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New Corporates

The primary market was saturated with dividend deals last week, as companies came to market to raise cash to pay off equity holders.

The primary market was saturated with dividend deals last week, as companies came to market to raise cash to pay off equity holders. Dividend deals are generally seen as bad for bondholders because the capital raised leaves the issuer's coffers soon after issuance. Last week's deals led to concerns among some investors that underwriters are too hungry to sell paper and are not paying attention to potential consequences in the bond market.

* Dex Media Inc. brought $361 million in 8.25% notes due in '13 (Caa2/B) in an offering that will finance an additional dividend payment to the company's equity investors. The transaction was priced at 68.38, a steep discount, to yield 451 basis points over Treasuries, reflecting investors' dissatisfaction with the offering and the implications it has on the company's credit outlook. The sale also caused Moody's Investors Service to downgraded Dex's existing debt. Don Wong, an analyst at Standard & Poor's, says that with the offering Dex has tapped out its ability to raise cash in the bond markets and there is no more flexibility to raise more debt at the current ratings. The notes were trading up a point at about 70 late Thursday.

 

* Town Sports International, the parent company of health clubs such as New York Sports Clubs, raised $213 million via an offering of 0/11% zero coupon notes due in '14 (Caa2/CCC+) that did not pump up the market. The zero coupons were priced at 58.595. Tom Parker, portfolio manager at Barclays Global Investors, noted these types of deals show a definite sign that "we are late in the cycle here for high yield."

 

* Qwest Communications International announced a deal of $1.75 billion in fixed and floating-rate notes that was expected to be priced by underwriter Banc of America Securities as BW went to press last Friday. One hedge fund manager mentioned the deal represents something of a coup for the firm, given that Citigroup Global Markets normally tends to win the mandate on underwriting such large telecom deals. The deal marks one of the biggest in recent weeks and was expected to include $750 million of senior notes due in '11, $750 million of senior notes due in '14 and $250 million of floating notes due in '09.

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