Argo-Tech, Clean Harbors price; Solectron up on results, guidance; funds see $127 million outflow

By Paul Deckelman and Paul A. Harris

New York, June 17 - The high yield primary market saw a fair amount of activity Thursday, though not all that much volume, as four small to mid sized deals priced, led by Argo-Tech Corp.'s $250 million offering of seven-year senior notes. Also pricing were offerings from Clean Harbors Inc., Cornell Cos. Inc. and Viskase Cos. Inc.

Secondary market activity was seen as restrained, quite a change from Wednesday's news-filled day that saw a number of issues firm smartly. On Thursday, the main thing seen going on was . . . nothing. A trader noted that some market players were at a Morgan Stanley conference, while others were no doubt attending a Goldman Sachs golf outing. And speaking of golf, the trader speculated - and others agreed - that "some guys probably snuck out to go to Shinnecock Hills" on Long Island's East End for Thursday's first round of the U.S. Open.

Among the few things seen trading around, Solectron Corp.'s bonds were seen higher after the Milpitas, Calif.-based provider of electronics manufacturing and integrated supply chain services reported a modest profit for the fiscal third quarter versus big year-ago losses, touted its debt-reduction efforts and issued positive guidance.

Traders also saw some of the newly issued notes of Argo-Tech and Cornell having traded up from their respective issue prices.

And after trading had wound down for the day, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that the funds - a key barometer of overall junk bond market liquidity trends - had a net outflow of $126.5 million in the week ended Wednesday.

It was the second straight outflow, on top of the $59.8 million outflow seen in the week ended the previous Wednesday.

Over the two week span, roughly $186.3 million more has left the funds than has come into them, according to a Prospect News analysis of the AMG figures.

For the year so far outflows have been seen in 15 weeks against just 9 inflows and the cumulative net outflow rose to about $5.329 billion in the latest week from around $5.202 billion the week before, according to the Prospect News analysis.

And discarding the inflows seen in the first four week of the year, which were essentially a continuation of the unusually strong tide of liquidity seen throughout the 2003 fourth quarter, the depth of the liquidity drain since then becomes even more pronounced. Since the week ended Feb. 4 - which saw the first of two consecutive billion-dollar-plus outflows that abruptly shifted the momentum in both the high yield primary and secondary markets - in flows have been seen in only five of 20 weeks and outflows in the other 15, and the net capital hemorrhage from the funds since then has totaled some $6.7 billion, according to the Prospect News analysis.

Trailing indicator

One sell-side official told Prospect News that the latest fund flow data, although it represents a larger outflow than the previous week's negative $60 million, provides little in the way of indication in and of itself.

"Once again this number demonstrates no direction," the official commented.

"It doesn't have the kind of magnitude that gets peoples' attention.

"Remember, the importance of the AMG data is not the exact number. It's the trend, and that is because there is a lot of other money that is not accounted for in that number-particularly the hedge funds and some of the insurance money.

"So what people are trying to gauge is the liquidity trend. So $100 million is nothing."

The official also pointed out that the fund flow number is a trailing indicator.

"On Wednesday the Treasury rallied like crazy," the source pointed out. "I believe it was the biggest rally since 2001.

"But that came too late to influence this fund flow number.

"However we could be seeing a pretty good inflow next week."

$600 million in four deals

The primary market gathered some momentum during the Thursday session, as slightly over $600 million was priced in four tranches from four separate issuers.

Meanwhile the euro pipeline, which had recently been laying dormant, spouted to life as news of two new roadshows was heard.

Cleveland, Ohio manufacturer of aircraft fuel-flow devices Argo-Tech Corp. sold $250 million of seven-year senior notes (B1/B) at par to yield 9¼%.

The debt refinancing deal via JP Morgan came at the tight end of the 9¼%-9½% price talk.

A market source told Prospect News that when the bonds were released for trading in the secondary they went home at 101.875 bid, 102.375 offered.

Also pricing Thursday was a significantly overhauled $150 million debt refinancing deal from Braintree, Mass. provider of environmental remediation and hazardous waste management, Clean Harbors Inc.

The company priced a restructured $150 million issue of 11¼% eight-year senior secured notes (B3/B) at 98.697 to yield 11½% via Credit Suisse First Boston and Goldman Sachs & Co.

Back on May 20 the company restructured the bond to an eight-year non-call-four senior note from a 10-year non-call-five senior subordinated note.

Subsequently the bond was restructured into a senior secured note.

Meanwhile Cornell Cos., Inc., a Houston-based provider of corrections, treatment and educational services, sold $112 million of 10¾% eight-year senior notes (B3/B-) at 98.685 to yield 11%, well wide of the 10½% area price talk.

JP Morgan ran the books for the debt refinancing deal.

Finally, Willowbrook, Ill. sausage skin-maker Viskase Cos., Inc. also ran its $90 million deal back through the grinder, pricing a restructured offering of units that consist of 11½% seven-year senior secured notes (B2/B-) with warrants for common stock of the company.

The notes priced at par, coming right on top of the 11½% price talk.

Jefferies & Co. ran the books for the debt refinancing deal.

European pipeline builds

The euro pipeline spurted to life on Thursday with news of a pair of new roadshow starts.

The roadshow starts Friday in Europe for a €160 million offering of seven-year senior notes from Swiss ink manufacturer Sicpa.

The debt refinancing deal is expected to price late in the week of June 21 or early in the following week via Credit Suisse First Boston and BNP Paribas.

And a roadshow starts Tuesday, also in Europe, for a €200 million offering of seven-year senior subordinated notes from German automotive parts supplier Duerr AG via Deutsche Bank Securities.

Proceeds will be used to repay bank debt.

Talk on two deals

Price talk of 7¼% area emerged Thursday on Plains Exploration & Production Co.'s $250 million of 10-year senior notes (Ba2/BB-), expected to price late Friday morning.

Meanwhile price talk is 8%-8 ¼% on Beverly Enterprises' $225 million of 10-year senior subordinated notes (/B/B+), expected to price Friday afternoon.

Lehman Brother is running the books on both deals. JP Morgan is a joint bookrunner on the Plains Exploration offering.

Argo-Tech, Cornell up in trading

When the new Argo-Tech 9¼% senior notes due 2011 were freed for secondary dealings they moved up to 101.875 bid, 102.375 offered, a trader said, calling it "a nice move" from their par issue price earlier in the session.

He also saw Cornell's 10¾% senior notes due 2012 as having firmed to par bid, 101 offered from their 98.685 issue price earlier. He did not see any dealings in the new bonds of either Clean Harbors or Viskase.

Solectron rises

Back among the established issues, Solectron's 9 7/8% notes due 2009 were being quoted as high as 107.5, a gain of a point-and-a-half on the day, although at another desk, those bonds were seen only up less than a point at 106.75 bid.

Solectron rose in the wake of favorable numbers released Thursday morning by the California technology company.

On a net-income basis, the company earned $21.3 million (two cents per share) in the fiscal third quarter ended May 31, compared with a yawning loss of $3.1 billion ($3.74 per share) a year ago, when the company had been undergoing restructuring.

Excluding restructuring-related costs and other unusual items, the company had income from continuing operations of $12.5 million, or a penny per share, beating estimates of Wall Street analysts who had projected a break-even quarter.

Besides lower charges versus a year-ago, the company attributed its gains to a 29% jump in revenue on strong demand in the networking sector, though Solectron executives said on a conference call that demand was strong across most of its markets .

Solectron also noted that it had lowered its debt by $1.96 billion in the quarter, bringing its debt-to-capitalization ratio at the end of the third quarter down to 34% from 71% at the end of the second quarter. That balance-sheet improvement was achieved through the repurchase of $950 million in zero-coupon senior convertible notes and the early settlement of 94% of the company's 7.25% ACES securities.

The company's president and chief executive officer, Mike Cannon, said that it had been "a milestone quarter" for Solectron, as it returned to profitability after an extended period of losses.

Looking ahead, Solectron projected fourth-quarter sales of $3.1 billion to $3.2 billion, with earnings per share from continuing operations in the three cents to five cents area, a bit above the two cents per share analysts have been predicting.

Calpine backs off gains

Elsewhere, Calpine Corp. - whose bonds had firmed some two to three points on Wednesday, with buying spurred on by market buzz that the San Jose, Calf.-based independent power producer might soon repurchase some of its shorter- dated paper - was seen having come off Wednesday's highs, although a market source said there was "nothing crazy" going on in terms of activity.

He saw Calpine's 8¼% notes due 2005 down a point on the day at 95 bid, as were the company's 7¾% notes due 2009, which finished at 64. He also saw Calpine's 9 7/8% notes due 2011 come in to 86, off three-quarters of a point, while the company's 7 5/8% notes due 2006 lost half a point to end at 88 even.

At another desk, Calpine's 8½% notes due 2011 were seen a point lower at 64.5 bid, while its 8 5/8% notes due 2010 were off half a point at 65.5.

However, yet another trader saw Calpine's 8½% notes due 2008 hanging in at 67 bid, 68 offered, "up a little, but not much."

IMCO, Commonwealth unchanged

News that Commonwealth Industries Inc. is to merge with fellow metals recycler IMCO Recycling Inc., and that Commonwealth's 10¾% notes due 2006 are likely to be refinanced was seen having little impact, with the bonds seen unchanged at 100.125 bid. IMCO's 10 3/8% notes due 2010 were also seen unchanged, at 105.75.

U.S. Steel Corp. bonds were a bit higher after Moody's Investors Service on Wednesday revised the Pittsburgh-based steel giant's to positive from stable, citing the company's solid earnings growth this year among its reasons. It also affirmed the company's Ba3 senior implied rating.

U.S. Steel's 10¾% notes due 2008 moved up to 113.25 Thursday from 112.75 previously. Its 9¾% notes due 2010 were seen half a point better at 110 even.

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