PG&E, Petrobras lead busy new-issue marathon; Levi continues lower

By Paul Deckelman and Paul A. Harris

New York, June 27 - Conventional wisdom in the high yield market holds that little or nothing of importance usually gets done on a summer Friday, especially when balmy, tropical-like weather makes New York seem like Hawaii without the palm trees.

But sometimes, the conventional wisdom is wrong - like when it's the Friday before Independence Day, and everyone seems almost determined to clear as much of the forward calendar before the holiday break - vacation-like weather or no.

Eight deals rolled along the high yield primary conveyor belt and out the door - four of them upsized - during Friday's session, as the market saw in excess of $2.3 billion worth of new notes price during the final session of the June 23 week.

"Everybody's trying to get their deals done before the Fourth," counseled one sell-side official, pausing for a moment late Friday to catch a breath and blow a little market color across the phone line. The official added that the holiday-abbreviated week of June 30, which will see an early (2 p.m. ET) close Thursday followed by Friday's Independence Day celebration, when all U.S. financial markets will be shuttered, would appear to possess just three solid sessions during which business might be reasonably be expected to get done.

"You know how it is," the source commiserated, "some people won't even come in on Thursday."

Meanwhile on Friday, eight junk bond deals priced in a session that saw no new additions to the forward calendar ("It was too busy for that. Come on!" said a source).

PG&E Corp. energized the accounts sufficient to sell $600 million of unrated five-year senior secured notes at par to yield 6 7/8%. The Lehman Brothers-led deal came at the inside of the 7% area price talk.

Lehman Brothers, along with Goldman Sachs, also ran the books for a new issue from Vought Aircraft Industries, Inc. which upsized to $270 million (from $250 million). The Dallas-based independent supplier of aerostructures priced its new eight-year senior notes (B2/B) at par to yield 8%, inside of the 8%-8 ¼% price talk.

Also upsized was the LNR Property Corp. $350 million (from $250 million) issue of 10-year senior subordinated notes (Ba3/B+) that priced at par to yield 7 5/8%. Citigroup and Credit Suisse First Boston led the deal for the Miami-based REIT, whose new notes priced in the middle of the 7 ½%-7 ¾% price talk.

Chicago-based sweetener-maker Merisant Co. also upsized its deal to $225 million from $200 million. Its new 10-year senior subordinated notes (B2/B) priced at par to yield 9 ½%, tight to the 9 ½%-9 ¾% talk.

DigitalNet, Inc., of Herndon, Va., sold $125 million of seven-year senior notes (B2/B) at par to yield 9%. Price talk was 8 ¾%-9% on that deal, via Banc of America Securities.

Jefferies & Co. turned out two new issues during Friday's session - both of them offered by restaurant companies.

New World Restaurant Group, Inc. sold $160 million of senior five-year secured notes (B3/B-) at par to yield 13%. Price talk on the deal was reported by market sources to have widened to 13% area from 12 3/8%-12 5/8%.

And Morton's Restaurant Group priced a slightly-upsized offering of $89.25 million, proceeds (from $85 million proceeds) of 7 ½% seven-year senior secured (B2/B) at 85, on Friday, to yield 10.593%. Price talk was 10 5/8% area.

In addition to those seven new issues, Petrobras International Finance Co., a subsidiary of Rio de Janeiro, Brazil-based integrated oil and gas company Petróleo Brasileiro SA, priced $500 million of 9 1/8% 10-year senior notes (Ba2) at 99.196 to yield 9 ¼%. Price talk on that deal had reportedly tightened to 9 ¼% area from 9 ¼%-9 3/8%. Bear Stearns and Deutsche Bank Securities were joint bookrunners.

Petrobras priced its deal through the Brazilian sovereign ceiling (Brazil's 10 ¼% notes due 2013) by 167 basis points, one sell-side official remarked on Friday, adding that the new Petrobras paper appeared to yield significantly greater than that of any other oil and gas exploration and production credit in the speculative grade universe.

Although no new offerings climbed aboard the forward calendar on Friday, details were heard on two of the six deals poised to price during the holiday-shortened week of June 30.

Price talk of 9 ¾%-10% emerged on Jacuzzi Brands, Inc.'s $370 million of seven-year senior secured notes (B3/B), expected to price Monday via Credit Suisse First Boston.

And talk of 7 ½%-7 ¾% was heard on HeidelbergCement AG 's $708 million (equivalent) of seven-year senior notes (Ba1/existing BB+), which are expected to price on Tuesday, the first day of July 2003, via Deutsche Bank Securities, Citigroup and Royal Bank of Scotland.

And in addition to the half dozen of deals set to price during the coming week, a sell-side source advised Prospect News late Friday to watch out for drive-bys, as the primary market winds its way down to the Fourth of July break.

When the new PG&E 6 7/8% senior secured notes due 2005 were freed for secondary dealings, those bonds "broke extremely well," a trader said, quoting them as having pushed up to 102.5 bid, 103.5 offered from their par issue price.

"As soon as they priced, they were traded in the secondary, and saw pretty good demand."

A trader saw Reliant Resources Inc.'s new 9 ¼% senior secured notes due 2010 and 9 ½% senior secured notes due 2013, which had both priced at par late Thursday, as having "done well," pushing up to 101.5 during the session.

At another desk, however, a trader saw the Reliants as having attracted "better sellers," after that, bringing the bonds down to about 101.

And yet another trader said that by the day's end Reliant really hadn't moved much, net-net. He quoted its 9 ¼% notes at 101 bid, 101.375 offered, while its 9 ½% notes were at 100.5 bid, 100.875 offered.

On the other hand, he said, the new LNR deal "traded up and then traded down, and was more volatile than Reliant." He said that by the end of the session, the 7 5/8% senior subordinated notes due 2013 had "settled in" around 101 bid, 101.5 offered, "after having been both higher and lower."

Another trader quoted the LNR bonds, which had come at par, as ending at 100.5 bid, 101 offered.

That was also around the same level at which market players saw the Bally Total Fitness Corp. 10 ½% senior notes due 2011, which had priced at par late Thursday.

But some of the new bonds did manage to firm smartly in secondary dealings. The trader said that Merisant's 9 ½% senior subordinated notes due 2013 had gotten as good as 103.25 bid, 104.25 offered, well up from their par issue price earlier in the session.

Apart from activity in the new deals which priced Friday or which had priced over the previous session or so, through, traders generally described secondary market activity as slow.

Several traders mentioned that in addition to high yield's own busy new-deal activity, much of the fixed-income markets' attention - including that of investors who play in both the junk arena and high-grade bonds - was centered on General Motors Corp.'s record $17 billion offering of bonds and convertible debt, further sucking the air out of the junk secondary.

"It was pretty quiet, with not a lot of stuff happening," one said. "The [new] deals traded around in the morning, but then by around midday you didn't see anything. I think it was more because it was Friday than because of the deals - it's the first nice weekend we've had in a while, and people want to take advantage of it."

"Things were pretty slow," another agreed, "and next week is going to be doubly quiet" ahead of the holiday break.

Among the few issues notably moving around were Levi Strauss & Co.'s bonds, a day after the San Francisco-based apparel company had warned investors that sales for 2003 would be "essentially flat" - this after the company had previously indicated that it expected to see some sales growth for the year. The company said that a weak economy and consumer confidence in the first half had hit sales and forced retailers to discount heavily to shift excess inventory.

That yellow flag had completely overshadowed the company's report of a narrowed loss in its latest fiscal quarter, and had caused Levi's bonds to come back down to earth Thursday from the peaks they had hit earlier in the session.

On Friday, a trader said, Levi "got hit hard," its 11 5/8% notes dipping to 85.5 bid, 86.5 offered from prior levels at 88.5 bid, 90.5 offered, while its 12 ¼% notes due 2012 were seen about a point lower, at 85.5 bid, 87.5 offered.

At another desk, Levi's 7% notes due 2006 were unchanged at 81 bid.

Elsewhere, news that El Paso Corp. and power buyers who had alleged that the company overcharged them during the energy crunch in the western states - particularly California - in 2000-2001 had entered into the final procedural steps needed to implement a previously negotiated settlement of the dispute appeared to have little impact on the market. "It was kinda mixed," one observer said. "Some [El Paso bonds] were up, and some were down."

He saw the Houston-based energy operator's 9 58% notes due 2012 half a point better, at 96, while its 6 7/8% Notes due 2006 lost half a point, at 96.5 bid.

Sector peer Calpine Corp.'s debt continued to be empowered by the news earlier in the week that the San Jose, Calif.-based

The independent power producer was planning $1.8 billion of new financing, including a bond sale and new bank debt.

Calpine "had rallied pretty hard recently," a trader said - and he saw it firming still further Friday, with its 8 5/8% notes due 2010 a point better at 75. Calpine's 2008 bonds moved up to 77.5 bid, 78.5 offered, while its 11% notes were at 74.5 bid, 75.5 offered, both up a point.

Owens Corning bonds were "up again," a market watcher said, "and they've been going up all this week." The observer quoted the Toledo, Ohio-based insulation maker's 7.7% notes due 2008 as having firmed to around 58 bid, with its 7 ½% notes due 2018 at 58.5 bid, 59 offered.

Owens Corning is one of a number of high yield issuing companies (others include former corporate parent Owens Illinois, Crown Cork & Seal, USG Corp. and Federal-Mogul Corp.) facing potentially large asbestos-related health claims. The sector has recently firmed on indications Congress may be nearing completion on a bill that would set up a $108 billion industry-funded trust fund to handle such claims - which would indemnify the asbestos-challenged companies against future damage actions going forward.

On the downside, a trader saw Goodyear Tire & Rubber's bonds down more than two points, as the Akron, Ohio-based tire giant and the United Steelworkers of America - the bargaining agent for 16,000 Goodyear employees at 14 U.S. plants - remained far apart in talks on a new contract, racing against a midnight Friday strike deadline.

He saw Goodyear's 8 ½% notes due 2007 down two-and-a- half points, at 82.5 bid, 84.5 offered.

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