Rental Services, Elan, eircom deals price; airlines retreat, steel subdued despite M&A buzz

By Paul Deckelman and Paul A. Harris

New York, Nov. 17- Rental Services Corp. priced a $620 million offering of eight-year notes Friday, bringing the curtain down on a another busy week which saw near-record levels of new issuance, including mega-deals Thursday for Firestone Acquisition Corp. (Freescale Semiconductor) - a $5.95 billion, one of the biggest junk offerings ever - and Goodyear Tire & Rubber Co., whose $1 billion deal looked small by comparison.

European-based issuers were making their presence felt in the high-yield arena, as Elan Finance Corp.'s upsized $615 million two-part offering came to market, along with a €425 million issue of new 10-year PIK floating-rate notes from eircom Group plc.

All of the new issues traded up, continuing the pattern seen Wednesday and Thursday when the newly-issued paper moved up after breaking into the aftermarket.

Among established issues, traders saw a modest retreat in the high-flying bonds of Delta Air Lines Inc. and Northwest Airlines Corp. Those bonds had been up sharply over the prior two sessions on the news that US Airways Group Inc. had made an unsolicited takeover offer for the considerably larger, but very troubled, Delta, with some observers speculating that this could be the opening move in a wave of airline consolidations, which could also see an offer made by someone for Northwest. However, Delta has done its best to throw cold water on any merger scenarios, saying it prefers to emerge from bankruptcy as a standalone company.

Merger and acquisition talk was heard to have boosted the shares of United States Steel Corp. and AK Steel Holding Corp. - but investors in their junk bonds were considerably more wary, and the bonds of both companies were seen little- changed on the session.

A senior high yield syndicate official marked the broad market unchanged on Friday.

Meanwhile in the roaring primary market, two issuers priced $1.235 billion of bonds in three tranches, as sources told Prospect News that 2006 will easily emerge as the biggest-ever year for new issuance in the junk market.

Rental Services inside talk

Rental Services Corp. priced a $620 million issue of eight-year senior notes (Caa1/B-) at par to yield 9½% on Friday, 12.5 basis points inside of the 9¾% area price talk.

Deutsche Bank Securities and Citigroup were joint bookrunners for the acquisition deal.

Elan upsizes

Elan Corp. plc's Elan Finance Corp. priced just slightly less than Rental Services.

The Dublin, Ireland, biotechnology company priced an upsized $615 million two-part seven-year notes transaction (B3/B).

Elan priced a $465 million tranche of fixed-rate notes at par to yield 8 7/8%, on the tight end of the 9% area price talk.

In addition the company priced a $150 million tranche of floating-rate notes at par to yield three-month Libor plus 412 basis points, in the middle of the Libor plus 400 to 425 basis points price talk.

Goldman Sachs & Co. was the bookrunner for the debt refinancing deal that was upsized from $500 million.

An informed source said that in the backwash of the massive amount of issuance seen on Thursday - more than $8 billion in the biggest day in the history of the high yield primary market - demand for Elan paper was still intense.

Accounts playing the deal wanted far greater allocations than the supply of paper could provide, the source said.

Eircom atop talk

In the euro-denominated market BCE IPE Ltd. (Eircom Group plc) priced a €425 million issue of floating-rate PIK notes (B-) at par to yield three-month Euribor plus 700 basis points, on top of the price talk.

Credit Suisse, Deutsche Bank Securities, JP Morgan and Barclays Capital were joint bookrunners for the dividend deal from the Irish telecom.

Record week in the primary

Tallying Friday's dollar-denominated new issuance, the week of Nov. 13 came to a close having seen $9.93 billion price in 15 tranches.

Hence it is the biggest week in the primary market going back at least as far as late summer 2001.

The Thursday session, which saw slightly more than $8 billion face amount of new issuance, was the biggest-ever day, by more than $1 billion, according to one syndicate official, who added that seven of the top 10 primary market sessions of all time have taken place in 2006.

On track for record year

Late Friday one high yield syndicate official said that tallying Friday's business the primary market has seen nearly $151 billion equivalent of year-to-date global issuance, on an exchange-adjusted basis.

The official said that the record is approximately $153 billion, and added that with just the announced backlog of deals, the 2006 primary market will easily set a new record.

All gobbled up

With Friday's business cleared, and the record-breaking week of Nov. 13 in the books, the holiday abbreviated pre-Thanksgiving week figures to be a quiet one in the primary market.

Sources say that no deals are expected to price until after Thanksgiving, as the primary market takes a well-deserved breath in the run-up to Wednesday's early close.

New Rental Services bonds firm

When the new Rental Services Group 9½% notes due 2014 were freed for secondary dealings, a trader saw the bonds push up to 102 bid, 102.5 offered, well up from their par issue price.

Two other traders saw the notes closing the day at 102 bid, 102.25 offered.

Elan notes dip, then firm

A market source said that Elan's new bonds, in contrast, had "dipped below par" on the break.

However, they moved back up after that, although there was no unanimity as to how much.

A trader - noting that "there wasn't that much activity in them" - saw the company's 8 7/8% senior notes due 2013 get as good as 100.75 bid, 101.5 offered after having priced at par, and said the underwriter had pegged the new floating-rate notes due 2013 at 101 bid, 101.5 offered.

However at another desk, another trader saw the fixed-rate bonds at a more restrained 100.25 bid, 100.5 offered and quoted the floaters at par bid, 100.5 offered.

eircom bonds modestly better

A trader saw the new euro-denominated eircom floating-rate PIK notes due 2017 at 100.375 bid, 100.75 offered.

The bonds had priced earlier in the session at par.

New Freescale, Goodyear bonds ease

Among the issues which had priced on Thursday, a trader saw the new Firestone Acquisition/Freescale Semiconductor bonds lower, as were both the new and existing Goodyear notes.

He saw the new Firestone/Freescale bonds "unchanged to down a quarter point" on the day, with the floating-rate notes due 2014 at 100.5 bid, 101 offered, the 9 1/8% PIK notes due 2014 and the 8 7/8% senior notes, also due 2014, both at 100.75 bid, 101.25 offered, while its 10 1/8% senior subordinated notes due 2016 were at 102.25 bid, 102.75 offered, all off slightly from the levels to which those bonds had risen Thursday after pricing at par.

He also saw Goodyear's new 8 5/8% notes due 2011 at 101.5 bid, 102 offered, down from their close Thursday at 102 bid, 102.5 offered.

He also saw the Akron, Ohio-based tiremaking giant's existing 7.857% notes due 2011 at 98.75 bid, down ½ point, and attributed the fall in both the new bonds and the existing paper to negative news from the labor front as talks between the company and the United Steel Workers union aimed at settling a more than month-long strike against the company by more than 12,000 union workers at plants across the United States and Canada broke off.

The two sides are at odds over the company's plans to close a tire plant in Tyler, Texas, and over retiree healthcare costs. The union wants to see no plants closed, and says that a management proposal to set up a healthcare trust for the retirees would short-change the former workers.

Goodyear has said it might use some of the proceeds from the new billion-dollar bond deal to help tide the company over for the duration of the strike, as well as for debt paydown.

Airline bonds lose altitude

After having soared on Wednesday, and having moved up a little further on Thursday, Delta's bonds and those of Northwest, were seen having fallen back on Friday on apparent profit-taking.

The bonds of Atlanta-based Delta, the bankrupt Number-Three U.S. airline carrier, had jumped an amazing 23 points on average since release of the news Wednesday that US Airways had made an $8 billion offer for Delta, while Northwest came along for the ride, its bonds up more than 12 points over the prior two sessions.

However, on Thursday, a trader said that the sector saw "maybe a little bit of profit-taking today. He saw the Delta 8.30% notes due 2029 go from a bid level around 62-62.5 to 59.5 bid, 60.5 offered, "so they're off their highs."

He saw Northwest - which "had been going up because they had a comp" - i.e. with Delta valued at $8 billion by its would-be buyer, a comparable valuation could be figured for Northwest, since "everybody is speculating that they may be next" to get a buyout offer from someone - lower on the session, with all of the unsecured paper off about a point in an 80-82 context, "depending on how much pre-petition interest they have."

He said that some of the issues were trading a little bit better than the others, like the 9 7/8% due 2007, which was trading about 1½ points above the other Northwest bonds - "but they're all trading in an 80-83 context, the pari passu notes, all off a point" on the day. He noted that some of the Northwest bonds had traded as high as 84 bid, but "they've fallen in the last day or two."

At another desk, a trader saw Delta's 7.70% notes due 2005 trading at 61.5 bid, 62.5 offered "early" in the morning, while its 10% notes due 2008 were at 61 bid, 62.5 offered, its 7.90% notes due 2009 were at 62.5 bid, 63.5 offered, and the 8.30% notes due 2009 were 62.5 bid, 63.5 offered. The 8.30s fell to 60.75 bid, 61.75 offered around mid-morning, and at the end of the day, they "seemed to be down a lot," at 58.5 bid, 59.5 offered.

"It seems they were up in the early morning, and as the day went on, they got lower."

Northwest's bonds, at least initially, were "up a lot," with its 8 7/8% notes due 2006 going to 86 bid, 87 offered from 83.5 bid, 84.5 offered; its 9 7/8% notes due 2007 to 87 bid, 88 offered from 86.5 bid, 87.5 offered; its 7 7/8% notes due 2008 to 86.5 bid, 87.5 offered from 84.5 bid, 85.5 offered; its 10% notes to 85.5 bid, 86.5 offered from 83 bid, 84 offered; its 7 7/8% notes due 2023 to 84 bid, 85 offered from 82.5 bid, 83.5 offered. However, later in the day, those gains faded and the bonds ended up losers on the day.

Another trader said Delta "gave back a little bit," with the 8.30s due 2029 at 60 bid, 61 offered, down 3 points. "But still," he pointed out, "it's basically up 20 points on the week, so there's nothing to cry about."

Northwest, he said, "also saw some profit-taking," with the 8 7/8% notes due 2006 finishing at 81.5 bid, 82.5 offered, down 2 points.

Another trader, who deals mostly in distressed bonds, said that "they [Delta's bonds] got a bit ahead of themselves," with some intra-day levels as high as 68 seen earlier in the week. "Now, they are coming back to reality."

The rise in the bonds was sparked Wednesday by US Airway's $8 billion offer - $4 billion in cash and $4 billion in US Airways stock, which has since risen to a value of $4.7 billion. But Delta has openly resisted a merger and on Friday it was reported in The Wall Street Journal that Delta chief executive Gerald Grinstein and other executives held a series of conference calls with creditors in which they asked them to reject the proposal.

U.S. Airways executives are reportedly still trying to arrange a meeting with representatives of Delta's official creditors committee.

An analyst at a big hedge fund in New York said that while there are "lots of lucrative trades in the Delta's capital structure," there was no way that an intelligent analysis of the potential merger could be done.

"No one has put a pencil to this. They can't. There is nothing to work out yet. They are just making wild assumptions based on where other airline bonds are trading," she said. "That said, I know we are very active in this situation. There are a lot of ways to play this out, regardless of the outcome and make money."

Steel issues little changed

Back on terra firma, bond players watched with apparent disinterest as equity investors worked themselves into a frenzy over possible takeover moves in the steel industry.

Rumors that Russian metals giant OAO Severstal might be interested in acquiring Pittsburgh-based U.S. Steel pushed the latter's shares up sharply, which in turn gave a boost to Middletown, Ohio-based specialty steels producer AK Steel.

The speculation got its start from a report in a Moscow newspaper. It comes at a time when merger-mania is running rampant in the global steel industry; just this week, Brazilian steelmaker Companhia Siderurgica Nacional approached Anglo-Dutch steelmaker Corus Group with a takeover offer - this after Corus had already agreed to be bought by India's Tata Steel.

Be that as it may, junk traders said, the fact is that the bonds of both U.S. Steel and AK have "no place to go. It's already trading at crazy levels, at or near yield to call," a trader said.

He saw U.S. Steel's 9¾% notes due 2010 unchanged at 106.5 bid, 107.5 offered, and its 10¾% notes due 2008 likewise unmoved at 107.5 bid, 108.5 offered.

AK's 7¾% notes due 2012, he said, were up "only slightly," at 99.75 bid, a gain of about 1/8 point on the day, while its 7 7/8% notes due 2009 were also up just 1/8 at 99.875.

"There's no place for it to go."

Another trader opined that "U.S. Steel already trades very tight. They're going nowhere. If General Electric bought them, they'd be going nowhere." He saw the bonds of both high-yield steelers unchanged.

In contrast, U.S. Steel's New York Stock Exchange-traded shares jumped $6 (9.29%) on the buyout buzz to end at $70.57. Volume of 12.7 million shares was three times the norm. AK's NYSE-traded shares meantime rose 67 cents (4.79%) to end at $14.65. Volume of 4.1 million was twice the usual turnover.

Fairfax Financial gains solidly

The second trader saw FaIrfax Financial Holdings Ltd.'s bonds up nicely on the news that its Odyssey Re reinsurance subsidiary will issue 9 million Odyssey Re common shares in a secondary offering, with proceeds of about $400 million earmarked for Fairfax, the company's majority owner.

He saw Fairfax's 7 3/8% notes due 2018 up 4 points at 94 bid, 95 offered.

Distressed auto names seen firm

In the distressed-bond portion of the junk market, bonds of bankrupt auto parts makers like Delphi Corp. were seen holding steady, with the Troy, Mich.-based parts producer's 6.55% notes that were to have come due this year "pretty much unchanged" at 105.75-106.75, a trader said.

He noted, disbelievingly, that "you have bankrupt auto parts companies, trading flat, at a premium" to par. "That tells you how much cash there is out there. I mean, you hear every day, there's more and more of these distressed [fund] guys raising money. I just don't know where they're all going to look [to find values] - they're looking to the crappiest sectors, like airlines and auto parts.

He also saw Metaldyne Corp.'s 11% senior subordinated notes due 2012 at 99 bid, par offered, up a point, and its 10% senior notes due 2013 - even though the company's planned $1.2 billion acquisition by Japanese parts maker Asahi Tek Corp., which was to have been completed this month, has now been pushed off until January.

The delay was needed to give Metaldyne, a Plymouth, Mich.-based producer of metal-stamped parts for the troubled automotive industry, time to obtain needed consents from its bondholders, some of whom had objected to some terms of the acquisition deal.

On Thursday, Metaldyne reported a third-quarter net loss of $46.3 million ($1.08 a share) on revenue of $411.8 million - a deterioration from a year earlier, when the company lost $15.2 million (36 cents a share) on revenue of $442.5 million.

Metaldyne also disclosed that that some vendors who supply it with raw materials, components and other necessities, have demanded shorter payment terms.

Despite all of that bad news, however, another trader saw the Metaldyne 11% notes up ½ point at 99.25 bid, 99.75 offered.

On the downside, he also saw "a little weakness" in Delco Remy, seeing the company's 9 3/8% notes due 2012 finishing at 28 bid, 29 offered, down 3 points. He speculated that the Anderson, Ind.-based automotive electrical components maker's bonds have been getting whacked over the last few sessions because some in the market see the company as "the next Dura" - a reference to the bankrupt Rochester Hills, Mich.-based auto parts maker Dura Automotive Systems Inc. - "but who knows?"

Spectrum Brands awaits asset sale

A trader saw Spectrum Brands Inc.'s bonds "up a little - they're waiting for their asset sale, hopefully."

He saw the Atlanta-based consumer products company's 8½% notes due 2013 at 89 bid, 90 offered and its 7 3/8% notes due 2015 at 83 bid, 84 offered - unchanged on the day.

He said the bonds "are up since their numbers came out, earlier in the week, about 2 points on the week."

He said he had "seen some buying interest - the company is supposedly close to working on some asset sales."

Rotech rally rolls to a stop

The three-day rise in Rotech Healthcare Inc.'s bonds - which saw the Orlando, Fla.-based healthcare products and services provider's 9½% notes due 2012 jump about 12 points over the three sessions - is apparently over for now. A trader saw the bonds having gone nowhere during the day.

Another trader said Rotech "dropped off a little bit today," finishing the day at 87 bid, 88 offered, down about two points.

The bonds had shot up to around the 90 bid level from the upper 70s in apparent anticipation of - and then, reaction to - the lack of any official move by Medicare authorities to impose cuts in reimbursement rates on its products.

MagnaChip bonds continue gains

A trader said he saw MagnaChip Semiconductor's 8% notes due 2014 "up another point" to 66.5 bid, 67.5 offered. He said the bonds had "definitely" been moving of late, and were up about four points this week.

He noted that the South Korean computer chip maker's bonds "were getting crushed a couple of weeks ago," and had traded as low as 48 within the last three weeks. Then they came out with their quarter [results], and the quarter wasn't so bad, and that precipitated some level of a short squeeze, and they certainly eliminated some liquidity concerns with their conference call."

The bonds "have continued to move" since then.

"Their fourth quarter is still gonna stink - but in this market everything is getting lifted."

Ronda Fears contributed to this article

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