Primary Market Waiting For $10 Billion Onslaught


The new issues market was the same story last week as the past several: Some deals priced but the big topic of conversation was a massive forward calendar.

Cable and telecom names are the biggest issues lined up in the $10 billion pipeline, investors said. McLeod, a competitive local exchange carrier, is said to be planning an $800 million offering, while Williams Communications is still planning its $1.3 billion junk-bond transaction in 10-year notes to develop its fiber optic network and pay down existing bank debt. A subsidiary of Williams Cos., the company plans to build the telecom network along its existing pipelines, enabling it to take advantage of the rights of way it already owns.

Other deals in the offing include a $300 million offering from Corral Petroleum underwritten by Deutsche Banc Alex. Brown; a $293 million deal by HMI Finance via Donaldson Lufkin & Jenrette; a $400 million transaction from SCG Holding Corp. managed by Chase Securities; and a $250 million issue in 10-year notes from Worldwide Fiber Corp., also via DLJ.

Worldwide Fiber is another company building a fiber-optic communications system in the U.S. as well as Canada.

And UPC is still in the market with its mammoth $1.5 billion deal that is denominated in dollars and euros. UPC is the second-largest cable operator in Europe and is expected to become a benchmark indicator of high yield cable names in continental Europe. It does not compete in the U.K., which is dominated by NTL, Cable and Wireless, and Telewest.

The other notable aspect to the high yield universe now is that U.S. investors, in the never-ending search for yield, are attracted to the euro.

The euro has fallen against the dollar this year, but that has actually bode well for future hopes of junk bond investors. The European high yield market is widely expected to be the next hot spot in issuance activity, and consequently, the euro is viewed as having a lot of upside against the dollar.

The largest-ever euro high yield deal, a 515 million euro deal from Kappa Beheer, was marketed to U.S. investors last week. Other recent euro deals include Pannon, a Dutch subsidiary of a Hungarian mobile phone company, which is in the market with a transaction worth 125 million euros. And Rhiag recently priced a 105 million euro issue that carried a coupon of 10.75%. It priced at par to yield 10.75%.

And PSINet, although based in Virginia, recently issued a deal that was denominated both in dollars and euros, worth a total of $1.2 billion.

Deals Of The Week

Sterling Chemical priced its $295 million offering that was structured in senior secured notes due in 2006 and carried a B3 rating from Moody's Investors Service and a B- rating from Standard & Poor's. Proceeds from the deal went to refinance existing bank debt (HYR 07/19/99, p. 5).

Analysts had called into question whether recent price increases in the chemical sector would be enough to help the debt-laden company.

The deal, which carries a 12.375% coupon was priced at par to yield 677 basis points over Treasurys. It is initially callable in 2003 at 106.188, then prices fall to 103.094 and par in subsequent years.

Credit Suisse First Boston and Donaldson Lufkin & Jenrette were the lead underwriters.

Tapco International Corp. priced a small $57.5 million offering that was structured as senior subordinated notes. The deal, marketed under Rule 144A, priced at par to yield 685 basis points over Treasurys.

It is initially callable in 2004 at 106.25, and then prices decline in following years to 104.167, 102.083, and par.

Chippac Inc., an independent supplier of semi conductor packaging services, sold $150 million of debt structured in 10-year senior subordinated notes. Proceeds will be used to partly finance an acquisition from Hyundai Electronics Industries. The notes were rated B3 by Moody's Investors Service and single-B-minus by Standard & Poor's.

The notes are callable for the first time in 2004 at par. Credit Suisse First Boston was the lead manager.

And Classic Cable, which operates rural cable network in the U.S., sold its $150 million transaction to help it pay for the acquisition of Buford Television Inc., a Midwest cable operator.

Classic's deal was structured as senior subordinated notes and sold under Rule 144A. It priced at par to yield 9.375%, or 371 basis points over Treasurys. It is callable initially in 2004 at 104.688, and then prices decline to 103.125, 101.562, and par.