UGS prices restructured dollar deal; Alaris bonds jump on acquisition news

By Paul Deckelman and Paul A. Harris

New York, May 19 - High yield syndicate sources said that UGS PLM Solutions successfully priced an offering Wednesday of eight-year notes that had been restructured into a single dollar-denominated tranche from a two-part offering that had originally included a euro tranche. Nextel Partners and Sheridan Group priced add-on offerings to existing series of bonds, while Chesapeake Energy began shopping a 10-year notes' deal around.

In the secondary market, Alaris Medical Systems Inc. notes firmed smartly on news that the San Diego-based maker of medication delivery systems is to be acquired by Cardinal Health Inc. Elsewhere, Pegasus Satellite Communications Inc. bonds were seen having bounced back a little from the pounding which they had taken in Tuesday's trading.

During a mid-week session that saw the high-yield market firm, according to sources, the new issue market heard terms on $635 million of business.

Meanwhile Oklahoma City-based Chesapeake Energy Corp. showed up with a $300 million drive-by, which it expects to price on Thursday.

The session's biggest issuance came from Plano, Tex. product lifecycle management software and services-provider UGS Corp. in conjunction with UGS PLM Solutions. UGS sold $550 million of eight-year senior subordinated notes (B3/B-) at par to yield 10%, well wide of the 9½% area talk.

A proposed euro tranche, which had been talked at 25 basis points behind the dollar tranche, was canceled.

Citigroup, JP Morgan and Morgan Stanley ran the books on the acquisition financing, through which BSW Holdings, Inc. will acquire UGS PLM from Electronic Data Systems Corp. for $2.05 billion in cash.

The UGS deal dwarfed the rest of the session's issuance.

The Sheridan Group, Inc. priced a $60 million add-on to its senior secured notes due Aug. 15, 2011 (B1/B) at 102.0, giving a 9.745% yield to worst and generating $61.2 million of proceeds.

Price talk was 102-102.25.

Jefferies & Co. ran the books on the deal, with proceeds to finance the Hunt Valley, Md.-based publishing company's acquisition of Dingley Press.

The original $105 million issue priced at 98.667 on Aug. 14, 2003 to yield 10½%, so Sheridan wound up with a better rate Wednesday.

And although pricing took place last Friday, most of the market did not learn until Wednesday that Nextel Partners Inc. had priced a $25 million add on to its 8 1/8% senior notes due July 1, 2011 (existing ratings Caa1/B).

The add-on, via Morgan Stanley and JP Morgan, priced at 98.26 to yield 8.458%, with proceeds slated to refinance the Kirkland, Wash. wireless company's debt.

Chesapeake $300 million drive-by

Although no roadshow starts were heard Wednesday, Chesapeake Energy Corp. showed up with a $300 million offering of 10-year senior notes that it expects to price in a quick-to-market transaction on Thursday.

Bear Stearns & Co., Banc of America Securities, Credit Suisse First Boston and Lehman Brothers are joint bookrunners, with co-managers expected to emerge.

Proceeds, along with $125 million from the company's newly expanded credit facility, will be used to fund the $425 million acquisition of Greystone Petroleum LLC.

CNH continues to dominate buzz

The story that dominated much of the junk bond discourse on Tuesday, Case New Holland Inc.'s repricing of its $500 million issue of 6% five-year senior notes, continued to generate discussion on Wednesday.

To recap, the Lake Forest, Ill. tractor and combine company, which completed its original transaction on May 4, decreased the issue price to approximately 92.80 from the original 97.459, with the result that the yield was hiked out to 7¾%, increased from 6.6%.

In a press release the company stated that its net proceeds from the sale were approximately $474 million, representing a cost to the company on a yield basis of 7¼%.

Market sources told Prospect News that the underwriter, Deutsche Bank Securities, was left to pick up the 50 basis points difference between the 7¼% yield that the company will pay and the 7¾% yield that will be paid to investors.

Although much of the buzz that went around Wednesday was what one might expect from competing investment banks, Prospect News did press one source (also from a competing investment bank) to explain what the likely impact of the CNH deal would be for the market at large.

"It has definitely been bad, with people talking about it," the official responded. "But it will pass and pass quickly.

"Along with the other stuff that has been going on - with secondary levels sliding, with euro deals getting downsized, with all of the deals that have gotten pulled - this is something else weighing on peoples' minds.

"The [original CHN] deal had a T+10 settlement," the source added. "So lots of secondary trades had happened. And every trade, from the time the original deal priced through Monday, based on that original Cusip, just disappears.

"All the accounts and all of the traders just have to unwind everything. A bunch of people who think they made money will be sad. The people who lost money will be happy."

Carry unwind generates sucking sound

Finally, on Wednesday, one sell-side source told Prospect News that, true to market color heard in recent weeks, a lot of the liquidity of the high yield asset class - liquidity in the face of continued outflows from the high yield mutual funds - came from the "carry trade," in which hedge funds are thought to have been the primary participants.

Now, the source added, the riskier credits are paying the price.

"I think the hedge funds and the carry trade were the main driving force in the past two weeks," said the sell-sider on Wednesday.

"The floor rate was very low - less than 4% - so the strategy is to leverage yourself up to your eyebrows, and buy a bunch of high yield and emerging market debt, such as the Brazilian 13% of 2013.

"Hence you're short Treasuries and long speculative credits.

"But as the cost of borrowing capital increases you have to cover your short positions.

"The more covering that takes place, the more it drives down high yield and emerging markets bonds."

Case up in trading

Traders did not see any of the new bonds moving around in secondary dealings, save for Case New Holland Inc.'s repriced 6% senior notes due 2009. The price on the new notes had been adjusted sharply downward on Tuesday, to 92.80 from the original 97.459 seen when the issue originally priced earlier in the month. A trader saw the Case notes at 94 bid, 94.5 offered.

Junk rises, then gives up gains

The trader said that the junk market had been up by as much as a point to a point-and-a-half in the early going, but then, gave most of its back later in the day, with most names ending up a quarter- to a half-point.

"Everything was with stocks," he said, noting that when the stock market "gave up 150 points" in an afternoon retreat from its early gains, "bonds came in."

Salton rises

Among some of the issues which were higher, he said, on continued thin trading, was Salton Inc.'s 10¾% notes due 2005, which pushed as high as 70.5 bid before falling back from that peak to close at 66.5 bid, 70.5 offered. The Lake Forest Ill.-based small-appliance maker's 12¼% notes due 2008 followed a similar pattern to end at 61.5.

The company's bonds had gotten clobbered last week, with the 103/4s sinking down to the low 50s and the 121/4s into the upper 40s, after the company posted poor quarterly results and said it was in talks with its lenders on credit facility covenant waivers. Then at the tail end of last week the bonds started firming off their lows, and the bounce has continued this week so far.

Pegasus rebounds

Another credit which was seen bouncing was Pegasus Satellite Communications, whose bonds had taken a severe beating on Tuesday after the Bala Cynwyd, Pa.-based distributor of satellite TV programming mentioned in a filing with the Securities and Exchange Commission that it could conceivably find itself forced into Chapter 11 under a worst-case scenario, should it be unable to come up with funding to pay a large legal judgment and associated costs.

A market source saw the company's 9¾% notes due 2006 - which on Tuesday had slid to 54 bid from 67.5 previously, were a point better at 55 bid. Pegasus' 12 3/8% notes due 2006, which had nosedived to 51 Tuesday from previous levels around 69, on Wednesday were four points better at 55. However, he saw little movement in other issues.

Alaris sharply higher

One big mover, the source said, were the bonds of Alaris. The company's 7¼% notes due 2011 gained 10 points on the session - albeit in thin, illiquid trading - to close at 109.5.

Alaris and Cardinal Health jointly announced that Dublin, Ohio-based Cardinal, a distributor of medications and supplies, will acquire the California company in a transaction valued at $2 billion, including Cardinal's assumption of Alaris debt.

Alaris equity investors were as enthusiastic as its debtholders, taking the company's New York Stock Exchange-listed shares up $3.37 (17.85%) to $22.25 on volume of 5.7 million shares, a whopping 33 times the norm.

Goodyear edges upward

In other developments, Goodyear Tire & Rubber Co.'s bonds were seen up a little, after the Akron, Ohio -based tiremaking giant a posted a narrower loss for the fourth quarter and for 2003, and expressed optimism now that an earnings restatement that caused it to delay its results by two months is behind it (see related story elsewhere in this issue).

Goodyear's 8½% notes due 2007 firmed to 96.25 bid from prior levels at 95; its 6 3/8% notes due 2008 went to 86.5 bid from 85, and its 11% notes due 2011 rose to 107.25 bid from 106. The company's 6 5/8% notes due 2006 were about three-quarters of a point better at 97.25, and its 7.857% notes due 2011 improved to 84 bid from 81 on Tuesday.

Reliant Resources Inc.'s 9½% notes due 2013 were seen up nearly three points on the session at 104.75 bid. The Houston-based energy operator will sell 71 hydroelectric power plants and a co-generation plant in New York to Canadian-based Brascan Corp. for $900 million in cash.

MCI Corp., the Ashburn, Va.-based telecommunications operator - which recently emerged from Chapter 11 - said that as required by its plan of reorganization its board of directors has begun a review of the company's cash needs so as to utilize resources in accordance with its board's best business judgment to maximize shareholder value.

MCI's 5.908% notes due 2007 firmed to 96.5 bid from 96, while its 7.735% notes due 2014 and 6.6887% notes due 2009 were each a quarter point higher at 90.25 bid, 93.125 offered.

A trader, noting the overall market's early advance and subsequent pullback from its highs, opined "I don't think there was much resistance one way or another , with everybody at the Bear Stearns [Global Credit] Conference," which was scheduled to wrap up Wednesday in New York. "Everyone was using it as an excuse to get out of the office."

He noted that the widely followed HYDI junk index was up a quarter point on the day, but had rallied almost 100 basis points from recent lows. "That's a big move," he declared, "but I don't know where it goes from here."

He said that the market would likely trade up a little bit more, "but you get into your economic numbers, "with payrolls and ISM and whatnot, and people will be worried about the Fed again.

"But if you get this flow of [high yield mutual fund flow] numbers going the other way, that could help."

In the latest week, ended last Thursday, AMG Data Services, which puts out weekly fund-flow numbers, a key liquidity measure, reported a fifth consecutive weekly downturn, and at $2.15 billion, the biggest since last year.

"I've got a feeling," he said, "that they're going to reverse."

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