UbiquiTel, Pantry lead busy pre-holiday primary; Allegiance bonds up on winning XO asset bid

By Paul Deckelman and Paul A. Harris

New York, Feb. 13 - Friday's session was short - but action-packed, at least for primary market players, as a slew of new deals priced before the market finally wrapped up trading with an early close at 2 p.m. ETahead of Monday's Presidents' Day holiday. Among the issues which were heard by syndicate sources to have priced were upsized offerings from UbiquiTel, The Pantry Inc. and Overseas Shipping.

Besides the deals which priced, Chattem Inc. was heard to be putting together a $200 million two-parter for pricing during the upcoming week. But Buffet's Holdings Inc.'s $100 million placement is apparently off the table.

While the primary was abuzz with new deals clattering down the chute, things were considerably more sedate in the secondary, where traders said trading was extremely light and pretty much over by mid-morning. One name which did stand out, however, was Allegiance Telecom, whose bonds moved sharply higher on the news that XO Communications had emerged as the winning bidder for most of the bankrupt Dallas-based competitive local exchange carrier's assets, topping a previous stalking horse bid put forward by Qwest Communications International Inc.

After news of the second consecutive $1 billion-plus outflow from the high yield mutual funds boxed it into the corner, the high-yield primary appeared to punch its way back into the center of the ring during Friday's holiday-abbreviated session.

Four deals priced - including one from late Thursday - netting junk bond issuers $845 million of proceeds. Three of the four came upsized and at least two priced tight to talk.

"The primary market is still rolling along," said one sell-side official after Friday's early close. "You can't jam the market completely, anymore, but things are still getting priced.

"Maybe half of the deals that got done over the last week came at the wide end of talk and some are even wide of talk," the source added. "But things are still getting done.

"And despite $1.5 billion flowing out last week and another $1 billion reported this week, the accounts still have plenty of money."

UbiquiTel sells upsized $270 million

Late Thursday night UbiquiTel priced an upsized $270 million of 9 7/8% seven-year senior notes (Caa1/CCC) at 98.26, to yield 10.227%, according to a syndicate source.

The Sprint-affiliated wireless phone company's deal, led by Bear Stearns & Co. and Citigroup, came toward the wide end of the 10%-10¼% price talk.

On Friday The Pantry, Inc. priced an upsized $250 million of 10-year senior subordinated notes (B3/B-) at par to yield 7¾%.

Credit Suisse First Boston and Wachovia Securities ran the books for the Sanford, N.C. convenience store operator, whose deal came tight to the 7 ¾%-8% price talk and was increased from $225 million.

Also Russel Metals Inc. sold $175 million of 10-year senior notes (Ba3/BB-) at par to yield 6 3/8%.

The Toronto-based metals distributor's new paper also came at the tight end of the 6 3/8%-6 5/8% talk, with Citigroup running the books.

And in the only drive-by in the U.S. market on Friday Overseas Shipholding Group priced an upsized $150 million, from $125 million, of 20-year senior notes (Ba1/BB+) at par to yield 7½%, via UBS Investment Bank.

Timing heard on Calpine

An offering of approximately $1 billion of non-recourse second priority secured notes from Calpine Generating Co., LLC will be on the road through Thursday, and is expected to price late Thursday or Friday.

Deutsche Bank Securities will run the books for the deal, proceeds from which will go to refinance the San Jose, Calif. power generator's bank debt set to mature in November 2004.

And a two-day roadshow is set to get underway Wednesday for Chattem Inc.'s $200 million of notes in two tranches, with pricing expected late in the week of Feb. 16.

The Chattanooga, Tenn. health and beauty care product company is offering $75 million of six-year floating rate notes, and $125 million of 10-year non-call-five senior subordinated notes.

Banc of America Securities and Morgan Stanley Dean Witter will run the books.

Buffets confirms rumor of deal's demise

Throughout the Feb. 9 week whispers had circulated the market that Eagan, Minn. restaurant operator and franchiser Buffets, Inc.'s $100 million of 10-year senior discount notes deal (Caa1) was facing tough sledding.

And on Friday the company, citing market conditions, confirmed that it had withdrawn the offer.

Credit Suisse First Boston was to have been the bookrunner.

Buffets Holdings still intends to enter into an amended $310 million senior secured credit facility. The company expects to close the bank deal before the end of February 2004.

None of the deals which had priced during Friday's abbreviated session were heard to have been freed for secondary dealings; however, Solo Cup Co.'s new 8½% senior subordinated notes due 2014, which had priced at par on Thursday, firmed smartly to 102.5 bid, 103 offered.

Allegiance shoots higher

Back among the established issues, Allegiance's 11 3/8% notes due 2008 and 12 1/8% notes due 2008, which had closed Thursday at 41 bid, 43 offered, shot as high as 58 bid in early trading Friday before coming off those highs to settling in at 53 bid, 55 offered, on the news that Reston, Va.-based CLEC XO - controlled by billionaire investor Carl Icahn, who bought it out of bankruptcy less than two years ago - had emerged as the winning bidder for substantially most of Allegiance's assets. The addition of Allegiance's network - which services business customers in 36 large markets across the country - to XO's existing network now builds XO into a potential super CLEC capable of challenging existing regional Bell operating companies such as Qwest and Verizon Communications in some markets, according to telecom-industry watchers.

Back in December, Qwest had bid $300 million in cash plus $90 million of new convertible debt for those assets, but XO topped that with a bid of $311 million cash and 45 million shares of its stock, which at current market prices is worth about $317 million.

Allegiance filed for bankruptcy last May. Its bonds had languished for some weeks in the lower 30s but began moving up this past week - first to the mid-to-upper 30s and then to bid levels around 41 - on market scuttlebutt that another bidder had appeared on the scene to try to top Qwest's bid. As it turned out, those rumors were correct, and the bonds pushed into the 50s Friday.

Nextel gains a point

Also in the telecom world, Nextel Communications Inc. and Verizon settled lawsuits that each cellular carrier had filed against each other, a legal battle growing out of Verizon's efforts to challenge the smaller Nextel's dominance in the push-to-talk walkie-talkie-type service that it offers to business customers.

Terms of the settlement were not disclosed.

Nextel's bonds were quoted about a point higher across the board, a trader said.

Meanwhile, junk market players expressed skepticism over reports that Reston, Va.-based Nextel might actually be a serious bidder for AT&T Wireless, as some news stories have suggested.

"I don't think they're in a position to buy anyone," a trader said. "If anything, they would be looking to be acquired." With the prospect of consolidation in the overcrowded wireless industry looming, sparked by the sale of AT&T Wireless, "I don't see Nextel as a stand-alone company," long-term.

AK Steel gains on sale

Elsewhere, AK Steel Corp.'s bonds were seen mildly better, in the wake of news that the Middletown, Ohio-based steelmaker had agreed to sell Greens Port, an industrial park in the Houston area, for undisclosed terms.

AK's 7 7/8% notes due 2008 firmed about half a point to 88.5 bid, 89.5 offered, while its 7¾% notes due 20102 edged up to 86.5 bid, 87.5 offered, about half a point better on the announcement.

Tenet Healthcare Corp. bonds "seemed to be off a little bit," a market observer said, quoting the Birmingham, Ala.-based outpatient services provider's 6 3/8% Notes due 2011 as having dipped to 88.5 bid from prior levels at 90, while its 7 7/8% notes due 2013 eased to 92 bid, down two points on the session.

Trump eases after jump

Trump Hotels & Casino Resorts Inc. bonds, which had firmed smartly on Thursday on the news that Credit Suisse First Boston will provide a $400 million equity investment in the debt-laden Atlantic City gaming operator so that it can restructure its debt, was heard to have eased slightly from the highs it hit Thursday, with Trump Holdings & Funding's 11 5/8% notes due 2010 having slipped back a point and a half to par bid.

However, the Trump Atlantic City Associates 11¼% first mortgage bonds due 2006, which had jumped to around 84 bid Thursday from 79 previously, were seen clinging to that level.

"People look at [the CSFB deal ] as a reasonable arrangement," a trader said, although the ratings agencies don't think so and many bondholders would doubtless agree, since the debt restructuring will call for Trump to buy back much of its bond debt at sharply discounted levels that the ratings agencies say amount to a default. Both Moody's Investors Service and Standard & Poor's lowered their ratings on Trump debt on Thursday.

Meanwhile, details emerged Friday on the ownership structure of the company, assuming the deal goes through as planned. CSFB will assume a 65% stake in the company, with the stake of current majority owner and chairman, Donald Trump, dropping to around 20% from 53% previously.

The Donald - who has recently embarked on a new career as a television performer with his NBC reality series "The Apprentice" - will remain the company's chairman and public front man - at least for a while - and his name will stay on the company even though he will now be a minority owner.

A trader said that the quiet market seemed little fazed by the second huge outflow from junk bond mutual funds to be reported in as many weeks, $1.039 billion in the week ended Wednesday; combined with the $1.568 billion cash hemorrhage reported by AMG Data Services for the previous week, some $2.607 billion more has left the funds than has come into them over the past two weeks. The funds are seen as a reliable indicator of overall market liquidity trends.

However, the trader suggested, "people were sort of expecting it," since there had been a big outflow the previous week and the market continued to tread water after that.

A trader said even though there was a big outflow, there were not a lot of people around to react to it, since "a lot of accounts were out today."

Overall, he said, "people are hesitant to put anything out there, when they feel like nobody else will stick their neck out. With the holiday weekend, there really was only an hour or two of actual business - and then everyone just went home."

Emerging markets see $325 million price

Corporate issuers from Guatemala, Indonesia and Russia each priced bond deals on Friday, according to market sources.

Russian integrated steel manufacturer OAO Severstal sold $325 million of putable five-year loan participation notes (B2 expected/B+) at par to yield 8 5/8%, spot on the 8 5/8% area price talk, with Citigroup running the books.

Indonesian gas company PGN Euro Finance priced a downsized $125 million of 7½% 10-year bonds (B2/B+) at 98 to yield 7.877%, which was wide of the 7.35%-7½% price talk. The deal was reduced from $150 million. One source told Prospect News that guidance on the Credit Suisse First Boston-led deal had widened out in the end to 7 7/8% area.

And Guatemala City, Guatemala-based CabCorp (Central American Bottling Corp.) priced $50 million of five-year bonds (B2) at par to yield 9% via UBS Investment Bank

Prospect News learned from a senior sell-side source on Friday that Brazilian corporate Construtora Norberto Odebrecht SA's $150 million five-year notes (B+) are being heard around the market in the low-to-mid 11% range.

No timing was heard on the Brazilian construction company's deal, via underwriters Credit Suisse First Boston and Unibanco.

"Odebrecht is a pretty well-known company in Brazil," said the sell-side source.

"It's interesting that they would be paying those kinds of levels."

Emerging markets calmer

The official added that the emerging markets had evened out somewhat over the past week, in the wake of the chop that ensued when the Federal Reserve Bank's Federal Open Market Committee Meeting in late January stirred apprehensions that interest rates would not stay low forever.

However, added the sell-sider, no return to the halcyon days of January 2004 is anticipated anytime soon.

"The trend has been better over the past week but there is still a lot of intra-day volatility on the lower-rated credits," said the official.

"People tend to look at Brazil as the benchmark. And some of the longer dated Brazil paper probably widened by a good 120 basis points. Now it's probably 80 basis points wide of its tightest levels. So it has come in a bunch from its wides. But I don't think anybody expects it to go back to where it was. I think people saw the market as overdone and deserving of a correction."

This source told Prospect News that emerging markets are presently beset by the same afflictions that have lately come over a wide swath of fixed income.

"The whole market is softer - high grade as well," the official said. "High grade on a relative basis has probably seen less supply than any of the markets. But even there people are trading more cautiously with regard to new issues.

"People, in general, are trading more cautiously. Investors are waiting for higher Treasury yields."

This sell-sider noted that, as has been reported in high yield, the frothy days when just about any issuer could sell bond appear to be over.

"We had a lot of supply in January: $18 billion-plus," the official said. "That's a very big month for emerging markets.

"A lot of that supply was on the long end of the curve. We had a couple of sovereigns do 20- or 30-year bonds - Brazil, Turkey, Columbia and Venezuela. And all of those names are among the lower rated names in our market.

"The deals all went extremely well at the time but once you hit the FOMC things backed up.

"Issuers that might have been able to get things done in the middle of January would, in some cases, have a tougher time today."

That said, the source added, the Islamic Republic of Pakistan, laden as it is with political pitfalls, managed to sell $500 million of sovereign bonds.

"It went extremely well," said the official. "Five-year Pakistan paper at 6¾% is a pretty tight yield for a country that has a lot of political risk around it.

"But there were over $2 billion in orders in the book. It was a Regulation S-only deal, largely led by European, Middle Eastern and Asian investors."

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