iStar, Sweetheart price deals, NRG mega-deal ahead; Qwest up on upsized tender offer

By Paul Deckelman and Paul A. Harris

New York, Dec. 5- While the first major snowstorm of the season was chilling out New York and other East Coast business centers Friday, the high yield primary sector - fresh from over $1 billion of new issuance on Thursday - stayed hot. iStar Financial Inc. and Sweetheart Cup Co. brought new deals to market - iStar's ultimately upsized to twice the originally projected size. Meantime, high yield syndicate sources said that bankrupt Midwestern power company NRG Energy, Inc. is getting ready to launch a roadshow for an expected $1 billion mega-deal.

In the secondary arena, Qwest Communications International Inc. bonds and those of several of its subsidiaries were better on news that the telecom operator has upsized by nearly one-third its previously announced buyback of a portion of the companies' bonds, to $3 billion from $2.25 billion originally announced (see Tenders and Redemptions elsewhere in this issue for full details). Dana Corp. was about two points better, after receiving a potentially lucrative supply contract from DiamlerChrysler's Dodge division.

During Friday's session, which saw $595 million price in two deals, the attention of the high-yield market turned with a jerk as NRG Energy hauled up with a $1 billion deal to help finance its exit from Chapter 11 - which it announced after the end of the session that it had achieved on Friday.

And attention, sources said Friday, is a commodity that could come into short supply, as the primary market anticipates a whopping $5.695 billion and €400 million to price between the start of Monday's session and the holiday break that commences Dec. 24.

"I think we're going to see a little pushback on pricing," said one sell-side official surveying the raft of deals now positioned on the forward calendar.

"It could happen particularly if there are a lot of deals on any given day, and especially if there are any drive-bys jammed in there. You are going to have to show people something pretty attractive to get their attention.

"But the secondary market would certainly support the idea that everything gets done, with things that price well and that trade well afterwards - especially with significant fund flows coming in, as they are."

A high yield investor, speaking on background, had much the same color earlier in the session.

"We've been getting money in every day," said the buy-sider.

So will the market absorb what is rapidly approaching $6 billion of paper that the investment banks hope to move between now and the holidays? Prospect News inquired.

"The cash is out there," the investor responded. "And for the most part these deals are pretty simply structured."

Friday's session seemed to be progressing much as usual in the present red hot high-yield market - a staccato of reports on deals priced, deals announced, deals price-talked and deals rumored - until word began to spread that a new 900 pound gorilla (actually it wasn't pounds, it was dollars, and it wasn't 900, it was 1,000 million) had burst upon the scene.

NRG Energy will start a roadshow Tuesday for $1 billion of 10-year senior secured notes (B2/B+), with pricing expected on Dec. 17 or 18.

Lehman Brothers and Credit Suisse First Boston are bookrunners on the deal that is expected to be a Rule 144A issue.

The Minneapolis-based power company will use the proceeds to help fund its emergence from bankruptcy.

One informed source told Prospect News that although NRG was launching with a 10-year non-call-five structure the deal might be restructured into more than a single tranche.

One sell-sider told Prospect News that given NRG's odyssey through the credit spectrum, the deal should provide a notable cross section of investors with food for thought.

"Of all the deals that one is particularly interesting to a lot of people," said the source. "It was an investment grade credit, so a lot of people on the investment grade side know the story.

"Obviously it had some trouble, so it became basically a distressed play. So you have a ton of hedge funds and distressed debt guys who know this credit very well.

"Then you have your standard high yield new issue guys who are just getting up to speed on the credit.

"I think there is going to be a lot of interest," the official continued. "Obviously it's going to be somewhat rate-sensitive. But there are plenty of benchmarks, with Dynegy, AES, Calpine and Reliant out there. It's very easy to line up all their statistics, and basically price this thing out correctly.

"From the marketing standpoint it makes things simple, good or bad. If the whole sector moves it's very hard to argue that it should price through certain credits or behind other ones.

"So depending on where that utility market stands I think there will be strong demand."

Meanwhile, Friday's session saw two deals price.

iStar Financial Inc. which had upsized to $400 million and restructured into two tranches from one tranche and $250 million on Thursday, upsized by a further $100 million on Friday.

The New York City-based commercial real estate financing company sold $500 million senior notes (Ba1/BB+), as follows:

* $350 million of 6% seven-year notes at 99.436 to yield 6.1%. Price talk was 6 1/8%-6¼%, and

* $150 million of 6½% 10-year notes at 99.275 to yield 6.6%. Price talk was 6 5/8%-6¾%.

Deutsche Bank Securities ran the books.

Also pricing Friday was Sweetheart Cup Co. Inc. with $95 million of senior secured notes due Jan. 15, 2007 (Caa1/CCC), which priced at par to yield 9½%. The Jefferies & Co.-led deal came spot on to the 9½% area price talk.

One investor said that Sweetheart, the Owings Mills, Md. converter and marketer of disposable food service products, looked attractive at 9½%.

But what about the dreaded triple-hooks - triple-C ratings from Moody's and Standard & Poor's, Prospect News objected?

"I don't think that's fair," said the investor. "It's not that leveraged.

"They have had some operating difficulties. They're not in a great business. But I don't think it's a triple-C when it's four-times leveraged."

In addition to the NRG behemoth, one other launch was heard Friday.

A two-day roadshow is expected to begin Tuesday for FPL Energy Wind Funding LLC's $125 million of senior secured amortizing bonds due June 27, 2017 (Ba2 expected/BB-), according to an informed source. Pricing is expected on Thursday.

The bonds will have an average life 6.4 years.

Credit Suisse First Boston is the bookrunner on the deal which is being issued by a holding company of Juno Beach, Fla.-based FPL Group's wind energy business.

And market source reported shortly after Friday's close that Tenneco Automotive plans to price $125 million of 10-year senior secured notes (B2/CCC+) during the week of Dec. 8. Banc of America Securities and Citigroup are the underwriters of the offer from the Lake Forest, Ill. auto parts company.

Also, SGL Carbon AG announced in a Friday press release that it intends to sell €300 million of subordinated long-term bonds.

The transaction is expected to be completed in early-to-mid February, according to the press release.

The Wiesbaden, Germany-based producer of carbon and graphite products, including graphite electrodes, also plans to obtain a €330 million six-year syndicated loan and raise at least €200 million through a rights offering to shareholders.

And news emerged during the session on the torrent of transactions expected to come during the Dec. 8 week

The price talk is 9¾%-10% on Granite Broadcasting Corp.'s $300 million of seven-year first lien notes, expected to price on Monday via JP Morgan.

Price talk of 7%-7¼% emerged on Valeant Pharmaceuticals International's $275 million of eight-year senior notes (BB-), expected to price on Monday via Bear Stearns.

And price talk of a yield in the 9¾% area was heard on SBA Telecommunications Inc.'s $200 million proceeds of eight-year senior discount notes, also expected to price on Monday, with Lehman Brothers running the books.

When the new iStar bonds were freed for secondary dealings, a trader quoted both tranches as having been offered at 102. "I didn't see a bid, but if they're offered at 102, they must have moved up [from their issue price - 99.436 for the 6% notes due 2010, 99.275 for the 6 ½% notes due 2013] to around 101 or so."

However, another trader saw the bonds having come in from such levels to end at 100.75 bid. 101.25 offered for both tranches.

He also saw the new Georgia-Pacific Corp. 8% senior notes due 2024 as having firmed to about 100.75 bid from their par issue price Tuesday, when the bonds had initially moved up when they were freed. Another trader saw them, at 101 bid, 101.25 offered.

Crown Castle International's 7½% senior notes due 2013, which priced at 98.75 on Tuesday, continued to languish in a 98.5 bid, 99.5 offered context.

Back among the established issues, news of Qwest's upsized bond repurchase - which the company said had been increased due to strong investor response - "goosed ' em up," a trader said of the Denver-based telecommunications operator's bonds.

He saw Qwest's 7¼% notes due 2011 as having moved up to 95.75 bid, 96.75 offered from Thursday's levels at 94.5 bid, 95.5 offered. Qwest's 7¾% bonds due 2031 rose to 89 bid, 91 offered from 87.5 bid, 89.5 offered, while its 7¼% operating paper notes due 2008 were half a point better at 102 bid. 103 offered. The 7¼% notes due 2007 originally issued by Qwest's LCI unit when it was still an independent entity - got as good as 97.75 bid, 98.75 offered after the news, from 95.5 bid, 96.25 offered on Thursday.

At another desk, a market observer saw Qwest's 6 3/8% notes due 2008 firmed to 95.25 bid, from 94.5.

Elsewhere, Dana Corp.'s 9% notes due 2011 were two points better at 118 bid, while its 10 1/8% notes due 2010 were half a point better at 116.5 bid.

The Toledo, Ohio-based auto components manufacturer - whose bonds firmed earlier in the week after the company said that it would look to divest its aftermarket division in order to concentrate on its OEM (original equipment manufacturer) business - had further good news for investors on Friday, as it announced that it will supply axles and driveshafts for the new 2004 Dodge Ram SRT-10 high-performance pickup truck. Dana did not speculate in its announcement about how much revenues would come from the new contract.

Other automotive names were also better, with Collins & Aikman Products Co.'s 11½% subordinated notes due 2006 revving up to 86 bid from 84.5 previously and its 10¾% senior notes due 2011 at 92, up from 90.5. Tower Automotive's R.J. Tower Corp.'s 12% notes due 2013 rose more than three points on the session to 97.5, while Delco Remy International's 11% notes due 2009 were also up three at 96 bid.

A trader saw Greyhound Lines' 11½% notes due 2007 having driven up to 92 bid, 93 offered from 90.5 bid, 92.5 offered on Thursday.

He also saw movement in Trump Holdings & Funding's 11 5/8% notes due 2010, noting a report on the Bloomberg news service quoting Scott C. Butera, executive vice president of parent Trump Hotels & Casino Resorts, as having said that the Atlantic City, N.J.-based gaming operator might be interested in selling one of its three casinos in the seaside resort city. The story also said that the debt-laden company wants to refinance $1.3 billion in order to cut its debt costs and free up money for capital expenditures.

"We were talking at our desk about this, and if we had a dollar for every time that [company chairman and CEO Donald J.] Trump said he was going to sell a casino property, we'd all be rich," he said.

Nonetheless, the 11 5/8% bonds were up a point on the session at 93.5 bid, 94.5 offered, although the company's Trump A.C. 11¼% bonds due 2006 were little changed around 76.5 bid, 77 offered.

The trader said there was also movement in some distressed names, with Magellan Health Services' 9% notes hanging in at 73.5 bid, the levels they had risen to around mid-week from the upper 60s, while Foster-Wheeler's 6¾% notes due 2005 improved to 66 bid from the lower 60s previously.

"The distressed area is still on a tear," he said, especially issues with fairly fat coupons, like Magellan's 9% or companies with coupons in the 10%, 11% and 12% range. "If they're selling at a discount," he said, "fundamentals don't matter" to a lot of debt investors who just want the cash flow and who see buying bonds at sharply distressed levels as a relatively inexpensive way of getting it. "If it's at a discount, that's enough rationale for it to be bid up," he said.

"The junk market continues to perform," opined another trader. "It's been quite a ride and it's continuing as people pour money into that asset class. People got under-weighted in spread product, thinking that the bad news for the economy is going to go on forever - they got so many head fakes, that they ended up getting left at the gate."

He saw Friday's trading, however, as "a lot of noise - but not much happening," and that which did happen, did so fairly early. With a storm bearing down on Wall Street and the rest of the Northeast, "people did what they had to - and then headed for the door."

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