Revlon routed on wider loss; Trump - finally - prices 7-year deal; funds see $639 million inflow

By Paul Deckelman and Paul A. Harris

New York, March 13 - Beauty products maker Revlon Consumer Products Corp. was the ugly story of the day Thursday as its bonds and shares were sharply lower after the cosmetics company announced a wider fourth-quarter loss. But Fleming Companies Inc.'s securities were on the rebound after several consecutive sessions of getting pounded around.

In the primary arena, Donald Trump finally decided it was now or never and came to market, raising $468 million through a sale of new seven-year mortgage notes; the two-tranche pricing was the culmination of weeks of speculation about whether the deal would ever actually get done - and it came fully 10 months after the original version of the offering had been pulled from the calendar due to unfavorable market conditions.

Almost overshadowed was the pricing of a well-received, upsized 10-year note-sale by Ameripath Inc.

The new deals continued to clatter down the chute into a market that is flush with cash, as evidenced by the strong recent surge of junk bond mutual fund inflows, a key barometer of overall high-yield market liquidity trends, and the flow of money into the market continued unabated this week. Market participants familiar with the weekly fund flow numbers compiled by AMG Data Services Inc. of Arcata, Calif. told Prospect News that in the week ended Wednesday, $639.0 million more came into the funds than left them (excluding distributions and counting only those funds which report on a weekly basis) .

It was the third consecutive week of strong inflows, during which time the junk funds saw a total net inflow of approximately $3.507 billion, according to a Prospect News analysis of the AMG figures. In the previous week (ended last Wednesday, March 5), inflows had totaled $1.328 billion, and $1.54 billion the week before that (ended Wednesday, Feb. 26).

Inflows to the junk funds have now been seen in six out of the 10 weeks since the beginning of the year, and the year-to-date cumulative inflow total has grown to approximately $5.085 billion from $4.446 billion, according to the Prospect News analysis of the data.

The strong liquidity surge - which dates back to around mid-October, with inflows seen in most weeks, punctuated occasionally by a week of net outflows - has been credited by analysts as the main catalyst behind both the revival since mid-October of the previously quiet new-issue market and the sharp rebound seen in the previously depressed secondary arena.

The result, sources say, is a seller's market, with issuers and investment banks pushing for lower yields on new issues - iStar Financial, Inc. and Unisys Corp. both priced deals to yield 7%, Tuesday and Wednesday, respectively, while Peabody Energy, which is expected to price Friday, is talked at 6 7/8%-7 1/8% - and a run-up of prices in the secondary market.

"People seem to be paying too much," a sell-side source commented recently, declining to predict when the present bullishness would end but assuring Prospect News that sooner or later it would.

The sell-sider added that the specter of war between the U.S. and Iraq, and economic uncertainty in the U.S. and beyond would, in other circumstances, motivate accounts to sit on substantial cash, but that so much money has come into the high yield over the past two fiscal quarters - and especially in the most recent weeks - that there is pressure to put some of it to work in spite of political and economic circumstances.

However, said the official, regardless of the volumes of cash, the buy-side will likely only be driven so far.

"Once you get to a reasonable amount of cash on hand you don't need to be buying stuff at prices that don't seem to be in line with the credit," the official said. "At some point people are just going to decide to keep cash on their books rather than pay beyond any reasonable expectation of an upside on the bond."

Thursday's session in the high-yield primary market saw two deals price. Junk investors placed bets to the tune of $468 million on two tranches of seven-year notes jointly issued by Trump Casino Holdings, LLC and Trump Casino Funding, Inc. - with the investors including was Mr. Trump himself. And AmeriPath upsized its 10-year senior notes deal by $65 million, pricing $275 million at 10¾%, inside of talk.

Trump's Rule 144A deal came via joint bookrunners Deutsche Bank Securities, Credit Suisse First Boston and UBS Warburg, with Jefferies & Co. as co-manager.

The first tranche was comprised of $425 million ($402.8 million proceeds) of 11 5/8% first priority mortgage notes due March 15, 2010 (B3/B-), which priced at 94.781 to yield 12¾%. Price talk was for a 11 5/8% coupon and a 12¾% yield.

The second tranche was comprised of $65 million of second priority mortgage notes due Sept. 15, 2010 (Caa1/CCC), which priced at par to yield 17 5/8%. The second priority notes have a cash coupon of 11 5/8% and a PIK coupon of 6%.

Donald Trump purchased $15 million of the second priority notes himself, according to a syndicate source. A press release that was issued by the company in the wake of Thursday's transaction specified that Trump also purchased $15 million of stock in Trump Hotels & Casino Resorts, Inc.

Trump commented in the press release: "I am pleased that despite difficult capital market conditions and the looming threat of war, the company has been successful in the sale of these bonds. My strong belief in this company is evident by my commitment of $30 million of personal assets to this financing."

The company, which had postponed a similar deal last May, was said by high yield sources to have been marketing the most recent two-tranche since early in the new year. One informed source told Prospect News on Thursday that all the players were in formation well before the gun sounded on transaction.

"It priced right on top of where it was supposed to price," the source said, adding that the deal settles on March 25 because the New Jersey Gaming Commission has to approve it.

"This was kind of predestined," the official added. "It was brought out under the full knowledge of who would buy it. There has been a year to circle the wagons and find a home for these notes. It went exactly as we knew it would go."

Also pricing Thursday was an upsized offering from AmeriPath of $275 million of 10-year senior subordinated notes (B3/B-), via Credit Suisse First Boston and Deutsche Bank Securities. The new AmeriPath notes priced at par to yield 10½%, inside the 10¾% area price talk. They were upsized from $210 million.

Finally on Thursday, price talk of 8¾%-9% was heard on La Quinta Properties, Inc.'s $250 million of eight-year senior notes (Ba3/BB-/BB-), set to price Friday via Lehman Brothers.

When the new Trump notes were freed for secondary dealings, a trader said that they were being quoted around 95.5 bid/96.5 offered, up from their issue price earlier in the session at 94.781, but he opined that "I don't think there was any real trading in it."

He said that at his shop, "no accounts really fessed up to playing in it. I think the guys that played it were guys that were already involved in it with the [Trump A.C.] 11¼% notes and were obliged to play. I think there's just a general distrust" of the company itself and particularly chairman Donald J. Trump, given The Donald's attempt last year to play hardball with his bondholders as he has attempted to shave his debt load.

"I talked to a couple accounts [Thursday] morning - and basically, guys were saying 'I'm not playing that, I don't care what goes on.' They don't trust Donald Trump. They've been burned too many times. It can come with any kind of a yield on it, and PIK notes, and all this other nonsense, but nobody cares."

The existing Trump A.C. 11¼% first mortgage notes due 2006 were seen by a market observer as having firmed to 78.25 bid from prior levels at 76.5. The Trump Castle Funding 11¾% notes scheduled to come due in November, which are to be taken out with the proceeds of Thursday's bond deal, were a point better, at 96 bid.

Also in the new-deal sector, the new Ameripath notes "traded to a pretty good premium," the trader said. "I was actually pretty surprised. We did see a lot of flipping, though," as investors bought the bonds around their par issue price, let them run up to above the 102 bid level and then got out with a profit. He said the bonds "really never traded below that [102ish level], with some trades as high as 102.5-102.75 bid, before the new bonds finally settled in around the 102-102.25 bid area.

The trader said that "there were several accounts that tried to add on to positions, and I understand that allocations were pretty light." At his desk, when the bonds got up to the 102 area, "we had maybe four or five sellers and maybe two or three buyers."

He noted that the issue had been upsized to $275 million, after the issuer "took out some of the bank debt. The 10½% coupon, he said "is a decent coupon - you're getting paid to play. But there's still a lot of questions about this business," with Medicare reimbursement for 2004 "likely to come in a little softer than people anticipated, and certainly softer than '03. And it's an acquisitive company - it's probably something that's going to trade well for the short term, but for the long-term - there are some questions, you know?"

Among already existing issues, Revlon was the disaster of the day, with a trader noting that "they got beat up on the numbers, and were down about eight points in the morning, right after the numbers came out."

By day's end, Revlon's 8 1/8% notes due 2006 had fallen to 59 bid from prior levels around 63, while the New York-based cosmetics maker's 8 5/8% notes due 2008 lost six points to close at 41 bid. Revlon shares were down 6.25% to $2.70 in New York Stock Exchange dealings after the company - controlled by billionaire financier Ronald O. Perelman - reported its 17th consecutive quarterly loss. Revlon lost $179.4 million ($3.44 per share) in the fourth quarter, sharply wider than the $28.3 million (54 cents per share) deficit seen in the year-earlier period.

Elsewhere, Tyco International Group SA's 6 1/8% notes due 2008 were seen at 84 bid, 86 offered, up from 82 bid, 85 offered at Wednesday's close. The Bermuda-based conglomerate's medium- to long-term bonds were also higher, with its 6 3/8% notes due 2011 quoted rising to 85 bid, 87 offered from 82 bid, 84 offered previously - even as its shares were headed southward, down $1.74 (12.40%) to $12.29 on the NYSE. Volume was a busy 88 million shares, more than five times the norm.

Late Wednesday, the beleaguered company - still trying to recover from the management excesses seen during the reign of ousted former chairman and CEO Dennis Kozlowski, who is currently under indictment - announced that it had fired Jerry Boggess as head of its fire and securities division, and named Tyco executive David Robinson to replace him.

The company's new tough-talking chief executive Edward Breen, recruited last year from Motorola Inc. to come in and clean house, said he has a zero-tolerance policy.

""The goal for the year is to clean the crap up," Breen told reporters. "If I find anything wrong, heads will roll."

While Breen is trying to right the ship, Tyco - which went on a multi-billion spending binge under Kozlowski to become a huge, but unwieldy conglomerate - is trying to restore investor confidence and appease regulators probing its tangled accounting practices.

Tyco also said Thursday it would take charges of at least $265 million because of accounting problems in that area of its operations, but issued a strong long-term outlook

Another company which has been laid low by serious accounting issues, Fleming Companies Inc., was on the upside on Thursday, its bonds and shares bouncing off the lows they hit earlier in the week. The Dallas-based Number-One U.S. wholesale grocery products distributor is currently the focus of a Securities and Exchange Commission investigation, and was forced to dismiss its chairman and CEO Mark Hansen earlier in the month, as it tries to turn in another direction and return to its core competencies.

The Fleming bonds had been getting clobbered all week, but on Thursday, its 10 1/8% senior notes "look like they went up today, after getting beaten hard yesterday," a market source said. Those 2008 bonds firmed to 40 bid from prior levels at 38, while Fleming's 10 5/8% subordinated notes due 2007 improved to 15.5 bid from Wednesday's close around 11. Fleming shares were unchanged at $1.14. Late in the day, the company declined comment on market and media speculation that it might soon be forced into bankruptcy.

Bethlehem Steel Corp. is already in Chapter 11; its 10 3/8% bonds due 2011 were quoted at a distressed-debt shop at about 90 bid, par offered .

"Overall Bethlehem was pretty steady, not much easing, but lots of paper changing hands," said a distressed debt trader.

The bankrupt Bethlehem, Pa.-based steelmaker said on Thursday it signed an agreement finalizing the terms of its acquisition by International Steel Group for $1.5 billion in cash and assumed debt and obligations. Bethlehem said that although it now had an asset-purchase agreement with ISG, it remained open to higher and better offers consistent with the bankruptcy court's approved bidding procedures.

Elsewhere in the steel sector, the much more financially healthy AK Steel's 7 7/8% notes due 2009 dropped to 96.75 bid from prior levels at 99, after another steel firm, Steel Dynamics, on Wednesday issued a first-quarter earnings warning. Earlier in the week, yet another rival, U.S. Steel Corp., also issued bearish guidance.

Airlines stayed mired in the teens Thursday. One trader quoted American Airlines parent AMR Corp.'s 9% notes due 2016 at 15 bid, 16 offered, close to unchanged from Wednesday, but down from 18 bid, 19 offered from Tuesday.

AMR has been surrounded by bankruptcy talk after news reports circulated that it has begun discussion about lining up nearly $2 billion in debtor-in-possession financing. On Monday, an official of its flight attendants union hinted that AMR might head into bankruptcy soon.

UAL Corp., the bankrupt parent of United Airlines, dipped slightly lower as well. UAL's 10.67% notes due 2004 were bid at 12 and offered at 15, unchanged from Tuesday but falling from previous levels of 15 bid, 18 offered.

"Airlines are in the toilet and will be for some time," said the trader.

(Carlise Newman contributed to this report.)

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