New High Yield Issues Slowing To A Crawl


The new issues market slowed down considerably last week and no issues are expected to price at all this week, according to investors. There are said to be a lot of issues in the pipeline but they have not officially launched, investors said.

Several large deals, such as Williams Communications' $1.3 billion transaction, are expected to price later in the summer, but buy-siders are not expecting much in the next couple of weeks. Another sale expected in coming weeks is from GlobeNet Communications Group Ltd., which is expected to sell $350 million in high yield bonds to finance an undersea fiber optic network that will connect the U.S. to Latin America.

However, some in the market expect other deals in the pipeline to at least be announced next week, and that is said to be dampening demand somewhat.

Meanwhile, the volume for the second quarter fell off by nearly 40% to $31 billion compared with the second quarter last year (see separate story on page 1).

The Fed's announcement of a rate hike seemed to please investors for a short time; by the end of the week, though, they seemed to be concerned that the higher rates, and especially of yet another increase later in the summer, could lead to depressed profits, cash flows and higher corporate defaults.

There were said to be a few deals pulled from the market, one from the U.S. and a couple from Europe, sources said, but the issuers and other details could not be obtained by press time.

One deal that seems to be bouncing around in the market is from oil refinery Cenco, which is said to be a tough sell to buy-siders.

The one interesting aspect to it is the equity investor - Christian T.V. host Pat Robertson. Some investors said they were initially interested just because Robertson's name was attached to it, but after they looked at it, most decided to pass.

The refinery deal, which is basically an upgrade of an existing facility that has been shuttered for several years, was for $180 million and carried a B3/B- rating. The price talk had gotten as high as 15%, according to one energy analyst.

The Deals of the Week

A couple of the deals that priced last week had to be cut, investors said, including a 12.5% transaction from American Tissue. The deal ended up at $165 million, and it carried a B3 rating from Standard & Poor's and a single-B from Moody's Investors Service. The deal was cut by about 8% to reach the final size of $165 million.

It priced at a slight discount, 96.634, to yield 632 basis points over Treasurys. The issue, sold under Rule 144A, is initially callable in 2004 at 106.625, and then prices fall to par in the next year.

St. John's Knit International also reduced the size of its deal to $100 million, sources said. In fact, it cut the sale twice to the tune of almost 38%. The transaction also priced at a discount at 98.616 and carried a 12.5% coupon to yield 697 basis points over Treasurys.

It is first callable in 2004 at 106.25. Then prices fall annually to 104.688, 103.125, 101.563 and par in each year thereafter.

Avis Rent-A-Car priced a $500 million offering. The deal had an 11% coupon, and it priced at par to yield 500 basis points over comparable Treasurys.

The paper is callable in 2004 for the first time at a price of 105.5. Then prices fall in subsequent years to 103.667, 101.833 and par.

Berry Plastics priced one of the few other issues over the past week, finding takers on a $75 million transaction. The deal, which carried an 11% coupon, priced at par to yield 489 basis points over Treasurys. The issue was sold under Rule 144A.

It is first callable in 2003 at 105.5, then prices fall in subsequent years to 103.667, 101.833 and par in each successive year.