Upsized TRW mega-deal prices, trades up; covenant woes deflate Goodyear Tire bonds

By Paul Deckelman and Paul A. Harris

New York, Feb. 6 - TRW Automotive Inc. priced the largest junk bond deal so far this year Thursday - in fact, the biggest deal in more than two years - as it brought an upsized $1.575 billion batch of dollar- and euro-denominated bonds to market.

But Crown Cork & Seal Co. Inc. intends to soon eclipse the TRW offering; during Thursday's session the Philadelphia packaging company increased its upcoming junk bond offering to $2.05 billion from $1.75 billion previously. The deal is scheduled to price next week.

In the secondary market, the new TRW notes traded up when they were freed. Among already established bonds, Goodyear Tire & Rubber Co. was skidding lower for a second consecutive session, as the company asked its banks to modify its debt obligations to keep it in compliance with its covenants.

With TRW leading the day's pricing and a couple of new offerings being announced, the high-yield primary market gathered unmistakable momentum on Thursday.

Investors scarcely had time to bid adieu to the new deals from TRW and a smaller offering from Cinemark USA, Inc. before the market heard that Crown Cork & Seal Co. had added an extra $300 million to its deal scheduled for next week. Citgo Corp., meanwhile, plans to do in excess of half a billion of junk so it can pony up for its ailing parent PDV America, Inc. And Mandalay Resorts rushed into the market late Thursday with a $300 million drive-by deal, figuring to cash in its chips before the coming weekend.

And although several sources advised Prospect News that the week ending Feb. 5 could see a continuance of the string of negative cash flows from the high yield asset class, such was not the case: high-yield mutual funds, with pockets and purses bursting, were handed another half a billion and change.

Sources told Prospect News that AMG Data Services had reported that high-yield mutual funds enjoyed an inflow of $503.5 million for the week ending Feb. 5. That inflow snaps a streak of two consecutive outflows from the funds.

TRW Automotive priced the roadhog deal of the Feb. 3 week on Thursday, with an upsized four-part $1.575 billion transaction comprised entirely of 10-year non-call-five notes. The offering was increased from $1.4 billion.

The Livonia, Mich.-based auto parts firm priced $925 million (increased from the projected $700-$800 million) of senior notes (B1/B+/B+) at par to yield 9 3/8%. Price talk was 9½% area. It also priced €200 million of senior notes (B1/B+/B+) at par to yield 10 1/8%. Price talk was 75 basis points behind the dollar-denominated senior notes.

TRW also priced $300 million of senior subordinated notes (B2/B+/B) at par to yield 11%. Price talk was 175-200 basis points behind the dollar-denominated senior notes. And €125 million of senior subordinated notes (B2/B+/B) priced at par to yield 11¾%. Price talk was 75 basis points behind the dollar-denominated senior subordinates.

The bookrunners were JP Morgan, Credit Suisse First Boston, Lehman Brothers, Deutsche Bank Securities and Banc of America Securities.

Including the euro tranches, TRW's deal is slightly bigger than the $1.495 billion that Georgia-Pacific Corp. raised from junk investors on Jan. 23. The previous biggest deal before that was $1.75 billion from Charter Communications in January 2001.

"We had been seeing some back-up in the market but the way the TRW deal was executed shows that people still have money that they're willing to work," said one sell-side official, alluding to its upsizing and the pricing of the deal's various tranches tighter than the price talk

Also pricing Thursday was Cinemark USA's $150 million of 10-year senior subordinated notes (B3/B-). They came at par to yield 9%, spot on to the 9% area talk. Lehman Brothers was bookrunner.

As the TRW Automotive mastodon marched away sated from the primary market, one more mammoth reached out to tear off some extra green. Crown Cork & Seal upsized and restructured its deal on Thursday while canceling its proposed $250 million convertible bond offering. The bond piece was increased to $2.05 billion from $1.75 billion, and the company added a euro tranche.

Price talk is for a yield in the 9½% area on $1.2-$1.35 billion of eight-year non-call-four senior secured second lien notes due 2011 (B1/CCC+). A tranche of €200-€300 million eight-year non-call-four senior secured second lien notes (B1/CCC+) is talked at 75 basis points behind the dollar-denominated second lien notes. And $500-$625 million of 10-year non-call-five third lien notes (B1/CCC) are being talked at 150 basis points behind the second lien dollar-denominated notes.

The deal, from Salomon Smith Barney and Deutsche Bank Securities, is set to price next week.

In addition to the Crown Cork upsizing, Citgo Petroleum Corp. announced it would bring $550 million of eight-year senior notes via Credit Suisse First Boston. The roadshow starts Monday, and the deal - proceeds from which will be used to fund a dividend to parent PDV America, Inc. to redeem bonds due in 2003 - figures to price before the end of next week. The parent corporation is ailing as a result of negative effects suffered in the general strike that began in Venezuela on Dec. 2, 2002.

Also on Thursday, a rapidly marketed offering from Mandalay Resort Group of $300 million of senior notes due 2013 (expected: Ba2/BB+) appeared, with pricing set for Friday, via Salomon Smith Barney, Banc of America Securities, Deutsche Bank Securities and Merrill Lynch.

When the new TRW notes were freed for secondary dealings, they "did very well," a trader declared, quoting the new 9 3/8% notes due 2013 as having firmed to 101.25 bid/103.25 offered, while its 11% notes due 2013 pushed up to 102.5 bid/103, both from their par issue price.

Rite Aid Corp.'s new 9½% notes due 2011, which priced Wednesday at par and then moved up to around 100.75 bid late in Wednesday's session, "came in a little from the morning, but really no big deal," a trader said, quoting the bonds Thursday at 100.375 bid/100.625 offered.

And HCA Inc.'s new split-rated 6¼% notes due 2013 were heard to have firmed up to about 101 bid from Wednesday's issue price at 99.346.

Back among the established bonds, Goodyear "got crushed," the trader said, quoting its 7.857% notes due 2011 as having fallen as low as slightly below 60 bid for round-lot trades and into the upper 50s for odd-lot dealings, before ending bid around 61-61.5, down about six or seven points on the session - and those bonds had lost an additional four points on Wednesday.

Akron, Ohio-based Goodyear said early Thursday that it was in talks with its lenders, hoping to get their approval for modifications to covenants in its credit facilities.

Goodyear said the lenders have already given it waivers until March 7 to comply with certain covenants that would have required the company to contribute approximately $500 million to its pension plans in excess of federally mandated requirements. Those covenants also would have required Goodyear to maintain a minimum net worth - which could be impacted by non-cash adjustments for minimum pension provisions or by a valuation allowance related to domestic deferred tax assets.

Under those waivers, Goodyear continues to have full access to approximately $1.1 billion in two revolving credit facilities, as well as access to about $700 million of other credit lines not covered by the talks, plus $600 million in cash on hand.

The giant tiremaker also disclosed Thursday that its lenders had agreed in December to amend a credit line for its accounts receivable facility, extending the expiration date to this coming December from this month and agreeing to lower the minimum credit rating required by one notch to BB-/Ba3 from BB/Ba2.

Despite that relatively positive news on the bank debt front, Goodyear's shares, which had already fallen 30% in the first part of the week, declined another 10 cents (2.72%) Thursday to $3.57 in New York Stock Exchange dealings.

Elsewhere, Gap Inc. reported that same-store sales jumped 16% in January from year-earlier levels - the fourth straight month in which the San Francisco-based clothing retailer's year-over-year performance has improved and the biggest gain yet in its turnaround. The same-store sales figures (sometimes called comparable-stores results) are seen as the key measure of a retailer's performance, since they exclude results from stores which were not open at the same time the year before. Analysts had been looking for an increase of only about 5%.

By contrast, other retailers' same-store figures were generally soft, and some, like J. Crew Group Inc., were downright distressing, with Crew's same-stores falling 19%.

Gap's stylish January results pushed its bonds up a bit, although there was no great jump - certainly nowhere near 16%. Perhaps this was because the momentum from the previous three months of the turnaround has already carried the bonds up to or above par levels, or perhaps because participants realized that as glitzy as the 16% increase sounded, Gap's February 2002 sales - still reeling from the impact of 9/11, which saw the complete destruction of two busy Gap-owned stores in the World Trade Center shopping concourse - were so low as to present little difficulty in beating them.

Whatever the reason, a trader quoted Gap's 5 5/8% notes due 2003 unchanged at par bid/101 offered, and saw about a point of improvement in its 6.90% notes due 2007 and its 8.80% notes due 2008 to 99.5 bid and 111 bid, respectively. Gap's 8.15% notes due 2005 rose to 107 bid from prior levels around 105.5.

Gap - which operates the eponymous Gap stores as well as the Old Navy and Banana Republic chains - raised its earnings estimate for the quarter just ended on Sunday to between 23 cents and 29 cents per share - up from the 16 cents analysts have been predicting.

Gap's shares were up 55 cents (3.67%) Thursday to $15.53 on NYSE volume of 22 million, more than triple the norm.

The trader saw retailers otherwise quiet, with Saks Fifth Avenue's 8¼% notes due not much changed around 97.5 bid/99.5 offered, after an attempt to take the bonds higher fizzled at 98. Its 7¼% notes due 2004 were "still bid for" in the 100.5-101 bid range.

Saks reported a 2.1% fall in January same stores.

And while the shares of Michaels Stores slid $7.08 (21.56%) to $25.76 after the crafts retailer issued disappointing earnings guidance, the trader said its 10 7/8% notes were little changed at about 110 bid/112 offered, despite the news; those bonds, he noted "had been bought and then pretty much put away."

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