Downsized Celanese, Appleton price; Levi up on asset sale buzz; funds see $565 million inflow

By Paul Deckelman and Paul A. Harris

New York, June 3 - BCP Caylux Holding - i.e. Celanese AG - and Appleton Papers Inc. were heard by high-yield syndicate sources to have priced downsized bond deals on Thursday - Celanese bringing a $1.244 billion offering of 10-year euro-denominated notes and Appleton selling two tranches of dollar-denominated bonds. Also pricing a two part issue - restructured from a single-tranche deal and upsized - was Language Line Inc.

In secondary market dealings, Levi Strauss & Co. bonds were heard solidly higher; while no fresh news was seen out on the San Francisco-based apparel maker, market participants suggested that the company might have moved a step closer to selling its Dockers brand line, a deal which could potentially swell Levi's coffers by more than $1 billion.

And after trading had rolled up for the day, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif. told Prospect News that the funds - a key barometer of overall junk bond market liquidity trends - had a net inflow of $565 million in the week ended Wednesday.

It was not only a sharp turnaround from the previous week, ended May 26, when there was a $162.3 million outflow, but the first inflow since the week ended April 7, breaking a seven-week skid which saw $4.186 billion more leave the funds than come into them in that time, according to a Prospect News analysis of the AMG figures. It was also the largest weekly net inflow since the $768 million that came into the funds during the week ended last Oct. 15.

One inflow, substantial though it may be, does not make a trend, however; overall for the year, the junk funds have seen 13 outflows this year against just nine inflows, and with some of those outflows absolutely huge, such as the $2.145 billion hemorrhage seen in the week ended May 12, the net year-to-date outflow - even after counting the latest week's half-a-billion-dollar gain - is still $5.142 billion, according to the Prospect News analysis. Throwing out the first four weeks of 2004, which showed strong inflows continuing the record-setting pace of the last quarter of 2003, net outflows in the 18 weeks since then have totaled $6.513 billion, the analysis said, counting only those funds reporting on a weekly basis and excluding distributions.

"The liquidity has come back," a market source commented on the inflow number.

"People around here were predicting an inflow based on the activity we have been seeing in the primary market this week."

Meanwhile a syndicate official from an investment bank said that money is possibly flowing back into junk in part because of a volatile equity market.

"Also the Treasury market has settled down a little bit," the official added. "It traded off a little this week but it hasn't run away, at least not to the ridiculous levels where people thought it was going to go.

"And it looks like the Fed is going to be patient with regard to how they attack the short end of the curve."

$1.8 billion prices

The primary market saw $1.799 billion equivalent price in six tranches from three issuers on Thursday.

Leading the pack was German industrial chemical-maker Celanese AG, with a downsized $1.244 billion - a deal that had been extensively chopped and channeled right up to the last minute. And although it was downsized, a market source late in the day spotted the dollar-denominated bonds trading up a point and a half, and said that it was obvious that some of the dollar accounts went away from the transaction less than satisfied with their allocations.

That, according to the source, serves as evidence that the demand remains robust for junk bonds.

Celanese deal downsizes but trades up

Nonetheless, much of the market's focus since Memorial Day has been on the LBO deal from BCP Caylux Holdings Luxembourg SCA (Celanese AG). It priced $1.244 billion equivalent of 10-year senior subordinated notes (B2/B-) in a downsized two-tranche transaction on Thursday, with Morgan Stanley, Deutsche Bank Securities and Banc of America Securities running the books.

The company sold $1 billion of notes at par to yield 9 5/8%, in the middle of the 9½%-9¾% price talk.

The company also sold €200 million of notes at par to yield 10 3/8%, at the wide end of the price talk of 50-75 basis points behind the dollar tranche.

The bond deal was downsized from $1.315 billion equivalent, while the second lien term loan component of the bank financing was upsized to $350 million from $250 million.

Shortly after Thursday's close one market source, spotting the Celanese dollar piece trading up a point and a half, wondered aloud why the company didn't move more of the issue into the dollar component - especially given the high demand for it and the interest expense Celanese incurs pricing the euro tranche 75 basis points behind the dollar tranche.

It's no secret, the source added, that presently the euro junk market is "anemic," with companies such as Corus, Brenntag, and Stena pulling deals, while Debenhams and ProSiebenSat, which managed to complete transactions, ended up paying up 50 basis points more than initial talk.

Another sell-side source reflected how the Celanese offering repeatedly went under the knives of the deal surgeons.

On May 17 a roadshow start was announced for a $1.565 billion equivalent offering.

One week later Celanese downsized its offering to $1.315 billion and added a $250 million second lien term loan to its financing package.

Following the Memorial Day weekend the company issued price talk on three tranches: a dollar-denominated Rule 144A on-shore tranche, a dollar-denominated Regulation S-only off-shore tranche, and a euro-denominated Regulation S-only tranche.

One day later Celanese dropped the Regulation S-only dollar-denominated off-shore tranche, whereupon the deal stood as a $1.315 billion equivalent offering to be sold in dollar and euro tranches, both to be issued under Rule 144A and Regulation S.

Appleton deal dunks to $335 million

Appleton, Wis. carbonless paper and printing products company Appleton Papers Inc. polished off its junk bond transaction on Thursday.

The company priced a downsized $335 million combined offering in two tranches, down from a planned $350 million.

Appleton priced an upsized $185 million of seven-year senior notes (B2/BB-) at par to yield 8 1/8%, in the middle of the 8%-8¼% price talk. This piece was increased from $150 million.

The company also priced a downsized $150 million issue of 10-year senior subordinated notes (B3/B+) at par to yield 9¾%, at the wide end of the price talk that had the subordinated notes coming 125 basis points behind senior notes. This portion was reduced from a planned $200 million.

Bear Stearns & Co. and UBS Investment Bank ran the books on the debt refinancing issue.

Language Line sells $220 million

Language Line, a Monterey, Calif. provider of over-the-phone interpretation services, priced the day's smallest amount of bonds in an upsized $220 million offering via bookrunners Merrill Lynch and Banc of America Securities, according to an informed source.

At the operating company-level, Language Line Inc. priced a downsized $165 million of 11 1/8% eight-year senior subordinated notes (Caa1/CCC+) at 97.432 to yield 11 5/8%, in the middle of the 11½%-11¾% price talk. The operating company piece was cut from $170 million.

At the holding company-level Language Line Holdings Inc. priced an issue of nine-year senior discount notes (CCC+) at 50.462 for a yield to maturity of 14 1/8%. The sale generated approximately $55 million of proceeds.

Price talk on the discount notes was 275-300 basis points behind the senior subordinated notes, so the discount notes tranche, which was added when the deal was restructured earlier in the week, came well wide of the talk.

Kabel Deutschland starts €700 million roadshow

The European roadshow starts Monday for Kabel Deutschland GmbH's planned €700 million equivalent of 10-year senior notes. A U.S. roadshow will get underway on Friday June 11.

The deal is expected to price by the end of June.

Deutsche Bank Securities and Morgan Stanley have the physical books for the acquisition financing from the largest cable network operator in Europe, which was acquired in 2003 from Deutsche Telekom by a consortium of financial investors comprised of Apax Partners, Providence Equity Partners and Goldman Sachs Capital Partners.

Finally on Thursday Prospect News learned that Willowbrook, Ill.-based Viskase Cos. Inc. will run a June 4-16 roadshow for its $90 million offering of seven-year senior secured notes (B2/B-). Jefferies & Co. is bookrunner.

The company, which manufactures food packaging, including cellusosic and nylon casings used in the preparation and packaging of processed meat products, will use the proceeds to refinance debt.

Junk ringing with better tone

One investment banker who spoke to Prospect News after word of the funds inflow had circulated on Thursday said that the market began improving well before the Memorial Day break.

"The market felt light in terms of trading today," said the official.

"But the tone has been better for the last week and a half. You knew it was going to turn around.

"During the last couple of days secondary trading has been light because people have been focused on the primary calendar and focused on Friday's employment numbers.

"Barring any surprises the market will continue to get its legs back and people will be more active buyers."

This sell-sider believes that the stage is set for a steadily building pipeline.

"There are LBO deals that have been signed up and will be coming to market," the official said.

"So I think there will be a pretty steady forward calendar."

Appleton steady in trading

When the new Appleton Papers 8 1/8% senior notes due 2011 and 9 ¾% senior subordinated notes due 2014 were freed for trading, both tranches of the new bonds were seen pretty much anchored around their par issue levels, a trader quoting the senior tranche as having moved up perhaps to the 100.75 bid range, while the subordinated notes were at 100.5 bid, 100.75 offered.

Another trader saw even less movement than that, estimating the 8 1/8s at 100.25 bid, 100.75 offered, and the 93/4s at par bid, 100.5 offered.

A trader who had been studying what recently priced junk issues have been doing of late, now that they are trading in secondary, said: "I'll tell you, in putting that list together - things hardly have moved. Everything is sitting pretty much where it has been for a while."

He characterized Thursday's market as "pretty quiet," adding that he had not seen "a lot of trading, until later in the day, when people came in to buy stuff."

Levi adds 2

One exception to the generally sedate market tone seemed to be Levi Strauss, whose bonds were seen up around two points across the board.

"The thing that jumps out is Levis really spiked on rumors that they might be selling off one of their divisions," a trader said.

Last month, the company confirmed weeks of market speculation that it might look to raise cash and cut debt by unloading Dockers, makers of a popular line of khaki clothing. It was estimated that such a sale could fetch Levi anywhere from $1 billion to $1.4 billion. Since that mid-May announcement, there has been no word from the company as to what progress, if any, it has made in trying to find a buyer for the unit.

The trader quoted Levi's 11 5/8% notes due 2008 as having "all of a sudden" pushed up to 95.5 bid from prior levels around 93 bid.

The company's other bonds, such as its 12¼% notes due 2012 and 7% notes due 2006 "pretty much went up in tandem" with the 11 5/8s, the 121/4s up "a point and change" at bid levels around 93.375-94, while the 7s moved up to 92.5 bid, 93.5 offered from prior levels at 91.

At another desk, a trader said the Levi paper "had a little bounce there," with the 7% notes moving up to 93 bid, 95 offered from opening levels around 90 bid, 91 offered, and the 11 5/8% notes rising as high as 96.5 bid, well up from their opening at 94 bid, 96 offered.

A trader said there was some speculation that the Kellwood Co., a St. Louis-based apparel company, might be a possible buyer for Dockers.

He pegged the Levi 7% notes at 92.5 bid, 93.5 offered, up from 89 bid, 90 offered two days ago and up from 90.25 bid 91 at the market's opening.

The 11 5/8% notes he had at 95.25 bid, 96.25 offered and the 121/4s at 93.75 bid, 94.75 offered, both up two or "maybe 2¼ points" on the session.

Goodyear rises

Goodyear Tire & Rubber Co., a trader said, "was gaining strength - and I don't know why."

He saw the Akron, Ohio-based tiremaking giant's 8½% notes due 2007 at 99.25 bid, up half a point, while its 6 5/8% notes due 2006 firmed to par bid and its 7 7/8% notes due 2011 ended at 85.75, also up half a point.

He suggested - without being too certain - that Goodyear may have been helped by a general feeling of market confidence in the automobile industry and related businesses, like Goodyear's.

On a related note, he said, heavy truck and bus maker Navistar International Corp.'s new 7½% senior notes due 2011"had a good day," firming to 100.75; the issue had priced at 99.324 on May 26 and "couldn't get out of its own way" after that until Thursday.

Oregon Steel continues gaining

Elsewhere, he said, Oregon Steel Mills Inc.'s 10% notes due 2009 - which have been on the rise all this week, helped by Moody's Investors' Service having raised its outlook on the Portland, Ore.-based steel mill operator to stable from negative - were up once again Thursday, adding another half point to end at 104.5, "even though the stock was down."

But that didn't help sector peer AK Steel Corp., whose bonds "got hit," the trader said, the Middletown, Ohio-based steeler's 7 7/8% notes due 2009 dipping half a point to 89.5 and its 7¾% notes due 2006 likewise down a half at 87.5 bid

Pegasus edges up

Traders said that the bonds of the newly bankrupt Pegasus Satellite Communications Inc. were slightly higher, though in relatively quiet trading, following the Bala Cynwyd, Pa.-based satellite television programming distributor's widely expected Chapter 11 filing after the market closed on Wednesday. Trading on Wednesday, before the bankruptcy filing was announced, had been volatile, with wild gyrations for most Pegasus issues between the upper 40s and mid-50s.

One trader saw most of the company's senior issues such as the 11¼% notes due 2010 ending up a point or so on the session around 56 bid, 58 offered, trading flat, without the accrued interest. He saw the company's junior notes, like the 131/2s due 2007, holding in the lower 20s.

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