Rent-Way, TransMontaigne deals price in shortened session; Alaris up on tender news

By Paul Deckelman and Paul A. Harris

New York, May 23 - Even though Friday's high-yield bond market session was a shortened, pre-holiday affair, the red-hot primary market was still heard by syndicate sources to have been able to get two more deals - totaling just over $400 million - signed, sealed and delivered before participants headed for the exits. Primaryside players would head for home and a well-deserved three-day respite after having priced nearly two dozen deals during the week, with the total face amount an astonishing $5.5 billion-plus, according to a Prospect News analysis of the deal figures.

The secondary market, however, was about as sleepy as you would expect it to be on the abbreviated last session before the Memorial Day holiday break, the traditional unofficial start of the summer season (The Bond Market Association recommended a 2 p.m. ET close Friday and a complete shutdown on Monday). It was made even quieter than usual by the recent shift in junk bond market interest away from the formerly booming secondary and toward the suddenly sexy new-deal arena.

Friday's two deals were a downsized and restructured offering from Rent-Way, Inc., which became the second deal in as many sessions to extend investors' call protection, and $200 million of new seven-year paper from TransMontaigne Inc. which priced at par and came at the tight end of price talk.

And with activity slowing from the torrid pace of the previous four sessions, Friday provided little sustenance for new deal watchers, with only one company announcing its intention of bringing new high-yield notes. San Diego-based Alaris Medical, Inc. announced $210 million of new senior subordinated notes to fund its tender offer.

A subdued tone seemed to have taken hold of sources who spoke Friday with Prospect News. There was talk of "some pushback" from investors, in response to the recent rash of tight-pricing junk bond deals. And sources also made mention of the $258 million outflow from high-yield mutual funds reported Thursday by AMG Data Services, the first reported exodus of cash since February.

"Things are definitely softening up a bit and it's not surprising," said one high yield official during Friday's session.

The outflow reported Thursday is only part of the picture, this source commented.

"It's not just that. The market is way too hot. We can't go like that for too long.

"There is a lot of stuff on the forward calendar and I wouldn't be surprised to see some stuff rehashed or possibly even pulled because the opportunities that companies thought were there maybe aren't quite as good."

A deal from Erie, Pa. rental-purchase store operator Rent-Way got rehashed Friday as well as downsized by $10 million. The company sold $205 million of 11 7/8% seven-year senior secured notes (B3/B-) at 98.252 to yield 12¼%. Price talk on the Citigroup-led deal had been for a yield in the 12% area.

The notes which had originally been marketed with four years of call protection became non-callalble for life, with a Treasuries plus 175 basis points make-whole call.

Hence Rent-Way became the second issuer it two days to extend call protection from levels announced when the deals were launched. During Thursday's session Pliant Corp., which sold $250 million of six-year senior secured second lien notes (B3/B-) at par to yield 11 1/8%, increased call protection to four years from the previously announced three.

"You can see the market tightening up," one sell-side source commented, considering the extended call protection on Rent-Way and Pliant.

"People are wrenching down."

Another official from a high yield syndicate desk said that several factors combined to make the market seem less robust as the week of May 19 drew to a close.

"The market has been choppy heading into a holiday weekend and there are a ton of deals so it is tough to get investors' attention," the official noted.

"Lot's of things coincide to temporarily give investors more power than they had before."

In Friday's other transaction, Atlanta and Denver-petroleum services company TransMontaigne priced $200 million of new seven-year senior subordinated notes (B3/B+) at par. It came at the tight end of the 9 1/8%-9 3/8% price talk, yielding 9 1/8%. UBS Warburg was the bookrunner.

And one new deal appeared on Friday. Alaris announced that it intends to bring a public deal for $210 million of senior subordinated notes as part of a refinancing. Citigroup is the dealer-manager of the tender offer including in the transaction and is likely to emerge as bookrunner on the bond deal, according to one informed source. Details are expected on underwriters, maturity, timing, and structure of the notes by June 5 (see related story in this issue).

Heading into the post-Memorial Day week of May 26 one sell-side source reported a count of seven deals totaling $2.07 billion probable of pricing during the four sessions of the holiday abbreviated week.

Secondary traders said that activity in the newly priced issues was restrained; one said that the only new deal which he saw in the secondary was Canadian bus and ambulance operator Laidlaw Inc.'s 10¾% senior notes due 2011, which managed to motor their way up to 99.5 bid/100.5 offered from their late-Thursday par issue price at 98.679.

Another trader saw the Laidlaws in that same context, up about a point from issue; he also saw Rent-Way's new 11 7/8% senior secured notes due 2010 firm to 99.5 bid/101 offered from 98.252 at issue.

Hard Rock Hotel Inc.'s new 8 7/8% second lien notes due 2013, which had priced at par on May 20, were still heard hanging in around 102 bid. But the new El Paso Production Holding Co. 7¾% senior notes due 2013, which had also priced at par on May 20, continued to struggle; the issue had traded down almost from the moment it was freed for secondary dealings, market participants said, on Friday, it remained below issue, quoted offered in the 99-99.5 area.

Outside of the newbies, "it was totally dead," the trader said, "with not a lot of spots on stuff."

One of the few names actually moving around was The Gap, which had released its first-quarter earnings just after the market closed on Thursday. The San Francisco-based apparel retailer reported some solid numbers, with first-quarter net earnings of $202 million (22 cents per share), versus $37 million (four cents a share) a year ago.

It was the third consecutive quarter of profit growth for the largest U.S. specialty apparel retailer, which also reported that same-store sales at outlets which have been open at least a year were 12% above year-ago levels. The Gap has posted seven straight months of better year-over-year same store sales after having suffered through a two-and-a-half year slide in that statistic, which is considered a key barometer of financial health for retailers.

But Gap's good news failed to make much impression on either debt or equity investors, even given the relatively quiet activity level in U.S. financial markets.

Gap bonds initially traded up, with its 6.90% senior notes due 2007 jumping as high as 107.75 bid in morning dealings, in apparent first response to the previous evening's numbers.

Those bonds had gone home on Thursday at 106.5 bid/107.5 offered. But after that quick rise Friday, a trader said, "they got pummeled," although not on any kind of substantial volume, and gave up most of the early gains. He saw the bonds go out around the 106.75 bid/107.25 offered level, "up maybe a quarter to a half on the day,"

The trader opined that while Gap's improvement from its 2002 first-quarter results was impressive - "awesome" was how he put it - but "a year ago they were so pitiful," in the midst of the performance slide that unceremoniously dumped the formerly investment-rated bonds into junkbondland. "We shall see going forward" whether Gap can continue the momentum, now that it has scored the easy points by improving from very depressed year-earlier results.

On the equity side of the ledger, investors were equally skeptical about whether the turnaround could continue, especially in the face of a still soft economy. Gap's New York Stock Exchange-traded shares, which had firmed nearly 3% in early trading, ended down 70 cents (4.07%) at $16.50, on volume of about 9.6 million, about one-and-a-half times the usual turnover.

While the Gap bonds failed to hold most of their gains, one junker which was able to post gains from the get-go and go home with them was San Diego-based medical devices maker Alaris Medical Inc., which announced plans to tender for its outstanding 11 1/8% senior discount notes due 2008 and for the outstanding 11 5/8% senior secured notes due 2006 and 9 ¾% senior subordinated notes due 2006 issued by its Alaris Medical Systems subsidiary (see Tenders and Redemptions elsewhere in this issue for full tender offer details).

A market source noted that the Alaris 9¾% notes "had already been close to their call price anyway" and firmed only slightly to the expected takeout level at 103.75 bid, up from 103.25 previously.

The other two issue also appreciated to their planned take-out levels, the zero-coupon/11 1/8% discount notes rising to 105.375 from 103.75 previously, while the 11 5/8% secured notes were two points better at 121 bid.

The source also noted another tender-driven improvement - American Seafoods Group's 10 1/8% notes due 2010, which gained two points to close at 110 after the Seattle-based producer of fish products revealed in a filing with the Securities and Exchange Commission that it planned to redeem 35% of the bonds under the equity clawback provision of their indenture, using the proceeds from a planned sale of income deposit securities. The company further said that it would then buy back the rest of the bonds in a tender offer. Unlike the Alaris tender, Seafoods did not outline a time frame for its anticipated transactions.

Apart from those tender-driven movements activity was sparse. Kaiser Aluminum & Chemical Corp. was quoted several points higher at one desk, its 10 7/8% notes due 2006 pegged at 70 bid, a nearly four point gain, although most other parties queried said they had not seen any movement in the bonds of the bankrupt Houston-based aluminum producer. One suggested that those who saw Kaiser jumping Friday were playing catch-up. "They were up about three points during the week," he said, "but nothing today."

Calpine Corp., whose bonds were last seen headed south, was quoted up Friday, a trader seeing its 8½% notes due 2011 as having risen to 66.25 bid from Thursday's close and Friday's opening at 65.5 bid/66.5 offered. "Maybe there's some interest in Calpine out there," he offered.

Another source also saw the San Jose, Calif.-based independent power producer's bonds a bit higher, its 8¾% notes due 2007 "bouncing a bit" to the 69-70 bid range, which he estimated was up a point.

Back among the really distressed cases, United Airlines' bonds were seen up about two or three points on the session, the bankrupt Number-2 U.S. carrier's 9 1/8% notes due 2009 at a wide 10 bid/13 offered, and its 10.67% notes due 2004 at 11 bid/13 offered.

And the bonds of some bankrupt companies having big asbestos problems - which had been climbing steadily earlier in the week on hopes that Congress might soon pass a bill setting up a trust fund that would pay the claims of people who had become ill due to their asbestos exposure - were seen somewhat lower Friday amid speculation that Washington politicking might keep such a bill from ever being passed. Owens-Corning 's several issues of 7% and 7½% bonds were all quoted at 34 bid, down several points from recent highs, while Federal Mogul-Corp.'s bonds were seen down about a point or two, at 17.5.

But on the whole, one observer declared, "today was just a dead day. Most people didn't even come in, because they knew they were going to leave early, and that it would be a waste of time to come in."

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