Peabody Energy, La Quinta price upsized deals; Fleming moves higher; utilities active

By Paul Deckelman and Paul A. Harris

New York, March 14 - Peabody Energy Corp. and La Quinta Properties Inc. priced upsized deals on Friday, each taking advantage of a market environment characterized by more-than-ample liquidity to sell more bonds than they had originally intended - and in one case to achieve a historically low yield.

In the secondary market, activity was muted, with most of the attention continuing to focus on the new-deal calendar. Fleming Companies Inc. bonds gyrated around before ending higher, while such utility names as El Paso Corp., Calpine Corp. and CMS Energy Corp. stood out in an otherwise largely featureless market.

Peabody Energy mined investors for an extra $150 million, as the St. Louis coal company hauled away $650 million after selling its new 10-year notes-many of them to old friends, sources said - to yield 6 7/8%. One sell-sider stacked it up against last December's Ball Corp. deal, which also came at 6 7/8%, and claimed that Peabody is the more impressive of the two transactions.

At that yield, Peabody Energy's 10-year senior notes (Ba3/BB-/BB) priced at the tight end of the 6 7/8%-7 1/8% talk.

Lehman Brothers and Morgan Stanley were joint bookrunners.

One informed source told Prospect News shortly after terms emerged on Peabody's deal that demand for the St. Louis coal company's new paper could be measured by an unexpectedly large gathering of hungry investors who turned out at the roadshow.

"At the luncheon in New York we had tables set for 20 or 25, and I think we wound up with 55 or 60 people, so there was extremely strong demand," the source said, adding that many of those who eventually bought Peabody's new notes were "rollover accounts."

Proceeds from the offering will be used along with a new credit facility to fund a tender for Peabody's existing 8 7/8% and 9 5/8% notes.

One sell-sider compared the Peabody deal to Ball Corp.'s upsized $300 million of 10-year senior notes (Ba3/BB) that priced early last December at par to yield 6 7/8% - a yield that market participants agreed was likely the lowest ever for a junk bond. That offering was increased from $200 million.

The Peabody offering is the more impressive of the two, said the source, because of its more significant upsizing.

La Quinta Properties also checked out of the primary market on Friday with an additional $75 million on the luggage cart, as investors bought $325 million of new eight-year senior notes from the Dallas-based lodging firm.

That deal (Ba3/BB-/BB-)., also from Lehman Brothers, priced at par to yield 8 7/8%, in the middle of the 8¾%-9% talk.

"The deal went pretty well," one informed source told Prospect News. "There was a lot of demand so it was an easy upsizing. People liked the credit. It's not exposed to a lot of risks that you see in the lodging industry in general. Basically the properties compete on price. And it's all over the country, which also helps.

"It was a pretty 'steady-Eddy' kind of story all over."

Terms were also heard Friday on a downsized offering from Global eXchange Services, Inc., which sold $105 million of floating-rate notes at a dollar price of 95. The restructured deal - reduced from $175 million - priced at revised talk of three-month Libor plus 900 basis points.

The remaining $70 million of the company's financing was shifted to a new term loan. Standard & Poor's, which had assigned the previously announced $175 million of five-year floating rate notes a B+ rating, assigned a B rating to the new structure.

Price talk, initially heard as three-month Libor plus 750 basis points, had widened to three-month Libor plus 900 basis points, according to market sources.

Credit Suisse First Boston was the underwriter.

Finally on Friday price talk emerged on an upsized, restructured Rule 144A offering from Dole Food Co., according to a syndicate source.

Price talk is 9% area on Dole Food Co., Inc.'s $475 million of senior notes due 2011 (B2). The deal was increased from $450 million and the company dropped a PIK note tranche that had been announced at the time the deal launched.

Deutsche Bank Securities and Bank of America Securities are joint bookrunners on the deal, which is expected to price on Monday.

However, for all the news that was heard, Friday, sources on the sell-side confided to Prospect News that equal importance might also be attached to what was not heard during the entire week: news of new deals hitting the road. That news, one official said, has possibly been drowned out by the drums of war.

Despite the week's news of continued cash inflows to high-yield mutual funds and upsized new deals pricing with historic and near-historic low yields, this source sounded a cautionary note.

"I haven't seen any new deals announced this week at all," said the official. "I think that what we have seen this week was the calendar clearing up, and until this war situation becomes a little clearer underwriters will probably be a little skeptical about launching a deal."

When the new Peabody bonds were freed for secondary activity, they traded up about a point from their par issue price earlier in the session to end just below 101 bid.

A trader said that the Peabody issue was "a little bit sloppy on the break," but managed to close out the day at bid levels around 100.875-101.

But the La Quinta deal he said, "didn't look like it was in very good shape; with a lot of bonds in weak hands." After having priced at par, it opened late in the session for secondary dealings offered at 100.75. "A good many bonds traded at the 100.25 level," before the issue traded into a par bid and ended the day straddling the issue price, at 99.875 bid/100.125 offered.

"It's holding right around par - but not off to the races, like a lot of deals that have come."

Indeed, the trader noted that the issues which priced earlier in the week, such as Moore North America Finance Inc.'s $403 million of new 7 7/8% senior notes due 2011, which made their debut on Tuesday, and even AmeriPath Inc.'s upsized $275 million of 10½% senior subordinated notes due 2013, which came on Thursday, were doing better, with the Moores quoted at 103 and the AmeriPaths at 102, both well up from their respective issue prices of 99.299 and par.

"I think the better deals came earlier in the week," he said. "Everybody was kind of surprised that this Peabody deal traded as well as it did."

He meantime saw "no real activity" in the new Trump Casino Holdings LLC/Trump Casino Funding Inc. 11 5/8% first priority mortgage notes due 2010, which priced Thursday at 94.781 and then was quoted around 95.5 bid/96.5 offered late Thursday, but on no real dealings. "I didn't see them at all," the trader said, while a second trader concurred that he "didn't see too much of it," and that the Trump issue "basically closed where they were [Thursday.]"

That having been said, the first trader said that overall, Friday was "as quiet a day as I have seen in a while. There was really very little going on."

He opined that "the market had a decent bid to it but guys are loathe to be chasing higher prices here" in the face of the possible start of the conflict in Iraq, which could send many issues tumbling.

He noted that the nearly $639 million of high yield mutual fund inflows for the week which were reported by AMG Data Services of Arcata, Calif. and which made the rounds of market participants Thursday night and on Friday was only about half of the more than $1.3 billion seen the week before, but was still a sizable number. However, "people are putting it to work in the calendar" - i.e. buying new deals rather than playing in existing bonds.

Accordingly, he reiterated, Friday's secondary market "was absolutely dead quiet. There was some stuff trading around in the Street (between dealers) but it was pretty quiet. Not a lot of customer flow today."

One of the few issues of which anyone sat up and took notice was Fleming Cos., whose bonds have recently been on a roller-coaster ride amid the revelations of the Lewisville, Tex.-based wholesale grocery distributor's accounting problems, which have sparked a formal Securities and Exchange Commission investigation.

Fleming has also had to deal with the fallout from tough times in the retailing industry it supplies, which have caused its single largest customer, Kmart Corp., to go bankrupt and jettison its lucrative supply contract with Fleming, and which have also caused its own retail supermarket operations to bleed money.

But after falling sharply early in the week, Fleming's bonds rebounded on Thursday. On Friday, a trader said, Fleming was "the big mover, dropping four to five points from its opening levels during a conference call between the company and its bankers, but then "rallying back afterward" after that call. The trader pegged Fleming's 10 1/8% senior notes due 2008 as having fallen all the way down to 34 bid from prior levels at 39 before rebounding.

At another shop, a trader quoted Fleming debt up around four points off the lows" at which it began the day, with its 10 1/8s ending at 42 bid/44 offered, up from Thursday's closing levels at 37 bid/39 offered, while its 10 5/8% subordinated notes - which had gotten as low as 10 bid earlier in the week - closing up four points on the session to 17 bid/18 offered.

Fleming's New York Stock Exchange-traded shares, which had also been whacked around earlier in the week, ended up eight cents (7.02%) at $1.22.

Elsewhere, distressed-debt traders reported that energy companies such as El Paso and CMS Energy were relatively energetic in a rather lethargic trading session.

El Paso bonds jumped on news that the Houston-based Number-1 U.S. pipeline company had closed on a new credit facility.

Its bonds were quoted higher Friday, although trading was called "thin," with El Paso's 7¾% notes due 2010 having pushed up to 73 bid/75 offered from 70 bid/68 offered. Its 7¾% notes due 2032 were also up, to 55 bid/57 offered from 52 bid/55 offered, according to a distressed-debt trader.

"El Paso was moving because people are getting their hopes up," he asserted. The company has been beset in recent months by financial, legal, and regulatory woes - the latest victim in a merchant energy sector that's been beaten down ever since Enron Corp.'s collapse in late 2001 knocked the legs out from under many of Enron's peers and rivals, in the eyes of investors.

But on Thursday, El Paso said it had closed on a previously announced $1.2 billion two-year loan and on the separate sale of its Mid-Continent natural gas and oil reserves to Chesapeake Energy Corp.

El Paso said it will use the loan proceeds to retire the approximate net balance of $825 million of financing for its Trinity River production property, which will simplify its balance sheet and provide flexibility and liquidity.

With the sale of the Mid-Continent properties for $500 million, El Paso said it has now signed agreements for or closed about 45%, or $1.5 billion, of the $3.4 billion of non-core asset sales the company expects in 2003.

El Paso said it will use net proceeds from these transactions, along with cash, to retire $1 billion in Limestone Electron notes on their scheduled March 17 maturity.

El Paso shares were meantime up 80 cents (18.18%) to $5.20 on the NYSE

In that same sector, a trader saw "a lot of trading" in Calpine Corp.'s 8½% notes due 2011, quoting them up two to three points at 48.5 bid/49.5 offered. The San Jose, Calif.-based independent power producer's shares rose 33 cents (12.69%) to $2.93

And he noted that troubled utility operator Aquila Inc. announced that it is working with its lenders to renew or restructure a short-term financing agreement expiring April 12. The Kansas City-based company hopes to have an agreement in place by April 11.

The trader said Aquila's 7 5/8% notes due 2009 had been trading around 67 bid/69 offered pre-news, and said that while he didn't see any quotes afterward, he would surmise that they would be up "a few points." The company's shares zoomed 31 cents (25%) to $1.55.

But not everyone in the utility crowd was on the upside Friday. CMS Energy Corp.'s 7½% notes due 2009 were quoted two points lower at about 60 bid, and its 7½% notes due 2009 were lower on the session at 67 bid

CMS fell due to a possible delay in the planned sale of the Dearborn, Mich.-based energy producer's Panhandle Eastern Pipe Line Co. unit.

In addition, CMS requested that lenders amend its $295.8 revolving credit facility to extend the maturity date to the earlier of either June 30 or the closing date of the sale of Panhandle Eastern Pipe Line to Southern Union Co. The maturity date currently is March 31.

The company anticipated using the proceeds from the Panhandle sale to repay the $124 million outstanding under the revolver. However, in a regulatory filing Thursday night, CMS said the Federal Trade Commission had requested additional information from it and Southern Union regarding the Panhandle sale.

CMS shares fell 26 cents (6.88%) on the NYSE to end at $3.52.

(Carlise Newman contributed to this report.)

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