NTK prices drive-by; MCI up on Verizon "bid"; Winn-Dixie plunges; funds see $287 million inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 10- NTK Holdings - a unit of Nortek Corp. - became the latest high-yield issuer to bring a quickly emerging, opportunistically timed new offering to market, tapping investors for a sale of 9-year zero-coupon discount notes. The only other pricing activity seen by the time trading rolled up for the day was United Refining's rapidly shopped add-on issue of 2012 notes.

In secondary dealings, MCI Inc.'s 10-year notes were seen up anywhere from 1½ to two points, on reports that Verizon Communications Inc. has made what is being called an "informal bid" for the Ashburn, Va.-based Number-Two U.S. long-distance operator.

On the downside, Winn-Dixie Stores Inc.'s bonds were seen having fallen sharply on poor fiscal second-quarter numbers and a difficult outlook for the Jacksonville, Fla.-based supermarket chain operator, which is in the process of shedding unwanted properties and trying to get its sales back up in the face of strong competition from Wal-Mart Stores Inc. and other rivals.

And well after the day's trading had been completed, AMG Data Services was heard to have reported that high-yield mutual funds saw a net inflow of $287.24 million in the week ended Wednesday, excluding distributions and counting only those funds that report on a weekly basis. The fund flow numbers are considered a measure of junk market liquidity trends.

It was the second straight weekly inflow, following the $118.5 million inflow seen in the week ended Feb. 2.

Inflows have been seen in three weeks out of the six since the start of the year. Even with the latest week's inflow, the funds show a year-to-date net outflow of some $925 million, according to a Prospect News analysis of the AMG figures. That was down from the $1.212 billion cumulative outflow seen the week before.

A quiet Thursday in the high yield primary market saw a pair of drive-by deals price for a total of $275.4 million.

Although it wasn't much, it was sufficient to keep year-to-date issuance slightly above that of the corresponding period of 2004.

Meanwhile no new roadshow starts were heard, as the Prospect News forward calendar at Thursday's close showed a mere $625 million and €320 million of business that is thought to be in the market at present.

A drive-by day

Only two issues priced during the Thursday session, and both of them were of the quick-to-market variety.

NTK Holdings, Inc. (Nortek) priced $250.41 million proceeds of nine-year senior discount notes (Caa2/CCC+) at 62.136 to yield 10¾%.

The Credit Suisse First Boston and Banc of America Securities-led dividend funding deal came tight to the 10¾% to 11%.

The notes will pay a 0% coupon for the first 4.5 years after which the coupon steps up to 10¾%.

Meanwhile United Refining Co. priced a $25 million add-on to its 10½% senior notes due Aug. 15, 2012 at 103.0, resulting in a 9.781% yield to worst.

Citigroup ran the books for the debt refinancing deal.

The Warren, Pa., refinery and convenience store company priced the original $200 million issue at 98.671 on Aug. 3, 2004, resulting in a yield to maturity of 10¾%, and hence walked away from Thursday's transaction with a better interest rate.

A buy-side source who spoke to Prospect News had little apparent appetite for either of Thursday's transactions.

"Nortek got downgraded on the news," the investor said. "They got cut to CCC+.

"And the United Refining deal knocked down the company's existing bonds by two or three points to 102 bid. It was around 105 on Wednesday."

When the new NTK zeroes were freed for secondary dealings late in the session, a trader said he had heard the new bonds offered at 62.875, although he had seen no bid side, and observed hyperbolically that "you can get a monkey to throw out an offer," but without a bid, it really doesn't mean much. The bonds had priced earlier in the session at 62.136.

Year-to-date issuance tops 2004 pace

According to data compiled by Prospect News, with Thursday's $275 million of business 2005 year-to-date issuance totaled $19.075 billion in 69 tranches.

That pushes the period's issuance slightly above that of the same time period in 2004: from Jan. 1, 2004 through Feb. 10, 2004 a total of $19.061 billion priced in 71 tranches.

Prospect News ran those totals past sources on both the buy-side and the sell-side, all of whom were nonplussed.

"We've already had Intelsat [$2.55 billion] and Novelis [$1.4 billion] so far this year," one investment banker asserted.

"Those deals set the tone."

Meanwhile another syndicate official in a different investment bank said: "It doesn't surprise me so far.

"I think it will be a little bit slower in the next few weeks relative to the same period last year with people focused on their numbers in light of the Sarbanes-Oxley requirements. Issuers will be a little reluctant to go until they get all of that sorted out.

"It has already started, which you can tell by looking at the forward calendar. There is not much in the market right now.

"Give it another week or two and it will start to pick back up again."

Meanwhile an investor commented: "The first three-quarters of January were strong and then it sort of faded a little.

"Earlier this week we were talking about how slow things were going," the buy-sider added, "but that turned around pretty fast."

Friday's deals talked

Sources told Prospect News late Thursday that four deals are expected to price during the final session of the Feb. 7 week.

Talk was heard Thursday on all four.

Talk is 6¼% area on Holly Energy Partners LP's $150 million of 10-year senior notes (Ba3/B+) via UBS Investment Bank

The above-quoted investor said the deal is going to be a blowout.

The price talk is 10¾% on Hilite International Inc.'s $150 million offering of seven-year senior subordinated notes (B3/B) via JP Morgan.

Also on Friday terms are expected to emerge on two European transactions totaling €320 million.

Price talk is 7¼% to 7½% on Antenna TV SA's €120 million offering of 10-year non-call-five senior notes (confirmed B1/expected B+), in a deal that is being led by Citigroup.

The buy-sider also said that Antenna is a blowout.

And finally, EB Holdings, Inc., the newly created parent of Eco-Bat Technologies Ltd., is talking its quick-to-market €200 million offering of 10-year non-call-two senior PIK notes at the 10% area.

Pricing is expected on Friday, via Citigroup and Credit Suisse First Boston.

MCI active and higher

Back among the established issues, MCI's 8.735% notes due 2014 "were pretty active" on the Verizon news, a trader said, noting that the bonds, after having closed Wednesday at 111.5 bid, 112.5 offered, opened up three points from that level, fired up by the story in Thursday's editions of The Wall Street Journal. The paper reported that Verizon, probably the most financially sound of the four regional Bell operating companies that provide most of the local phone service in the United States, had made an "informal," unofficial cash-and-stock buyout offer to MCI that was about equal to the officially announced $6.3 billion bid the company received last week from the financially weakest of the RBOCs, Qwest Communications International Inc.

The MCI bonds have firmed smartly over the past two weeks, as mergermania gripped the telecommunications industry with the speculation - which later proved to be justified - that yet another RBOC, SBC Communications, would acquire MCI's larger rival, AT&T Corp., in a $16 billion deal. The 10-years had been trading at around 103-104 before all of the M&A buzz began, centering on speculation that one or more of the RBOCs (a group that also included BellSouth Corp.) might make a bid for MCI, just to be able to keep up, revenue-wise, with the combined SBC/AT&T entity.

The Journal story reporting Verizon's sort-of offer pushed the bonds up to 114.5 bid, 115.5 offered, the trader said, but then "when there was no further news, meaning no official confirmation of the story from either Verizon or MCI, the bonds came off their highs, although they still finished up slightly more than a point on the session at 113 bid, 113.75 offered.

The trader also saw the MCI 7.688% notes due 2009 up two points at their opening, before ultimately giving up some of that gain and ending up a point on the day at 105.5 bid, 106.5 offered. MCI's 6.908% notes due 2007 were seen up perhaps a quarter point at 102.5.

Winn-Dixie plunges

On the downside, Winn-Dixie was easily the disaster of the day, its 8 7/8% notes due 2008 swooning as low as 72 bid, 73 offered from Wednesday's close at 88 bid, 89 offered.

"Oh man, did they get murdered," said a trader who saw the bonds fall to 72.

Winn-Dixie posted a net loss for the quarter of $399.7 million ($2.84 per diluted share), widening out from a year-earlier net loss of $79.5 million (57 cents per share). The net loss included a sharply higher loss from discontinued operations as Winn-Dixie continues its efforts to rationalize its assets by closing unprofitable stores or those outside the core geographic areas in which it wishes to remain competitive, and selling off distribution centers and food manufacturing plants not part of its strategic plan.

The company's recently appointed president and chief executive officer, Peter Lynch, said that his view, after a whirlwind two months on the job, is that "the company has not been capitalizing on its competitive advantages. It's been trying to do too many things at once, and has lost the focus on sales. While many of the initiatives started over the years were trying to address the right areas, execution of the basic merchandising and other sales tactics simply has not been good."

Lynch outlined a strategy for trying to quickly bring sales up without any large investments of capital. He said the tactics he was proposing were "not rocket science," but involved improved in-store merchandising and getting the associates [store employees] focused on "driving sales" (see related story elsewhere in this issue).

Dura dips on earnings

Also on the earnings front, Dura Automotive Systems was seen having "fallen a little," in the words of one trader, following the Rochester Hills, Mich.-based driver control systems maker release of fourth quarter results.

While the company did report a net profit of $1.9 million (10 cents a share), improving from its year-earlier net loss of $2.9 million (15 cents a share), its earnings from continuing operations fell 51% to $4.8 million (26 cents a share), well down from $9.8 million (52 cents a share) a year earlier. Wall Street was disappointed, having expected continuing ops earnings of at least 35 cents a share.

The company cited vehicle production cuts and higher raw materials costs in explaining the downturn.

Dura's 9% notes due 2009 dropped to 95.25 bid, 96.25 offered from prior levels at 97.25 bid, 97.75 offered.

Star Gas Partners LP's bonds - which had fallen about 10 points on Wednesday after the Stamford, Conn.- based heating oil distributor posted a fiscal first quarter operating loss and issued bearish guidance - continued to retreat on Thursday, dropping to 94.75 bid from Wednesday's close at 96.5, a market source said. A trader at another desk, though, had seen those bonds offered as low as 93.75, with no bids seen.

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