Deal Flow Picks Up, but Demand Still Lags
September 27, 1999
The new issues market picked up last week from recent weeks, but as one buy-sider noted, "that isn't saying much."
There were indeed several deals that priced last week - most of which came on Thursday - but a couple of them had to increase the coupon and add equity warrants to appeal to the buyside.
Kirch Group, the German pay-TV company, and Charles River Laboratories both added warrants, investors said, and increased yields by as much as 50 basis points
Cellular company AirGate postponed its deal.
Specific problems are concerns that the Fed may raise interest rates coupled with the ongoing cash outflow. Investors are left with little or no money to put to work.
But the more general problem is just one of a market that has seen no catalysts in a while, said Dick Cryan, portfolio manager at Keystone Investment Management.
"You're seeing a whole lot of blah out there," he said.
Deals in the offing include the much publicized $400 million offering by McLeod, and the $1.3 billion issue from Williams Communication.
Also, Building Materials is expected to come with $150 million deal; Citation is expected to hit the market soon with a $200 million transaction via Donaldson Lufkin & Jenrette; and Insight Communication is expected with a $200 million, also from DLJ.
Deals of the Week
Charles River priced its $150 million deal, with warrants added for a 5% equity stake in the company, at par to yield 13.5%. The offering, structured in 10-year notes, was rated B3 by Moody's Investors Service and B- by Standard & Poor's. The issuer also made a concession to investors in regard to the coupon, which is able to increase to 14% if the company doesn't maintain certain revenue levels.
Sbarro Inc. priced its $255 million deal that carried an 11% coupon. The issue was rated Ba3 by Moody's Investors Service and BB- by Standard & Poor's. The restaurant chain priced the deal at a discount - 98.5140 - to yield 538 basis points over Treasurys.
The deal was downsized from the original plans of $300 million (HYR 09/06/99).
Railworks Corp. priced a small, $50 million issue structured as 10-year notes. That deal received a rating of B3 from Moody's Investors Service and B from Standard & Poor's.
Weight Watchers priced its $100 million offering last week as well. The deal carried a rating of B2 from Moody's Investors Service and B- from Standard & Poor's. It priced at par to yield 792 basis points over Treasurys, or 13%.
The deal is initially callable in 2004 at 106.5, and the prices fall in following years to 104.333, 102.167 and par.
Unilab Finance Corp., for its part, sold $155 million in junk bonds last week that carried a B3 rating from Moody's Investors Service and B- from Standard & Poor's. The deal priced at 97.2680 to yield 832 basis points over Treasurys. The coupon was 12.75%.
And finally, OmniPoint priced a deal for $205 million last week. The wireless issuer sold the notes with a B3 rating from Moody's Investors Service and CCC+ from Standard & Poor's.