Rite Aid prices $200 million as existing debt slides; Tower gains traction in secondary

By Paul A. Harris

St. Louis, Jan. 3 - As sources predicted during the comparatively quiet Monday session, the primary market did not remain too quiet for too long.

On Tuesday Rite Aid Corp. ran to the high-yield prescription window for a $200 million elixir for its pending maturities - medicine which traders say won't do the company a lot of good over the long run.

Intelsat Bermuda orbited back into the light with a $2.55 billion three-part that the company temporarily postponed in December after it lost touch with one of its birds. The existing paper lost altitude on the news.

And the junk market, which was said to have had a firm tone during the early part of the session, lost air as equity prices declined and the minutes from a recent Federal Reserve Federal Open Market Committee meeting were judged to have brazenly broached the "I"-subject.

Still in the hunt for yield?

"The market had a firm tone this morning," one source said late in the day.

"People still seem to be in the hunt for yield.

"But the stock market was off and Treasuries were lower," the source said, adding that the Dow Jones Industrial Average dropped just shy of 100 points.

Also, the source said, minutes from the Federal Reserve Federal Open Market Committee's Dec. 14 meeting, released Tuesday afternoon, cited continued pressure on the dollar in foreign exchange markets, high energy costs and a possible decline in U.S. productivity as ingredients in a possibly inflationary brew of economic forces.

"That's the 'I'-word," the market source added. "If you want to snuff out a rally in high yield, 'inflation' is the word to use.

"People have been fantasizing that the Fed would hold its horses, and take a header on the economy before it continues to hike the rate in 2005.

"The language in the FOMC minutes should help those people sober up."

Rite Aid's $200 million drive-by

Meanwhile in Tuesday's primary market, Camp Hill, Pa. drugstore operator Rite Aid Corp. showed up at the drive-through and priced $200 million of 10-year senior secured second-lien notes (B2/B+) at par to yield 7½%, in the middle of the 7 3/8% to 7 5/8% price talk.

Citigroup ran the books for the issue.

Rite Aid is using the proceeds to repay its 7 5/8% senior notes due April 2005 and its 6% fixed-rate senior notes due December 2005.

Shortly after the deal priced on Tuesday afternoon a source saw the par-pricing notes offered at 101.

However traders told Prospect News that holders of Rite Aid's existing debt securities were possibly feeling some side effects.

"Across the board their paper is a little softer," one trader commented, adding that the 6 7/8% due 2013 were off about a point at 90 bid, 91 offered.

"They were at least 91 bid, 92 offered yesterday [Monday]," the source added.

"Some of the longer paper was beaten down as well."

He saw the 7.70% notes due 2027 at 81.5 bid, 83.5 offered, down half a point from 82 bid, 84 offered Monday.

But why should the outstanding debt trade down if the company is using proceeds from the new deal to take out debt? Prospect News objected.

"Yeah but that paper was getting ready to mature anyway," the trader replied. "It was 2005 paper, and had less than a year to go.

"They're extending out the maturity, fine.

"But what really hurt them today was that same store sales were down. Month after month people are accustomed to seeing their same store sales up. But they were down today. I think that put a little pressure on them as well."

The source explained that the bonds were seen to be suffering from the company's report that its December same-store sales fell 2.7% year over year, while pharmacy sales decreased 2.8%.

Another trader had the Rite Aid 6 7/8% notes due 2013 going out at 89.50 bid, 90.50 offered, down from 90.75 bid, 91.75 offered earlier in the morning.

Intelsat back with $2.55 billion

Elsewhere in Tuesday's primary market action Intelsat Bermuda Ltd. announced it will begin a roadshow on Monday for $2.55 billion of senior notes in three tranches, with pricing expected on Wednesday Jan. 19.

The Bermuda-based worldwide satellite telecommunications company plans to sell $500 million of floating-rate notes due 2012. The notes will come with six months of call protection and will pay interest at a rate that will float with three-month Libor.

The company also intends to sell $1.3 billion of eight-year non-call-four fixed-rate notes, and $750 million of 10-year non-call-five fixed-rate notes.

Deutsche Bank Securities, Credit Suisse First Boston and Lehman Brothers are joint bookrunners for the acquisition deal that disappeared from the radar screens in mid-December.

At that time a source told Prospect News that private equity group Zeus Holdings Ltd., formed by private equity firms Apax Partners, Permira, Apollo Management and Madison Dearborn Partners, was re-evaluating its takeover of Intelsat in light of the satellite telecommunications company's recently reported electrical difficulties with its Americas-7 satellite.

The junk bonds are being sold to back the proposed $5 billion acquisition.

In a Dec. 3 press release the company announced that it had regained control of the satellite in question.

Nevertheless on Tuesday holders of Intelsat's existing paper hit the retrorockets when they heard the news. One secondary market source had the bonds off a point, while the existing paper of PanAmSat was off half a point.

The calendar builds

Meanwhile several new issuers appeared on Tuesday, each one with a transaction expected to be priced by the end of January.

Price talk is 5 3/8% area on a quick one from French spirit-maker Remy Cointreau SA, which is driving by with a €150 million offering of seven-year non-call-four senior notes (Ba2/BB-) that could price as early as Wednesday afternoon, via Banc of America Securities and BNP Paribas.

Elsewhere Warner Chilcott Corp., a U.K.-based pharmaceutical manufacturer, will begin a roadshow Wednesday for $750 million of 10-year non-call-five senior subordinated notes (Caa1/CCC+), expected to price during the week of Jan. 10.

Credit Suisse First Boston, Deutsche Bank Securities and JP Morgan will be joint bookrunners for the acquisition financing.

And Hong Kong's City Telecom (HK) Ltd. will begin a roadshow Thursday in Hong Kong for its $110 million offering of 10-year senior notes (Ba3/BB-), which sources say is being steered principally to bond buyers in the United States.

Citigroup is running the books for the capex funding deal from the telecommunications services provider.

Half a billion from Rayovac

The primary market also got wind, Tuesday, of a half-billion bond deal from Atlanta-based battery-maker Rayovac Corp., which will use the proceeds to back its acquisition of United Industries, a St. Louis-based manufacturer and marketer of consumer products for lawn and garden care and household insect control.

Rayovac plans to sell $500 million of senior subordinated notes in an offering that figures to launch in late January, via Banc of America Securities, Citigroup and Merrill Lynch & Co.

The company will also obtain a $1.2 billion to $1.25 billion credit facility via the same banks.

There were mixed reports from secondary sources on the impact of the acquisition news upon the company's existing paper.

The 8½% notes due 2013 were unchanged at 108.50 bid, 109.50 offered, while the 9 7/8% notes due 2009 were at 104.50 bid, 105.50 offered, also unchanged.

However another source had Rayovac's existing paper off as much as two points on news of the acquisition.

Tower gets traction on loan

One trader saw the existing paper of Tower Automotive climb crisply on news that the company received a $50 million loan from a unit of GE to make up for its cash shortfall as customers stopped paying for parts in advance.

The trader saw the Tower 12% notes finishing the day Tuesday at 83.25 bid, 84.25 offered, up substantially from 78 bid, 80 offered on Monday morning.

Another market source had Tower Automotive's existing paper up two points on the news of the loan.

Calpine down from high

Elsewhere a trader saw the existing paper of Calpine Corp. "a little softer," with the San Jose, Calif., power company's 8½% notes due 2008 ending Tuesday's session at 81 bid, 82 offered.

"They had been as high as 83 bid," the Trader added.

"They have had such a run recently. But ever since they got up to that 83 bid, that bid got tapped and they have been down ever since."

"It's spotty out there," the trader said. "There is still strength, and the market is well bid for in general. But there are a few pockets of weakness here and there.

"It almost feels like profit-taking. The stuff that we saw run the hardest in December may lately be subject to a little bit of profit-taking."

As an example the source pointed to the existing issues of Levi Strauss & Co.

The company's 12¼% notes were seen at 108.75 bid, 109.50 offered late Tuesday, down from 110.50 on Monday.

However the trader was at a loss to explain why.

Quiet on the retail side

Among the few retail names seen to move on Tuesday, one trader commented on the existing notes of The Gap and Mother's Work.

"It's pretty quiet on the retail side," the trader said

"We saw some sellers of the Gap 6.90% notes due 2007, at the 107.5 bid, 108 offered level.

"And we continue to see some buyers of Mothers Work 11¼% due 2010. They are going to close out 97.5 bid, 98.5 offered, up about half a point today, and up 2½ points from the beginning of the week.

"Not long ago, prior to their having been revised downward, they were 102.5 bid, looking with no offers. So some bonds were shaken out here."

Some lift for Delta

Other than Calpine, the only distressed name that kindled conversation on Tuesday was Delta Airlines.

The company's paper got a lift, one trader said, on news that its business model moving is seen to be moving toward the successful one of low-cost competitor Southwest Airlines.

"They're moving away from hub-and-spoke model, and they plan to expand the fare structure that they introduced at their Cincinnati hub with a 50% cut in prices with travel restrictions removed.

The source cited Delta's 8.30% notes due 2029 at 50.50 bid, 51.50 offered, up more than two points from Monday's 48.25 bid, 49.25 offered.

Meanwhile the 7.90% notes due 2009 were spotted at 64.25 bid, 65.25 offered, up two from 62.25 bid, 63.25 offered on Monday.

And Delta's 2005 paper was seen at 93 bid, 94 offered, up nearly three points from 91.25 bid, 92.25 offered on Monday.

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