New Issues Slow to a Trickle - Again
August 9, 1999
New issues slowed dramatically last week, following a short spree of about $6 billion in deals that priced the previous week. Combined with a rising yield on the 10-year Treasury and predicted outflow of cash from high yield mutual funds, it made for a slow week.
There were about 10 companies that canceled or postponed junk bond issues, worth more than $2 billion, according to high yield buy-siders.
McLeod, a competitive local exchange carrier, was the most notable issuer to pull a deal after it did not see enough interest in its $400 million issue. But also yanking deals were Iaxis BV, which is building a fiber optic cable network in Europe, and Mueller Group, which makes fire hydrants.
Iaxis was marketing a $200 million issue that had price talk as high as 14%, and Mueller had tried to sell a $300 million transaction.
In the first seven months of the year, there have been about $66 billion worth of junk deals to price, down from last year's record $110 billion. And on the sell-side, the biggest beneficiary of the market has been Donaldson, Lufkin & Jenrette.
Tops On The Sell-Side
DLJ is showing its rivals how it has won the top-ranked underwriter spot in the high-yield bond market for much of the decade, as the shop brought to market more than $5 billion in deals and managed to place a key hire in its off hours.
"In the last two weeks we've priced more high-yield [deals] than many firms have in the entire year," said Steven Rattner, managing director of the high-yield syndicate desk at DLJ. While that may be overstating it, according to market sources, rival banks admit that DLJ's surge has almost cemented its standing as top bookrunner again this year.
"They're really on fire now," one trader said. A look at the new issue calendars of the past few weeks shows a surfeit of DLJ led or co-led deals. In recent days, DLJ brought to market a $293 million deal from HMI Finance Co., a $295 million deal from Sterling Chemicals (with Credit Suisse First Boston), and a $500 million deal from Worldwide Fiber (upsized from $250 million).
Further, it has helped lead some of the largest deals to hit in recent months, including a $2 billion offering from Allied Waste North America Inc. and a $1.5 billion deal from United Pan-Europe Communications NV.
As of half-year 1999, DLJ led the league tables with $11.1 billion in lead-managed proceeds and had a 16.4% market share. Since July, that total has surged beyond $15 billion and the firm's market share is around the 20% range, sources said. DLJ officials said they were confident that their market share will not shrink in the last five months of the year.
The Amsterdam-based United Pan-Europe deal was oversubscribed by about $1 billion and had more than 150 investors, sources said. The deal's $800 million and EUR300 million tranches priced at par to yield 10.875%, while its $400 million tranche of senior discount notes with a five-year zero coupon priced at 54.521 to yield 12.50%. DLJ led the deal along with Goldman, Sachs & Co.
Allied Waste's deal, which DLJ led with Chase Securities and Salomon Smith Barney, also had more than $1 billion in oversubscriptions, traders said. The deal was priced with a 10% coupon at 99.668 to yield 10.06%.
The Deals For The Week
There were indeed a handful of offerings that priced last week. Worldwide Flight priced a $130 million issue last Thursday that carried a B3 rating from Moody's Investors Service and a single-B from Standard & Poor's. The deal, which carried a 12.25% coupon, priced at 97.53.
The deal is initially callable in 2003 at 106.125, then prices fall in subsequent years to 104.594, 103.063, 101.531 and par.
Gentek priced a $200 million offering under Rule 144A that was downsized from its original $300 million. It carried a rating of B2 from Moody's Investors Service and single-B+ from Standard & Poor's. It featured an 11% coupon priced at par.
The bonds are first callable in 2004 at 105.5, and then prices decline to 103.667, 101.833 and par each year thereafter.
Hollywood Casino Shreveport priced a $150 million issue that received a rating of B3 from Moody's Investors Service and single-B from Standard & Poor's. It priced at par to yield 13%, or 688 basis points over Treasurys.
First call is in 2006 at 106.5, and prices fall in succeeding year to 103.25 and par.
Mattress Discounters priced its $140 million offering last week as well. The deal was rated B2 by Moody's Investors Service and single-B by Standard & Poor's. The notes carried a 12.625% coupon and priced at 96.377.
The call schedule is as follows: First call is in 2004 at 106.313, the second year, prices will be at 103.516, and after that, par.
And Globe Telecom priced a $220 million issue that was rated B1 by Moody's and single-B by Standard & Poor's. The transaction carries a 14% coupon and it priced at par to yield 709 basis points over Treasurys.
First call is in 2004 at 106.5, and then prices fall to 104.333, 102.167, and par.