't want to pay the offered side."

He characterized the market as "well bid." While there are "some guys selling," he said it was his sense that "people are reluctant to pay the price."

He said "there were customers in - but a lot of dealers around Wall Street are on vacation, so it's very illiquid. There's nothing going through."

© 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.