Tekni-Plex bonds slide on loss warning, covenant breach; Fisher, Crown, Grohe price deals

By Paul Deckelman and Paul A. Harris

New York, Sept. 15- Bonds of Tekni-Plex Inc. were quoted at sharply lower levels Wednesday after the Somerville, N.J. based packaging maker said that it would report a loss for fiscal 2004 - and that this puts the company in violation of credit facility covenants.

In the new-issue sphere, Fisher Communications Inc. came to market with a new $150 million offering of 10-year bonds, sold at the tight end of talk.

But most of Wednesday's primary market action went down in Europe as German plumbing fixtures firm Grohe AG priced €335 million, with investors far and wide attempting to plunge into the massively oversubscribed deal.

Meanwhile the European subsidiary of Philadelphia-based packaging products supplier Crown Holdings, Inc. tapped into its 6¼% first priority senior secured notes due Sept. 1, 2011, pricing a €110 million add-on at par.

On track to beat 2003

One investment banker told Prospect News that although the post-Labor Day forward calendar has thus far not built up according to expectations, the stage is nevertheless set for a strong finish to 2004.

"I have the calendar at $3.4 billion right now, which is a good calendar, but is probably below average for 2004," the sell-sider said.

"I thought that coming out of Labor Day we'd be at $4 billion at this point. And I still think it will be busy for the rest of September and October.

"We're still on track to beat 2003 in total issuance. And all of the technicals still look strong. The fund flows are positive, not dramatically so, but money trickling in is better than money leaving. Treasuries are still dramatically lower than they have been historically. High yield secondary levels are up, on average, over the past month.

"So conditions look good."

Grohe goes gangbusters

In what was said to be a massively oversubscribed deal, Grohe Holding GmbH sold €335 million of 10-year senior notes (B3/B-) at par on Wednesday to yield 8 5/8%, on the tight end of the 8¾% area price talk.

Credit Suisse First Boston, Citigroup and Deutsche Bank Securities ran the books for the acquisition financing from the German plumbing fixtures manufacturer.

Sources in Europe reported that the Grohe book was huge.

One source reported hearing that the deal was five-times oversubscribed.

Another said: "I heard the buy-side didn't like the leverage (6.1-times) with price talk of 8¾% area, but despite that most said they would play."

This source said that allocation ranges were heard to be in the 15% to 30% range, implying that the book "was probably 4.5-times to 5-times oversubscribed.

"There's a lot of cash in the market," the source commented.

Another source in Europe said that given the book on Grohe the expectation is that "everyone is going to hustle to push the pipeline through in the next month or so."

Crown European drive-by

Elsewhere in the European market, Crown European Holdings SA priced a €110 million add-on to its 6¼% first priority senior secured notes due Sept. 1, 2011 (Ba3/BB) at par via Citigroup.

The deal came on top of the 100 area price talk.

The company priced the original €350 million at par on Aug. 11, in a deal that was downsized from €460 million.

Fisher at tight end of revised talk

The only dollar-denominated deal to price during the mid-week session came from Fisher Communications, which sold $150 million of 10-year senior notes (B2/B-) at par to yield 8 5/8%.

The Wachovia Securities-led deal came at the tight end of revised 8 5/8%-8¾% price talk, reduced from the earlier 8¾%-9% levels.

Encore to bow Thursday

One new roadshow start was heard on Wednesday.

Encore Medical Inc. begins marketing on Thursday for a $165 million offering of eight-year senior subordinated notes, with pricing expected to take place early in the Sept. 27 week.

Banc of America Securities will run the books for the acquisition financing deal from the Austin, Tex.-based Encore Medical is a diversified orthopedic device company.

Meanwhile Boise Cascade LLC is headed into the high-yield market with $650 million of bonds to help fund the acquisition of its paper, forest products and timberland assets for about $3.7 billion.

Bond structure and timing on the JP Morgan and Lehman Brothers-led deal remain to be determined.

The company is also obtaining an approximately $2.9 billion credit facility via the same institutions, which is expected to launch in late September or early October.

Last winter Boise Cascade acquired OfficeMax for $1.2 billion. In late July Boise Cascade said it would sell its paper and timber assets in order to focus on the OfficeMax chain.

Talk on Ainsworth, Vanguard

Finally, the stage was set for the remainder of the Sept. 13 week, with price talk emerging on $1.150 billion of expected issuance in four tranches from two issuers.

Price talk emerged on Vanguard Health Systems' two-part $700 million proceeds offering, with the deal will expected to possibly price on Friday.

Vanguard Health Holding Co. II/Vanguard Holding Co. II, Inc.'s $560 million of 10-year non-call-five senior subordinated notes (Caa1/CCC+) are talked at 9% area.

Meanwhile Vanguard Health Holding Co. I, LLC/Vanguard Holding Co. I, Inc.'s $140 million proceeds of senior discount notes due 2015, also non-callable for five years (Caa2/CCC+), are talked 200-225 basis points behind the senior subordinated notes.

Citigroup and Banc of America Securities are joint bookrunners.

And price talk also emerged on Ainsworth Lumber Co. Ltd.'s $450 million two-part deal (B2/B+), which is also expected to price on Friday.

A tranche of eight-year non-call-four fixed rate senior notes is talked at 7¼%-7½%.

Meanwhile a tranche of six-year non-call-two floating rate senior notes is talked at three-month Libor plus 350-375 basis points.

Tranche sizes remain to be determined.

Deutsche Bank Securities and Goldman Sachs & Co. are joint bookrunners.

Fisher up on break

When the new Fisher Communications 8 5/8% senior notes due 2014 were freed for secondary dealings, the bonds were quoted at 103 bid on the break "with no trading," a trader said. "There were buyers everywhere" wanting to get a piece of the relatively small $150 million issue, demonstrating the law of supply and demand amid a recent scarcity of new paper. "They were very well spoken for."

Tekni-Plex falls

Back among the existing issues, the trader said that Tekni-Plex's bonds were well down from recent levels, with the company's 8¾% guaranteed second lien senior secured notes due 2013 at about 91.5 bid, 93.5 offered, down two points from Tuesday's close, while its 12¾% senior subordinated notes due 2010 swooned to 82 bid, 84 offered, a more than 10 point loss on the session.

At another desk, a trader called Tekni-Plex "the name that seems to be in play right now," with the 83/4s seen three points lower on the session, also at 91.5 bid, while the 123/4s were seen having lost 10 points to "the low-to-mid 80s."

Another market source noted that the 8¾% notes had traded at 95 bid, 97 offered on Tuesday morning, fell as low as 88 bid, 91 offered at mid-morning Wednesday, and then finished Wednesday's trading improved from its day's low - but still well below Tuesday's early level - at 91.5 bid, 93.5 offered.

The source saw the junior bonds fall from Tuesday morning's 87 bid, 98 offered level to 81 bid, 86 offered by Wednesday morning, firming slightly to a wide 82.5 bid, 87.5 offered close Wednesday afternoon, "definitely a big difference" from the previous day's levels.

The first trader - whose shop has been "fairly active in them in trading a bunch, both seniors and juniors, in the last several days," said that Tekni-Plex had been "getting pounded" in that time, with the subordinated bonds cascading down to their present levels in the low 80s from recent highs as good as 99 bid.

The erosion started to become more noticeable on Tuesday, when the selling started on rumors the company was having a meeting with its lenders, and then accelerated on Wednesday, when floor buzz was that the company had laid some bad news on the bankers.

That speculation was confirmed late in the day, when the company issued a terse, one-paragraph news release in which it said that it expects to report a net loss for the 12 months ended July 2, and that as a result Tekni-Plex is currently in default of both its revolving credit agreement and its senior secured term loan due 2008, having breached the financial covenants in both facilities. The company further said that it is currently in discussions with its bank group regarding a waiver of the defaults and amendment to the breached financial covenants.

The trader thought it curious that even as Tekni-Plex was meeting with its bankers, apparently on Tuesday, "some folks out there [apparently] had the inside information [about the meeting] and were trading on it, really pushing the bonds down" - an ironic observation on the same day that Martha Stewart announced that she was ready to begin serving her five-month jail term for a somewhat similar offense sooner, rather than later.

"The interesting thing was how much trading activity was going on out there, when there really was no [official] information. There was no publicly released information - and there were hedge funds and all kinds of folks out there shorting it," he said.

"There was supposed to be a bank meeting," he continued - "and that information is not public.

"I don't know where they were getting their information or how it was released - but there were a lot of [other] people in the dark." He said many of the people that his shop talked to "were very frustrated and shocked, frankly, that there could be so much trading going on, when there wasn't even any news [officially] out. The news about how they were seeking waivers from the banks didn't come out till almost 4 p.m. [Thursday] afternoon."

Trader sees value

But with the bonds having fallen as far as they did, particularly the subordinated notes, it was his feeling that the blood-letting is probably over, at least for now. "At the end of the day, these guys are going to get waivers [of the covenant violations] from the banks."

In Wednesday's dealings, "there seemed to be better buyers for the seniors. The seniors are a second-lien piece of paper, so even if they do $100 million of EBITDA [for the fiscal year] - and they've basically done between $115 and $125 million [EBITDA] historically - whatever kind of [debt] multiple on it, six or seven times, they're still fully covered."

Already, he said, "you can't buy seniors down at these levels." His own efforts to get hold of some of the senior bonds were stymied by a lack of sellers.

And while the subordinated bonds are "a different story," not being secured as the seniors are, there too, he said that his sense is that "there are probably guys who are long seniors and short juniors, who will be looking to unwind that trade."

The junior bonds, he said, will now "have a decent bid to them" following their plunge. "My guess is down at these levels people will take a very had look at them - and then try to buy bonds."

He said that the banks would grant the waivers, "and they'll do their $100 million of EBITDA. If the company has to throw in more equity - they will."

The events of the past two sessions "are not a disaster," the trader asserted. "It was an overblown [selling] situation, and you're probably likely to see these rebound, because all it takes is one buy to come in and clean the situation up."

The 12¾% notes are "a big coupon to be short. If you're a hedge fund, you've got to be prepared for this - it's got to go down significantly, quickly, and it's already had its [downside] move. So it's pretty much over. I don't think they have another shoe to drop, because the information is out there now.

"They'll get the banks to play along - and that will be that." He added that "anyone who shorted them or sold them over the past couple of days will be in trying to buy bonds."

Calpine lower

Elsewhere, a trader said that Calpine Corp. bonds - which had been firming smartly over the last few sessions, pushed up by an apparent mixture of short-covering, investor optimism about rising power demand, particularly in the San Jose, Calif.-based power generating company's home turf on the West Coast and investor response to news of recent asset sales - were powering down a bit on Wednesday.

He saw them "a little weaker," attributing the easing to "profit-taking. Maybe they ran too much" upward over the past few sessions, he asked rhetorically.

He saw Calpine's 8¼% notes due 2005 a point lower at 98 bid, 99 offered, while its 8½% notes due 2008 were down a point at 69 bid, 70 offered. The company's longer paper was down that same half point to one point across the board - a phenomenon which he called "weird.

"I don't know why the short stuff would drop so much," he puzzled, citing technical factors as a possible cause.

"That doesn't make sense," he said. "You would think that the short stuff wouldn't weaken - and the long stuff would be off more. Maybe it's technical - but who knows?"

Dura lower on S&P warnings

Dura Operating Corp.'s 9% notes due 2009 were seen down about a point at 96.25 after Standard & Poor's said that it was putting the Rochester Hills, Mich.-based automotive components maker's $1.3 billion of debt on review for a possible downgrade, including the BB- on its bond debt.

"The action reflects our concerns about Dura's ability to improve earnings and cash flow and reduce its high debt leverage, given challenging industry conditions," Standard & Poor's credit analyst Martin King wrote.

He said that "[r]educed vehicle production, higher raw material costs, and intense pricing pressure from customers with deteriorating market shares are pressuring Dura's operating performance. The second half of the year will be much more challenging than the first, as persistently high steel costs and planned production cuts from Ford Motor Co. (26% of Dura's sales) and General Motors Corp. (14%) will reduce earnings and cash flow generation to below previously assumed levels."

The analyst further noted that while Dura lowered its full-year earnings guidance in the second quarter, "additional pressures since then may result in even weaker performance. Prospects for earnings improvements beyond 2004 are unclear because organic growth is fairly modest, and industry conditions are expected to remain challenging. Restructuring actions have helped to reduce costs in recent years, and additional actions are under way."

Rogers better

On the upside, Rogers Wireless Inc. debt - which had retreated Tuesday after Moody's Investors Service issued a downgrade warning for the Canadian telecommunications company in response to its announcement it would pay more than $1.3 billion to buy back a big chunk of its own shares from AT&T Wireless Services Inc. - was seen at better levels Wednesday.

The company's 6 3/8% notes due 2014 were quoted at 95 bid, up around 1½ points from Tuesday's finish.

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