Shaky U.S. Market Turns Focus To Germany


The domestic new issues market is turning into a tough gig, one that only the best or bravest issuers are facing. With Treasury yields backing up lately amid concerns of an interest rate hike, many investors and issuers alike have shied away from the market, some focusing their attention overseas.

To be sure, there is an impressive calendar on the back burner, but few of those deals are actually coming to market. Late in the week, there were indeed some pricings, in additions to a warmer secondary market, but overall investors said they were waiting until the end of the month to see whether the Federal Reserve is going to raise interest rates. Those deals that did find buyers were pricing at the wide end of the price talk, and often at a discount, investors said.

St. Louis-based Falcon Products priced a $100 million issue, one of the few of the week that actually priced at par. It featured an 11.375% coupon and yielded 541 basis points over the curve. The issue, structured in senior subordinated notes, carried a rating of B3 from both Moody's Investors Service and Standard & Poor's.

The call schedule is as follows: First call is in 2004 at 105.6875, then prices fall in successive years to 103.792, 101.89, and 100 thereafter.

Other deals to find buyers last week included Transportation Manufacturing Operators, a manufacturer of buses. It had to decrease the size of its offering, though, by about 25% to finally complete a $152.5 million transaction. The issue, structured as senior subordinated notes, carried a rating of B2 from both Moody's Investors Service and Standard & Poor's. It featured an 11.25% coupon, and it priced at 98.58 to yield 554 basis points over Treasurys.

The offering is first callable in 2004 at 105.625, then prices fall in each subsequent year to 103.75, 101.875, and par thereafter.

Avado Brands Inc., a restaurant company, bellied up to the high yield market with a $100 million deal, sold under Rule 144A. It priced at a discount at 98.561 and carried an 11.75% coupon. The deal was rated B2 by Moody's Investors Service and B- by Standard & Poor's. The notes are initially callable in 2004 at 105.875, then prices decline to 103.917, 101.959, and par in each subsequent year.

Majestic Star Casino, like many other casinos this year, tapped the market to refinance existing debt. The $130 million issue priced last week, and will help pay back its $105 million issue that comes due in 2003. The B2-rated deal priced at 98.26, and is first callable in 2003 at 105.438. After that, prices fall annually to 102.719 and par.

The saving grace last week came Wednesday, when investors learned that May's consumer price numbers were flat, following an unexpected 0.7% increase in April. That news helped improve bond prices, while the Dow Jones Industrial Average soared 189.9 points to end that day at 10,784.9.

German Deals Look Better

Meanwhile, the European high yield market looked to be more healthy last week, particularly in Germany, where junk players had been expecting to see some new issues (HYR 5/31/99).

One European junk deal that will start roadshowing in the states this week is from Germany's Cyber Net, the first European Internet service provider to tap the high yield market. It spent last week on the road in Europe, sources said.

Co-managed by Lehman Brothers and Morgan Stanley Dean Witter, the transaction is said to be looking for the equivalent of $250 million, broken out in a U.S. dollar tranche and a euro tranche. However, it probably will end up selling primarily to U.S. investors, sources said, since European buy-siders are not as conformable with the new, Internet types of investments that have little or no cash flow.

One investor said Cyber Net was perceived as a single-B credit, but price talk could not be learned by press time. The company operates in the German, Swiss and Italian markets.

Another European deal, which priced last week, came from Leica Geosystems, which tried to find buyers in September but withdrew its attempt after a few weeks because it was unable to stir enough interest on what was then a DM150 million issue.

This time, it found buyers on a 100 million euro issue, led by Merrill Lynch. The issue featured a 9.875% coupon and priced at a slight discount, 98.645, to yield a spread of 575 basis points over Treasurys.

The deal, sold under Rule 144A, is initially callable in 2004 at 104.938, and then prices decline in subsequent years to 103.292, 101.646, and par.

Leica and Cyber Net could be the pre-cursor for a number of German deals, as the country is being talked up by market participants as the next hotbed of activity in the European market (HYR 5/31/99). And, as further evidenced by manufacturing company Leica and high-tech firm Cyber Net, the issuance, unlike most of the European market so far, is expected to be two-pronged: telecom, as well as industrial offerings.