Alaris, Aviall, Avondale Mills, MobiFon price deals; Tenet off after Moody's cuts rating to junk

By Paul Deckelman and Paul A. Harris

New York, June 25 - The high yield new-issue market continued to crank out deals on Wednesday, with four offerings hitting the tape, including a downsized late pricing from Alaris Medical Inc., as well as new paper earlier in the day from Aviall Inc., Avondale Mills Inc. and MobiFon Holdings BV.

In the secondary market, Tenet Healthcare Corp. bonds were quoted down several points after Moody's Investors Service downgraded the Number-2 U.S. hospital operator's debt ratings back to junk, from whence they had come less than two years ago.

On the upside, several companies with asbestos exposure problems were quoted at higher levels, as progress reportedly continued on federal efforts to craft a trust fund solution to the asbestos litigation problem.

In addition to the pick-up in pace from the four new high-yield transactions completed during the session, the market also heard developments (timing, price talk, etc.) on several deals that are expected to price prior to the end of the first week of summer 2003. And market observers spied two companies that will reportedly try their hand in the near term in the rallying junk bond market.

Meanwhile on Wednesday, as market sources mulled the 25 basis points cut in the Fed Funds interest rate that was announced during the session the verdict was unanimous: the cut is highly unlikely to play to dramatic effect in high yield.

In a conversation with one sell-side official, Prospect News asked if the rate cut could lead to investment banks becoming more aggressive with regard to the levels at which they are pricing junk bond deals.

"I think people will continue to be aggressive," said the official. "I don't think that it will have that big of an impact on the high-yield market except for some of the higher credit-quality names that people look at on a spread basis.

"But for the most part if the credit markets remain healthy I think you'll continue to see the same kinds of inflows that we have been seeing.

"And cash is king."

In the run up to the rate cut Prospect News had heard that one impact of falling interest rates was a blurring of the distinctions between the fixed-income classes, or rather, a narrowing of the spreads from one class to the next. Hence, soon after the Fed announced its most recent rate cut Prospect News asked noted high yield researcher Martin Fridson of FridsonVision LLC if the drop in interest rates might motivate some investors to contemplate making riskier plays.

"I wouldn't expect investors to incur more credit risk solely on the basis of the rate cut," Fridson responded in a late afternoon email message to the Prospect News primary market desk.

"The key risk is that the Fed may be pushing on a string," Fridson added, "that is, cutting rates for businesses that don't want to invest in economy-stimulating expansion projects, no matter how low rates are. So I think most investors will wait for more tangible evidence of improvement in the credit environment, such as positive earnings comparisons. Bear in mind, too, that this rate cut was widely anticipated. To the extent that some investors DO think it makes sense to buy on the theory that the latest Fed easing will pump up earnings, they've probably already done it."

While Alan Greenspan and company were resetting the rate, the junk bond primary market saw a quartet of deals get done on Wednesday.

Aviall, Inc. priced $200 million of eight-year senior notes (B1/BB) at par, Wednesday, to yield 7 5/8%. The Citigroup-led deal came at the inside end of the 7¾% area price talk.

Avondale Mills, Inc. sold $150 million of 10-year senior subordinated notes (B3/B+) at par on Wednesday to yield 10¼%. The yield that the Monroe, Ga.-based textile manufacturer wove onto its new note was in the middle of the 10¼% area price talk. Wachovia Securities was the bookrunner.

San Diego medication safety solutions developer Alaris Medical Inc. downsized its offering to $175 million from $200 million, pricing its new eight-year senior subordinated notes (B3/B-) at par to yield 7¼%, at the tight end of the 7½% area talk. Bear Stearns & Co., Citigroup and UBS Investment Bank were joint bookrunners.

And MobiFon Holdings BV priced $225 million of 12½% seven-year senior notes (CCC+) at 97.686 to yield 13%. The Goldman Sachs-led deal priced at the wide side of the 12¾%-13% price talk.

One new deal sprang squarely into view during Wednesday's session.

Ardagh Glass, the Dublin, Ireland bottle-maker, will uncork its new €175 million offering of 10-year senior notes in Europe starting Monday, with a U.S. roadshow to commence one week later on July 7 and pricing expected on July 8. BNP Paribas and Citigroup are joint bookrunners.

And scant though they were, a few details were heard on an anticipated offering from Rockwood Specialties Group Inc.

Price talk of 10¼%-10½% emerged Wednesday on Bally Total Fitness Corp.'s upcoming sale of $200 million eight-year non-call-four senior notes (B2/B), which are expected to price on Thursday afternoon via Deutsche Bank Securities.

Price talk of 10 5/8% area was heard Wednesday on Morton's Restaurant Group $85 million proceeds, $100 million face of seven-year senior secured notes (B2/B), set to price on Friday via Jefferies.

And the price talk is 9%-9¼% on Petrobras International Finance Co.'s sale of $500 million 10-year senior notes, also expected to price on Friday, via Bear Stearns and Deutsche Bank Securities.

When the new MobiFon 12½% senior notes due 2010 were cleared for trading, a trader said, they pushed above 103 bid, a level which he called "pretty crazy" and surprising, given that the issue had priced at a sizable discount to par, at 97.686. He suggested that part of the demand for the new bond could just have been "the underwriter covering a short, I would imagine."

By way of contrast, he said, the new Aviall 7 5/8% senior notes due 2011, which had priced at par, " didn't really trade that well," relatively speaking, firming up to 102.125 bid before dropping back from that peak to close around 101.5 bid, 102 offered. "Not the best sector," he said.

Another trader saw the MobiFons even better, as high as 103.75 bid, 104.25 offered. He pegged the Aviall bonds as high as 102 before going out at 101.5 bid, while the Avondale Mills 10¼% senior subordinated notes due 2013 also traded up to 102 bid before closing a bit below that peak at 101.5.

The trader also saw the new Danka Business Systems plc 11% senior notes due 2010 as having improved to 98.75 bid, 99.25 offered from its pricing late Tuesday at 97.66. And Worldspan LP's new 9 5/8% senior notes due 2011, which priced at par late Tuesday, shot up to 104 during the session, before going out at 103.875 bid, 104.875 offered.

The trader saw not much happening among already established bonds, venturing that the market's behavior "is almost disturbing. You can't get much done unless it's centered on the new deals."

The other trader agreed that "it was a slow day, mostly new-deal dominated. Flows were generally light. Things went up in the morning and back down in the afternoon."

Market participants saw little impact in junkbondland of the news that the Federal Open Market Committee had decreed yet another cut in the federal funds target - this one 25 basis points - which sent both Treasuries and shares lower on the session.

Instead, what little activity there was centered around credit-specific developments. A trader said Tenet's bonds "got hit hard," after Moody's dropped the Santa Barbara, Calif.-based hospital operator's ratings, including a three notch downgrade in its senior unsecured debt rating to Ba3 from Baa3 previously.

He quoted the company's 7 3/8% notes due 2013 as having opened around 99 bid, par offered, before dipping to 97.5 bid. 98.5 offered at the close. And its 6½% notes due 2012 were also down a point-and-a-half at 93.5 bid. 94.5 offered.

The downgrade puts Tenet at least one foot back into the junk-rated area from which the company thought it had escaped back in the fall of 2001, when its ratings were raised by both major agencies to investment grade (Tenet remains a precariously high-grade BBB- at Standard & Poor's).

Moody's cautioned "unanticipated revenue and expense pressures will contribute to dramatically lower-than-expected cash flow, essentially eliminating Tenet's free cash flow."

On Monday, Tenet had warned that its earnings for the current quarter, the second half of the year and the full year beginning July 1 would come in "significantly below" the expectations of Wall Street analysts, causing both its bonds and its shares to retreat.

In addition to facing what the company termed "significant industry-wide pressures, including nurse shortages, increasing salaries and benefits costs, higher costs for technology and supplies, escalating malpractice expense and continuing competition from physician-owned surgery and diagnostic centers," Tenet is also wrestling with an ongoing government probe of its billing practices, with Washington alleging that Tenet inflated charges to the Medicare program for seniors to enhance revenues.

Elsewhere, a trader saw Tesoro Petroleum Corp. "weaker," guesstimating that the San Antonio-based petroleum refiner's bonds were off about two points or so across the board "on no real news."

At another desk, Tesoro's bonds were seen having weakened a bit less, with its 8% notes due 2008 at 102.5 bid, 102.75 offered, its 9½% notes due 2008 at 90.5 bid, 92 offered, and its 9 5/8% notes due 2012 at 91 bid, 92.5 offered, down about a point on the session.

A trader saw Greyhound Corp.'s 11½% notes up a point or two at 77 bid, 79 offered, citing the news that the Dallas-based intercity bus line operator had put Stephen Gorman - up till now an executive of the Krispy Kreme donut company - in the drivers' seat as president and CEO, replacing Craig Lentzsch as of July 1. No reason was given for Lentzsch's impending departure from Greyhound, a unit of Laidlaw Inc., which recently emerged from Chapter 11. Gorman formerly also worked at Northwest Airlines and at Aviall.

Bonds of companies with some asbestos exposure seemed to have firmed up, on news that the Senate Judiciary Committee had agreed Tuesday to set up a trust, to be funded by companies and the insurers, which would pay future asbestos-related health claims out of a $108 billion fund - a set up that would also limit the amount of money the companies would have to pay going forward. The bill also sets medical criteria for establishing asbestos claim eligibility.

The bill is expected to go to the Senate later in the week.

A trader said the sector names had been "creeping up over the last few days" on "rumblings in the last two weeks" that this would get done.

Georgia Pacific Corp.'s 8 1/8% notes due 2011 seen a point-and-a-half better at 102.5 and its 8 7/8% bonds due 2031 likewise a point-and-a-half up at 95.5, while Crown Cork & Seal's 7% notes due 2006 were one point up at 96.5. Owens-Illinois 7½% notes due 2010 rose a point-and-a-half to 9.7.5 bid.

The bonds of Owens Corning - one of a number of high-yield issuing companies which were actually forced into bankruptcy under a flood of anticipated asbestos claims - were heard to have firmed even more, all pushing up to 51.5 bid from 46 previously.

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