Chiquita, Ocean Rig deals price; Rite Aid lower on earnings drop; funds see $56 million inflow in week

By Paul Deckelman and Paul A. Harris

New York, June 23 - Chiquita Brands International Inc. and Ocean Rig Norway SA successfully priced scheduled bond offerings on Thursday, while Orbimage Inc. also came in with a quickly marketed floating-rate notes deal. The new-deal arena also saw Hynix Semiconductor Inc. restructure its planned dual-tranche offering and revise price talk, with pricing expected Friday.

In the secondary sphere, Rite Aid Corp bonds were seen down about two points across the board, as the Camp Hill, Pa.-based drugstore chain operator reported weaker fiscal first-quarter earnings than it had a year ago and lowered its previously announced sales and earnings guidance (see related story elsewhere in this issue).

The bonds of troubled small appliance maker Salton Inc. jumped after the company announced that it would exchange new second-lien debt, plus preferred and common stock, for its existing two issues of bonds - and that its biggest bondholder was already on board.

And the bonds of Abitibi-Consolidated Inc. rode a roller coaster, first climbing on buyout rumors swirling around the Montreal-based forest products company, and then coming off those highs and giving back most of those gains later in the session as cooler heads prevailed.

Overall, even as the stock market plunged, high yield traded flat to slightly higher during what one source characterized as a comparatively high volume Thursday session.

And after trading wound down for the session, market participants familiar with the junk bond mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., told Prospect News that some $56.3 million more came into the high-yield mutual funds than left them in the week ended Wednesday.

That got the widely watched gauge of market liquidity trends back on a positive track after the previous week's report of a $383.59 million outflow in the week ended June 15.

Inflows have now been seen in three weeks out of the past four - an infusion which has helped to break the previous malaise that fell upon the junk market, particularly in May, and to give new life to both the primary side and the secondary.

In that four week span, a net inflow into the funds of $757 million has been seen, according to a Prospect News analysis of the AMG figures.

However, that's still just a drop in the bucket compared with the massive $7.053 billion of net outflows seen since the start of the year, although that cumulative total is down slightly from $7.109 billion in the week ended June 15, according to the Prospect News analysis.

Outflows have still been seen in 19 weeks out of the 25 since the year began, with inflows in just the other six weeks. One big stretch of outflows, lasting 15 solid weeks from mid-February to the end of May, accounted for $6.776 billion of the current net outflow total, according to the analysis.

While the mutual funds only comprise between 10% and 15% of the total monies floating around the high-yield universe, far less than they used to, they are still watched by market participants, since they are considered a generally reliable barometer of overall liquidity trends - and because there is no reporting mechanism to track the movements of other sources of junk market cash, such as insurance companies, pension funds and hedge funds.

The figures exclude distributions and count only those funds that report on a weekly basis.

Orbimage floater pays Libor+950

The company that sold the largest amount of bonds on Thursday was Dulles, Va. earth imaging firm Orbimage Holdings Inc., which priced a $250 million issue of seven-year senior secured floating-rate notes (Caa2/CCC+) at 98.00. The notes will pay a coupon that floats at Libor plus 950 basis points.

Deutsche Bank Securities ran the books for the deal. Proceeds will be used to fund the acquisition of the Orbview-5 imaging satellite and to repay debt.

Although word of the Orbimage deal did not begin to surface until late Wednesday, one sell-side source who was not in on the transaction suggested that it really was not a drive-by. With the company having recently emerged from Chapter 11, the source reasoned, the deal likely saw the existing bondholders rolling into the new notes.

Chiquita peels off $225 million

The second largest of Thursday's three deals came from Chiquita Brands International, Inc. which priced a $225 million issue of 10-year senior notes (B3/B-) at par to yield 8 7/8%, at the wide end of the 8 5/8% to 8 7/8% price talk.

Morgan Stanley and Wachovia Securities ran the books for the acquisition financing from the Cincinnati-based banana company.

An informed source told Prospect News that some "strong accounts" had taken part in the deal, and that the book ended up being 1.5 to two times oversubscribed.

The source did allow that the company paid up due to the prospect of the European Union's banana tariff import system which is expected to be implemented in 2006. The tariff could result in Chiquita's bananas being more expensive than imports from countries in Africa, the Caribbean and the Pacific which are exempted from a higher tariff.

Ocean rig tightens talk at last minute

The third of Thursday's three deals came with the most conspicuous execution in that it priced on top of price talk that was inwardly revised by 12.5 basis points at the last minute.

Ocean Rig Norway AS priced $150 million of eight-year senior secured second-lien notes (B3/B-) at par to yield 8 3/8%, on top of the talk that had tightened to 8¾% from 8½%.

Morgan Stanley ran the books for the debt refinancing deal from the Oslo, Norway-based company.

An informed source told Prospect News that the price talk revision came at the last minute. And although the accounts may have swallowed hard, very few chips came off the table, the source said, adding that the deal was nearly three times oversubscribed.

Hynix pushes out talk

Finally on Thursday, Korea-based Hynix Semiconductor Inc. revised price talk on its restructured $750 million two-part offering of high-yield notes (B1/B+).

Talk on the restructured seven-year fixed-rate notes was raised to the 10½% area from the 9¾% area. The tenor of the notes was decreased to seven years from 10 years and call protection was decreased to four years from five years.

Meanwhile talk on the floating-rate notes was increased to six-month Libor plus 650 basis points from the Libor plus 600 basis points area.

The books closed Thursday afternoon. Pricing is expected on Friday.

Citigroup, Deutsche Bank Securities, UBS Investment Bank and Merrill Lynch & Co. are the bookrunners.

Chiquita steady, Ocean Rig up

Back in the secondary arena, traders saw little real movement in the newly priced bonds Chiquita Brands International. One pegged the 8 7/8% notes due 2015 as straddling their par issue price at 99.75 bid, 100.25 offered, although another trader saw them get as good as 100.25 bid, 100.75 offered.

The Ocean Rig Norway 8 3/8% notes due 2013 did better, with a trader seeing those bonds as having risen to 101.25 bid, 101.5 offered, well up from their par issue price.

However, the new R.J. Reynolds Holdings Inc. bonds that priced in a two-part issue on Wednesday "didn't do much," a trader said. He saw both tranches - the 6½% senior secured notes due 2010 that priced at 99.601 and the 7.30% senior secured notes due 2015 that priced at 99.846 - as trading around par to 100.25 "all day, give or take 1/8. There was not a lot of trading going on in them."

And a second trader saw the Winston-Salem N.C.-based tobacco giant's new notes even lower, estimating the five-year notes at 99.25 bid, 99.75 offered, and the 10s at 99.375 bid, 99.875 offered.

"They didn't do much," he agreed with the first trader.

Rite Aid down on earnings

Secondary market attention was focused more on news developments going on with the existing bonds of the issuers, such as Rite Aid.

News that the company had reported lower fiscal first quarter earnings versus a year earlier and had accordingly cut its guidance for the full fiscal year helped push its bonds lower, with a trader quoting the company's 9¼% notes due 2013 as having fallen back to 96 bid, 97 offered, down two points on the day, and its 7½% notes due 2015 as having ended down a point at 95 bid, 96.

Another trader quoted the 91/4s at 96.25, down from 98, while a source at another shop saw them down only a point, at 97.5 bid, while its 9½% notes due 2011 were off 1½ points at 105.5 bid.

Abitibi gains

Elsewhere, a trader said that there had been "a little bit of upward movement in Abitibi-Consolidated," on market rumors that International Paper Corp. was interested in buying the Canada-based paper and packaging company. As of the end of the day, neither company had addressed the still strictly unconfirmed rumors.

"The rumor at the start of the day was that they were going to buy Abitibi - but as the day progressed, it came to be more like they may buy a couple of Abitibi's plants" - quite a comedown in expectations.

Still, he said, "it gave a good flow to Abitibi, but they did come off their highs," he said. He saw the Abitibi 8 3/8% notes due 2015, trade as high as 104 in morning dealings, up from 101 bid, 102 offered the previous day, but those bonds finished the day at 101.5 bid, 102.5 offered.

"Intraday, they were up about two to three points, but they finished the day up half a point," he concluded.

Another trader saw those bonds higher, at 102.25, which he called a half-point gain, while yet another saw them up 1¼ points at 101.5

The froth in Abitibi's paper "didn't do much for the rest of the sector, a trader said, quoting rival forest products company Bowater Inc.'s 6½% notes due 2013 unchanged to perhaps up a quarter point at 98.5 bid, 99.5 offered. Tembec Industries' 8½% notes due 2011 were seen up perhaps half a point at 77.5, while Georgia-Pacific Corp.'s 8 7/8% notes due 2031 were down a point at 123.5 bid.

Salton jumps on exchange

The biggest price move of the session - although it was by no means the most active bond - was in Salton Inc. debt, particularly the company's 10¾% senior notes that are scheduled to mature on Dec. 15.

Those bonds soared nearly 20 points on the session, traders said, to about 68 bid, 70 offered from prior levels around 50 on the news that the troubled Lake Forest, Ill.-based maker of the George Foreman electric hot dog and hamburger grills had reached agreement with its biggest bondholder, Angelo Gordon & Co. LP, under which Gordon - which holds some $41.3 million of the outstanding 103/4s or one-third of the issue - will support the company's complex exchange offer for its outstanding bonds.

Salton - which for months has been criticized by investors for not having a plan to redeem that $125 million of the bonds, plans to give holders new 7% second-lien loan debt due 2008, plus preferred and common shares, in exchange for their bonds. It will issue only $110 million total face value of the new notes, and will give the current bondholders less than par value for their bonds. Any of the new notes not given to the 10¾% bond holders will be given on a pro-rata basis to the holders of the company's 12¼% notes due 2008 (see related story elsewhere in this issue).

The trader saw those bonds rise to around 50-51 from prior levels about 10 points under that, but characterized that activity as "only a few trades."

Other traders saw those '08 bonds only up about five points on the day to around the 47-48 level, up from levels around 42 previously.

The first trader noted that the deal works out to be a good one, in his opinion, for the '05 bond holders, who have worried that their bonds might not be paid off at all, let alone at par.

"They're going to get the majority of the new bonds," he said. "If they all tender their notes, $85 million of the $110 million of second-lien debt goes to the short issue, so there's only about $25 million of the notes going to the other issue."

"That was the issue Salton needed to take care of, so that's the reason why it's structured that way. So you would expect the biggest pop in that one."

Despite some grumbling on internet investment bulletin board about the terms of the exchange offer, the trader said that in all probability, it will go through. Salton stipulated that it needed a positive response from holders of $75 million of the shorter bonds, "and Angelo Gordon is already on board with $41 million, so they only need another $35 million or so. If everyone tenders, you get 67.5 cents worth [on the dollar] of the new second-lien note, you get 10 cents of the convertible preferred, and you get common, so you're getting something like 80 cents on the dollar for a bond that was trading at 50."

"It doesn't look like it's worth the risk to turn it down," he said.

With that kind of a sudden return to a reasonable recovery rate, he said, there wasn't much trading of the Salton bonds at all after the deal with Gordon was announced, at around 10 a.m. ET, since nobody wanted to sell. He saw just a few trades, from earlier in the session, before the news had hit.

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