KB Home, Remington, price offerings; Remington hits target in shortened secondary dealings

By Paul Deckelman and Paul A. Harris

New York, Jan. 17 - KB Home and Remington Arms Co. Inc. came to market with new deals in an abbreviated pre-holiday session Friday; when the gunmaker's upsized offering was freed for secondary trading, the new bonds firmed smartly, participants saying it was about the only major activity seen in the truncated session.

KB Home's $250 million of off-the-shelf eight-year-non-call-four 7¾% senior subordinated notes (Ba3/BB-) priced at 98.676 to yield 8%, spot on to the 8% area price talk. UBS Warburg ran the books on the rapidly shopped transaction for the Los Angeles-based single-family homebuilder.

Remington Arms' increased its deal to $200 million from $175 million and priced the eight-year-non-call-four senior notes (B2/B-) at par to yield 10½%, via Credit Suisse First Boston.

And late in Friday's abbreviated session Prospect News learned that the roadshow starts Tuesday on a Rule 144A offering from Anchor Glass Container of $300 million 10-year senior secured notes. The Tampa-based container company's debt refinancing deal, via Deutsche Bank Securities Inc., Credit Suisse First Boston and Banc of America Securities, will likely price late in the week of Jan. 27.

The high yield buy-side likely would have preferred more such announcements Friday, as it is presently reported to be laboring under an abundance of cash that it needs to put to work.

Junk bond mutual funds reportedly took in $927.8 million for the week ending Jan. 15, the 13th week of inflows in the last 14. The previous week saw what was reportedly the ninth largest inflow ever: $1.025 billion.

"They already had lots of cash and now they have more cash," commented Mike Difley, American Century High Yield Fund vice president and portfolio manager, during a Friday conversation with Prospect News.

"I think we've had close to $3 billion come in year-to-date, which is a pretty enormous amount," Difley added

"The secondary market had rallied early in the year because there really hadn't been much in the way of deal announcements. Now it looks like people are starting to be more focused on the primary market."

Asked what is attracting the cash into the high-yield asset class Difley cited several factors, including the bandwagon effect.

"Some people may be a little late to the game," the American Century High Yield Fund manager said. "If you're a good market timer you know we had a tremendous rally in the last quarter of 2002. Perhaps some people have seen that performance and they want to jump on board.

"And certainly the press has been saying positive things about high yield this year. If we get an economic recovery high yield could do well; if interest rates go higher high yield bonds are poised to perform better than Treasury-related funds.

"And spreads are still at pretty historically wide levels and default rates are falling, so there are some good signs out there for high yield and I think people are jumping on the bandwagon. And with yields so low on everything else out there people are looking for some yield, so they are attracted to high yield."

Difley told Prospect News that while investors seem to be cognizant of the possibility of "market pressure" should the U.S. wage war upon Iraq, he stipulated that: "Most people seem to be assuming the war would be short, and are looking out beyond it."

Although Difley did not specify any credits he was playing on the forward calendar he said he would be taking a close look at Casella Waste Systems, Inc.'s sale of $150 million 10-year senior subordinated notes (B3/B) via Goldman Sachs. Price talk of 9¾%-10% emerged Friday on that deal which is expected to price when market activity resumes on Tuesday.

"It's basically the same deal that they pulled last summer, purely due to market conditions," Diffley commented on the Casella transaction. "We were still in the swirl of a lot of negative corporate headlines then. And the high-yield market at that point was not faring very well so it was not a good time to bring a bond deal.

"It's a stable type of cash flow business, which is why investors are attracted to the solid waste business," he added. "And Casella seems to have a pretty moderate leverage profile, and has a pretty good market share in the areas it's involved in. So it looks to be a reasonably well-positioned company."

As the week of Jan. 13 came to a close Bear Stearns, in its Morning Notes, summed up the funds flows picture by stating: "Inflows have totaled $8 billion over the past three months, vs. $14 billion of new issuance."

The Bear Stearns report also stated that the deals expected to price in next three weeks total about $2.5 billion, and that the "visible aggregate forward calendar stands at about $6 billion, the highest since June 2002. Peak rates were $12 billion during May 1999, the report added.

When Remington's new 10½% senior notes due 2011 were cleared for secondary dealings, they "did real well," a trader said, quoting them at 103.25 bid/104.25 offered, well up from their par issue price.

In contrast, the new KB Home 8% senior subordinated notes due 2010 were actually seen having eased slightly, to 98.25 bid/98.75 offered, from their 98.676 issue price.

Also on the new-issue front, American Media Operations Inc.'s new 8 7/8% senior subordinated notes due 2011 were quoted Friday at 102.25 bid/102.75 offered - off slightly from Thursday's closing levels at 102.75 bid/103.25 offered, although still well up from their par issue price earlier Thursday. The Boca Raton, Fla.-based supermarket tabloid publisher's existing 10¼% notes due 2009, meantime, were being quoted a point firmer on the session at 106.5 bid.

Otherwise, things were "pretty quiet," a distressed-debt trader noted, with the market officially closing up shop by 2 p.m. ET ahead of the three-day Martin Luther King Day holiday weekend, which also kept U.S. financial markets closed altogether on Monday. The official closing time on Friday, of course, came long after most players who had even bothered to come in for the shortened session had done their business and left.

"I was out all week," a trader lamented, "and I came in for a couple of hours [Friday] - but what for? There was hardly anything going on here" aside from the two new deals and what little secondary action those new bonds saw otherwise.

He quoted Lucent Technologies Inc.'s 7¼% notes due 2006 down a point, at 67 bid/68 offered. Otherwise, he said, things were pretty much "status quo" versus Thursday's closing levels.

Another trader also saw the Lucent notes "noticeably weaker" in having fallen to that 67 context, although he pegged the issue down about 1½ points from prior levels, at 67.5 bid/67.875 offered.

The trader acknowledged that some erosion was inevitable after the handsome run-up that the bonds of the Murray Hill, N.J.-based telecommunications equipment maker had seen in recent weeks (Lucent bonds have almost doubled from levels seen during the fall; in mid-October, for instance, the 71/4s languished in the upper 30s).

He also noted that "while the numbers have been OK" on such technology bellwethers as IBM Corp. and Microsoft Corp., "the guidance [for future earnings results] hasn't been very good, and I think you've just seeing some general weakness in techs."

Another tech name on the downside on Friday was Amkor Technology Inc., whose 9¼% notes due 2006 were down nearly three points, at 92.5 bid. But Fairchild Semiconductor's 10½% notes due 2009 were up nearly a point at 110.75 bid.

The trader also saw TimeWarner Telecom's 9¾% notes due 2008 backtracking to 60.5 bid/62 from prior levels at 62.5 bid/64.5 offered.

Elsewhere in the telecom sphere, the distressed-debt trader saw the bonds of WorldCom Inc. "a little weaker," at 27.875, down about three-quarters of a point from Thursday's levels; earlier in the week, the bonds of the bankrupt Clinton, Miss.-based telecom operator had been seen as high as 27 bid. With the company in Chapter 11, all of the WorldCom bond issues trade on top of one another, regardless of coupon or maturity, as do the bonds of WorldCom's MCI long-distance unit, although the MCIs trade at a 15 to 20 point premium over their corporate parent's paper.

He also saw AT&T Canada's bonds having firmed slightly, with the 7.65% notes perhaps half a point better at 18.5 bid/19.5 offered, on the Toronto-based telecommer's announcement Friday that it had reached new commerical agreements with its U.S.-based former corporate parent, defining how the companies will serve customers as the Canadian company - which sells Ma Bell's services north of the border - transitions to a fully independent and re-branded company.

AT&T Canada also announced that the Ontario Superior Court of Justice, which is overseeing the company's re-organization under the Companies Creditors Arrangement Act - the Canadian equivalent of Chapter 11 - ratified its execution of the new commercial agreements, which will be effective upon similar approval of the U.S. Bankruptcy Court.

The Ontario court also granted an order for the company to disseminate its capital restructuring plan to its bondholders and affected creditors, who are expected to vote on the plan on Feb. 20. As previously announced, the plan includes the exchange of the company's outstanding public debt for 100% of the new equity and a minimum of $200 million in cash. The company said it is "on track" to complete its reorganization by the end of the first quarter.

Qwest Capital Funding's 7¼% notes due 2011 were 2½ points lower on the session, hovering just under 70 bid.

Traders saw little or no movement in the bonds of such Sprint PCS affiliates as AirGate PCS Inc., Alamosa Holdings Inc., Horizon PCS Inc., US Unwired Inc., UbiquiTel Inc., despite a story in Friday's Wall Street Journal noting that Sprint Corp. faces a Hobson's choice - whether to bail out its money-losing wireless affiliates, who are burdened collectively with more than $3 billion of debt, and risk damage to its own debt ratings, which hover just a notch above junk, or refusing to help the affiliates and possibly see parts of its nationwide phone network go down (the affiliates market Sprint's mobile service in mid-sized and smaller markets in various U.S. regions).

Sprint PCS's president, Len Lauer, was quoted in the paper's "Heard on the Street" column as saying that Overland Park, Kans.-based Sprint, the nation's fourth-largest wireless operator is "very committed to the principle that we won't take actions with respect to affiliates which would weaken Sprint's credit-rating or balance sheet."

Earlier this month, however, Lauer seemed to be leaning in the direction of possibly offering a lifeline should an affiliate go into bankruptcy and be unable to come out of it. AirGate's iPCS unit has said that it may have to file for bankruptcy, and some analysts believe that its beleaguered parent might have to follow suit. AirGate sells Sprint PCS service in the Midwest and the Southeast.

Bonds of the PCS affiliates have been driven down to deeply distressed levels by the problems the companies are having, with Alamosa's zero-coupon bonds due 2010 recently quoted at 19 bid; Horizon's 13.75% notes due 2011 offered at 20 and its zeroes due 2010 at 8; and US Unwired's zeroes due 2009 at 8 bid/12 offered.

Outside of the telecoms, homebuilding names remained well-bid for, or even firmed slightly in thin activity, after several of companies in that sector reported better results in the latest quarter earlier in the week. Toll Corp.'s 8¼% notes due 2011 closed at 102.5 bid and Ryland Group's 's 8¾% notes due 2010 were at a lofty 110.5 bid, both half a point better, while Hovnanian Enterprises Inc.'s 9 1/8% notes due 2009 were seen at 104.5 bid, up a quarter point .

On the downside, San Francisco-based apparel maker Levi Strauss & Co.'s 7% notes due 2006 lost two points to end at 90 bid.

The distressed-debt trader meantime quoted Kmart Corp.'s 9 3/8% notes due 2006 at 18.5 bid/19.5 offered, down from around 19 the other day and 20 bid a week earlier. But he offered the caveat that he wouldn't characterize the bankrupt Troy, Mich.-based discount retailer's bonds as "moving in any direction. It's not trading very much. It just seems to be floating around."

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