Market Nearly Shut Out -- Last Minute Save from Europe


New issues nearly got shut out last week again, with only one deal that actually priced by press time, and that was on Thursday.

Portfolio managers predicted a severe slowdown in the market in the last couple of months of the year, and a couple of sources last week suggested that it had already begun. Concerns over interest rates and severe cash outflows, as well as an increasing default rate have hampered the appetite of portfolio managers.

There is indeed still an official forward calendar but some investors said they were wary of whether the deals actually price before year end.

One of the most prominent of the coming deals is from Tenneco Inc., the largest manufacturer of car and truck shock absorbers and exhaust systems in the world. The pending deal is said to be $500 million and will be structured as 10-year senior subordinated notes.

Salomon Smith Barney is the lead manager on the offering.

The one offering that priced last week was from Thomson Directories, a European telephone directory publisher. The overall bond offering was originally GBP160 million, with GBP100 million in the high yield market, but in the end, only GBP70 million got priced in the form of junk bonds.

The deal, which carried a 12.125% coupon, priced at 96.52 to yield 707 basis points over Treasurys. It was rated B2 by Moody's Investors Service and B- by Standard & Poor's.

The two-tranche deal had CIBC in the lead, while co-lead Credit Suisse First Boston dropped out at the last minute. The deal is initially callable in 2004 at 106.625, and then prices fall in subsequent years to 104.0417, 102.0208 and par thereafter.

(Thomson Directories was formerly owned by Thomson Corp., the parent company of High Yield Report.)

Some of the other deals that investors talked about last week were actually from late in the previous week.

One was PSEG Energy, which priced a $400 million offering on Friday, Oct. 1. The deal carried a split rating; a high yield Ba1 from Moody's Investor's Service and a BBB- from Standard & Poor's.

The transaction, which featured a 10% coupon, priced at 98.74 to yield 420 basis points over Treasurys.

And there also were several deals that got pulled from the market last week. According to one player, "things are getting uglier and uglier."

Building Materials, expected to be price last Monday, was canceled and Citation was pulled late Wednesday.

"If companies are not capital constrained and can wait until next year, that's smart money," he said. "It's a factor of supply overhead, inventory management, and Y2K."