Banking & Capital Markets

CIT Group, Georgia Pacific, Lead Issuer Stampede

In the meantime, junk is languishing as many fund managers get the ax
Ed ZwirnApril 30, 2001

After taking a few weeks off, bond issuers are back.

Of course, the market never exactly dried up, but the past couple of weeks actually saw a slowdown from the record set in the first quarter.

Last week, with stock markets reasonably quiet and no major economic shockers, investment-grade debt stayed flat or widened one to two basis points over Treasuries, while junk bonds actually outperformed. Treasury yields have backed up a tad in the meantime, with the on-the- run 10-year note fetching 5.31 percent as of late last week, versus 5.28 percent the prior week.

A number of market professionals say that most issuing firms are eager to secure funding via the bond market, particularly those seeking to “term out,” or pay off, existing loans and lines of credit, while corporate bond yields are still reasonably low, saving carrying charges.

Dealers’ reports indicate a large number of “blockbuster” bond offerings pending for this week or the coming weeks, and, with spreads and yields holding steady at reasonably low levels, the talk is for a lot more of the same.

In addition, mutual fund inflows continue at a pronounced pace to the entire taxable bond market.

Big names being floated include CIT Group, which will start its “roadshow” marketing this week on billions of dollars of multi- tranche short-to-intermediate maturity bonds. A source close to the deal predicts an offering in dollars and euros, “with nothing maturing in more than 10 years.”

The issue, which is being managed by Deutsche Bank Alex. Brown and Lehman Brothers, is attracting decent investor interest, especially from investors who like the consumer finance sector and the ability to choose between currencies. The firm’s existing bonds are rated A1 by Moody’s Investors Service and A+ by Standard & Poor’s.

“We’re expecting something benchmark-sized on this one,” says the source. “Of course, price and yield talk will emerge only after we know what maturities they’re selling.”

An offering which hit the rumor mill late last week is a reported deal by Georgia Pacific that could be announced as soon as today (Monday). The diversified lumber and manufacturing company is supposedly ready to unveil at least $3 billion of five-, 10- and 30-year Baa3/BBB- -rated paper via lead managers Bank of America and Merrill Lynch.

Also on tap is American Electric Power, which owns utilities in both the United States and Europe and is said to be planning $1 billion of global (A-/Baa1) notes. Presentations to European investors started last week, and the issue is set to price at any time.

In junk, only one small ($46.8 million) issue was said to have priced last week. And while money continues to pour in to the sector, mutual fund managers are understandably reluctant to commit themselves to anything too speculative.

Martin Fridson, Merrill Lynch’s chief high-yield strategist, says that while existing issues are outperforming Treasuries, new paper is having a hard time getting to market, particularly in the hard-hit telecommunications sector.

“A sudden rash of high-yield portfolio managers are suddenly finding they have much more time to spend on hobbies or personal time with their families, meaning they got fired,” he told

But “assuming they get done,” there are some 11 high-yield issues officially waiting in the wings for this week and the coming weeks. The tally at this point: $3.3 billion.

Included are:

Del Monte Foods, which plans to raise $1 billion in loans and junk bonds to refinance existing debt, including $275 million in senior subordinated notes. The San Francisco-based firm has also chosen Bank of America, J.P Morgan Chase, and Deutsche Bank Alex. Brown to arrange $740 million of senior secured loans. The package will replace $149.5 million of 12.5 percent senior discount notes due 2007, and $97.5 million of 12.25 percent senior discount subordinated (B3/B-) notes with the same maturity.

Other names on the list include Callon Petroleum ($225 million of seven-year notes), Superior Energy Services ($200 million of 10-year notes at 8.75 percent to 9 percent), Radio One ($300 million of 10-year senior subordinated notes) and Playtex Products ($350 million of bonds and $625 million of loans).

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