Upsized Illinois Power leads new-deal parade; Sinclair, Lamar also price; Nextel gains

By Paul Deckelman and Paul A. Harris

New York, Dec. 17 - Even as overall high-yield market activity continued to slow in the run-up to the end of the year, the pace of new-deal pricings picked up Tuesday after a brief lull Monday, as four deals totaling more than $1 billion priced, largely clearing the week's scheduled forward calendar, with Illinois Power Co.'s upsized $550 million offering of eight-year first mortgage notes leading the way.

Secondary market activity was meanwhile restrained; Nextel Communications Inc. debt was firmer after the wireless operator reiterated its 2002 subscriber and cash-flow forecasts. WestPoint Stevens Inc. bonds were given a boost by news that the company had paid the coupons on those notes on Monday as scheduled.

In addition to Illinois Power and Lamar Media, two add-on deals priced Tuesday as United Rentals (North America), Inc. upsized its offering and Sinclair Broadcast Group, Inc. priced a $125 million add-on spot-on to the price talk.

Meanwhile discussion continued among market sources on the abrupt turning of the tide of cash that had swelled high-yield mutual funds for eight straight weeks to the tune of $4.9 billion before the funds underwent a $400 million outflow for the week ending Dec. 11.

One sell-side source who spoke to Prospect News on Tuesday conceded that $400 million is a reasonably impressive figure but less impressive given recent circumstances in the new issuance market.

"I don't think you can read too much into it given that you had 18 deals price last week," the official commented.

Another official from a different high yield syndicate also expressed the opinion that the last week's outflow is not the real headline story in the primary market.

"Last week was the largest single week this year in terms of new issuance, by either volume or number of transactions," this official said.

"We did have some outflows last week. This week continues to be relatively fast-paced in the new issue market through the early part of the week. And now I think things will start to slow down.

"I think you'll see the market start to build momentum next year, when you'll start to see some heavy new issuance."

Interestingly these two sell-side sources differed slightly when quizzed Tuesday by Prospect News as to whether high yield is currently rallying.

"It's hard to say because volumes are pretty light and people are just rounding out positions, and positioning themselves for 2003 as opposed to doing anything that is fundamentally and technically driven by the markets," responded the first of the two sell-side sources to be quoted above.

"People are just doing clean-up trades."

The other official, however, was unequivocal.

"We're definitely in a rally," the sell-sider said. "I think it should carry over into 2003 but I think some of the froth has been taken off the market over the last couple of weeks as all of this paper has hit."

Prospect News also solicited an opinion from a buy-side source, Tuesday, as to the significance of last week's reported outflow. This investor, speaking on background, attributed last week's - and all other recent high-yield funds flows - to a familiar scourge of mutual funds.

"I think a lot of the flows, in or out, are market-timing driven," the portfolio manager said. "I also think a lot of this money that came in after the market got so oversold in October was market-timing."

Meanwhile in Tuesday's primary market activity the new issuance calendar was cleared of all but one of the deals scheduled to price during the fast-closing year.

The Dynegy Inc. subsidiary, Decatur, Ill.-based Illinois Power Co. delivered the biggest charge Tuesday, upsizing its offering to $550 million from $500 million and pricing the eight-year 11½% first mortgage notes (B3/B) at 97.480 to yield 12%, at the tight end of the 12%-12¼% price talk. Bookrunners were Merrill Lynch & Co. and Credit Suisse First Boston.

One informed source from the sell-side told Prospect News shortly after the utility from the Prairie State priced its new notes that the deal had been twice-oversubscribed, and the notes had traded up two points "on the break," ending at 99¼ bid, 993/4, offered.

Lamar Media Corp., meanwhile, priced its $260 million of new 10-year senior subordinated (Ba3/B) at par Tuesday to yield 7¼%, at the tight end of the 7¼%-7½% price talk. The deal came via JP Morgan.

The other two transactions that went down Tuesday were add-on deals.

Baltimore-based Sinclair Broadcast Group, Inc. priced a $125 million add-on to its 8% senior subordinated notes due March 15, 2012 (B2/B) at 103 Tuesday for a 7.45% yield to worst. Price talk was 103 area on the deal that came via joint bookrunners JP Morgan, Deutsche Bank Securities Inc. and Wachovia Securities, Inc.

And United Rentals slightly upsized its add-on to $210 million from $200 million and priced the 10¾% senior notes due April 15, 2008 (B1/BB-) at 97.045 to yield 11½%, netting proceeds of $203.8 million. Price talk on the deal, via Credit Suisse First Boston, was for a yield in the 11% area.

Late in Tuesday's session a market source told Prospect News that as 2002 races toward its conclusion in the capital markets, with Christmas just a week away, only one deal remained on the forward calendar.

Sanmina-SCI Corp. plans to price $450 million of seven-year senior secured notes (Ba2/BB-) late Wednesday, via Goldman Sachs & Co.

Price talk on that deal is 10¼%-10½%.

The above-quoted portfolio manager, again speaking on background, told Prospect News that Sanmina is attractive.

"Sanmina will be my last contribution," said this investor.

"It's going to be double-double B, secured with assets under the banks, so it's going to be an above-average high-yield credit. And the business, contract manufacturing, should benefit as the tech cycle picks up over the next year or so."

A sellside source late Tuesday denied a rumor, circulating in the markets and mentioned by the investor, that the deal had been upsized to $600 million and reiterated that the company is offering $450 million of notes.

A trader noted that if any new deals were to get done, "basically, you've got [just] this week," with the market going into their end-of-year holiday mode in the following two weeks, which will see early closes (2 p.m. ET ) on Tuesday Dec. 24 and Dec. 31, full market closes on Christmas Day, Wednesday Dec. 25 and New Year's Day, Wednesday Jan. 1, 2003 - and precious little real activity expected the other three days of each of those weeks.

"There can't be any significant roadshows [for new deals], or anything like that, so you'll have this week to do these drive-by deals. You'll have Lamar [Media, which priced on Tuesday] and a couple of off-the-shelf type things - but that's basically it."

A trader quoted the new Sinclair Broadcast Group add-on deal, which priced at 103, as having moved up to 104 bid when they were freed for secondary dealings.

He saw Iron Mountain Inc.'s new 7¾% senior subordinated notes due 2015, which priced at par on Monday, as hanging in in that same area in initial secondary dealings. "They didn't do much," he said of the Boston-based information management company's new issue.

Back among the established issues, the trader saw Nextel's benchmark 9 3/8% notes a point higher at 92 bid; the Reston, Va.-based wireless communications company reaffirmed its previous guidance for full-year 2002 results - 1.9 million net new subscribers, and at least $3.1 billion in operating cash flow, despite what it termed " the competitive business climate" and slower industry demand.

Nextel also projected that 2002 capital spending would come in at under $1.9 billion.

Elsewhere in the communications sphere, the trader saw the bonds of bankrupt Global Crossing Ltd. "up a little" on news that a bankruptcy court judge had confirmed the once high-flying international fiber optic network operator's reorganization plan.

That, he said, had caused its bonds to move up to about the 3 to 3.25 level from prior levels around 2.625 bid/2.875 offered.

Under terms of the plan, Hutchison Whampoa Ltd. and Singapore Technologies Telemedia Pte will pay $250 million for 61.5% of the reorganized company's equity, while the holders of its $4.54 billion of bonds and other creditors will divide $300 million in cash, $200 million in notes and the remaining 38.5% of the new stock.

But since the company's banks will get all of the cash, $175 million of the new notes and 6% of the shares - an estimated return of 22 cents on the dollar for their claims - that will leave just $25 million in notes and 32.5% of the shares to be divvied up between the bondholders and the other unsecured creditors, or about 3.5 cents on the dollar.

Elsewhere in distressed-land, Bethlehem Steel's bonds continued to languish at between three and five cents on the dollar, after the federal Pension Benefit Guarantee Corp. proposed to terminate the troubled Bethlehem, Pa.-based steelmaker's pension plan and take over its operations. The PBGC says the plan, covering 95,000 workers, is underfunded by $4.3 billion.

But that federal takeover could complicate plans for International Steel Corp., controlled by financier Wilbur Ross, to acquire Bethlehem, which is currently in bankruptcy.

United Air Lines bonds were meantime still quoted around the same 10-12 context they've held since the Number-Two U.S. airline made a recent forced emergency landing in Chapter 11. A trader said that his shop had seen some activity in the municipal bonds issued by local airport authorities to finance gates, cargo facilities, hangers and other ground installations leased by the airline at their airports.

But he said that this early in the bankruptcy, "nobody knows" the true worth of those bonds, since UAL - which has asked for even more severe work-force and pay cut concessions from its unions than it did before its filing - has yet to outline which routes it may have to terminate in order to get its expenses down to a manageable size. At airports where UAL plans to significantly downsize its presence, the vacated facilities could be leased to other airlines. For the moment, bonds issued by the Los Angeles and San Francisco municipal airport authorities that are supported by UAL lease payments are estimated to be trading in the 20 to 30 cent on the dollar range.

Back on the ground, WestPoint Stevens Corp.'s 7 7/8% notes due 2008 were quoted by one market observer as having firmed to 28.5 bid from prior levels around 25, while its 7 7/8% notes due 2011 rose to 27.5 bid, a two point gain, after the West Point, Ga.-based textile maker announced late Monday that it had paid $39 million in interest due on the two issues, and still had $205 million of borrowing availability after the coupon payments.

WestPoint also said that it is "comfortable" with the belief that it will remain in compliance with all of its financial covenants.

The observer also saw AES Corp. bonds "up a little more" Tuesday, continuing the momentum begun last week when the Arlington, Va.-based global power producer announced the successful refinancing of $2.1 billion of bank and bond debt, including $300 million of bonds that would have come due on Monday.

AES's 9½% notes were up a point to 60.5, while its 9 3/8% notes pushed up to 60.25 bid from 58 previously.

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