Digicel, American Axle lead new-deal parade; Land O' Lakes up on buyback; funds see $74 million inflow

By Paul Deckelman and Paul A. Harris

New York, Feb. 22 - Digicel Group Ltd. priced a $1.4 billion two-part high yield bond offering Thursday, setting the pace for a busy session which would also see pricings from American Axle & Manufacturing Holdings Inc. , Esterline Technologies Corp. and Key Plastics LLC/Key Plastics Finance Corp.

Also on the new-deal front, McDermid Inc. and Huntsman Corp. were heard to have slated new deals, the former a two-part offering and the latter a private add-on to its 7 7/8% 2014 notes. Sun Healthcare Group Inc. cut the size of its pending senior subordinated note offering, while Northern Star Generation LLC was preparing to hit the road Tuesday to market its 18-year secured notes deal.

In the secondary market, Digicel's new deal did not trade particularly well once it was freed, but American Axle's issue was seen to have firmed.

Among established issues, Land O' Lakes Inc.'s bonds were seen up on the news that the Arden Hills, Minn.-based dairy cooperative will make a major asset sale and will then use the proceeds of that transaction to buy back its outstanding bonds.

Another food processing company, Chiquita Brands International Inc., was up after releasing its fourth-quarter and full-year results. Although its net loss widened, the Cincinnati-based fruit and vegetable importer posted sales gains for the quarter and the year and said that it expects to reduce its debt level during the current fiscal year.

Tembec Inc.'s bonds continued to languish, down a point on the session across the board, as the Canadian dollar remained above the US$0.86 mark.

Funds see eighth straight inflow

And as activity was trailing off 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 in the week ended Wednesday $73.8 million more came into weekly-reporting funds than left them.

That followed the $64.8 million net inflow seen in the previous week, ended Wednesday Feb. 14. It was the eighth consecutive weekly inflow.

The latest report extends year-to-date cash infusions to the funds that report to AMG on a weekly basis to $862.2 million, one source said.

Meanwhile year-to-date flows among funds that report on a monthly basis now amount to slightly less than $1.490 billion.

Hence the year-to-date aggregate flows, which tally both the weekly and monthly reporting funds, ended Wednesday at $2.352 billion.

That positive note on which the new year has begun, liquidity-wise, with inflows now seen in each of the eight weeks since the year's beginning, stands in marked contrast to the way the old year ended, with outflows recorded over the last three weeks of 2006, as well as in 34 out of that year's 52 weeks, against just 18 inflows, for a total net outflow through the period ended on Dec. 27, the final reporting week of the year, of $2.998 billion, according to a Prospect News analysis of the figures.

But most of that 2006 outflow took place in the first half of the year, with the year's second half actually seeing a net inflow of $638 million, the analysis indicated, with that positive trend clearly now carrying over into the new year as well.

The figures exclude distributions and count only those funds that report on a weekly, rather than on a monthly, basis.

The flow of money into and out of the junk bond funds is seen as a generally reliable market barometer of overall high yield market liquidity trends - although they only comprise 10% to 15% of the total monies floating around the high yield universe, far less than they used to - because there is no reporting mechanism to track the movements of other, larger sources of junk market cash, such as insurance companies, pension funds and, most recently, hedge funds.

Four deals, five tranches

A sell-side source said that the broad market ended the Thursday session slightly firmer, and added that the primary market saw notable executions on the five tranches that were priced during the session.

Of the five, one was upsized, one was priced at the tight end of lowered price talk, two at the tight end of original talk, and two in the middle of talk.

Those five tranches, from four separate issuers, generated slightly less than $2.0 billion of proceeds, as syndicate sources told Prospect News that offerings of new junk bonds continue to play to conspicuous demand.

Digicel prices $1.4 billion

The day's biggest dollar-amount of issuance came from Caribbean wireless network operator Digicel Group Ltd.

The company placed $1.4 billion in a two-part offering of eight-year senior notes.

Digicel priced a $1 billion tranche of cash-pay notes par to yield 8 7/8%, at the tight end of revised 8 7/8% to 9% price talk, which had been lowered from 9% to 9¼%.

The company also priced a $400 million tranche of PIK toggle notes at par to yield 9 1/8%, on top of talk that had the PIK notes pricing 25 basis points behind the cash-pay notes.

Citigroup and JP Morgan were joint bookrunners for the share repurchasing, capital expenditures and general corporate purposes deal.

American Axle rolls through

In drive-by action, American Axle & Manufacturing, Inc. priced a $300 million issue of 10-year senior notes (Ba3/BB) at par to yield 7 7/8%, in the middle of the 7¾% to 8% price talk.

JP Morgan and Banc of America Securities LLC were joint bookrunners for the debt refinancing and general corporate purposes deal from the Detroit driveline company.

Esterline upsizes

Meanwhile Esterline Technologies Corp., of Bellevue, Wash., priced an upsized $175 million issue of 10-year senior notes (Ba3/BB-) at par to yield 6 5/8%, at the tight end of the 6¾% area price talk.

Wachovia Securities ran the books for the acquisition deal from the designer and manufacturer of highly engineered products for the defense and aerospace industry.

Key Plastics sells $115 million

Finally, Key Plastics Finance Corp. priced a $115 million issue of 11¾% six-year senior secured notes (B2/B) at 99.50 to yield 11.868%.

The deal had been talked with an 11¾% coupon and an issue price of 99.00 to 99.50. Hence it came at the tight end of talk.

Jefferies & Co. ran the books for the debt refinancing and general corporate purposes deal from the Detroit-based parts supplier.

NSG amortizing notes

Thursday's $2 billion of business considerably whittled the forward calendar of deals in the market, with only one prospective issuer stepping forward with timing on an offering.

Houston-based privately held power generation company NSG Holdings LLC (Northern Star Generation Services Co. LLC) will begin a roadshow on Tuesday for a $514 million offering of amortizing senior secured notes due 2025.

The notes, which will have a 14.4-year average life and be non-callable, are expected to price later in the Feb. 26 week.

Lehman Brothers and BNP Paribas are leading the deal, proceeds from which will be used to repay debt, fund a debt service reserve, fund the acquisition of O&M Star Holdings and fund a sponsor distribution.

A private from Huntsman

Huntsman International LLC was heard on Thursday to be privately placing a $146 million add-on to its existing 7 7/8% senior subordinated notes due Nov. 15, 2014 (existing ratings B3/B).

A source from a hedge fund told Prospect News that the deal was talked early Thursday morning at the 104.0 area, which would result in a 7.01% yield.

The source added that the books were set to close at noon ET on Thursday.

Deutsche Bank is the placement agent.

The notes become callable on Nov. 15, 2010 at 103.938.

The original $200 million issue priced at par in November 2006.

American Railcar for Friday

Only one offering is expected to price during the final session of the holiday shortened Feb. 20 to Feb. 23 week.

American Railcar Industries, Inc. is slated to price a $250 million offering of seven-year senior unsecured notes (B1/BB-) via UBS.

Earlier in the week the St. Charles, Mo.-based company talked the notes at 7½% to 7¾%.

Digicel flat in secondary

While the new Digicel bond offering was clearly the biggest development on the primaryside on Thursday, traders saw anemic aftermarket demand for the bonds.

While both tranches of the Caribbean wireless telecommunications provider's new debt priced at par, one trader was quoting its $1 billion of 8 7/8% cash-pay senior notes due 2015 at 99.875 bid, 100.25 offered, and its $400 million of 9 1/8% PIK toggle notes due 2015 at 99.75 bid, par offered.

A second trader saw both tranches wrapped around issue at that latter price.

American Axle on a roll

On the other hand, American Axle's new 7 7/8% notes due 2017 moved up to 100.75 bid, 101.25 offered after it was freed for secondary dealings versus the bonds' par issue price earlier in the session. A trader at another desk saw the new bonds get as good as 101 bid, 101.5 offered.

A trader saw the company's outstanding 5¼% notes due 2014 gain a point to 89 bid, 90 offered. He cited the good reception the new deal got as well as the late-afternoon announcement by the Detroit-based automotive parts company that it will continue cutting costs by laying off 300 of its 2,000 salaried workers by year end.

The company also said in a filing with the Securities and Exchange Commission that as part of its initiative to "transition its work force to a lower cost structure," it had reached agreement with the United Auto Workers union to drastically reduce its labor costs for new hourly workers to $27 per hour from the present $65 per hour in wages and benefits that it pays for its roughly 8,000 covered employees.

The company further said that its personnel attrition programs should amount to a structural cost benefit of more than $100 million annually.

Cooper Tire up, GM off

Also in the autosphere, a trader saw Cooper Tire & Rubber Co.'s 8% notes due 2019 up ½ point at 96.5 bid, 97.5 offered, but saw General Motors Corp.'s benchmark 8 3/8% notes due 2033 off "maybe ½ point" at 95 bid, 96 offered. He saw General Motors Acceptance Corp.'s 8% notes due 2031 down 2 points at 111.5 bid, 112.5 offered, while GMAC's 6 7/8% notes due 2012 were down nearly a point at 101.75.

However, among other automotive names, a trader saw little movement - even among those bonds which had been active on Wednesday, such as Remy International Inc., which had been a point or two better then, though on no apparent fresh news.

The Anderson Ind.-based automotive electrical systems maker's 8 5/8% senior notes due 2007 were quoted steady at 81 bid, 82 offered, its 11% subordinated notes due 2009 stayed at 30 bid, 32 offered, and its 9 3/8% subs due 2012 stayed at 27 bid, 29 offered.

Elsewhere in the automotive realm, after several days of firming, Dana Corp.'s bonds were seen little changed Thursday, with its 6½% notes due 2008 at 78 bid, 79 offered.

A trader saw Delphi Corp.'s flagship 6.55% notes due 2006 down ¼ point at 111.25 bid, 112.25 offered - although at another desk, a trader called the bankrupt Troy, Mich.-based parts maker's bonds better, citing the news that Delphi plans to close a money-losing Spanish steering assembly plant. He called is 6½% notes due 2013 "up a little" at 110 bid, 111 offered, while pronouncing its longer-dated issue also a little better, at 111.25 bid, 112 offered.

Land O' Lakes up on asset sale

Apart from the autos, a trader saw Land O' Lakes' 7.45% notes up 2½ to 3 points at 92 bid, 93 offered, citing the news that the company will sell its Cheese & Protein International LLC unit to Saputo Cheese USA Inc. and Saputo Inc. for $216 million. Land O' Lakes will also supply Saputo with raw milk for the Tulere, Calif., facilities which the latter is buying, as well as selling it the output of mozzarella and provolone cheeses from a Wisconsin Land O' Lakes plant.

Land O' Lakes also said that as required under the indentures governing its 8¾% senior notes due 2011 and 9% senior secured notes due 2010 it will make a par buyback offer for those two series of notes using any asset proceeds, should it choose not to use the proceeds to first repay bank debt or to invest in additional assets - courses which the company said it does not currently plan to follow.

The trader said the 8¾% bonds are already callable and trade in a 103-104 context, right near the anticipated call price. "So you didn't see the appreciation that you saw in the other bonds."

Chiquita better on sales numbers

Chiquita's 7½% notes due 2014 were seen up better than a point at 93.5 bid.

That followed release of the company's fourth-quarter and full-year results. While Chiquita's net loss widened to $42 million from $19 million a year earlier, the company noted that sales were up 9% from year-earlier levels during the quarter and 15% on the year - reflecting growth from Chiquita's acquisition of Fresh Express last year.

In projecting its expectations for the rest of the year, Chiquita said that among other things, it anticipates applying excess cash primarily to pay down debt until it reaches its target total debt-to-capital ratio of 40%

At year-end 2006, this ratio was 54%.

Tembec retreat continues

A trader saw Tembec bonds continuing to fall, in line with the relative strength of Canada's dollar, although that currency had eased slightly from the seven-week highs the loonie hit in Wednesday's dealings, well above 86 U.S. cents.

A stronger Canadian unit hurts companies like Tembec that sell a lot of product in the United States and other foreign markets by making those exports more expensive and hence less desirable.

The trader saw the Montreal-based forest products company's 8½% notes due 2009 dip to 86 bid, 88 offered, while its 8½% notes due 2011 eased to 76 bid, 78 offered and its 7¾% notes due 2012 to 72 bid, 74 offered. At another desk, the 8 5/8s eased to 86.25, the 81/2s to 76.5 and the 73/4s to 71.5.

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