D.R. Horton prices drive-by offering; Level 3, El Paso bonds up

By Paul Deckelman and Paul A. Harris

New York, Jan.6 - D.R. Horton Inc. came to market Tuesday with a quickly-shopped off-the shelf offering of $200 million of five year bonds, while other issuers such as Nova Chemicals Corp. and Elizabeth Arden Inc. put deals on the forward calendar.

In the secondary market, "boy, oh boy, the rally continues," a trader exclaimed, noting rises in the bonds of such issuers as Level 3 Communications Inc., despite a lack of significant fresh news on the credit. Another notable upsider was El Paso Corp.

As sources predicted when the first full week of 2004 business got under way, Tuesday saw drive-by action in the new issue market, with one deal pricing: Arlington, Tex.-homebuilder D.R. Horton hammered up a 182 basis points spread on its newly issued five-year junk bonds.

And berths began to fill on the new deal railroad - both the local and the express - with two of the four deals that appeared Tuesday headed for Friday pricings.

"The forward calendar is starting to build," said one senior sell-side official on Tuesday. "And we are continuing to see inflows of cash, so the market is still moving ahead."

This source threw down with a growing aggregate of investment bankers who have lately been telling Prospect News that now is not the time for high yield issuers to dilly-dally. The reason, say these investment bankers, is the specter of rising interest rates.

Although the Federal Reserve to date has made no indication it is even pondering a hike in the historically low rates, a consensus seems to be building that such a move is almost inevitable in 2004.

"No one has a crystal ball - at least, not one that works," the senior sell-side official cautioned.

"However everyone is focused on interest rates and how any potential increases will play into the market this year.

"There are a lot of factors to consider," the source added. "You have economic growth. And there will be an election this year.

"But people feel that there is a risk for interest rates to increase at some point this year. And obviously that will affect all of fixed income."

Homebuilder D.R. Horton likely won't be carping about the interest rate on the junk bonds that it sold during a Tuesday drive-by.

The Arlington, Tex. company priced an upsized $200 million issue of 5% five-year senior notes (Ba1/BB/BB+) at 99.72 to yield 5.064%. The deal was increased from $150 million.

Citigroup carried the company across the threshold with a deal that came spot on to the 182 basis points price talk.

D.R. Horton's purpose for issuing the new 5% notes: to take out $150 million of 8 3/8% senior notes due 2004.

Incidentally, according to data compiled by Prospect News, the yield on D.R. Horton's new paper is second only to homebuilder NVR, Inc.'s offering of last June 12. NVR priced $200 million of 5% seven-year paper at par. Its spread was 231 basis points - although Beazer Homes USA, Inc. managed 208 basis points on Nov. 6.

And Tuesday saw a quartet of hopefuls standing by to catch the bouquet from D.R. Horton.

Pittsburgh-based Nova Chemicals plans to sell $400 million of eight-year senior notes (Ba2) on Friday. Citigroup will run that refinancing deal.

And the "eau-de-junque"-aroma surrounding the new issue market also seems to appeal to Elizabeth Arden, which is expected to price $150 million of 10-year senior subordinated notes (B-) on Friday. The accounts will be afforded a whiff during an investor conference call on Wednesday.

Credit Suisse First Boston and Morgan Stanley are joint bookrunners on the refinancing deal.

A more sedate pace was undertaken Tuesday by Kisco, N.Y.-based American Casino & Entertainment Properties LLC, which is expected to begin its roadshow during the present week for $200 million of eight-year senior secured notes via Bear Stearns. Pricing is expected during the week of Jan. 12.

Money from the bond sale will be used to fund the acquisition of two casinos in Las Vegas from American Real Estate Partners, LP chairman Carl Icahn.

Upon closing the deal American Real Estate Holdings LP will also transfer 100% of the common stock of Stratosphere Corp., the entity that owns the Stratosphere Casino Hotel & Tower, to American Casino. As a result, American Casino will own and operate three gaming and entertainment properties in the Las Vegas metropolitan area.

Less certain is the timing of Exco Resources' $300 million seven-year senior notes deal, via Credit Suisse First Boston.

The Dallas-based oil and gas exploration and production company is selling notes in order to finance its $184 million acquisition of Nuon Energy & Water.

The company declined to comment on the deal when contacted Tuesday by Prospect News. However one source advised that the company could come very, very soon.

Buying lifts secondary in busy morning

Back in the secondary arena, "it was a busy day in the morning," a trader said, "a lot of activity, although in the afternoon, things just died. A lot of people were buying stuff, and there was not much selling."

He said that with Treasury issues firming, "we gave back a little [of the recent gains] on spread. But the market still held its head up, and was firm," even with "no news of significance" to move things along - just a need to put accumulated cash to work.

For instance, a trader said. "I don't know what's with Level 3 - but it just keeps going one way: up."

He quoted the Broomfield, Colo.-based telecommunications fiber optic network operator's 9 1/8% notes due 2008 as having firmed Monday to 94.5 bid, 95.5 offered from prior levels at 92 bid, 93 offered; on Tuesday, he said, the bonds had continued to push northward, to 96 bid. 97 offered.

Level 3's 11% notes due 2008 meantime rose to 102 bid from 99.

El Paso Corp.'s 7 7/8% notes due 2012 were quoted up more than three points on the session, at 98 bid, while El Paso Energy Corp.'s 7 5/8% notes due 2011 were better than two points higher, at 96 bid; the Houston-based energy operator announced plans to offer 8.8 million shares of common stock in a public offering at $8.35 per share, with the estimated $73 million of proceeds to be included in its previously announced deal to settle lawsuits accusing the company of having manipulated California's natural gas market during the Golden State's energy crunch in late 2000 and early 2001.

Also on the energy front, Calpine Corp.'s 8½% notes due 2011 firmed to 83 bid, 84 offered from 81.5 bid. 82.5 offered, while its 10½% notes due 2006 were 2½ points better at 98.5 bid.

The San Jose, Calif. -based energy producer meanwhile said that it would issue an additional $250 million of new convertible notes under the greenshoe option on its recent $650 million sale.

Net proceeds from the offering will be used to repurchase or repay existing indebtedness.

Calpine's 8 5/8% notes due 2010 were up two points, at 83.

A market source said that airline bonds were gaining altitude as part of the general market upturn; he quoted Delta Airlines' 8.30% notes due 2029 two-and- a half points higher at 68.5 bid, 69.5 offered.

Rite Aid gains on sales, tax credit

News that Rite-Aid Corp.'s comparable-store sales were up 8% from year-ago levels, and the announcement that it will take a $51.1 million tax credit and restate earnings for the fiscal quarter ended Nov. 29 far higher than expected were a welcome tonic for the company's bonds Tuesday.

A trader said the Camp Hill, Pa.-based pharmacy chain operator's 6 7/8% notes due 2013 firmed a point to 96.5 bid, 98.5 offered; its 6 7/8% notes due 2028 were half a point higher, at 84 bid, 86 offered; while its 6 1/8% notes due 2008 firmed a point, to 96.5 bid, 98.5 offered.

In the realm of emerging markets corporates, Tuesday, bookrunner Merrill Lynch & Co. hosted an investor conference call for Companhia Vale do Rio Doce SA (CVRD)'s offering of $300 million of bonds due 2034 (Ba2).

No further timing was heard on the deal from the iron ore company based in Rio de Janeiro.

And sources reported that Telemig Celular Participacoes SA plans to sell $100-$125 million of bonds due 2009, although no timing or structural detail were available.

Bear Stearns will run the books for the offering from the wireless telecommunications firm that is headquartered in Brasilia.

One emerging markets source told Prospect News Tuesday that "crossover" money figures significantly in the present emerging markets rally.

"The dedicated emerging markets mutual funds are not that huge," said the source.

"We had big inflows last year of crossover money being given to dedicated EM money managers, to manage on behalf of pension on funds, etc.

"Those strategic inflows were very significant, and had a big role in driving the market tighter."

"Emerging markets as an asset class have benefited from crossover investors, both high grade and high yield, for the last several years," the official added.

"Part of the reason is that more and more of our issuance is actually investment grade."

Asked how far the present rally can run, this official, like the U.S. high yield sell-side official quoted above, nodded in the direction of the U.S. Federal Reserve Bank.

"We're not calling for additional spread compression, this year, in our market," said the source. "In selected countries you may still get it. But overall, in an environment where the Fed raises rates, it's hard to imagine the spreads coming meaningfully further in.

"People are very focused on interest rates right now," added the official. "However right now the technicals are dominating and people have cash to invest. They're not pulling out because of the fear of interest rates."

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