Penn National, Stena, Chevy Chase, Embratel price deals; Levi up, Delta gains as CEO exits

By Paul Deckelman and Paul A. Harris

New York, Nov. 24 - Penn National Gaming, Inc., Stena AB, Chevy Chase Bank and Koninklijke Vendex KBB NV were heard by high yield syndicate sources to have priced new deals Monday, along with Brazilian telecommunications operator Embratel, as prospective issuers hurried to get bring their deals to market while such deals could still be done in this holiday-shortened week.

In the secondary market, Levi Strauss & Co.'s bonds gyrated around at higher levels, although no fresh news was seen out on the San Francisco-based blue jeans giant. Delta Airlines bonds were also seen better after the air carrier's chief executive officer unexpectedly handed in his resignation, effective Jan. 1.

The first day of the abbreviated Thanksgiving week saw five issues price - although only two involved U.S.-based issuers.

Penn National Gaming priced a drive-by offering of $200 million of 6 7/8% senior subordinated notes due 2011 at 98.496 to yield 7 1/8%. The deal, announced early, marketed via a conference call and priced right at the end of the session, came at the high end of talk which had put the yield in the 7% area.

Bear Stearns & Co. and Lehman Brothers were joint bookrunners on the Rule 144A deal.

Chevy Chase Bank sold $175 million of 10-year subordinated notes (Ba3/BB-) at par to yield 6 7/8%.

The deal, led by Friedman Billings Ramsey, came spot-on the inwardly revised price talk of 6 7/8%, reduced from 7%-7½%.

An informed source told Prospect News that the Washington D.C.-area full service bank's $175 million offering generated $1 billion in investor demand.

Swedish-based ferry boat company Stena priced an upsized $175 million of 10-year senior subordinated notes (Ba3/BB-) at par to yield 7½%, at the tight end of the 7½%-7¾% price talk. The deal, increased from $150 million, came via underwriters JP Morgan, Citigroup, Deutsche Bank Securities and ABN Amro.

Vendex, a European nonfood retailer based in Amsterdam, sold €200 million of seven-year senior subordinated notes (Ba3/BB-) at par to yield 7 3/8%, also at the tight end of the 7½% area talk.

ING and BNP Paribas were joint bookrunners.

And in the emerging markets, Embratel (Empresa Brasileira de Telecomunicacoes) sold $200 million of 11% five-year guaranteed notes (B2) at 99.049 to yield 11¼%. Prospect News had heard price guidance of 11% area on the Rio de Janeiro-based telecom company's deal, which was led by Morgan Stanley and Deutsche Bank Securities.

Meanwhile one new deal appeared on the calendar.

Granite Broadcasting Corp. started the roadshow Monday for $300 million of seven-year first lien notes, which are expected to price during the Dec. 1 week.

JP Morgan, Banc of America Securities and Goldman Sachs & Co. are underwriters of the deal from the New York City-based broadcaster.

Meanwhile news was heard during the session on most of the remaining pre-Thanksgiving business situated on the forward calendar.

Price talk is 8½%-8¾% on General Nutrition Cos. Inc.'s upsized offering of $215 million of seven-year senior subordinated notes (B3/B-). The deal, via Lehman Brothers and JP Morgan, is expected to price on Tuesday.

Price talk is 10¼%-10½% on Jostens Holding Corp.'s $150 million proceeds of 10-year senior discount notes (Caa2/B-), which are expected to price on Tuesday via Credit Suisse First Boston and Deutsche Bank Securities.

Finally, price talk is 9¼%-9½% on TVN Finance Corp.'s €235 million of 10-year senior notes (B3/B-), which are expected to price Tuesday.

JP Morgan is the bookrunner on the deal from the Polish broadcaster.

Meanwhile David Bitterman and Andrew W. Van Houten, co-heads of high yield research for Deutsche Bank Securities, stated in the Nov. 21 issue of their high yield strategy publication, One-Stop Weekly, that the present pace of the junk market could become difficult to maintain.

"Fund flows were also positive with a net gain of $306 million," wrote Bitterman and Van Houten. "While this may appear insignificant compared to the all-time record of $3.2 billion we saw at the end of August or the $830 million average weekly flow we saw during the month of June, it is nevertheless a strong result.

"Following the wild swings of the summer, marked by both record inflows and outflows, fund flows seem to have settled into a comfortable pace during the fall. Considering that we saw net inflows of over $6 billion over the last 14 weeks, we think that even this relatively slow pace will be difficult to maintain over the coming months. However, the outflows are less likely to be catastrophic since some of the volatile money appears to have been taken out of the high yield market during the recent months.

"New issuance, on the other hand, has accelerated once again. Since [Nov. 14], a total of 17 new issues worth $3.6 billion have priced making this the fourth most active week in 2003. With only one month to go before the markets take an extended holiday break, more issuers want to take advantage of the lowest yields in years. As a result, the forward calendar looks still strong with over $2 billion in new issues scheduled to price soon. As indicated in our prior pieces, we find this pace a bit excessive.

"Perhaps the ideal scenario would be an increase in risk-free rates, which could lead to a slight yield increase in our market and curb down new issuance. The least desirable possibility is a continuation of a $3 billion per week pace in high yield new issuance for another year, which could then lead to a bubble and eventually hurt both the primary and secondary markets."

When the new Stena 7½% notes due 2013 were freed for secondary trading, "there was nothing great there," said a trader who quoted the new bonds as having firmed slightly to 100.5 bid, 101.5 offered from their par issue price "and then that was it."

He said that he had only seen about $1 million of the $175 million issue trade.

"It was a very small issue and it was oversubscribed, so whoever got it, kept it. Nobody was floating it. The accounts weren't doing a thing with it."

Another trader saw the issue going home at 100.5 bid, 100.875 offered, and saw the new Chevy Chase 6 7/8% debentures due 2013 at 100.5 bid, 101 offered.

Among other recently issued bonds, some continued to trade at a healthy premium from their par issue price, especially General Cable's 9½% notes due 2010, which continued to hover well above issue at 105.5 bid, 106 offered. Other bonds trading three points or more above issue included Imax Corp.'s 9 5/8% notes due 2010 at 103 bid, 104 offered and Nalco's 7¾% senior notes due 2011 at 104 bid, 104.75 offered and its 8 7/8% subordinated notes due 2013 at 103.75 bid, 104.5 offered.

Back among the established issues, Levi Strauss bonds "were a little bit of a roller coaster," a trader said, quoting the company's 11 5/8% notes due 2008 as having opened at 73 bid, 76 offered from 71.5 bid, 72.5 offered late Friday; then, he said, the bonds "were up four or five points [from Friday's levels ] for a while, firming up to 75.5 bid, before falling back later in the session to end at 73.5 bid, 75.5 offered. He saw the same kind of up-and-down movement in its 12¼% notes due 2012, quoting them going home at 69.25 bid, 71.25 offered, up from 68.25 bid, 69, though down from its peak Monday level of 72 bid, 74 offered.

He had no idea why the bonds were swinging so wildly, noting that there was no fresh positive news out on the company that would justify such volatile dealings.

"It was just the same old stuff," another trader said, in noting the yo-yo movements that ended with the bonds up a point or so across the board.

"Maybe guys who are short are buying it, buying because they think it's attractive now. There were some reports out there that they thought the paper was worth a look now, down at this level" (Levi bonds had fallen over the past week or so, after the company released bearish guidance on expected sales).

He speculated that maybe investors "think that whatever bad news, between that accounting problem and South America, Latin America, whatever else they've got shakin' right now, is factored in."

Another trader, however, quoted the Levi bonds higher than his peers at late afternoon, pegging the 12 ¼% notes at 71.5 bid, 72 .5 offered, and the 11 5/8s at 75 bid, 76.5 offered. He saw the 7% notes due 2006, which had ended Friday at 66 bid, 68 offered, as having advanced to 69 bid, 70 offered late Monday.

"They kind a jumped up, then went back down again. Probably just a buyer came in and people got all excited. There was better buyers around, so they were up pretty substantially. Looks like they gave back a little bit and then they made another run at the end of the day."

Elsewhere, the same trader saw Dynegy Inc.'s bonds initially retreat but then bounce back on the weekend news that Exelon Corp., the Illinois-based utility that had agreed to buy the assets of Dynegy-owned Illinois Power, halted its $425 million cash-and debt acquisition after the Illinois state legislature failed to pass a bill that would have facilitated the deal by letting the state power commission conduct an expedited review of the transaction.

"The companies are going to go back and get this thing resolved and get the transaction done," the trader predicted.

He quoted Dynegy's bonds, after having initially fallen several points across the board in busy dealings, as having firmed off their day's lows to mostly close down only about a point or so, with the Houston-based utility company's 9 7/8% notes due 2010 having clawed their way back up to 108 bid, 109 offered, not too far below Friday's close at 108.5 bid, 110 offered; its 8¾% notes due 2012 down perhaps a point from Friday's levels at 94.5 bid, 96.5 offered; and its 7 1/8% notes due 2018 and 7 5/8% bonds due 2026 both down about a point-and-a-half on the bid side from Friday at 78 bid, 80 offered.

Illinois Power's own bonds were off a little more, he said, with the utility's 11½% notes getting as low as 115.5 bid from Friday's 121.25 bid, 122.25 offered before firming off those lows to go to 118.

"Things will get resolved - but buyers are paring their positions in the name."

A trader saw Delta Air Lines debt better Monday, following in the wake of a stock surge (up 82 cents - 7.17% - to $12.25 - after chairman and CEO Leo Mullin unexpectedly announced that he will relinquish the CEO post on Jan. 1 and step down as chairman on May 1.

Mullin's surprise exit comes as the Atlanta-based air carrier is looking to get major cost-cutting concessions from its employee unions - who objected strenuously to the airline's plans to give Mullin and other key executives hefty retention bonuses. While Mullin agreed to take a pay cut and Delta said that it would stop contributing to a pension plan for the executives, the tone of the negotiations became especially chilly, and is seen as a factor in Mullin's decision to leave.

"Whenever negotiations get so contentious, sometimes an executive has got to just decide to go and take the bad karma with him" the trader said. He quoted Delta's 7.70% notes due 2005 up a point from Friday at 93 bid, 94 offered, while its 8.30% bonds due 2029 were half a point better at 64.

Another trader saw Delta's new 10% exchange notes - which the airline gave to its holders in a recent debt-for-debt swap - were a point better at 83.25 bid, 84.25 offered.

Back on solid ground, a trader quoted J.C. Penney's bonds "up across the board" about a point or two, following news reports Friday that drugstore giant CVS may make a bid for Penney's underperforming Eckerd pharmacy operation, which the retailer is trying to unload.

"That means they may get better bids for Eckerd," the trader said, "who knows, maybe $4 billion or more."

He saw Penney's 7.60% notes at 109 bid, 110 offered, its 8% bonds at 112 and its 9% notes at 115, "all up around two points."

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