KB Homes drive-by paces primary; Rite-Aid off on warning

By Paul Deckelman and Paul A. Harris

New York, Dec. 7 - KB Home Inc. became the latest issuer to strike while the iron is hot, moving quickly Tuesday to sell a suddenly appearing $300 million bond issue. Also in the primary sphere, Horizon Lines' parent priced a quickly shopped discount note offering while European issuer Thiel Logistik AG chimed in with a scheduled calendar offering.

In the secondary arena, Rite Aid Corp.'s notes and shares were lower after the Camp Hill, Pa.-based drugstore chain operator warned that its fiscal 2005 results will fall below expectations if current sales trends don't change.

The high-yield primary market saw over half a billion of dollar-denominated issuance sold during the Tuesday session, all of which had been marketed drive-by fashion.

Also the only euro-denominated deal expected to get done during the present week was completed as Thiel Logistiks, which had marketed its offering on the road, priced €130 million on top of inwardly revised price talk.

Meanwhile prospective issuers set the stage for a comparatively busy mid-week session.

Counting the shopping days

And although no one reported hearing any sleigh bells, one source suggested that notable recent buildup of the new issue calendar, which now has in excess of $9.5 billion of business expected to price by the Dec. 24 close, may be tapering off.

The close of Tuesday's session left an even dozen full market sessions remaining before Christmas.

"Things are bound to begin to let up just a little," one source suggested.

"We've been hearing that the week before Christmas could be a busy one, but it's difficult to believe that much will happen after Tuesday, Dec. 21 or Wednesday, Dec. 22.

"You have to wonder how much attention you are going to get from the accounts if you wait much longer to launch your deal."

KB Home draws high-grade interest

The day's largest transaction was completed by Los Angeles-based homebuilder KB Home, which sold $300 million of 5 7/8% senior notes due Jan. 15, 2015 (Ba1/BB+) at 98.134 to yield 6 1/8%, at the wide end of the 6% area price talk.

Credit Suisse First Boston ran the books for the debt refinancing issue.

Shortly after terms circulated the market one sell-side source said that the credit is just barely junk.

"There were high-grade and high-yield accounts that got in on this one," the source said.

"Based on KB Home's credit profile, this is an investment-grade company. The rating agencies have fallen behind on their credit development."

Horizon Lines wide of talk

Elsewhere Tuesday H-Lines Finance Holding Corp., parent of Horizon Lines, sold $160 million of senior discount notes due April 1, 2013 (Caa2/CCC+) at 70.169 to yield 11%, well wide of the 10 3/8% to 10 5/8% price talk.

The sale raised $112.27 million of proceeds.

Goldman Sachs & Co. and UBS Investment Bank ran the books for the debt refinancing and dividend funding deal from the Charlotte, N.C.-based container shipping and logistics company.

One sell-sider pointed to the Horizon Lines deal which came wide of talk, as well as to CDRV Investors Inc.'s $300 million proceeds of 10-year senior discount notes (Caa2/B-) - terms on which had been anticipated during the Tuesday session, according to the source - and said that neither is the sort of deal that flies out the door, as both involve stock dividend payments in their uses of proceeds.

The deal for CDRV, parent of VWR International Inc., is talked at 9½% to 9¾%, and is expected to price on Wednesday, according to market sources.

Also pricing Tuesday was SI Corp.'s quick-to-market $80 million issue of senior secured floating-rate notes, which came at 99.50, and will pay an interest rate of six-month Libor plus 825 basis points.

JP Morgan and Bear Stearns & Co. ran the books for the debt refinancing deal from the Chickamauga, Ga.-based manufacturer of synthetic fabrics and fibers.

Thiel on top of revised talk

In the European high-yield primary market, Thiel Logistik sold €130 million of eight-year senior subordinated notes (B3/B-) at par to yield 8%, right on top of the revised 8% area price talk.

Earlier the deal had been shopped at 8 1/8% to 8 3/8%.

Deutsche Bank Securities and Morgan Stanley ran the books for the debt refinancing deal from the Grevenmacher, Luxembourg-based logistics company.

Healthy volume seen for Wednesday

Meanwhile the mid-week session is shaping up to be a sizable one in the junk bond market, with terms anticipated on as many as six deals.

Price talk is 6 7/8% to 7 1/8% on Texas Genco LLC's $1.125 billion of 10-year non-call-five senior notes (B1/B), expected to price Wednesday via Goldman Sachs & Co.

Price talk is 6¼% to 6½% on Scientific Games Corp.'s $200 million of 10-year non-call-five senior subordinated notes (B1/B+), with terms expected on Wednesday. JP Morgan and Bear Stearns & Co. are the bookrunners.

Talk is 7½% to 7¾% on The Pep Boys - Manny, Moe & Jack's $150 million of 10-year non-call-five senior subordinated notes (B3/B), via Goldman Sachs & Co.

And finally, price talk is 9% to 9¼% on Carrols Corp.'s downsized $180 million offering of eight-year non-call-four senior subordinated notes (B3/B-).

The offering was decreased from $200 million, with the company shifting $20 million to its credit facility.

JP Morgan and Banc of America Securities are joint bookrunners.

Add to those the above-mentioned VWR deal and Ryerson Tull Inc.'s $150 million of seven-year notes, talked earlier in the week at 8¼% area, and Wednesday figures to see in excess of $1.5 billion of business price.

Stone to host investor call

Finally, Stone Energy Corp. plans to price $150 million of 10-year non-call-five senior subordinated notes (existing ratings B2/B+) on Wednesday or Thursday, on the heels of an 11 a.m. ET on Tuesday investor conference call.

Banc of America Securities has the books for the debt refinancing deal from the Lafayette, La.-based independent oil and gas company. It is expected to price on Wednesday or Thursday.

KB Home slips in trading

When the new KB Home 5 7/8% 10-year notes were freed for secondary dealings, they were seen having retreated to 97 bid, 98.375 offered, from their 98.134 issue price earlier in the session.

Rite Aid lower

Back among the established issues, Rite Aid's 6 7/8% notes due 2028 were seen down 2½ points, at 75 bid, while the company's other bonds "were all down a little, around the same amount," a market observer said.

He quoted Rite Aid's 6% and 7 5/8% notes, both due 2005, as having both fallen to 100.5 bid, down 1¾ points and two points, respectively, while its 6½% notes due 2013 were also down a deuce at 87.75.

Another trader saw the company's 6 7/8% notes due 2013 at 90 bid, 92 offered, two points weaker on the day, although he had little movement among the shorter paper, such as 7 5/8s, at 100.5 bid, 101.5 offered.

Those shorter notes "really didn't weaken," while the longer stuff "was all down around the same two points."

At another desk, though the 12½% notes due 2006 were actually seen firmer at 113, a gain of about half a point. But the 9¼% notes due 2013, like the other long-term debt, lost more than a point to 102.25 bid.

Rite Aid's New York Stock Exchange-traded shares were meantime down 23 cents (6.32%) to $3.41. Volume of 11.5 million shares was just under four times the norm.

The company issued its earnings warning in tandem with its report that same-store sales - those sales at stores open at least a year, the key financial metric for retailers - were down 1.3% from year-ago levels during the five weeks ended Nov. 27. Total drugstore sales in that period fell 1.6% to $1.56 billion.

Year-to-date, same-stores are down 2.5%.

In November, fewer people were getting the flu - despite the nationwide vaccine shortage - than had been the case a year ago, but that weaker flu season was bad medicine for RiteAid, which said that pharmacy same-store sales fell 1%.

Rite Aid said that among the factors acting as a drag upon sales was the provision in the United Auto Workers contracts that members of the huge union order certain prescriptions only by mail, which would naturally cut into the sales at UAW members' neighborhood pharmacies.

Rite Aid chief executive Mary Sammons, in the company statement, also cited tougher year-over-year comparisons for the reduced sales.

It said that it would release fiscal third-quarter results on Dec. 16.

Medex gains

Elsewhere, a market observer saw Medex Inc.'s 8 7/8% notes due 2013 push up strongly on news that the Carlsbad, Calif.-based medical products maker has agreed to be acquired by Smiths Group plc, a British-based medical products company.

Financial terms of the proposed acquisition were not disclosed. Completion of the acquisition, expected in the New Year, is subject to regulatory approval.

Medex's 8 7/8% notes due 2013 were seen having pushed up to 117.5 bid from 110.75 previously.

Levi Strauss rises

Levi Strauss & Co. bonds"were defying gravity," a trader said, quoting the San Francisco-based apparel maker's 12¼% notes due 2012 were at 108.25 bid, a level which he said was "unbelievable," up from 107.75 bid, 108.25 offered the previous session. He also saw Levi's 11 5/8% notes due 2008 at 105.25 bid, 105.5 offered.

Little or no movement was seen in the bonds of Lucent Technologies Inc., even as Sprint Corp. announced plans to spend plans to spend as much as $3 billion to improve its wireless network.

That's expected to boost incumbent equipment suppliers such as Lucent and Nortel Networks Corp.

Still, Lucent's 7¼% notes due 2006 were seen unchanged at 104.375 bid, 104.875 offered, while the Murray Hill, N.J.-based equipment provider's 6.45% notes due 209 were also seen unchanged around 87.75 bid, 88.75 offered.

Canadian-based telecom equipment maker Nortel's 6 1/8% notes due 2006 were also steady, around 102 bid, 103 offered.

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