Delta flies on pilot deal; Ready Mixed, downsized Ad Directories price; funds see $56.5 million inflow

By Paul Deckelman and Paul A. Harris

New York, Oct. 28 - Delta Air Lines Inc. bonds zoomed higher Thursday, propelled by the news that the troubled airline's pilots had agreed to the massive $1 billion pay cut package the company had been demanding over months of wrangling. The agreement by the captains is seen as a big step toward keeping Atlanta-based Delta out of Chapter 11.

In the primary market, new deals priced Thursday for Ready Mixed Concrete Co. and for Advertising Directory Solutions Holdings (SuperPages Canada), although the latter deal was downsized before it finally emerged. Both had been talked at 9¼%-9½% but one came at the tight end of that price talk while the other came at the wide end.

One deal which is not going to emerge, one the other hand, is Alaska Communications Systems Group Inc.'s $400 million offering of income deposit securities, which was heard by syndicate sources to have been withdrawn.

After trading had wrapped for the evening, market participants familiar with the weekly high-yield mutual fund flow numbers compiled by AMG Data Services of Arcata, Calif., said that in the week ended Wednesday, $56.5 million more came into the funds than left them.

That was a reversal of the trend seen the week before, when a very modest $900,000 outflow had been seen, barely breaking a string of nine straight inflows previously.

The fund flow numbers are seen as a reliable barometer of overall junk market liquidity trends, even though the funds make up only a relatively small percentage of the money available in the greater high yield universe.

Inflows have now been seen in 22 of the 43 weeks since the beginning of the year, although the funds show a net outflow over that time of $3.56 billion, according to a Prospect News analysis of the AMG figures. However, after a strong start to the year, and then a rocky patch over a number of months in which outflows from the funds mounted up, the trend over the past two months has been solidly positive, according to the analysis of the figures.

The statistics include only those funds that report on a weekly basis and they exclude distributions.

Superpages Canada, Ready Mixed price

Although they were not identically rated, both of the junk bond deals that priced during Thursday's session had been marketed with price talk of 9¼% to 9½%.

The largest of the two came from Advertising Directory Solutions Holdings Inc. (Superpages Canada) which priced a downsized $170 million of eight-year fixed-rate senior notes (Caa1/B-) at par to yield 9¼%, on the tight end of the 9¼%-9½% price talk.

JP Morgan, Banc of America Securities, Deutsche Bank Securities and Merrill Lynch & Co. ran the books for the acquisition deal from the Burnaby, B.C.-based directories publisher.

A day earlier the company had downsized the note offering by $40 million, which it shifted to its second lien term loan.

One source told Prospect News that the order book on Thursday's bond deal was 11 times oversubscribed.

The other deal to price Thursday was Ready Mixed Concrete Co.'s $150 million of eight-year senior subordinated notes (Caa1/CCC+).

The LBO deal priced at par, and the Escondido, Calif. company solidified a 9½% yield on the new notes, which came at the wide end of the 9¼%-9½% price talk, via JP Morgan.

A source spotted the bonds trading in a 100.75 bid, 101.25 offered context late Thursday.

Mike Difley, vice president and portfolio manager of the American Century High Yield Fund, told Prospect News that triple-C deals are no doubt expensive, but that in the rapidly fading month of October 2004 they have been the place to be.

"Triple-Cs are being priced a bit tight to where the Merrill Lynch triple-C index is trading," Difley said. "The yield on that index is about 11.25%," he noted, comparing it to Advertising Directory Solutions' (Caa1/B-) 9¼% yield and Ready Mixed Concrete's (Caa1/CCC+) 9½% yield.

"Obviously you have some much more distressed names in that index driving down the whole thing," Difley allowed.

"However, plenty of triple-C paper these days trades through where the index is. Obviously some companies have had better prospects over the last year, so some of this triple-C paper is trading through the index maybe on the belief that the credit profile has clearly improved to something better than a triple-C.

"And the market reacts a lot more quickly than the rating agencies."

Having illustrated the present high price of low-rated paper, however, Difley added that according to his reading of the various credit-rated indexes, month to date, the lower an investor has gone on the credit spectrum, the better than investor has done in terms of returns.

"The lower-rated stuff has been outperforming," Difley said.

Levitz rejigs, talks deal

The last piece of the puzzle for the Oct. 25 week fell into place Friday, as new structure and price talk were heard on Levitz Home Furnishings' $130 million deal.

The Woodbury, N.Y.-based home furnishings company broke what had been a single tranche of seven-year senior secured notes into two tranches, both of which are expected to price Friday via Jefferies.

Levitz plans to sell $100 million of series A seven-year senior secured notes (B3/B-), which it is talking at the 12% area, and $30 million of series B seven-year senior secured notes, talked at the 15% area.

The A tranche has payment priority over the B tranche, and therefore lower ratings are expected to emerge on the B tranche.

Stats ChipPac starts roadshow Monday

Timing was heard Thursday on Stats ChipPAC Ltd.'s $165 million offering of seven-year senior notes (Ba2/BB), via Deutsche Bank Securities and Lehman Brothers.

The roadshow starts Monday in Hong Kong, then moves to Singapore on Tuesday and is expected to begin in the United States on Thursday.

The debt refinancing deal is expected to price early in the week of Nov. 8.

And late Thursday Dublin, Ireland-based Elan Corp. plc announced that subsidiary Elan Finance Corp. plans to sell $850 million of seven-year senior notes in order to refinance debt.

Proceeds will be used to fund a tender offer as well as for working capital and other general corporate purposes. Morgan Stanley is dealer manager on the tender offer.

Ready Mixed up in trading

When the new Ready Mixed Concrete bonds' terms were finally set in cement and they were freed for secondary dealings, the new 9½% senior subordinated notes due 2012 were seen by traders having firmed to 101.5 bid, 102.5 offered from their par issue price earlier in the session.

And when the SuperPages Canada 9¼% seniors due 2012 began trading around, they jumped to 103.25 bid, 103.75 offered from par.

Delta soars

Back among existing issues, it was up, up and away for Delta's bonds, on the news that the union representing the airline's more than 7,000 pilots had, after months of wrangling, finally given in to management's demand and accepted the pay-cut package, which imposes a 32.5% cut effective Dec. 1 and continues no provision for any raises over the five-year life of the accord. There are also various work-rule changes aimed at wringing more productivity from the captains and some pension fund changes. In return for these concessions, the pilots would get options to purchase up to 15% of Delta's shares.

The deal is to be voted on beginning Monday and needs the approval of a majority for ratification. Approval by the deal would also enable Delta to move forward with a $600 million funding deal with American Express Corp. announced earlier in the week.

The pilot deal, though pretty much expected sooner or later by most Delta-watchers, still fueled a sharp upward surge in the company's bonds, with its 7.70% notes due 2005 going up to 76 bid, 78 offered from prior levels at 63 bid, 65 offered, its 10% notes due 2008 gaining to 53 bid, 55 offered from 42 bid, 44 offered Wednesday, its 7.90% notes due 2009 at 47 bid, 49 offered, up from 38 bid, 40 offered, and its 8.30% notes due 2030 ending at 37 bid, 39 offered, up from 30 bid, 32 offered.

At another desk, a trader pegged the 7.70s at 76, the 10s at 51, the 7.90s at 49, up from 42, and the 8.30s at 37.75. He also recorded the normally little-traded 9¾% notes due 2021 pushing up to 38 bid from 27 and the also usually little-seen 9¼% notes due 2022 rising to 37.25 from 25.

Dura jumps on earnings

Elsewhere, outside of the airline sector, earnings seemed to be the dominant feature of Thursday's market, with a number of companies posting gains on positive earnings.

Chief among these was Dura Operating Corp., whose 9% notes due 2009 were seen by one market source as having firmed smartly to 95 bid, up from 90.75 on Wednesday, while its 8 5/8% notes due 2012 moved up to 103 bid from 99.25.

At another desk, Dura's 9% notes were seen having risen as high as 96.

The Rochester Hills, Minn.-based automotive components supplier's Nasdaq-traded shares meantime jumped $1.18 (17.56%) to end at $7.90. Volume was 3.96 million shares, more than quadruple the usual turnover.

Dura swung into the red during the third quarter, with a net loss of $2.7 million (15 cents per share), versus a year-ago net profit of $5.2 million (28 cents a share). However, the company said that excluding restructuring charges, it actually earned $911,000 (five cents a share). That beat the two cents a share that Wall Street had been looking for. And quarterly revenue rose 11.2% to $616.4 million.

Looking ahead, Dura expects to get back in the black, with earnings of 30 to 40 cents per share in the fourth quarter, excluding facility consolidation charges, on revenues of $600 million to $650 million.

Playtex gains on results

Another name seen higher on earnings was Playtex Products Inc., whose 8% notes due 2011 went home at 108 bid, up from 106.25.

At another desk, the 8s closed at 109, up more than two points on the session, while the Westport, Conn.-based consumer products maker's 9 3/8% notes due 2011 finished at 105.25, up nearly three points.

AES better on earnings

AES Corp. bonds firmed slightly, after the Arlington, Va.-based independent power producer posted stronger operating performance and net earnings for the third quarter and upped its full-year earnings guidance.

AES' 7 3/8% notes due 2013 edged up to 99.75 bid from 99.5, while its 8 7/8% notes due 2011 appreciated to 115.5 from 114.625.

Outside of earnings, news that automotive components maker ArvinMeritor will shed some assets helped jump-start its bonds, with the 8¾% notes due 2012 firming to 110.25 bid from 109 and its 6 5/8% notes due 2007 up a quarter point at 103.25.

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