Sovereign Bank Deal Could Indicate Market Health

The new issues market continued its upswing last week, with a number of offerings taking advantage of what investors say is a short window of opportunity before the holidays. In fact, there were at least two "drive-by" deals, as they were dubbed by investors due to the speed with which they appeared last week. At press time, there were rumors of two others to come.

But one of the most interesting deals last week came from a bank that may become a good indicator of the market at least in the short term.

Philadelphia-based Sovereign Bancorp was in the market with a $700 million deal to help finance its acquisition of 278 bank branches from Fleet Financial for $1.4 billion.

And the good part of the deal, as far as Sovereign was concerned, was the fact that it would only entail good loans. Sovereign had the right to essentially give back any of the bad loans to Fleet.

The deal was rated BB+ by Standard & Poor's, and the company's rating was downgraded to junk status, along with the deal, to BB+ from BBB-.

The transaction was divided into a $200 million, four-year senior note tranche, and a $500 million, seven-year tranche. The smaller piece priced at par to yield 10.25%, or 436 basis points over Treasurys, while the larger piece priced at par to yield 10.5%, or 441 basis points over Treasurys.

Banks and financial institutions have not done well historically in the high yield market, one portfolio manager said, but right now there seems to be a lot of money that is looking to be put to work. So this issue could become a good indicator of the overall health of the market, he said.

Elsewhere in the market, the so-called drive-by offerings came from Adelphia, which was marketing a $350 million offering, and Nextlink, which was doing a $500 million deal. Neither had priced by press time last week, but both were expected to price either late Wednesday night or on Friday.

Goldman Sachs was the lead manager on the Nextlink deal with Salomon Smith Barney as the co-manager, while Salomon was lead on the Adelphia deal.

There is some strength returning to the market coupled with a less-than-imposing forward calendar, which helped the issues that did come to market as well as secondary trading, investors said.

There also were sell-side offices full of salesmen pounding the phones, an investor said, calling about deals that they knew could get completed quickly.

Deals Of The Week

Chemical company Georgia Gulf Corp. priced a $200 million, senior subordinated deal that carried B1 rating from Moody's Investors Service and a BB- from Standard & Poor's. It priced at par to yield 10.375%. The deal was downsized from an original plan of $250 million.

The eight-year notes are initially callable in 2003 at 105.188 and then prices decline in subsequent years to 103.458, 101.729 and par.

Canandaigua Brands also priced a deal, this one for GBP75 million. It carried a rating of Ba2 from Moody's Investors Service and BB from Standard & Poor's.

WRC Media, for its part, priced a $152 million offering that priced at 98.6210. It carried a 12.75% coupon. Moody's Investors Service rated it B3, while Standard & Poor's gave it a rating of B-.

The deal, managed by Donaldson, Lufkin & Jenrette, is first callable in 2004 at 106.375, and then prices fall in succeeding years to 104.25, 102.125, and par.

And finally, Nextel priced its mammoth $2 billion offering Friday, Nov. 5, that was structured as 9.375% notes with a 2009 maturity. It priced at 99.2 to yield 358 basis points over Treasurys. It was rated B1 by Moody's Investors Service and B- by Standard & Poor's.

The notes are callable in 2004 at 104.688, and then prices fall to 103.125, 101.563 and par thereafter.