Ferrellgas sells 10-year issue; homebuilders off, Levis better

By Paul Deckelman and Paul A. Harris

New York, April 14 - Ferrellgas was heard by high yield syndicate sources to have sold $250 million of new 10-year notes - the biggest of two deals heard to have priced during a session that felt as soggy and dreary as the weather in New York.

In secondary dealings, interest-rate sensitive sectors, such as homebuilding, were being pushed lower, in line with the continued fall in Treasury issues in the face of recent economic data signaling that the economy might be finally picking up.

In total the new issue market saw $380 million of bonds sold on Wednesday in two separate deals, while a pair of prospective issuers were hauled aboard the forward calendar - a calendar that, according to one sell-side source, may be simmering down a touch.

"I'm getting mixed signals right now," the official commented. "Things seem to be reacting to market data - to fundamentals rather than liquidity. The calendar is building, but slowly."

One of the fundamentals at which this sell-sider nodded was the notably rising yield of the 10-year U.S. Treasury note. Late in the morning the source spotted the 10-year at 4.42% and commented that it represented the highest yield thus far in 2004. Later in the day another market source reported that yield had been seen as high as 4.46%, before closing at 4.37%.

"That's happening basically on the news of the consumer price index, which rose more than forecast in March," the sell-side official commented. "So people are concerned about inflation again. Because of that we're seeing some of the Treasury-sensitive high yield bonds come under a bit of pressure."

Ferrellgas, Meritage price

Two issues priced during Wednesday's session.

Ferrellgas Escrow LLC and Ferrellgas Escrow Finance Corp. sold $250 million of 6¾% 10-year senior notes (Ba3/BB-) at 99.637 to yield 6.8%, with Credit Suisse First Boston and Banc of America Securities running the books.

The Liberty, Mo.-based propane company's acquisition financing deal came wide of the 6 3/8%-6 5/8% price talk.

And in quick-to-market action, Scottsdale, Ariz. home builder Meritage Corp. priced $130 million of 7% 10-year senior notes at 98.236 to yield 7¼%, in the middle of the 7 1/8%-7 3/8% price talk.

Citigroup ran the books on the refinancing deal.

Two for the road

Two prospective issuers announced roadshow starts during the mid-week session.

The roadshow starts Thursday for Giant Industries Inc.'s offering of $150 million of 10-year senior subordinated notes, which are expected to price during the week of April 26.

Banc of America Securities will run the books for the Scottsdale, Ariz.-based petroleum refiner's debt refinancing deal.

Meanwhile the roadshow starts Tuesday for Amscan Holdings Inc.'s $175 million offering of 10-year senior subordinated notes (B-), which are expected to also price during the week of April 26, via Goldman Sachs & Co.

The Elmsford, N.Y. designer, manufacturer and distributor of decorative party goods intends to use the proceeds to help fund the acquisition of Amscan by Berkshire Partners and Weston Presidio from GS Capital Partners.

Talk on Agco, Extendicare

Price talk is 6 7/8%-7 1/8% on Agco Corp.'s €200 million of 10-year senior subordinated notes (B1/BB-), which are expected to price Thursday morning via Morgan Stanley and Bear Stearns & Co.

Finally, price talk of 7%-7¼% emerged Wednesday on Extendicare Health Services, Inc.'s planned $125 million of 10-year senior subordinated notes (B2/B-), expected to price mid-day Thursday.

Lehman Brothers is running the books.

Rate-sensitive names hit

A secondary trader said that the pronounced downturn in Treasuries on better economic data was taking its toll on some sectors of the junk bond market as well.

"Some of the interest-rate sensitive stuff that came recently got hammered," he declared.

For example, he said, Trinity Industries Inc.'s 6½% senior notes due 2014, which priced last month at par, traded down to 97.5 bid, 98.5 offered from prior levels around 99.5 bid, par offered, "on interest rate worries." Trinity is a Dallas-based diversified industrial company.

Other interest-rate sensitive areas like homebuilding were also getting pushed around; builders on the downside included KB Home, whose 8 5/8% notes due 2008 were seen down more than a point at 111, and Hovnanian Enterprises' 6 3/8% notes due 2014, down as much as three points on the session to the 96 bid area. D.R. Horton's 8% notes due 2009 were being quoted down two points in the 112 neighborhood.

Retailers in demand

But if the more hopeful economic data - particularly the strong retail sales figure reported Tuesday - is causing angst among Treasuries traders and junk denizens whose bonds move in tandem with the government paper, it's cause for rejoicing among those economic areas really looking for an economic upturn, such as retailers.

"Retailers in general seem to be the names that people want to buy," the trader said, "after the robust [March] employment numbers and people getting their taxes back. Retail, like oil, has become a safe haven."

He saw Dillard's Inc.'s bonds "all of a sudden" up about half a point on the session, with the Little Rock, Ark.-based department store chain's 7.15% notes due 2007 ending at 102.5 bid and its 7.85% notes due 2012 at 103.

"I think all the retailers were like that," he added, although one retail name not getting much benefit from the junk world's new-found respect for retail is Gap Stores paper, "already trading in nosebleed territory;" he saw the San Francisco-based apparel retailer's 2008 notes hovering around 123. "They're just too tight."

"Levi's continued strong," with the 11 5/8% notes due 2008 trading "up in the 86.5-87 range on all kinds of rumors floating around," including one tale that the San Francisco-based apparel maker might be looking to sell its popular Dockers brand of khaki pants, or even that retailing giant Wal-Mart might swallow the company up.

At another desk, a trader saw Levis as having "kind calmed down," after having been up "five, six, seven points the past couple of days."

He saw the 11 5/8% notes little changed at 86 bid, 87 offered, while Levi's 12¼% notes due 2012 were at 85 bid, 86 offered and the 7% notes due 2006 at 84 bid, 85 offered.

Even though not much happened in the name Wednesday, he said, "from last week, a week ago Wednesday, I'd say they're up a good 10 points on the bid."

The company's numbers "were good. Their revenue was up, and even though they lost $2 million for the quarter net, they lost $58 million a year ago, so that was a positive. The paper was moving higher."

Will Levi paper "ever get to 101 again, like the 11 5/8s and the 121/4s a few months ago - I don't know. Sure they have their problems going forward - but there definitely was some activity there."

Apart from that, he said, Rite-Aid Corp. "had some good numbers, their bonds were a little bit stronger."

Tenet dips, rebounds

And he saw Tenet Health Care Corp. bonds having opened weaker on the news that the U.S. Attorney's office in Los Angeles has begun new investigations into the affairs of two Tenet affiliates in Southern California but then 'bounced back." He saw Tenet's 7 3/8% notes due 2013 having opened at 89 bid, 91 offered before moving back up to trade around 90 and then close at 90.5 bid, 91.5, "almost unchanged really."

Indeed, the Tenet news certainly did drop the Santa Barbara, Calif.-based hospital operator's bonds in the early going, with one market source pegging the 7 3/8s as having dropped to 89.5 bid from 91.5 previously, the 5 3/8% notes due 2006 as having fallen to 93.5 bid from 95.5, and the 6 7/8% bonds due 2031 as having moved down to 82 bid from 84.

"They dropped two points across the board" in the initial dealings, the source said.

But then came the recovery. "The market just shrugged off the company's problems," a trader said, quoting the 7 3/8s as having dipped into the upper 80s and then having firmed back up to above 90. "Here we go again, same old stuff."

Greyhound noses higher

He also saw Greyhound Bus Lines' 11½% notes trading as high as 96 bid, up from prior levels in the 93-94 range. "I don't know what's going on with them," he said of the Dallas-based intercity bus carrier's bonds, "but they just keep moving up.

He cited some scuttlebutt that they might "be rumored to be doing a [bond] deal, as well as the more prosaic explanation that Greyhound's corporate parent, Laidlaw International - which emerged from Chapter 11 last year - "seems to be getting its act together."

Goodyear softer

The trader saw Goodyear Tire & Rubber Corp. bonds having eased from the highs which the Akron, Ohio-based tiremaker's bonds hit earlier in the week on the news that it had concluded its internal accounting investigation and its needed earnings restatements would be less drastic than investors had feared.

Those bonds "ran like crazy" on Tuesday, he said, but on Wednesday, gave up about half a point, "which was to be expected." He quoted its 7.85% notes due 2007 having retreated to 86.5 bid, after having moved as high as the 87-87.5 area on Tuesday

A trader saw the high yield market as "pretty quiet, and definitely a little softer - not on any particular market news, but just on general weakness.

For instance, he said, Tower Automotive's 12% notes were down about a point to 99 bid, 99.5 offered, while the new Allied Waste 6 3/8% notes due 2011 retreated to 98.5 bid, 98.75 offered from prior levels around 99.75 bid. 100.25 offered.

The trader noted that there was late news out on Pegasus Communications losing a legal action against DirecTV, whose service Pegasus distributes to customers in largely rural markets; the suit grew out of a billing methods dispute.

But even though he saw Pegasus's 11¼% notes offered at 81, well down from the 85 bid, 87 offered levels they held before the late afternoon announcement, he said that the news came too late to really impact the bonds on any kind of volume.

"That will be for [Thursday], he predicted.

Delta down

And he saw Delta Air Lines Inc.'s bonds doing "not much," even with the Atlanta-based air carrier announcing that it had sustained another big loss in the first quarter - $383 million, or $3.12 per share, about 10 cents more a share of red ink than Wall Street analysts were looking for, chiefly due to the drag on the company's finances of its labor-cost structure, with the highest-paid pilots in the airline industry [see related story elsewhere in this issue].

He pegged Delta's bonds down perhaps a point, with the 7.70% notes due 2005 losing a point to 88 bid, 89 offered, and the 8.30% bonds due 2029 at 56 bid, 57 offered, also off a point.

Another trader saw Delta's bonds "immediately down" on the earnings news, with the 7.90% notes due 2009 nosediving to 64.5 bid from prior levels around 66.5. But then after the company's mid-morning conference call, the situation apparently "didn't sound as bad, so the bonds traded right back up," ending little changed around 66.5. He also saw Delta's 8.30% bonds due 2029 trading down to 55 bid before coming off those lows to close at 56.5 bid, 57 offered.

Domino's Inc.'s 8¼% notes due 2011 were being quoted as having "shot up" to around 108 bid from prior levels around 106.5, in the words of one observer. The pizza delivery company unveiled plans for an initial public stock offering and is expected to take out up to 40% of the bonds at 108.25 under the terms of the equity clawback provision in the notes' indenture.

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