Calpine quickie deal highlights sizzling primary session; junk funds see $440.5 million inflow

By Paul Deckelman and Paul A. Harris

New York, Nov. 6- Calpine Corp. became the latest major junk bond issuer to bring a quickly emerging offering to market on Thursday; the San Jose, Calif.-based power producer took advantage of favorable market technical factors and a - for now - seemingly insatiable investor appetite for new paper to throw the switch on a $400 million drive-by junk deal, at the same time it was separately selling $600 million of new convertible notes.

Calpine was only the largest of the more than half a dozen junk deals to come clattering down the chute Thursday, which was easily the busiest primary session in quite a while. Other notable deals pricing included Triad Hospitals Inc.'s solidly upsized 10-year offering of subordinated notes, as well as Beazer Homes' quickly shopped $200 million tranche of 10-year bonds, to name just two of them.

Secondary market activity, understandably took a backseat to the new-deal market; in fact, probably the biggest gainer among the existing bonds were Calpine's, buoyed by the news that the proceeds of the company's junk bond and convertible offerings would be put to repaying or repurchasing existing debt.

Helping to fuel the renewed surge in new issuance has been the presence of ample liquidity, and the key measure of overall junk market liquidity trends, high yield mutual fund flows, continues to reflect that. Market participants familiar with the weekly fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that in the week ended Wednesday, $440.5 million more came into the funds than left them, calculating the flows into only those funds which report on a weekly basis and excluding distributions.

That's a far cry from the essentially flat $1.1 million outflow reading seen in the previous week, ended Oct. 29, and it represents a resumption of a positive trend which has now been seen in six out of the last seven weeks. During that time, inflows have totaled $1.721 billion, according to a Prospect News analysis of the AMG statistics, and with inflows having been seen in 28 weeks out of the 44 since the start of the year, the year-to-date net inflow stands at $17.97 billion.

The generally easy liquidity seen most weeks is regarded as the key to the strong surge of new-deal activity which has held sway for most of the year, outside of the traditional late-summer lull.

The banquet continued for high-yield issuers on Thursday, as investors reportedly laboring beneath loads of cash chewed through $1.82 billion of notes that priced in eight junk deals, only three of which had been marketed via roadshows.

Add to that a split-rated $1 billion offering from Tyco International Group SA, which also priced during the session, and reportedly engendered considerable interest among junk accounts.

However, as cash-laden investors may have had opportunities for offloading some dollars during the session, word came late Thursday that there appears to be still more cash for them to put to work: sources told Prospect News that AMG Data Services had reported an inflow of $440.5 million to the high yield mutual funds for the week that ended on Nov. 5.

Prospect News asked one sell-side official, reached after news of the weekly inflow circulated, whether news of still more cash coming into the asset class meant that the market could look forward to more issuers such as Calpine, Charter Communications and Dex Media - all of which showed up during the present week with sizable drive-by deals - stepping up to take advantage of hot market rates.

"I would say that's a fairly safe assumption," said the source.

Here, then, are the rates and terms printed on the junk bonds issued by the eight companies that issued junk bonds Thursday:

Triad Hospitals, Inc., of Plano, Tex., massively upsized its offering to $600 million from $450 million, and priced its new 10-year senior subordinated notes (B3/B) at par to yield 7%. The Merrill Lynch & Co. and Banc of America Securities-led deal came in the middle of the 6 7/8%-7 1/8% price talk.

Shortly after Triad priced the deal a secondary market source told Prospect News that the notes were seen in the aftermarket at 99.625 bid, par offered. "Maybe people will get the message," commented the source. "There is too much supply!"

Nevertheless San Jose, Calif. power producer Calpine Corp. brought substantially more supply as it priced a quick-to-market offering of $400 million of 9 7/8% eight-year second priority senior secured notes (-/B/BB-) at 98.01 to yield 10.243%, via Morgan Stanley.

Also Beazer Homes USA sold $200 million of 10-year senior notes due (Ba2/BB) at par to yield 6½%. UBS Investment Bank ran the books ran the books on the Atlanta homebuilder's deal, which came at the wide end of the 6 3/8%-6½% price talk.

Stratus Technologies, Inc. sold $170 million of five-year senior notes (B3/B) at par to yield 10 3/8%.

The issuer is a Maynard, Mass.-based provider of continuously available servers. Talk for the notes was 10¼%-10½%, so the Goldman Sachs and JP Morgan-led offering came in the middle of talk.

Michael Foods, Inc., a food processor from Minnetonka, Minn., sold $150 million of 10-year senior subordinated notes (B3 expected/B-) at par to yield 8%, spot on to the 8% area price talk. Banc of America Securities, Deutsche Bank Securities and UBS Investment Bank were joint bookrunners.

Quality Distribution, LLC and QD Capital Corp. sold $125 million of seven-year senior subordinated notes (B3/B-) at par to yield 9%, at the tight end of the 9%-9¼% price talk. Credit Suisse First Boston and Deutsche Bank Securities ran the books for the Tampa, Fla. transportation company's offering.

Pilgrim's Pride Corp.'s PPC Escrow Corp. sold $100 million of 10-year senior subordinated notes (B2/B+) at par to yield 9¼%, at the tight end of the 9½% area price talk. Credit Suisse First Boston was the bookrunner on the deal, proceeds from which will be used to finance a portion of the Pittsburg, Tex. company's acquisition of ConAgra Foods' chicken division.

And Tabletop Holdings, Inc. sold $75 million proceeds of 10.5-year senior subordinated discount notes (Caa1/B-) at 55.131 to yield 12¼%. Price talk on the offering, which came from the parent of Chicago-based sweetener company, Merisant Co., was 12¼%-12½%.

Finally, market sources advised Prospect News that a significant number of high yield accounts brought their bulging wallets to the $1 billion bond sale by Tyco International Group SA. Tyco priced its split-rated offering of 10-year 6% notes (Ba2/BBB-/BB) at 99.569 to yield 6.058. JP Morgan, Morgan Stanley and UBS Investment Bank were the underwriters.

With the majority of Thursday's issuers not having bothered with roadshows, it is perhaps not surprising that news of only one roadshow start surfaced during the session.

The roadshow starts Tuesday and runs until Nov. 20 for an acquisition financing deal from North American Energy Partners. It will be $175 million of eight-year senior notes via BNP Paribas and RBC.

One sell-side official who spoke to Prospect News during the first half of Thursday's session, said that although high yield at present fells "strong," volatility in the Treasury market remains a source of concern.

"The Treasury market has been so volatile that I think some of the really rich names have softened just recently, based on Treasuries selling off," said the source.

"A lot of people are worried that the stuff that has priced recently has not traded as well as people would have hoped. It feels like there is a lot of cash out there but I think people are starting to worry a little bit about what happens if Treasuries continue to ratchet higher.

"Bit it's still a great time to be issuing bonds," the official added. "I think the supply will keep coming."

When the new Calpine 9 7/8% senior secured notes due 2011 were freed for secondary dealings, "they got mooshed," a trader said, descriptively. He quoted the new bonds, which had priced at 98.01, as having eased to 97.75 bid, 98.

But it was quite the opposite story for Calpine's existing bonds, which had declined on Wednesday despite the company's release of apparently favorable third-quarter numbers (net income jumped to $237.8 million (51 cents a share) from $151.1 million (34 cents), in the year-ago quarter, although much of the rise was due to a one-time gain of 23 cents per share from the repurchase of debt and preferred securities).

Calpine "was off a couple of points [Wednesday], and you'd think that the bonds would be softer today with a big new issue coming," a trader said. "But they rallied back today."

He quoted the company's 8½% notes due 2011 - which had closed at 70.5 bid, 71.5 offered on Wednesday - as having firmed to 74.75 on Thursday. And he saw Calpine's 8¼% notes due 2005 up a whopping six points on the session, at 94 bid, 95 offered. Clearly, the trader said, "there was some movement there."

Another trader said Calpine "was up pretty good," with the 8½% notes pushing up to bid levels around 73-74, "as soon as the news came out on the $600 million convertibles sale" and staying at those higher levels. He saw the 8 5/8% notes due 2010 as having firmed to 73.125 bid, 73.625 offered.

"All of the activity [Thursday] was pretty much focused on the new deals," he said. And the PPC Escrow/Pilgrim's Pride 9¼% senior secured notes due 2013 got a favorable look from traders, who saw the new bonds having pushed up to 102 bid from their par issue price, although one said "there was not much trading," probably because "it was a small issue" at $100 million.

Also squarely on the upside was Stratus Technologies' 10 3/8% notes due 2008, which "was doing pretty good" at levels around 102-103, up from a par issue price.

Tabletop Holdings' 12¼% notes due 2014 on the other hand, "were going nowhere fast," a trader said, quoting the Chicago-based artificial sweetener manufacturer's new bonds as little changed from their 55.13 issue price.

Outside of the new-deal sphere, the bonds of Dutch-based international supermarket giant Royal Ahold were firmer for a second consecutive day following a report earlier this week in the Financial Times that the global retailer plans to raise capital with a rights issue of between €2 billion and €2.5 billion. The paper said that the company might unveil the purported rights offering Friday, when it is also scheduled to report on its half-year results and give an update on strategy and the financial underpinnings of such a strategy. Ahold called the Financial Times report "speculative."

Nonetheless, Ahold's 6 5/8% notes, which on Wednesday had gained a point to end at par bid, 103 offered, buoyed by the rights-offering rumor, were up another point on Thursday, to 101 bid, 102 offered. Its 8¼% notes due 2010, which on Tuesday were a point better on the rights rumors, to 109.5 bid, 110.5 offered, continued to firm to 110 bid, 111 offered.

Ahold's 6¼% notes due 2009, which on Wednesday had risen half a point to around 101, were little changed Thursday.

Clothing retailer Gap Stores' bonds were seen unchanged and "trading like mud," in the words of one trader, after the San Francisco-based company reported good - but not great - October comparable-store sales figures. Sales at Gap outlets which have been open at least a year were up 1% in October from year-ago levels. While it was the thirteenth consecutive month in which total sales increased from what they had been a year earlier, it was still a smaller gain than those which the company had been posting every month up till now - an indication, perhaps that the days of easy hefty gains posted in comparison to the depressed year-earlier figures might be coming to a close.

Gap's 6.90% notes were heard continuing to hover in the 108.5 bid,109 offered area, while its 8.15% notes were at 112.5 bid, 113.5 offered.

Consumer products maker Playtex Products debt was seen unchanged Thursday - but likely to fall on Friday - after the Westport, Conn.-based company's debt ratings were lowered a notch by Moody's Investors Service, which dropped the rating on its $350 million 9 3/8% senior subordinated notes due 2011 to Caa1 from B3; Playtex's senior unsecured issuer rating was dropped to B3 from B2.

A trader saw the 9 3/8% notes as having opened at 98.5 bid, 99 offered, before firming off its lows at 97 to head back up and close essentially little changed.

"We'll see what happens tomorrow [Friday] he said. At another desk, a trader saw the bonds down perhaps half a point at 97.75 bid, 98.75 offered.

Collins & Aikman Products Co. debt was lower, after the company announced that it would not supply interior trim for future Chrysler mid-size sedans, feeling the contract was not profitable enough. But the local Detroit Free Press - which had reported several weeks ago that Chrysler might give some of its Collins & Aikman contracts to some other components supplier - said that Collins & Aikman wasn't walking away from the two Chrylser contracts of its own accord - the automaker had pulled the contract from the Troy, Mich.-based company.

Collins & Aikman's bonds were lower on "quite a lot of volume," a trader said, quoting its 10¾% senior notes half a point down at 82.5 bid, 83.5 offered, while its 11½% subordinated notes were two points lower at 72 bid, 73.5 offered.

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