ICON Health bonds fall, Delta also lower; Boise Cascade, Citgo deals price

By Paul Deckelman and Paul A. Harris

New York, Oct. 15 - ICON Health & Fitness Inc. bonds were seen having fallen Friday to decidedly unhealthy levels after the Logan, Utah-based exercise equipment maker reported a sizable drop in quarterly sales. Also on the downside were Delta Air Lines Inc. bonds after the troubled Atlanta-based air carrier warned that it will post a substantially wider than expected third quarter loss and continues to burn through its cash reserves at an alarming rate.

A comparatively quiet Friday in the primary market saw $900 million price in three tranches - with Boise Cascade LLC completing two of them at 12.5 basis points inside of price talk - bringing the week's total to $1.745 billion of new issuance.

That amount of new supply, market sources say, is not sufficient by a long shot. Continuing cash infusions to the high-yield asset class coupled with a 10-year Treasury yield that is serving to cushion junk investors somewhat on a spread basis have the buy-side lined up around the block, they say.

However when those investors get to the junk store door they are finding very little paper for sale.

Boise Cascade inside of talk

One likely result of these market dynamics was Friday's two tranche deal from Boise Cascade LLC, a sell-sider said late Friday.

The paper and building products company priced $650 million of bonds, with both tranches coming 12.5 basis points inside of price talk, in what sources said was a well-oversubscribed deal.

The company sold $250 million of eight-year senior floating-rate notes (B1/B+) at par to yield three month Libor plus 287.5 basis points, inside of the Libor plus 300-325 basis points price talk.

The tranche had been restructured from the original eight-year non-call-four fixed-rate note.

Boise Cascade also sold $400 million of 10-year senior subordinated notes (B2/B+) at par to yield 7 1/8%, again inside of the 7¼%-7½% price talk.

JP Morgan and Lehman Brothers ran the books for the acquisition financing.

Upsized Citgo deal comes atop talk

Elsewhere on Friday, Citgo Petroleum Corp. priced an upsized $250 million issue of 6% seven-year senior notes (Ba2/BB) at 99.30 to yield 6 1/8%, right on top of the 6 1/8% area price talk. The deal was increased from $200 million.

Lehman Brothers ran the books for the debt refinancing deal form the Tulsa, Okla.-based refining and chemical company.

"Where are the deals?"

One investment banker, looking over the primary market forward calendar on Friday, agreed with a number of sell-side counterparts that the calendar is not building according to expectations expressed in the market prior to the Labor Day break.

"That's one reason that the deals that are pricing continue to get such good execution," the source commented.

"These deals are getting better pricing than they otherwise would. There should be more supply, given the present conditions, i.e. small but positive inflows, extremely low Treasury yields and high yield secondary levels that continue to move higher.

"It looks great," insisted the banker, "so where's the supply?!"

Another market source told Prospect News on Friday that the present demand for paper had apparently been fully on exhibit during the Thursday session as Dresser-Rand priced a $420 million deal - at par to yield 7 3/8% - that was six times oversubscribed.

Early in the Friday session this source had Dresser-Rand's par-pricing bonds trading at 102.25 bid, 102.50 offered.

One for the road

Friday's session did little to assuage the noted hunger for high-yield paper, as only one issuer was heard to have begun the marketing process for new junk.

NorthWestern Corp., a Sioux Falls, S.D.-based electricity and natural gas provider, began a roadshow Friday for $200 million of 10-year non-call-five senior secured notes, which are expected to price early in the week of Oct. 25.

Credit Suisse First Boston has the books for the deal which will refinance debt as part of the company's exit from bankruptcy.

The company, which filed for Chapter 11 in September 2003, is also in the market with a $250 million exit financing credit facility.

Just north of $1 billion

Nor does the coming week promise paper-hungry high yield investors any substantial relief, barring surprises.

The Prospect News High Yield Daily forward calendar contains $1.085 billion and €335 million of probable issuance for the Oct. 18 week.

However, market observers have been saying, surprises cannot be ruled out.

Although sources have been expressing the opinion that merger and acquisition financing will increasingly come to dominate the high-yield new issue market through the remainder of 2004 with so many drive-by refinancings having already been done. Looking at one specific name, the junk market continues to be rife with rumors that Nextel will be showing up with a sizable refinancing deal.

Boise Cascade jumps in trading

When the new Boise Cascade deal was freed for secondary dealings, both the floating-rate senior notes due 2012 and the 7 1/8% senior subordinated notes due 2014 were heard by traders to have firmed smartly from their respective par issue prices. Both tranches of the new bonds were quoted going home at 102.25 bid, 102.5 offered.

Citgo's new 6% senior notes due 2011 initially traded as high as 100.25 bid, 100.75 offered from their issue price at 99.30. The closed the day at par bid, 100.25 offered.

And Dresser Rand's 7 3/8% senior subs due 2010, which also priced at par, moved up to 102.25 bid, 102.5 offered, before closing at a slightly wider 102 bid, 102.5 offered.

ICON falls

Back among the outstanding issues, ICON Health & Fitness' 11½% notes due 2012 were getting smacked around like a 98-pound weakling at the beach, with a market source quoting those bonds at 90 bid, well down from recent levels above par.

"Over the past several sessions," he said, they must be down 16 or 17 points."

ICON's bonds faltered after the company - which makes treadmills, weight training machines and other fitness apparatus - reported fiscal first-quarter sales of $170.3 million - a drop of $27.5 million, or 13.9%, from year-ago levels. The company said that the drop was not unexpected, since the year-ago sales were historically high. It cited soft consumer demand in a challenging economic environment through the summer.

The decline was seen across the board, with sales of cardiovascular and other equipment decreasing $15.3 million, or 9.6%, to $143.4 million, while sales of strength training equipment fell by $12.3 million, or 31.4%, to $26.8 million. Inventory levels of unsold equipment were up a decidedly unhealthy 45.6% from a year ago at $190.3 million.

Delta down

Also on the downside, Delta's benchmark 7.70% notes due 2005 - which had soared into the 60s over the course of several sessions earlier in the week from prior levels in the upper 40s - were quoted down anywhere from three to five points, with one trader seeing them closing out at 60, down from 65.

Another trader saw the Delta bonds "a little easier," quoting the 7.70s as low as 56 bid during the session, while the company's 7.90% notes due 2009 were at 36. He saw Delta's 8.30% bonds due 2029, which had traded around 30 on Thursday, offered at 29.

At another desk, a market observer pegged the 7.70s down three points on the session at 59 bid, while the 7.90s were two points lower at 35.5 bid, and the 8.30s were 1½ points down at 28.5.

The Delta bonds had firmed smartly on Wednesday on the news that the union representing its 7,500 pilots had made a new offer to management, encompassing deeper wage cuts than before, holding out the hope that Delta might just get the $1 billion in annual pay cuts it has been seeking from its captains, who are considered the best-paid among all the big network carriers. Those bonds went up even further Thursday on the news Delta was extending and improving the terms on its offer to exchange new debt for about $1.5 billion principal amount of existing unsecured and passthrough debt, an exchange which it says is crucial to its efforts to restructure its debt and avoid a bankruptcy filing.

But on Friday, Delta warned that it expects to post a loss of between $625 million and $675 million for the quarter, or $4.99 to $5.39 per share - wider than analysts' expectations of a $3.78 per share deficit and around four times as much red ink as the $164 million ($1.36 per share) year-ago loss. Delta also said that it had about $1.45 billion of cash on hand as of Sept. 30 - well down from the $2.7 billion it had at the beginning of the year, or even the $2 billion it still had as of June 30.

And Delta said that even if it got the wage cuts it was seeking from its employees and other concessions from partners, vendors and the like, it would still likely have to raise $800 million of fresh capital next year and defer $325 million of debt.

Levi, Muzak lower

Levi Strauss & Co., Inc. bonds were lower despite a lack of fresh negative news about the venerable San Francisco-based blue jeans maker. Levi's 7% notes due 2006 eased to 99.5 bid from 100.75 on Thursday, its 11 5/8% notes due 2007 went to 10.25 bid from 104 and its 12¼% notes due 2012 were a quarter point lower at 107.25.

Yet another name doing poorly on Friday, a trader said, was Muzak LLC, whose 13% notes due 2010 dipped to 65 bid, from 68 previously, while its 9 7/8% notes due 2009 lost five points to close at 68. The trader said he had seen no fresh negative news out on the Fort Mill, S.C.-based provider of canned music programming to elevators and other public and private venues.

Service Corp. gains on upgrade

On the upside, Service Corp. International bonds had some life to them Friday, following Moody's Investors Service's upgrade of the Houston-based funeral home and cemetery operator's credit ratings, including the senior unsecured rating, lifted to Ba3 from B1. The ratings agency cited Service Corp.'s "significant" recent debt reduction.

Service Corp.'s 7.70% notes due 2009 were heard to have firmed to 109.25 bid from prior levels at 108.5. However, the company's other debt issues were up more modestly, with its 6½% notes due 2008 firming slightly to 104.25 bid, from 104.125.

Traders saw little or no impact on the bonds of either Penn National Gaming or Mohegan Tribal Gaming Authority, even with the news that Mohegan, an Uncasville, Conn.-based Native American casino operator, will buy Penn National's Pocono Downs and five off-track betting parlors. Wyomissing, Pa.-based gaming operator Penn expects $175 million of proceeds from the deal, to be used to reduce debt.

But Penn National's 11 1/8% notes due 2008 and 8 7/8% notes due 2010 were unchanged at 108.25 bid and 109.5 bid, respectively. Mohegan's 6 3/8% notes due 2009 and 8 1/8% notes due 2006 were unchanged at 104.125 and 107.25, respectively.

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