Autos better, powered by Lear and Delphi; Ace Cash Express eight-year prices

By Paul Deckelman

New York, Sept. 26 - After days of getting pushed around, automotive supplier bonds were for the most part better on Tuesday, helped along by strength in Lear Corp., which said it expects to sell its interiors business to billionaire financier and sector consolidator extraordinaire Wilbur L. Ross, and in Delphi Corp., which announced that most of its eligible United Auto Workers-represented hourly workforce had opted for taking early retirement or buyout offers - a key step in reducing its labor costs over the long run.

That positive news more than offset any negative vibes the sector generated when Visteon Corp. became the latest parts company to issue an earnings warning, blaming its anticipated lower revenues and earnings on the output cuts announced by its primary customers, Detroit's Big Three carmakers.

In the primary market, Ace Cash Express priced a $175 million issue of eight-year notes in a scheduled calendar deal.

Elsewhere in the new-deal arena, two prospective offerings emerged, for CompuCom Systems Inc. and Softbank Corp., and price talk was heard on deals for Service Corp. International and Brake Bros. plc.

Service Corp. seen pricing Wednesday

The books on Houston-based deathcare giant Service Corp.'s deal closed late Tuesday afternoon, and the deal was expected to come to market around midday on Wednesday.

The $500 million issue is divided into two parts, with a $250 million tranche of eight-year senior notes expected to yield around 7 3/8%, while a $250 million tranche of 12-year seniors is seen likely to yield around 7¾%.

It's being brought to market via a syndicate led by joint bookrunners JP Morgan and Merrill Lynch & Co.

Service Corp. - the world's largest operator of cemeteries and funeral homes - plans to use the net proceeds from the Rule 144A bond issue, together with available cash and other financings, to complete its previously announced acquisition of its largest domestic competitor, Alderwoods Group Inc., and to refinance debt.

The two companies announced in early April that Service Corp. would acquire its Cincinnati-based rival for $856 million in cash, or $20 per share, and would also assume $374 million of outstanding Alderwoods debt.

Following the closing of the deal, which is expected before the end of the year, the combined entity's domestic operations will consist of 1,712 funeral homes and 490 cemeteries in 48 states.

Brake price talk out

Also expected to price Wednesday is British food supplier and distributor Brake Bros.' £275 million offering of 5.5-year senior payment-in-kind loans/notes.

Pre-deal market price talk that emerged indicated a coupon of 775 to 800 basis points over Libor at a price of 99, junk market syndicate sources said Tuesday.

The deal is being brought to market via joint bookrunners JP Morgan, Credit Suisse and Deutsche Bank Securities. A short roadshow began on Monday in London. Books will close at noon Wednesday, London time - early morning in the United States - with pricing expected sometime after.

The company expects to use the deal's proceeds to fund a dividend and make a payment on its pension deficit.

CompuCom coming

Climbing aboard the forward calendar was a deal for CompuCom Systems, a Dallas-based provider of outsourced information technology services, including providing software, networking, communications and systems integration.

Syndicate sources heard the company in the market with a $175 million Rule 144A offering of eight-year senior notes, which will be marketed to potential investors via a roadshow slated to begin on Wednesday and continue through Oct. 5. The deal's bookrunner is Citigroup.

The company plans to use $125 million of the anticipated proceeds to repay existing debt. It will also utilize $45 million to pay a dividend to its equity sponsor, Platinum Equity LLC, a Beverly Hills, Calif.-based information technology industry buyout specialist which acquired CompuCom in 2004.

Softbank selling senior notes

Another deal junk marketeers will look forward to is Softbank Corp.'s €500 million of seven-year senior unsecured notes, which will be brought to market by bookrunning manager Deutsche Bank Securities, following a roadshow slated to begin on Wednesday.

Softbank, a Tokyo-based telecommunications, technology and media company, plans to use the deal's proceeds to refinance short-term debt.

Ace Cash cashes in

Late in the session, participants heard that Ace Cash Express, a Dallas-based provider of retail check-cashing services, had successfully priced a $175 million issue of eight-year Rule 144A senior notes, at a yield of 10¼%.

The bonds priced at par, for a spread of 568 basis points over the comparable Treasury issue. Bear Stearns & Co. was the bookrunner.

Proceeds from the deal, and from a new $400 million credit facility, will be used to help fund the acquisition of the company by JLL Partners Inc., which will provide $178 million of equity financing as part of the deal.

When the new bonds were freed for secondary dealings, a trader saw them offered at 101.75, well up from their par issue price.

Autos get in gear

Back among the established issues, "there was strength in the distressed auto parts sector," a trader said. He saw such names as Dana Corp. and the recently hard-hit Dura Automotive Systems Inc. "up a couple of points, one to two, so there's strength there."

But while another trader acknowledged that bankrupt Toledo, Ohio-based partsmaker Dana was better - he saw its 6½% notes due 2008 up 1½ points at 65 bid, 66 offered, while its 7 1/8% notes due 2028 were 1¼ points better at 62.5 bid, 63.5 offered - he saw Dura taking its lumps again late in the session.

"Dura has been active," he said of the day's trading in the troubled Rochester Hills, Mich.-based parts company's bonds - but after holding pretty much steady for much of the day around Monday's closing levels, its 8 5/8% notes due 2012 "got hit this afternoon," and ended down 3 points at 42 bid, 43 offered. Dura's 9% subordinated notes due 2009 were off ½ point at 5 bid, 6 offered, "so there definitely was some selling."

Lear leads the way

However, he saw Lear's bonds up ¾ point across the board, its 8.11% notes due 2009 at 95.5 bid, 96 offered, and its 5¾% notes due 2014 at 80.25 bid, 81 offered.

At another desk, a source quoted the latter bonds up 1¼ points at 81.25.

The Southfield, Mich.-based automotive seating, interiors and electronic components maker's bonds, and its shares, got a boost as the company said that it expects to complete a deal to contribute its European auto interiors business to a joint venture with financier Ross sometime in the next several weeks.

Lear chief executive Robert Rossiter also told participants at a J.P. Morgan automotive investor conference at the Paris Auto Show that Lear still believes that it will find a solution for the rest of its struggling interiors business which probably would also include ties to Ross as well.

The billionaire investor has in recent months been buying auto components operations here and there - selectively, rather than willy-nilly - hoping to meld them into one powerful entity, much the same way he did with distressed steel and coal industries several years ago.

Lear's New York Stock Exchange-traded shares also revved up on the hopeful scenario, gaining $1.64 (8.96%) to end at $9.94. Volume of 4.8 million shares was nearly triple the usual turnover.

Delphi bonds get buyout boost

Delphi's bonds meantime firmed as the bankrupt Troy, Mich.-based parts maker announced the results of its buyout incentives campaign late in the session.

A trader saw the former General Motors Corp. unit's 6½% notes due 2009 up a point at 86 bid, 87 offered, and its 7 1/8% notes due 2029 at 82 bid, 83 offered, up about 1¼ points.

Delphi - which offered buyouts to its unionized workforce in hopes of cutting its heavy labor costs going forward - said that some 12,400 employees, representing roughly 85% of the retirement-eligible UAW workforce, elected to retire by Jan. 1, 2007. Approximately 1,400 employees elected the buyout option.

Delphi said that nearly all of its U.S. hourly employees represented by the UAW were eligible for the buyout program, with about 14,600 of those employees eligible to participate in the retirement and pre-retirement program. Some eligible U.S. hourly employees accepted a lump sum incentive of $35,000 to retire, while other eligible employees under the program elected buyout packages ranging from $40,000 to $140,000.

Much of the cost of the retirement incentives is being picked up by GM, Delphi's former corporate parent.

Visteon virtually unmoved

The positive news coming out of Lear and Delphi more than upset whatever qualms sector investors had after Visteon said that it won't meet its previously announced 2006 financial targets, thanks to big output cutbacks by key customers GM , Ford Motor Co. and DaimlerChrysler AG's domestic Chrysler Group.

Also taking some of the edge of the earnings warning - which had been widely expected and thus came as no shock to bondholders of the Van Buren, Mich.-based former Ford parts unit - was the news that large shareholder Pardus Capital Mangement had upped its Visteon stake to 14.1% from 11.7%, and is considering nominating a candidate for the Visteon board of directors. Pardus further said in a Securities and Exchange Commission filing that it is continuing talks with management about the latter's strategy and plans.

The net effect of all of that news was pretty much a wash. A trader saw Visteon's 7% notes due 2014 up ¼ point at 88.75 bid, 889.25 offered, while its 8¼% notes due 2010 were unchanged at 97 bid, 97.5 offered.

Oil names slide

Apart from the autos, a number of energy exploration and production names were seen trading lower, in line with the recent trend of lower world crude prices and the resulting drop in gasoline prices at the pump.

One was PetroHawk Energy Corp., whose 9¼% notes due 2013 were seen down as much as 1½ points at 99.875. At the same shop, Brigham Exploration Corp.'s 9 5/8% notes due 2014 were seen down 1 1/8 points at 97.375, while Chesapeake Energy Corp.'s 7% notes due 2014 were quoted down ½ point at 97.5.

However, at another desk, Chesapeake's 6¼% notes due 2018 were seen up ½ point at 93 bid, while Pride International Inc.'s 7 3/8% notes due 2014 were also ½ point better at 103.5.

But back on the downside, Comstock Resources Inc.'s 6 7/8% notes due 2012 were ½ point off at 95.75, while Whiting Petroleum Corp.'s 7¼% notes due 2013 were down 3/8 point at 97.625.

In Tuesday's dealings on the New York Mercantile Exchange, light crude oil settled down 44 cents a barrel at $61.01 - a little above recent lows under $60, but well down from the late-summer highs in the upper 70s. The slide in oil prices this month - and the nearly $1 per gallon decline seen at the gas pumps in some areas - have given investors optimism that consumer spending will hold up even as the economy slows.

Restaurants gain on oil drop

A trader quoted from a recent research report from one of the larger investment banks, to the effect that with gasoline prices going down, "Mom and Pop have a little more money to spend, and they're going out more," to "these relatively inexpensive restaurants."

That has helped companies like Wilbraham, Mass.-based Friendly Ice Cream Corp., whose 8 3/8% notes due 2012 "like a month ago" were trading around 85 bid, 86 offered, but which pushed up to 91.75 bid, 92.5 offered at the close Wednesday. At another desk, the bonds were seen up a point on the day, though at 91.

The trader saw the same trend benefiting Landry's Restaurants Inc. The Houston-based eatery chain's 7½% notes due 2014 traded up to 95.5 bid from recent levels at 93.

"So there's a sense of a little 'feel-good' among the consumers" - borne out by the findings of the Conference Board's monthly survey of consumer confidence. The private forecasting group's closely followed consumer confidence index rebounded to a better-than-expected 104.5 this month from a revised reading of 100.2 in August. Analysts had only expected the September index to rise to 103, but falling gasoline prices made for rising optimism among shoppers. The September reading was the highest since the 107 posted in July, before it sank sharply in August on employment worries.

Chiquita, Dole better

There also seemed to be more confidence on the part of investors about the ability of Chiquita Brands International and Dole Foods Co. to weather the current hard times in the fresh produce industry, sparked by the outbreak of the E. coli virus due to the contamination of spinach.

Chiquita's bonds plummeted on Monday after the Cincinnati-based fruit and vegetable importer said that the current E. coli scare would hurt the results of its Fresh Express business, which sells packaged fresh salads. That, along with problems caused by new European restrictions on banana imports, will cause Chiquita's full-year earnings to come in below previous projections, the company said.

"Chiquita bouncing back seemed to be the big story," a trader said, quoting Chiquita's 7½% notes due 2014 up 5/8 point on the day to 86.625, while its 8 7/8% notes due 2015 were up a full point at 92 bid.

Meanwhile, Dole "recovered a little," he said, seeing the Westlake Village, Calif.-based produce company's 8 5/8% notes due 2009 closing at 97 bid, 97.5 offered, up from the day's lows at 96 bid, although he acknowledged that the levels were still "absolutely" below the levels they held before the E. coli outbreak became big news. Dole sells packaged fresh and frozen spinach under its own brand label.

At another desk, a market source was quoting Chiquita's 71/2s up ¾ point, above 87.

But not everyone necessarily agreed. While a trader at another house saw the Dole 8¾% notes due 2013 "hanging in" at 92.75 bid, 93.75 offered, having apparently had their downside run, he saw Chiquita's 8¾% notes down ¾ point at 92.25 bid, 92.75 offered, while the 71/2s, after holding at 87.25 bid for "most of the day," "gave it all up" late in the session to end down ¾ at 86.5 bid, 87.5 offered.

Fairfax 'on a tear'

Elsewhere, a trader said that Fairfax Financial Holdings Ltd. "has been on a tear," with the Toronto-based property-casualty insurer's 7¾% notes up about 7 or 8 points over the last couple of weeks to around the 93 bid area, despite the lack of significant firm news about the company that might explain the rise.

"I'm being asked by more and more buyers what's going on," he said, reiterating "they've been up on a tear."

All told, the trader said, Tuesday's overall market "had a very positive tone to it - across the board."

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