HY Trades Down, Lags Treasurys

The high yield market was down slightly last week - a couple of points - largely in sympathy with U.S. Treasurys and equity markets.

However, there was expected to be a flurry of activity this week in the typical lag time to the stock markets. Also expected to give the secondary high yield market a slight jolt is a forward calendar that already is building up for the new year, however, even that came with a small caveat.

Charter Communications priced a deal that was increased by $600 million late in the week, and there were several other issuers lined up in the pipeline as well. However, at least one high yield portfolio manager said the calendar likely will get trimmed back because the sellside already is lining up too many deals for the market to handle.

Charter, the cable company that investors can't seem to get enough of, priced its deal for $1.5 billion, an increase from its originally planned $900 million. The first piece, worth $675 million and carrying a rating of B2 from Moody's Investors Service and single-B plus from Standard & Poor's Ratings Services, priced at par to yield 344 basis points over Treasurys.

The second tranche, which has a face value of $325 million, carried a B2 rating from Moody's and single-B plus from S&P, also priced at par to yield 369 basis points over comparable Treasurys.

And the final piece of the deal, a zero coupon tranche, priced at 56.44 for a yield of 519 basis points over Treasurys.

Focal Communications Corp. was one of the few other deals on a roadshow last week, this one in the Rule 144A market.

Salomon Smith Barney was the lead investment bank on the transaction with Donaldson, Lufkin & Jenrette, Morgan Stanley Dean Witter, TD Securities and Banc of America all acting as co-agents.

The transaction is scheduled to price early this week. Proceeds from the 10-year debentures will be used to finance the acquisition of equipment and network assets, working capital, general corporate purposes, and to fund operating losses.

The notes have not yet been rated but the company has an existing senior unsecured rating of single-B from Standard & Poor's with a stable credit outlook.