Finlay leads $500 million of new deals; Herbst upsizes; fund outflows slow to $162.3 million

By Paul A. Harris

St. Louis, May 27 - The high-yield market continued to firm during the last full session before the Memorial Day break, sources told Prospect News.

The primary market saw over $500 million price across five tranches, as sources raced to finish business before the break.

Meanwhile in light trading existing issues were heard to firm and the majority of Thursday's new issues moved up on the break.

However Thursday's news was not entirely of a positive nature. Shortly after the session's close sources told Prospect News that AMG Data Services has reported a $162.3 million outflow from high-yield mutual funds for the week ending May 26.

However, even though it was the seventh consecutive negative flow, with the year-to-date mutual funds flow numbers parked at negative $5.6 billion, one sell-side official told Prospect News that the grim funds flow cloud appeared to at least have a silver lining on Thursday.

The official said that although the May 26 week's number continues the negative run, the hemorrhaging of the high yield funds, if not exactly stanched, has meaningfully slowed.

The source said that Thursday's negative $162.3 million manifested a substantial improvement over the previous week's $989 million outflow, and was an unmistakable improvement over the $2.15 billion outflow that was reported for the week ending May 12.

"I think that the stories of this market's demise were premature," the official commented.

"If you look at how the market has been since the end of the first week in May, and look even closer at the new deals that have priced over the past week - with drive-by deals, upsized deals and deals pricing tight to talk - it's clear that people still have cash to put to work in high yield.

"I think right now people are focused on two things.

"There's the Fed meeting at the end of June. [Federal Reserve president] Bernanke said that the Fed's accommodative posture would be undone at a 'measured' pace. So I think people are looking for a 25 [basis] point increase in the short rate. If that indeed happens, even though the policy will have reversed, money will remain cheap and people will be inclined to think that increases from the Fed will be gradual.

"If, on the other hand, the Fed meeting at the end of June results in a 50 [basis] point increase, I think all bets are off."

Four deals price Thursday

The last full session before the Memorial Day break produced terms on five tranches from four issuers.

Finlay Fine Jewelry Corp. sold $200 million of eight-year senior unsecured notes (B1/B+) at par to yield 8 3/8%.

The New York City Jewelry retailer's debt refinancing deal came at the tight end of the 8½% area price talk. Bookrunners were Credit Suisse First Boston and JP Morgan.

According to a trader, shortly after the Finlay Jewelry 8 3/8% notes due 2012 broke for trading they were seen at 101.50 bid, 102 offered.

Herbst upsizes

Also on Thursday, Herbst Gaming Inc. priced an upsized $160 million issue of 8 1/8% senior subordinated notes (B3/B-) at 99.284 to yield 8¼%, spot-on the 8¼% area price talk.

Lehman Brothers ran the books for the refinancing deal from the Las Vegas-based gaming company.

After being released for trading, the Herbst Gaming 8 1/8% notes were seen changing hands at 100.25 bid, 100.75 offered, according to a trader.

Sainte-Marie de Beauce, Que. bathroom furnisher Maax Corp. sold $150 million of eight-year senior subordinated notes (B3/B-) at par to yield 9 ¾%.

The Goldman Sachs & Co.-led acquisition financing came at the tight end of the 9¾%-10% price talk.

When trading began, the new Maax 9¾% notes due 2012 were quoted at 102.25 bid, 102.50 offered.

Terphane downsized

The only exception to the primary market's smooth sailing Thursday came from polyester films manufacturer Terphane Holdings Corp.

The company completed a downsized and significantly restructured $53 million high-yield transaction by pricing two tranches of five-year notes (B3/CCC+) via Jefferies & Co.

Terphane sold $46.5 million of 12½% fixed rate senior secured notes at 94.719 to yield 14%.

The company, which is headquartered in Bloomfield, N.Y. and Sao Paulo, Brazil, also sold $6.5 million of senior secured floating-rate notes at par to yield six-month Libor plus 970 basis points.

Iasis to make post-holiday bow

One new roadshow start was heard on Thursday.

Iasis Healthcare, a Franklin, Tenn. owner and operator of medium-sized acute care hospitals, will start a roadshow Tuesday June 1 for an offering of $475 million of 10-year senior subordinated notes (B-). The roadshow is set to wrap up on June 9.

Banc of America Securities, Citigroup, Goldman Sachs & Co., Merrill Lynch & Co. and Lehman Brothers are joint bookrunners for the acquisition financing.

Strength in light trading

Although one trader told Prospect News that trading volume was what could be expected in the run-up to a three-day market recess, "slightly above zero," the high yield secondary nonetheless remained "relatively strong."

The bonds of Nextel Communications Inc. that were seeing firming Wednesday on news that Moody's Investors Service is considering raising the company's ratings continued to climb Thursday.

The trader had Nextel's 7 3/8% notes due 2015 finishing at 101 bid, 101.25 offered, from 100.25 bid, 100.50 offered on Wednesday - although a trader Wednesday had had the bonds already gaining some of that ground, ending that day's session at 100.625 bid, 101 offered on the news, improved from 100 bid, 100.50 offered on Tuesday.

Also up were Charter Communications' 8 5/8% notes due 2009, which finished at 82.25 bid, 82.75 offered, up a quarter to half a point on the session.

RCN pops, falls back on filing

The notes of cable and telephone operator RCN Corp., meanwhile, enjoyed a moment in the sun after the company and several of its subsidiaries filed to reorganize under Chapter 11 bankruptcy protection, early Thursday morning.

"RCN opened up really strong after they filed," said the trader, adding that the company's bonds traded as high as 55 bid, 56 offered.

"That didn't last very long," the source said. "They ended up 52 bid, 53 offered, where they closed Wednesday night.

"There was a little burst of euphoria there. I don't know why. Then they fell back down to end up unchanged."

Salton firmer

Also the bonds of Lake Forest, Ill. appliance maker Salton, Inc. firmed on Thursday, the trader said.

The company announced Thursday that is in the process of finalizing the initial phase of its recently announced cost-reduction program, releasing over 200 employees in its domestic operations, and reducing annualized expenses by $11 million.

The Salton 12¼% notes traded as high as 67.50, "up about five points," said the trader, adding that they finished at 65.50 bid, 66.50 offered, a little off the high.

Airlines miss gains

One sector that did not rise with Thursday's light tide was the airline industry, the trader said.

Delta Air Lines, Inc.'s 7.90% notes due 2009 were seen at 48.50 bid, 49.50 offered at the close, down from 52 bid, 53 offered on Wednesday.

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