Seven deals price; Triton PCS up on tender news; $257.7 million outflow is funds' first in weeks

By Paul Deckelman and Paul A. Harris

New York, May 22 - Seven more new high-yield deals priced Thursday, traders said, bringing the total for the week to an astonishing 18, although it was uncertain whether that hot pace would continue during Friday's abbreviated pre-holiday session.

Also likely to throw something of a damper on things was a $257.7 million outflow from high-yield mutual funds seen in the week ended Wednesday - the first time since mid-February that more money has flowed out of the funds in a given week than flowed into them.

The weekly fund flow statistics compiled by AMG Data Services of Arcata, Calif. are considered by many market participants to be a reliable proxy for overall junk mart liquidity trends. The weekly number includes only those funds which report on a weekly basis and excludes distributions. During the previous week, approximately $331 million more came into the funds than left them.

The outflow number was the first seen after 12 straight weeks of inflows - seven of them over $1 billion and two others not far from that magic mark. During that winning streak, dating back to the week ended Feb. 26, an amazing net inflow of $12 billion was seen, helping to push outstanding bonds up to amazingly tight levels and stoking the fires for the new-deal blast seen all this week.

"It's not a big deal," insisted one sell-side official, commenting on the outflow late Thursday.

"The market is taking a little breather here. This is certainly not an indication that we have reached a turning point in terms of the liquidity and the technicals in the high-yield market. It's not a big enough outflow for that."

This official mentioned a story that appeared in Thursday's edition of the Wall Street Journal quoting a report from Credit Suisse First Boston that pension funds and insurance companies have allocated $75 to $85 billion to junk bonds.

"There's a lot of liquidity there," the source said. "There remains strong demand in the market. But you're seeing people be a little more careful in terms of the aggressive pricing tactics by the investment bankers. The weaker credits, which have been pricing at levels that were unheard of even a month ago, may start facing a little bit of pressure.

"But if you have a good story and a relatively strong credit the market will still accommodate you."

Another sell-side official told Prospect News late Thursday that not only is it interesting to see where money came from during the most recent seven-day period, it is also instructive to see where it went.

"I'm not surprised that we had a little bit of an outflow, considering how things softened and how people seemed to take a little more comfort in equities," the source said. "But what amazes me is the $11 billion that flowed into money market funds considering where rates are. That says to me that people are a little bit more concerned than they're letting on. Greenspan's comments had some impact, I think."

This source said that the institutional money that is reported to have flowed into junk (this source said that pension funds had increased their asset allocations to high yield by 1%-2%, across the nation, representing $20 billion to $40 billion) represents a longer term commitment to the asset class than is the case with the mutual funds.

"The active trading volume in the high-yield market is a function of cash moving into the high-yield mutual funds," remarked the official. "Insurance companies and pension funds tend to be rather low-trading-volume institutions. So the turn of all the product and the run-up in pricing are functions of the constant mutual funds inflows.

"But there is still a ton of cash," the source added. "People are just being a little more guarded."

But for now the high-yield primary market continued to thunder its way through the deal-jammed pre-Memorial Day week Thursday as the investment banks completed seven transactions for new junk bonds.

Conspicuous among the new issues were a pair of Chapter 11 exit financing deals, one from Hayes Lemmerz International Inc., which priced an upsized $250 million to yield 10 5/8%, and another from Laidlaw International, Inc., which sold a slightly upsized $400 million-plus at a slight discount to yield 11%.

Meanwhile two issuers, Esterline Technologies Corp. and wireless operator Triton PCS, Inc. were heard to be coming to the market with deals that would travel the rounds among the accounts.

Northville, Mich.-based auto parts supplier Hayes Lemmerz along with joint issuer HLI Operating Co. upsized its deal from $225 million and priced the $250 million of 10½% seven-year senior notes (B1/B+) at 99.382 to yield 10 5/8%. Price talk on the deal that was run by Citigroup and Lehman Brothers was 10½%-10¾%.

Citigroup, along with Credit Suisse First Boston also executed a Chapter 11 exit financing deal for Laidlaw, which sold $406 million face amount of 10¾% eight-year senior notes (B2/B+) at 98.679 to yield 11%. Price talk was 10¼%-10½%.

Apogent Technologies Inc., a Portsmouth, N.H. manufacturer of clinical diagnostic and life science research products, priced $250 million of 10-year senior subordinated notes (Ba2/BB+) at par, Thursday, to yield 6½%. Proceeds from that deal, which came at the tight end of the 6½%-6¾% price talk, via Lehman Brothers, Credit Suisse First Boston and JP Morgan, will be used to help repurchase up to 15 million shares of stock.

In a quick-to-market transaction, Iasis Healthcare Corp. sold $100 million of six-year senior subordinated notes (B3/CCC+) at par to yield 8½%, in the middle of the 8½% area talk. Banc of America Securities, Bear Stearns & Co. and Citigroup were joint bookrunners.

Terms were also heard Thursday on Pliant Corp.'s $250 million of six-year senior secured second lien notes (B3/B-). The notes priced at par to yield 11 1/8%, at the wide end of the 11% area price talk. Call protection on Pliant's new 11 1/8% notes was increased to four years from three years.

JP Morgan and Deutsche Bank Securities were joint bookrunners on the deal from the Schaumburg, Ill. packaging company's deal.

A deal that priced Thursday from Baltimore-based provider of integrated marketing Vertis Inc. was restructured and upsized. The company sold $350 million of 9¾% six-year senior secured second lien notes (B3/B-) at 97.347 to yield 10 3/8%, in the middle of the 10¼%-10½% price talk. It had originally been announced as a $250 million add-on to its 10 7/8% senior notes due June 15, 2009.

Deutsche Bank Securities and JP Morgan were joint bookrunners on the Rule 144A offering.

And Graham Packaging Co., LP and GPC Capital Corp. I priced a $100 million add-on to their 8¾% senior subordinated notes due Jan. 15, 2008 (Caa1/CCC+) at 99 to yield 9.014%, according to market sources. Price talk was 99.

Deutsche Bank Securities and Citigroup were joint bookrunners.

Adding Thursday's seven completed transactions to the tally, the total amount of new issuance for the month of May is $15.9 billion, according to data compiled by Prospect News. The above-mentioned story in Thursday's Wall Street Journal quoted Thomson Financial as reporting that April 1998 was the biggest month in the history of the market, with $17.9 billion (Prospect News data does not extend that far back).

With five full sessions left to play out in May 2003, the Prospect News forward calendar contains $1.9 billion of new issuance expected to price before June - putting the market on track for its biggest ever month.

According to data collected by Prospect News, at the conclusion of Thursday's session year-to-date new issuance for 2003 stood at $49.7 billion.

Finally, two new deals were announced, Thursday.

The roadshow starts Tuesday for Esterline Technologies Corp.'s $150 million of 10-year senior subordinated notes (B+). The Bellevue, Wash. aerospace/defense specialty component manufacturer's deal, via Wachovia Securities, figures to price late in the week of June 2.

And the launch is expected early in the week of May 26 for Triton PCS' $500 million of senior notes, according to an informed source, who added that the notes will likely come with a 10-year maturity.

Lehman Brothers will lead the Berwyn, Pa.-based wireless company's Rule 144A deal with other underwriters expected to emerge.

Secondary market dealings meanwhile continued to stand in the shadow of the booming primary arena, with most names heard unchanged to off a point or so. But one gainer was Triton PCS, which announced plans for both a tender offer to take out its 11% senior subordinated discount notes due 2008. Triton also unveiled plans for a $500 million note offering, with proceeds going to fund the tender offer.

The AT&T Wireless affiliate is tendering for $315 million aggregate face amount of its 11% notes, out of a total float of about $512 million (see Tenders and Redemptions elsewhere in this issue for full details).

The 11s were quoted having risen to 105.5 bid - just below the announced take-out level - from 102.5 bid previously.

The tender also boosted the company's other bonds, with its 9 3/8% notes due 2011 moving up to par bid from 97.5 offered previously and its 8¾% notes due 2011 improving to 98 bid from 95.5.

Apart from Triton's handsome gains, though , secondary activity among established issues was largely stilled, quelled by the junk market's continued fascination with the newly minted bonds coming off the assembly line - and even there activity was limited as trading wound down in the afternoon, even though the session was ostensibly a full day, the last of the week.

"This afternoon was absolutely dead," a trader said. "People were just closing up before the holiday." The Bond Market Association has recommended a 2 p.m. ET close on Friday ahead of the three-day Memorial Day holiday weekend, which will completely shutter U.S. financial markets on Monday.

In Thursday's dealings before everyone headed for the hills, Apogent's new 10-year bonds were seen to have "performed pretty well," in the words of one trader, firming to about the 101.25 bid/101.75 offered from their par issue price.

Also seen having firmed was Hayes Lemmerz's new seven-year notes, which went home at 100.625 bid/101.25 offered.

Georgia Pacific Corp.'s 7 3/8% senior notes due 2008, which priced late Wednesday at par, were quoted bid around 99.5-99.75.

Apart from those levels, traders reported little or no secondary activity Thursday in any of the other new deals which priced during the session, or which had appeared earlier in the week

If that's what was going on among the new paper, you can imagine the low level of activity among the existing bonds, other than the tender-driven Tritons.

"A lot of things were [quoted] off one or two points," a trader said, although actual trading was very light.

He noted that Levi Strauss & Co. bonds "seemed weaker, maybe just on profit-taking," with the San Francisco-based apparel maker's 12¼% notes due 2012 closing at 83 bid/85 offered, well off from levels around 87 bid/88 offered which it had held earlier in the week.

At another desk, a trader saw Levi's 11 5/8% notes, which had finished at 90 bid on Wednesday, opening Thursday at 88 bid/91 offered, before ending the day bid at 86, with no offers seen. He saw the 121/4s offered at 84 and the 7% notes offered at 83, "both a few points weaker.

Apart from that, he said, "not much else was shaking.

Also in the apparel/ retailing sector, J.C. Penney Corp.'s 8% notes due 2010, which had traded earlier in the week at 104.5 bid/105.5 offered, were quoted Thursday at 103 bid/104 offered.

Calpine Corp. - whose bonds had eased several points in Wednesday's dealings - remained pointed in a southerly direction Thursday, but on very thin trading. Its 8¼% notes due 2005 ended at 79.5 bid/80.75 offered and its benchmark 8½% notes due 2011 closed at 65.5 bid/66.5 offered, down a point-and-a-half and a point, respectively.

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