Lucent up on SEC accord; upsized Northwest prices; funds see giant $1.54 billion inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 27 - Lucent Technologies Inc. bonds were several points better, after the telecommunications equipment maker settled a federal probe of its accounting practices on favorable terms. Royal Ahold NV bounced after three consecutive sessions earlier in the week of losses linked to accounting problems.

The high-yield primary market demonstrated notable propulsion during the session. Although only one transaction was reported to have priced, news of four new offerings surfaced, and talk was heard on three energy deals that figure to price by the end of Friday's session.

Terms were heard on an upsized offering from Northwest Pipeline Corp. of $175 million of seven-year notes, which came at the tight end of talk.

Meanwhile The Shaw Group, of Baton Rouge, La. announced $250 million of seven-year bonds. Newport Beach, Calif.-homebuilder William Lyon Homes, which had been standing watch on the threshold since the middle of last August, walked in the door with a 10-year offering of $200 million. Swiss chocolate maker Barry Callebaut Services pulled the wrapper off €150 million of seven-year notes. And word circulated that Peabody Energy would attempt to mine $500 million from the accounts.

Physicists say that meaningful propulsion requires fuel, and the high-yield mutual funds, after dribbling two successive weeks of outflows, came up with the fuel: the funds were reported to have taken in a whopping $1.54 billion for the week ending Feb. 26.

Shortly after the conclusion of Thursday's session market sources advised Prospect News that AMG Data Services, of Arcata, Calif., reported a $1.54 billion inflow for the week ending Feb. 27, far eclipsing two previous outflows that had been reported.

Many market participants regard the fund flow numbers as a reliable barometer of overall liquidity trends in the junk market. The strong surge of liquidity seen since last fall has coincided with both a revival of previously moribund new-deal activity and a robust secondary market.

The latest week's mega-inflow is the largest since the week ended last Aug. 28, when inflows totaled $1.556 billion, and is one of the largest single-week totals ever recorded. All by it self, it more than offsets the net outflows which the junk market had seen in four of the previous five weeks, including the $140.721 million outflow recorded in the week ended in the week ended Feb. 19. On the strength of the huge gain this week, the cumulative year-to-date net inflow total nearly doubled to $3.118 billion, with inflows seen in four weeks out of eight since the beginning of the year.

"Given all the jitters in the equity market we thought high yield would suffer another sizable outflow," one sell-side official said as the news of the inflow circulated.

"But the humongous inflow this week, coupled with the $1.6 billion inflow for the week of February 7, will definitely keep the primary market at a very healthy level going into March."

Another sell-sider who spoke to Prospect News soon after word of the inflow circulated had been expecting a positive number - but not THAT positive.

"The market is good right now," said the official. "We've seen a lot of the more defensive sectors trading up - homebuilding and energy in particular.

"When you get an inflow number it's always a week late," the sell-side source added. "This inflow started coming in last week. So the secondary market started looking better in the middle of this week, on account of the fact that there was going to be more inflows than there is new issuance this week."

Terms on one of the deals from a sector that this official labeled "defensive" emerged during Thursday's session. Northwest Pipeline upsized its deal to $175 million from $150 million and priced the seven-year senior notes (B3/B+/BB-) at par to yield 8 1/8%, at the tight end of the 8 1/8%-8 3/8% price talk. Lehman Brothers was bookrunner.

When the new Northwest Pipeline bonds were freed for secondary dealings, they were quoted as having traded up to 101.5 bid/102.5 offered on the break, from their par issue price earlier in the session.

Meanwhile Thursday talk emerged on three other energy deals in the market that are expected to price during Friday's session.

Price talk of 7 5/8% area was heard on Chesapeake Energy Corp.'s $300 million of 10-year senior notes (Ba3), expected to price Friday via Salomon Smith Barney, Credit Suisse First Boston and Bear Stearns.

Price talk was also heard on two separate deals, for a combined $700 million from subsidiaries of El Paso Corp. Talk is 9 1/8%-9 3/8% on Southern Natural Gas Co.'s $400 million of seven-year senior notes (B1/B+) as well as on ANR Pipeline Co.'s $300 million of seven-year senior notes (B1/B+). Both deals, via Salomon Smith Barney and Credit Suisse First Boston, are expected to price Friday.

News of four new offerings also surfaced during Thursday's session.

The roadshow will begin Friday on Shaw's $250 million of seven-year senior notes, an offering which, according to a syndicate source, will carry speculative-grade ratings in spite of the company's BBB- corporate credit rating from Standard & Poor's. Credit Suisse First Boston and UBS Warburg are joint bookrunners on the deal which is expected to price during the week of March 10.

A Monday roadshow start is expected for William Lyon's $200 million of 10-year senior notes (B3/expected B-), a registered deal expected to price March 12 via UBS Warburg and Salomon Smith Barney.

And Friday will mark the start of a roadshow for Barry Callebaut Services' €150 million of seven-year senior subordinated notes (B1/BB-), expected to price during the week of March 3 via bookrunner Credit Suisse First Boston.

And although there was no word as to timing or the composition of the syndicate, Peabody Energy, the St. Louis-based coal company, was heard Thursday to be headed to the high-yield market with $500 million of new senior notes.

The company is also taking a $600 million term loan and $600 million revolver led by Lehman Brothers, according to a source.

Finally on Thursday price talk of 12% area emerged on Fairpoint Communications, Inc.'s $225 million of seven-year senior notes (B3). The Charlotte, N.C. rural telecommunications services-provider's deal, via Credit Suisse First Boston and Salomon Smith Barney, is expected to price Monday.

Back in secondary market activity, Lucent bonds were being quoted about two to three points better on the session, after the Murray Hill, N.J. based telecom equipment company reached an agreement with the Securities and Exchange Commission that settles a two-year probe of Lucent's revenue-recognition issues. Lucent would not be required to pay any fines or restate any results - only to say that it promised not to do anything similar in the future.

Lucent's benchmark 7¼% notes due 2006 were quoted as having firmed to 85.5 bid from prior levels at 83, while its 6.45% notes due 2029 rose to 59.5 bid from 57 previously. Lucent shares were up 10 cents (6.62%) in New York Stock Exchange dealings to end at $1.61, on volume of 49.2 million shares, just slightly busier than normal.

Nortel Networks Corp., a Brampton, Ont.-based Lucent rival whose bonds and shares often move in tandem with Lucent, was also up, its 6 1/8% notes due 2006 pushing up to 89.5 bid, 90.25 offered, before retreating slightly from that peak to end at 89 bid/90 offered, up half a point. Nortel's NYSE shares rose 17 cents (8.17%) to $2.25, on volume of 58.6 million shares, almost double the usual.

Ahold - whose bonds and shares had been clobbered for three straight sessions since it revealed on Monday that there were accounting irregularities at its U.S. Foodservice unit, which in turn led to the resignations of its chief executive officer and chief financial officer, "definitely strengthened Thursday," a trader said, after the company indicated that the problem was essentially confined to the foodservice unit and did not affect the rest of the company, which includes the U.S. supermarket chains Giant and Stop N Shop.

He quoted Ahold's 6¼% notes due 2009 at 69 bid/70 offered, its 8¼% notes due 2010 at 71.5 bid/73.l5 offered, and its 6 7/8% notes due 2029 at 62 bid, "all up at least two to three points." Those bonds are still well below the levels near or above par that they held a week ago, before all of the problems surfaced. Ahold's NYSE shares jumped 99 cents (31.83%) to $4.10 on volume of 13.6 million shares, about 14 times the norm.

Elsewhere, Friendly Ice Cream Corp.'s 10½% notes due 2007 were seen having pushed up to 99.5 bid from prior levels around 98; on Wednesday, the Wilbraham, Mass.-based ice cream manufacturer and operator of the eponymous restaurant chain posted a wider fourth-quarter loss, but reported 2002 fiscal year net income of $6.2 million (82 cents per share), versus $3.7 million (50 cents per share) for fiscal 2001.

Rural Cellular Corp.'s 9¾% notes due 2010 were heard to have improved as much as three points from previous levels, to around 69 bid; the Alexandria, Minn.-based wireless communications operator reported earlier in the week that fourth-quarter EBITDA increased 12% from year-earlier levels, to $47.7 million versus $42.6 million, while free cash flow - that is, EBITDA less net capital expenditures and cash interest expense - increased 33% to $8.8 million from $6.6 million a year earlier, while free cash flow for the full year increased 134% to $71.4 million from $30.4 million in 2001.

Airgate PCS Inc.'s zero-coupon notes due 2009 were quoted bid around 8.25, the level to which the bonds had eased from previous levels around 9 bid, on the announcement earlier this week that the Atlanta-based Sprint PCS affiliate's iPCS Inc. subsidiary had filed for Chapter 11 protection from its creditors.

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