Chiquita off on Fresh Express delay; Calpine stabilizes; Hawaiian Telcom downsizes

By Paul Deckelman and Paul A. Harris

New York, April 26 - Chiquita Brands International Inc.'s bond and stock investors got peeled Tuesday in the wake of the Cincinnati-based banana importer's internal investigation of the conduct of some of its employees, and the resulting likely delay in its pending acquisition of salad-maker Fresh Express. Also on the downside, AK Steel Corp.'s bonds and shares retreated after the Middletown, Ohio-based steelmaker reported a smaller first-quarter profit than it put up a year ago - and backed away from previously issued guidance, due to deteriorating conditions in the formerly robust steel industry.

Meantime, Calpine Corp.'s bonds - which had gotten smacked around over the previous several sessions as bankruptcy buzz made the rounds of the market-were heard to have stemmed the bloodletting and to have stabilized.

No deals were seen to have priced in the primary market by closing time - and one deal, for Hawaiian Telcom Communications Inc. - was heard to have been downsized, with price talk on all three tranches widening out.

The market "just continues to deteriorate," a trader said. "They try to put a price on a deal, and you see 'em re-talking the price and then you're up another 75 basis points. They're having a real difficult time getting anything done, and this continues to weigh on the market."

"The market seems very heavy," another trader agreed. "You have a ton of numbers coming out for the first quarter. The past couple of weeks, the last week or two, when we've had these outflows [from the high-yield mutual funds, an indicator of market liquidity], we'd have the market get heavy, then it seemed like it rebounded a touch - down a couple, up a couple - but now..." he said, leaving the sentence dangling ominously for effect.

"I think it's a little slow, and the market is heavy across the board, though all the sectors. There's a lot of ticking time bombs out there. You had Calpine last week, at the end of the week, drop 10 or 15 points on rumors of a technical default, then they said this wasn't true. You had GM and Ford, that stuff still looming over us.

"There's definitely a lot of sellers out there."

One name that got mashed around was Chiquita, with the company's 7½% notes due 2014 seen down about four points to the 92 level, in line with a tumble in its New York Stock Exchange-traded shares, which fell $3.32 (12.23%) to $23.83, on volume of 2.9 million, around six times the normal turnover.

The fruit and vegetable company's shares, and in turn, its bonds, slid in apparent response to its announcement late Monday that Chiquita is investigating the conduct of some of its employees, who were not identified, which was recently made known to management.

The terse company statement did not specify what sort of conduct was involved. It said that it expects to be in a position to provide additional information when it files its next 10-Q quarterly report with the Securities and Exchange Commission, by May 10.

The company said that this, in turn, will likely delay the acquisition of Fresh Express, the country's leading seller of bagged salads, from its current owners, Richmond, Va.-based Performance Food Group Co.

When it announced the $855 million purchase in late February, Chiquita said that the deal was expected to close at the end of this month. However, it now says that date will be pushed back, since it needs more time to evaluate unspecified "legal matters" that might affect the transaction's financing. However, Chiquita said that the delay will not alter the terms of the deal, which is still expected to close sometime in the current second quarter.

AK Steel lower on costs

Elsewhere, AK Steel's bonds "drifted lower," a trader said, on the less-than-thrilling first-quarter numbers the steelmaker put up.

He saw AK's 7¾% notes due 2014 drop two points to 91.75 bid, 92.75 offered, and its 7 7/8% notes due 2009 at 95 bid, 96 offered, also down a deuce.

Another trader saw the 73/4s trading in that same 91.75 area, but saw the 7 7/8s as having fallen to 94.25 bid, 96.25 offered, well down from 97.25 bid, 98.25 offered.

The company's NYSE-traded shares meantime swooned $1.76 (17.98%) to end at $8.03, on volume of 10.2 million, about three times more than usual.

AK reported that its first-quarter income fell to $59.2 million (54 cents per share), from $165.4 million ($1.52 per share), in the year-ago period.

While last quarter's steel shipments were nearly unchanged at 1.5 million tons, and the average selling price swelled to $934 per ton from $747, much of the apparent gain was eroded away by escalating raw materials costs.

AK said that second-quarter shipments should rise to 1.6 million tons. However, higher raw material costs will push operating profit down from the first quarter's $75 per ton to between $55 and $60 per ton.

On a conference call following the release of the quarterly numbers, AK executives backed off their estimates in January and said that operating profit for the year would be about $500 million and EBITDA would be about $700 million. They cited the anticipated impact of lower spot market prices at which they could sell their wares, and higher raw material costs. They did not give replacement estimates.

Calpine steadies

While the likes of Chiquita and AK Steel were leading the market lower, Calpine appeared to have stabilized, albeit at far lower levels than the bonds held barely a week ago.

Calpine "really didn't do that much," a trader said, quoting the San Jose, Calif.-based independent power producer's 8½% notes due 2010 at 54.25 bid, 55.25 offered, little changed.

Another trader said the Calpine issues "stabilized here," seeing the benchmark 8½% notes due 2011 at 52.5 bid, 54.5 offered and its 8½% notes due 2008 at 53.5 bid, 55.5 offered, "pretty much unchanged on the day."

A trader at yet another shop called Calpine "kind of active, with the short paper actually better."

He saw the company's 8¼% notes due 2005 a point better at 91.5 bid, 92.5 offered, and its 10½% notes due 2006 better by 1½ points, at 81 bid, 83 offered.

"Even the longer stuff was also kind of unchanged to higher," he said, with the 8½% notes due 2008 up a point, at 54.75 bid, 55.75 offered.

Back on the earnings front, Level 3 Communications Inc. reported a narrower first quarter loss, and said it had ample liquidity, thanks to an $880 million private placement of convertible notes which closed earlier this month (see related story elsewhere in this issue).

Broomfield, Colo.-based telecom operator Level 3's flagship 9 1/8% notes due 2008 were seen down half a point on the day at 81 bid, 82 offered.

Movie Gallery Inc.'s new 11% notes due 2012 "did very well" in secondary trading Tuesday, trading as high as 100.5 bid before dropping back to finish at 99.5 bid, par offered, still well up from their late-Monday issue price at 98.806.

Primary stilled by weak market

Junk continued to be pushed around Tuesday, with the broad market quoted lower in light trading, according to one source.

In the primary market the watchwords were "downsized" and "revised," the latter descriptive being applied to price talk.

Both deals that had been expected to price Tuesday were downsized, while price talk was revised. And both transactions were pushed back until Wednesday.

Hawaiian Telecom Communications Inc. downsized its three-part bond offering (B-) to $500 million from $550 million and revised talk on all three tranches.

Price talk on the eight-year non-call-four senior fixed-rated notes was increased to 9¾% from the previous talk of 9% to 9¼%.

Talk on the eight-year non-call-two senior floating-rate notes was pushed out to three-month Libor plus 550 basis points. Previously the floating-rate notes were talked at three-month Libor plus 475 to 500 basis points.

Finally new talk of 12¼% to 12½% was heard on the 10-year senior subordinated notes, which are non-callable for five years. Previously the subordinated notes were talked at 150 basis points behind the senior fixed rate notes.

Tranche sizes remain to be determined.

A similar transformation befell the smaller Triad Acquisition Corp. (Triad Financial Corp.) offering of eight-year non-call-four senior notes (B-).

The offering to $150 million from $200 million on Tuesday.

Meanwhile the company revised price talk on the notes outward to 11% to 11¼% from 10¼% to 10½%.

Both LBO deals are being led by Goldman Sachs & Co.

A penalty for being in the market

One high-yield syndicate official who spoke to Prospect News on Tuesday commented that the recent spate of deal downsizings, of which Hawaiian Telcom and Triad Acquisition are merely the latest examples, likely signifies that bookrunners have been encountering difficulty building up order books.

"I would not be surprised to find out that people are having trouble putting together books for every deal that is now in the market," the source said.

"Issuers generally are paying up. And the ones in the market right now are being penalized for being there. That is true of the LBO deals in particular: the LBO deals that do put out price talk seem to have it widened dramatically, or else price well wide of the price talk."

The sell-sider pointed to another pair of recent LBO deals: the NewPage Corp. $775 million issue backing Cerberus's purchase of MeadWestvaco's Coated Paper Group and Carbonless Paper Group, which priced last Friday, and American Tire Distributors Inc.'s $330 million issue, which priced in late March, that helped to finance the sale of the company to Investcorp.

The downsized, restructured NewPage Corp. $775 million issue saw $225 million of seven-year non-call-four senior secured second-lien floating-rate notes (B3/CCC+) price at par to yield three-month Libor plus 625 basis points, on the wide end of revised talk. NewPage also sold $350 million of 10% seven-year non-call-four senior secured second-lien fixed-rate notes (B3/CCC+) at 98.773 to yield 10¼%, wide of revised price talk. Finally the company priced a downsized $200 million tranche of 12% eight-year non-call-four senior subordinated notes (Caa2/CCC+) at 98.749 to yield 12¼%, again wide of revised talk.

Last month American Tire Distributors Inc. raised approximately $330 million in a restructured issue that had $140 million of seven-year senior floating-rate notes (Caa2/CCC+) price at par to yield three-month Libor plus 625 basis points, 87.5 basis points wide of price talk. The company also priced $150 million of eight-year senior fixed-rate notes (Caa2/CCC+) at par to yield 10¾%, 52.5 basis points wide of talk. In addition the company sold a surprise $51.5 million tranche of non-rated senior discount notes due Oct. 1, 2013 that priced at 77.705 to yield 13%.

American Tire Distributors had originally been in the market with $130 million of seven-year non-call-two floating-rate notes and $200 million of 10-year non-call-five senior subordinated notes.

Staying busy

The syndicate official went on to say that the high-yield team at his institution has been busy pitching, working on "the next round of business," to take place, hopefully, when the present market correction has concluded.

"You assume that the market will bounce back and that rates will stabilize, and the primary market will recover so that people can reintroduce these deals that are failing now, and hopefully bring some new ones," the official said.

"High yield built up into a bit of euphoria last year, partially because rates were low and people thought they were only going one way, which is up.

"It was the meat of the refinancing cycle when a lot of non-call-five bonds that were issued in 1999 became callable.

"Meanwhile the underwriters were racing for market share, and vying for fees, with a 'get-it-while-it's hot' mentality.

"When that was done it only took a few catalysts, such as the GM news, for people to realize how silly some of those deals were at the levels where they came."

Roadshow starts for Greenbrier

Finally on Tuesday a roadshow got underway for The Greenbrier Cos.' $175 million offering of 10-year non-call-five senior notes, via Banc of America Securities and Bear Stearns & Co.

The Lake Oswego, Ore., supplier of transportation equipment and services to the railroad industry will use the proceeds to refinance debt and for general corporate purposes.

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